Document:

Exhibit
10.2

 

Employment Agreement of Steven J. Klinger

This Employment Agreement (the “Agreement”) is
effective as of May 11, 2006 (the “Effective Date”), by and between
Smurfit-Stone Container Corporation (the “Company”) and Steven J. Klinger (the “Executive”).

WHEREAS, the Company desires to employ the Executive
as its President and Chief Operating Officer.

NOW, THEREFORE, in consideration of the mutual terms,
covenants and conditions stated in this Agreement, the Company and the
Executive hereby agree as follows:

1.             Employment.
The Company hereby employs the Executive and the Executive hereby accepts
employment with the Company as President and Chief Operating Officer of the
Company. During the Employment Term (as hereinafter defined), Executive will
have the title, status and duties of President and Chief Operating Officer of
the Company and will report directly to the Company’s  Chairman and Chief Executive Officer.

2.             Term of
Employment. The term of employment (“Employment Term”) will
commence on the Effective Date, and will continue thereafter until two years
from the Effective Date and will be automatically extended for subsequent one (1) day
periods for each day of the Employment Term that passes after the Effective
Date, unless sooner terminated by either party in accordance with the
provisions of this Agreement. The intent of the foregoing provision is that the
Agreement becomes “evergreen” on the Effective Date so that on each passing day
after the Effective Date the Employment Term automatically extends to a full
two-year period.

3.             Duties.
During the Employment Term:

(a)           The Executive will perform duties
assigned by the Company’s Chairman and Chief Executive Officer or the Company’s
Board of Directors (the “Board”), from time to time; provided that the
Executive shall not be assigned tasks inconsistent with those of President and
Chief Operating Officer of the Company.

(b)           The Executive will devote his full
time and best efforts, talents, knowledge and experience to serving as the
Company’s President and Chief Operating Officer. However, the Executive may
devote reasonable time to activities such as supervision of personal
investments and activities involving professional, charitable, educational,
religious and similar types of activities, speaking engagements and membership
on other boards of directors, provided such activities do not interfere in any
material way with the business of the Company; provided  that, the
Executive cannot serve on the board of directors of more than one
publicly-traded company without the Board’s written consent. The time involved
in such activities shall not be treated as vacation time. The Executive shall
be entitled to keep any amounts paid to him in connection with such activities
(e.g., director fees and honoraria).

 

(c)           The Executive will perform his duties
diligently and competently and shall act in conformity with Company’s written
and oral policies and within the limits, budgets and business plans set by the
Company. The Executive will at all times during the Employment Term strictly
adhere to and obey all of the rules and regulations in effect from time to
time relating to the conduct of executives of the Company. Except as provided
in (b) above, the Executive shall not engage in consulting work or any
trade or business for his own account or for or on behalf of any other person,
firm or company that competes, conflicts or interferes with the performance of
his duties hereunder in any material way.

4.             Compensation and Benefits.
During Executive’s employment hereunder, Company shall provide to Executive,
and Executive shall accept from Company as full compensation for Executive’s
services hereunder, compensation and benefits as follows:

(a)           Base Salary. The Company shall
pay the Executive an annual base salary (“Base Salary”) of seven hundred fifty
thousand dollars ($750,000). The Board, or such committee of the Board as is
responsible for setting the compensation of senior executive officers, shall
review the Executive’s performance and Base Salary annually and determine
whether to adjust the Executive’s Base Salary on a prospective basis. The first
review shall be in the first quarter of 2007. Such adjusted annual salary then
shall become the Executive’s “Base Salary” for purposes of this Agreement. The
Executive’s annual Base Salary shall not be reduced after any increase, without
the Executive’s consent. The Company shall pay the Executive’s Base Salary
according to payroll practices in effect for all senior executive officers of
the Company.

(b)           Incentive Compensation. The
Executive shall be eligible to participate in any annual performance bonus
plans, long-term incentive plans, and/or equity-based compensation plans
established or maintained by the Company for its senior executive officers,
including, but not limited to, the Management Incentive Plan and the
Smurfit-Stone Container Corporation 2004 Long-Term Incentive Plan. The Board
(or appropriate Board committee) will determine and communicate to the
Executive his annual incentive plan participation for subsequent fiscal years,
no later than May 31 of such fiscal year.

(c)           Executive Benefit Plans. The
Executive will be eligible to participate on substantially the same basis as
the Company’s other senior executive officers in any executive benefit plans
offered by the Company including, medical, dental, short-term and long-term
disability, life, qualified pension and 401(k), and nonqualified pension and
deferred compensation arrangements. The Company reserves the right to modify,
suspend or discontinue any and all of the plans, practices, policies and
programs at any time without recourse by the Executive, so long as Company
takes such action generally with respect to other similarly situated senior
executive officers.

(d)           Perquisites. The Company shall
provide to the Executive such perquisites as are provided to other senior
executive officers.

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(e)           Business Expenses. The Company
shall reimburse the Executive for all reasonable and necessary business
expenses incurred in the performance of services with the Company, according to
Company’s policies and upon Executive’s presentation of an itemized written
statement and such verification as the Company may require.

5.             Payments
on Termination of Employment.

(a)           Termination of Employment for any
Reason. The following payments will be made upon the Executive’s
termination of employment for any reason:

(i)            Earned but unpaid Base Salary
through the date of termination;

(ii)           Any annual incentive plan bonus, or
other form of incentive compensation, for which the performance measurement
period has ended, but which is unpaid at the time of termination;

(iii)          Any accrued but unpaid vacation;

(iv)          Any amounts payable under any of the
Company’s executive benefit plans in accordance with the terms of those plans,
except as may be required under the Internal Revenue Code and the rules and
regulations thereunder (the “Code); and

(v)           Unreimbursed business expenses
incurred by the Executive on the Company’s behalf.

(b)           Voluntary Termination of
Employment for Other Than Good Reason. In addition to the amounts
determined under (a) above, if the Executive voluntarily terminates
employment for other than Good Reason, then in addition to the amounts
determined under (a) above, the Executive shall be entitled to a pro rata
portion of the target bonus under the Company’s annual incentive plan for the
year in which such termination occurs.

(c)           Termination of Employment for
Death or Disability. In addition to the amounts determined under (a) above,
if the Executive’s termination of employment occurs by reason of death or
Disability, the Executive (or his estate) will receive a pro rata portion of
any bonus payable under the Company’s annual incentive plan for the year in
which such termination occurs determined based on the highest of (i) the
actual annual bonus paid for the fiscal year immediately preceding such
termination, (ii) the target bonus for the fiscal year in which such
termination occurs, or (iii) the actual bonus attained for the fiscal year
in which such termination occurs. For purposes of this Agreement, “Disability”
means the Executive’s long-term disability as defined under the Company’s
long-term disability plan, or if the Executive is not covered by a long-term
disability plan sponsored by the Company, the Executive’s inability to engage
in any substantial gainful activity by reason of any medically-determined
physical or mental 

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impairment that can be expected to result in death or
to be of long-continued and indefinite duration.

(d)           Termination by the Company Without
Cause, or Voluntary Termination by the Executive for Good Reason. If the
Company terminates the Executive’s employment other than for Cause, or the
Executive voluntarily terminates his employment for Good Reason, in addition to
the benefits payable under (a), the Company will pay the following amounts and
provide the following benefits:

(i)            The Base Salary and annual bonus
that the Company would have paid under the Agreement had the Executive’s
employment continued to the end of the Employment Term. For this purpose, annual
bonus will be determined as the highest of (A) the actual bonus paid for
the fiscal year immediately preceding such termination, (B) the target
bonus for the fiscal year in which such termination occurs, or (C) the
actual bonus attained for the fiscal year in which such termination occurs.

(ii)           Continued coverage under the Company’s
medical, dental, life, disability, pension, profit sharing and other executive
benefit plans through the end of the Employment Term, at the same cost to the
Executive as in effect on the date of the Executive’s termination. If the
Company determines that the Executive cannot participate in any benefit plan
because he is not actively performing services for the Company, the Company may
provide such benefits under an alternate arrangement, such as through the
purchase of an individual insurance policy that provides similar benefits or,
if applicable, through a nonqualified pension or profit sharing plan. To the
extent that the Executive’s compensation is necessary for determining the
amount of any such continued coverage or benefits, such compensation (Base
Salary and annual bonus) through the end of the Employment Term shall be at the
highest rate in effect during the 12-month period immediately preceding
the Executive’s termination of employment.

(iii)          The Company will provide the Executive
with reimbursement for club dues on the same basis on which the Executive was
receiving such reimbursement prior to his employment termination through the
end of the Employment Term; and the Company will bear the cost of such
reimbursement, at the same level in effect immediately prior to the Executive’s
employment termination. Reimbursement otherwise receivable by the Executive
pursuant to this paragraph shall be reduced to the extent comparable benefits
are actually received by or made available to the Executive without cost during
the 24 month period following the Executive’s employment termination. The
Executive shall report to the Company any such benefits actually received by or
made available to the Executive.

(iv)          The period through the end of the
Employment Term shall continue to count for purposes of determining the
Executive’s age and service with the Company with respect to (A) eligibility,
vesting and the amount of 

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benefits under the
Company’s executive benefit plans, and (B) the vesting of any outstanding
stock options, restricted stock or other equity-based compensation awards.

(v)           The Company will provide the
Executive with reimbursement for such outplacement services as may be selected
by the Executive, not to exceed the amount of reimbursement as is customary for
similarly situated executives of the Company.

(e)          Good Reason. For purposes of
this Agreement, “Good Reason” shall mean the occurrence of any of the following
without the Executive’s consent:  (i) assigning
duties to the Executive that are materially inconsistent with those of the
position of President and Chief Operating Officer for similar companies in
similar industries (except to the extent the Company promotes the Executive to
a higher executive position); (ii) requiring the Executive to report to
other than the Company’s Chairman and Chief Executive Officer or the Company’s
Board; (iii) the failure of the Company to pay any portion of the
Executive’s compensation within 10 days of the date such compensation is due;
or (iv) (A) during the 24 month period beginning as of the effective
date of this Agreement that the Company and the Executive have agreed that the
Executive need not relocate his primary residence from Atlanta, Georgia, or
such longer period as the Company and the Executive may agree to, the Company
requires that the Company relocate his primary residence from Atlanta, Georgia
and (B) thereafter, the Company requires the Executive to relocate his
principal business office to a location not within 50 miles of either the
Company’s principal business office located in the St. Louis, Missouri
metropolitan area, or the Company’s principal business office located in the
Chicago, Illinois metropolitan area (provided, that, the Company’s requiring
the Executive to relocate his principal office from Chicago to St. Louis, or
from St. Louis to Chicago, will not constitute Good Reason); or (v) the
Company’s failure to continue in effect any cash or stock-based incentive or
bonus plan, pension plan, welfare benefit plan or other benefit plan, program
or arrangement, unless the aggregate value of all such arrangements provided to
the Executive after such discontinuance is not materially less than the
aggregate value as of the Effective Date. The Executive’s termination for a
Good Reason under clause (i) or (ii) above must be preceded by
written notice to the Company and an opportunity to cure the alleged
deficiencies. For purposes of this paragraph, “Company” shall mean the Company
and, following any Change in Control, the Surviving Corporation or, if
applicable, the Parent Corporation (as those terms are defined in Section 6(d)).

(f)            Cause. For purposes of this
Agreement, “Cause” shall mean the Executive’s: 
(i) willful and continued failure to substantially perform his
duties as an executive of the Company (other than any such failure resulting
from incapacity due to physical or mental illness) after a written demand for
substantial performance is delivered to the Executive by the Board, which
demand specifically identifies the manner in which the Board believes that the
Executive has not substantially performed his duties, and which gives the
Executive at least 30 days to cure such alleged deficiencies, (ii) willful
misconduct, which is demonstrably and materially injurious to the Company,
monetarily or otherwise, or (iii) engaging in egregious misconduct
involving serious moral turpitude 

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to the extent that his
creditability and reputation no longer conforms to the standard of senior
executive officers of the Company.

(g)           Timing of Payments. All
payments described above shall be made in a lump sum cash payment as soon as
practicable (but in no event more than 10 days) following the Executive’s
termination of employment. If the total amount of annual bonus is not
determinable on that date, the Company shall pay the amount of bonus that is
determinable and the remainder shall be paid in a lump sum cash payment within
10 days of the date that annual performance results are finalized.

6.             Change in Control.

(a)           Payments and Benefits Upon
Employment Termination After a Change in Control. If within two years after
a Change in Control (as defined below), the Company terminates the Executive’s
employment other than for Cause, or the Executive voluntarily terminates his
employment for Good Reason, the Company will provide the following payments and
benefits to the Executive, in lieu of those payments and benefits provided
under Sections 5(c) or (d) above, but in addition to the amounts payable
under Section 5(a) above:

(i)            Two times the Executive’s Base
Salary as in effect on the date of the Executive’s termination of employment.

(ii)           Two times the highest of (i) the
average annual bonus paid for the two fiscal years immediately preceding the
Executive’s employment termination, (ii) the target bonus for the fiscal
year in which such termination of employment occurs, or (iii) the actual
bonus attained for the fiscal year in which such termination occurs.

(iii)          Continued coverage for a period of 24
months from the Executive’s termination under the Company’s medical, dental,
life, disability and other welfare benefit plans, at the same cost to the
Executive as in effect on the date of the Change in Control (or, if lower, as
in effect at any time thereafter). If the Company determines that the Executive
cannot participate in any benefit plan because he is not actively performing
services for the Company, the Company may provide such benefits under an
alternate arrangement, such as through the purchase of an individual insurance
policy that provides similar benefits. The amount of such continued coverage
shall be determined, if applicable, by adding 24 additional months of age and
service to the Executive’s actual age and service as of the Executive’s
termination date and as if the Executive earned compensation during such 24-month
period at the rate in effect during the 12-month period immediately
preceding his termination date. The Executive’s eligibility for any retiree
medical or life coverage following such termination date 

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shall also be determined
by adding 24 additional months of age and service to the Executive’s actual age
and service as of the termination date.

(iv)          The value of continued coverage for a
period of 24 months under any pension, profit sharing or other retirement plan
maintained by the Company. The value of such coverage under a tax qualified
plan may be provided through a nonqualified pension or profit sharing plan and
shall be determined by adding 24 additional months of age and service to the
Executive’s actual age and service at the date of the Executive’s termination
of employment and as if the Executive earned compensation during such 24-month
period at the rate in effect during the 12-month period immediately
preceding his termination date. In the case of a defined benefit pension plan,
such value shall include any early retirement subsidies to which the Executive
would have become entitled under the plan and shall be determined using the
actuarial factors set forth in such plan.

(v)           The Company will provide the
Executive with reimbursement for club dues on the same basis on which the
Executive was receiving such reimbursement prior to the Change in Control for
24 months following the Executive’s employment termination. The Company will
bear the cost of such reimbursement, at the same level in effect immediately
prior to the Change in Control. Reimbursement otherwise receivable by the
Executive pursuant to this paragraph shall be reduced to the extent comparable
benefits are actually received by or made available to the Executive without
cost during the 24 month period following the Executive’s employment
termination. The Executive shall report to the Company any such benefits
actually received by or made available to the Executive.

(vi)          Immediate vesting of all stock
options, restricted stock units and other equity-based awards.

(vii)         The Company will provide the Executive
with reimbursement for such outplacement services as may be selected by the
Executive, not to exceed the amount of reimbursement as is customary for
similarly situated executives of the Company.

(b)           Timing of Payment. All
payments under paragraphs (a)(i), (ii) and (iv) above, and paragraph (c) below,
shall be made in a lump sum cash payment as soon as practicable, but in no
event more than 10 days after the Executive’s termination of employment (or the
date of the Change in Control, if applicable). If the total amount of bonus is
not determinable on that date, the Company shall pay the amount of bonus that is
determinable, and shall pay the remainder in a lump sum cash payment within 10
days of the date that annual performance results are finalized.

(c) 
Gross-Up Payment by the Company. In the event that any payment, benefit
or distribution by or on behalf of the Company to or for the benefit of the
Executive (whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement or otherwise, but determined without regard to any
additional payments 

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required under this
Section) (the “Payments”) is (i) determined to be an “excess parachute
payment” pursuant to Code Section 280G or any successor or substitute
provision of     the Code, with the
effect that the Executive is liable for the payment of the excise tax described
in Code Section 4999 or any successor or substitute provision of the Code,
or (ii) determined to render the Executive liable for the payment of the
excise tax described in Code Section 409A or any successor or substitute
provision of the Code (such excise tax under such Section 409A or excise
tax under such Section 4999 being hereinafter referred to as an “Excise
Tax”), then the Company shall pay to the Executive an additional amount (the “Gross-Up
Payment”) such that the net amount retained by Executive, after deduction of
any Excise Tax on the total Payments and any federal, state and local income
and employment taxes and Excise Tax on the Gross-Up Payment, shall be equal to
the total Payments.

               (i)  All determinations
required to be made under this paragraph (c), and the assumptions to be
utilized in arriving at such determination, shall be made by the certified
public accounting firm used for auditing purposes by the Company immediately
prior to the Executive’s employment termination (the “Accounting Firm”), which
shall provide detailed supporting calculations both to the Company and the
Executive. The Company shall pay all fees and expenses of the Accounting Firm. Any
determination by the Accounting Firm shall be binding upon the Company and the
Executive, except as provided in subparagraph (ii) below.

               (ii) As a result of the
uncertainty in the application of Code Sections 280G and 4999 and Code Section 409A
at the time of the initial determination by the Accounting Firm hereunder, it
is possible that the Internal Revenue Service (“IRS”) or other agency will
claim that a greater or lesser Excise Tax is due. In the event that the Excise
Tax is finally determined to be less than the amount taken into account
hereunder in calculating the Gross-Up Payment, the Executive shall repay to the
Company, at the time that the amount of such reduction in Excise Tax is finally
determined, the portion of the Gross-Up Payment attributable to such reduction
(plus that portion of the Gross-Up Payment attributable to the Excise Tax and
federal, state and local income and employment taxes imposed on the Gross-Up
Payment being repaid by the Executive to the extent that such repayment results
in a  reduction in Excise Tax and/or a
federal, state or local income or employment tax deduction) plus interest on
the amount of such repayment at 120% of the rate provided in Code Section 1274(b)(2)(B).
In the event that the Excise Tax is determined to exceed the amount taken into
account hereunder in calculating the Gross-Up Payment (including by reason of
any payment the existence or amount of which cannot be determined at the time
of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment
in respect of such excess (plus any interest, penalties or additions payable by
the Executive with respect to such excess) at the time that the amount of such
excess is finally determined. The Executive and the Company shall each
reasonably cooperate with the other in connection with any administrative or
judicial proceedings concerning the existence or amount of liability for Excise
Tax with respect to the total Payments. The Company shall pay all fees and
expenses of the Executive relating to a claim by the IRS or other agency.

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(d)           Definition of Change in Control.
For purposes of the Agreement, a “Change in Control” of the Company will be
deemed to occur as of the first day that any one or more of the following
condition is satisfied:

(i)            The “beneficial ownership” (as
defined in Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”)) of securities representing more than 20 percent
(20%) of the combined voting power of the then outstanding voting securities of
the Company entitled to vote generally in the election of directors (the “Company
Voting Securities”) is accumulated, held or acquired by a Person (as defined in
Section 3(a)(9) of the Exchange Act, as modified, and used in
Sections 13(d) and 14(d) thereof) (other than the Company, any
trustee or other fiduciary holding securities under an employee benefit plan of
the Company or an affiliate thereof, any corporation owned, directly or
indirectly, by the Company’s stockholders in substantially the same proportions
as their ownership of stock of the Company); provided, however that any acquisition
from the Company or any acquisition pursuant to a transaction that complies
with clauses (A), (B) and (C) of subparagraph (iii) of this
paragraph will not be a Change in Control under this subparagraph (i), and
provided further, that immediately prior to such accumulation, holding or
acquisition, such Person was not a direct or indirect beneficial owner of 20
percent or more of the Company Voting Securities; or

(ii)           Individuals who, as of the date of
the Agreement, constitute the Board of Directors (the “Incumbent Board”) cease
for any reason to constitute at least a majority of the Board of Directors;
provided, however, that any individual becoming a director subsequent to the
date hereof whose election, or nomination for election by the Company’s
stockholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board will be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies
or consents by or on behalf of a Person other than the Board of Directors; or

(iii)          Consummation by the Company of a
reorganization, merger or consolidation, or sale or other disposition of all or
substantially all of the assets of the Company or the acquisition of assets or
stock of another entity (a “Business Combination”), in each case, unless
immediately following such Business Combination:  (A) more than 60% of the combined voting
power of then outstanding voting securities entitled to vote generally in the
election of directors of (x) the corporation resulting from such Business
Combination (the “Surviving Corporation”), or (y) if applicable, a
corporation that as a result of such transaction owns the Company or all or
substantially all of the Company’s assets either directly or through one or
more subsidiaries (the “Parent Corporation”), is represented, directly or
indirectly by Company Voting Securities outstanding immediately prior to such
Business Combination (or, if applicable, is represented by shares into which
such Company Voting Securities were converted pursuant to 

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such Business
Combination), and such voting power among the holders thereof is in
substantially the same proportions as their ownership, immediately prior to
such Business Combination, of the Company Voting Securities, (B) no Person
(excluding any employee benefit plan (or related trust) of the Company or such
corporation resulting from such Business Combination) beneficially owns,
directly or indirectly, 20% or more of the combined voting power of the then
outstanding voting securities eligible to elect directors of the Parent
Corporation (or, if there is no Parent Corporation, the Surviving Corporation)
except to the extent that such ownership of the Company existed prior to the
Business Combination and (C) at least a majority of the members of the
board of directors of the Parent Corporation (or, if there is no Parent
Corporation, the Surviving Corporation) were members of the Incumbent Board at
the time of the execution of the initial agreement, or of the action of the
Board, providing for such Business Combination; or

(iv)          Approval by the Company’s stockholders
of a complete liquidation or dissolution of the Company.

However, in no
event will a Change in Control be deemed to have occurred, with respect to the
Executive, if the Executive is part of a purchasing group that consummates the
Change in Control transaction. The Executive will be deemed “part of a
purchasing group” for purposes of the preceding sentence if the Executive is an
equity participant in the purchasing company or group (except:  (i) passive ownership of less than two
percent (2%) of the stock of the purchasing company; or (ii) ownership of
equity participation in the purchasing company or group that is otherwise not
significant, as determined prior to the Change in Control by a majority of the
nonemployee continuing Directors).

7.             Restrictive
Covenants. In order to
protect the Company’s legitimate business interest and in exchange for the
mutual covenants contained in this agreement, including, but not limited to,
the Company’s employment of or continued employment of the Executive and the disclosure to the Executive of the Company’s Confidential Information as
defined below, the Executive and
the Company agree as follows:

(a)           Definitions. For purposes of
this Agreement, the following terms will be defined as follows:

(i)            “Confidential Information”
shall mean the Company’s trade secrets and all other information unique to the
Company and not readily available to the public, including developments,
designs, improvements, inventions, formulas, compilations, methods, strategies,
forecasts, software programs, processes, know-how, data, research, operating
methods and techniques, and all business plans, strategies, costs, profits,
customers, vendors, markets, sales, products, key personnel, pricing policies,
marketing, sales or other financial or business information, and any
modifications or enhancements of any of the foregoing.

(ii)           The term “Business Conducted by the
Company or any of its Affiliates” shall mean all businesses conducted by the
Company or any of its 

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Affiliates as of the
Effective Date, of whatever kind, within or outside of the United States.

(iii)          The term “Affiliates” shall mean (A) any
entity that directly or indirectly, is controlled by the Company, and (B) any
entity in which the Company has a significant equity interest.

(b)           Inventions or Developments. The
Executive agrees that he will promptly and fully disclose to the Company all
discoveries, improvements, inventions, formulas, ideas, processes, designs,
techniques, know-how, data and computer programs (whether or not patentable,
copyrightable or susceptible to any other form of protection), made, conceived,
reduced to practice or developed by the Executive, either alone or jointly with
others, during his employment with the Company (collectively, the “Inventions
or Developments”). All Inventions and Developments shall be the sole property
of the Company, including all patents, copyrights, intellectual property or
other rights related thereto and Executive assigns to the Company all rights
(if any) that the Executive may have or acquire in such Inventions or
Developments.

Notwithstanding
the foregoing, any right of the Company or assignment by the Executive as
provided in this paragraph shall not apply to any Inventions or Developments
for which no equipment, supplies, facility or trade secret information of the
Company or its Affiliates were used and which were developed entirely on the
Executive’s own time, unless: (i) the Inventions or Developments relate to
the Business Conducted by the Company or any of its Affiliates or the actual or
demonstrably anticipated research or development of the Company or any of its
Affiliates; or (ii) the Inventions or Developments result from any work
performed by the Executive for the Company or any of its Affiliates.

(c)           Non-Disclosure of Confidential
Information, Inventions or Developments. The Executive acknowledges that he
will have access to Confidential Information or Inventions or Developments of
the Company and/or its Affiliates and agrees that he shall not, at any time
during or after his employment with the Company (and whether that termination
is voluntary or involuntary), directly or indirectly use, divulge, furnish or
make accessible to any person any Confidential Information or Inventions or
Developments, but instead shall keep all such matters strictly and absolutely
confidential.

(d)           No Diversion of Business
Opportunities and Prospects. The Executive agrees that during his
employment with the Company: (i) the Executive shall not directly or
indirectly engage in any employment, consulting or other business activity that
is competitive with the Business Conducted by the Company or any of its
Affiliates; (ii) the Executive shall promptly disclose to the Company all
business opportunities that are presented to the Executive in his capacity as
an employee of the Company or which is of a similar nature to the Business
Conducted by the Company or any of its Affiliates or which the Company or its
Affiliates have expressed an interest in engaging in the future; and (iii) the
Executive shall not usurp or take advantage of any such business opportunity
without first offering such opportunity to the Company.

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(e)           Actions Upon Termination. Upon
the Executive’s employment termination for whatever reason, the Executive shall
neither take or copy nor allow a third party to take or copy, and shall deliver
to the Company all property of the Company, including, but not limited to, all
Confidential Information or Inventions or Developments, regardless of the
medium (i.e., hard copy, computer disk, CD ROM)
on which the information is contained.

(f)            Non-Competition. The
Executive agrees that so long as he is employed by the Company and for a period
of two (2) years thereafter (the “Period”), he shall not, without the
prior written consent of the Company, participate or engage in, directly or
indirectly (as an owner, partner, employee, officer, director, independent
contractor, consultant, advisor or in any other capacity calling for the
rendition of services, advice, or acts of management, operation or control),
any business that, during the Period, is competitive with the Business
Conducted by the Company or any of its Affiliates within the United States,
Canada, Mexico, and China (hereinafter, the “Geographic Area”) and which
business the Company was engaged (either actively as a going concern or in the
process of developing to market) within the preceding two years of the
Executive’s employment with the Company.

(g)           Non-Solicitation of Employees.
The Executive agrees that, during the Period, he shall not, without the prior
written consent of the Company, directly or indirectly solicit any current
employee of the Company or any of its Affiliates, or any individual who becomes
an employee during the Period, to leave such employment and join or become
affiliated with any business that is, during the Period, competitive with the
Business Conducted by the Company or any of its Affiliates within the
Geographic Area.

(h)           Non-Solicitation of Suppliers or
Customers. The Executive agrees that, during the Period, he shall not,
without the prior written consent of the Company, directly or indirectly
solicit, seek to divert or dissuade from continuing to do business with or
entering into business with the Company or any of its Affiliates, any supplier,
customer, or other person or entity that had a business relationship with or
with which the Company was actively planning or pursuing a business
relationship at or before the date of termination of his employment.

(i)            Irreparable Harm. The
Executive acknowledges that: (i) the Executive’s compliance with this Section is
necessary to preserve and protect the Confidential Information, Inventions or
Developments and the goodwill of the Company and its Affiliates, all recognized
by the Executive as legitimate business interests of the Company and its
Affiliates, as going concerns; (ii) any failure by the Executive to comply
with the provisions of this Section will result in irreparable and
continuing injury for which there will be no adequate remedy at law; and (iii) in
the event that the Executive should fail to comply with the terms and
conditions of this Section, the Company shall be entitled, in addition to such
other relief as may be proper, to all types of equitable relief (including, but
not limited to, the issuance of an injunction and/or temporary restraining
order) as may be necessary to cause the Executive to comply with this Section,
to restore to the Company its property, and to make the Company whole.

 12
 

 

(j)            Survival. The provisions set
forth in this Section shall, as noted, survive termination of this
Agreement.

(k)           Forfeiture. If the Executive
violates any provision of this Section, the Executive will forfeit his right to
all payments and benefits under Section 5(d) and Section 6,
except to the extent otherwise provided by law.

(l)            Unenforceability. If any
provision(s) of this Section shall be found invalid or unenforceable,
in whole or in part, then such provision(s) shall be deemed to be modified
or restricted to the extent and in the manner necessary to render the same
valid and enforceable, or shall be deemed excised from this Agreement, as the
case may require, and this Agreement shall be construed and enforced to the
maximum extent permitted by law, as if such provision(s) had been
originally incorporated herein as so modified or restricted, or as if such
provision(s) had not been originally incorporated herein, as the case may
be.

8.             Indemnification.  Without limiting any indemnification or other
rights available to Executive under the charter or bylaws of the Company or any
other agreement between the Company and the Executive, if the Executive was, is
or becomes a party to or witness or other participant in, or is threatened to
be made a party to or witness or other participant in, any threatened, pending
or completed action, suit, proceeding, alternative dispute resolution
mechanism, inquiry, investigation or hearing, whether civil, criminal or
administrative, which arises by reason of or in part out of any event,
circumstance or occurrence that takes place either prior to or after the
execution of this Agreement related to the fact that the Executive is or was an
officer or director of the Company, or is or was serving at the request of the
Company as an officer, director, partner, employee, trustee, agent or fiduciary
of another corporation, partnership, joint venture, employee benefit plan,
trust or other enterprise, or by reason of anything done or not done by the
Executive in any such capacity (a “Claim”), then,  provided that the Executive acted in good
faith (as defined in Section 8.04 of the Second Amended and Restated
Bylaws of the Company, including the non-exclusivity provision thereof) and in
a manner reasonably believed to be in or not opposed to the best interests of
the Company, and, with respect to any criminal action or proceeding, had no
reason to believe that his conduct was unlawful, the Company shall indemnify
the Executive to the fullest extent not prohibited by law as soon as
practicable, but in any event no later than thirty days after written demand is
presented to the Company, against any and all expenses (including without
limitation reasonable attorneys’ fees, travel expenses, fees of experts and
filing fees), judgments, fines, penalties or amount paid in settlement
(including interest, assessments or other charges paid or payable in connection
therewith) (“Expenses”) of such Claim. The Company shall also make payment to
the Executive of any Expenses in advance of the settlement of or final judgment
in any action, suit, proceeding, alternative dispute resolution mechanism,
hearing, inquiry or investigation which constitutes a Claim. Notwithstanding
the foregoing, the Executive shall not be entitled to indemnification or advancement
of Expenses pursuant to this Agreement in connection with any Claim initiated
by the Executive against the Company or any director or officer of the Company
unless the Company has joined in or consented to the initiation of such Claim.

 13
 

 

9.             Assignment;
Successors. This Agreement shall inure to the benefit of and be
binding upon the Company and its successors. The Company may not assign this
Agreement without the Executive’s written consent, except that the Company’s
obligations under this Agreement shall be the binding legal obligations of any
successor to the Company by sale, and in the event of any transaction that
results in the transfer of substantially all of the assets or business of the
Company, the Company will use its best efforts to cause the transferee to
assume the obligations of the Company under this Agreement. The Executive may
not assign this Agreement during his life. Upon the Executive’s death this
Agreement will inure to the benefit of Executive’s heirs, legatees and legal
representatives of the Executive’s estate.

10.           Interpretation.
The laws of the State of Illinois shall govern the validity,
interpretation, construction and performance of this Agreement, without regard
to the conflict of laws principles thereof.

11.           Withholding. The
Company may withhold from any payment that it is required to make under this
Agreement amounts sufficient to satisfy applicable withholding requirements
under any federal, state or local law.

12.           Amendment or Termination.
This Agreement may be amended at any time by written agreement between the
Company and the Executive.

13.           Notices. Notices
given pursuant to this Agreement shall be in writing and shall be deemed
received when personally delivered, or on the date of written confirmation of
receipt by (i) overnight carrier, (ii) telecopy, (iii) registered
or certified mail, return receipt requested, addressee only, postage prepaid,
or (iv) such other method of delivery that provides a written confirmation
of delivery. Notice to the Company shall be directed to:

Smurfit-Stone
Container Corporation

150
North Michigan Avenue

Chicago,
Illinois 60610

Attention: 
General Counsel

The Company may change the person and/or address to
whom the Executive must give notice under this Section by giving the
Executive written notice of such change, in accordance with the procedures
described above. Notices to or with respect to the Executive will be directed
to the Executive, or to the Executive’s executors, personal representatives or
distributees, if the Executive is deceased, or the assignees of the Executive,
at the Executive’s home address on the records of the Company.

14.           Severability. If
any provisions(s) of this Agreement shall be found invalid or
unenforceable by a court of competent jurisdiction, in whole or in part, then
it is the parties’ mutual desire that such court modify such provision(s) to
the extent and in the manner necessary to render the same valid and
enforceable, and this Agreement shall be construed and enforced to the maximum
extent permitted by law, as if such provision(s) had been originally
incorporated herein as so modified or restricted, or as if such provision(s) had
not been originally incorporated herein, as the case may be.

 14
 

 

15.           Entire Agreement.
This Agreement sets forth the entire agreement and understanding between
the Company and the Executive and supersedes all prior agreements and
understandings, written or oral, relating to the subject matter hereof;
provided, however, that the terms of the letter agreement between the parties
dated May 11, 2006 shall be deemed to supplement this Agreement.

16.           Consultation With Counsel.
Executive acknowledges that he has had a full and complete opportunity to
consult with counsel of the Executive’s own choosing concerning the terms,
enforceability and implications of this Agreement, and the Company has made no
representations or warranties to the Executive concerning the terms,
enforceability or implications of this Agreement other than as are reflected in
this Agreement.

17.           No Waiver. No
failure or delay by the Company or the Executive in enforcing or exercising any
right or remedy hereunder shall operate as a waiver thereof. No modification,
amendment or waiver of this Agreement nor consent to any departure by the
Executive from any of the terms or conditions thereof, shall be effective
unless in writing and signed by the Chairman of the Company’s Board. Any such
waiver or consent shall be effective only in the specific instance and for the
purpose for which given.

18.           Effect on Other
Obligations. Payments and benefits herein provided to be paid to
the Executive by the Company shall be made without regard to and in addition to
any other payments or benefits required to be paid the Executive at any time
hereafter under the terms of any other agreement between the Executive and the
Company or under any other policy of the Company relating to compensation, or
retirement or other benefits. No payments or benefits provided the Executive
hereunder shall be reduced by any amount the Executive may earn or receive from
employment with another employer or from any other source. Contemporaneous with
Executive’s termination of employment for any reason, the Executive will resign
from all offices and positions the Executive may hold with the Company and any
Affiliates, and from the Board or the board of directors of any Affiliate, if
applicable.

19.           Survival. All
Sections of this Agreement survive beyond the Employment Term except as
otherwise specifically stated.

20.           Headings. The
headings in this Agreement are for convenience of reference only and shall not
limit or otherwise affect the meaning thereof.

21.           Counterparts. The
parties may execute this Agreement in one or more counterparts, all of which
together shall constitute but one Agreement.

IN WITNESS WHEREOF, the parties
have executed this Agreement effective as of the date first above written.

	
  

  	
   

  	
  SMURFIT-STONE CONTAINER CORPORATION

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  /s/ Steven J. Klinger

  	
   

  	
   

  	
   

  	
   

  
	
  STEVEN J. KLINGER

  	
   

  	
  By:

  	
   

  	
  /s/ Patrick J.
  Moore

  
	
   

  	
   

  	
   

  	
  Its:

  	
  Chairman,
  President and Chief Executive Officer

  

 

 15Exhibit
10.3

[Smurfit-Stone
Container Corporation Letterhead]

May 10, 2006

Mr. John M.
Riconosciuto

300 Oakwood Court

Wheaton, IL  60187

Dear John:

This letter will
set forth our understanding regarding the termination of the Employment
Agreement dated August 1, 2000 (the “Employment”) between Smurfit-Stone
Container Corporation (the “Company”) and you. It is understood and agreed that
you are voluntarily resigning as Chief Operating Officer, effective today, and
are assuming a management position with the purchaser of the Company’s Consumer
Packaging Division (the “Purchaser”).

The Employment
Agreement shall be terminated as of today, and all rights and obligations of
both the Company and you thereunder shall be considered fully and forever
released and discharged. Notwithstanding the termination of the Employment
Agreement, however, (a) you will remain on the payroll of the Company at
your current salary level and remain enrolled in all insurance plans as an
active employee until the earlier of the date of the closing of the sale of the
Consumer Packaging Division (the “Closing Date”) or June 30, 2006; and (b) provided
that the sale of the Consumer Packaging Division is completed on the general
terms presently contemplated, you will receive a payment on the Closing Date
equal to 50% of your current salary, subject to applicable withholdings. The
Company will also reimburse you for any incurred and unpaid business expenses
through the date hereof, provided that such expenses are submitted in
accordance with normal procedures prior to the Closing Date.

The 250,000
outperformance stock options granted to you on March 2, 2006, 87,500 of
the other stock options granted to you on March 2, 2006, the 50,000
restricted stock units granted to you on November 1, 2005, and 31,167 of
the restricted stock units granted to you on March 2, 2006 will be
forfeited on the date hereof. All other stock options and restricted stock
units held by you will be treated in the same fashion as stock options and
restricted stock units held by employees of the Consumer Packaging Division
that are employed by the Purchaser.

If the foregoing
accurately sets forth our understanding, please execute the enclosed copy of
the letter and return it to me.

	
  

  	
   

  	
  Sincerely yours,

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Smurfit-Stone Container
  Corporation

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
  /s/ Patrick J. Moore

  
	
   

  	
   

  	
   

  	
   

  	
  Patrick J. Moore

  
	
   

  	
   

  	
   

  	
   

  	
  Chairman, President and

  
	
   

  	
   

  	
   

  	
   

  	
  Chief Executive Officer

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ACCEPTED AND
  AGREED

  	
   

  	
   

  	
   

  	
   

  
	
  AS OF
  MAY 10, 2006

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  /s/ John M. Riconosciuto

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  John M.
  Riconosciuto

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