EXHIBIT 10.26
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Smurfit-Stone Container Corporation Letterhead
January 4, 2002
Xx. Xxx Xxxxxx
00 X. Xxxxxxxx Xxxxx
Xxx. #000
Xxxxxxx, XX 00000
Dear Xxx:
The following Letter Agreement is to confirm our agreement on the termination of
the Employment Agreement between Smurfit-Stone Container Corporation (the
"Company") and you dated as of April 1, 1999 (the "Employment Agreement"). It is
understood and agreed that you will retire from your positions of President and
Chief Executive Officer and as a Director of the Company, effective as of
January 4, 2002 (the "Retirement Date"), and that, except as expressly stated
herein, the Employment Agreement shall be deemed to be terminated as of such
date. At the Company's request, you shall execute any and all documents
reasonably necessary to confirm your resignation as an officer and director of
the Company and its subsidiaries. The following provisions have been agreed
between the Company and you in connection with your resignation and the
termination of the Employment Agreement:
1. Cancellation and Termination of Employment Agreement. Within 10 days
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following the Retirement Date (or if later, within 10 days following the
date of this letter), the Company shall pay to you in U.S. dollars an
amount equal to the aggregate of the following:
(a) Three (3) times your current annual base salary of $1,325,000; plus
(b) Three (3) times $1,275,000, the amount of the award paid to you for
2000 under the Management Incentive Plan of the Company (in cash);
plus
(c) Three (3) times the amount reimbursed to you by the Company for
financial planning services and tax return preparation during 2001;
plus
(d) Four hundred thousand dollars ($400,000).
This payment shall be in consideration for your agreement to cancel your
Employment Agreement. The Company has no reason to believe that the Company
will undergo a change-in-control within the meaning of Code Section 280G
and as a result no payments hereunder should be subject to the excise tax
described in Section 6(c) of the Employment Agreement. Notwithstanding the
foregoing, if such payments shall
Xx. Xxx Xxxxxx
January 4, 2002
Page 2
ultimately be determined to be subject to the excise tax, the Company shall
pay to you a Gross Up Payment (as defined in the Employment Agreement).
2. Pending Salary and Other Items. The Company shall pay any accrued and
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unpaid salary to which you are entitled as of the Retirement Date in
accordance with normal payroll practices (it being understood and agreed
that you have no accrued and unused vacation or other paid leave as of the
Retirement Date). Concurrently with the payment of the amount required
under Section 1, the Company shall pay your 2001 Management Incentive Award
at an amount equal to 40% of your current salary, or $530,000, in cash. The
Company shall reimburse you for all unpaid business expenses incurred by
you if submitted to the Chief Financial Officer of the Company within 30
days following the Retirement Date in accordance with Company policy. All
perquisites currently supplied to you by the Company, such as club dues and
a car, facsimile, and telephone in Ireland, will be provided for the
duration of the Consulting Agreement.
3. Continuation of Benefits. For a period of three (3) years following the
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Retirement Date (the "Benefit Continuation Period"), the Company shall
continue in force all Company-provided insurance coverage for you and your
spouse, including medical, dental, life and disability coverage, based on
your base salary as of the Retirement Date. If the continuation of any of
such coverage is impractical or legally prohibited, the Company shall
either purchase comparable coverage from third party providers reasonably
acceptable to you or pay you in cash the amount of premium the Company paid
for such coverage immediately prior to the Retirement Date. During the
Benefit Continuation Period, if you purchase long-term disability coverage
with after-tax dollars, the Company will reimburse you, at least annually,
for the amount of such premiums, up to an annual amount of after-tax
dollars you paid to purchase long-term disability coverage before the
Retirement Date.
4. Outplacement Service. The Company shall reimburse you for outplacement
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services incurred by you in the search for other employment, up to a
maximum of $50,000. At your option, the Company will pay your outplacement
service provider(s) directly, up to the maximum amount set forth in this
Section.
5. Pension. You shall continue to receive credit for continuous service under
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the Company's Pension Plan for Salaried Employees and the Company's
Supplemental Income Pension Plan III for three years following the
Retirement Date. It is understood and agreed that your aggregate pension
benefit under these plans will be offset by the pension benefit that you
receive from the retirement plan(s) of Jefferson Smurfit Group plc.
("JSG"). The Company presently estimates that your monthly pension benefit
from the Company's Pension Plan for Salaried Employees and the Company's
Supplemental Income Pension Plan III at age 60 will be approximately
$12,678 (assuming that you do not become eligible for social security in
the U.S.) over and above the approximately $25,000 monthly benefit you will
receive from JSG. You have not been designated as a participant in the
Company's Supplemental Income Pension Plan II, however, the
Xx. Xxx Xxxxxx
January 4, 2002
Page 3
Company agrees to establish for you a supplemental pension income program
that will purchase an annuity for you from an insurance company reasonably
acceptable to you, which will provide you with an annual benefit,
commencing on the Retirement Date, equal to the difference, if any, between
(i) $200,000, and (ii) the aggregate annual payments to you for each
corresponding year pursuant to the Company's Pension Plan for Salaried
Employees and the Company's Supplemental Income Pension Plan III. The
parties understand that you will not qualify for benefits under the
Company's pension plans until May 13, 2006, at the earliest, so for the
intervening period from the Retirement Date until then, the full $200,000 a
year will be provided in monthly payments of $16,667. US dollars. At your
option, in lieu of the annuity referred to in the immediately preceding
sentence, the Company will pay to you an amount, in cash, equal to the
premium it would otherwise have had to pay in order to purchase the
annuity.
6. Stock Options. All options to acquire common stock of the Company granted
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to you under the stock option plans of the Company and its predecessor,
will vest no later than the Retirement Date or such later date as you may
specify in writing within five days of this Letter Agreement. You will be
permitted to exercise such options at any time prior to the earlier of (i)
the expiration or other termination date of such options or (ii) the fifth
anniversary of the Retirement Date.
7. Consulting Agreement. The Company and you shall enter into a Consulting
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Agreement, effective as of the Retirement Date (the "Consulting Agreement")
on customary terms and conditions pursuant to which you shall provide
executive consulting services for the Company as requested by the Board of
Directors or the Chief Executive Officer at times mutually agreeable for a
period of three years following the Retirement Date. The Consulting
Agreement shall provide for an annual consulting fee of $2,200,000, payable
quarterly in arrears. During the Consulting Period, your attendance at the
Company's offices shall not be required. During the Consulting Period, you
agree to cooperate fully with the Company in any investigation,
negotiation, litigation or other action arising out of any transaction in
which you were involved or of which you had knowledge during your
employment by the Company, and will provide indemnification for any and all
actions taken by you in performance of consulting services under that
Agreement to the same extent indemnification is provided for actions taken
by you as a director or officer of the Company. Under no circumstances,
however, shall your obligation to the Company under this Section
unreasonably interfere with your consulting, employment or other
obligations to any third party.
8. Restrictive Covenants. The Restrictive Covenants set forth in Section 7 of
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the Employment Agreement shall apply to you for the term of the Consulting
Agreement, and shall be extended to apply to the European Community as well
as the United States.
9. Publicity and Nondisparagement. Both the Company and you shall publicly
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characterize the termination of the Employment Agreement and your
resignation as a retirement. You agree not to, directly or indirectly, make
any public disclosure or take any action to cause
Xx. Xxx Xxxxxx
January 4, 2002
Page 4
public disclosure that would be inconsistent with your resignation being
characterized as a retirement. You hereby consent to the public disclosure
of the contents of this Letter Agreement by the Company in accordance with
applicable laws and regulations governing disclosure of executive
compensation.
Without limiting the provisions of the Restrictive Covenants set forth in
Section 7 of the Employment Agreement, you further agree that you will not,
directly or indirectly, individually or in concert with others, engage in
any conduct or make any statement calculated or likely to have the effect
of undermining, disparaging or otherwise reflecting poorly upon the Company
or its good will, products or business opportunities, or in any manner
detrimental to the Company and any parent, subsidiary, affiliate or other
entity related to the Company, as well as its or their predecessors,
successors and assigns, shareholders, directors, officers, agents,
representatives, servants, and employees, past, present and future (the
"Company Parties") at any time following the Retirement Date. If you breach
this provision, you agree to indemnify the Company against all liability,
costs and expenses, including reasonable attorneys' fees, related to such
breach.
The Company Parties agree that the Company Parties will not, directly or
indirectly, individually or in concert with others, engage in any conduct
or make any statement calculated or likely to have the effect of
undermining, disparaging or otherwise reflecting poorly upon you, or in any
manner detrimental to you. If the Company Parties breach this provision,
the Company Parties agree to indemnify you against all liability, costs and
expenses, including reasonable attorneys' fees, related to such breach.
The provisions of this Section shall not apply to testimony as a witness,
compliance with other legal obligations, assertion of or defense against
any claim of breach of this Letter Agreement, and shall not require the
Company Parties or you to make false statements or disclosures.
10. Release. In consideration of the benefits and payment to be paid hereunder,
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you hereby release, forever discharge and hold harmless the Company
Parties, individually and collectively, from any and all claims, demands,
causes of action or liabilities, that you ever had, or now have, or that
your heirs, executors or administrators hereafter can, shall or may have
upon or by reason of any matter, cause or thing whatsoever, whether known
or unknown, suspected or unsuspected, arising out of or in any way
connected with your employment and/or separation from the Company. Without
limiting the generality of the foregoing, this release applies to any right
that you have or may have to commence or maintain a charge or action
alleging discrimination under any federal, state or local statute (whether
before a court or an administrative agency), and any right that you have or
may have to commence or maintain a claim or action alleging wrongful
termination, breach of contract, commission of tort, or any combination
thereof, whether based in law or in equity. You agree not to make, assert
or maintain any charge, claim, demand or action that would be covered by
this release. If you breach this provision, you agree to
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January 4, 2002
Page 5
indemnify the Company against all liability, costs and expenses, including
reasonable attorneys' fees, related to such breach.
The Company Parties hereby release, forever discharge and hold you and your
heirs, executors or administrators harmless from any and all claims,
demands, causes of action or liabilities, that the Company Parties ever
had, or now have, or that hereafter can, shall or may have upon or by
reason of any matter, cause or thing whatsoever, whether known or unknown,
suspected or unsuspected, arising out of or in any way connected with your
employment and/or separation from employment. Without limiting the
generality of the foregoing, this release applies to any right that you
have or may have to commence or maintain a charge, action or claim for
benefits under the Company's Supplemental Income Pension Plan II. Except as
provided in the preceding sentence, this Section 10 shall not apply to (i)
actions or claims to enforce this Letter Agreement or the Consulting
Agreement, (ii) claims for indemnification that is required to be provided
to you by the Company under Sections 7 or 11 or pursuant to the Consulting
Agreement, or (iii) claims you may have now or in the future arising out of
or relating to any benefit, retirement, pension or other similar
employment-related plans or benefits to which you are or may become
entitled as a result of your employment with the Company or any of its
affiliates or predecessor entities. The Company Parties agree not to make,
assert or maintain any charge, claim, demand or action that would be
covered by this release. If the Company Parties breach this provision, the
Company Parties agree to indemnify you against all liability, costs and
expenses, including reasonable attorneys' fees, related to such breach.
11. Indemnification and Insurance. The Company shall continue to indemnify you
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and provide applicable directors' and officers' liability insurance
coverage (including, where required, legal defense) to the same extent it
indemnifies and provides liability insurance coverage to officers of the
Company.
12. Legal Fees. The Company will pay the reasonable attorneys' fees and actual
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out-of-pocket expenses of your legal advisors incurred in connection with
negotiating this Letter Agreement, not to exceed $25,000.00, which amount
will be in addition to any payments described elsewhere in this Agreement,
upon submission of invoices for such fees and expenses.
13. Office Support. The Company shall continue to employ Xx. Xxxxx Xxxxxxxx at
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an annual salary of $82,500 until the earlier of (i) three years from the
Retirement Date, or (ii) the date you begin employment with another
employer in Chicago that provides office space and support and by whom Xx.
Xxxxxxxx is also employed, during which time Xx. Xxxxxxxx will report to
you, and will not be required to report to the offices of the Company.
14. Relocation Expenses. The Company shall reimburse you for the reasonable
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expenses of relocating your personal residence and belongings from Chicago,
Illinois, incurred within
Xx. Xxx Xxxxxx
January 4, 2002
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one year of the Retirement Date, if required by your new employment, up to
a maximum of $150,000.00.
15. Tax Matters. The Company agrees to cooperate with you to structure the
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payments made under this Letter Agreement in a manner most tax effective to
you, provided the Company is not economically disadvantaged or legally at
risk by such structure.
16. Entire Agreement and Interpretation. This Letter Agreement and Section 7 of
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the Employment Agreement as modified herein constitute the entire agreement
of the parties with respect to the subject matter hereof, and may not be
modified except by a writing signed by you and the Chairman of the Board or
Chief Executive Officer of the Company. 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.
The parties both agree to submit to jurisdiction and venue in the Courts of
Cook County, Illinois. All dollar amounts referred to in this Letter
Agreement are in United Stated currency.
17. Acknowledgements. By signing this Agreement, you expressly acknowledge and
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agree that:
(a) you have read and fully understand the terms of this Letter Agreement;
(b) the payments and benefits described above are significantly more
valuable than any payments or benefits you would otherwise be entitled
to receive;
(c) you have been advised to consult with and have consulted with an
attorney, Xxxxxxx Xxxxx, prior to signing this Letter Agreement;
(d) each party has cooperated in the preparation of this Letter Agreement
and, as a result, this Letter Agreement shall not be construed against
any party on the basis that the party was the draftsperson; and
(e) you have knowingly and voluntarily entered this Letter Agreement,
without any duress, coercion or undue influence by anyone.
18. Counterparts. This Agreement may be signed in single or separate
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counterparts, each of which shall constitute an original.
Xx. Xxx Xxxxxx
January 4, 2002
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If the foregoing accurately sets forth our understanding, please execute
the enclosed copy of this letter and return it to the Secretary of the
Company.
Sincerely yours,
SMURFIT-STONE CONTAINER CORPORATION
By /s/ M.W.J. Smurfit
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Chairman of the Board
ACCEPTED AND AGREED AS
OF JANUARY 4, 2002
/s/ Xxx X. Xxxxxx
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Xxx X. Xxxxxx
