SEVERANCE AND CHANGE OF CONTROL AGREEMENT





         THIS AGREEMENT is made as of January 23, 2003 by and between Packaging

Dynamics Corporation (the "Company") and Phil Harris (the "Executive").



         The parties hereto, intending to be legally bound hereby, agree as

follows:



         1. Position and Compensation. The Executive currently is serving as

President and Chief Executive Officer of the Company and is receiving the

following compensation (the "Compensation") for his services: (a) the base

salary in effect on the date hereof (which amount may be increased as the

Company may determine and such increased rate of base salary shall thereafter

constitute the Executive's base salary for all purposes of this Agreement), (b)

an annual performance bonus under the Company's Senior Management Incentive

Compensation Plan equal to the percentage (in effect on the date hereof) of the

Executive's base salary, and (c) participation in all of the Company's employee

benefits plans, including without limitation, retirement and pension plans,

incentive compensation plans (including the 2002 Long-term Incentive Stock

Plan), life insurance plans, dental plans, medical plans and automobile

allowance plans which are, from time to time, made available by the Company to

its executive officers, subject to the terms of such plans, with the Executive's

participation to be on terms no less favorable to the Executive than the terms

provided to other similar executives.



         2. Compensation Upon Termination. The Executive shall be entitled to

the following Compensation from the Company upon termination of employment:



            (a) Termination for "Cause" or without "Good Reason". In the event

of a termination of the Executive's employment by the Company for "Cause" or by

the Executive without "Good Reason", the Executive shall be entitled to receive

the Compensation specified in Section 1 through the date of termination plus any

unpaid performance bonus for any prior fiscal year.



            (b) Upon Termination "Without Cause" or for "Good Reason". In the

event that the Executive's employment is terminated by the Company "Without

Cause" or by the Executive for "Good Reason", then the Executive shall be

entitled to receive:



                 (i) Compensation due the Executive through the date of

termination (including, without limitation, any unpaid



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performance bonus for the prior fiscal year);



                 (ii) a lump sum payable on the date of termination equal to (A)

one (1) times the sum of the Executive's base salary and target bonus, each as

in effect immediately prior to the date of termination (or, if higher, in effect

immediately prior to the first occurrence or circumstance constituting Good

Reason), or (B) two (2) times the sum of such amounts if such termination occurs

on or after a Change Of Control and on or before the second anniversary date of

such Change Of Control;



                 (iii) the continuation for the Executive and his dependents of

the medical and dental benefits described in Section 1(c) or the provision of

equivalent benefits until the earlier of (x) the first anniversary of the date

of termination (or the second anniversary of such date if such termination

occurs on or after a Change Of Control and on or before the second anniversary

date of such Change Of Control) or (y) with respect to the medical benefits, the

date upon which the Executive begins to be covered by medical insurance with a

new employer; provided, that the Executive's medical coverage with the Company

shall be discontinued upon subsequent employment only to the extent that any

pre-existing medical conditions are covered under the new employer's medical

plan (for purposes of determining the period of continuation coverage to which

the Executive or any of his dependents is entitled pursuant to Section 4980B of

the Code (or any successor provision thereto) under any group health plan

maintained by the Company or its Affiliates, the Executive shall be considered

to have remained employed until the termination of the above-described

coverage);



                 (iv) if such termination occurs on or after (or within close

proximity of) a Change Of Control, the acceleration of vesting under the

Company's 2002 Long-Term Incentive Stock Plan; and



                 (v) if such termination occurs on or after (or within close

proximity of) a Change Of Control, outplacement services for a period of one (1)

year, or, if earlier, until the first acceptance by the Executive of an offer of

employment, in an amount not to exceed $25,000.



         3. No Mitigation. The Executive shall not be required to mitigate the

amount of any payment provided for in this Agreement in connection with or

following termination of employment by seeking other employment or otherwise,

nor shall any amounts provided herein be reduced by any compensation earned by

the Executive as the result of employment by another employer after termination

of the Executive's employment hereunder.



         4. Non-Compete Covenants. (a) In consideration of the premises and the

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