PACTIV CORPORATION CHANGE IN CONTROL
SEVERANCE BENEFIT PLAN FOR KEY EXECUTIVES
(THE "PLAN")
This Plan was established by Pactiv Corporation (the "Company") November 4, 1999
(the "Effective Date"). It is hereby amended and restated effective March 1,
2005. The purpose of the Plan is to induce key employees to enter into, or
continue their services or employment with, and to steadfastly serve the Company
if and when a Change in Control (as defined below) is threatened, despite
attendant career uncertainties, by committing the Company to provide severance
benefits in the event their employment terminates as a result of a Change in
Control.
1. Definitions.
A. "Change in Control" shall mean the first to occur of the
following events (but no event other than the following
events), except as otherwise provided herein:
(1) any person and any of their affiliates or associates
becomes the beneficial owner, directly or indirectly,
of securities of the Company representing twenty
percent (20%) or more of either the Company's then
outstanding shares of common stock or the combined
voting power of the Company's then outstanding
securities having general voting rights.
Notwithstanding the foregoing, a Change in Control
shall not be deemed to occur pursuant to this
paragraph solely because the requisite percentage of
the Company's then outstanding shares of common stock
or the combined voting power of the Company's then
outstanding securities having general voting rights
is acquired by one or more employee benefit plans
maintained by one or more Pactiv Companies; or
(2) members of the Incumbent Board cease to constitute a
majority of the Company Board; or
(3) the consummation of any plan of merger,
consolidation, share exchange or combination between
the Company and any person including without
limitation becoming a subsidiary of any other person
without members of the Incumbent Board, as
constituted immediately prior to the merger,
consolidation, share exchange or combination
constituting a majority of the board of directors of
(a) the surviving or successor corporation, or, (b)
if the surviving or successor corporation is a
majority-owned subsidiary of another corporation or
corporations, the ultimate parent company of the
surviving or successor corporation; or
(4) the consummation of any sale, exchange or other
disposition of all or substantially all of the
Company's assets without members of the Incumbent
Board immediately prior to any sale, exchange or
disposition of all or substantially all of the
Company's assets constituting a majority of the board
of directors of (a) the corporation which holds such
assets after such disposition, or, (b) if such
corporation is a majority-owned
subsidiary of another corporation or corporations,
the ultimate parent company of the successor
corporation provided, that the Company Board may
determine conclusively that any transaction does not
constitute a sale, exchange or other disposition of
substantially all of the Company's assets;
(5) if any person and any of their affiliates and
associates, shall elect or have elected, during any
period not exceeding 24 months, at least 25% of the
members of the Company Board, without the approval of
the Incumbent Board and such members are comprised of
persons not serving as members of the Company Board
immediately prior to the formation of such group or
the first solicitation of proxies by such person; or
(6) the Company's stockholders approve a plan of complete
liquidation or dissolution of the Company.
B. "Company Board" means the Board of Directors of the Company.
C. "Constructive Termination" will be deemed to have occurred if,
upon or following the Change in Control and within one hundred
eighty (180) days after the Key Executive becomes aware of a
circumstance described in (1) - (5) below, a Key Executive
separates from service with all Pactiv Companies after the
Pactiv Companies, by action or inaction, and without the Key
Executive's express prior written consent:
(1) diminish in any manner the Key Executive's status,
position, duties or responsibilities with Pactiv
Companies from those in effect immediately prior to
the Change in Control; without limiting the
foregoing, for purposes of this clause (1) a
diminution will be deemed to have occurred if the Key
Executive does not maintain the same or greater
status, position, duties and responsibilities with
the ultimate parent corporation of a controlled group
of corporations of which the Company is a member upon
consummation of the transaction or transactions
constituting the Change in Control;
(2) reduce the Key Executive's then current annual cash
compensation from Pactiv Companies below the sum of
(a) the Key Executive's annual base salary or annual
base compensation from the Pactiv Companies in effect
immediately prior to the Change in Control and (b)
the Key Executive's average annual award under the
Company's Executive Incentive Compensation Plan (or
any successor plan) for the three calendar year
periods (or for such shorter period as the Key
Executive has been employed by the Company) completed
immediately prior to the Change in Control;
(3) cause a material reduction in (a) the level of
aggregate Pactiv Companies-paid medical benefit, life
insurance and disability plan coverages; or (b) the
aggregate rate of Pactiv Companies-paid
thrift/savings plan
2
contributions and of Pactiv Companies-paid defined
benefit retirement plan benefit accrual, from those
coverages and rates in effect immediately prior to
the Change in Control;
(4) effectively require the Key Executive to relocate
because of transfer of the Key Executive's place of
employment with Pactiv Companies from the place where
the Key Executive was employed immediately prior to
the Change in Control; for purposes of the foregoing,
a transfer of place of employment shall be deemed to
require a Key Executive to relocate if such transfer
(i) is greater than 25 miles from the place where the
Key Executive was employed immediately prior to the
Change in Control and (ii) increases the normal
commuting time of such Key Executive by more than
50%; or
(5) materially breach their duties and obligations under
the Plan.
A Constructive Termination will be deemed to have occurred for
all Key Executives if any successor to the Company in a
merger, consolidation, purchase or other combination
constituting a Change in Control fails to assume, in writing,
all of the Company's obligations under the Plan promptly upon
consummation of such Change in Control.
In addition, a determination that a Key Executive has been
Constructively Terminated for purposes of eligibility for
benefits under this Plan shall be based solely on the criteria
set forth in this paragraph C and the Key Executive's
eligibility or application for, or receipt of, any retirement
benefits from any Pactiv Company following separation from
service shall have no bearing on such determination.
D. "Discharge for Cause" shall be deemed to have occurred only
if, following the Change in Control, a Key Executive is
discharged by Pactiv Companies from employment because:
(1) the Key Executive has engaged in dishonesty or other
serious misconduct related to the Key Executive's
material duties as an employee of Pactiv Companies;
or
(2) the Key Executive has willfully and continually
failed (unless due to incapacity resulting from
physical or mental illness) to perform the duties of
his or her employment by Pactiv Companies after
written demand for substantial performance is
delivered to the Key Executive by Pactiv Companies
specifically identifying the manner in which the Key
Executive has not substantially performed such
duties.
Notwithstanding the foregoing, a Key Executive who,
immediately prior to the Change in Control, is a member of
Executive Group I shall not be deemed to have been Discharged
for Cause under paragraph 1 or 2 above unless a written notice
has been delivered to the Key Executive stating that the
Pactiv Companies have
3
terminated the Key Executive's employment, which notice shall
include a resolution, adopted by at least a three-quarter's
vote of the Incumbent Board (after the Key Executive has been
provided with reasonable notice and an opportunity, together
with counsel, for a hearing before the entire Incumbent
Board), finding that the Key Executive has engaged in the
conduct set forth in paragraphs (1) or (2) of the preceding
sentence.
E. "Executive Group I" shall consist of each individual who,
immediately prior to a Change in Control,
(1) is an executive officer of the Company listed in the
Company's proxy statement most recently filed with
the Securities and Exchange Commission and any other
officer of the Company of the rank of Vice President
or above designated by the Chief Executive Officer of
the Company; or
(2) is the President (or other principal officer) of any
other Pactiv Company, if designated by the Chief
Executive Officer of the Company, in writing on or
before the Change in Control, as a member of
Executive Group I.
F. "Executive Group II" shall consist of each individual
(1) who is not a member of Executive Group I; and
(2) (a) who, immediately prior to the Change in Control,
is an active participant in the Company's Executive
Incentive Compensation Plan, or (b) who, immediately
prior to the Change in Control, is an employee of a
Pactiv Company who has been designated by the Chief
Executive Officer of the Company, in writing on or
before the Change in Control, as a member of
Executive Group II.
G. "Incumbent Board" means
(1) the members of the Company Board on the Effective
Date, to the extent that they continue to serve as
members of the Company Board, and
(2) any individual who becomes a member of the Company
Board after the Effective Date, if his or her
election or nomination for election as a director is
approved by a vote of at least three-quarters of then
Incumbent Board.
H. "Internal Revenue Code" means the Internal Revenue Code of
1986, as amended.
I. "Key Executive" means an individual who, immediately prior to
the Change in Control, is a member of Executive Group I or
Executive Group II.
4
J. "Pactiv Company" or "Pactiv Companies" mean the Company and
any stock corporation of which a majority of the voting common
or capital stock is owned directly or indirectly by the
Company.
K. "Threatened Change in Control" shall mean (i) any publicly
disclosed proposal, offer, actual or proposed purchase of
stock or other action which, if consummated, would, in the
opinion of the Incumbent Board constitute a Change in Control,
including the Company entering into an agreement, the
consummation of which would result in a Change in Control or
(ii) the adoption of a resolution by the Incumbent Board that
a Threatened Change in Control has occurred.
L. "Threatened Change in Control Period" shall mean the period
beginning on the date a Threatened Change in Control occurs
and ending on earlier of (1) the date the proposal, offer,
actual or proposed purchase of stock or other action is
formally withdrawn or the Incumbent Board has determined that
the circumstances which constituted the Threatened Change in
Control no longer exist; or (2) the date a Change in Control
occurs.
For purposes of the foregoing definitions, the terms
"associate," "affiliate," "person," and "beneficial owner"
shall have the respective meaning set forth in Sections 13(a)
and 13(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and the regulations promulgated
thereunder, and the regulations promulgated under Section 12
of the Exchange Act.
2. Eligibility for Benefits. If (i) within two years after a Change in
Control, a Key Executive is separated from service as an employee with
Pactiv Companies because (a) the Key Executive is discharged by the
Pactiv Companies, provided, such discharge is not Discharge for Cause,
or (b) because of Constructive Termination, and (ii) throughout the
period beginning with the Change in Control and ending with such
separation from service with Pactiv Companies, the Key Executive
remains an employee of Pactiv Companies, he or she shall be entitled to
receive the benefits described in Sections 3 and 6 below; provided
that, the Key Executive has executed a Waiver and Release Agreement
that releases any employment related claims against the Company, other
than claims for vested benefits under the benefits and compensation
plans, programs and arrangements of the Company.
3. Severance Benefits.
A. If the Key Executive is a member of Executive Group I
immediately prior to the Change in Control -- an amount equal
to three times the sum of (a) the Key Executive's annual base
salary or other annual base compensation in effect immediately
prior to the Change in Control, plus (b) the greater of (i)
the average of the Key Executive's annual awards under the
Company's Executive Incentive Compensation Plan (or any
successor plan), together with any special awards from Pactiv
Companies, for the last three calendar years of the Key
Executive's employment with Pactiv Companies or such shorter
period as the Key Executive has been employed by Pactiv
Companies, or (ii) the Key Executive's targeted
5
annual award under such plans in effect immediately prior to
the Change in Control.
B. If the Key Executive is a member of Executive Group II
immediately prior to the Change in Control -- an amount equal
to two times the sum of (a) the Key Executive's annual base
salary in effect immediately prior to the Change in Control,
plus (b) the greater of (i) the average of the Key Executive's
annual awards under the Company's Executive Incentive
Compensation Plan (or any successor plan), together with any
special awards from Pactiv Companies, for the last three years
of the Key Executive's employment with Pactiv Companies or
such shorter period as the Key Executive has been employed by
Pactiv Companies, or (ii) the Key Executive's targeted annual
award under such plans in effect immediately prior to the
Change in Control.
C. All deferred compensation (and earnings accrued thereon)
credited to the account of a Key Executive under any deferred
compensation plan, program or arrangement of Pactiv Companies
shall be paid to such Key Executive, notwithstanding any
provisions of such plan, program or arrangement to the
contrary.
D. An amount, paid in a single lump sum of cash, equal to the sum
of (i) any incentive compensation which has been allocated or
awarded to such Key Executive for a completed calendar year or
other measuring period preceding the Change in Control but has
not yet been paid and (ii) a pro rata portion to the date of
the Change in Control of the aggregate value of all contingent
incentive compensation awards to such Key Executive for the
current calendar year or other measuring period under any
compensation or incentive plans of the Company, calculated as
if 100% of any performance target or goal was achieved or
otherwise on a basis on which such Key Executive will receive
with a pro rata portion (based on elapsed time) of the amounts
he or she would have been entitled to receive if he or she had
continued to be employed by the Company throughout the period
contemplated with respect to such award and if all other
conditions for receiving the maximum amount with respect to
all such awards had been met, notwithstanding any provision of
any such plan to the contrary.
E. The Key Executive shall be entitled to be paid in cash the
total of the fair market value, determined as of the date of
his or her separation from service, of any Restricted Stock,
Stock Appreciation Rights, Performance Units, Performance
Share grants and/or indicative payouts, Stock Equivalent Units
and Dividend Equivalents which he or she has been granted
(whether or not vested) immediately prior to such separation
from service to the extent that he or she would not otherwise
receive the value thereof. The terms "Restricted Stock,"
"Stock Appreciation Rights," "Performance Units," "Performance
Shares," "Stock Equivalent Units" and "Dividend Equivalents"
shall have the meaning ascribed to those terms in the Pactiv
Corporation 2002 Incentive Compensation Plan.
6
F. The Key Executive and his or her eligible dependents, if any,
shall continue to be covered by the health, life and
disability plans applicable to comparably situated active
employees as in effect from time to time and subject to the
rules thereof (including any requirement to make contributions
or pay premiums, except that the Key Executive shall
contribute or pay on an after-tax basis) for the period
described below. For persons entitled to Executive Group I
benefits, and their eligible dependents, the period is three
(3) years from his or her separation from service. For persons
entitled to Executive Group II benefits, and their eligible
dependents, the period is two (2) years from his or her
separation from service. This period of coverage will not
count against the maximum period of health coverage required
by the Consolidated Omnibus Budget Reconciliation Act of 1985
("COBRA"), and persons covered by this provision will be
afforded their applicable COBRA rights at the end of the
health coverage provided herein.
G. The Company shall provide, either through its retirement
plans, including its Supplemental Retirement Plan, or through
a separate payment at the time a related payment is made under
its retirement plans to the Key Executive an additional
pension benefit calculated as if the Key Executive's
employment had continued for an additional two (2) years for
Executive Group II or an additional three (3) years for
Executive Group I, and calculated as if relevant pay for such
additional period is at the same level as on the date the Key
Executive separated from service.
H. The Company shall provide each Key Executive with reasonable
out placement services consistent with past practices of the
Company with respect to officers at such level prior to the
Change in Control.
I. If a Key Executive receives other cash severance benefits from
Pactiv Companies, the amount of severance benefit to which the
Key Executive is entitled under Section 3(A) or (B) above
shall be considered to be satisfied to the extent of such
other cash severance payment.
4. Other Benefits. Upon a Change in Control, and without regard to the Key
Executive's employment status following such Change in Control, all
Stock Options under the Company's Stock Ownership Plan or any other
similar plan maintained by the Company shall become immediately vested
and exercisable for the lesser of 36 months or the remaining life of
the option. The term "Stock Options" shall have the meaning ascribed
thereto in the Pactiv Corporation 2002 Incentive Compensation Plan.
5. Method of Payment. The Company shall pay, or cause to be paid, the cash
severance benefits under the Plan to the Key Executive in a single cash
sum on the later of the six month anniversary of the Key Executive's
separation from service as an employee with Pactiv Companies and
submission of a claim as required by Section 12 of the Plan; provided
that any such payment that would constitute an impermissible
acceleration of deferred compensation within the contemplation of
Section 409A of the Internal Revenue Code shall not be made until the
earliest date on which it would not constitute such an acceleration.
Except for withholdings required by law to satisfy local, state, and
federal
7
tax withholding requirements, no offset nor any other reduction shall
be taken in paying such benefit.
6. Gross-Up Payment. If any portion of the payments described herein,
and/or any other payments no matter the source of such payments, shall
be subject to the tax imposed by Section 4999 of the Internal Revenue
Code (the portion of such payments which are subject to the Excise Tax
being referred to herein as the "Payments") the Company shall pay to
the affected Key Executive, not later than the 30th day following the
date the Key Executive becomes subject to the Excise Tax an additional
amount (the "Gross-Up Payment"), such that the net amount retained by
the Key Executive after deduction of the Excise Tax on such Payments,
and all federal, state and local income and employment tax (assuming
the Key Executive is in the highest marginal tax bracket), interest and
penalties and Excise Tax on the Gross-Up Payment, shall be equal to the
amount which would have been retained by the Key Executive had the
payments not been subject to the Excise Tax.
The amount of the payment to the Key Executive under this Section 6
shall be determined by a recognized firm of certified public
accountants that is mutually acceptable to the Company and the Key
Executive, based upon the assumption that all payments and benefits to
or for the benefit of the Key Executive in connection with a Change in
Control of the Company or termination of the Key Executive's employment
following a Change in Control of the Company shall be deemed to be
"parachute payments" within the meaning of Section 280G(b)(2) of the
Internal Revenue Code, and all "excess parachute payments" shall be
deemed to be subject to the Excise Tax except to the extent that, in
the opinion of tax counsel selected by the firm of certified public
accountants charged with estimating the payment to the Key Executive
under this Section 6, such payments or benefits are not subject to the
Excise Tax.
The Company shall make the calculations available to the Key Executive
and the Key Executive's tax advisor and shall pay the reasonable fees
of the advisor for reviewing and counseling the Key Executive with
respect to such calculations, not to exceed $10,000.
7. Assignment. No Key Executive may assign, transfer, convey, mortgage,
hypothecate, or in any way encumber any severance benefit payable under
the Plan, nor shall the Key Executive have any right to receive any
severance benefit under the Plan except at the time, in the amount and
in the manner provided in the Plan, provided that the rights of a Key
Executive under the Plan may be enforced by the Key Executive's heirs
and legal representatives.
This Plan may and shall be assigned or transferred to, and shall be
binding upon and shall inure to the benefit of, any successor of the
Company, and any such successor shall be deemed substituted for all
purposes of "the Company" under the provisions of the Plan. As used in
the preceding sentence, the term "successor" shall mean any person,
firm, corporation, or business entity which at any time, whether by
merger, purchase or otherwise, acquires all, or substantially all, of
the assets or business of the Company. Notwithstanding such
assignments, the Company shall remain, with such successor,
8
jointly and severally liable for all obligations under the Plan, which,
except as herein provided, may not be assigned by the Company.
8. Plan Amendment and Termination. The Plan may be terminated or amended
at any time by the Board of Directors provided that during a Threatened
Change in Control Period, the Plan may not be terminated or amended in
any manner that reduces the benefits to a Key Executive or adversely
affects the rights of a Key Executive under the Plan, with any such
reduction or adverse affect determined as if the Key Executive had
incurred a separation from service as described in Section 2. In the
event of a Change in Control, no amendment, or termination, made on or
after the date of the Change in Control shall apply to any Key
Executive until the expiration of two years and one hundred eighty days
from the date of the Change in Control.
9. Funding. The Company shall pay, or cause to be paid, any severance
benefit under the Plan out of general assets of Pactiv Companies.
Nothing contained herein shall preclude the Company from establishing a
grantor trust through which assets to satisfy obligations under the
Plan may be set aside to provide for benefit payments to participants
in the Plan. Any assets or property held by such trust shall be subject
to the claims of general creditors of the Company, but only upon the
insolvency or bankruptcy of the Company and only to the extent that the
assets or property held by such trust are attributable to contributions
made by the Company. No person other than the Company shall, by virtue
of the provisions of the Plan, have any interest in such funds.
10. Controlling Law. The Plan shall be interpreted under the laws of the
State of Illinois, except to the extent that federal law preempts such
laws.
11. Plan Administrator. The Company is the Plan Administrator, and it shall
have the authority to control and manage the operation of this Plan
with the authority to interpret the Plan. Following a Change in
Control, the Plan Administrator for purposes of any disputed claim
under Section 12 shall be an independent third party selected by
individuals constituting at least a majority of the Incumbent Board
immediately prior to the Change in Control. The Company shall pay the
expenses of such individuals in connection with such selection and
shall pay the fees and expenses of the third party serving as Plan
Administrator.
12. Making a Claim.
A. Submission of a Claim. In order to claim a severance benefit
under this Plan, a Key Executive need only advise the Plan
Administrator in writing that the Key Executive's employment
with Pactiv Companies has terminated, that the Key Executive
claims a severance benefit under the Plan and of the mailing
address to which the severance benefit or related
correspondence is to be sent.
B. Denial of a Claim. If a Key Executive has made a claim for
benefit under this Plan and any portion of the claim is
denied, the Plan Administrator will furnish the Key Executive
with a written notice stating the specific reasons for the
denial, specific reference to pertinent Plan provisions upon
which the denial was based, a
9
description of any additional information or material
necessary to perfect the claim and an explanation of why such
information or material is necessary, and appropriate
information concerning steps to take if the Key Executive
wishes to submit the claim for review.
The claim will be deemed accepted if the Plan Administrator
does not approve the claim and fails to notify the Key
Executive within 90 days after receipt of the claim, plus any
extension of time for processing the claim, not to exceed 90
additional days, as special circumstances require. To obtain
an extension, the Plan Administrator must advise the Key
Executive in writing during the initial 90 days if an
extension is necessary, stating the special circumstances
requiring the extension and the date by which the Key
Executive can expect the Plan Administrator's decision
regarding the claim.
C. Review Procedure. Within 60 days after the date of written
notice denying any benefits, the Key Executive or the Key
Executive's authorized representative may write to the Plan
Administrator requesting a review of that decision by the
Company Board or the Compensation / Nominating / Governance
Committee thereof (the "Committee").
The request for review may contain such issues and comments as
the Key Executive wishes to have considered in the review. The
Key Executive may also review pertinent documents in the Plan
Administrator's possession. The Company Board or the Committee
will make a final determination with respect to the claim as
soon as practicable. The Plan Administrator will advise the
Key Executive of the determination in writing and will set
forth the specific reasons for the determination and the
specific references to any pertinent Plan provisions upon
which the determination is based.
The claim will be deemed accepted on review if the Plan
Administrator fails to give the Key Executive written notice
of final determination within 60 days after receipt of the
request for review, plus any extension of time for completing
the review, not to exceed 60 additional days, as special
circumstances require. To obtain an extension, the Plan
Administrator must advise the Key Executive in writing during
the initial 60 days if any extension is necessary, stating the
special circumstances requiring the extension and the date by
which the Key Executive can expect the Company's decision,
regarding the review of the claim.
13. Legal Fees and Costs. In the event a Key Executive initiates legal
action to enforce his or her right to any benefit under this Plan, the
Company shall pay all reasonable legal fees and costs incurred by the
Key Executive in connection with such legal action, provided that the
Key Executive prevails on any material issue that is a subject of the
legal action.
10
14. Severability. If for any reason any provision or provisions of the Plan
are determined invalid or unenforceable, the validity and effect of the
other provisions of the Plan shall not be affected thereby.
IN WITNESS WHEREOF, the Company has caused the Plan to be executed on
its behalf by its respective officers thereunder duly authorized, on the day and
year set forth below.
PACTIV CORPORATION
Date: March 1, 2005 By: /s/ Henry M. Wells, III
------------------------------
Its: Vice President & Chief
Human Resources Officer
11