Key Employee Severance Protection Plan

Exhibit 10(b)

CABOT CORPORATION
KEY EMPLOYEE SEVERANCE PROTECTION PLAN

WHEREAS, the Board of Directors (the "Board") of Cabot Corporation, a Delaware corporation (the "Company"), recognizes that the threat of an unsolicited takeover or other change in control of the Company may occur which can result in significant distractions of its key personnel because of the uncertainties inherent in such a situation; and


WHEREAS, the Board has determined that it is essential and in the best interest of the Company and its stockholders to be able to retain the services of its key personnel in the event of a threat of a change in control of the Company, and following any change in control, to ensure their continued dedication and efforts in any such event without undue concern for their personal financial and employment security.


NOW, THEREFORE, in order to fulfill the above purposes, the following plan has been developed and is hereby adopted.


ARTICLE I


ESTABLISHMENT OF PLAN


As of the Effective Date, the Company hereby establishes the Cabot Corporation Key Employee Severance Protection Plan (the "Plan") as set forth in this document.


ARTICLE II


DEFINITIONS


As used herein, the following words and phrases shall have the following respective meanings unless the context clearly indicates otherwise.


2.1 "Accrued Compensation" means an amount which shall include all amounts earned, accrued or otherwise payable to a Participant as of the Participant's Termination Date but not paid as of such Termination Date including (i) base salary, (ii) reimbursement for reasonable and necessary expenses incurred by the Participant on behalf of the Company during the period ending on the Termination Date, (iii) vacation pay, and (iv) bonuses and incentive compensation.


2.2 "Affiliate" means, with respect to any person or entity, any entity, directly or indirectly, controlled by, controlling or under common control with such person or entity.


2.3 "Base Salary" means a Participant's annualized base salary (including any portion that the Participant may have elected to defer), calculated at the greater of the rate in effect (i) immediately prior to a Change in Control or (ii) as of the Participant's Termination Date.


2.4 "Board" means the Board of Directors of Cabot Corporation.


2.5 "Bonus Amount" means an amount equal to the greater of (A) Participant's target bonus amount (including any portion that the Participant may have elected to defer), if any, under all Short-Term Incentive Plans for the fiscal year in which the Change in Control occurs or the fiscal year in which the Participant's Termination Date occurs, whichever is greater or (B) the highest bonus amount paid or payable to the Participant (including any portion that the Participant may have elected to defer) under all Short-Term Incentive Plans in respect of any of the three fiscal years preceding the fiscal year in which the Change in Control occurs.


2.6 "Cause" means (a) the willful and continued refusal by the Participant to perform substantially his or her reasonably assigned duties with the Company (other than any such failure resulting from his or her physical or mental incapacity or any such actual or anticipated failure after the issuance of a Notice of Termination by the Participant for Good Reason) after a written demand for substantial performance is delivered to the Participant by the Company, which demand specifically identifies the manner in which the Company believes that the Participant has not substantially performed his or her duties, or (b) the willful engaging by the Participant in conduct which is demonstrably and materially injurious to the Company, monetarily or otherwise. For purposes of this definition (i) no act, or failure to act, on the Participant's part shall be deemed "willful" unless done, or omitted to be done, by the Participant not in good faith and without reasonable belief that his or her action or omission was in the best interest of the Company and (ii) good faith errors in judgment by the Participant shall not constitute Cause or be considered in any determination of whether Cause exists.


2.7 "Change in Control" means:


(a) An acquisition of any voting securities of the Company (the "Voting Securities") by any "Person" as the term person is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), immediately after which such Person has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the Exchange Act) together with all affiliates and associates (as such terms are used in Rule 12b-2 of the General Rules and Regulations under the Exchange Act) of such person, directly or indirectly, of securities of the


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Company representing thirty-five percent (35%) or more of the combined voting power of the Company's then outstanding Voting Securities; provided, however, in determining whether a Change in Control has occurred, Voting Securities which are acquired in a "Non-Control Acquisition" (as hereinafter defined) shall not constitute an acquisition which would cause a Change in Control. A "Non-Control Acquisition" shall mean an acquisition (i) by an employee benefit plan (or a trust forming a part thereof) maintained (A) by the Company or (B) by any corporation or other Person of which a majority of its voting power or its voting equity securities or equity interest is owned, directly or indirectly, by the Company (for purposes of this definition, a "Subsidiary"), (ii) by the Company or its Subsidiaries or (iii) directly from the Company (A) by an underwriter in connection with an underwritten public offering or private placement, (B) of non-voting convertible debt or non-voting convertible preferred stock, in either case, until converted into Voting Securities or (C) by a Person who, in connection with such acquisition, enters into a standstill agreement with Company with a duration of at least two years and pursuant to which such Person agrees to vote the acquired securities on any matter either at the direction of the Board or in the same proportion as the Company's other stockholders vote on the matter; provided, however, that the expiration of the standstill agreement shall constitute an acquisition of the Voting Securities then Beneficially Owned by such Person.


(b) During any period of two years or less beginning on or after January 1, 1998, individuals who at the beginning of such period are members of the Board (the "Incumbent Board"), cease for any reason to constitute a majority of the members of the Board; provided, however, that if the election, or nomination for election by the Company's common stockholders, of any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clause (d) of this definition) was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of this Plan, be considered as a member of the Incumbent Board; provided further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office through either an actual or threatened "Election Contest" (as described in Rule 14a-11 promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board (a "Proxy Contest") including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest; or


(c) At any duly conducted election of directors at a special or annual meeting of stockholders of the Company, (a) two (2) or more nominees who are both: (i) nominees of, and endorsed by, the Company and (ii) not employees of the Company or any Affiliate of the Company at the time of such election are not elected to serve as directors, and (b) any person not a nominee of, and endorsed by, the Company is elected to serve as a director of the Company.


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(d) Approval by stockholders of the Company of:


(i) A merger, consolidation or reorganization involving
the Company, unless such merger, consolidation or reorganization is
a "Non-Control Transaction." A "Non-Control Transaction" shall
mean a merger, consolidation or reorganization of the Company
where:


(A) the stockholders of the Company, immediately
before such merger, consolidation or reorganization, own
directly or indirectly immediately following such
merger, consolidation or reorganization, at least
sixty-five percent (65%) of the combined voting power of
the outstanding voting securities of the corporation
resulting from such merger or consolidation or
reorganization (the "Surviving Corporation") in
substantially the same proportion as their ownership of
the Voting Securities immediately before such merger,
consolidation or reorganization,


(B) the individuals who were members of the
Incumbent Board immediately prior to the execution of
the agreement providing for such merger, consolidation
or reorganization constitute at least two-thirds of the
members of the board of directors of the Surviving
Corporation, or a corporation beneficially directly or
indirectly owning a majority of the Voting Securities of
the Surviving Corporation, and


(C) no Person other than (i) the Company, (ii) any
Subsidiary, or (iii) any employee benefit plan (or any
trust forming a part thereof) maintained by the Company,
the Surviving Corporation, or any Subsidiary, acquires
Beneficial Ownership of thirty-five percent (35%) or
more of the combined voting power of the Surviving
Corporation's then outstanding voting securities.


(ii) A complete liquidation or dissolution of the Company; or


(iii) An agreement for the sale or other disposition of
all or substantially all of the assets of the Company to any Person
(other than a transfer to a Subsidiary).


Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the "Subject Person") acquired Beneficial Ownership of more than the permitted amount of the then outstanding Voting Securities as a result of the acquisition of Voting Securities by the Company which, by reducing the number of Voting Securities then outstanding, increases the percentage of shares


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Beneficially Owned by the Subject Person, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of Voting Securities by the Company, and after such share acquisition by the Company, the Subject Person becomes the Beneficial Owner of any additional Voting Securities which increases the percentage of the then outstanding Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur.


Notwithstanding anything to the contrary contained herein, if the employment of a Participant is terminated (i) at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change in Control and who effectuates a Change in Control or (ii) otherwise in connection with, or in anticipation of, a Change in Control which actually occurs, then for purposes of this Plan the date of a Change in Control with respect to that Participant shall be deemed to be the date immediately prior to the Participant's Termination Date.


2.8 "Company" means Cabot Corporation, a Delaware corporation.


2.9 "Compensation Committee" means the Compensation Committee of the Board as such committee may be constituted from time to time.


2.10 "Disability" shall occur if, as a result of a Participant's physical or mental incapacity due to illness, accident or otherwise, a Participant shall be unable to perform his or her duties with the Company.


2.11 "Effective Date" means the date the Plan is approved by the Board or such other date as the Board shall designate in its resolution approving the Plan.


2.12 "EIP" means the Cabot Corporation 1996 Equity Incentive Plan and any subsequently adopted plan which has been approved by the stockholders of the Company and which provides equity-based incentives to key employees of the Company; provided, however, that no subsequently adopted plan which is qualified under Section 401(a) of the Internal Revenue Code of 1986, as amended, shall be included in this definition.


2.13 "Eligible Employee" means, as of ...