EX-10.4











EXHIBIT 10.4




[DATE]




Attn: [______________]

PolyOne Corporation




POLYONE CORPORATION INCENTIVE AWARD




Grant of Stock-Settled SARs




THIS AGREEMENT CONSTITUTES PART OF A PROSPECTUS COVERING

SECURITIES REGISTERED UNDER THE SECURITIES ACT OF 1933, AS

AMENDED. THE COMMON SHARES OF THE COMPANY ARE LISTED ON THE

NEW YORK STOCK EXCHANGE.




Dear [_________________]:




          Subject to the terms and conditions of the [INSERT PLAN] (the “Plan”) and this letter
agreement (this “Agreement”), the Compensation and Governance Committee of the Board of Directors
(the “Committee”) of PolyOne Corporation (“PolyOne”) has granted to you as of [DATE], the following
award:





Stock-Settled Stock Appreciation Rights (“SARs”) in respect of an aggregate of [___]
common shares of PolyOne, having a par value of $0.01 per share (the “Common Shares”). The
price (the “Base Price”) to be used as the basis for determining the Spread (as defined
below) upon exercise of the SAR is $___, the fair market value of one Common Share on
[DATE].



          A copy of the Plan is available for your review through the Corporate Secretary’s office.
Unless otherwise indicated, the capitalized terms used in this Agreement shall have the same
meanings as set forth in the Plan.





	1.	 	Vesting and Exercise of SARs.






	 	(a)	 	Subject to the provisions of the Plan and this Agreement, the SARs will expire
on [DATE] and shall be exercisable on or before [DATE]. Provided that you have been in
the continuous employ of PolyOne or a Subsidiary on the respective vesting date
specified below (except as provided in Section 3(ii)), the SARs shall vest as follows:






	 	(i)	 	If the market price of the Common Shares as reported on the New
York Stock Exchange — Composite Transactions Listing or similar report reaches
a minimum of U.S. $___________ for three consecutive trading days prior to [DATE],
one-third of the SARs shall vest on the first trading day





US Form — SARs



 









 






	 	 	 	immediately following the third consecutive trading day of the first such
consecutive trading day period to occur prior to [DATE]; provided,
however, that such vested SARs may be exercised no earlier than
[DATE].
	 
	 	(ii)	 	If the market price of the Common Shares as reported on the New
York Stock Exchange — Composite Transactions Listing or similar report reaches
a minimum of U.S. $ _______ for three consecutive trading days prior to [DATE], an
additional one-third of the SARs shall vest on the first trading day
immediately following the third consecutive trading day of the first such
consecutive trading day period to occur prior to [DATE]; provided,
however, that such vested SARs may be exercised no earlier than [DATE].
	 
	 	(iii)	 	If the market price of the Common Shares as reported on the
New York Stock Exchange — Composite Transactions Listing or similar report
reaches a minimum of U.S. $ _______ for three consecutive trading day prior to
[DATE], the remaining one-third of the SARs shall vest on the first trading day
immediately following the third consecutive trading day of the first such
consecutive trading day period to occur prior to [DATE]; provided,
however, that such vested SARs may be exercised no earlier than [DATE].






	 	(b)	 	The SARs may be exercised as provided in this Section 1(b) as to all or any of
the SARs that are exercisable in accordance with Section 1(a), as long as each exercise
covers at least 1,000 SARs. To exercise the SARs, you must submit a SAR Exercise Form
to PolyOne signed by you stating the number of SARs you are exercising at that time and
certifying that you are in compliance with the terms and conditions of the Plan.
PolyOne will then issue you the number of Common Shares determined under Section 1(c).
	 
	 	(c)	 	The number of Common Shares to be issued will be determined by calculating (i)
the difference between the fair market value of a Common Share on the date of exercise
and the Base Price (the “Spread”); (ii) multiplied by the number of SARs exercised;
(iii) less any withholding taxes (federal, state, local or foreign taxes) PolyOne
determines are to be withheld in accordance with the Plan and with applicable law. The
result of this calculation will then be divided by the fair market value of a Common
Share on the date of exercise to determine the number of Common Shares to be issued,
rounded down to the nearest whole share. For purposes of this Section 1(c), the term
“fair market value” will mean the closing price of the Common Shares on the date of
exercise as reported on the New York Stock Exchange — Composite Transactions Listing or
similar report. In no event will you be entitled to acquire a fraction of one Common
Share pursuant to this Agreement.
	 
	 	(d)	 	If the Committee determines that a change in the business, operations,
corporate structure or capital structure of PolyOne, the manner in which it conducts
business or other events or circumstances render the stock price appreciation




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	 	 	 	targets specified in Section 1(a) (the “Management Objectives”) to be unsuitable,
the Committee may modify such Management Objectives or the related levels of
achievement, in whole or in part, as the Committee deems appropriate;
provided, however, that no such action will be made in the case of a
Covered Employee where such action may result in the loss of the otherwise available
exemption of the award under Section 162(m) of the Internal Revenue Code of 1986, as
amended (the “Code”).






	2.	 	Vesting Upon a Change of Control. If a Change of Control (as defined on Exhibit
A to this Agreement) occurs during the term of the SARs, the SARs, to the extent not
previously fully exercisable, will become immediately exercisable in full.
	 
	3.	 	Retirement, Disability or Death. If your employment with PolyOne or a Subsidiary
terminates before the expiration of the SARs due to (a) retirement at age 55 or older with at
least 10 years of service or retirement under other circumstances entitling you to receive
benefits under one of PolyOne’s (including its predecessors) defined benefit pension plans or
under an individual agreement with PolyOne, (b) permanent and total disability (as defined
under the relevant disability plan or program of PolyOne or a Subsidiary in which you then
participate) or (c) death, then:






	 	(i)	 	Any SARs that have vested as provided in Section 1(a) above,
but have not been exercised as of the time of the termination of your
employment, may be exercised in whole or in part (subject to the provisos in
Section 1(a) above) for the shorter of (A) a period of three years after the
termination of your employment and (B) the remainder of their term, but in no
event beyond [DATE], after which such SARs will terminate; and
	 
	 	(ii)	 	If any SARs become vested as provided in Section 1(a) above
following the termination of your employment and before [DATE], you, or your
executor or administrator, as the case may be, will be entitled to exercise, in
whole or in part (subject to the provisos in Section 1(a) above), a pro-rata
portion of the number of SARs that vest following the termination of your
employment, based on the number of days that you were employed by PolyOne or a
Subsidiary during the period commencing [DATE] and ending [DATE], for a period
of three years after the termination of your employment.






	4.	 	Termination Following Change of Control.






	 	(a)	 	If your employment with PolyOne or a Subsidiary terminates following a Change
of Control because (i) your employment is involuntarily terminated without “Cause” (as
defined below), or (ii) you terminate your employment for “Good Reason” (as defined
below), notwithstanding anything herein to the contrary, the SARs may be exercised in
whole or in part at any time and from time to time for the remainder of their term, but
in no event beyond [DATE], after which the SARs will terminate.




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	 	(b)	 	For purposes of Section 4(a) above:






	 	(i)	 	If you are a party to a Management Continuity Agreement,
“Cause” shall mean “Cause” and “Good Reason” shall mean “Good Reason,” each as
defined in your Management Continuity Agreement;
	 
	 	(ii)	 	If you are not a party to a Management Continuity Agreement,
“Cause” shall mean: (A) the willful and continued failure by you to
substantially perform your duties with PolyOne or a Subsidiary, which failure
causes material and demonstrable injury to PolyOne or a Subsidiary (other than
any such failure resulting from your incapacity due to physical or mental
illness), after a demand for substantial performance is delivered to you by
PolyOne or a Subsidiary which specifically identifies the manner in which you
have not substantially performed your duties, and after you have been given a
period (hereinafter known as the “Cure Period”) of at least thirty (30) days to
correct your performance, or (B) the willful engaging by you in other gross
misconduct materially and demonstrably injurious to PolyOne or a Subsidiary.
For purposes of this Section 4(b)(ii), no act, or failure to act, on your part
shall be considered “willful” unless conclusively demonstrated to have been
done, or omitted to be done, by you not in good faith and without reasonable
belief that your action or omission was in the best interests of PolyOne or a
Subsidiary; and
	 
	 	(iii)	 	If you are not a party to a Management Continuity Agreement,
“Good Reason” shall mean, without your express written consent: (A) your
permanent assignment to a new work location that would either increase your
routine one-way commute by fifty (50) or more miles, measured by the shortest
commonly traveled routes between your then-current residence and new reporting
or work location, or make your routine one-way commute sixty (60) or more
miles, or (B) a reduction in your base salary, target annual incentive amount
or employer-provided benefits, if immediately after the reduction the aggregate
total of your base salary, target annual incentive amount and value of
employer-provided benefits is less than eighty percent (80%) of the aggregate
total of your salary, target annual incentive amount and the value of
employer-provided benefits immediately prior to the Change of Control.






	5.	 	Other Termination. If your employment with PolyOne or a Subsidiary terminates before
the expiration of the SARs for any reason other than as set forth in Sections 3 or 4 above,
the SARs that are exercisable shall be limited to the number of SARs that could have been
exercised under Section 1 above at the time of your termination of employment and shall
terminate as to the remaining SARs and may be exercised as to such limited number of SARs at
any time within ninety (90) days of your termination of employment, but in no event beyond
[DATE], after which the SARs will terminate.




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	6.	 	Non-Assignability. The SARs are personal to you and are not transferable by you
other than by will or the laws of descent and distribution. They are exercisable during your
lifetime only by you or by your guardian or legal representative.
	 
	7.	 	Adjustments. In the event of any change in the number of Common Shares by reason of
a merger, consolidation, reorganization, recapitalization, or similar transaction, or in the
event of a stock dividend, stock split, or distribution to shareholders (other than normal
cash dividends), the number and class of shares subject to outstanding SARs, the Base Price
applicable to outstanding SARs and other value determinations, if any, applicable to
outstanding SARs will be adjusted. Such adjustment shall be made automatically on the
customary arithmetical basis in the case of any stock split, including a stock split effected
by means of a stock dividend, and in the case of any other dividend paid in Common Shares. If
any such transaction or event occurs, the Committee may provide in substitution for
outstanding SARs such alternative consideration (including, without limitation, in the form of
cash, securities or other property) as it may determine to be equitable in the circumstances
and may require in connection therewith the surrender of the SARs subject to this Agreement.
No adjustment provided for in this Section 7 will require
PolyOne to issue any fractional shares.
	 
	8.	 	Miscellaneous.






	 	(a)	 	The contents of this letter are subject in all respects to the terms and
conditions of the Plan as approved by the Board and the shareholders of PolyOne, which
are controlling. The interpretation and construction by the Board and/or the Committee
of any provision of the Plan or this Agreement shall be final and conclusive upon you,
your estate, executor, administrator, beneficiaries, personal representative and
guardian and PolyOne and its successors and assigns.
	 
	 	(b)	 	The grant of the SARs is discretionary and will not be considered to be an
employment contract or a part of your terms and conditions of employment or of your
salary or compensation. Information about you and your participation in the Plan,
including, without limitation, your name, home address and telephone number, date of
birth, social insurance number or other identification number, salary, nationality, job
title, any shares of stock or directorships held in PolyOne, and details of the SARs or
other entitlement to shares of stock awarded, cancelled, exercised, vested, unvested or
outstanding in your favor may be collected, recorded, held, used and disclosed by
PolyOne and any of its Subsidiaries and any non-PolyOne entities engaged by PolyOne to
provide services in connection with this grant (a “Third Party Administrator”), for any
purpose related to the administration of the Plan. You understand that PolyOne and its
Subsidiaries may transfer such information to Third Party Administrators, regardless of
whether such Third Party Administrators are located within your country of residence,
the European Economic Area or in countries outside of the European Economic Area,
including the United States of America. You consent to the processing of information
relating to you and your participation in the Plan in any one or more of the ways
referred to above. This consent may be withdrawn at any time in




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	 	 	 	writing by sending a declaration of withdrawal to PolyOne’s chief human resources
officer.
	 
	 	(c)	 	Any amendment to the Plan shall be deemed to be an amendment to this Agreement
to the extent that the amendment is applicable hereto. The terms and conditions of
this Agreement may not be modified, amended or waived, except by an instrument in
writing signed by a duly authorized executive officer at PolyOne. Notwithstanding the
foregoing, no amendment shall adversely affect your rights under this Agreement without
your consent.
	 
	 	(d)	 	By signing this Agreement, you acknowledge that you have entered into an
Employee Agreement with PolyOne. You understand that, as set forth in Paragraph 5 and
Attachment A of the Employee Agreement, you have agreed not to engage in certain
prohibited practices in competition with PolyOne following the termination of your
employment (hereinafter referred to as the “Covenant Not to Compete”). You further
acknowledge that as consideration for entering into the Covenant Not to Compete,
PolyOne is providing you the opportunity to participate in PolyOne’s long-term
incentive plan and receive the award set forth in this Agreement. You understand that
eligibility for participation in the long-term incentive plan was conditioned upon
entering into the Covenant Not to Compete. You further understand and acknowledge that
you would have been ineligible to participate in the long-term incentive plan and
receive this award had you decided not to agree to the Covenant Not to Compete. You
understand that the acknowledgment contained in this sub-section is a part of the
Employee Agreement and is to be interpreted in a manner consistent with its terms.






	9.	 	Notice. All notices under this Agreement to PolyOne must be delivered personally or
mailed to PolyOne Corporation at PolyOne Center, Avon Lake, Ohio 44012, Attention: Corporate
Secretary. PolyOne’s address may be changed at any time by written notice of such change to
you. Also, all notices under this Agreement to you will be delivered personally or mailed to
you at your address as shown from time to time in PolyOne’s records.
	 
	10.	 	Compliance with Section 409A of the Code.






	 	(a)	 	To the extent applicable, it is intended that this Agreement and the Plan
comply with the provisions of Section 409A of the Code, so that the income inclusion
provisions of Section 409A(a)(1) of the Code do not apply to you. This Agreement and
the Plan shall be administered in a manner consistent with this intent.
	 
	 	(b)	 	Reference to Section 409A of the Code will also include any proposed, temporary
or final regulations, or any other guidance, promulgated with respect to such Section
by the U.S. Department of the Treasury or the Internal Revenue Service.




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	11.	 	Counterparts. This Agreement may be executed in separate counterparts, each of which
shall be deemed to be an original and both of which taken together shall constitute one and
the same agreement.
	 
	12.	 	Severability. If one or more of the provisions of this Agreement is invalidated for
any reason by a court of competent jurisdiction, any provision so invalidated shall be deemed
to be separable from the other provisions hereof, and the remaining provisions hereof shall
continue to be valid and fully enforceable.





          This Agreement, and the terms and conditions of the Plan, shall bind, and inure to the benefit
of you, your estate, executor, administrator, beneficiaries, personal representative and guardian
and PolyOne and its successors and assigns.




	 	 	 	 	 
	 	Very Truly Yours,



POLYONE CORPORATION

 	 
	 	By:  	 	 
	 	 	Kenneth M. Smith, Senior Vice President,  	 
	 	 	Chief Information and Human Resources
Officer 	 
	 



Accepted:




____________________________________




____________________________________ (Date)




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Exhibit A




A “Change of Control” means:



(a) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”) of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of
voting securities of PolyOne where such acquisition causes such Person to own 25% or more of the
combined voting power of the then outstanding voting securities of PolyOne entitled to vote
generally in the election of directors (the “Outstanding Company Voting Securities”); provided,
however, that for purposes of this paragraph (a), the following acquisitions shall not be deemed to
result in a Change of Control: (i) any acquisition directly from PolyOne that is approved by the
Incumbent Board (as defined in paragraph (b) below), (ii) any acquisition by PolyOne, (iii) any
acquisition by any employee benefit plan (or related trust) sponsored or maintained by PolyOne or
any corporation controlled by PolyOne or (iv) any acquisition by any corporation pursuant to a
transaction that complies with clauses (i), (ii) and (iii) of paragraph (c) below; provided,
further, that if any Person’s beneficial ownership of the Outstanding Company Voting Securities
reaches or exceeds 25% as a result of a transaction described in clause (i) or (ii) above, and such
Person subsequently acquires beneficial ownership of additional voting securities of PolyOne, such
subsequent acquisition shall be treated as an acquisition that causes such Person to own 25% or
more of the Outstanding Company Voting Securities; and provided, further, that if at least a
majority of the members of the Incumbent Board determines in good faith that a Person has acquired
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 25%
or more of the Outstanding Company Voting Securities inadvertently, and such Person divests as
promptly as practicable a sufficient number of shares so that such Person beneficially owns (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) less than 25% of the Outstanding
Company Voting Securities, then no Change of Control shall have occurred as a result of such
Person’s acquisition; or



(b) individuals who, as of August 31, 2000, constitute the Board (the “Incumbent Board” as modified
by this paragraph (b)) cease for any reason to constitute at least a majority of the Board;
provided, however, that any individual becoming a director subsequent to August 31, 2000 whose
election, or nomination for election by PolyOne’s shareholders, was approved by a vote of at least
a majority of the directors then comprising the Incumbent Board (either by specific vote or by
approval of the proxy statement of PolyOne in which such person is named as a nominee for director,
without objection to such nomination) shall 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; or



(c) the consummation of a reorganization, merger or consolidation or sale or other disposition of
all or substantially all of the assets of PolyOne or the acquisition of assets of another
corporation or other transaction (“Business Combination”); excluding, however, such a Business
Combination pursuant to which (i) the individuals and entities who were the beneficial




A-1









 







owners of the Outstanding Company Voting Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 60% of, respectively, the then outstanding
shares of common stock and the combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the case may be, of the entity
resulting from such Business Combination (including, without limitation, an entity that as a result
of such transaction owns PolyOne or all or substantially all of PolyOne’s assets either directly or
through one or more subsidiaries), (ii) no Person (excluding any employee benefit plan (or related
trust) of PolyOne, PolyOne or such entity resulting from such Business Combination) beneficially
owns, directly or indirectly, 25% or more of the combined voting power of the then outstanding
securities entitled to vote generally in the election of directors of the entity resulting from
such Business Combination and (iii) at least a majority of the members of the board of directors of
the corporation resulting from such Business Combination 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



(d) approval by the shareholders of PolyOne of a complete liquidation or dissolution of PolyOne
except pursuant to a Business Combination that complies with clauses (i), (ii) and (iii) of
paragraph (c) above.





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