Document:

EX-10.3

 

Exhibit 10.3

[PolyOne Letterhead]

[Date]

[Name]

[Title]

[Address]

Dear                     :

     PolyOne Corporation (the “Company”) considers the establishment and maintenance of a sound and
vital senior management to be essential to protecting and enhancing the best interests of the
Company and its shareholders. In this connection, the Company recognizes that, as is the case with
many publicly-held corporations, the possibility of a change of control may exist and that such
possibility, and the uncertainty and questions that it may raise among management, may result in
the distraction and even the departure of senior management personnel to the detriment of the
Company and its shareholders. Accordingly, the Company’s Board of Directors has determined that
appropriate steps should be taken to reinforce and encourage the continued attention and dedication
of members of the Company’s senior management, including yourself, to their assigned duties without
distraction in the face of potentially disturbing circumstances arising from the possibility of a
change of control of the Company.

     In order to induce you to remain in the employ of the Company, and to continue your employment
notwithstanding the occurrence or threat of occurrence of a transaction that results in a change of
control of the Company, this letter agreement (“Agreement”) sets forth the benefits that the
Company agrees shall be provided to you in the event a Change of Control (as hereinafter defined in
Paragraph 3) should occur during the term of this Agreement and in the event that your employment
is thereafter terminated under such circumstances as are expressly provided in Paragraph 4.

     In making provision for the payment of these benefits, it is not the Company’s intention to
alter in any way the compensation and benefits that would be paid to you in the absence of a Change
of Control.

	1.	 	        TERM. This Agreement shall commence on [DATE] and shall continue through December
31, ___, provided, however, that commencing on January 1, ___and each January 1st
thereafter, the term of this Agreement shall automatically be extended for one additional
year, unless at least 90 days prior to such January 1st date, the Company shall have given
notice that it does not wish to extend this Agreement. Upon the occurrence of a Change of
Control during the term of this Agreement, including any extensions thereof, this Agreement
shall automatically be extended until the end of your Period of

 

 

	 	 	Employment (as hereinafter defined in Paragraph 2), and may not be terminated by the Company
during such time.
	 
	2.	 	        PERIOD OF EMPLOYMENT. Your “Period of Employment” shall commence on the date on
which a Change of Control occurs and shall end on the date that is ___months after the date
on which such Change of Control occurs. Notwithstanding the foregoing, however, your Period
of Employment shall not extend beyond the Mandatory Retirement Date (as hereinafter defined in
Paragraph 3) applicable to you.
	 
	3.	 	        CERTAIN DEFINITIONS. For purposes of this Agreement:

	 	(a)	 	A “Change of Control” shall mean

	 	(i)	 	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 the Company where such acquisition causes such Person to own 25%
or more of the combined voting power of the then outstanding voting securities
of the Company entitled to vote generally in the election of directors (the
“Outstanding Company Voting Securities”); provided, however, that for purposes
of this subsection (i), the following acquisitions shall not be deemed to
result in a Change of Control: (A) any acquisition directly from the Company
that is approved by the Incumbent Board (as defined in subsection (ii), below,
(B) any acquisition by the Company, (C) any acquisition by any employee benefit
plan (or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company or (D) any acquisition by any Person
pursuant to a transaction that complies with clauses (A), (B) and (C) of
subsection (iii) 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 (A) or (B) above, and such
Person subsequently acquires beneficial ownership of additional voting
securities of the Company, 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% of 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
meanings 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

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	 	(ii)	 	individuals who, as of the date hereof, constitute the Board
(the “Incumbent Board” (as modified by this clause (ii)) cease for any reason
to constitute at least a majority of the Board; provided, however, that any
individual becoming a director subsequent to the date hereof whose election, or
nomination for election by the Company’s shareholders, was approved by a vote
of at least a majority of the directors then comprising the Incumbent Board
(either by a specific vote or by approval of the proxy statement of the Company
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
	 
	 	(iii)	 	The consummation of a reorganization, merger or consolidation
or sale or other disposition of all or substantially all of the assets of the
Company or the acquisition of assets of another corporation, or other
transaction (“Business Combination”) excluding, however, such a Business
Combination pursuant to which (A) the individuals and entities who were the
beneficial 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 the Company or all or
substantially all of the Company’s assets either directly or through one or
more subsidiaries) (B) no Person (excluding any employee benefit plan (or
related trust) of the Company, the Company 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 (C) 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
	 
	 	(iv)	 	approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company except pursuant to a Business
Combination that complies with clauses (A), (B) and (C) of subsection (iii),
above.

	 	(b)	 	The term “Mandatory Retirement Date” shall mean the compulsory retirement date,
if any, established by the Company for those executives of the Company

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	 	 	 	who, by reason of their positions and the size of their nonforfeitable annual
retirement benefits under the Company’s pension, profit-sharing, and deferred
compensation plans, are exempt from the provisions of the Age Discrimination in
Employment Act, 29 U.S.C. Sections 621, et seq., which date shall not in any event
be earlier for any executive than the last day of the month in which such executive
reaches age 65.

	4.	 	        COMPENSATION UPON TERMINATION OF EMPLOYMENT. If, during the Period of Employment,
the Company shall terminate your employment for any reason (other than for a reason and as
expressly provided in Paragraph 5 hereof), or if you shall terminate your employment for “Good
Reason” (as hereinafter defined in subparagraph 4(f)), then the Company shall be obligated to
compensate you as follows:

	 	(a)	 	The Company shall, at your election (which shall be made on the signing of this
Agreement and which may be changed by you as of any January 1st that occurs prior to a
Change of Control by giving prior written notice of such change to the Company), either
(i) continue your base salary at the rate in effect immediately prior to the Change of
Control or, if greater, immediately prior to the Date of Termination (as hereinafter
defined in Paragraph 7) (“Base Salary”) for a period equal to the shorter of (A) [12 or
24 or 36] months, commencing on the Date of Termination, or (B) the period from the
Date of Termination to your Mandatory Retirement Date, if any (whichever period applies
shall hereinafter be known as the “Payment Period”) or (ii) pay to you in a lump sum,
by not later than the fifth day following the Date of Termination, an amount equal to
one-twelfth of your annualized Base Salary, multiplied by the number of months,
including fractional months, in the Payment Period;
	 
	 	(b)	 	By not later than the fifth day following the Date of Termination, the Company
shall pay you in a lump sum an amount equal to the product of (x) the number of months,
including fractional months, in the Payment Period and (y) under the Company’s annual
bonus or similar incentive plan (the “Annual Incentive Plan”), one-twelfth of your
“target annual incentive amount” in effect prior to the Change of Control for the
calendar year in which the Change of Control occurs. Your “target annual incentive
amount” under the Annual Incentive Plan is determined by multiplying your salary range
midpoint by the incentive target percentage that is applicable to your incentive
category under such Plan;
	 
	 	(c)	 	     

	 	(i)	 	The Company shall maintain in full force and effect, for your
continued benefit, for the Payment Period, all health and welfare benefit plans
and programs or arrangements in which you were entitled to participate
immediately prior to the Date of Termination, as long as your continued
participation is possible under the general terms and provisions of such plans
and programs. In the event that your participation in any such plan or program
is barred, the Company shall provide you with benefits substantially similar to
those to which you would have been entitled to

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	 	 	 	receive under such plans and programs, had you continued to participate in
them as an employee of the Company plus an amount in cash equal to the
amount necessary to cause the amount of the aggregate after-tax compensation
and employee benefits you receive pursuant to this provision to be equal to
the aggregate after-tax value of the benefits that you would have received
if you continued to receive such benefits as an employee. Notwithstanding
the preceding two sentences, this subsection 4(c)(i) shall not restrict the
Company’s right to modify or discontinue any benefit; provided, however,
that you shall not be treated less favorably than similarly situated active
employees (including non-highly compensated, salaried employees as similarly
situated for such purpose) who were employed by the Company immediately
prior to the Change of Control.
	 
	 	(ii)	 	If you have met the requirements for retirement eligibility
under the Company’s general retirement policies on the Date of Termination, the
Company shall provide you after the end of the Payment Period with those health
and welfare benefits, if any, as in effect from time to time, to which you
would have been entitled under the Company’s general retirement policies if you
had been eligible to retire and you had retired immediately prior to the Change
of Control, with the Company paying that percentage of the premium cost of the
plans that it would have paid under the terms of the plans in effect
immediately prior to the Change of Control with respect to individuals who
retire at age 65, regardless of your actual age on the Date of Termination. If
the percentage of premium cost that the Company pays for you is greater than
the percentage of premium cost that the Company pays for other similarly
situated retirees, the Company may treat the differential amount as taxable to
you and pay you an additional amount in cash equal to the amount necessary to
cause the after-tax value of the benefit that you receive to be equal to the
after-tax value of the benefit you would have received had the Company not
treated the differential amount as taxable to you. Notwithstanding the
preceding two sentences, this subsection 4(c)(ii) shall not restrict the
Company’s right to modify or discontinue any benefit, or the portion of the
premium cost thereof paid by the Company; provided, however, that you shall not
be treated less favorably with respect to any such modification or
discontinuance than similarly situated individuals (including non-highly
compensated, salaried employee retirees as similarly situated for such purpose)
who retired at or after age 65 under the terms and conditions in effect
immediately prior to the Change of Control (or under the terms and conditions
that would have applied to persons who were eligible to retire, if they had
retired, immediately prior to the Change of Control);

	 	(d)	 	The Company shall, for one year after the Date of Termination, provide
financial planning services substantially similar to what you were entitled to receive
immediately prior to the Change of Control; and

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	 	(e)	 	 

	 	(i)	 	The Company shall, in addition to the benefits to which you are
entitled under the retirement plans or programs in which, as of immediately
prior to the Change of Control, you both participate and are actually accruing
benefits, pay you in a lump sum in cash at your normal retirement date (or
earlier retirement date should you so elect), as defined in such retirement
plans or programs, an amount equal to the excess, if any, of (A) the actuarial
equivalent of the retirement pension to which you would have been entitled
under the terms of such retirement plans or programs had you accumulated
additional years of continuous service under such plans equal in length to your
Payment Period, over (B) the actuarial equivalent of the retirement pension to
which you are entitled under the terms of such retirement plans or programs,
determined without regard to this subsection (i). For purposes of subsection
(i), (w) the terms of a retirement plan or program shall be those in effect
immediately prior to the Change of Control or the Date of Termination,
whichever is more favorable to you; (x) the length of the Payment Period shall
be added to total years of continuous service for determining vesting and the
amount of benefit accrual and to the age that you will be considered to be for
the purposes of determining eligibility for normal or early retirement
calculations; (y) your actual age shall be used for determining the amount of
any actuarial reduction; and (z) for the purposes of calculating benefit
accrual, the amount of compensation you shall be deemed to have received during
each month of your Payment Period shall be equal to the sum of your Base Salary
prorated on a monthly basis, plus under the Annual Incentive Plan, one-twelfth
of your “target annual incentive amount” in effect prior to the Change of
Control for the calendar year in which the Change of Control occurs. For
purposes of this subsection (i), “retirement plan or program” shall mean any
plan or program to the extent such plan or program is a “defined benefit plan,”
within the meaning of Section 3(35) of the Employee Retirement Income Security
Act of 1974, as amended (“ERISA”); and “actuarial equivalent” shall be
determined using the same methods and assumptions as those utilized immediately
prior to the Change of Control under the applicable retirement plan or program
in which you participate for purposes of this subsection (i).
	 
	 	(ii)	 	The Company shall, in addition to the benefits to which you are
entitled under any defined contribution plans and programs in which, as of
immediately prior to the Change of Control, you are eligible to participate and
receive employer contributions, pay you in a lump sum in cash within 30
calendar days following the Date of Termination an amount equal to the product
of (A) the sum of all amounts payable to you under subparagraphs 4(a) and 4(b),
multiplied by (B) the sum of (x) the aggregate maximum percentage(s) of
eligible compensation you were eligible to receive as employer matching
contributions under all such defined contribution plans for the plan year(s) in
which occurs the Change

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	 	 	 	of Control or the Date of Termination, whichever is more favorable to you,
determined without regard to any change in any such plan adverse to you
adopted after the Change of Control, plus (y) the aggregate maximum
percentage(s) of eligible compensation you were eligible to receive as
employer non-elective contributions under all such defined contribution
plans for the plan year(s) in which occurs the Change of Control or the Date
of Termination, whichever is more favorable to you, determined without
regard to any change in any such plan adverse to you adopted after the
Change of Control. For purposes of this subsection (ii), defined
contribution plan or program shall mean any plan or program to the extent
such plan or program is a “defined contribution plan,” within the meaning of
Section 3(34) of ERISA; “employer matching contributions” shall mean those
employer contributions that are conditioned upon your making employee
after-tax contributions and/or employee pre-tax contributions and that are
not “discretionary contributions” (as hereinafter defined), but in no event
shall employer matching contributions be deemed to include employee pre-tax
contributions regardless of whether employee pre-tax contributions are
considered employer contributions for any purpose; “employer non-elective
contributions” shall mean employer contributions that are not employer
matching contributions and that are not “discretionary contributions” (as
hereinafter defined); “discretionary contributions” shall mean employer
contributions that under the terms of the applicable defined contribution
plan as in effect immediately prior to the Change of Control or the Date of
Termination, whichever is more favorable to you, were not required to be
made, determined without regard to any requirement that the participant be
employed during the plan year or at another relevant time in order to be
eligible to receive such contributions, except that an employer contribution
that would otherwise be considered a discretionary contribution under this
definition shall not be considered a discretionary contribution if prior to
the Date of Termination, the Company (or other employer related to the
Company maintaining the plan) has communicated to participants in such plan
that such contribution will, or is likely to, be made. For purposes of
determining the maximum percentage of eligible compensation you were
eligible to receive as employer matching contributions and/or for purposes
of determining the maximum percentage of eligible compensation you were
eligible to receive as employer non-elective contributions, if under the
terms of the applicable defined contribution plan the contribution structure
is a per capita structure or a step-rate or similar structure, or if the
contribution structure has changed during the plan year, then the maximum
percentage shall be determined or adjusted as necessary or appropriate to
carry out the intent of this subsection (ii); provided that if you are also
covered with respect to any such defined contribution plan (the “first
plan”) by another defined contribution plan that provides for contributions
in respect of any limitations under the terms of the first plan,

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	 	 	 	there shall be no duplication of payment with respect to those arrangements.

	 	(f)	 	For purposes of this Agreement, “Good Reason” shall mean:

	 	(i)	 	except as a result of the termination of your employment
pursuant to Paragraph 5 hereof and without your express written consent, (A)
one or more changes in your duties, responsibilities, reporting relationships
and status that, when considered in the aggregate as compared with your duties,
responsibilities, reporting relationships and status immediately prior to a
Change of Control, constitute a material demotion, [FOR ALL EXECUTIVES EXCEPT
THE CHIEF EXECUTIVE OFFICER, CHIEF FINANCIAL OFFICER AND CHIEF LEGAL OFFICER:
except that a diminution in your duties or responsibilities that occurs solely
because the Company is no longer an independent publicly-held entity shall not
be deemed to be a reduction in your duties or responsibilities,] (B) the
assignment to you of new duties or responsibilities that, in the aggregate, (1)
are materially inconsistent with, and (2) materially and adversely change, your
positions, duties, responsibilities, reporting relationships and status as in
effect immediately prior to a Change of Control, (C) a reduction in your annual
Base Salary or target annual incentive amount, (D) the failure to continue your
health, welfare and retirement benefits, perquisites, vacation policy, fringe
benefits, long-term incentive compensation programs, and relocation benefits
and policies (including indemnification against loss on the sale of your
residence in connection with your relocation) on either a substantially similar
basis or with substantially similar aggregate economic value, as compared with
immediately prior to a Change of Control, (E) the Company requires that you
change the principal location of your work, which results in an additional
commute of more than 50 miles, or (F) the Company requires you to travel away
from your office in the course of discharging your responsibilities or duties
at least one-third more (in terms of aggregate days in any calendar year or in
any calendar quarter when annualized for purposes of comparison) than was
required of you for the calendar year immediately preceding the Change of
Control;
	 
	 	(ii)	 	the failure of the Company to obtain the assumption of and the
agreement to perform this Agreement by any successor as contemplated in
Paragraph 11 hereof; [or]
	 
	 	(iii)	 	any purported termination of your employment that is not
effected pursuant to a Notice of Termination satisfying the requirements of
Paragraph 6 hereof[./; or]

          (iv) [FOR THE CHIEF EXECUTIVE OFFICER, CHIEF FINANCIAL OFFICER AND CHIEF LEGAL OFFICER:
your election to terminate your employment

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with the Company for any reason during the 30-day period immediately following the
first anniversary of the first occurrence of a Change of Control.]

     In order to have Good Reason, you must give the Company a Notice of Termination satisfying the
requirements of Paragraph 6 [FOR THE CHIEF EXECUTIVE OFFICER, CHIEF FINANCIAL OFFICER AND CHIEF
LEGAL OFFICER: , except with respect to (iv) above,] within 60 calendar days of the occurrence of
the event that constitutes Good Reason. For purposes of subsections (i)(A), (i)(B) and (i)(D) of
subparagraph 4(f), Good Reason shall exist only if the Company fails to remedy the event or events
constituting Good Reason within (x) 90 calendar days after receipt of the Notice of Termination
from you, if the Notice was received by the Company within 90 calendar days after a Change of
Control, or (y) 30 calendar days, for all other Notices. For purposes of subsection (i)(C) of
subparagraph 4(f), Good Reason shall exist only if the Company fails to remedy the event or events
constituting Good Reason within five business days after receipt of the Notice of Termination from
you.

	5.	 	        TERMINATION FOR CAUSE. If your employment is terminated for any of the following
reasons and in accordance with the provisions of this Paragraph 5, you shall not be entitled
by virtue of this Agreement to any of the benefits provided in the foregoing Paragraph 4:

	 	(a)	 	If, as a result of your incapacity due to physical or mental illness, you shall
have been absent from your duties with the Company on a full-time basis for 120
consecutive business days, and within thirty (30) days after a written Notice of
Termination (as hereinafter defined in Paragraph 6) is given, you shall not have
returned to the full-time performance of your duties;
	 
	 	(b)	 	If the Company shall have Cause. For the purposes of this Agreement, the
Company shall have “Cause” to terminate your employment hereunder upon (i) the willful
and continued failure by you to substantially perform your duties with the Company,
which failure causes material and demonstrable injury to the Company (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 the Board which specifically
identifies the manner in which the Board believes that 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 (ii) the
willful engaging by you in other gross misconduct materially and demonstrably injurious
to the Company. For purposes of this paragraph, 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 the Company.

     Notwithstanding the foregoing, you shall not be deemed to have been terminated for Cause
unless and until there shall have been delivered to you a Notice of Termination which shall include
a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the
entire membership of the Board (excluding you for this purpose, if you are then a member of the
Board) at a meeting of the Board called and held for the purpose (after reasonable

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notice to you and an opportunity for you, together with your counsel, to be heard before the
Board), finding that in the good faith opinion of the Board you were guilty of conduct set forth
above in clauses (i), including the expiration of the Cure Period without the correction of your
performance, or (ii) of the preceding subparagraph and specifying the particulars thereof in
detail.

	 	(c)	 	If you die while employed by the Company or if you retire from such employment
during your Period of Employment, then you shall not be entitled to any of the benefits
provided by this Agreement and the benefits to which you or your beneficiary shall be
entitled shall be determined without regard to the provisions hereof.

	6.	 	        NOTICE OF TERMINATION. Any termination of your employment by the Company or any
termination by you for Good Reason shall be communicated by written notice to the other party
hereto. For purposes of this Agreement, such notice shall be referred to as a “Notice of
Termination.” Such notice shall, to the extent applicable, set forth the specific reason for
termination, and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of your employment under the provision so indicated.

	7.	 	        DATE OF TERMINATION. “Date of Termination” shall mean:

	 	(a)	 	If you terminate your employment for Good Reason, the date specified in the
Notice of Termination, but in no event more than sixty (60) days after Notice of
Termination is given, subject, however, to the expiration of the 90-day or five-day
period specified in subparagraph 4(f), if applicable, in which the Company may remedy
the event or events constituting Good Reason, except to the extent such remedy period
is waived by the Company;
	 
	 	(b)	 	If your employment is terminated for Cause under subparagraph 5(b), the date on
which a Notice of Termination is given, except that the Date of Termination shall not
be any date prior to the date on which the Cure Period expires without the correction
of your performance;
	 
	 	(c)	 	If your employment pursuant to this Agreement is terminated following absence
due to physical incapacity, under subparagraph 5(a), then the Date of Termination shall
be thirty (30) days after Notice of Termination is given (provided that you shall not
have returned to the performance of your duties on a full-time basis during such thirty
(30) day period); or
	 
	 	(d)	 	If your employment is terminated by the Company other than under subparagraph
7(b) or 7(c), the date specified in the Notice of Termination.

     Subject to subparagraph 10(b), a termination of employment by either the Company or by you
shall not affect any rights you or your surviving spouse may have pursuant to any other agreement
or plan of the Company providing benefits to you, except as provided in such agreement or plan.

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	8.	 	        CERTAIN ADDITIONAL PAYMENTS.

	 	(a)	 	Anything in this Agreement to the contrary notwithstanding, in the event it
shall be determined (as hereafter provided) that any payment or distribution by the
Company or any of its affiliates to you or for your benefit (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Paragraph 8)
(a “Payment”) would be subject to the excise tax imposed by Section 4999 (or any
successor provisions) of the Internal Revenue Code of 1986, as amended (the “Code”), or
to any similar tax imposed by state or local law, or any interest or penalties are
incurred by you with respect to such excise tax (such tax or taxes, together with any
such interest and penalties, are hereinafter collectively referred to as the “Excise
Tax”), then you shall be entitled to receive an additional payment or payments
(collectively, a “Gross-Up Payment”) in an amount such that after payment by you of all
taxes (including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties imposed
with respect thereto) and Excise Tax imposed on the Gross-Up Payment, you retain an
amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. For
purposes of determining the amount of the Gross-Up Payment, you shall be considered to
pay (x) federal income taxes at the highest rate in effect in the year in which the
Gross-Up Payment will be made and (y) state and local income taxes at the highest rate
in effect in the state or locality in which the Gross-Up Payment would be subject to
state or local tax, net of the maximum reduction in federal income tax that could be
obtained from deduction of such state and local taxes.
	 
	 	(b)	 	Subject to the provisions of subparagraph 8(c), all determinations required to
be made under this Paragraph 8, including whether and when such a Gross-Up Payment is
required and the amount of such Gross-Up Payment and the assumptions to be utilized in
arriving at such determination, shall be made by the accounting firm that was,
immediately prior to the Change of Control, the Company’s independent auditor (the
“Accounting Firm”), which shall provide detailed supporting calculations both to the
Company and to you within fifteen (15) business days of the receipt of notice from you
that there has been a Payment, or such earlier time as is requested by the Company. In
the event that the Accounting Firm is serving as accountant or auditor for the
individual, entity or group effecting the Change of Control, you shall appoint another
nationally recognized accounting firm to make the determinations required hereunder
(which accounting firm shall then be referred to as the Accounting Firm hereunder).
All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any
Gross-Up Payment, as determined pursuant to this Paragraph 8, shall be paid by the
Company to you within five (5) days of the receipt of the Accounting Firm’s
determination. If the Accounting Firm determines that no Excise Tax is payable by you,
it shall furnish you with a written opinion that you have substantial authority not to
report any Excise Tax on your federal, state or local income or other tax return with
respect to such benefit or amount. Any determination by the Accounting Firm shall be
binding upon the Company and

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	 	 	 	you. As a result of the uncertainty of the application of Section 4999 of the Code
and the possibility of similar uncertainty regarding applicable state or local tax
law at the time of the initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments that will not have been made by the Company should
have been made (“Underpayment”), consistent with the calculations required to be
made hereunder. In the event that the Company exhausts or fails to pursue its
remedies pursuant to subparagraph 8(c) and you thereafter are required to make a
payment of any Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall be promptly paid by
the Company to you or for your benefit.
	 
	 	(c)	 	You shall notify the Company in writing of any claim by the Internal Revenue
Service or any other taxing authority that, if successful, would require the payment by
the Company of the Gross-Up payment. Such notification shall be given as soon as
practicable but no later than ten (10) business days after you are informed in writing
of such claim and shall apprise the Company of the nature of such claim and the date on
which such claim is requested to be paid. You shall not pay such claim prior to the
expiration of the thirty (30) day period following the date on which it gives such
notice to the Company (or such shorter period ending on the date that any payment of
taxes with respect to such claim is due). If the Company notifies you in writing prior
to the expiration of such period that it desires to contest such claim, you shall:

	 	(i)	 	give the Company any information reasonably requested by the
Company relating to such claim,
	 
	 	(ii)	 	take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim
by an attorney reasonably selected by the Company,
	 
	 	(iii)	 	cooperate with the Company in good faith in order effectively
to contest such claim, and
	 
	 	(iv)	 	permit the Company to participate in any proceedings relating
to such claim; provided, however, that the Company shall bear and pay directly
all costs and expenses (including additional interest and penalties) incurred
in connection with such contest and shall indemnify and hold you harmless, on
an after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions
of this subparagraph 8(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of any such claim and may, at its sole option,
either direct you to pay the tax claimed and sue for a refund or contest the
claim in any permissible

 - 12 - 

 

	 	 	 	manner, and you agree to prosecute such contest to a determination before
any administrative tribunal, in a court of initial jurisdiction and in one
or more appellate courts, as the Company shall determine; provided, however,
that if the Company directs you to pay such claim and sue for a refund, the
Company shall advance the amount of such payment to you, on an interest-free
basis and shall indemnify and hold you harmless, on an after-tax basis, from
any Excise Tax or income tax (including interest or penalties with respect
thereto) imposed with respect to such advance or with respect to any imputed
income with respect to such advance; and further provided that any extension
of the statute of limitations relating to payment of taxes for your taxable
year with respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the Company’s control
of the contest shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and you shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.

	 	(d)	 	If, after the receipt by you of an amount advanced by the Company pursuant to
subparagraph 8(c), you become entitled to receive any refund with respect to such
claim, you shall (subject to the Company’s complying with the requirements of
subparagraph 8(c)) promptly pay to the Company the amount of such refund (together with
any interest paid or credited thereon after taxes applicable thereto). If, after the
receipt by you of an amount advanced by the Company pursuant to subparagraph 8(c), a
determination is made that you shall not be entitled to any refund with respect to such
claim and the Company does not notify you in writing of its intent to contest such
denial of refund prior to the expiration of thirty (30) days after such determination,
then such advance shall be forgiven and shall not be required to be repaid and the
amount of such advance shall offset, to the extent thereof, the amount of Gross-Up
Payment required to be paid.
	 
	 	(e)	 	You and the Company shall each provide the Accounting Firm access to and copies
of any books, records and documents in your possession or the Company’s possession, as
the case may be, as reasonably requested by the Accounting Firm, and otherwise
cooperate with the Accounting Firm in connection with the preparation and issuance of
the determinations and calculations contemplated by this Paragraph 8.
	 
	 	(f)	 	The federal, state and local income or other tax returns filed by you shall be
prepared and filed on a consistent basis with the determination of the Accounting Firm
with respect to the Excise Tax payable by you. You shall report and make proper
payment of the amount of any Excise Tax, and at the request of the Company, provide to
the Company true and correct copies (with any amendments) of your federal income tax
return as filed with the Internal Revenue Service and corresponding state and local tax
returns, if relevant, as filed with the applicable taxing authority, and such other
documents reasonably requested by the Company, evidencing such payment. If prior to
the filing of your federal

 - 13 - 

 

	 	 	 	income tax return, or corresponding state or local tax return, if relevant, the
Accounting Firm determines that the amount of the Gross-Up Payment should be
reduced, you shall within five business days pay to the Company the amount of such
reduction.
	 
	 	(g)	 	Notwithstanding any provision of this Agreement to the contrary, but giving
effect to any redetermination of the amount of Gross-Up payments otherwise required by
this Paragraph 8, if (i) but for this sentence, the Company would be obligated to make
a Gross-Up Payment to you, and (ii) the aggregate “present value” of the “parachute
payments” to be paid or provided to you under this Agreement or otherwise does not
exceed 1.05 multiplied by three times your “base amount,” then the payments and
benefits to be paid or provided under this Agreement shall be reduced (or repaid to the
Company, if previously paid or provided) to the minimum extent necessary so that no
portion of any payment or benefit to you, as so reduced or repaid, constitutes an
“excess parachute payment.” For purposes of this subparagraph 8(g), the terms “excess
parachute payment,” “present value,” “parachute payment,” and “base amount” shall have
the meanings assigned to them by Section 280G of the Code. The determination of
whether any reduction in or repayment of such payments or benefits to be provided under
this Agreement is required pursuant to this subparagraph 8(g) shall be made at the
expense of the Company, if requested by you or the Company, by the Accounting Firm.
Appropriate adjustments shall be made to amounts previously paid to you, or to amounts
not paid pursuant to this subparagraph 8(g), as the case may be, to reflect properly a
subsequent determination that you owe more or less Excise Tax than the amount
previously determined to be due. In the event that any payment or benefit intended to
be provided under this Agreement or otherwise is required to be reduced or repaid
pursuant to this subparagraph 8(g), you shall be entitled to designate the payments
and/or benefits to be so reduced or repaid in order to give effect to this subparagraph
8(g). The Company shall provide you with all information reasonably requested by you
to permit you to make such designation. In the event that you fail to make such
designation within 10 business days prior to the Date of Termination or other due date,
the Company may effect such reduction or repayment in any manner it deems appropriate.

	9.	 	        COVENANTS.

	 	(a)	 	[For 24 and 36 month agreements only:] During the term of this Agreement
specified in Paragraph 1 (the “Term”) and for a period ending one year following the
Date of Termination, if you have received or are receiving benefits under this
Agreement, you shall not, without the prior written consent of an officer of the
Company, directly or indirectly, engage in any Competitive Activity. For this purpose,
“Competitive Activity” means your participation in the management of any business
enterprise if such enterprise engages in substantial and direct competition with the
Company and such enterprise’s sales of any product or service competitive with any
product or service of the Company amounted to 10% of such enterprise’s net sales for
its most recently completed fiscal year and if the

 - 14 - 

 

	 	 	 	Company’s net sales of said product or service amounted to 10% of the Company’s net
sales for its most recently completed fiscal year. “Competitive Activity” shall not
include (i) the mere ownership of securities in any publicly-traded enterprise, if
such ownership is less than 5% of the outstanding voting securities or units of such
enterprise or (ii) participation in the management of any such enterprise other than
in connection with the competitive operations of such enterprise.
	 
	 	(b)	 	During the Term, the Company agrees that it will disclose to you its
confidential or proprietary information (as defined in this subparagraph 9(b)) to the
extent necessary for you to carry out your obligations to the Company. You hereby
covenant and agree that you will not during the Term or thereafter disclose to any
person not employed by the Company, or use in connection with engaging in competition
with the Company, any confidential or proprietary information of the Company. For
purposes of this Agreement, the term “confidential or proprietary information” shall
include all information of any nature and in any form that is owned by the Company and
that is not publicly available (other than by your breach of this subparagraph 9(b)) or
generally known to persons engaged in businesses similar or related to those of the
Company. Confidential or proprietary information shall include, without limitation,
the Company’s financial matters, customers, employees, industry contracts, strategic
business plans, product development (or other proprietary product data), marketing
plans, and all other secrets and all other information of a confidential or proprietary
nature. For purposes of the preceding two sentences, the term “Company” shall also
include any subsidiary controlled by the Company (collectively, the “Restricted
Group”). The foregoing obligations imposed by this subparagraph 9(b) shall not apply
(i) during the Term, in the course of the business of and for the benefit of the
Company, (ii) if such confidential or proprietary information has become, through no
fault of yours, generally known to the public or (iii) if you are required by law to
make disclosure (after giving the Company notice and an opportunity to contest such
requirement). These rights of the Company are in addition to and without limitation to
those rights and remedies otherwise available by law for protection of the types of
such confidential or proprietary information.
	 
	 	(c)	 	You hereby covenant and agree that during the Term and for a period ending one
year after the Date of Termination you will not, without the prior written consent of
the Company, on your behalf or on behalf of any person, firm or company, directly or
indirectly, attempt to influence, persuade or induce, or assist any other person in so
persuading or inducing, any employee or customer of the Restricted Group to give up, or
to not commence, employment or a business relationship with the Restricted Group.
	 
	 	(d)	 	You and the Company agree that the covenants contained in this Paragraph 9 are
reasonable under the circumstances, and further agree that if in the opinion of any
court of competent jurisdiction any such covenant is not reasonable in any respect,
such court shall have the right, power and authority to excise or modify any provision
or provisions of such covenants as to the court will appear not

 - 15 - 

 

	 	 	 	reasonable and to enforce the remainder of the covenants as so amended. You
acknowledge and agree that the remedy at law available to the Company for breach of
any of your obligations under this Paragraph 9 would be inadequate and that damages
flowing from such a breach may not readily be susceptible to being measured in
monetary terms. Accordingly, you acknowledge, consent and agree that, in addition
to any other rights or remedies that the Company may have at law, in equity or under
this Agreement, upon adequate proof of your violation of any such provision of this
Agreement, the Company shall be entitled to immediate injunctive relief and may
obtain a temporary order restraining any threatened or further breach, without the
necessity of proof of actual damage.

	10.	 	       NO OBLIGATION TO MITIGATE DAMAGES; NO EFFECT ON OTHER CONTRACTUAL RIGHTS.

	 	(a)	 	You shall not be required to refund the amount of any payment or employee
benefit provided for or otherwise mitigate damages under this Agreement by seeking
other employment or otherwise, nor shall the amount of any payment or benefit provided
for under this Agreement be reduced by any compensation or the value of any benefits
earned by you as the result of any employment by another employer after the date of
termination of your employment with the Company, or otherwise. Subject to subparagraph
10(b), the provisions of this Agreement, and any payment or benefit provided for
hereunder, shall not reduce any amount otherwise payable, or in any way diminish your
existing rights, or rights which would occur solely as a result of the passage of time,
under any other agreement, contract, plan or arrangement with the Company.
	 
	 	(b)	 	To the extent, and only to the extent, a payment or benefit that is paid or
provided under this Agreement would also be paid or provided under the terms of another
plan, program, agreement or arrangement of, or assumed by, the Company or any of its
affiliates, including, without limitation, any Employment Agreement or Management
Continuity Agreement, such applicable plan, program, agreement or arrangement shall be
deemed to have been satisfied by the payment made or benefit provided under this
Agreement.

	11.	 	       SUCCESSORS AND BINDING AGREEMENT.

	 	(a)	 	The Company shall require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business or assets of the Company, by agreement in form and substance satisfactory to
you, to assume and agree to perform this Agreement.
	 
	 	(b)	 	This Agreement shall be binding upon the Company and any successor of or to the
Company, including, without limitation, any person acquiring directly or indirectly all
or substantially all of the assets of the Company whether by merger, consolidation,
sale or otherwise (and such successor shall thereafter be deemed “the Company” for the
purposes of this Agreement), but shall not otherwise be assignable by the Company.

 - 16 - 

 

	 	(c)	 	This Agreement shall inure to the benefit of and be enforceable by you and your
personal or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If you should die while any amounts would still
be payable to you pursuant to Paragraph 4 hereunder if you had continued to live, all
such amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to your devisee, legatee, or other designee or, if there be no
such designee, to your estate.

	12.	 	        NOTICES. For the purposes of this Agreement, notices and all other communications
provided for in the Agreement shall be in writing and shall be deemed to have been duly given
when delivered or mailed by United States registered mail, return receipt requested, postage
prepaid, addressed to the respective addresses set forth on the first page of this Agreement,
provided that all notices to the Company shall be directed to the attention of the Chief
Executive Officer of the Company with a copy to the Secretary of the Company, or to such other
address as either party may have furnished to the other in writing in accordance herewith,
except that notices of change of address shall be effective only upon receipt.

	13.	 	        GOVERNING LAW. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Ohio, without giving effect to the
principles of conflict of laws of such State.

	14.	 	        MISCELLANEOUS. No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in a writing signed by you and the
Company. No waiver by either party hereto at any time of any breach by the other party hereto
or compliance with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same
or at any prior or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof, have been made by either party
which are not set forth expressly in this Agreement. [FOR THE CHIEF EXECUTIVE OFFICER, CHIEF
FINANCIAL OFFICER AND CHIEF LEGAL OFFICER: This Agreement supersedes, as of the date first
above written, any prior agreements between you and the Company covering the same subject of
this Agreement. You agree that you have no further rights under any such prior agreement.]
References to Paragraphs and subparagraphs are to paragraphs and subparagraphs of this
Agreement. Any reference in this Agreement to a provision of a statute, rule or regulation
shall also include any successor provision thereto.

	15.	 	        VALIDITY. The invalidity or unenforceability of any provisions of this Agreement
shall not affect the validity or enforceability of any other provision of this Agreement which
shall remain in full force and effect.

	16.	 	        COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original, but all of which together will constitute one and the
same agreement.

 - 17 - 

 

	17.	 	        WITHHOLDING OF TAXES. The Company may withhold from any amounts payable under this
Agreement all federal, state, city or other taxes as shall be required pursuant to any law or
government regulation or ruling.

	18.	 	        NONASSIGNABILITY. This Agreement is personal in nature and neither of the parties
hereto shall, without the consent of the other, assign or transfer this Agreement or any
rights or obligations hereunder, except as provided in Paragraph 11 above. Without limiting
the foregoing, your right to receive payments hereunder shall not be assignable or
transferable, whether by pledge, creation of a security interest or otherwise, other than by a
transfer by your will or by the laws of descent and distribution and in the event of any
attempted assignment or transfer contrary to this Paragraph 18, the Company shall have no
liability to pay any amounts so attempted to be assigned or transferred.

	19.	 	        DISPUTE RESOLUTION.

	 	(a)	 	All disputes arising out of, relating to or concerning this Agreement, the
breach of this Agreement, your termination, or the termination of your employment shall
be resolved pursuant to this Paragraph 19. This includes all claims or disputes
whether arising in tort or contract and whether arising under statute or common law,
including, without limitation, Ohio Revised Code Chapter 4112.01 et seq., Ohio Revised
Code Section 4117.01, Title VII of the Civil Rights Act of 1964, as amended, the
Americans with Disabilities Act, the Age Discrimination in Employment Act of 1967, as
amended, and all other federal and state employment statutes. Any such dispute shall
be resolved by arbitration held in Cleveland, Ohio, under the then-current Employment
Dispute rules of the American Arbitration Association (“AAA”). The arbitration shall
be governed by the United States Arbitration Act, 9 U.S.C. §§ 1-16, and judgment on the
award rendered by the arbitrator may be entered in any court having jurisdiction
thereof. This agreement to arbitrate shall be specifically enforceable.
Notwithstanding the foregoing, the Company shall not be required to seek or participate
in arbitration regarding any breach of your covenants contained in Paragraph 9, but may
pursue its remedies for such breach in a court of competent jurisdiction in the city in
which the Company’s principal executive offices are based.
	 
	 	(b)	 	You and the Company agree that you or it must file any request for arbitration
with the AAA and serve on the other party within six (6) months after the date on which
the dispute arose and hereby waive any statute of limitations to the contrary.
	 
	 	(c)	 	The arbitrator shall have no authority to extend, modify, or suspend any of the
terms of this Agreement. The arbitrator is not empowered to award damages in excess of
compensatory damages and you and the Company hereby waive any right to recover such
damages with respect to any dispute resolved by arbitration. The Company shall pay the
fees and costs of the arbitrator. The arbitrator shall make his award in writing and
shall accompany it with an opinion discussing the evidence and setting forth the
reasons for his award. The decision of the arbitrator within the scope of the
submission shall be final and binding on you and

 - 18 - 

 

	 	 	 	the Company, and any right to judicial action on any matter subject to arbitration
hereunder is waived (unless otherwise required by applicable law), except suit to
enforce this arbitration award. If the rules of the AAA differ from those of this
Paragraph 19, the provisions of this Paragraph 19 shall control.

	20.	 	        LEGAL FEES AND EXPENSES. If a Change of Control shall have occurred, thereafter the
Company shall pay and be solely responsible for:

	 	(i)	 	100% of the first $100,000 and
	 
	 	(ii)	 	70% of any excess above $100,000, of

any and all attorneys’ and related fees and expenses incurred by you to successfully (in whole or
in part, and whether by modification of the Company’s position, agreement, compromise, settlement,
or administrative or judicial determination) enforce this Agreement or any provision hereof or as a
result of the Company or any shareholder of the Company contesting the validity or enforceability
of this Agreement or any provision hereof. To secure the foregoing obligation, the Company shall,
within 90 days after being requested by you to do so, enter into a contract with an insurance
company, open a letter of credit or establish an escrow in a form satisfactory to you.

	21.	 	        EMPLOYMENT RIGHTS. Nothing expressed or implied in this Agreement shall create any
right or duty on your part or on the part of the Company to have you remain in the employment
of the Company prior to the commencement of the Period of Employment; provided, however, that
any termination of your employment, for any reason other than those set forth in Paragraph 5,
following the commencement of any discussion with a third party, or the announcement by a
third party of the commencement of, or the intention to commence, a tender offer, or other
intention to acquire all or a portion of the equity securities of the Company that ultimately
results in a Change of Control shall (unless such termination is conclusively demonstrated to
have been wholly unrelated to any such activity relating to a Change of Control) be deemed to
be a termination of your employment after a Change of Control for purposes of this Agreement
and both the Period of Employment and the Payment Period shall be deemed to have begun on the
date of such termination.

	22.	 	        RIGHT OF SETOFF. There shall be no right of setoff or counterclaim against, or delay
in, any payment by the Company to you or your designated beneficiary or beneficiaries provided
for in this Agreement in respect of any claim against you or any debt or obligation owed by
you, whether arising hereunder or otherwise.

	23.	 	        RIGHTS TO OTHER BENEFITS. Except as provided in subparagraph 10(b), the existence of
this Agreement and your rights hereunder shall be in addition to, and not in lieu of, your
rights under any other of the Company’s compensation and benefit plans and programs, and under
any other contract or agreement between you and the Company.

	24.	 	        RELEASE. Notwithstanding any provision of this Agreement to the contrary, the
Company shall not pay or provide any compensation or benefits hereunder in connection with the
termination of your employment unless you first sign a general release

 - 19 - 

 

	 	 	substantially in the form attached hereto as Exhibit A and you do not revoke such release
during the time period set forth therein for revocation.
	 
	25.	 	        SURVIVAL. Notwithstanding any provision of this Agreement to the contrary, the
parties’ respective rights and obligations under Paragraphs 4, 8, 9, 19, 20 and 21 shall
survive any termination or expiration of this Agreement or the termination of your employment
following a Change of Control for any reason whatsoever.

 - 20 - 

 

     If this letter correctly sets forth our agreement on the subject matter hereof, kindly sign
and return to the Company the enclosed copy of this letter which will then constitute our agreement
on this subject.

	 	 	 	 	 	 	 
	 	 	Sincerely,	 	 
	 
	 	 	 	 	 	 
	 	 	POLYONE CORPORATION	 	 
	 
	 	 	 	 	 	 
	ACCEPTED AND AGREED TO
AS OF THE DATE HEREOF.	 	By direction of the Compensation Committee of the
Board of Directors	 	 
	 
	 	 	 	 	 	 
	 

	 	By	 	 	 	 
	 

[Name]

	 	 	 	 

Kenneth M. Smith
	 	 
	 

	 	 	 	Vice President and	 	 
	 

	 	 	 	Chief Human Resources Officer	 	 

     I hereby elect to take any base salary amounts which may be payable under subparagraph 4(a)

	 	 	 
	            in a lump sum
	 	 
	or          

	 	(check one)
	           in installments
	 	 
	 
	 	 

	 	 	 	 	 
	 

	 	 

[Name]
	 	 

 - 21 - 

 

Exhibit A

GENERAL RELEASE OF ALL CLAIMS

     This General Release of all Claims (this “Agreement”) is made and entered into as of
                    ,      , by and between POLYONE CORPORATION, an Ohio corporation (the “Company”),
and                                          (the “Executive”). As used in this Agreement, the term “Company”
will include its predecessors, subsidiaries, divisions, related or affiliated companies, officers,
directors, stockholders, employees, successors, assigns, representatives, agents and counsel,
unless the context clearly requires otherwise.

     In consideration of the promises set forth in this Agreement, Executive and the Company agree
as follows:

	1.	 	        Effectiveness of Agreement. This Agreement will be effective on the eighth day after
it is executed by Executive, provided that Executive has not revoked Executive’s release as
provided in Section 5.2 below (the “Effective Date”).

	2.	 	        Termination of Employment; Resignations. The parties acknowledge that Executive’s
employment relationship with the Company ceased on                                (the “Termination
Date”). Executive hereby agrees, that effective the day after the Termination Date, Executive
will resign (a) as an employee of the Company, (b) from all Company boards and offices,
including those of any affiliate or subsidiary of the Company, and (c) from all
administrative, fiduciary or other positions Executive may hold or have held with respect to
arrangements or plans for, of or relating to the Company. The Company consents to and accepts
all such resignations. After the Termination Date, neither the Company nor Executive will
represent or state to any other party that Executive has any authority to act for or on behalf
of the Company or has any relationship with the Company [other than as a stockholder].

	3.	 	        Severance. In consideration of the promises contained herein, within five (5) days
after the Effective Date, the Company will deliver to Executive a check in the amount of
$                    , payable to Executive. Such payment will be in [full and complete] satisfaction
of the Company’s obligations under Paragraphs 4(a) and 4(b) of Executive’s Management
Continuity Agreement, dated as of                     ,           (the “Management Continuity Agreement”)
and may also include all or a portion of the Company’s obligations under Paragraph 8 of the
Management Continuity Agreement. In addition, the Company acknowledges its obligation to
deliver to Executive on                     , a check in the amount of $                    , payable to Executive
in satisfaction of the Company’s obligation to Executive under Paragraph 4(e) of the
Management Continuity Agreement.

	4.	 	        Benefits. The benefits described by subparagraphs 4(c) and 4(d) of the Management
Continuity Agreement will be provided to Executive in accordance with the terms of the
Management Continuity Agreement.

	5.	 	     Mutual Releases.

A-1 

 

	 	5.1.	 	In accordance with Paragraph 24 of the
Management Continuity Agreement, in consideration for the promises
contained herein, Executive hereby releases and forever discharges the
Company from, and agrees not to sue or join in any suit against the
Company for, any and all charges, complaints, liabilities, claims,
promises, agreements, controversies, damages, causes of action, suits
or expenses of any kind or nature whatsoever, known or unknown,
foreseen or unforeseen to the date upon which Executive executes this
Agreement (collectively, “Claims”), including (but not limited to)
claims arising in any way from Executive’s employment with the Company,
Executive’s service as an officer [and director] of the Company,
Executive’s status as a shareholder of the Company, or Executive’s
agreements to resign Executive’s employment as provided in Section 2,
above, including, without limitation, any and all alleged
discrimination or acts of discrimination that occurred or may have
occurred on or before the date upon which Executive executes this
Agreement based upon race, color, sex, creed, national origin, age,
disability or any other violation of any equal employment opportunity
law, ordinance, rule, regulation or order (including, but not limited
to, Title VII of the Civil Rights Act of 1964, as amended (“Title
VII”); the Civil Rights Act of 1991; the Age Discrimination in
Employment Act of 1967, as amended (“ADEA”) (as further described in
Section 5.2 below); the Americans with Disabilities Act (“ADA”); claims
under the Employee Retirement Income Security Act of 1974, as amended
(“ERISA”); or any other federal, state or local laws or regulations
regarding employment discrimination or termination of employment) and
any claims for wrongful discharge, fraud, or misrepresentation under
any statute, rule, regulation or under the common law. Excluded from
this Agreement are any claims which cannot be waived by law, including
but not limited to the right to file a charge with or participate in an
investigation conducted by the Equal Employment Opportunity Commission
(“EEOC”). Executive is waiving, however, Executive’s right to any
monetary recovery or relief should the EEOC or any other agency pursue
any claims on Executive’s behalf.
	 
	 	5.2.	 	Executive acknowledges that the Company
encouraged Executive to consult with an attorney of Executive’s
choosing prior to executing this Agreement, and through this Agreement
encourages Executive to consult with Executive’s attorney with respect
to possible claims under the ADEA and that Executive understands that
the ADEA is a federal statute that prohibits discrimination, on the
basis of age, in employment, benefits, and benefit plans. Executive
wishes to waive any and all claims under the ADEA that Executive may
have, as of the date upon which Executive executes this Agreement,
against the Company, and hereby waives such

A-2

 

	 	 	 	claims. Executive further understands that by signing this
Agreement, Executive is in fact waiving, releasing and forever giving
up any claim under the ADEA that may have existed on or prior to the
date upon which Executive executes this Agreement. Executive
acknowledges that Executive is receiving consideration for
Executive’s waiver of any and all claims under the ADEA in addition
to anything of value to which Executive is already entitled.
Executive also acknowledges that the Company has informed Executive
that Executive has at Executive’s option, twenty-one (21) days from
the date this Agreement was first presented to Executive in order to
consider this Agreement, and, if executed prior to the expiration of
the twenty-one (21) day period, Executive does hereby knowingly and
voluntarily waive all or part of said twenty-one (21) day period.
Executive also understands that Executive has seven (7) days
following the date upon which Executive executes this Agreement
within which to revoke the release contained in this Section 5.2 (the
“Revocation Period”) by providing a written notice of Executive’s
revocation of the release and waiver contained in this Section 5.2 to
the Company. The release of claims under the ADEA contained in this
Section 5.2 does not become effective or enforceable until the
Revocation Period has expired.
	 
	 	5.3.	 	Notwithstanding the foregoing, Executive does
not, and will not, release, discharge or waive any rights to
indemnification that Executive may have under the By-Laws of the
Company, the laws of the State of Ohio, any indemnification agreement
between Executive and the Company or any insurance coverage maintained
by or on behalf of the Company, nor will the Company take any action,
directly or indirectly, to encumber or adversely affect Executive’s
rights under any such indemnification arrangement. Further, the
release contained in this Section 5 will not affect any rights granted
to Executive, or obligations of the Company, under the terms of this
Agreement or under the terms of any employee benefit plan (within the
meaning of Section 3(3) of ERISA) maintained by the Company or, except
to the extent such rights have previously been satisfied or are
satisfied pursuant to this Agreement, under the terms of the Management
Continuity Agreement.
	 
	 	5.4.	 	Except for Claims based upon fraud or
intentional misrepresentation, the Company, as a material inducement to
Executive to enter this Agreement, and in consideration of the promises
contained herein, hereby releases and forever discharges Executive, and
Executive’s family, heirs, successors, assigns, agents and attorneys
from, and agrees not to sue or join in any suit against such parties
for, any and all Claims, which the Company

A-3

 

	 	 	 	now has or owns or claims or could claim to have or own against
Executive and Executive’s family, heirs, successors, assigns, agents
and attorneys arising from Executive’s employment by the Company,
Executive’s service as an officer, employee or director of the
Company, and Executive’s status as a shareholder of the Company [,
other than                               ]; provided, however, that the release
contained in this Section 5.4 will not affect any rights granted to
the Company, or Executive’s obligations, under the terms of this
Agreement.
	 
	 	5.5.	 	All Company files, access keys, desk keys, ID
badges and credit cards, and such other property of the Company as the
Company may reasonably request, in Executive’s possession must be
returned no later than the Termination Date.
	 
	 	5.6.	 	Nothing contained in this Agreement will be
deemed or construed as an admission of wrongdoing or liability on the
part of the Company or Executive.

	6.	 	        No Mitigation or Offset. Executive is under no obligation to mitigate damages or the
amount of any payment or benefit provided for under this Agreement by seeking other employment
or otherwise. Except as otherwise expressly provided in the Management Continuity Agreement,
any and all amounts payable and benefits to be provided by the Company to Executive under the
terms of this Agreement will not be subject to set-off or counterclaim for amounts claimed by
the Company to be owed to it by Executive, but will be subject to restitution in accordance
with Section 9.8.

	7.	 	        Survival. The expiration or termination of this Agreement will not impair the rights
or obligations of any party hereto that accrue hereunder prior to such expiration or
termination, except to the extent specifically stated herein. In addition to the foregoing,
(a) Executive’s and the Company’s obligations contained in Section 5 will survive the
expiration or termination of this Agreement, and (b) the Company’s and Executive’s respective
rights and obligations as specified in Paragraph 25 of the Management Continuity Agreement
will survive any termination or expiration of this Agreement or the Management Continuity
Agreement, or the termination of the Executive’s employment for any reason whatsoever.

	8.	 	     Dispute Resolution.

	 	8.1.	 	Except to the extent governed by Section 9.8,
all disputes arising out of, relating to or concerning this Agreement
or the breach, termination or validity thereof, shall be resolved
pursuant to this Section 8. This includes all claims or disputes
whether arising in tort or contract and whether arising under statute
or common law, including, without limitation, Ohio Revised Code Chapter
4112.01 et seq., Ohio Revised Code Section 4117.01, Title VII, the ADA,
the ADEA, and all other federal and state employment statutes.

A-4

 

	 	 	 	Any such dispute shall be resolved by arbitration held in Cleveland,
Ohio, under the then-current Employment Dispute rules of the American
Arbitration Association (“AAA”). The arbitration shall be governed
by the United States Arbitration Act, 9 U.S.C. §§ 1-16, and judgment
on the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. This agreement to arbitrate shall be
specifically enforceable.
	 
	 	8.2.	 	Executive and the Company agree that either
party must file any request for arbitration with the AAA and serve on
the other party within six (6) months after the date on which the
dispute arose and hereby waive any statute of limitations to the
contrary.
	 
	 	8.3.	 	The arbitrator shall have no authority to
extend, modify, or suspend any of the terms of this Agreement. The
arbitrator is not empowered to award damages in excess of compensatory
damages and the Executive and the Company hereby waive any right to
recover such damages with respect to any dispute resolved by
arbitration. The Company shall pay the fees and costs of the
arbitrator. The arbitrator shall make his award in writing and shall
accompany it with an opinion discussing the evidence and setting forth
the reasons for his award. The decision of the arbitrator within the
scope of the submission shall be final and binding on the Executive and
the Company, and any right to judicial action on any matter subject to
arbitration hereunder is waived (unless otherwise required by
applicable law), except suit to enforce this arbitration award. If the
rules of the AAA differ from those of this Section 8, the provisions of
this Section 8 shall control.

	9.	 	     Miscellaneous Provisions.

	 	9.1.	 	Binding on successors; assignment.
This Agreement will be binding upon and inure to the benefit of the
Company, Executive and each of their respective successors, assigns,
personal and legal representatives, executors, administrators, heirs,
distributees, devisees, and legatees, as applicable; provided, however,
that neither this Agreement nor any rights or obligations hereunder
will be assignable or otherwise subject to hypothecation by Executive
(except by will or by operation of the laws of intestate succession) or
by the Company, except that the Company may assign this Agreement to
any successor (whether by merger, purchase or otherwise) to all or
substantially all of the stock, assets or businesses of the Company, if
such successor expressly agrees to assume the obligations of the
Company hereunder.

A-5

 

	 	9.2.	 	Governing law. This Agreement will be
governed, construed, interpreted and enforced in accordance with the
substantive laws of the State of Ohio, without regard to conflicts of
law principles.
	 
	 	9.3.	 	Severability. Any provision of this
Agreement that is deemed invalid, illegal or unenforceable in any
jurisdiction will, as to that jurisdiction, be ineffective to the
extent of such invalidity, illegality or unenforceability, without
affecting in any way the remaining provisions hereof in such
jurisdiction or rendering that or any other provisions of this
Agreement invalid, illegal or unenforceable in any other jurisdiction.
	 
	 	9.4.	 	Notices. For all purposes of this
Agreement, all communications, including without limitation notices,
consents, requests or approvals, required or permitted to be given
hereunder will be in writing and will be deemed to have been duly given
when hand delivered or dispatched by electronic facsimile transmission
(with receipt thereof confirmed), or five business days after having
been mailed by United States registered or certified mail, return
receipt requested, postage prepaid, or three business days after having
been sent by a nationally recognized overnight courier service such as
FedEx, UPS, or Purolator, addressed to the Company (to the attention of
the Secretary of the Company) at its principal executive office and to
Executive at Executive’s principal residence, or to such other address
as any party may have furnished to the other in writing and in
accordance herewith, except that notices of changes of address will be
effective only upon receipt.
	 
	 	9.5.	 	Counterparts. This Agreement may be
executed in several counterparts, each of which will be deemed to be an
original, but all of which together will constitute one and the same
Agreement.
	 
	 	9.6.	 	Entire agreement. The terms of this
Agreement are intended by the parties to be the final expression of
their agreement with respect to the matters addressed herein and may
not be contradicted by evidence of any prior or contemporaneous
agreement. The parties further intend that this Agreement will
constitute the complete and exclusive statement of its terms and that
no extrinsic evidence whatsoever may be introduced in any judicial,
administrative or other legal proceeding to vary the terms of this
Agreement.
	 
	 	9.7.	 	Amendments; waivers. This Agreement
may not be modified, amended, or terminated except by an instrument in
writing, signed by Executive and the Company. Failure on the part of
either party to complain of any action or omission, breach or default
on the part of the other party, no matter how long the same may
continue, will never be deemed to be a waiver of any rights or remedies

A-6

 

	 	 	 	hereunder, at law or in equity. Executive or the Company may waive
compliance by the other party with any provision of this Agreement
that such other party was or is obligated to comply with or perform
only through an executed writing; provided, however, that such waiver
will not operate as a waiver of, or estoppel with respect to, any
other or subsequent failure.
	 
	 	9.8.	 	No inconsistent actions; enforcement.
The Company and Executive will not voluntarily undertake or fail to
undertake any action or course of action that is inconsistent with the
provisions or essential intent of this Agreement. Furthermore, it is
the intent of the parties hereto to act in a fair and reasonable manner
with respect to the interpretation and application of the provisions of
this Agreement. In the event Executive initiates or voluntarily
participates in any suit (as provided in Section 5.1), or if Executive
fails to abide by any of the terms of this Agreement, the Company may,
in addition to any other remedies it may have, reclaim any amounts paid
to Executive under the provisions of this Agreement or terminate any
benefits or payments that are subsequently due under this Agreement,
without waiving the release granted herein. In the event Executive
revokes the ADEA release contained in Sections 5.1 and 5.2 within the
seven-day period provided under Section 5.2, the Company may, in
addition to any other remedies it may have, reclaim any amounts paid to
Executive under the provisions of this Agreement or terminate any
benefit or payments that are subsequently due under this Agreement.
Executive acknowledges and agrees that the remedy at law available to
the Company for breach of any of Executive’s obligations under Section
5 would be inadequate and that damages flowing from such a breach may
not readily be susceptible to being measured in monetary terms.
Accordingly, Executive acknowledges, consents and agrees that, in
addition to any other rights or remedies that the Company may have at
law, in equity or under this Agreement, upon adequate proof of
Executive’s violation of any such provision of this Agreement, the
Company will be entitled to immediate injunctive relief and may obtain
a temporary order restraining any threatened or further breach, without
the necessity of proof of actual damage. Executive understands that by
entering into this Agreement, Executive will be limiting the
availability of certain remedies that Executive may have against the
Company and limiting also Executive’s ability to pursue certain claims
against the Company.
	 
	 	9.9.	 	Headings and section references. The
headings used in this Agreement are intended for convenience or
reference only and will not in any manner amplify, limit, modify or
otherwise be used in the construction or interpretation of any
provision of this

A-7

 

	 	 	 	Agreement. All section references are to sections of this Agreement,
unless otherwise noted.
	 
	 	9.10.	 	Withholding. The Company will be
entitled to withhold from payment any amount of withholding required by
law.
	 
	 	9.11.	 	Authority. The Company represents and
warrants that it and its signatory hereto are duly authorized and
empowered to execute and enter into this Agreement without any further
action or approval.

     THIS AGREEMENT INCLUDES A COMPLETE AND PERMANENT RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS.
EXECUTIVE ACKNOWLEDGES THAT EXECUTIVE HAS READ THIS AGREEMENT AND THAT EXECUTIVE FULLY KNOWS,
UNDERSTANDS, AND APPRECIATES ITS CONTENTS, AND THAT EXECUTIVE HEREBY EXECUTES THE SAME AND MAKES
THIS AGREEMENT AND THE RELEASE AND AGREEMENTS PROVIDED FOR HEREIN VOLUNTARILY AND OF EXECUTIVE’S
OWN FREE WILL.

A-8

 

     IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above
written.

	 	 	 	 	 	 	 
	 	 	POLYONE CORPORATION,	 	 
	 	 	an Ohio corporation	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

	 	 
	 

	 	Name:	 	 	 	 
	 

	 	 	 	 

	 	 
	 

	 	Title:	 	 	 	 
	 

	 	 	 	 

	 	 
	 
	 	 	 	 	 	 
	 	 	 	 	 
	 

	 	[Executive]

A-9EX-10.91

 

EXHIBIT 10.91

EMPLOYMENT AGREEMENT

     THIS EMPLOYMENT AGREEMENT (the “Agreement”) made effective as of the 30th day of April,
2007 (the “Effective Date”) by and between ERIE INDEMNITY COMPANY, a Pennsylvania corporation with
its principal place of business at Erie, Pennsylvania (the “Company”), and James J. Tanous (the
“Executive”);

WITNESSETH:

     WHEREAS, it is in the best interests of the Company to secure the employment of the Executive
on the terms and subject to the conditions set forth in this Agreement; and

     WHEREAS, the Executive desires and is willing to accept employment with the Company on the
terms and subject to the conditions set forth herein;

     NOW THEREFORE, in consideration of the premises and mutual covenants contained herein, and
intending to be legally bound hereby, the parties hereto agree as follows:

     1. Term. The Company hereby agrees to employ the Executive and the Executive hereby
agrees to such employment with the Company pursuant to the terms and conditions of this Agreement
as Executive Vice President, Secretary and General Counsel of the Company, or in such other
position with the Company of at least commensurate responsibility and authority in all material
respects, for a term of three (3) years commencing on the Effective Date hereof and expiring on
April 29, 2010, unless earlier terminated pursuant to Section 5 hereof. The Executive shall serve
in said office(s) at the pleasure of the Company’s Chief Executive Officer (the “CEO”) and the
Executive may be removed from said office(s) at any time with or without Cause, as hereinafter
defined, pursuant to Sections 5(a) or 5(b) hereof; provided that any such removal shall be without
prejudice to any contract rights the Executive may have hereunder. This Agreement shall expire by
its terms on April 29, 2010.

     2. Duties and Responsibilities. The Executive’s duties hereunder shall be those which
shall be prescribed by the CEO from time to time, and shall include such executive authority,
duties, powers and responsibilities as customarily attend the office as Executive Vice President,
Secretary and General Counsel of a company comparable to the Company. The Executive shall
discharge such duties consistent with sound business practices and in accordance with law and the
Company’s general employment policies, in each case, as in effect from time to time, in all
material respects and the Executive shall use best efforts to promote the best interests of the
Company. During the term of this Agreement, the Executive’s position (including the Executive’s
status and reporting requirements), authority, duties, powers and responsibilities shall at all
times be at least commensurate in all material respects with the most significant of those held,
exercised or assigned to the Executive as of the Effective Date. The Executive shall devote the
Executive’s knowledge, skill and all of the Executive’s professional time, attention and energies
(reasonable absences for vacations and illness excepted), to the business of the Company in order
to perform such assigned duties faithfully, competently and diligently.

 

 

     3. Compensation. During the term of this Agreement, the Executive shall receive, for
all services rendered to the Company hereunder, the following (hereinafter referred to collectively
as “Compensation”):

     (a) Starting Bonus. The Executive shall be paid a one-time starting
bonus in the amount of $100,000 upon the execution of this Agreement. Executive
agrees that should he voluntarily end his employment with the Company for any
reason: (i) within the first twelve months of the term of this Agreement, Executive
will reimburse the Company the full amount of the starting bonus, and (ii) after the
first twelve months of the term of this Agreement, but before the expiration of
twenty-four months, then in that event the Executive will reimburse the Company a
pro-ratio of the starting bonus calculated as follows:.

Reimbursement to Company = 1 — months of employment x $100,000

24

After the expiration of 24 months of employment, there will be no requirement for
reimbursement of the Starting Bonus.

     (b) Salary. The Executive shall be paid an annual base salary at an
annual rate of $375,000. The Executive’s annual base salary shall not be reduced
during the term of this Agreement. The Executive’s annual base salary shall be
payable in equal installments in accordance with the Company’s general salary
payment policies, but no less frequently than bi-weekly.

     (c) Incentive Compensation. The Executive shall be eligible for awards
under the Company’s incentive compensation plans, if any, applicable to executive
officers of the Company or to key employees of the Company or its subsidiaries,
including, but not limited to, management incentive plans and stock plans, in
accordance with and subject to the terms thereof (including any provisions providing
for changes in the level of or termination of benefits thereunder), on a basis
commensurate with the Executive’s position and authorities, duties, powers and
responsibilities.

     (d) Employee Benefit Plans. The Executive and the Executive’s
“dependents,” as that term may be defined under the applicable employee benefit
plan(s) of the Company, shall be included, to the extent eligible thereunder and
subject to the terms of the plans (including any provisions for changing the level
of or termination of benefits thereunder), in all plans, programs and policies which
provide benefits for Company employees and their dependents on a basis commensurate
with the Executive’s position and authorities, duties, powers and responsibilities
including, without limitation, health care insurance, health and welfare plans,
pension and retirement plans, group or individual life insurance plans, short and
long-term disability plans, survivors’ benefits, executive supplemental benefits,
holidays and other similar or comparable benefits made

2

 

available to the Company’s employees (hereinafter, such plans, programs and
policies shall be collectively referred to as the “Erie Benefit Plans”).

     (e) Performance Appraisal. The Executive’s performance may be
evaluated by the CEO from time to time. The Executive shall be entitled to such
additional remuneration as the CEO, in his discretion, determines from time to time.

     4. Absences. The Executive shall be entitled to vacations in accordance with the
Company’s vacation policy in effect from time to time (but in no event shall the Executive be
entitled to fewer vacation days than under the Company’s vacation policy as in effect on the
Effective Date) and to absences because of illness or other incapacity, and shall also be entitled
to such other absences, whether for holiday, personal time, conventions, or for any other purpose,
as are customarily granted to the Company’s other officers.

     5. Termination. During the term of this Agreement, the Executive’s employment
hereunder may be terminated only as follows:

     (a) By the Company Without Cause. The CEO may at any time terminate
the Executive’s employment hereunder without Cause, and upon no less than thirty
(30) days’ prior written notice to the Executive.

     (b) By the Company For Cause. The CEO may terminate the Executive’s
employment hereunder for Cause. In such event, the CEO shall give to the Executive
prompt written notice specifying in reasonable detail the basis for such
termination. For purposes of this Agreement, “Cause” shall mean any of the
following conduct by the Executive:

	 	(1)	 	The deliberate and intentional
breach of any material provision of this Agreement, which breach
Executive shall have failed to cure within thirty (30) days
after Executive’s receipt of written notice from the Company
specifying the specific nature of the Executive’s breach;
	 
	 	(2)	 	The deliberate and intentional
engaging by Executive in gross misconduct that is materially and
demonstrably inimical to the best interests, monetary or
otherwise, of the Company; or
	 
	 	(3)	 	Conviction of a felony or
conviction of any crime involving moral turpitude, fraud or
deceit.

For purposes of this definition, no act, or failure to act, on the Executive’s part shall be
considered “deliberate and intentional” unless done, or omitted to be done, by the Executive not in
good faith and without reasonable belief that such action or omission was in the best interest of
the Company.

3

 

     (c) Disability. In the event that the Executive shall be unable to
perform the Executive’s duties hereunder on a full time basis for a period of one
hundred-eighty (180) consecutive calendar days by reason of incapacity due to
illness, accident or other physical or mental disability, then the CEO may, at his
discretion, terminate the Executive’s employment hereunder if the Executive, within
ten (10) days after receipt of written notice of termination (which notice may be
given before or after the end of the entire 180 day period), shall not have returned
to the performance of all of his duties hereunder on a full-time basis.

     (d) Death. The Executive’s employment under this Agreement shall
terminate upon the Executive’s death.

     (e) Mutual Written Agreement. This Agreement and the Executive’s
employment hereunder may be terminated at any time by the mutual written agreement
of the Executive and the Company.

     6. Compensation in the Event of Termination. In the event that the Executive’s
employment hereunder terminates prior to the expiration of this Agreement for any reason provided
in Section 5 hereof, the Company shall pay the Executive, compensation and provide the Executive
and the Executive’s eligible dependents with benefits as follows:

     (a) Termination By Company Without Cause. In the event that the
Executive’s employment hereunder is terminated by the Company without Cause pursuant
to Section 5(a) hereof, then in any such event the Company shall pay the following
compensation to the Executive:

1.5 times the Executive’s highest annual base salary plus 1.5 times
the greater of either any annual incentive award actually paid or the
annual incentive target award, calculated using the base salary and
annual incentive target award in effect immediately preceding the
Executive’s termination. Such payment to the Executive by the
Company shall be paid in a lump sum. The lump sum payment shall be
paid as soon as administratively practicable following the date of
the termination of the Executive’s employment hereunder, provided the
same is consistent with applicable law.

     (b) Termination By the Company for Cause. In the event that the
Company shall terminate the Executive’s employment hereunder for Cause pursuant to
Section 5(b), this Agreement shall forthwith terminate and the Executive shall not
be entitled to any additional compensation or severance benefit.

     (c) Disability. In the event that the Company elects to terminate the
Executive’s employment hereunder pursuant to Section 5(c), the Executive shall
continue to receive from the date of such termination through the expiration date

4

 

of this Agreement, sixty percent (60%) of the then current annual base salary
to which the Executive was entitled pursuant to Section 3(b) hereof immediately
preceding such termination, in accordance with the payroll practices of the Company
for executive officers, reduced, however, by the amount of any proceeds from Social
Security and disability insurance policies provided by and at the expense of the
Company.

     (d) Death. In the event of the death of the Executive during the term
of this Agreement, the then current annual base salary to which the Executive was
entitled pursuant to Section 3(b) hereof immediately preceding the Executive’s death
shall be paid, in twelve (12) equal monthly installments following the date of
death, to the last beneficiary designated by the Executive under the Company’s group
life insurance policy maintained by the Company or such other written designation
expressly provided to the Company for the purposes hereof or, failing either such
designation, to the Executive’s estate.

     (e) Mutual Written Consent. In the event that the Executive and the
Company shall terminate the Executive’s employment by mutual written agreement, the
Company shall pay such compensation and provide such benefits, if any, as the
parties may mutually agree upon in writing.

     (f) Taxes. Executive shall be solely responsible for any federal,
state or local income or related taxes for any payments to Executive under this
Section 6.

The Executive shall not be required to mitigate the amount of any payment provided for in this
Section 6 by seeking employment or otherwise, nor shall any amounts received from employment or
otherwise by the Executive offset in any manner the obligations of the Company hereunder except as
specifically provided in Section 6(c) hereof.

     7. Covenants as to Confidential Information and Competitive Conduct. The Executive
hereby acknowledges and agrees as follows: (i) this Section 7 is necessary for the protection of
the legitimate business interests of the Company, and (ii) the Executive has received adequate and
valuable consideration for entering into this Agreement.

     (a) Confidentiality of Information and Nondisclosure. The Executive
acknowledges and agrees that the Executive’s employment by the Company under this
Agreement necessarily involves knowledge of and access to confidential and
proprietary information pertaining to the business of the Company and its
subsidiaries. Accordingly, the Executive agrees that at all times during the term
of this Agreement and at any time thereafter, the Executive will not, directly or
indirectly, without the express written approval of the Company, unless directed by
applicable legal authority (including any court of competent jurisdiction,
governmental agency having supervisory authority over the business of the Company or
the subsidiaries, or any legislative or administrative body having supervisory
authority over the business of the Company or its subsidiaries) having

5

 

jurisdiction over the Executive, disclose to or use, or knowingly permit to be
so disclosed or used, for the benefit of himself, any person, corporation or other
entity other than the Company, (i) any information concerning any financial matters,
customer relationships, competitive status, supplier matters, internal
organizational matters, current or future plans, or other business affairs of or
relating to the Company or its subsidiaries, (ii) any management, operational,
trade, technical or other secrets or any other proprietary information or other data
of the Company or its subsidiaries, or (iii) any other information related to the
Company or its subsidiaries or which the Executive should reasonably believe will be
damaging to the Company or its subsidiaries which has not been published and is not
generally known outside of the Company. The Executive acknowledges that all of the
foregoing constitutes confidential and proprietary information, which is the
exclusive property of the Company.

     (b) Company Remedies. The Executive acknowledges and agrees that any
breach of this Section 7 will result in immediate and irreparable harm to the
Company, and that the Company cannot be reasonably or adequately compensated by
damages in an action at law. In the event of a breach by the Executive of the
provisions of this Section 7, the Company shall be entitled, to the extent permitted
by law, immediately to cease to pay or provide the Executive or the Executive’s
dependents any compensation or benefit being, or to be, paid or provided to the
Executive pursuant to this Agreement, and also to obtain immediate injunctive relief
restraining the Executive from conduct in breach of the covenants contained in this
Section 7. Nothing herein shall be construed as prohibiting the Company from
pursuing any other remedies available to it for such breach, including the recovery
of damages from the Executive.

     8. Resolution of Differences Over Breaches of Agreement. Except as otherwise provided
herein, in the event of any controversy, dispute or claim arising out of, or relating to, this
Agreement, or the breach thereof, or arising out of any other matter relating to the Executive’s
employment with the Company, the parties may seek recourse only for temporary or preliminary
injunctive relief to the courts having jurisdiction thereof and if any relief other than injunctive
relief is sought, the Company and the Executive agree that such underlying controversy, dispute or
claim shall be settled by arbitration conducted in Erie, Pennsylvania in accordance with this
Section 8 and the Commercial Arbitration Rules of the American Arbitration Association (“AAA”).
The matter shall be heard and decided, and awards rendered by a panel of three (3) arbitrators (the
“Arbitration Panel”). The Company and the Executive shall each select one arbitrator from the AAA
National Panel of Commercial Arbitrators (the “Commercial Panel”) and AAA shall select a third
arbitrator from the Commercial Panel. The award rendered by the Arbitration Panel shall be final
and binding as between the parties hereto and their heirs, executors, administrators, successors
and assigns, and judgment on the award may be entered by any court having jurisdiction thereof.
Each party shall bear sole responsibility for all expenses and costs incurred by such party in
connection with the resolution of any controversy, dispute or claim in accordance with this Section
8.

6

 

     9. Payment of Executive’s Legal Fees. If the Executive is required to bring any
action to enforce rights or to collect moneys due under this Agreement, the Company shall pay to
the Executive the fees and expenses incurred by the Executive in bringing and pursuing such action
if the Executive is successful, in whole or in part, on the merits or otherwise (including by way
of a settlement involving a payment of money by the Company to the Executive), in such action. The
Company shall pay such fees and expenses in advance of the final disposition of such action upon
receipt of an undertaking from the Executive to repay to the Company such advances if the Executive
is not ultimately successful, in whole or in part, on the merits or otherwise, in such action.

     10. Release. The Executive hereby acknowledges and agrees that neither the Company
nor any of its representatives or agents will be obligated to pay any compensation or benefit which
the Executive has a right to be paid or provided to the Executive or the Executive’s dependents,
unless the Executive, if requested by the Company in its sole discretion, executes a release in a
form reasonably acceptable to the Company, which releases any and all claims the Executive has or
may have against the Company or its subsidiaries, agents, officers, directors, successors or
assigns.

     11. Waiver. The waiver by a party hereto of any breach by the other party hereto of
any provision of this Agreement shall not operate or be construed as a waiver of any other or
subsequent breach by a party hereto.

     12. Assignment. This Agreement shall be binding upon and inure to the benefit of the
successors and assigns of the Company, and the Company shall be obligated to require any successor
to expressly acknowledge and assume its obligations hereunder. This Agreement shall inure to the
extent provided hereunder to the benefit of and be enforceable by the Executive or the Executive’s
legal representatives, executors, administrators, successors, heirs, distributees, devisees and
legatees. The Executive may not delegate any of the Executive’s duties, responsibilities,
obligations or positions hereunder to any person and any such purported delegation shall be void
and of no force and effect.

     13. Notices. Any notices required or permitted to be given under this Agreement shall
be sufficient if in writing, and if personally delivered or when sent by first class certified or
registered mail, postage prepaid, return receipt requested—in the case of the Executive, to his
residence address as set forth below, and in the case of the Company, to the address of its
principal place of business as set forth below, to the attention of the President and Chief
Executive Officer — or to such other person or at such other address with respect to each party as
such party shall notify the other in writing.

     14. Construction of Agreement.

     (a) Governing Law. This Agreement shall be governed by and construed
under the laws of the Commonwealth of Pennsylvania.

     (b) Severability. In the event that any one or more of the provisions
of this Agreement shall be held to be invalid, illegal or unenforceable, the
validity,

7

 

legality or enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.

     (c) Headings. The descriptive headings of the several paragraphs of
this Agreement are inserted for convenience of reference only and shall not
constitute a part of this Agreement.

     15. Entire Agreement. This Agreement contains the entire agreement of the parties
concerning the Executive’s employment and all promises, representations, understandings,
arrangements and prior agreements on such subject are merged herein and superseded hereby. The
provisions of this Agreement may not be amended, modified, repealed, waived, extended or discharged
except by an agreement in writing signed by the party against whom enforcement of any amendment,
modification, repeal, waiver, extension or discharge is sought.

8

 

     IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its officers thereunto
duly authorized, and the Executive has hereunto set his hand all as of the day and year first above
written.

ATTEST:

/s/ Brian W. Bolash

ERIE INDEMNITY COMPANY

By: /s/ Jeffrey A. Ludrof

Jeffrey A. Ludrof

President and Chief Executive Officer

100 Erie Insurance Place

Erie, PA 16530

/s/ James J. Tanous (SEAL)

James J. Tanous

WITNESS :

/s/ Sheila M. Hirsch

9

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