Document:

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                                                                   Exhibit 10.11
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                                                                          [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, 2003, provided, however, that commencing on January 1, 2002
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

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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

                  (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

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         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 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:

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         (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) [one (1)/two (2)/three (3)]
years, 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 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

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         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

         (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

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         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 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

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         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, 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, 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.

         In order to have Good Reason, you must give the Company a Notice of
Termination satisfying the requirements of Paragraph 6 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

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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 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

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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.

         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

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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 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,

                                      -10-
<PAGE>   11

                  (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 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.

                                      -11-
<PAGE>   12

         (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 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 two- and three-year 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

                                      -12-
<PAGE>   13

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 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 reasonable and to enforce the remainder of the covenants

                                      -13-
<PAGE>   14

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.

         (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

                                      -14-
<PAGE>   15

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. 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. 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

                                      -15-
<PAGE>   16

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. Sections 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 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

                                      -16-
<PAGE>   17

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 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.

                                      -17-
<PAGE>   18

         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                By direction of the Compensation Committee
AS OF THE DATE HEREOF.                of the Board of Directors

                                      By
-----------------------------------     ----------------------------------------
[Name]                                  [Name]

         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]

                                      -18-<PAGE>   1
                                                                 Exhibit (10)(g)

                       PROPERTY CATASTROPHE EXCESS OF LOSS
                              REINSURANCE AGREEMENT
                      (HEREINAFTER CALLED THE "AGREEMENT")

                                     BETWEEN

                            MERCHANTS INSURANCE GROUP
                                BUFFALO, NEW YORK

                                  COMPRISED OF:
                       MERCHANTS MUTUAL INSURANCE COMPANY,
               MERCHANTS INSURANCE COMPANY OF NEW HAMPSHIRE, INC.,
                   (HEREINAFTER REFERRED TO AS THE "COMPANY")

                                       AND

                    THE SUBSCRIBING REINSURERS EXECUTING THE
                  INTERESTS AND LIABILITIES CONTRACTS ATTACHED
                                TO THIS AGREEMENT
            (HEREINAFTER COLLECTIVELY REFERRED TO AS THE "REINSURER")

                            EFFECTIVE JANUARY 1, 2000

<PAGE>   2

                                TABLE OF CONTENTS

ARTICLE                                                                   PAGE
-------                                                                   ----

ARTICLE 1 -COVER...........................................................1

ARTICLE 2 - TERM...........................................................1

ARTICLE 3 - TERRITORY......................................................1

ARTICLE 4 - EXCLUSIONS.....................................................1

ARTICLE 5 - NET RETAINED LINES.............................................4

ARTICLE 6 - ULTIMATE NET LOSS..............................................4

ARTICLE 7 - LOSS OCCURRENCE................................................5

ARTICLE 8 - RETENTION AND LIMIT............................................6

ARTICLE 9 - REINSTATEMENT..................................................6

ARTICLE 10 - REINSURANCE PREMIUM...........................................7

ARTICLE 11 - REPORTS AND REMITTANCES.......................................7

ARTICLE 12 - CURRENCY......................................................7

ARTICLE 13 - TAXES.........................................................7

ARTICLE 14 - FEDERAL EXCISE TAX............................................8

ARTICLE 15 - ERRORS AND OMISSIONS..........................................8

ARTICLE 16 - LOSS NOTICE...................................................8

ARTICLE 17 - LOSS SETTLEMENTS..............................................8

ARTICLE 18 - OFFSET........................................................8

ARTICLE 19 - ACCESS TO RECORDS.............................................8

ARTICLE 20 - UNAUTHORIZED REINSURANCE......................................9

ARTICLE 21 - SERVICE OF SUIT..............................................10

ARTICLE 22 - INSOLVENCY...................................................11

ARTICLE 23 - ARBITRATION..................................................11

ARTICLE 24 - INTERMEDIARY.................................................12

<PAGE>   3

SCHEDULE A................................................................13

<PAGE>   4

PROPERTY CATASTROPHE EXCESS OF LOSS
                              REINSURANCE AGREEMENT

ARTICLE 1 -COVER

A.       The Reinsurer agrees to reimburse the Company, on an excess of loss
basis, for the amounts of ultimate net loss which the Company may pay as a
result of losses occurring during the term of this Agreement, under policies of
the Company that are in force, new or renewed during the term of this Agreement,
covering business classified by the Company as Property, including but not
limited to: Fire, Allied Lines (including Extended Coverage), the Property
Sections of Homeowners Multiple Peril, Farmowners Multiple Peril and Commercial
Multiple Peril policies, Earthquake, Inland Marine (including Section I of
boatowners), and Automobile Physical Damage (excluding collision but including
water damage, fleet dealers' and garagekeepers' legal liability).

B.       The term "policies" as used herein means each of the Company's binders,
policies, contracts, and other evidences of insurance, whether written or oral,
providing insurance on the business covered hereunder.

ARTICLE 2 - TERM

A. This Agreement shall become effective as respects losses occurring
during the period January 1, 2000 through December 31, 2000, both dates
inclusive, at the place of the loss occurrence.

B. Upon expiration, the Reinsurer shall remain liable for losses occurring
prior to the expiration date, but all liability shall terminate hereunder as to
losses occurring on or after the date and time of expiration, except as provided
in paragraph C below.

C. If this Agreement should terminate while an occurrence giving rise to a
claim hereunder is in progress, subject to the other conditions of this
Agreement, the Reinsurer shall be liable for its proportion of the entire loss
or damage caused by such occurrence.

ARTICLE 3 - TERRITORY

This Agreement shall cover losses occurring in the United States of America, its
territories and possessions, and Canada.

ARTICLE 4 - EXCLUSIONS

This Agreement shall not apply to:

1.       Reinsurance accepted by the Company other than:

Page 4
<PAGE>   5

         (a)   Facultative reinsurance on a share basis of risks accepted
               individually and not forming part of any agreement, or

         (b)   Local agency reinsurance on a share basis accepted in the normal
               course of business, or

         (c)   From its affiliates;

2.       Nuclear incident per the following clauses which are deemed to form a
         part of this Agreement:

         (a)   "Nuclear Incident Exclusion Clause - Physical Damage -
               Reinsurance" - U.S.A. (BRMA 35B)

         (b)   "Nuclear Incident Exclusion Clause - Physical Damage -
               Reinsurance" - Canada (BRMA 35G) Clause;

3.       Any extra or non-contractual damages (including loss in excess of
         policy limits) or legal fees and expense attendant to the defense
         thereof, including but not limited to compensatory, exemplary and
         punitive damages or fines or statutory penalties which are awarded
         against the Company as a result of an act, omission, or course of
         conduct committed by or on behalf of the Company;

4.       Any loss or liability accruing to the Company directly or indirectly
         from any insurance written by or through any pool or association
         including pools or associations in which membership by the Company is
         required under any statutes or regulations; however this exclusion
         shall not apply to:

         (a)   The Alabama Insurance Underwriting Association;
         (b)   The Florida Windstorm Underwriting Association;
         (c)   The Louisiana Insurance Underwriting Association;
         (d)   The Mississippi Windstorm Underwriting Association;
         (e)   The New York Coastal Market Assistance Program (CMAP);
         (f)   The North Carolina Insurance Underwriting Association;
         (g)   The South Carolina Windstorm and Hail Underwriting Association;
         (h)   The Texas Catastrophe Property Insurance Association;
         (i)   All "Fair Plan" and "Rural Risk Plan" business;
         (j)   The Devco Mutual Association,

         However, this Agreement shall not cover any increase in such liability
         resulting from the inability of any other participant in any such pool
         or plan to meet its liability;

5.       Any liability of the Company arising from its participation or
         membership in any insolvency fund;

6.       Any loss or damage which is occasioned by war, invasion, hostilities,
         acts of foreign enemies, civil war, rebellion, insurrection, military
         or usurped power, or martial law or confiscation by order of any
         government or public authority; however this exclusion shall not apply
         to any policy which contains a standard war exclusion;

7.       Risks written on a layered basis, whether primary or excess of loss, or
         policies written with a deductible or franchise of more than $5,000;
         however, this exclusion shall not apply to policies which provide a
         percentage deductible or franchise in connection with

Page 5
<PAGE>   6
         windstorm;

8.       Insurance against earthquake, except when written in conjunction with
         fire and otherwise eligible perils;

9.       Insurance on growing crops;

10.      Insurance against flood, surface water, waves, tidal water or tidal
         wave, overflow of streams or other bodies of water or spray from any of
         the foregoing, all whether driven by wind or not except when written in
         conjunction with fire and otherwise eligible perils;

11.      Any loss in respect of overhead transmission and distribution lines and
         their supporting structures other than those on or within 1000 feet of
         the insured premises; however, this exclusion shall not apply to public
         utilities extension and/or suppliers extension and/or contingent
         business interruption coverage, provided that these are not part of a
         transmitters' or distributors' policy;

12.      Business classified as fidelity;

13.      Liability under coverage afforded for loss or damage resulting from
         failure to account or pay for any goods or merchandise sold on credit,
         delivered under deferred payment agreements, consigned for sale, or
         delivered under any trust or floor plan agreements, except under
         standard accounts receivable policies;

14.      Any loss or damage caused by or resulting from explosion, rupture, or
         bursting of steam boilers, steam pipes, steam turbines, steam engines,
         or rotating parts of machinery caused by centrifugal force; if owned
         by, leased by, or actually operated under the control of the insured.
         This exclusion shall not apply to ensuing loss by fire not otherwise
         excluded;

15.      Mortgage impairment insurance and similar kinds of insurance, howsoever
         styled, providing coverage to an insured with respect to its mortgagee
         interest in property or its owner interest in foreclosed property;

16.      Difference in conditions insurance and similar kinds of insurance,
         howsoever styled;

17.      Risks which have a total insurable value of more than $250,000,000;
         however this exclusion shall not apply if the Company writes 100% of
         the risk;

18.      Any collection of fine arts with an insurable value of $5,000,000 or
         more;

19.      Mobile homes;

20.      Inland marine business with respect to the following:

         (a)   All bridges and tunnels;
         (b)   Cargo insurance when written as such with respect to ocean, lake,
               or inland waterways vessels;
         (c)   Commercial negative film insurance and cast insurance;
         (d)   Drilling rigs;

Page 6
<PAGE>   7

         (e)   Furriers' customers policies;
         (f)   Garment contractors policies;
         (g)   Insurance on livestock under so-called "mortality policies";
         (h)   Jewelers' block policies and furriers' block policies;

Page 7
<PAGE>   8
         (i)   Mining equipment while underground;
         (j)   Motor truck cargo insurance written for common carriers operating
               beyond a radius of 300 miles;
         (k)   Radio and television broadcasting towers;
         (l)   Registered mail insurance when the limit of any one addressee on
               any one day is more than $50,000;

21.      Watercraft, other than watercraft insured under a standard homeowners
         policy;

22.      Loss of, damage to, or failure of, or consequential loss resulting
         therewith (including but not limited to earnings and extra expense) of
         satellites, spacecraft, and launch vehicles, including cargo and
         freight carried therein, in all phases of operation (including but not
         limited to manufacturing, transit, pre-launch, launch, and in-orbit);

23.      Coverage afforded by ISO Pollutant Clean Up and Removal Additional
         Aggregate Limit of Insurance Endorsement CP 04 07 (Ed., 4/86) or as
         subsequently amended or by any similar endorsement affording such
         coverage;

24.      Pollutant clean up or removal, including time element coverage
         associated therewith, under any commercial property policy or any
         inland marine policy written by the Company which does not contain ISO
         Changes- Pollutants Endorsement CP 01 86 (Ed. 4/86) or as subsequently
         amended; however this exclusion does not apply to any risk located in a
         jurisdiction which has not approved the Insurance Services Office
         exclusion or where other regulatory constraints prohibit the Company
         from attaching such endorsement. If the Company elects to file an
         endorsement independent of ISO, such endorsement will be deemed a
         suitable substitute provided the Company has submitted the wording to
         the Reinsurers and received the Reinsurers' prior approval.

ARTICLE 5 - NET RETAINED LINES

This Agreement applies only to that portion of any policy which the Company
retains net for its own account, and in calculating the amount of any loss
hereunder and also in computing the amount or amounts in excess of which this
Agreement attaches, only loss or losses in respect of that portion of any policy
which the Company retains net for its own account shall be included.

The amount of the Reinsurer's liability hereunder in respect of any loss or
losses shall not be increased by reason of the inability of the Company to
collect from any other reinsurer(s), whether specific or general, any amounts
which may have become due from such reinsurer(s), whether such inability arises
from the insolvency of such other reinsurer(s) or otherwise.

ARTICLE 6 - ULTIMATE NET LOSS

The term "ultimate net loss" as used herein shall be understood to mean the sum
actually paid by the Company in settlement of losses for which it is liable,
after making proper deductions for

Page 8
<PAGE>   9

all other reinsurance or insurance which inures to the benefit of the Reinsurer
under this Agreement, whether collectible or not, and all salvages and all
recoveries, and shall include all expenses incurred by the Company in the
settlement or defense of claims including the salaries and expenses of salaried
adjusters but excluding the office expenses of the Company and the salaries and
expenses of its other employees; provided, however, that in the event of the
insolvency of the Company, "ultimate net loss" shall mean the amount of loss and
expense which the Company has incurred or for which it is liable, and payment by
the Reinsurer shall be made to the liquidator, receiver or statutory successor
of the Company in accordance with the provisions of the Insolvency Article of
this Agreement.

ARTICLE 7 - LOSS OCCURRENCE
NMA 2244 Amended (BRMA 27F)

A. The term "Loss Occurrence" shall mean the sum of all individual losses
directly occasioned by any one disaster, accident or loss or series of
disasters, accidents or losses arising out of one event which occurs within the
area of one state of the United States or province of Canada and states or
provinces contiguous thereto and to one another. However, the duration and
extent of any one "Loss Occurrence" shall be limited to all individual losses
sustained by the Company occurring during any period of 168 consecutive hours
arising out of and directly occasioned by the same event except that the term
"Loss Occurrence" shall be further defined as follows:

         (i) As regards windstorm, hail, tornado, hurricane, cyclone, including
         ensuing collapse and water damage, all individual losses sustained by
         the Company occurring during any period of 72 consecutive hours arising
         out of and directly occasioned by the same event. However, the event
         need not be limited to one state or province or states or provinces
         contiguous thereto.

         (ii) As regards riot, riot attending a strike, civil commotion,
         vandalism and malicious mischief, all individual losses sustained by
         the Company occurring during any period of 72 consecutive hours within
         the area of one municipality or county and the municipalities or
         counties contiguous thereto arising out of and directly occasioned by
         the same event. The maximum duration of 72 consecutive hours may be
         extended in respect of individual losses which occur beyond such 72
         consecutive hours during the continued occupation of an assured's
         premises by strikers, provided such occupation commenced during the
         aforesaid period.

         (iii) As regards earthquake (the epicenter of which need not
         necessarily be within the territorial confines referred to in the
         opening paragraph of this Article) and fire following directly
         occasioned by the earthquake, only those individual fire losses which
         commence during the period of 168 consecutive hours may be included in
         the Company's "Loss Occurrence."

         (iv) As regards "Freeze," only individual losses directly occasioned by
         collapse, breakage of glass and water damage (caused by bursting of
         frozen pipes and tanks) may be included in the Company's "Loss
         Occurrence."

B. For all "Loss Occurrences," other than (ii) above, the Company may choose the
date and time when any such period of consecutive hours commences, provided that
it is not earlier than the date and time of the occurrence of the first recorded
individual loss sustained by the

Page 9
<PAGE>   10

Company arising out of that disaster, accident or loss and provided that only
one such period of 168 consecutive hours shall apply with respect to one event,
except for any "Loss Occurrence" referred to in sub-paragraph (i) above where
only one such period of 72 consecutive hours shall apply with respect to one
event.

C. As respects those "Loss Occurrences" referred to in (ii) above, the Company
may choose the date and time when any such period of consecutive hours
commences. If the disaster, accident or loss occasioned by the event is of
greater duration than 72 consecutive hours, then the Company may divide that
disaster, accident or loss into two or more "Loss Occurrences" provided no
periods overlap and no individual loss is included in more than one such period
and provided that no period commences earlier than the date and time of the
occurrence of the first recorded individual loss sustained by the Company
arising out of that disaster, accident or loss.

D. No individual losses occasioned by an event that would be covered by 72 hours
   clauses may be included in any "Loss Occurrence" claimed under the 168 hours
   provision.

E. The date change to the year 2000, or any other date change, including leap
year calculations, shall not in and of itself be regarded as an event for the
purposes of this reinsurance.

ARTICLE 8 - RETENTION AND LIMIT

A. As respects each Excess Layer of reinsurance coverage provided by this
Agreement, the Company shall retain the amount of ultimate net loss, shown as
the Company's Retention for each Excess Layer in SCHEDULE A attached hereto,
arising out of each and every loss occurrence. The Reinsurer shall then be
liable, as respects its participation in the Excess Layer, for the amount by
which such ultimate net loss exceeds the Company's Retention, each and every
loss occurrence, but the limit of liability of the Reinsurer shall not exceed
the amount shown in SCHEDULE A as Reinsurer's Limit of Liability, each and every
loss occurrence during the term of this Agreement.

B. In addition to the Company's Retention, the Company will retain net for its
own account, with respect to each loss occurrence, the remaining 5% in each
Excess Layer.

ARTICLE 9 - REINSTATEMENT
A. In the event of a claim attaching to this Agreement, it is understood and
agreed that the amount of liability hereunder shall be reduced from the
commencement of the loss occurrence giving rise to such claim by the sum payable
on such claim, but any amount so exhausted shall be reinstated from the time of
the loss occurrence. Reinstatements of the limits hereunder for each Excess
Layer; i.e., the liability of the Reinsurer under each Excess Layer of
reinsurance coverage hereunder, shall not exceed the Reinsurer's Limit of
Liability as shown in SCHEDULE A with respect to each and every loss occurrence
under such Excess Layer, and shall be further limited to a Reinsurer's Maximum
Annual Limit as shown in SCHEDULE A for all loss occurrences under such Excess
Layer during the term of this Agreement.

Page 10
<PAGE>   11

B. For each amount so reinstated, the Company shall pay to the Reinsurer an
additional premium calculated as shown in SCHEDULE A. Any such additional
premium shall be immediately payable at the time the loss giving rise to such
reinstatement is settled; however, such additional premium shall be based on the
Deposit premium with adjustment as required at the end of the term of this
Agreement, when the actual reinsurance premium hereunder shall be finally
determined.

ARTICLE 10 - REINSURANCE PREMIUM

A. The premium to be paid by the Company to the Reinsurer hereunder shall be
calculated by applying the Premium Rate, for each Excess Layer shown in SCHEDULE
A, to the Company's subject gross net earned premium income during the term of
this Agreement.

B. The Deposit Premium, for each Excess Layer as shown in SCHEDULE A, shall be
payable by the Company quarterly, in advance, in equal installments each on
January 1, April 1, July 1, and October 1, 2000. As promptly as possible after
the termination of this Agreement, the Company shall render a statement to the
Reinsurer showing the actual reinsurance premium due hereunder, calculated as
set forth in paragraph A. above. Subject to a Minimum Premium for each Excess
Layer as shown in SCHEDULE A, the difference between the actual reinsurance
premium and the Deposit Premium shall be paid by the debtor party to the
creditor party.

C. "Gross net earned premium income" shall include 85% of Homeowners Multiple
Peril premiums, 85% of Farmowners Multiple Peril premiums, 40% of Commercial
Multiple Peril premiums and 100% of all other premiums of the Company.

ARTICLE 11 - REPORTS AND REMITTANCES

Within 60 days following expiration of this Agreement, the Company will furnish
the Reinsurers with a report of reinsurance premium due them for that period.
Such report will show and properly segregate the Company's subject premium to
which the reinsurance rate applies as well as contain such other information as
may be required by the Reinsurers for completion of their NAIC interim and/or
annual statements. The actual reinsurance premium will be calculated in
accordance with ARTICLE 10 - REINSURANCE PREMIUM, and any balance shown to be
due the Reinsurers will be remitted with said report. Any balance shown to be
due the Company will be payable within 30 days following receipt of the report
by the Reinsurers.

ARTICLE 12 - CURRENCY
(BRMA 12A)

A. Whenever the word "Dollars" or the "$" sign appears in this Agreement, they
shall be construed to mean United States Dollars and all transactions under this
Agreement shall be in United States Dollars.

B. Amounts paid or received by the Company in any other currency shall be
converted to

Page 11
<PAGE>   12

United States Dollars at the rate of exchange at the date such transaction is
entered on the books of the Company.

ARTICLE 13 - TAXES
(BRMA 50B)

In consideration of the terms under which this Agreement is issued, the Company
will not claim a deduction in respect of the premium hereon when making tax
returns, other than income or profits tax returns, to any state or territory of
the United States of America or the District of Columbia.

ARTICLE 14 - FEDERAL EXCISE TAX
(BRMA 17A)
(Applicable to those reinsurers, excepting Underwriters at Lloyd's London and
other reinsurers exempt from Federal Excise Tax, who are domiciled outside the
United States of America.)

A. The Reinsurer has agreed to allow for the purpose of paying the Federal
Excise Tax the applicable percentage of the premium payable hereon (as imposed
under Section 4371 of the Internal Revenue Code) to the extent such premium is
subject to the Federal Excise Tax.

B. In the event of any return of premium becoming due hereunder the Reinsurer
will deduct the applicable percentage from the return premium payable hereon and
the Company or its agent should take steps to recover the tax from the United
States Government.

ARTICLE 15 - ERRORS AND OMISSIONS
(BRMA 14C)

Any inadvertent delay, omission or error shall not be held to relieve either
party hereto from any liability which would attach to it hereunder if such
delay, omission or error had not been made, provided such omission or error is
rectified upon discovery.

ARTICLE 16 - LOSS NOTICE
(BRMA 26B)

The Company shall advise the Reinsurer promptly of all losses which, in the
opinion of the Company, may result in a claim hereunder and of all subsequent
developments thereto which, in the opinion of the Company, may materially affect
the position of the Reinsurer.

ARTICLE 17 - LOSS SETTLEMENTS
(BRMA 29E)

All loss settlements made by the Company, under policies subject hereto, whether
under policy terms and conditions or by way of compromise, shall be binding upon
the Reinsurer, and, upon receipt of satisfactory proof of loss, the Reinsurer
agrees to pay or allow, as the case may be, its share of each such settlement in
accordance with this Agreement.

ARTICLE 18 - OFFSET
(BRMA 36B)

Page 12
<PAGE>   13

The Company and the Reinsurer may offset any balance or amount due from one
party to the other under this Agreement or any other contract heretofore or
hereafter entered into between the Company and the Reinsurer, whether acting as
assuming reinsurer or ceding company. However, in the event of the insolvency of
any party hereto, offset shall only be allowed in accordance with applicable
law.

ARTICLE 19 - ACCESS TO RECORDS
(BRMA 1D)

The Reinsurer or its designated representatives shall have access at any
reasonable time to all records of the Company which pertain in any way to this
reinsurance.

ARTICLE 20 - UNAUTHORIZED REINSURANCE
(BRMA 55D)
(Applies only to a Reinsurer who does not qualify for full credit with any
insurance regulatory authority having jurisdiction over the Company's
reserves.)

A. As regards policies or bonds issued by the Company coming within the scope of
this Agreement, the Company agrees that when it shall file with the insurance
regulatory authority or set up on its books reserves for losses covered
hereunder which it shall be required by law to set up, it will forward to the
Reinsurer a statement showing the proportion of such reserves which is
applicable to the Reinsurer. The Reinsurer hereby agrees to fund such reserves
in respect of known outstanding losses that have been reported to the Reinsurer
and allocated loss adjustment expense relating thereto, and losses and allocated
loss adjustment expense paid by the Company but not recovered from the
Reinsurer, as shown in the statement prepared by the Company (hereinafter
referred to as "Reinsurer's Obligations") by funds withheld, cash advances or a
Letter of Credit. The Reinsurer shall have the option of determining the method
of funding provided it is acceptable to the insurance regulatory authorities
having jurisdiction over the Company's reserves.

B. When funding by a Letter of Credit, the Reinsurer agrees to apply for and
secure timely delivery to the Company of a clean, irrevocable and unconditional
Letter of Credit issued by a bank and containing provisions acceptable to the
insurance regulatory authorities having jurisdiction over the Company's reserves
in an amount equal to the Reinsurer's proportion of said reserves. Such Letter
of Credit shall be issued for a period of not less than one year, and shall be
automatically extended for one year from its date of expiration or any future
expiration date unless thirty (30) days (sixty (60) days where required by
insurance regulatory authorities) prior to any expiration date the issuing bank
shall notify the Company by certified or registered mail that the issuing bank
elects not to consider the Letter of Credit extended for any additional period.

C. The Reinsurer and Company agree that the Letters of Credit provided by the
Reinsurer pursuant to the provisions of this Agreement may be drawn upon at any
time, notwithstanding any other provision of this Agreement, and be utilized by
the Company or any successor, by operation of law, of the Company including,
without limitation, any liquidator, rehabilitator, receiver or conservator of
the Company for the following purposes, unless otherwise provided for in a
separate Trust Agreement:

         (a) to reimburse the Company for the Reinsurer's Obligations, the
         payment of which

Page 13
<PAGE>   14

         is due under the terms of this Agreement and which has not been
         otherwise paid;

         (b) to make refund of any sum which is in excess of the actual amount
         required to pay the Reinsurer's Obligations under this Agreement;

         (c) to fund an account with the Company for the Reinsurer's
         Obligations. Such cash deposit shall be held in an interest bearing
         account separate from the Company's other assets, and interest thereon
         not in excess of the prime rate shall accrue to the benefit of the
         Reinsurer;

         (d) to pay the Reinsurer's share of any other amounts the Company
         claims are due under this Agreement.

Page 14
<PAGE>   15

B. In the event the amount drawn by the Company on any Letter of Credit is in
excess of the actual amount required for (a) or (c), or in the case of (d), the
actual amount determined to be due, the Company shall promptly return to the
Reinsurer the excess amount so drawn. All of the foregoing shall be applied
without diminution because of insolvency on the part of the Company or the
Reinsurer.

C. The issuing bank shall have no responsibility whatsoever in connection with
the propriety of withdrawals made by the Company or the disposition of funds
withdrawn, except to ensure that withdrawals are made only upon the order of
properly authorized representatives of the Company.

D. At annual intervals, or more frequently as agreed but never more frequently
than quarterly, the Company shall prepare a specific statement of the
Reinsurer's Obligations, for the sole purpose of amending the Letter of Credit,
in the following manner:

         (a) If the statement shows that the Reinsurer's Obligations exceed the
         balance of credit as of the statement date, the Reinsurer shall, within
         thirty (30) days after receipt of notice of such excess, secure
         delivery to the Company of an amendment to the Letter of Credit
         increasing the amount of credit by the amount of such difference.

         (b) If, however, the statement shows that the Reinsurer's Obligations
         are less than the balance of credit as of the statement date, the
         Company shall, within thirty (30) days after receipt of written request
         from the Reinsurer, release such excess credit by agreeing to secure an
         amendment to the Letter of Credit reducing the amount of credit
         available by the amount of such excess credit.

ARTICLE 21 - SERVICE OF SUIT
(BRMA 49A)
(This Article only applies to reinsurers domiciled outside of the United States
and/or unauthorized in any state, territory, or district of the United States
having jurisdiction over the Company).

A. It is agreed that in the event of the failure of the Reinsurer hereon to pay
any amount claimed to be due hereunder, the Reinsurer hereon, at the request of
the Company, will submit to the jurisdiction of a court of competent
jurisdiction within the United States. Nothing in this Article constitutes or
should be understood to constitute a waiver of the Reinsurer's rights to
commence an action in any court of competent jurisdiction in the United States,
to remove an action to a United States District Court, or to seek a transfer of
a case to another court as permitted by the laws of the United States or of any
state in the United States. It is further agreed that service of process in such
suit may be made upon Messrs. Mendes & Mount, 750 Seventh Avenue, New York, New
York l00l9, U.S.A., and that in any suit instituted, the Reinsurer will abide by
the final decision of such court or of any appellate court in the event of an
appeal.

B. The above-named are authorized and directed to accept service of process on
behalf of the Reinsurer in any such suit and/or upon the request of the Company
to give a written undertaking to the Company that they will enter a general
appearance upon the Reinsurer's behalf in the event such a suit shall be
instituted.

Page 15
<PAGE>   16

C. Further, pursuant to any statute of any state, territory or district of the
United States which makes provision therefore, the Reinsurer hereon hereby
designates the Superintendent, Commissioner or Director of Insurance or other
officer specified for that purpose in the statute, or his successor or
successors in office, as its true and lawful attorney upon whom may be served
any lawful process in any action, suit or proceeding instituted by or on behalf
of the Company or any beneficiary hereunder arising out of this Agreement of
reinsurance, and hereby designates the above-named as the person to whom the
said officer is authorized to mail such process or a true copy thereof.

ARTICLE 22 - INSOLVENCY

The reinsurance provided by this Agreement shall be payable by the Reinsurer
directly to the Company or to its liquidator, receiver or statutory successor on
the basis of the liability of the Company under the contract or contracts
reinsured. Subject to the right of offset and the verification of coverage, the
Reinsurer shall pay its share of the loss without diminution because of the
insolvency of the Company. In the event of the insolvency of the Company, the
liquidator, receiver or statutory successor of the Company shall give written
notice of the pendency of each claim against the Company on a policy or bond
reinsured within a reasonable time after such claim is filed in the insolvency
proceeding. During the pendency of such claim, the Reinsurer may, at its own
expense, investigate such claim and interpose in the proceeding where such claim
is to be adjudicated any defense or defenses which it may deem available to the
Company, its liquidator or receiver or statutory successor. Subject to court
approval, any expense thus incurred by the Reinsurer shall be chargeable against
the Company as part of the expense of liquidation to the extent of such
proportionate share of the benefit as shall accrue to the Company solely as a
result of the defense undertaken by the Reinsurer. The reinsurance shall be
payable as set forth above except where this Agreement specifically provides for
the payment of reinsurance proceeds to another party in the event of the
insolvency of the Company.

ARTICLE 23 - ARBITRATION
(BRMA 6B)
A. As a condition precedent to any right of action hereunder, any irreconcilable
dispute between the parties to this Agreement will be submitted for decision to
a board of arbitration composed of two arbitrators and an umpire meeting in
Buffalo, New York.

B. Arbitration shall be initiated by the delivery of a written notice of demand
for arbitration by one party to the other within a reasonable time after the
dispute has arisen.

C. The members of the board of arbitration shall be active or retired
disinterested officials of insurance or reinsurance companies, or Underwriters
at Lloyd's, London, not under the control or management of either party to this
Agreement. Each party shall appoint its arbitrator, and the two arbitrators
shall choose an umpire before instituting the hearing. If the respondent fails
to appoint its arbitrator within four (4) weeks after being requested to do so
by the claimant, the latter shall also appoint the second arbitrator. If the two
arbitrators fail to agree upon the appointment of an umpire within four (4)
weeks after their nominations, each of them shall name three of whom the other
shall decline two, and the decision shall be made by drawing lots. The claimant
shall submit its initial brief within forty-five (45) days from appointment of
the umpire.

Page 16
<PAGE>   17

The respondent shall submit its brief within forty-five (45) days thereafter,
and the claimant may submit a reply brief within thirty (30) days after filing
of the respondent's brief.

D. The board shall make its decision with regard to the custom and usage of the
insurance and reinsurance business. The board shall issue its decision in
writing based upon a hearing in which evidence may be introduced without
following strict rules of evidence but in which cross-examination and rebuttal
shall be allowed. The board shall make its decision within sixty (60) days
following the termination of the hearings unless the parties consent to an
extension. The majority decision of the board shall be final and binding upon
all parties to the proceeding. Judgment may be entered upon the award of the
board in any court having jurisdiction.

E. If more than one reinsurer is involved in the same dispute, all such
reinsurers shall constitute and act as one party for purposes of this clause,
and communications shall be made by the Company to each of the reinsurers
constituting the one party provided, however, that nothing therein shall impair
the rights of such reinsurers to assert several rather than joint defenses or
claims, nor be construed as changing the liability of the reinsurers under the
terms of this Agreement from several to joint.

F. Each party shall bear the expense of its own arbitrator and shall jointly and
equally bear with the other party the expense of the umpire. The remaining costs
of the arbitration proceedings shall be allocated by the board.

ARTICLE 24 - INTERMEDIARY

AM-RE Brokers, Inc. is hereby recognized as the Intermediary negotiating this
Agreement for all business hereunder. All communications (including but not
limited to notices, statements, premium, return premium, commissions, taxes,
losses, loss adjustment expense, salvages and loss settlements) relating thereto
shall be transmitted to the Company or the Reinsurer through AM-RE Brokers,
Inc., 685 College Road East, Princeton, New Jersey 08543-5212. Payments by the
Company to the Intermediary shall be deemed to constitute payment to the
Reinsurer. Payments by the Reinsurer to the Intermediary shall be deemed to
constitute payment to the Company only to the extent that such payments are
actually received by the Company.

Page 17
<PAGE>   18

<TABLE>
<CAPTION>
                                   SCHEDULE A
                                   ----------
                   --------------------- ------------------- ------------------ -------------------
<S>               <C>                    <C>                 <C>                 <C>
                   FIRST                 SECOND              THIRD
     EXCESS        EXCESS                EXCESS              EXCESS
     LAYER:                                                  $5,000,000
     FIRST                                                   $10,000,000
     -----                                                   $20,000,000
     SECOND                                                  $35,000,000
     ------
     THIRD
     -----
     FOURTH
     ------
     FIFTH
     -----         --------------------- ------------------- ------------------ -------------------
                   COMPANY'S             $5,000,000          $10,000,000        $20,000,000
                   RETENTION:
                   --------------------- ------------------- ------------------ -------------------
                   REINSURER'S LIMIT     $5,000,000          $10,000,000        $35,000,000
                   OF LIABILITY (95%                                            *See Below
                   OF):                                                         *See Below
                                                                                *See Below
                                                                                *See Below
                   --------------------- ------------------- ------------------ -------------------
                   REINSURER'S MAXIMUM   $10,000,000         $20,000,000        $70,000,000
                   ANNUAL LIMIT (95%
                   OF):
                   $15,000,000
                   $30,000,000
                   $40,000,000
                   $70,000,000 (:
                   --------------------- ------------------- ------------------ -------------------
                   PREMIUM RATE:         1.1669%             1.3764%            2.2959%

                   --------------------- ------------------- ------------------ -------------------
                   DEPOSIT               $451,250            $532,200           $887,800
                   PREMIUM:
                   --------------------- ------------------- ------------------ -------------------
                   MINIMUM               $361,000            $425,760           $710,240
                   PREMIUM:
                   --------------------- ------------------- ------------------ -------------------
                   REINSTATEMENT         Pro-rata as to      Pro-rata as to     Pro-rata as to
                   PREMIUM               amount;             amount;            amount;
                   CALCULATIONS:         100% for time       100% for time      100% for time
                   --------------------- ------------------- ------------------ -------------------
</TABLE>

Page 18

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