[POLYONE LETTERHEAD]
January 5, 2005
Attn: [____________]
PolyOne Corporation
POLYONE CORPORATION INCENTIVE AWARD
GRANT OF PERFORMANCE SHARES
THIS AGREEMENT CONSTITUTES PART OF A PROSPECTUS COVERING SECURITIES REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE COMMON SHARES OF THE COMPANY
ARE LISTED ON THE NEW YORK STOCK EXCHANGE.
Dear [_________________]:
Subject to the terms and conditions of the [INSERT PLAN] (the
"Plan") and this letter agreement (this "Agreement"), the Compensation and
Governance Committee of the Board of Directors (the "Committee") of PolyOne
Corporation ("PolyOne") (or a subcommittee thereof) has granted to you as of
January 5, 2005, the following award:
[_____] performance shares (the "Performance Shares"), payment of which
depends on PolyOne's performance as set forth in this Agreement and in
your Statement of Performance Goals.
A copy of the Plan is available for your review through the
Corporate Secretary's office. Unless otherwise indicated, the capitalized terms
used in this Agreement shall have the same meanings as set forth in the Plan.
1. PERFORMANCE SHARES.
(a) Your right to receive all or any portion of the Performance
Shares will be contingent upon the achievement of certain
management objectives (the "Management Objectives"), as set
forth in your Statement of Performance Goals. The achievement
of the Management Objectives will be measured during the
period from January 1, 2005 through December 31, 2007 (the
"Performance Period").
(b) The Management Objectives for the Performance Period will be
based on Cash Flow ("Cash Flow"), Return on Invested Capital
("ROIC") and the level of EBITDA in relation to debt ("Debt to
EBITDA"), all as defined in your Statement of Performance
Goals. Each of the Management Objectives will be weighted
thirty three and one-third percent (33 1/3%) and, therefore:
(i) thirty three and one-third percent (33 1/3%) of the
total number of Performance Shares will be based on
Cash Flow (the "Cash Flow Performance Shares");
(ii) thirty three and one-third percent (33 1/3%) of the
total number of Performance Shares will be based on
ROIC (the "ROIC Performance Shares"); and
(iii) thirty three and one-third percent (33 1/3%) of the
total number of Performance Shares will be based on
Debt to EBITDA (the "Debt to EBITDA Performance
Shares").
2. EARNING OF PERFORMANCE SHARES.
(a) The Cash Flow Performance Shares.
(i) If, upon the conclusion of the Performance Period,
Cash Flow equals or exceeds the threshold level, but
is less than the 100% target level, as set forth in
the Performance Matrix contained in your Statement of
Performance Goals, a proportionate number of the Cash
Flow Performance Shares shall become earned, as
determined by mathematical interpolation and rounded
up to the nearest whole share.
(ii) If, upon the conclusion of the Performance Period,
Cash Flow equals or exceeds the 100% target level,
but is less than the maximum level, as set forth in
the Performance Matrix contained in your Statement of
Performance Goals, a proportionate number of the Cash
Flow Performance Shares shall become earned, as
determined by mathematical interpolation and rounded
up to the nearest whole share.
(iii) If, upon the conclusion of the Performance Period,
Cash Flow equals or exceeds the maximum level, as set
forth in the Performance Matrix contained in your
Statement of Performance Goals, 200% of the Cash Flow
Performance Shares shall become earned.
(b) The ROIC Performance Shares.
(i) If, upon the conclusion of the Performance Period,
PolyOne's ROIC exceeds PolyOne's peer group ROIC by
at least one percentage point and PolyOne's ROIC is
at least the threshold level as set forth in the
Performance Matrix (as modified by the ROIC Modifier
Matrix) included in your Statement of Performance
Goals, a percentage of the ROIC
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Performance Shares shall become earned, as set forth
in the Performance Matrix (as modified by the ROIC
Modifier Matrix) included in your Statement of
Performance Goals. The actual number of ROIC
Performance Shares earned will be determined by
mathematical interpolation and rounded up to the
nearest whole share.
(ii) Notwithstanding (i) above, for every whole percentage
point greater than one that PolyOne's ROIC Change
surpasses or falls short of the Peer ROIC Change, the
number of ROIC Performance Shares that become earned
will be modified such that an additional fifteen (15)
percentage points will be added or subtracted, as the
case may be, from the percentage that becomes earned,
as provided in (i) above and as set forth in your
Statement of Performance Goals.
(A) For purposes of this Section 2(b), "PolyOne
ROIC Change" means the increase or decrease
in PolyOne's ROIC from fiscal year 2004 to
fiscal year 2007.
(B) For purposes of this Section 2(b), "Peer
ROIC Change" means the increase or decrease
in the total ROIC for PolyOne's peer group
from fiscal year 2004 to fiscal year 2007.
(c) The Debt to EBITDA Performance Shares.
(i) If, upon the conclusion of the Performance Period,
Debt to EBITDA equals or exceeds the threshold level,
but is less than the 100% target level, as set forth
in the Performance Matrix contained in your Statement
of Performance Goals, 50% of the Debt to EBITDA
Performance Shares shall become earned.
(ii) If, upon the conclusion of the Performance Period,
Debt to EBITDA equals or exceeds the 100% target
level, but is less than the 150% target level, as set
forth in the Performance Matrix contained in your
Statement of Performance Goals, 100% of the Debt to
EBITDA Performance Shares shall become earned.
(iii) If, upon the conclusion of the Performance Period,
Debt to EBITDA equals or exceeds the 150% target
level, but is less than the maximum level, as set
forth in the Performance Matrix contained in your
Statement of Performance Goals, 150% of the Debt to
EBITDA Performance Shares shall become earned.
(iv) If, upon the conclusion of the Performance Period,
Debt to EBITDA equals or exceeds the maximum level,
as set forth in the Performance Matrix contained in
your Statement of Performance Goals, 200% of the Debt
to EBITDA Performance Shares shall become earned.
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(d) In no event shall any Performance Shares become earned if
actual performance falls below the threshold level for each
relevant Management Objective, except as noted in the ROIC
Modifier Matrix contained in your Statement of Performance
Goals.
(e) If the Committee determines that a change in the business,
operations, corporate structure or capital structure of
PolyOne, the manner in which it conducts business or other
events or circumstances render the Management Objectives to be
unsuitable, the Committee may modify such Management
Objectives or the related levels of achievement, in whole or
in part, as the Committee deems appropriate; provided,
however, that no such action may result in the loss of the
otherwise available exemption of the award under Section
162(m) of the Internal Revenue Code of 1986, as amended.
(f) Your right to receive any Performance Shares is contingent
upon your remaining in the continuous employ of PolyOne or a
subsidiary of PolyOne (a "Subsidiary") through the end of the
Performance Period. Following the Performance Period, the
Committee shall determine the number of Performance Shares
that shall have become earned hereunder. In all circumstances,
the Committee shall have the ability and authority to reduce,
but not increase, the amount of Performance Shares that become
earned hereunder.
3. CHANGE OF CONTROL. If a Change of Control (as defined on Exhibit A to
this Agreement) occurs during the Performance Period, PolyOne shall pay
to you 100% of the Performance Shares within 15 days after the Change
of Control.
4. RETIREMENT, DISABILITY OR DEATH. If your employment with PolyOne or a
Subsidiary terminates before the end of the Performance Period due to
(1) retirement at age 55 or older with at least 10 years of service or
retirement under other circumstances entitling you to receive benefits
under one of PolyOne's (including its predecessors) defined benefit
pension plans, (2) permanent and total disability (as defined under the
relevant disability plan or program of PolyOne or a Subsidiary in which
you then participate) or (3) death, PolyOne shall pay to you or your
executor or administrator, as the case may be, after the end of the
Performance Period, the portion of the Performance Shares to which you
would have been entitled under Section 2 above, had you remained
employed by PolyOne through the end of the Performance Period, prorated
based on the portion of the Performance Period during which you were
employed by PolyOne.
5. OTHER TERMINATION. If your employment with PolyOne or a Subsidiary
terminates before the end of the Performance Period, for any reason
other than as set forth in Section 4 above, the Performance Shares will
be forfeited.
6. PAYMENT OF PERFORMANCE SHARES. Payment of any Performance Shares that
become earned as set forth herein will typically be made in the form of
common shares of PolyOne having a par value of $.01 per share ("Common
Shares"), but may be made in cash, in the Committee's discretion.
Payment will be made as soon as practicable after the receipt of
audited financial statements of PolyOne relating to the last fiscal
year of the
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Performance Period and the determination by the Committee of the level
of attainment of the Management Objectives, but in no event shall such
payment occur after March 15, 2008. If PolyOne determines that it is
required to withhold any federal, state, local or foreign taxes from
any payment, PolyOne will withhold the amount of these taxes from the
payment.
7. NON-ASSIGNABILITY. The Performance Shares and the Common Shares subject
to this grant of Performance Shares are personal to you and may not be
sold, exchanged, assigned, transferred, pledged, encumbered or
otherwise disposed of by you until they become earned as provided in
this Agreement; provided, however, that your rights with respect to
such Performance Shares and Common Shares may be transferred by will or
pursuant to the laws of descent and distribution. Any purported
transfer or encumbrance in violation of the provisions of this Section
7, shall be void, and the other party to any such purported transaction
shall not obtain any rights to or interest in such Performance Shares
or Common Shares.
8. ADJUSTMENTS. In the event of any change in the number of Common Shares
by reason of a merger, consolidation, reorganization, recapitalization,
or similar transaction, or in the event of a stock dividend, stock
split, or distribution to shareholders (other than normal cash
dividends), the Committee shall adjust the number and class of shares
subject to outstanding Performance Shares and other value
determinations applicable to outstanding Performance Shares. No
adjustment provided for in this Section 8 shall require PolyOne to
issue any fractional share.
9. MISCELLANEOUS.
(a) The contents of this Agreement are subject in all respects to
the terms and conditions of the Plan as approved by the Board
of Directors and the shareholders of PolyOne, which are
controlling. The interpretation and construction by the Board
of Directors and/or the Committee of any provision of the Plan
or this Agreement shall be final and conclusive upon you, your
estate, executor, administrator, beneficiaries, personal
representative and guardian and PolyOne and its successors and
assigns.
(b) The grant of the Performance Shares is discretionary and will
not be considered to be an employment contract or a part of
your terms and conditions of employment or of your salary or
compensation. Your acceptance of this grant constitutes your
consent to the transfer of data and information concerning or
arising out of this grant to PolyOne and to non-PolyOne
entities engaged by PolyOne to provide services in connection
with this grant from non-U.S. entities related to PolyOne for
purposes of any applicable privacy, information or data
protection laws and regulations.
(c) Any amendment to the Plan shall be deemed to be an amendment
to this Agreement to the extent that the amendment is
applicable hereto. The terms and conditions of this Agreement
may not be modified, amended or waived, except by an
instrument in writing signed by a duly authorized executive
officer at PolyOne.
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Notwithstanding the foregoing, no amendment shall adversely
affect your rights under this Agreement without your consent.
10. NOTICE. All notices under this Agreement to PolyOne must be delivered
personally or mailed to PolyOne Corporation at PolyOne Center, Avon
Lake, Ohio 44012, Attention: Corporate Secretary. PolyOne's address may
be changed at any time by written notice of such change to you. Also,
all notices under this Agreement to you will be delivered personally or
mailed to you at your address as shown from time to time in PolyOne's
records.
This Agreement, and the terms and conditions of the Plan,
shall bind, and inure to the benefit of you, your estate, executor,
administrator, beneficiaries, personal representative and guardian and PolyOne
and its successors and assigns.
Very Truly Yours,
POLYONE CORPORATION
By:________________________________________
Xxxxxxx X. Xxxxx, Vice President and
Chief Human Resources Officer
Accepted:
___________________________________
___________________________________ (Date)
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EXHIBIT A
A "Change of Control" means:
(a) the acquisition by an 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
paragraph (a), the following acquisitions shall not be deemed to result in a
Change of Control: (i) any acquisition directly from the Company, (ii) any
acquisition by the Company, (iii) any acquisition by any employee benefit plan
(or related trust) sponsored or maintained by the Company or any corporation
controlled by the Company or (iv) any acquisition by any corporation pursuant to
a transaction that complies with clauses (i), (ii) and (iii) of paragraph (c)
below; provided, further, that if any Person's beneficial ownership of the
Outstanding Company Voting Securities reaches or exceeds 25% as a result of a
transaction described in clause (i) or (ii) above, and such Person subsequently
acquires beneficial ownership of additional voting securities of 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% or
more of the Outstanding Company Voting Securities inadvertently, and such Person
divests as promptly as practicable a sufficient number of shares so that such
Person beneficially owns (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) less than 25% of the Outstanding Company Voting Securities, then
no Change of Control shall have occurred as a result of such Person's
acquisition; or
(b) individuals who, as of August 31, 2000, constitute the Board (the "Incumbent
Board") cease for any reason to constitute at least a majority of the Board;
provided, however, that any individual becoming a director subsequent to August
31, 2000 whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(c) the approval by the shareholders of the Company 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
("Business Combination") or, if consummation of such Business Combination is
subject, at the time of such approval by shareholders, to the consent of any
government or governmental agency, the obtaining of such consent (either
explicitly or implicitly by consummation); excluding, however, such a Business
Combination pursuant to which (i) all or substantially all of the individuals
and entities who were the
A-1
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 corporation
resulting from such Business Combination (including, without limitation, a
corporation 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) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Company Voting
Securities, (ii) no Person (excluding any employee benefit plan (or related
trust) of the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 25% or more of,
respectively, the then outstanding shares of common stock of the corporation
resulting from such Business Combination or the combined voting power of the
then outstanding voting securities of such corporation except to the extent that
such ownership existed prior to the Business Combination and (iii) at least a
majority of the members of the board of directors of the corporation resulting
from such Business Combination were members of the Incumbent Board at the time
of the execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(d) approval by the shareholders of the Company of a complete liquidation or
dissolution of the Company.
A-2
