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SCHEDULE 14A
(RULE 14a)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
THE SHERWIN-WILLIAMS COMPANY
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
STEPHEN J. PERISUTTI
THE SHERWIN-WILLIAMS COMPANY
101 PROSPECT AVENUE, N.W.
CLEVELAND, OHIO 44115
(216) 566-2543
(NAME OF PERSON(S) FILING PROXY STATEMENT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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<PAGE> 2
THE SHERWIN-WILLIAMS COMPANY
------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
The Annual Meeting of Shareholders of THE SHERWIN-WILLIAMS COMPANY will be
held in the Auditorium, Room 927, Midland Building, 101 Prospect Avenue, N.W.,
Cleveland, Ohio on Wednesday, April 23, 1997 at 10:00 A.M., local time, for the
following purposes:
1. To fix the number of Directors of the Company at eleven and to elect
eleven Directors to hold office until the next Annual Meeting of
Shareholders and until their successors are elected;
2. To amend The Sherwin-Williams Company 1994 Stock Plan;
3. To approve The Sherwin-Williams Company 1997 Stock Plan for Nonemployee
Directors; and
4. To transact such other business as may properly come before the Annual
Meeting of Shareholders.
Holders of Common Stock of record at the close of business on March 3, 1997
are the only shareholders entitled to notice of and to vote at the Annual
Meeting of Shareholders. Shareholders receiving the additional shares of Common
Stock to be issued on or about March 28, 1997 to shareholders of record on March
3, 1997 pursuant to the previously announced two-for-one stock split will not be
entitled to vote such additional shares at the Annual Meeting of Shareholders.
L. E. STELLATO
Secretary
Midland Building
Cleveland, Ohio 44115-1075
March 12, 1997
YOU CAN HELP AVOID THE NECESSITY AND EXPENSE OF SENDING A FOLLOW-UP LETTER
BY THE PROMPT COMPLETION AND RETURN OF THE ENCLOSED PROXY WHETHER OR NOT YOU
EXPECT TO ATTEND THE ANNUAL MEETING OF SHAREHOLDERS. FOR YOUR CONVENIENCE, THERE
IS ENCLOSED A SELF-ADDRESSED ENVELOPE REQUIRING NO POSTAGE IF MAILED IN THE
UNITED STATES.
<PAGE> 3
THE SHERWIN-WILLIAMS COMPANY
MIDLAND BUILDING
CLEVELAND, OHIO 44115-1075
PROXY STATEMENT
March 12, 1997
PRELIMINARY
The enclosed proxy is requested by the Board of Directors in connection
with the Annual Meeting of Shareholders to be held April 23, 1997 for the
purpose of considering and acting upon the matters specified in the foregoing
Notice of Annual Meeting of Shareholders. The mailing date of this Proxy
Statement is on or about March 12, 1997.
The Board of Directors is not aware of matters other than those specified
in the foregoing Notice of Annual Meeting of Shareholders that will be brought
before the Annual Meeting of Shareholders for action. However, if any such
matters should be brought before the Annual Meeting of Shareholders, it is
intended that the persons appointed as proxies may vote or act thereon according
to their judgment.
References contained in this Proxy Statement to the number or value of
shares of the Company's Common Stock do not reflect the effect of the
two-for-one stock split announced by the Company on January 29, 1997, except as
otherwise specifically provided.
ANNUAL REPORT
The Company's Annual Report to Shareholders for the year ended December 31,
1996 is enclosed with this Proxy Statement. Information regarding the Company's
Common Stock (including per share data) included in the Annual Report to
Shareholders has been restated to reflect the effect of the two-for-one stock
split announced by the Company on January 29, 1997. Additional financial and
other reports may be submitted at the Annual Meeting of Shareholders, but it is
not intended that any action will be taken with respect thereto.
ELECTION OF DIRECTORS (PROPOSAL 1)
It is intended that proxies which contain no instructions to the contrary
will be voted in favor of fixing the number of Directors at eleven and for the
election of the nominees listed on the proxy. Fixing the number of Directors at
eleven requires the affirmative vote of the holders of a majority of the shares
represented at the Annual Meeting of Shareholders and entitled to vote on such
proposal, with the nominees receiving the most votes being elected.
Should any nominee decline or be unable to accept such nomination or be
unable to serve as a Director, an event which management does not now expect,
the Board of Directors reserves the right to substitute such other person as a
nominee, or to reduce the number of nominees to such extent, as the Board of
Directors shall deem advisable.
Each of the nominees, except for Mr. Moll who was appointed a Director by
unanimous action of the Board of Directors on January 29, 1997, has been
previously elected as a Director by the shareholders. The following, based upon
information received in part from the respective persons and in part from the
records of the Company, sets forth information regarding each nominee as of
December 31, 1996:
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JAMES M. BIGGAR has served as Chairman and Chief Executive Officer of Glencairn
Corporation (real estate development) since July 1991 prior to which he
served as Chairman of Nestle USA, Inc. (food products, restaurants, hotels)
commencing January 1991. From January 1984 to January 1991, Mr. Biggar
served as Chairman and Chief Executive Officer of Nestle Enterprises, Inc.
Mr. Biggar is 68 years old and has served as a Director of the Company
since July 1987. Mr. Biggar is also a Director of Donley's Corporation,
ESSEF Corporation and Norse Dairy Systems, and is a Trustee of The
Cleveland Clinic Foundation.
JOHN G. BREEN has served as Chairman and Chief Executive Officer of the Company
since June 1986. Mr. Breen is 62 years old and has served as a Director of
the Company since April 1979. Mr. Breen is also a Director of National City
Corporation, Mead Corporation, Parker-Hannifin Corporation and The Goodyear
Tire and Rubber Company. Mr. Breen is a Trustee of Catholic Charities
Corporation, the Cleveland Opera, John Carroll University, the Musical Arts
Association (The Cleveland Orchestra) and University Hospitals of
Cleveland, and is a Member of The Case Western Reserve University Visiting
Committee for the School of Medicine.
DUANE E. COLLINS has served as President and Chief Executive Officer of
Parker-Hannifin Corporation (manufacturer of motion control products) since
July 1993 prior to which he served as Vice Chairman of the Board of
Directors of Parker-Hannifin commencing June 1992. From July 1988 to June
1992, Mr. Collins served as Executive Vice President and President,
International, of Parker-Hannifin. Mr. Collins is 60 years old and has
served as a Director of the Company since January 1996. Mr. Collins is also
a Director of Parker-Hannifin, National City Bank and the Greater Cleveland
Growth Association, and is a Trustee of the Cleveland YMCA and University
Hospitals Health System (Cleveland).
THOMAS A. COMMES has served as President and Chief Operating Officer of the
Company since June 1986. Mr. Commes is 54 years old and has served as a
Director of the Company since April 1980. Mr. Commes is also a Director of
KeyCorp and Centerior Energy Corporation, and is a Trustee of The Cleveland
Clinic Foundation and Vocational Guidance Services (Cleveland).
DANIEL E. EVANS has served as Chairman, Chief Executive Officer and Secretary of
Bob Evans Farms, Inc. (food products and restaurants) since 1971. Mr. Evans
is 60 years old and has served as a Director of the Company since April
1990. Mr. Evans is also a Director of Evans Enterprises, Inc., Motorists
Mutual Insurance Company, National City Bank and National City Corporation.
ROBERT W. MAHONEY has served as Chairman and Chief Executive Officer of Diebold,
Incorporated (manufacturer of financial self-service transaction systems
and security products) since April 1988. Mr. Mahoney also served as
President of Diebold from July 1993 to November 1996. Mr. Mahoney is 60
years old and has served as a Director of the Company since January 1995.
Mr. Mahoney is also a Director of The Timken Company, and is a Trustee of
Mount Union College, Ohio Foundation of Independent Colleges, the
Professional Football Hall of Fame and Canton (Ohio) Junior Achievement.
Mr. Mahoney is a Member of the Stark (County, Ohio) Development Board and
the Chamber of Commerce Leadership Canton (Ohio) Advisory Board.
WILLIAM G. MITCHELL, prior to his retirement in May 1987, served as Vice
Chairman of Centel Corporation (independent telephone and electric
properties) since May 1986. Mr. Mitchell is 66 years old and has served as
a Director of the Company since April 1979. Mr. Mitchell is also a Director
of Interlake Corporation, The Northern Trust Company, Northern Trust
Corporation and Peoples Energy Corporation.
A. MALACHI MIXON, III has served as Chief Executive Officer of Invacare
Corporation (manufacturer and distributor of home health care products)
since January 1980 and has served as
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Chairman of Invacare since September 1983. Mr. Mixon also served as
President of Invacare from January 1980 to November 1996. Mr. Mixon is 56
years old and has served as a Director of the Company since April 1993. Mr.
Mixon is also a Director of The Lamson and Sessions Co. and NCS HealthCare,
Inc., and is a Trustee of The Cleveland Clinic Foundation, Cleveland
Institute of Music and Case Western Reserve University.
CURTIS E. MOLL has served as Chairman and Chief Executive Officer of MTD
Products, Inc. (manufacturer of outdoor power equipment and of tools, dies
and stampings for the automotive industry) since October 1980. Mr. Moll is
57 years old and has served as a Director of the Company since January
1997. Mr. Moll is also a Director of The Standard Products Company, Shiloh
Industries, Inc. and United Screw and Bolt Corporation, and is a Trustee of
Baldwin-Wallace College.
HELEN O. PETRAUSKAS has served as Vice President -- Environmental and Safety
Engineering of Ford Motor Company (automobile manufacturing) since March
1983. Mrs. Petrauskas is 52 years old and has served as a Director of the
Company since July 1993. Mrs. Petrauskas is also a Director of MCN
Corporation, is a Trustee of the Henry Ford Health System, and is a Member
of the Advisory Board -- Center for Risk Analysis, Harvard School of Public
Health and a Member of the Board of Visitors of North Carolina A&T State
University.
RICHARD K. SMUCKER has served as President of The J.M. Smucker Company (makers
of food products) since January 1987. Mr. Smucker is 48 years old and has
served as a Director of the Company since September 1991. Mr. Smucker is
also a Director of The J.M. Smucker Company and Wm. Wrigley Jr. Company,
and is a Trustee of the Musical Arts Association (The Cleveland Orchestra).
DIRECTORS' FEES
Each Director who is not an employee of the Company receives a retainer of
$25,000 per annum, earned and payable monthly. In addition, each such Director
receives $1,750 for each meeting of the Board of Directors or Committee of the
Board of Directors that he or she attends, or $2,000 for each meeting of a
Committee of the Board of Directors that he or she chairs. No fees or other
remuneration, as such, are paid to employees of the Company for services as a
member of the Board of Directors or any Committee thereof. Directors who are not
employees of the Company are permitted to defer all or a portion of their fees
pursuant to The Sherwin-Williams Company Director Deferred Fee Plan. The plan
provides for deferred fees to be invested in either a Deferred Cash Account
(which bears interest at the current base lending rate) or a Shadow Stock
Account (the value of which fluctuates according to the value of the Company's
Common Stock).
In addition, the Company is proposing to the shareholders for approval, as
part of this Proxy Statement, The Sherwin-Williams Company 1997 Stock Plan for
Nonemployee Directors; see "Approval of The Sherwin-Williams Company 1997 Stock
Plan for Nonemployee Directors (Proposal 3)."
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<PAGE> 6
CORPORATE OFFICERS OF THE COMPANY
The following table sets forth the names and ages of the current Corporate
Officers, the positions and offices with the Company held by them as of February
28, 1997 and the date when each was first elected or appointed a Corporate
Officer.
<TABLE>
<CAPTION>
DATE WHEN
FIRST ELECTED
NAME AGE PRESENT POSITION OR APPOINTED
- -------------------- --- ----------------------------- ---------------
<S> <C> <C> <C>
John G. Breen 62 Chairman and Chief Executive January 1979
Officer, Director
Thomas A. Commes 54 President and Chief Operating March 1979
Officer, Director
Larry J. Pitorak 50 Senior Vice President -- June 1978
Finance, Treasurer and Chief
Financial Officer
John L. Ault 51 Vice President -- Corporate January 1987
Controller
Cynthia D. Brogan 45 Vice President and Assistant July 1996
Treasurer
Jane L. Haag 42 Vice President -- Information March 1996
Services
Conway G. Ivy 55 Vice President -- Corporate March 1979
Planning and Development
Thomas Kroeger 48 Vice President -- Human October 1987
Resources
James J. Sgambellone 39 Vice President -- Taxes and July 1991
Assistant Secretary
Louis E. Stellato 46 Vice President, General Counsel December 1989
and Secretary
Kenneth B. Urbanski 36 Vice President -- Corporate September 1996
Audit & Loss Prevention
Richard M. Weaver 42 Vice President -- May 1996
Administration
</TABLE>
Following is a brief account of each Corporate Officer's business
experience with the Company during the last five year period:
Mr. Breen has served as Chairman and Chief Executive Officer since June
1986 and has served as a Director since April 1979.
Mr. Commes has served as President and Chief Operating Officer since June
1986 and has served as a Director since April 1980.
Mr. Pitorak has served as Senior Vice President -- Finance, Treasurer and
Chief Financial Officer since April 1992 prior to which he served as Senior Vice
President -- Finance and Chief Financial Officer commencing July 1991.
Mr. Ault has served as Vice President -- Corporate Controller since January
1987.
Ms. Brogan has served as Vice President and Assistant Treasurer since July
1996 prior to which she served as Director, Treasury Services commencing January
1990.
Ms. Haag has served as Vice President -- Information Services since
September 1996 prior to which she served as Vice President -- Corporate Audit &
Loss Prevention commencing March 1996. From October 1994 to March 1996, Ms. Haag
served as Corporate Director -- Internal Audit & Loss Prevention prior to which
she served as Corporate Director -- Internal Audit commencing August 1988.
Mr. Ivy has served as Vice President -- Corporate Planning and Development
since April 1992 prior to which he served as Vice President and Treasurer
commencing January 1989.
Mr. Kroeger has served as Vice President -- Human Resources since October
1987.
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Mr. Sgambellone has served as Vice President -- Taxes and Assistant
Secretary since April 1996 prior to which he served as Assistant Secretary and
Corporate Director of Taxes commencing July 1991.
Mr. Stellato has served as Vice President, General Counsel and Secretary
since July 1991.
Mr. Urbanski has served as Vice President -- Corporate Audit & Loss
Prevention since September 1996 prior to which he served as
Director -- Controller of the Transportation Services Division commencing
January 1996. From November 1992 to January 1996, Mr. Urbanski served as
Corporate Director -- Store/Branch Internal Audit prior to which he served as
Manager -- General Accounting of the Coatings Division commencing October 1991.
Mr. Weaver has served as Vice President -- Administration since May 1996
prior to which he served as President & General Manager of the Landmark Office
Towers Division (Corporate Administration) commencing November 1989.
There are no family relationships between any of the persons named.
OPERATING MANAGERS OF THE COMPANY
The following table sets forth the names and ages of the current Operating
Managers, the positions and offices with the Company held by them as of February
28, 1997 and the date when each was first appointed an Operating Manager.
<TABLE>
<CAPTION>
DATE WHEN
FIRST
NAME AGE PRESENT POSITION APPOINTED
- ---------------------- ------- --------------------------- -------------
<S> <C> <C> <C>
William P. Antonace 42 President & General Manager, January 1996
Transportation Services
Division
Frank E. Butler 61 President & General Manager, November 1981
Coatings Division
Christopher M. Connor 40 President & General Manager, June 1986
Diversified Brands Division
T. Scott King 44 President & General Manager, February 1992
Consumer Brands Division
Blair P. LaCour 50 President & General Manager, October 1989
Mid Western Division, Paint
Stores Group
John C. Macatee 45 President, Paint Stores Group June 1986
Steven J. Oberfeld 44 President & General Manager, September 1992
South Western Division, Paint
Stores Group
James E. Renshaw 49 President & General Manager, June 1986
Eastern Division, Paint Stores
Group
Salvatore V. Sanzone 61 President & General Manager, April 1994
Southeastern Division, Paint
Stores Group
Joseph M. Scaminace 43 President & General Manager, May 1985
Automotive Division
</TABLE>
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Following is a brief account of each Operating Manager's business
experience during the last five year period:
Mr. Antonace has served as President & General Manager, Transportation
Services Division since January 1996 prior to which he served as Vice President
& Director -- Operations, Coatings Division commencing March 1993. From July
1992 to March 1993, Mr. Antonace served as Director -- Materials Management,
Coatings Division prior to which he served as Vice President & Director -- Sales
& Operations, Transportation Services Division commencing April 1991.
Mr. Butler has served as President & General Manager, Coatings Division
since February 1992 prior to which he served as President & General Manager,
Consumer Division commencing May 1984.
Mr. Connor has served as President & General Manager, Diversified Brands
Division since April 1994 prior to which he served as Senior Vice
President -- Marketing, Paint Stores Group commencing September 1992. From June
1986 to September 1992, Mr. Connor served as President & General Manager,
Western Division, Paint Stores Group.
Mr. King has served as President & General Manager, Consumer Brands
Division since February 1992 prior to which he served as Vice President,
Director of Sales and Marketing, Consumer Division commencing June 1987.
Mr. LaCour has served as President & General Manager, Mid Western Division,
Paint Stores Group since September 1992 prior to which he served as President &
General Manager, Mid Central Division, Paint Stores Group commencing October
1989.
Mr. Macatee has served as President, Paint Stores Group since September
1992 prior to which he served as President & General Manager, South Central
Division, Paint Stores Group commencing June 1986.
Mr. Oberfeld has served as President & General Manager, South Western
Division, Paint Stores Group since September 1992 prior to which he served as
Vice President of Sales, South Central Division, Paint Stores Group commencing
August 1990.
Mr. Renshaw has served as President & General Manager, Eastern Division,
Paint Stores Group since June 1986.
Mr. Sanzone has served as President & General Manager, Southeastern
Division, Paint Stores Group since April 1994 prior to which he served as Vice
President of Sales, Eastern Division, Paint Stores Group commencing August 1990.
Mr. Scaminace has served as President & General Manager, Automotive
Division since April 1994 prior to which he served as President & General
Manager, Diversified Brands Division commencing September 1985.
There are no family relationships between any of the persons named.
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COMPENSATION AND MANAGEMENT DEVELOPMENT
COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Management Compensation Program. The Company's Management Compensation
Program ("Program") is administered by the Compensation and Management
Development Committee ("Committee") of the Board of Directors. The Committee is
composed of five outside Directors and reports to the Board of Directors on all
compensation matters regarding certain members of the Company's management,
including the Executive Officers. The Executive Officers are identified in the
Company's 1996 Annual Report to Shareholders, a copy of which is enclosed with
this Proxy Statement. The Program is designed to enable the Company to attract,
motivate and retain key executives and to establish and maintain a performance
and achievement-oriented environment. The Program provides for (a) competitive
base salary levels which reflect, in part, individual performance, (b)
additional annual incentive compensation based on the achievement of financial
and other performance goals, and (c) long-term stock-based incentive
opportunities. The Program consists of both cash and equity-based compensation.
The annual base salary, annual incentive opportunities and long-term
incentive opportunities are intended to be competitive with market base salary
and incentive compensation opportunities. The Committee utilizes data from
various commercially available executive compensation surveys in order to
identify, on an annual basis, the base salary and incentive opportunities
available at manufacturing companies with comparable sales. The Committee
believes that these companies are likely competitors of the Company for
executive talent. These companies may include some of the companies comprising
the peer group identified in the performance graphs if such companies
participated in one or more of the compensation surveys. For the various
components of compensation, the Committee uses the median compensation paid to
executive officers holding equivalent positions or having similar
responsibilities in manufacturing companies with comparable sales. The amount of
compensation paid to the Executive Officers is not based upon the cumulative
total return on the Company's Common Stock as reflected in either of the
performance graphs.
Base Salary. Annual cash compensation consists, in part, of a base salary.
With regard to base salary, a salary range for each Executive Officer is
approved on the basis of such person's position and level of responsibility by
using the compensation surveys, with the median market base salary approximating
the midpoint of the range. Once a range is formulated, salary levels are based
upon the Executive Officer's performance and, to a lesser extent, tenure in the
particular position. With regard to performance, the Executive Officer's
performance for the prior year is reviewed based on performance criteria (both
quantitative and qualitative) which vary by Executive Officer and which usually
relate to the particular business unit or function for which such person has
responsibility. The base salary of each Executive Officer is reviewed and
approved annually.
Annual Incentive Compensation. Annual cash compensation also consists of
the opportunity to earn additional compensation under The Sherwin-Williams
Company Management Incentive Plan ("Incentive Plan"). All of the Executive
Officers participate in the Incentive Plan. In approving the amount of annual
incentive compensation to be paid to any of the Executive Officers under the
Incentive Plan, great emphasis is placed on establishing incentive opportunities
which are directly linked with Company performance and the maximization of
shareholder value. The Committee establishes a threshold Company earnings goal,
and 75% of this goal must be met before incentive compensation is paid to the
Executive Officers, subject to the Committee's discretion to award special
incentive compensation under exceptional circumstances. This earnings goal is
established at a level which exceeds the Company's prior year's earnings and
requires that the Company improve its earnings performance before incentive
compensation is paid (except as provided in the foregoing sentence). During the
fiscal year ended December 31, 1996, the Company's earnings exceeded that goal.
In addition, compensation decisions for individual Executive Officers are based,
in part, on financial performance goals
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for the Company, as described below, and other individual goals related to each
Executive Officer's area of responsibility.
Annual incentive compensation awarded to an Executive Officer is also
determined by using the median incentive compensation (identified from the
compensation surveys), which is generally equivalent to the amount an Executive
Officer could receive under the Incentive Plan if 100% of all of the Company and
individual goals are obtained. Under the Incentive Plan, annual bonus awards for
the Executive Officers range from zero, if less than 75% of the stated goals are
reached, to between 35% and 60% of the Executive Officer's base salary
(depending upon the Executive Officer's position) if 100% of the stated goals
are obtained. In the event the Company and an Executive Officer exceed 100% of
the stated goals, incentive compensation can be awarded up to an aggregate
maximum amount of 60% to 95% of the Executive Officer's base salary (depending
upon position). Consequently, incentive compensation paid to an Executive
Officer in any year may exceed the median incentive compensation determined by
the compensation surveys. Decisions on annual incentive compensation awarded to
an Executive Officer are based upon financial performance goals, such as
after-tax net income and the return on stockholders' equity, for each Incentive
Plan year, and the accomplishment by the Executive Officer of individual
performance goals (both quantitative and qualitative), which vary by Executive
Officer and which usually relate to the particular business unit or function for
which such person has responsibility. The financial performance goals are
generally weighted more heavily.
Long-term Incentive Compensation. Long-term incentive compensation may be
awarded to any one or all of the Executive Officers under The Sherwin-Williams
Company 1994 Stock Plan ("1994 Stock Plan"). All of the Executive Officers
participate in the 1994 Stock Plan. Under the 1994 Stock Plan, the Committee may
grant stock options to the Executive Officers based on competitive market
practices. Competitive market practices are determined by the various
compensation surveys mentioned above, and the Committee grants stock options
based upon the median market value of the underlying stock relating to stock
options that comparable companies are granting to their executive officers. The
specific number of stock options granted to an Executive Officer is based upon
the Executive Officer's position and level of responsibility. The option
exercise price is equal to the fair market value of the Company's Common Stock
on the date options are granted. Stock options granted typically vest at the
rate of one-third per year for three years (beginning one year from the date of
grant) and expire ten years from the date of grant.
Awards of restricted stock under the 1994 Stock Plan, which are subject to
a "substantial risk of forfeiture", may be granted to the Executive Officers.
The granting of restricted stock is determined in the same manner that the
granting of stock options is determined. If granted, restricted stock is issued
with certain performance and time restrictions. The number of shares of
restricted stock which may actually vest at the end of the restriction period is
dependent upon the Company's relative return on average shareholder equity
versus a group of peer companies. With regard to outstanding shares of
restricted stock granted prior to January 1997, the companies that comprise this
group of peer companies are the same companies that comprise the peer group
identified in the performance graphs (except for one company for which
sufficient financial data is not available to calculate cumulative total
return). For shares of restricted stock granted in January 1997, the restricted
stock peer group also does not include three companies which have been acquired
by other companies and one company which has filed for bankruptcy. Depending on
the Company's performance at the end of the restriction period, from 0% to 100%
of the restricted stock may vest. The restriction period is typically four years
from the date of grant of the restricted stock.
Chief Executive Officer's Compensation. The Committee determined Mr.
Breen's compensation for the fiscal year ended December 31, 1996 based on a
number of factors and criteria. Mr. Breen's base salary range was determined
using the median base salary of chief executive
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<PAGE> 11
officers for manufacturing companies having comparable sales as the Company. Mr.
Breen's base salary within his range was established based upon a review by the
Committee of Mr. Breen's 1995 performance (which was measured, in part, by the
Company's 1995 performance) and his tenure with the Company. For 1996, the
average salary increase given generally to salaried employees of the Company was
3.5%, and the range of potential increases was 0% to 8.0%. Mr. Breen received a
base salary increase of 4.0% in December 1995, bringing his base salary to
$825,006. Mr. Breen's increase was based primarily upon the Committee's
evaluation of Mr. Breen's 1995 performance relating to the financial and other
performance measures set forth in the next paragraph and his tenure with the
Company.
In addition, in 1996 Mr. Breen earned a bonus of $715,000 as annual
incentive compensation under the Incentive Plan. The amount of this bonus was
based primarily upon the Company's achievement of 1996 financial performance
goals relating to after-tax net income, return on stockholders' equity, return
on sales, cash flow, working capital as a percent of sales and post-acquisition
operating results relating to the Company's acquisition of Pratt & Lambert
United, Inc. Mr. Breen's achievement of certain other 1996 goals relating to
management succession planning and acquisition strategies were also factors, but
were weighted less heavily.
In January 1996, Mr. Breen was awarded 37,000 stock options under the 1994
Stock Plan. No shares of restricted stock were awarded to Mr. Breen in 1996. In
determining the number of stock options and shares of restricted stock awarded
to Mr. Breen, the Committee also identified the median market value of the
underlying shares relating to stock options and of shares of restricted stock
which comparable companies granted to their chief executive officers. The amount
of outstanding stock options and shares of restricted stock is not considered by
the Committee in making awards of stock options and restricted stock.
Policy on Deductibility of Compensation. Section 162(m) of the Internal
Revenue Code generally provides that certain compensation in excess of $1
million per year paid to a company's chief executive officer and any of its four
other highest paid executive officers is not deductible to a company unless the
compensation qualifies for an exception. This deduction limit generally applies
only to compensation that could otherwise be deducted by a company in a taxable
year. For 1996, the Committee does not expect that Section 162(m) will limit the
Company's deductibility of compensation paid to any of such executive officers.
Section 162(m) provides an exception to the deductibility limit for
performance-based compensation if certain procedural requirements, including
shareholder approval of the material terms of the performance goal, are
satisfied. The Committee believes that grants of options, stock appreciation
rights and restricted stock under the 1994 Stock Plan qualify for full
deductibility under Section 162(m). Compensation paid under the Incentive Plan
does not qualify for the exemption for performance-based compensation. At this
time, based upon the Company's current compensation structure, the Committee
believes it is in the best interests of the Company and its shareholders for the
Committee to retain flexibility in awarding incentive compensation under the
Incentive Plan which does not qualify for the exemption for performance-based
compensation. The Committee will continue to review and evaluate, as necessary,
the impact of Section 162(m) on the Company's compensation programs.
COMPENSATION AND MANAGEMENT
DEVELOPMENT COMMITTEE
W.G. Mitchell, Chairman
J.M. Biggar
D.E. Collins
R.W. Mahoney
A.M. Mixon, III
9
<PAGE> 12
PERFORMANCE GRAPHS
The following line graphs set forth a comparison of the cumulative total
shareholder return on the Company's Common Stock with the cumulative total
return of the companies listed on the Standard & Poor's 500 Stock Index and a
peer group of companies selected on a line-of-business basis. The "Peer Group"
is comprised of the following companies: Akzo Nobel nv, Armstrong World
Industries, Inc., BASF Corporation, Ferro Corporation, H.B. Fuller Company,
Genuine Parts Company, Grow Group, Inc.*, Guardsman Products, Inc.*, Hechinger
Company, The Home Depot, Inc., Imperial Chemicals Industries PLC, Lilly
Industries, Inc., Lowe's Companies, Inc., Masco Corporation, Morton
International, Inc., Newell Co., PPG Industries, Inc., Pratt & Lambert United,
Inc.*, RPM, Inc., Standard Brands Paint Company*, The Stanley Works, USG
Corporation and The Valspar Corporation. An asterisk indicates that the company
is included in the performance graphs through the last day it was publicly
traded.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG THE SHERWIN-WILLIAMS COMPANY, S&P 500 INDEX AND
THE PEER GROUP
<TABLE>
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) SHERWIN-WILLIAMS S&P 500 PEER GROUP
<S> <C> <C> <C>
1991 $100 $100 $100
1992 $116 $108 $111
1993 $138 $118 $133
1994 $131 $120 $137
1995 $163 $165 $154
1996 $227 $203 $190
</TABLE>
Assumes $100 invested on December 31, 1991 in the Common Stock of The
Sherwin-Williams Company, S&P 500 Index and the Peer Group, including
reinvestment of dividends, through the fiscal year ended December 31, 1996.
10
<PAGE> 13
COMPARISON OF TEN YEAR CUMULATIVE TOTAL RETURN
AMONG THE SHERWIN-WILLIAMS COMPANY, S&P 500 INDEX AND
THE PEER GROUP
<TABLE>
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) SHERWIN-WILLIAMS S&P 500 PEER GROUP
<S> <C> <C> <C>
1986 $100 $100 $100
1987 $ 90 $105 $107
1988 $ 96 $123 $119
1989 $133 $162 $134
1990 $148 $157 $123
1991 $215 $204 $184
1992 $250 $220 $204
1993 $297 $242 $245
1994 $282 $245 $252
1995 $350 $337 $283
1996 $488 $415 $350
</TABLE>
Assumes $100 invested on December 31, 1986 in the Common Stock of The
Sherwin-Williams Company, S&P 500 Index and the Peer Group, including
reinvestment of dividends, through the fiscal year ended December 31, 1996.
11
<PAGE> 14
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION AWARDS
-------------------------
RESTRICTED SECURITIES
ANNUAL COMPENSATION STOCK UNDERLYING ALL OTHER
NAME AND --------------------------------- AWARD(S) OPTIONS/ COMPEN-
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) ($)(1,2) SARS (#) SATION($)(3)
- ----------------------------- ---- ---------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
J. G. Breen 1996 825,006 715,000 -0- 37,000 262,573
Chairman and Chief 1995 793,052 585,000 667,500 44,000 134,701
Executive Officer 1994 758,888 625,000 -0- 32,000 152,574
T. A. Commes 1996 536,000 480,000 -0- 19,000 179,505
President and Chief 1995 514,900 390,000 367,125 23,000 131,732
Operating Officer 1994 492,038 420,000 -0- 18,000 137,021
J. C. Macatee 1996 281,175 267,000 -0- 10,000 89,424
President, Paint Stores 1995 266,895 245,000 166,875 11,000 64,542
Group 1994 247,845 230,000 -0- 9,000 59,136
L. J. Pitorak 1996 287,852 255,000 -0- 10,000 70,750
Senior Vice President 1995 272,840 210,000 166,875 11,000 63,818
-- Finance, Treasurer 1994 255,024 175,000 -0- 9,000 65,718
and Chief Financial Officer
F. E. Butler 1996 297,650 210,000 -0- 7,000 111,641
President & General 1995 284,150 200,000 166,875 8,000 64,757
Manager, Coatings 1994 251,340 210,000 -0- 6,000 64,347
Division
</TABLE>
- ---------------
1 The number of shares of restricted stock held on December 31, 1996 and the
aggregate value of such holdings on such date for Messrs. Breen, Commes,
Macatee, Pitorak and Butler are 40,000 shares with a value of $2,240,000,
22,000 shares with a value of $1,232,000, 10,000 shares with a value of
$560,000, 10,000 shares with a value of $560,000 and 10,000 shares with a
value of $560,000, respectively. The value of restricted stock is equal to the
number of shares of restricted stock indicated multiplied by the closing price
of the Company's Common Stock on December 31, 1996. The values indicated are
not necessarily indicative of the actual values which may be realized by the
named Executive Officers.
2 Dividends are paid on all restricted stock at the same rate as paid on the
Company's Common Stock.
3 The amounts disclosed in this column for 1996 include: (a) Company
contributions in the amount of $7,500 for each of Messrs. Commes, Macatee and
Pitorak under the Company's Pension Investment Plan, a defined contribution
plan (Messrs. Breen and Butler do not participate in such plan); (b) Company
contributions in the amounts of $39,245, $17,345 and $14,892 for Messrs.
Commes, Macatee and Pitorak, respectively, under the Company's Pension
Investment Plan Equalization Program, a defined contribution plan (Messrs.
Breen and Butler do not participate in such plan); (c) Company contributions
in the amount of $6,900 for each of Messrs. Breen, Commes, Macatee, Pitorak
and Butler under the Company's Employee Stock Purchase and Savings Plan, a
defined contribution plan; (d) Company contributions in the amounts of
$106,972, $68,048, $34,125, $15,490 and $33,002 for Messrs. Breen, Commes,
Macatee, Pitorak and Butler, respectively, under the Company's Deferred
Compensation Savings Plan, a defined contribution plan; (e) the dollar value
of compensatory split-dollar life insurance benefits in the amounts of
$99,672, $54,569, $21,437, $23,547 and $68,666 for Messrs. Breen, Commes,
Macatee, Pitorak and Butler, respectively, under the Company's Executive Life
Insurance Plan; (f) the dollar value of additional compensatory split-dollar
life insurance benefits in the amount of $45,328 for Mr. Breen (such policy
was purchased by the Company in 1996 and replaces Mr. Breen's benefits
accruing under the Company's Retirement Equalization Program after January 1,
1996; see "Pension Plan"); and (g) payments by the Company in the amounts of
$3,701, $3,243, $2,117, $2,421 and $3,073 for Messrs. Breen,
12
<PAGE> 15
Commes, Macatee, Pitorak and Butler, respectively, related to premiums under
the Company's Executive Disability Income Plan.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------
PERCENT OF
NUMBER OF TOTAL
SECURITIES OPTIONS/ POTENTIAL REALIZABLE VALUE
UNDERLYING SARS AT ASSUMED ANNUAL RATES
OPTIONS/ GRANTED TO OF STOCK PRICE APPRECIATION
SARS EMPLOYEES EXERCISE OR FOR OPTION TERM(4)
GRANTED IN FISCAL BASE PRICE EXPIRATION --------------------------------
NAME (#)(1,2) YEAR ($/SH)(3) DATE 5% ($) 10% ($)
---------- ---------- ----------- ---------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
J. G. Breen 37,000 4.4889 41.4375 1/24/06 964,213 2,443,506
T. A. Commes 19,000 2.3051 41.4375 1/24/06 495,137 1,254,773
J. C. Macatee 10,000 1.2132 41.4375 1/24/06 260,598 660,407
L. J. Pitorak 10,000 1.2132 41.4375 1/24/06 260,598 660,407
F. E. Butler 7,000 .8493 41.4375 1/24/06 182,419 462,285
Value realizable for all
shareholders(5) N/A N/A N/A N/A 2,228,231,973 5,646,777,306
Value realizable for the named
Executive Officers as a % of
value realizable for all
shareholders N/A N/A N/A N/A 0.097% 0.097%
</TABLE>
- ---------------
1 Generally, one-third of the options granted are exercisable on each of the
first, second and third anniversary dates of the grant.
2 All options granted become immediately exercisable, in full, upon (a) a filing
pursuant to any federal or state law in connection with any tender offer for
shares of the Company's Common Stock (other than a tender offer by the
Company), or (b) the signing of any agreement for the merger of the Company
into, or the Company's consolidation with, another corporation or for the sale
of substantially all of the assets of the Company to another corporation;
which tender offer, merger, consolidation or sale, if consummated, would, in
the opinion of the Board of Directors of the Company, likely result in a
change in control of the Company. In the event any such tender offer, merger,
consolidation or sale is abandoned or, in the opinion of the Board of
Directors, is not likely to be consummated, the Board of Directors may nullify
the effect of the immediately preceding sentence and reinstate the provisions
providing for accrual in installments, without prejudice to any exercise of
options that may have occurred prior to such nullification.
3 The exercise price is equal to the fair market value of the Company's Common
Stock on the date of grant.
4 The amounts disclosed in these columns, which reflect appreciation of the
Company's Common Stock price at the 5% and 10% rates dictated by the
Securities and Exchange Commission, are not intended to be a forecast of the
Company's Common Stock price and are not necessarily indicative of the actual
values which may be realized by the named Executive Officers or the
shareholders. These assumed rates of 5% and 10% would result in the Company's
Common Stock price increasing from $41.4375 per share to approximately $67.50
per share and $107.48 per share, respectively.
5 The amounts disclosed reflect appreciation of the Company's Common Stock price
at the 5% and 10% rates dictated by the Securities and Exchange Commission for
all shareholders of the Company based on the total number of shares of Common
Stock outstanding on January 24, 1996 (the date on which options set forth in
this table were granted) and assuming a per share price of $41.4375 (the
exercise price of such options).
13
<PAGE> 16
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-THE-
SHARES UNDERLYING UNEXERCISED MONEY OPTIONS/SARS AT FY-END
ACQUIRED ON VALUE OPTIONS/SARS AT FY-END (#) ($)(2)
EXERCISE REALIZED ----------------------------- -----------------------------
NAME (#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------- ----------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
J. G. Breen 67,999 1,545,978 -0- 77,001 -0- 1,503,836
T. A. Commes 88,667 1,741,957 -0- 40,334 -0- 790,828
J. C. Macatee 4,800 153,600 51,966 20,334 1,602,234 395,016
L. J. Pitorak 28,666 394,013 -0- 20,334 -0- 395,016
F. E. Butler -0- -0- 21,233 14,334 578,451 278,953
</TABLE>
- ---------------
1 The value realized on the exercise of options is based on the difference
between the exercise price and the fair market value of the Company's Common
Stock on the date of exercise.
2 The value of unexercised in-the-money options is based on the difference
between the exercise price and the fair market value of the Company's Common
Stock on December 31, 1996.
PENSION PLAN
The Sherwin-Williams Company Salaried Employees' Retirement Plan ("Pension
Plan") provides pension benefits for certain salaried employees hired on or
before December 31, 1983. The Pension Plan requires five years of service for a
participant to become fully vested with respect to a participant who has at
least one hour of service on or after January 1, 1989 and ten years of service
for all other participants. A participant may also become fully vested in the
event the participant's employment is terminated (in specified situations) after
a Change in Control (as defined in the Pension Plan) of the Company. Normal
monthly pensions equal one-twelfth of one percent of the Average Annual Earnings
(as defined in the Pension Plan) times the number of years of credited service
up to a maximum of forty years, less an offset of $42.50 (or such lesser amount
as may be required under the Internal Revenue Code). As of December 31, 1996,
the maximum annual benefit under the provisions of the Pension Plan is $120,000
due to limitations imposed by ERISA and the Internal Revenue Code. Messrs. Breen
and Butler are the only Executive Officers named in the Summary Compensation
Table who participate in the Pension Plan and both are fully vested.
The Company has established a Retirement Equalization Program to provide
eligible employees with the benefits they would have received under the Pension
Plan but for the maximum limitations imposed by ERISA and the Internal Revenue
Code. The Retirement Equalization Program authorizes the Company, at its
discretion, to enter into appropriate agreements with employees who are, or may
become, eligible to participate. The benefits under the Retirement Equalization
Program will be paid from an irrevocable grantor trust funded from the Company's
general funds or by the Company from the Company's general funds in the event of
a deficiency in the trust. Messrs. Breen and Butler also participate in the
Retirement Equalization Program.
The following table sets forth the estimated aggregate annual normal
benefits payable under the Pension Plan and the Retirement Equalization Program
commencing at age 65 in the form of a single life annuity.
14
<PAGE> 17
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
--------------------------------------------------------
REMUNERATION 15 20 25 30 35
- ------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 300,000 44,490 59,490 74,490 89,490 104,490
400,000 59,490 79,490 99,490 119,490 139,490
500,000 74,490 99,490 124,490 149,490 174,490
600,000 89,490 119,490 149,490 179,490 209,490
700,000 104,490 139,490 174,490 209,490 244,490
800,000 119,490 159,490 199,490 239,490 279,490
900,000 134,490 179,490 224,490 269,490 314,490
1,000,000 149,490 199,490 249,490 299,490 349,490
1,100,000 164,490 219,490 274,490 329,490 384,490
1,200,000 179,490 239,490 299,490 359,490 419,490
1,300,000 194,490 259,490 324,490 389,490 454,490
1,400,000 209,490 279,490 349,490 419,490 489,490
1,500,000 224,490 299,490 374,490 449,490 524,490
1,600,000 239,490 319,490 399,490 479,490 559,490
1,700,000 254,490 339,490 424,490 509,490 594,490
</TABLE>
Pensions are based upon average annual earnings (salary and bonus) for the
highest five consecutive years out of the last ten years of employment with the
Company. For Messrs. Breen and Butler, this average amount equaled $1,375,050
and $434,318, respectively, as of December 31, 1996. Messrs. Breen and Butler
were credited with eighteen and thirty years of service, respectively, under the
Pension Plan as of December 31, 1996. Pensions may be adjusted for a surviving
spouse's pension or other options under the Pension Plan. Pensions are not
subject to any other deduction for social security or any other offset amounts.
In addition, pursuant to a provision of Mr. Breen's employment contract,
the Company will pay to Mr. Breen, upon retirement, supplemental pension
benefits so that his total pension benefits will not be less than the amount of
benefits he would have received under the Gould Inc. Salaried Retirement Plan if
Mr. Breen had continued to be employed by Gould Inc. (Mr. Breen's previous
employer) until his retirement and had received compensation in the amount and
form paid to him by the Company. The following table sets forth the estimated
aggregate annual supplemental benefits payable to Mr. Breen, under this
provision of his employment contract, commencing at age 65 in the form of a
single life annuity. The total amount of benefits payable to Mr. Breen will be
equal to the amount determined in accordance with the Pension Plan Table set
forth above, plus the amount determined in accordance with the table set forth
below, minus $25,961 (which is the value of the benefits waived by Mr. Breen as
described below).
<TABLE>
<CAPTION>
YEARS OF SERVICE
--------------------------------------------
REMUNERATION 15 20 25 30
- ------------ -------- -------- -------- --------
<S> <C> <C> <C> <C>
$1,000,000 278,987 228,987 178,987 128,987
1,100,000 308,987 253,987 198,987 143,987
1,200,000 338,987 278,987 218,987 158,987
1,300,000 368,987 303,987 238,987 173,987
1,400,000 398,987 328,987 258,987 188,987
1,500,000 428,987 353,987 278,987 203,987
1,600,000 458,987 378,987 298,987 218,987
1,700,000 488,987 403,987 318,987 233,987
</TABLE>
These supplemental pension benefits are based upon the average annual
salary and bonus paid to Mr. Breen for the highest five years out of the last
fifteen years of employment with the Company. For Mr. Breen, this average amount
equaled $1,375,050 as of December 31, 1996. Mr. Breen was credited with eighteen
years of service as of December 31, 1996 for purposes of
15
<PAGE> 18
determining these supplemental pension benefits. These benefits reflect the
applicable deduction for social security.
In connection with the Company's purchase of an additional split-dollar
life insurance policy for Mr. Breen in 1996 (as mentioned in Footnote 3 of the
Summary Compensation Table), Mr. Breen agreed to waive all future benefits
accruing under the Retirement Equalization Program after January 1, 1996. As of
December 31, 1996, the value of such benefits (valued in the form of a single
life annuity) was $25,961.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND
CHANGE-IN-CONTROL ARRANGEMENTS
Employment Contracts. Messrs. Breen and Commes have employment contracts
with the Company. In addition to their basic compensation, incentive
compensation, and participation in the employee benefit plans and the 1994 Stock
Plan, each is entitled to receive, in the event the Company terminates his
employment for any reason, except in the event termination is the result of a
change of control of the Company, an amount equal to one and one-half times his
annual salary and any bonus paid or payable to him for the preceding year. In
the event the termination of employment is the result of a change of control of
the Company, Mr. Breen is entitled to receive, at the time of his termination of
employment, a cash amount equal to two times his annual assured compensation,
and Mr. Commes is entitled to receive a cash amount equal to his annual assured
compensation. Annual assured compensation is defined as the sum of (i)
twenty-six times the executive's highest regular bi-weekly salary in effect
within the three year period preceding termination, plus (ii) the greater of the
highest bonus paid or payable within the three year period preceding termination
or the bonus such executive would have received for the year of termination had
the executive reached 100% of any stated goals (as explained in the Compensation
and Management Development Committee Report on Executive Compensation). Assuming
a termination date of February 28, 1997 as a result of a change of control, the
cash amounts payable under such contracts would have been approximately
$3,212,040 and $1,020,800 for Messrs. Breen and Commes, respectively. Amounts
received under the employment contracts due to a termination of employment
resulting from a change of control of the Company will be offset against the
amounts payable under the severance pay agreements described below.
Severance Pay Agreements. To ensure continuity and the continued
dedication of key executives during any period of uncertainty caused by the
possible threat of a takeover, the Company has entered into severance pay
agreements with certain key executives, including each of the Executive Officers
named in the Summary Compensation Table. In the event there is a Change of
Control (as that term is defined in the agreements) of the Company and the
employment of the executive terminates under certain conditions described in the
agreements at any time during the two year period following a Change of Control
of the Company, the executive will receive an agreed upon amount of severance
pay. In the event the executive has an employment contract with the Company
providing for the payment of severance pay at the time of termination of
employment, the amounts payable under such employment contract will be offset
against amounts payable under the severance pay agreement.
For Messrs. Breen and Commes, the severance pay agreements provide that
upon termination, whether voluntary or involuntary, unless the termination is
because of death, Disability or by the Company for Cause (as such terms are
defined in the agreements), they will receive, in addition to accrued salary,
bonus and vacation pay: (a) a lump sum cash amount equal to four times the sum
of (i) twenty-six times their highest regular bi-weekly salary in effect within
the three year period preceding termination, plus (ii) the greater of the
highest bonus received within the three year period preceding termination or the
bonus such executive would have received for the year of termination had the
executive reached 100% of any stated goals (as
16
<PAGE> 19
explained in the Compensation and Management Development Committee Report on
Executive Compensation); (b) continued participation in the Company's employee
welfare benefit plans and other benefit arrangements for a period of four years
following termination; and (c) special retirement benefits so that the total
retirement benefits received will be equal to the retirement benefits which
would have been received had their employment with the Company continued during
the four year period following termination. The executive will also receive an
additional payment equal to the amount of any excise tax imposed on the
executive by Section 4999 of the Internal Revenue Code and any taxes, interest
or penalties incurred with respect thereto. Assuming a termination date of
February 28, 1997, the lump sum cash amounts payable under the severance pay
agreements (including any amount relating to the excise tax described above)
would have been approximately $9,465,512 and $4,083,200 for Messrs. Breen and
Commes, respectively.
For Messrs. Macatee, Pitorak and Butler, the severance pay agreements
provide that upon termination for any reason other than death, Disability, by
the Company for Cause or by the executive for other than Good Reason (as such
terms are defined in the agreements), the executive will receive, in addition to
accrued salary, bonus and vacation pay: (a) a lump sum cash amount equal to
three times the sum of (i) twenty-six times the executive's highest regular
bi-weekly salary in effect within the three year period preceding termination,
plus (ii) the greater of the highest bonus received by the executive within the
three year period preceding termination or the bonus such executive would have
received for the year of termination had the executive reached 100% of any
stated goals (as explained in the Compensation and Management Development
Committee Report on Executive Compensation); (b) continued participation in the
Company's employee welfare benefit plans and other benefit arrangements for a
period of three years following termination; and (c) special retirement benefits
so that the total retirement benefits received will be equal to the retirement
benefits which would have been received had such executive's employment with the
Company continued during the three year period following termination. The
executive will also receive an additional payment equal to the amount of any
excise tax imposed on the executive by Section 4999 of the Internal Revenue Code
and any taxes, interest or penalties incurred with respect thereto. Assuming a
termination date of February 28, 1997, the lump sum amounts payable under the
foregoing provision of the severance pay agreements (including any amount
relating to the excise tax described above) would have been approximately
$1,798,800, $1,649,052 and $2,366,245 for Messrs. Macatee, Pitorak and Butler,
respectively.
In addition, each of Messrs. Macatee, Pitorak and Butler has the right to
terminate his employment with the Company for any reason during the thirty day
period immediately following the first anniversary date of a Change of Control
of the Company, in which event such executive shall receive, in lieu of the
amount set forth in clause (a) above and in addition to the benefits described
in clauses (b) and (c) above, a lump sum cash amount equal to two times the sum
of clauses (a)(i) and (a)(ii) above. Assuming a termination date of February 28,
1997, the lump sum amounts payable under the foregoing provision of the
severance pay agreements (including any amount relating to the excise tax
described above) would have been approximately $1,199,200, $1,099,368 and
$1,085,200 for Messrs. Macatee, Pitorak and Butler, respectively.
The salary and other benefits provided by the severance pay agreements will
be payable either from an escrow fund established by the Company with a national
banking institution or from the Company's general funds. The Company has agreed
to indemnify such executives for any legal expense incurred in the enforcement
of their rights under the severance pay agreements.
Estate Protection Plan Trust. In connection with the Company's purchase of
the additional split-dollar life insurance policy for Mr. Breen in 1996, the
Company established a "rabbi trust" for the benefit of Mr. Breen. Upon a "Change
in Control" or a "Potential Change in Control" of
17
<PAGE> 20
the Company (as such terms are defined in the trust), the Company is required to
fund the trust in an amount equal to the Company's entire interest in the cash
value of the life insurance policy, plus an amount sufficient to pay future
premiums for the policy.
APPROVAL OF AMENDMENTS TO THE SHERWIN-WILLIAMS COMPANY
1994 STOCK PLAN (PROPOSAL 2)
The Board of Directors has unanimously adopted and recommends to the
shareholders for approval amendments to the 1994 Stock Plan (a) to increase the
number of shares of Common Stock authorized to be issued under the 1994 Stock
Plan by 14,000,000 shares (such number determined to reflect the effect of the
two-for-one stock split) and (b) to provide that stock options and stock
appreciation rights may not be repriced as described below. The Board of
Directors believes it to be in the best interest of the Company to approve the
amendments to the 1994 Stock Plan. Approval of the amendments to the 1994 Stock
Plan will also constitute approval of the 1994 Stock Plan, as amended.
The 1994 Stock Plan provides for the granting to key employees of stock
options ("Options"), stock appreciation rights ("SARs") and restricted stock
("Restricted Stock") relating to Common Stock of the Company. The 1994 Stock
Plan is designed to attract and retain key executive, managerial, technical and
professional personnel for the Company and its subsidiaries and to provide such
personnel with incentives and rewards for superior performance. The number of
Options, SARs and shares of Restricted Stock to be granted to the executive
officers, and the other eligible employees generally, is determined in the
manner described in the Compensation and Management Development Committee Report
on Executive Compensation. On February 28, 1997, the closing price of the
Company's Common Stock was $56.125 per share ($28.0625 per share reflecting the
effect of the two-for-one stock split). A description of the proposed amendments
to the 1994 Stock Plan and a description of the material provisions of the 1994
Stock Plan are set forth below.
DESCRIPTION OF AMENDMENTS
The 1994 Stock Plan was approved by the shareholders at the 1993 Annual
Meeting of Shareholders, and, at that time, 6,132,860 shares (which reflects the
effect of the two-for-one stock split) were authorized. At January 31, 1997,
1,542,922 shares (which also reflects the effect of the two-for-one stock split)
remained available. Due to the limited number of shares remaining under the 1994
Stock Plan, the Company is proposing to amend the 1994 Stock Plan to authorize
14,000,000 additional shares for future use.
The 1994 Stock Plan currently contains provisions which permit the Board of
Directors to authorize the repricing of Options and SARs by cancelling or
amending Option or SAR grants and authorizing new replacement grants. The Board
of Directors has never authorized such a repricing of Options or SARs under the
1994 Stock Plan and does not intend to do so. Accordingly, the Company is
proposing to amend the 1994 Stock Plan (a) to specifically provide that the
option price per share may not be increased or decreased following the date of
grant of any Option or SAR, except pursuant to the antidilution provisions of
the 1994 Stock Plan and (b) to delete the provision of the 1994 Stock Plan which
provides that in the event of any such cancellation or amendment, the Board of
Directors may authorize new replacement grants.
DESCRIPTION OF THE 1994 STOCK PLAN
Eligibility. Any person who is at the time an officer (including an officer
who is a member of the Board of Directors) or other key employee of the Company
or any of its subsidiaries may be selected by the Board of Directors to
participate in the 1994 Stock Plan. Participation is totally discretionary with
the Board of Directors. At February 28, 1997, the approximate number of
18
<PAGE> 21
persons generally eligible to participate in the 1994 Stock Plan, including all
of the Executive Officers of the Company, was 840.
Number of Shares Available. Provided that the amendments to the 1994 Stock
Plan are approved by the shareholders at the 1997 Annual Meeting of
Shareholders, the number of shares which will be available under the 1994 Stock
Plan will not exceed, in the aggregate, 14,000,000 shares, plus the number of
shares then remaining available. At January 31, 1997, 1,542,922 shares remained
available under the 1994 Stock Plan. Such shares may be newly issued or treasury
shares or a combination of the foregoing.
Options. The Board of Directors may authorize the granting of Options to
eligible employees. Options may be either non-qualified stock options or
incentive stock options intended to qualify for special tax treatment in
accordance with Section 422 of the Code. The number of Options and any period of
employment required before the Options may be exercised will be determined by
the Board of Directors at the time of the grant. No Option may be exercised more
than ten years from the date of grant. The Option exercise price will be equal
to the Fair Market Value (as such term is defined in the 1994 Stock Plan) of
Common Stock on the date of grant. Options are not transferable except by will
or the laws of descent and distribution. The maximum number of shares for which
Options may be granted to any eligible employee during any calendar year is
1,000,000 (reflecting the effect of the two-for-one stock split).
SARs. The Board of Directors may grant SARs to eligible employees with
respect to any Options which may be granted pursuant to any stock option plan or
any employment agreement with the Company. SARs may be exercised at any time
when the related Options may be exercised by surrendering the Option,
unexercised, to the Company. The amount which may be due a participant at the
time of exercise of the SAR may be paid in shares of Common Stock, in cash or a
combination thereof. At the time of the exercise of the SAR, the participant
will be entitled, subject to certain exceptions, to the excess of the Fair
Market Value of the shares of Common Stock covered by the related Options, as
determined on the date such SAR is exercised, over the aggregate Option price
provided for in the related Option. The transferability of SARs is subject to
the same restrictions as Options. The maximum number of shares for which SARs
may be granted to any eligible employee during any calendar year is 1,000,000
(reflecting the effect of the two-for-one stock split).
Restricted Stock. The Board of Directors may authorize the granting or sale
of Restricted Stock to eligible employees. The grant of Restricted Stock
constitutes an immediate transfer of the ownership of shares of Common Stock to
the participant and entitles such participant to dividends, voting rights and
other rights of ownership of Common Stock as the Board of Directors may
determine subject, however, to a substantial risk of forfeiture and transfer
restrictions. The number of shares of Restricted Stock, the consideration to be
paid by the participant to the Company, if any, for the Restricted Stock, and
the conditions which comprise the substantial risk of forfeiture and transfer
restrictions will be determined by the Board of Directors at the date of the
grant. Notwithstanding the foregoing, each grant or sale is subject to the
following vesting requirement. The percentage of the number of shares of
Restricted Stock granted to any participant that such participant shall be
entitled to receive without restriction will be based upon a comparison of the
average return on average equity of the Company and a group of other companies.
The maximum number of shares of Restricted Stock that may be granted to any
eligible employee during any calendar year is 1,000,000 (reflecting the effect
of the two-for-one stock split).
Administration. The 1994 Stock Plan is administered by the Board of
Directors, which may from time-to-time delegate all or any part of its authority
to the Compensation and Management Development Committee of the Board of
Directors or another committee composed of at least three nonemployee directors.
19
<PAGE> 22
Termination. The 1994 Stock Plan will terminate on February 16, 2003,
provided, however that Options, Appreciation Rights and Restricted Stock granted
on or before that date will continue to be effective in accordance with the
terms of the grant.
Amendment. The 1994 Stock Plan may be amended from time to time by the
Board of Directors; however, without further approval of the shareholders, no
such amendment shall (a) increase the maximum number of shares that may be
issued under the 1994 Stock Plan, subject to certain adjustments as provided
below, (b) change the definition of eligible employees, or (c) cause Rule 16b-3
of the Securities Exchange Act of 1934 to cease to be applicable to the 1994
Stock Plan.
The Board of Directors may cancel or amend any agreement evidencing
Options, SARs and Restricted Stock granted provided that the terms and
conditions of each such agreement, as amended, are not inconsistent with the
1994 Stock Plan and provided further that the option price per share may not be
increased or decreased following the date of grant of the related Option or SAR
except for certain adjustments as provided below.
Adjustments. The Board of Directors may adjust the exercise price, sale
price and the number or kind of shares of Common Stock or other securities
covered by Options, SARs or Restricted Stock grants as it determines is
equitably required to prevent dilution or enlargement of the rights with respect
thereto resulting from any stock split, stock dividend, combination of shares,
recapitalization or other change in the capital structure of the Company, any
merger, consolidation, separation, reorganization or partial or complete
liquidation, or any other corporate transaction or event having an effect
similar to any of the foregoing. The Board of Directors may also adjust the
number or kind of shares of Common Stock or other securities which may be sold
or transferred under the 1994 Stock Plan and in the maximum number of shares
that may be purchased or received by any person as the Board of Directors
determines is appropriate to reflect any of the foregoing events.
Grants during 1996. During 1996, 83,000 Options were granted under the 1994
Stock Plan to the Executive Officers named in the Summary Compensation Table;
see "Summary Compensation Table" and "Option/SAR Grants in Last Fiscal Year."
During 1996, 120,000 Options were granted under the 1994 Stock Plan to all of
the Executive Officers as a group, and 704,250 Options were granted to the
non-Executive Officer employees as a group, in each case with an exercise price
equal to the Fair Market Value of Common Stock on the date of grant. In
addition, no shares of Restricted Stock were granted to any of the Executive
Officers, and 1,500 shares of Restricted Stock were granted to the non-Executive
Officer employees as a group. No SARs have been granted under the 1994 Stock
Plan.
FEDERAL INCOME TAX CONSEQUENCES
Incentive Stock Options. Under present federal income tax regulations,
generally there will be no federal income tax consequences to either the Company
or to a participant when an "Incentive Stock Option" (ISO) is granted or timely
exercised. However, such consequences will arise when the stock received under
the Option is sold or otherwise disposed. If the participant retains the shares
acquired through an ISO for the requisite holding periods prescribed by the
Code, any gain or loss realized upon a subsequent disposition will constitute
long-term capital gain or loss to the participant. The gain or loss is measured
by the difference between the Option price and the proceeds of the sale. The
requisite holding periods are two years after the ISO is granted and one year
after the shares subject to the ISO are transferred to the participant. In
general, if a participant disposes of the shares prior to the expiration of the
requisite holding periods, ordinary income will be realized equal to the excess
of the fair market value at the time of exercise, over the Option price. In
certain circumstances, the amount of ordinary income realized on a sale or
exchange prior to the expiration of the requisite holding periods is limited
20
<PAGE> 23
to the excess of the lesser of (a) the fair market value at the time of exercise
or (b) the amount realized upon such sale or exchange, over the Option price.
Any gain in excess of such amount realized on a subsequent sale or disposition
would be taxed as a capital gain. In general, if a disposition occurs prior to
the expiration of the holding period, the Company will be entitled to a
deduction equal to the ordinary income realized by the participant.
Although a participant will not realize ordinary income upon the exercise
of an ISO, the excess of the fair market value of the shares acquired at the
time of exercise over the Option price is included as an adjustment in computing
"alternative minimum taxable income" under Section 56 of the Code, and thus, may
result in the imposition of the "alternative minimum tax" for the participant
pursuant to Section 55 of the Code.
Non-qualified Options. Under present federal income tax regulations,
generally the granting of a "non-qualified" Option will not result in federal
income tax consequences to either the Company or the participant. However, upon
exercise of such Option, the participant will realize ordinary income measured
by the excess of the then fair market value of the shares acquired upon exercise
of the non-qualified Option over the Option price. The Company will be entitled
to a deduction for a corresponding amount if and to the extent that the amount
is an ordinary and necessary expense, is not limited by Section 162(m) of the
Code, and satisfies the test of reasonable compensation. If the participant
retains the shares for the requisite holding period prescribed by the Code, the
gain or loss upon a subsequent sale or exchange will constitute a long-term
capital gain or loss. For purposes of determining gain or loss realized upon a
subsequent sale or exchange of such shares, the participant's tax basis will be
the sum of the Option price paid and the amount of ordinary income, if any,
recognized by the participant on the date of exercise.
Restricted Stock. During the period that shares of Restricted Stock are
subject to a "substantial risk of forfeiture," no taxable income will be
recognized by a participant with respect thereto except with respect to
dividends paid thereon. However, the participant has the right to elect under
Section 83 of the Code, within a thirty day period from the date of transfer, to
include in his taxable income for that year an amount equal to the excess of the
fair market value of such shares (determined without regard to the restrictions)
at the time of transfer to him, over the amount, if any, paid for such shares.
In general, if the participant does not make this election timely, he will
realize ordinary taxable income for the year in which the restrictions terminate
or otherwise cease to impose a substantial risk of forfeiture in an amount equal
to the excess of the fair market value of the shares held by him on the day the
restrictions expire or are removed over the amount, if any, paid for such
shares, and the Company ordinarily will be entitled to a corresponding
deduction.
SARs. Under present federal income tax regulations, there will be no
federal income tax consequences to either the Company or the participant upon
the grant of SARs. Upon exercise of an SAR by a participant, the amount of any
cash received and the fair market value of any shares of Common Stock received
will be taxable to the participant as ordinary income, and the Company
ordinarily will be entitled to a corresponding deduction. The tax basis of any
Common Stock received will be its fair market value on the exercise date.
Withholding Taxes. The Company will have the right to deduct from any
transfer of shares or other payment an amount equal to the income and employment
taxes required to be withheld by it with respect to such transfer and payment
and to require the participant or other person receiving such transfer or
payment to pay to the Company any additional amount of such taxes.
Notwithstanding the foregoing, when the participant is required to pay to the
Company such withholding taxes, the participant may satisfy the obligation by
electing to have withheld, from the shares required to be delivered, shares of
Common Stock having a value equal to the amount required to be withheld (except
in the case of Restricted Stock where an election under
21
<PAGE> 24
Section 83(b) of the Code has been made) or by delivering to the Company other
shares of Common Stock. The shares used for tax withholding settlement will be
valued at the Fair Market Value of Common Stock on the day the tax is first
determinable ("Tax Date"). An election by a participant to have shares withheld
or to deliver other shares of Common Stock for this purpose will be subject to
the following restrictions: (a) it must be made prior to the Tax Date, (b) it
will be irrevocable (subject to certain exceptions) and (c) it will be subject
to the disapproval of the Board of Directors.
VOTE REQUIRED FOR APPROVAL OF THE AMENDMENTS TO THE 1994 STOCK PLAN
The approval of the amendments to the 1994 Stock Plan requires the
affirmative vote of a majority of the votes cast.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE APPROVAL
OF THE AMENDMENTS TO THE 1994 STOCK PLAN.
APPROVAL OF THE SHERWIN-WILLIAMS COMPANY 1997 STOCK PLAN
FOR NONEMPLOYEE DIRECTORS (PROPOSAL 3)
The Board of Directors has unanimously adopted and recommends to the
shareholders for approval The Sherwin-Williams Company 1997 Stock Plan for
Nonemployee Directors ("1997 Stock Plan"). The 1997 Stock Plan provides for the
granting of stock options ("Options") and restricted stock ("Restricted Stock")
relating to Common Stock of the Company to members of the Board of Directors who
are not employees of the Company. The 1997 Stock Plan is designed to attract and
retain highly qualified persons to serve as nonemployee members of the Board of
Directors and to align the interests of such persons more closely with the
interests of the shareholders. The Board of Directors believes it to be in the
best interest of the Company to approve the 1997 Stock Plan in achieving this
purpose. On February 28, 1997, the closing price of the Company's Common Stock
was $56.125 per share ($28.0625 per share reflecting the effect of the
two-for-one stock split).
The full text of the 1997 Stock Plan is attached to this Proxy Statement as
Exhibit A. The following is a summary of the material provisions of the 1997
Stock Plan and is qualified in its entirety by reference to Exhibit A.
Eligibility. Any member of the Board of Directors who is not an employee of
the Company is eligible to participate in the 1997 Stock Plan ("Eligible
Director"). The number of persons currently eligible to participate in the 1997
Stock Plan is nine.
Number of Shares Available. The number of shares of Common Stock which will
be available under the 1997 Stock Plan will not exceed, in the aggregate,
400,000 shares, subject to adjustment (such number determined to reflect the
effect of the two-for-one stock split). Such shares may be newly issued or
treasury shares or a combination of the foregoing.
Options. The Board of Directors may authorize the granting of Options to
Eligible Directors. The number of Options and any period of service on the Board
of Directors required before the Options may be exercised will be determined by
the Board of Directors at the time of the grant. No Option may be exercised more
than ten years from the date of grant. The Option exercise price will be equal
to the Fair Market Value (as such term is defined in the 1997 Stock Plan) of
Common Stock on the date of the grant. Except as otherwise provided in any
agreement evidencing Options, Options are not transferable except by will or the
laws of descent and distribution. For 1997, it is anticipated that each Eligible
Director will receive a grant of 2,000 Options (determined on a post-split
basis) immediately following the 1997 Annual Meeting of Shareholders if the 1997
Stock Plan is approved at the 1997 Annual Meeting of Shareholders.
22
<PAGE> 25
Restricted Stock. The Board of Directors may authorize the granting or sale
of Restricted Stock to Eligible Directors. The grant of Restricted Stock
constitutes an immediate transfer of the ownership of shares of Common Stock to
the participant, and entitles such participant to dividends, voting rights and
other rights of ownership of Common Stock as the Board of Directors may
determine subject, however, to any substantial risk of forfeiture and any
transfer restrictions. The number of shares of Restricted Stock, the
consideration to be paid by the participant to the Company, if any, for the
Restricted Stock, and the conditions which comprise any substantial risk of
forfeiture and any transfer restrictions will be determined by the Board of
Directors at the date of the grant. It is anticipated that Restricted Stock will
not be granted to any of the Eligible Directors in 1997.
Administration. The 1997 Stock Plan will be administered by the Board of
Directors, which may from time-to-time delegate all or any part of its authority
to a committee consisting of three or more members who may be directors or
employees of the Company, one of whom may be the Chief Executive Officer and the
others of whom shall be appointed by the Chief Executive Officer.
Effective Date and Termination. The 1997 Stock Plan will become effective
immediately following its approval at the Company's 1997 Annual Meeting of
Shareholders. The 1997 Stock Plan shall be deemed to have been adopted on the
date of such Annual Meeting. The 1997 Stock Plan will terminate on April 22,
2007 unless earlier terminated by the Board of Directors. Any Options and
Restricted Stock granted on or before that date will continue to be effective in
accordance with the terms of the grant.
Amendment. The 1997 Stock Plan may be amended from time to time by the
Board of Directors in any respect, provided, however, that without further
approval by the shareholders of the Company, no amendment may increase the
maximum number of shares authorized to be issued under the 1997 Stock Plan
(subject to certain adjustments as provided below).
The Board of Directors may cancel or amend any agreement evidencing Options
and Restricted Stock granted provided that the terms and conditions of each such
agreement, as amended, are not inconsistent with the 1997 Stock Plan and
provided further that the option price per share may not be increased or
decreased following the date of grant of the related Option except for certain
adjustments as provided below.
Adjustments. The Board of Directors may adjust the exercise price, sale
price and the number or kind of shares of Common Stock or other securities
covered by Options or Restricted Stock grants as it determines is equitably
required to prevent dilution or enlargement of the rights with respect thereto
resulting from any stock split, stock dividend, combination of shares,
recapitalization or other change in the capital structure of the Company, any
merger, consolidation, separation, reorganization or partial or complete
liquidation, or any other corporate transaction or event having an effect
similar to any of the foregoing. The Board of Directors may also adjust the
number or kind of shares of Common Stock or other securities which may be sold
or transferred under the 1997 Stock Plan and in the maximum number of shares
that may be purchased or received by any person as the Board of Directors
determines is appropriate to reflect any of the foregoing events.
FEDERAL INCOME TAX CONSEQUENCES
Options. Under present federal income tax regulations, generally the
granting of a "non-qualified" Option will not result in federal income tax
consequences to either the Company or the participant. However, upon exercise of
an Option, the participant will realize ordinary income measured by the excess
of the then fair market value of the shares acquired upon exercise of the Option
over the Option price. The Company will be entitled to a deduction for a
corresponding amount if and to the extent that the amount is an ordinary and
necessary
23
<PAGE> 26
expense. If the participant retains the shares for the requisite holding period
prescribed by the Code, the gain or loss upon a subsequent sale or exchange will
constitute a long-term capital gain or loss. For purposes of determining gain or
loss realized upon a subsequent sale or exchange of such shares, the
participant's tax basis will be the sum of the Option price paid and the amount
of ordinary income, if any, recognized by the participant on the date of
exercise.
Restricted Stock. To the extent that shares of Restricted Stock are subject
to a "substantial risk of forfeiture," no taxable income will be recognized by a
participant with respect thereto except with respect to dividends paid thereon.
However, the participant has the right to elect under Section 83 of the Code,
within a thirty day period from the date of transfer, to include in his taxable
income for that year an amount equal to the excess of the fair market value of
such shares (determined without regard to the restrictions) at the time of
transfer to him, over the amount, if any, paid for such shares. In general, if
the participant does not make this election timely, he will realize ordinary
taxable income for the year in which the restrictions terminate or otherwise
cease to impose a substantial risk of forfeiture to any holder, in an amount
equal to the excess of the fair market value of the shares held by him on the
day the restrictions expire or are removed over the amount, if any, paid for
such shares, and the Company ordinarily will be entitled to a corresponding
deduction. To the extent that shares of Restricted Stock are not subject to a
"substantial risk of forfeiture," taxable income will be recognized by a
participant in an amount equal to the excess of the fair market value of the
shares held by him over the amount, if any, paid for such shares, and the
Company ordinarily will be entitled to a corresponding deduction.
NEW PLAN BENEFITS
The following table sets forth information regarding Options that the
Company anticipates will be granted to Eligible Directors under the 1997 Stock
Plan in 1997 if the 1997 Stock Plan is approved by the shareholders. The Company
does not anticipate that it will grant Restricted Stock to any of the Eligible
Directors during 1997.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME AND POSITION DOLLAR VALUE UNDERLYING OPTIONS
-------------------------------------------------- ------------ ------------------
<S> <C> <C>
All Executive Officers as a Group -0- -0-
All Nonemployee Directors as a Group (9 persons) * 18,000
All Non-Executive Officer Employees as a Group -0- -0-
</TABLE>
*The dollar value of Options, on a per Option basis, will be equal to the
difference between the fair market value of Common Stock on the date of grant
of the Option and the fair market value of Common Stock on the date of exercise
of the Option.
VOTE REQUIRED FOR APPROVAL OF THE 1997 STOCK PLAN
The approval of the 1997 Stock Plan requires the affirmative vote of a
majority of the votes cast.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE APPROVAL
OF THE 1997 STOCK PLAN.
INDEPENDENT ACCOUNTANTS
The Board of Directors has appointed Ernst & Young LLP to examine the
consolidated financial statements and other records of the Company for the
fiscal year ending December 31, 1997. Representatives of Ernst & Young LLP are
expected to be present at the Annual Meeting of Shareholders and will have an
opportunity to make a statement if they wish and to respond to appropriate
shareholders' questions.
24
<PAGE> 27
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors held seven meetings during the fiscal year ended
December 31, 1996.
The Board of Directors has established, among other committees, an Audit
Committee, a Board Composition Committee and a Compensation and Management
Development Committee. The functions and members of these Committees are as
follows:
Audit. The Audit Committee has the responsibility of reviewing the adequacy
of the Company's financial controls and the quality and integrity of its
financial reports. In addition, the Audit Committee recommends to the Board of
Directors independent public accountants to audit the books, records and
accounts of the Company for the ensuing fiscal year. The Committee reviews all
reports and recommendations of the independent public accountants with respect
to matters within their area of responsibility and reports to the Board of
Directors on the scope and depth of the audit. The Committee also makes
inquiries into the Company's internal audit functions and procedures.
The Audit Committee met twice during 1996 and is currently composed of four
outside Directors: D. E. Evans, W. G. Mitchell, H. O. Petrauskas and R. K.
Smucker.
Board Composition. The Board Composition Committee develops plans for the
composition and size of the Board of Directors. Matters considered by this
Committee include the ratio of inside to outside Directors, as well as the
skills and disciplines desired as represented by individual Directors. The
Committee also is charged with the responsibility to conduct searches for
individual members, interview prospective candidates and make selections and
recommendations to the Board of Directors. The Committee has not undertaken to
consider nominees recommended by shareholders but has and will continue to
employ professional search firms to assist it in identifying potential members
of the Board of Directors with the desired skills and disciplines.
The Board Composition Committee did not meet in 1996 and is currently
composed of three outside Directors: J. M. Biggar, D. E. Collins and W. G.
Mitchell.
Compensation and Management Development. The Compensation and Management
Development Committee establishes general policies on an annual basis for
changes in compensation for all key employees of the Company. In addition, the
Committee sets the compensation for certain elected officers and key employees.
The Committee administers the Company's Management Incentive Plan,
Executive Life Insurance Plan, Executive Disability Income Plan, Deferred
Compensation Savings Plan, Key Management Deferred Compensation Plan, Retirement
Equalization Program, Pension Investment Plan Equalization Program and 1994
Stock Plan and recommends to the Board of Directors for approval other types of
incentive compensation and similar plans.
The Compensation and Management Development Committee met twice during 1996
and is currently composed of five outside Directors: J. M. Biggar, D. E.
Collins, R. W. Mahoney, W. G. Mitchell and A. M. Mixon, III.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following outside Directors served on the Compensation and Management
Development Committee of the Board of Directors of the Company during 1996: J.
M. Biggar, D. E. Collins, R. W. Mahoney, W. G. Mitchell, A. M. Mixon, III and L.
Carter (who retired from the Board of Directors during 1996). Mr. Breen,
Chairman and Chief Executive Officer of the Company, serves on the Compensation
and Management Development Committee of the Board of Directors of
Parker-Hannifin Corporation, of which Mr. Collins is President and Chief
Executive Officer.
25
<PAGE> 28
STOCK OUTSTANDING
At the close of business on the record date, March 3, 1997, there were
outstanding 86,131,271 shares of Common Stock.
VOTING OF SHARES
Each share is entitled to one vote upon all matters presented at the Annual
Meeting of Shareholders. The proposal to fix the number of Directors at eleven
requires the affirmative vote of the holders of a majority of the shares
represented at the Annual Meeting of Shareholders and entitled to vote on such
proposal, with the nominees receiving the greatest number of votes being
elected. The proposal to approve the amendments to the 1994 Stock Plan and the
proposal to approve the 1997 Stock Plan require the affirmative vote of a
majority of the votes cast. All other proposals and other business as may
properly come before the Annual Meeting of Shareholders require the affirmative
vote of a majority of the votes cast, except as otherwise provided by statute or
the Company's Amended Articles of Incorporation or Regulations. Shares
represented by properly executed proxies will be voted at the meeting in
accordance with the instructions thereon, and, unless authority to do so is
withheld, the shareholder votes against a proposal or the shareholder abstains
from voting, the shares represented by proxies will be voted in favor of the
proposals referred to in the Notice of Annual Meeting of Shareholders. Such
shares will be voted in the Proxies' discretion upon such other business as may
properly come before the Annual Meeting of Shareholders.
Proxies marked as withholding authority or abstaining will be treated as
present for purposes of determining a quorum for the Annual Meeting of
Shareholders. Proxies marked as withholding authority will also be treated as
represented and entitled to vote on any applicable proposal, but proxies marked
as abstaining will not be counted as a vote cast for any proposal as to which
abstention is indicated. Proxies returned by brokers as "non-votes" will not be
treated as present for purposes of determining a quorum for the Annual Meeting
of Shareholders (unless such shares are voted on at least one proposal) and will
not be counted as a vote cast for any proposal as to which a non-vote is
indicated.
Shareholders receiving the additional shares of Common Stock to be issued
on or about March 28, 1997 pursuant to the Company's previously announced
two-for-one stock split will not be entitled to vote such additional shares at
the Annual Meeting of Shareholders.
REVOCABILITY OF PROXY
A proxy may be revoked at any time before a vote is taken or the authority
granted is otherwise exercised. Revocation may be accomplished by the execution
of a later proxy with regard to the same shares or by giving notice to the
Company in writing or in open meeting.
26
<PAGE> 29
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as to each Director and nominee, each
Executive Officer named in the Summary Compensation Table and all Directors and
Executive Officers as a group, information, as of December 31, 1996, regarding
the amount and nature of shares of Common Stock beneficially owned and the
amount of shadow stock units owned.
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT OF AMOUNT OF
OF COMMON STOCK COMMON STOCK SHADOW STOCK
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1,2) BENEFICIALLY OWNED UNITS OWNED(3)
- ------------------------- ---------------------- ------------------- ------------
<S> <C> <C> <C> <C>
J. M. Biggar 7,100 direct * -0-
800 indirect
J. G. Breen 235,858 direct * 60,514
188,198 indirect
F. E. Butler 39,509 direct * 10,407
30,216 indirect
D. E. Collins 1,000 direct * 643
T. A. Commes 114,275 direct * 24,080
91,728 indirect
D. E. Evans 200 direct * -0-
J. C. Macatee 76,766 direct * 6,281
19,321 indirect
R. W. Mahoney 2,000 direct * -0-
W. G. Mitchell 3,882 direct * -0-
A. M. Mixon, III 5,000 direct * 3,330
C. E. Moll(4) 1,000 direct * -0-
H. O. Petrauskas 1,038 direct * -0-
L. J. Pitorak 23,955 direct * 6,648
7,811 indirect
R. K. Smucker 1,028 direct * -0-
All Directors and 804,814 direct 1.5181% 141,931
Executive Officers as a 499,510 indirect
Group
</TABLE>
- ---------------
*Represents beneficial ownership of less than 1% of the total number of shares
of Common Stock outstanding.
1 The amounts listed include the following number of shares of Common Stock for
which the Executive Officers named in the Summary Compensation Table and all
Executive Officers as a group have the right to acquire beneficial ownership,
within sixty days from December 31, 1996, through the exercise of stock
options: Mr. Breen, 37,667; Mr. Commes, 20,000; Mr. Macatee, 61,966; Mr.
Pitorak, 10,000; Mr. Butler, 28,233; and all Executive Officers as a group,
367,488.
2 Unless otherwise indicated, voting and investment power relating to the shares
of Common Stock indicated above is exercised solely by the beneficial owner or
shared by such owner and such owner's spouse or children.
3 Shadow stock units are owned by outside Directors pursuant to the Company's
Director Deferred Fee Plan, whereby outside Directors may defer payment of all
or a portion of their directors' fees into a shadow stock account. Shadow
stock units are owned by Executive Officers pursuant to the Company's Deferred
Compensation Savings Plan and Key Management Deferred Compensation Savings
Plan, whereby eligible employees may defer payment of a portion of such
employee's compensation, as determined pursuant to the terms of the applicable
plan, into a shadow stock account. The value of shadow stock units fluctuates
27
<PAGE> 30
according to the market value of Common Stock. Directors and Executive
Officers have no voting rights associated with shadow stock units, and such
ownership does not result in any beneficial ownership of Common Stock.
4 Shares are owned by the MTD Products, Inc. pension fund, of which Mr. Moll is
a trustee. Such information is as of January 29, 1997, the date on which Mr.
Moll became a member of the Board of Directors.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth, as to each beneficial owner of more than
five percent of the Company's Common Stock, information regarding shares of
Common Stock owned by each as of December 31, 1996.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
- ----------------------------------- -------------------- ----------
<S> <C> <C>
The Sherwin-Williams Company
Employee Stock Purchase
and Savings Plan 13,133,961(1) 15.29
101 Prospect Avenue, N.W.
Cleveland, Ohio 44115
FMR Corp. 9,376,690(2) 10.92
82 Devonshire Street
Boston, MA 02109
</TABLE>
- ---------------
1 Shares owned pursuant to The Sherwin-Williams Company Employee Stock Purchase
and Savings Plan are voted by the trustee in accordance with written
instructions of plan participants. If no instructions are received by the
trustee, the trustee votes such shares in the same proportion as it votes
those shares for which it receives proper instructions.
2 Of the shares listed, Fidelity Management & Research Company ("Fidelity"), a
wholly-owned subsidiary of FMR Corp., beneficially owns 8,508,082 (9.99%)
shares as a result of acting as an investment adviser to various investment
companies. One of these companies, Fidelity Magellan Fund, owns 5,691,560
(6.63%) shares. Of the total shares listed, FMR Corp. has sole voting power
over 518,508 shares and sole dispositive power over all shares, but has no
shared voting or shared dispositive power. Edward C. Johnson, III (the
Chairman of FMR Corp.) and Fidelity also each have sole dispositive power over
the shares owned by Fidelity, but neither has sole voting power over such
shares; such power resides with the Boards of Trustees of the Fidelity funds.
Mr. Johnson, III, Abigail P. Johnson, certain members of the Johnson Family,
and trusts for their benefit may be deemed to be a controlling group with
respect to FMR Corp. This information is based upon FMR Corp.'s Schedule 13G,
dated February 14, 1997.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
Directors and Executive Officers, and persons owning more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership of such equity securities with the Securities
and Exchange Commission and the New York Stock Exchange. To the Company's
knowledge, based solely on the information furnished to the Company and written
representations by such persons, all of the Company's Executive Officers and
Directors complied with their respective filing requirements under Section 16(a)
for 1996.
28
<PAGE> 31
RELATED TRANSACTIONS
During 1996, the Company and its subsidiaries purchased products and
services from, and sold products and services to, corporations of which certain
of the Company's nonemployee Directors and/or nominees for Director are
officers. These transactions were in the ordinary course of the Company's
business and were at competitive terms and prices. The Company does not consider
these transactions to be material to the Company's business or to such other
companies' businesses.
EXPENSE AND METHOD OF PROXY SOLICITATION
The enclosed proxy is solicited by the Board of Directors and the entire
cost of solicitation will be paid by the Company. In addition to the
solicitation of proxies by use of the mails, officers and regular employees of
the Company may solicit the return of proxies, and Kissel-Blake, Inc., New York,
N.Y., has been retained to aid in the solicitation of proxies, for which
services it will receive a fee estimated at $15,000. Proxies will be solicited
by personal interview, mail, telephone and telegraph.
REPORT OF BALLOTING AT 1996 ANNUAL MEETING OF SHAREHOLDERS
There were outstanding and entitled to vote at the April 24, 1996 Annual
Meeting of Shareholders of the Company 85,761,231 shares of Common Stock. There
were present in person or by proxy and voting or withholding the authority to
vote in the election of Directors, holders of a total of 78,505,824 shares,
representing 91.54% of the voting power of the Company.
The Resolution to establish the number of Directors at ten and to elect ten
Directors was passed with each of the ten nominees receiving a favorable vote of
at least 98.7231% but not greater than 98.7948% of the shares present in person
or by proxy.
DATE FOR RECEIPT OF SHAREHOLDER PROPOSALS
Shareholder proposals must be received at the Company's headquarters, 101
Prospect Avenue, N.W., Cleveland, Ohio 44115-1075, Attention: Corporate
Secretary, on or before November 12, 1997 in order to be included in the proxy
material relating to the 1998 Annual Meeting of Shareholders of the Company. In
order to remove any question as to the date on which a proposal was received by
the Board of Directors, it is suggested that proposals be submitted by Certified
Mail-Return Receipt Requested.
ANNUAL REPORT ON FORM 10-K
THE COMPANY WILL PROVIDE TO EACH SHAREHOLDER WHO IS SOLICITED TO VOTE AT
THE 1997 ANNUAL MEETING OF SHAREHOLDERS, UPON THE WRITTEN REQUEST OF SUCH PERSON
AND WITHOUT CHARGE, A COPY OF THE COMPANY'S 1996 ANNUAL REPORT ON FORM 10-K.
PLEASE DIRECT REQUESTS TO THE COMPANY'S HEADQUARTERS, 101 PROSPECT AVENUE, N.W.,
CLEVELAND, OHIO 44115-1075, ATTENTION: INVESTOR RELATIONS.
29
<PAGE> 32
EXHIBIT A
THE SHERWIN-WILLIAMS COMPANY
1997 STOCK PLAN FOR NONEMPLOYEE DIRECTORS
The Sherwin-Williams Company 1997 Stock Plan for Nonemployee Directors is
effective as of April 23, 1997. The purpose of the Plan is to attract and retain
highly qualified persons to serve as nonemployee members of the Board of
Directors of the Company and to align the interests of such persons more closely
with the interests of the Company's shareholders.
ARTICLE I
DEFINITIONS
As used herein, the following terms shall have the following respective
meanings unless the context clearly indicates otherwise:
1.01 Board of Directors. The Board of Directors of the Company.
1.02 Code. The Internal Revenue Code of 1986, as the same has been or may
be amended from time-to-time.
1.03 Committee. The Committee shall consist of three or more members who
may be, but are not required to be, directors or employees of the Company, one
of whom may be the Chief Executive Officer of the Company and the others of whom
shall be appointed by the Chief Executive Officer of the Company and shall serve
from the effective date of their appointment until such time as the Chief
Executive Officer shall appoint a successor to any or all of such members of the
Committee.
1.04 Common Stock. Common Stock of the Company or any security into which
such Common Stock may be changed by reason of any transaction or event of the
type described in Article VII.
1.05 Company. The Sherwin-Williams Company, or its corporate successor or
successors.
1.06 Date of Grant. The date on which a grant of Option Rights or a grant
or sale of Restricted Stock shall become effective (which date shall not be
earlier than the date the Board of Directors takes action with respect thereto).
1.07 Eligible Directors. Members of the Board of Directors who are not
employees of the Company or any Subsidiary.
1.08 Fair Market Value. The average between the highest and the lowest
quoted selling price of the Company's Common Stock on the New York Stock
Exchange or any successor exchange.
1.09 Option Right. The right to purchase a share of Common Stock upon
exercise of an option granted pursuant to Article III.
1.10 Participant. An Eligible Director named in an agreement evidencing an
outstanding Option Right, sale or grant of Restricted Stock or stock option
granted under any stock option plan heretofore or hereafter approved by the
shareholders of the Company.
1.11 Plan. The Sherwin-Williams Company 1997 Stock Plan for Nonemployee
Directors, as the same may be amended from time-to-time.
1.12 Restricted Stock. Shares of Common Stock granted or sold pursuant to
Article IV as to which neither a substantial risk of forfeiture, if any, nor any
prohibition or restriction on transfer referenced to therein has lapsed,
terminated or been cancelled.
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<PAGE> 33
1.13 Subsidiary. Any corporation (other than the Company) in an unbroken
chain of corporations beginning with the Company if, at the time of the granting
of the Option Right or the grant or sale of Restricted Stock, each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50 percent or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
ARTICLE II
COMMON STOCK AVAILABLE
2.01 Number of Shares. The shares of Common Stock which may be (a) sold
upon the exercise of Option Rights or (b) awarded or sold as Restricted Stock
and released from any substantial risks of forfeiture or restrictions on
transfers relating thereto shall not exceed in the aggregate 400,000 shares,
subject to adjustment as provided in Articles VI and VII. Such shares may be
shares of original issuance or treasury shares or a combination of the
foregoing.
2.02 Reuse of Shares. If an Option Right or portion thereof shall expire
or terminate for any reason without having been exercised in full, or if the
rights of a Participant in Restricted Stock shall terminate prior to the lapse
of any substantial risk of forfeiture or restrictions on transfer relating
thereto, the shares covered by such Option Right or Restricted Stock grant not
transferred to the Participant shall be available for future grants of Option
Rights and/or Restricted Stock.
ARTICLE III
OPTION RIGHTS
3.01 Authorization and Terms. The Board of Directors may, from time-to-time
and upon such terms and conditions as it may determine, consistent with the
terms of the Plan, authorize the granting of options to Eligible Directors to
purchase shares of Common Stock. Each such grant may utilize any or all of the
authorizations and shall be subject to all of the applicable limitations set
forth in the Plan, including the following:
(A) Each grant shall specify the number of shares of Common Stock to
which it pertains;
(B) Each grant shall specify an option price per share equal to the
Fair Market Value per share on the Date of Grant, and that such option
price shall be payable in full at the time of exercise of the option either
(i) in cash, (ii) by exchanging for the shares to be issued hereunder
pursuant to the exercise of the option previously acquired shares of the
Company's Common Stock held for such period of time, if any, as the Board
of Directors may require and reflect in the stock option certificate
(valued at an amount equal to the Fair Market Value of such stock on the
date of exercise), or (iii) by a combination of the payment methods
specified in clauses (i) and (ii) hereof. The proceeds of sale of Common
Stock subject to Option Rights are to be added to the general funds of the
Company, in the case of cash, or to the shares of the Common Stock held in
treasury, in the case of shares, and used for the Company's corporate
purposes as the Board of Directors shall determine;
(C) Successive grants may be made to the same Eligible Directors
whether or not any Option Rights previously granted to such Eligible
Director remain unexercised;
(D) Each grant shall specify the period or periods of continuous
service by the Participant on the Board of Directors which is necessary
before the Option Rights or installments thereof will become exercisable;
(E) No Option Right shall be exercisable more than ten years from the
Date of Grant; and
A-2
<PAGE> 34
(F) Each grant of Option Rights shall be evidenced by an agreement
executed on behalf of the Company by an officer and delivered to and
accepted by the Eligible Director and containing such terms and provisions,
consistent with the Plan, as the Board of Directors may approve.
ARTICLE IV
RESTRICTED STOCK
4.01 Authorization and Terms. The Board of Directors may, from time-to-time
and upon such terms and conditions as it may determine, authorize the granting
or sale to Eligible Directors of Restricted Stock. Each grant or sale may
utilize any or all of the authorizations and shall be subject to all of the
following limitations:
(A) Each such grant or sale shall constitute an immediate transfer of
the ownership of shares of Common Stock to the Participant in consideration
of the performance of services and shall entitle such Participant to
voting, dividend and other ownership rights, as the Board of Directors may
determine, subject, however, to any substantial risk of forfeiture and any
restrictions on transfer as the Board of Directors may determine;
(B) Each such grant or sale may be made without additional
consideration or in consideration of a payment by such Participant that is
less than the Fair Market Value per share at the Date of Grant;
(C) Each such grant or sale may provide that the shares of Restricted
Stock covered by such grant or sale are subject to a "substantial risk of
forfeiture" within the meaning of Section 83 of the Code and the
regulations thereunder;
(D) Each such grant or sale may provide that during the period for
which any substantial risk of forfeiture is to continue, the
transferability of the Restricted Stock shall be prohibited or restricted
in the manner and to the extent prescribed by the Board of Directors at the
Date of Grant; and
(E) Each grant or sale of Restricted Stock shall be evidenced by an
agreement executed on behalf of the Company by an officer and delivered to
and accepted by the Eligible Director and shall contain such terms and
provisions, consistent with the Plan, as the Board of Directors may
approve.
ARTICLE V
ADMINISTRATION OF THE PLAN
5.01 Generally. The Plan shall be administered by the Board of Directors,
which may from time-to-time delegate all or any part of its authority to a
Committee. A majority of the Board of Directors or the Committee, if applicable,
shall constitute a quorum, and the action of the members present at any meeting
at which a quorum is present, or acts unanimously approved in writing, shall be
the acts of the Board of Directors or the Committee, as applicable. The Board of
Directors or the Committee may make such rules and establish such procedures for
the administration of the Plan as it deems appropriate to carry out the purpose
of the Plan.
5.02 Interpretation and Construction. The interpretation and construction
by the Board of Directors or the Committee of any provision of the Plan or of
any agreement, notification or document evidencing the grant of Option Rights
and any determination by the Board of Directors or the Committee pursuant to any
provision of the Plan or of any such agreement, notification or document, made
in good faith, shall be final and conclusive. No member of the Board of
Directors or the Committee shall be liable for any such action or determination
made in good faith.
A-3
<PAGE> 35
ARTICLE VI
AMENDMENT AND TERMINATION
6.01 Amendment of the Plan. The Plan may be amended from time-to-time by
the Board of Directors in any respect, provided, however, that without further
approval by the shareholders of the Company, no amendment may increase the
maximum number of shares specified in Article II (except that adjustments
authorized by Section 7.02 shall not be limited by this provision).
6.02 Amendment of the Agreements. The Board of Directors may cancel or
amend any agreement evidencing Option Rights or Restricted Stock granted under
the Plan provided that the terms and conditions of each such agreement as
amended are not inconsistent with the Plan and provided further that, except as
provided in Section 7.02, the option price per share may not be increased or
decreased following the Date of Grant of the related Option Right.
6.03 Automatic Termination. The Plan will terminate at midnight on April
22, 2007 unless earlier terminated by the Board of Directors; provided, however,
that Option Rights granted on or before that date may extend beyond that date
and restrictions imposed on Restricted Stock transferred on or before that date
may extend beyond such date.
ARTICLE VII
MISCELLANEOUS
7.01 Transferability. Except as otherwise provided in any agreement
evidencing Option Rights, no Option Right shall be transferable by a Participant
other than by will or the laws of descent and distribution, and Option Rights
shall be exercisable during the Participant's lifetime only by the Participant.
No right or interest of any Participant granted under the Plan shall be subject
to alienation, anticipation, encumbrance, garnishment or attachment, any lien,
obligation or liability of such Participant, or execution or levy of any kind,
voluntary or involuntary, except as provided herein or required by law.
7.02 Adjustments. The Board of Directors may make or provide for such
adjustments in the exercise price, sale price and the number or kind of shares
of the Company's Common Stock or other securities covered by outstanding Option
Rights or Restricted Stock grants as the Board of Directors in its sole
discretion, exercised in good faith, may determine is equitably required to
prevent dilution or enlargement of the rights of Participants that would
otherwise result from (i) any stock dividend, stock split, combination of
shares, recapitalization or other change in the capital structure of the
Company, (ii) any merger, consolidation, separation, reorganization or partial
or complete liquidation, or (iii) any other corporate transaction or event
having an effect similar to any of the foregoing. The Board of Directors may
also make or provide for such adjustments in the number or kind or shares of the
Company's Common Stock or other securities which may be sold or transferred
under the Plan (including the maximum number of shares specified in Article II)
and in the maximum number of shares that may be purchased or received by any
person, as the Board of Directors in its sole discretion, exercised in good
faith, may determine is appropriate to reflect any event of the type described
in clauses (i), (ii) and/or (iii) of the preceding sentence.
7.03 Fractional Shares. The Company shall not be required to sell or
transfer any fractional share of Common Stock pursuant to the Plan. The Board of
Directors may provide for the elimination of fractions or for the settlement of
fractions in cash.
7.04 No Shareholder Rights. A Participant shall have no rights as a
shareholder with respect to any shares of Common Stock issued upon the exercise
of an Option Right until such time as the Option Right is exercised and such
shares of Common Stock are issued.
A-4
<PAGE> 36
7.05 No Right to Continue as a Director. Neither the existence of the Plan
nor any action taken under the Plan shall be construed as giving any Participant
any right to continue to serve as a member of the Board of Directors.
7.06 Invalidity of Provisions. Should any part of the Plan for any reason
be declared by any court of competent jurisdiction to be invalid, such decision
shall not affect the validity of any remaining portion, which remaining portion
shall continue in full force and effect as if the Plan had been adopted with the
invalid portion hereof eliminated, it being the intention of the Company that it
would have adopted the remaining portion of the Plan without including any such
part, parts or portion which may for any reason be hereafter declared invalid.
7.07 Effective Date. The Plan will become effective immediately following
its approval at the Company's 1997 Annual Meeting of Shareholders. The Plan
shall be deemed to have been adopted on the date of such meeting.
A-5
<PAGE> 37
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, whose signature appears on the
reverse side, hereby appoints J. G. Breen and T. A.
Commes, jointly and severally, as Proxies, each with
the power to appoint his substitute, and hereby
authorizes them to represent and to vote, as
specified, all the shares of Common Stock of The
Sherwin-Williams Company held of record by the
undersigned on March 3, 1997 at the Annual Meeting
of Shareholders to be held on April 23, 1997 (or any
adjournment thereof) on Proposals 1, 2 and 3 (with
discretionary authority in connection with Proposal
1 to vote for a new nominee if any nominee declines
to serve or becomes unavailable to serve) and, in
their discretion, on such other business as may
properly come before the Annual Meeting of
Shareholders.
Nominees for Director:
J. M. Biggar, J. G. Breen, D. E. Collins,
T. A. Commes, D. E. Evans, R. W. Mahoney,
W. G. Mitchell, A. M. Mixon, III, C. E.
Moll, H. O. Petrauskas and R. K.
Smucker.
YOU ARE ENCOURAGED TO SPECIFY YOUR VOTES BY MARKING THE APPROPRIATE
BOXES ON THE REVERSE SIDE, BUT YOU NEED NOT MARK ANY BOX IF YOU WISH TO
VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS. WHEN
PROPERLY EXECUTED, THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED BY
YOU. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1,
2 AND 3 AND IN THE DISCRETION OF THE PROXIES IN CONNECTION WITH SUCH
OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE ANNUAL MEETING OF
SHAREHOLDERS. THE PROXIES CANNOT VOTE YOUR SHARES UNLESS YOU SIGN AND
RETURN THIS CARD.
THE SHERWIN-WILLIAMS
COMPANY
Sherwin Williams Logo
COMMON
STOCK
PROXY
SEE REVERSE
SIDE
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY
CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
- --------------------------------------------------------------------------------
DETACH CARD
<PAGE> 38
<TABLE>
<S> <C> <C>
[X] PLEASE MARK YOUR SHARES IN YOUR NAME REINVESTMENT SHARES
VOTES AS IN THIS
EXAMPLE.
</TABLE>
<TABLE>
<CAPTION>
WITHHELD
FOR ALL AS TO ALL
NOMINEES NOMINEES FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1. Election of [ ] [ ] 2. To amend the [ ] [ ] [ ] 3. To approve the [ ] [ ] [ ]
Directors 1994 Stock Plan. 1997 Stock Plan
(see reverse) for Nonemployee
Directors.
FOR, except to withhold authority to vote for any individual
Nominee(s), print the name(s) of such Nominee(s) below: 4. In their discretion, the Proxies are
authorized to vote upon such other
- ------------------------------------------------------------ business as may properly come before
the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
Change FOR PROPOSALS 1, 2 AND 3.
of [ ]
Address (If your address has changed, please mark
the box at left and indicate your new
address below)
-----------------------------------------
-----------------------------------------
-----------------------------------------
NOTE: Please sign exactly as name appears
hereon. Joint owners should each sign.
When signing as attorney, executor,
administrator, trustee or guardian, please
give full title as such. If a corporation,
please sign in full corporate name by
President or other authorized officer.
If a partnership, please sign in
partnership name by authorized person.
SIGNATURE(S) _____________________________________________________________ _______________________, 1997
(Date)
SIGNATURE(S) _____________________________________________________________ _______________________, 1997
(Date)
</TABLE>
<PAGE> 39
APPENDIX
(Not Part of
Proxy Statement)
THE SHERWIN-WILLIAMS COMPANY
1994 STOCK PLAN
(AMENDED AND RESTATED JANUARY 29, 1997)
The Sherwin-Williams Company 1994 Stock Plan (the "Plan") is amended
and restated effective as of January 29, 1997. The Plan was established
effective as of 12:00:01 a.m. on February 16, 1994. The purpose of the Plan is
to attract and retain key executive, managerial, technical and professional
personnel for The Sherwin-Williams Company and its subsidiaries by providing
incentives and rewards for superior performance by such personnel.
ARTICLE I
DEFINITIONS
As used herein, the following terms shall have the following respective
meanings unless the context clearly indicates otherwise:
1.01 Appreciation Right. A right to receive from the Company, upon
surrender of the related stock option, an amount equal to the Spread in
accordance with Article IV.
1.02 Board of Directors. The Board of Directors of the Company.
1.03 Code. The Internal Revenue Code of 1986, as the same has been or
may be amended from time-to-time.
1.04 Committee. The Compensation and Management Development Committee
of the Board of Directors or such other committee composed of not less than
three (3) non-employee directors appointed by the Board of Directors.
1.05 Common Stock. Common Stock of the Company or any security into
which such Common Stock may be changed by reason of any transaction or event of
the type described in Article VIII.
1.06 Company. The Sherwin-Williams Company, or its corporate successor
or successors.
1.07 Date of Grant. The date specified by the Board of Directors on
which a grant of Option Rights or Appreciation Rights or a grant or sale of
Restricted Stock shall become effective
1
<PAGE> 40
(which date shall not be earlier than the date on which the Board of Directors
takes action with respect thereto).
1.08 Eligible Employees. Persons who are selected by the Board of
Directors and who are, at the time such persons are selected, officers
(including officers who are members of the Board of Directors) or other key
employees of the Company or any of its subsidiaries.
1.09 Fair Market Value. The average between the highest and the lowest
quoted selling price of the Company's Common Stock on the New York Stock
Exchange or any successor exchange.
1.10 ISO. An "incentive stock option" within the meaning of section
422 of the Code.
1.11 Option Right. The right to purchase a share of Common Stock upon
exercise of an option granted pursuant to Article III.
1.12 Participant. An Eligible Employee named in an agreement
evidencing an outstanding Option Right, Appreciation Right, sale or grant of
Restricted Stock or stock option granted under any stock option plan heretofore
or hereafter approved by the shareholders of the Company.
1.13 Plan. The Sherwin-Williams Company 1994 Stock Plan, as the same
may be amended from time-to-time.
1.14 Restricted Stock. Shares of Common Stock granted or sold pursuant
to Article V as to which neither the substantial risk of forfeiture nor the
prohibition or restriction on transfer referenced to therein has lapsed,
terminated or been cancelled.
1.15 Section 16. Section 16 of the Securities Exchange Act of 1934, as
the same has been and may be amended from time-to-time.
1.16 Spread. The excess of the Fair Market Value per share of Common
Stock on the date when an Appreciation Right is exercised over the option price
provided for in the related stock option.
1.17 Subsidiary. Any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if, at the time of the
granting of the Option Right, Appreciation Right or the grant or sale of
Restricted Stock, each of the corporations other than the last corporation in
the unbroken chain owns stock possessing 50 percent or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
1.18 Tax Date. The date upon which the tax is first determinable.
2
<PAGE> 41
ARTICLE II
COMMON STOCK AVAILABLE
2.01 Number of Shares. The shares of Common Stock which may be (a) sold
upon the exercise of Option Rights, (b) delivered upon the exercise of
Appreciation Rights, or (c) awarded or sold as Restricted Stock and released
from substantial risks of forfeiture thereof shall not exceed in the aggregate
2,000,000 shares plus the number of shares of Common Stock authorized pursuant
to the 1984 Stock Plan which are not granted pursuant to the 1984 Stock Plan as
of the expiration thereof, all subject to adjustment as provided in Articles VII
and VIII. Such shares may be shares of original issuance or treasury shares or a
combination of the foregoing.
2.02 Reuse of Shares. If an Option Right or portion thereof shall
expire or terminate for any reason without having been exercised in full, or if
the rights of a Participant in Restricted Stock shall terminate prior to the
lapse of the substantial risk of forfeiture relating thereto, the shares covered
by such Option Right or Restricted Stock grant not transferred to the
Participant shall be available for future grants of Option Rights and/or
Restricted Stock. In the event of a cancellation or amendment of Option Rights
or Restricted Stock grants, the Board of Directors may authorize the granting of
new Option Rights or Restricted Stock (which may or may not cover the same
number of shares which had been the subject of the prior grant) in such manner,
at such price and subject to the same terms, conditions and discretions as,
under the Plan, would have been applicable had the cancelled Option Rights or
Restricted Stock not been granted.
ARTICLE III
OPTION RIGHTS
3.01 Authorization and Terms. The Board of Directors may, from
time-to-time and upon such terms and conditions as it may determine, consistent
with the terms of the Plan, authorize the granting of options to Eligible
Employees to purchase shares of Common Stock. Each such grant may utilize any or
all of the authorizations and shall be subject to all of the applicable
limitations set forth in the Plan, including the following:
(A) Each grant shall specify the number of shares of Common
Stock to which it pertains;
(B) Each grant shall specify an option price per share equal
to the Fair Market Value per share on the Date of Grant, and that such
option price shall be payable in full at the time of exercise of the
option either (i) in cash, (ii) by exchanging for the shares to be
issued hereunder pursuant to the exercise of the option previously
acquired shares of the Company's Common Stock held for such period of
time, if any, as the Board of Directors may require and reflect in the
stock option certificate (valued at an amount equal to the Fair Market
Value of such stock on the date of exercise), or (iii) by a
combination of the payment methods specified in clauses (i) and (ii)
hereof. The proceeds of sale of
3
<PAGE> 42
Common Stock subject to Option Rights are to be added to the general
funds of the Company or to the shares of the Common Stock held in
treasury and used for the Company's corporate purposes as the Board of
Directors shall determine;
(C) Successive grants may be made to the same Eligible
Employee whether or not any Option Rights previously granted to such
Eligible Employee remain unexercised;
(D) Each grant shall specify the period or periods of
continuous employment by the Participant with the Company or any
Subsidiary which is necessary before the Option Rights or installments
thereof will become exercisable;
(E) The Option Rights may be either (i) options which are
intended to qualify under particular provisions of the Code, as in
effect from time-to-time, including, but not limited to, ISOs, (ii)
options which are not intended to so qualify or (iii) any combination
of separate grants of both (i) and (ii) above;
(F) The aggregate Fair Market Value of the stock (determined
as of the time the option with respect to such stock is granted) for
which any Eligible Employee may be granted options which are intended
to qualify as ISOs and which are exercisable for the first time by
such Participants during any calendar year (under all plans of the
Company and its parent and Subsidiary corporations, if any) shall not
exceed $100,000;
(G) No Option Right shall be exercisable more than ten years
from the Date of Grant;
(H) Each grant of Option Rights shall be evidenced by an
agreement executed on behalf of the Company by an officer and
delivered to and accepted by the Eligible Employee and containing such
terms and provisions, consistent with the Plan, as the Board of
Directors may approve; and
(I) The maximum number of shares for which Option Rights may
be granted to any Eligible Employee during any calendar year shall not
exceed 500,000.
ARTICLE IV
APPRECIATION RIGHTS
4.01 Generally. The Board of Directors may from time-to-time grant
Appreciation Rights in respect of any or all stock options heretofore or
hereafter granted (including stock options simultaneously granted) pursuant to
any stock option plan or employment agreement of the Company now or hereafter in
effect, whether or not such stock options are at such time exercisable, to the
extent that such stock options at such time have not been exercised and have not
been terminated. The Board of Directors may define the terms and provisions of
such Appreciation Rights, subject to the limitations and provisions of the Plan.
The amount which may
4
<PAGE> 43
be due the Participant at the time of the exercise of an Appreciation Right may
be paid by the Company in whole shares of Common Stock (taken at their fair
market value at the time of exercise), in cash or a combination thereof, as the
Board of Directors shall determine.
4.02 Exercise of Appreciation Rights. An Appreciation Right may be
exercised at any time when the related stock option may be exercised by the
surrender to the Company, unexercised, of the related stock option. Shares
covered by stock options so surrendered shall not be available for the granting
of further stock options under any stock option plan of the Company or a
Subsidiary, anything in such plan to the contrary notwithstanding.
4.03 Limitation on Payments. The amount payable on the exercise of any
Appreciation Rights may not exceed 100% (or such lesser percentage as the Board
of Directors may determine) of the excess of (i) the Fair Market Value of the
shares of Common Stock covered by the related option as determined on the date
such Appreciation Right is exercised over (ii) the aggregate option price
provided for in the related stock option.
4.04 Termination of Appreciation Right. An Appreciation Right shall
terminate and may no longer be exercised upon the earlier of (i) exercise or
termination of the related stock option or (ii) any termination date specified
by the Board of Directors at the time of grant of such Appreciation Right.
4.05 Limitation on Number of Appreciation Rights. The maximum number
of shares for which Appreciation Rights may be granted to any Eligible Employee
during any calendar year shall not exceed 500,000.
ARTICLE V
RESTRICTED STOCK
5.01 Authorization and Terms. The Board of Directors may, from
time-to-time and upon such terms and conditions as it may determine, authorize
the granting or sale to Eligible Employees of Restricted Stock. Each grant or
sale may utilize any or all of the authorizations and shall be subject to all of
the following limitations:
(A) Each such grant or sale shall constitute an immediate
transfer of the ownership of shares of Common Stock to the Participant
in consideration of the performance of services and shall entitle such
Participant to voting, dividend and other ownership rights, as the
Board of Directors may determine, subject, however, to a substantial
risk of forfeiture and restrictions on transfer as the Board of
Directors may determine;
(B) Each such grant or sale may be made without additional
consideration or in consideration of a payment by such Participant
that is less than the Fair Market Value per share at the Date of
Grant;
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(C) Each such grant or sale shall provide that the shares of
Restricted Stock covered by such grant or sale are subject to a
"substantial risk of forfeiture" within the meaning of Section 83 of
the Code and the regulations thereunder;
(D) Each such grant or sale shall provide that during the
period for which the substantial risk of forfeiture is to continue, the
transferability of the Restricted Stock shall be prohibited or
restricted in the manner and to the extent prescribed by the Board of
Directors at the Date of Grant; and
(E) Each grant or sale of Restricted Stock shall be evidenced
by an agreement executed on behalf of the Company by an officer and
delivered to and accepted by the Participant and shall contain such
terms and provisions, consistent with the Plan, as the Board of
Directors may approve.
(F) Each grant or sale shall be subject to a vesting
requirement. The percentage of the number of shares of Restricted Stock
granted to any Participant that such Participant shall be entitled to
receive without restriction shall be based upon a comparison of the
average return on average equity of the Company and a group of other
companies. The number of shares of Restricted Stock which a Participant
shall be entitled to receive without restriction shall be determined in
accordance with the following table:
<TABLE>
<CAPTION>
Average Return on
Average Equity Percentile Ranking
of the Company Compared Percentage of
to Group of Other Companies Shares Vesting
--------------------------- --------------
<S> <C> <C>
80th to 100th Percentile ..................................... 100%
75th to 80th Percentile ...................................... 90%
70th to 75th Percentile ...................................... 80%
65th to 70th Percentile ...................................... 70%
60th to 65th Percentile ...................................... 60%
55th to 60th Percentile ...................................... 50%
50th to 55th Percentile ...................................... 40%
Less than 50th Percentile .................................... 0%
</TABLE>
The maximum number of shares of Restricted Stock that may be
granted to any Eligible Employee during any calendar year shall not
exceed 500,000.
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ARTICLE VI
ADMINISTRATION OF THE PLAN
6.01 Generally. The Plan shall be administered by the Board of
Directors, which may from time-to-time delegate all or any part of its authority
under the Plan to a Committee. The members of the Committee shall not be
eligible and shall not have been eligible for a period of at least one year
prior to their appointment, to participate in the Plan. A majority of the Board
of Directors or the Committee, if applicable, shall constitute a quorum, and the
action of the members present at any meeting at which a quorum is present, or
acts unanimously approved in writing, shall be the acts of the Board of
Directors or the Committee, as applicable. No Restricted Stock, Option Right or
Appreciation Right shall be granted or sold under the Plan to any member of the
Committee so long as his membership continues.
6.02 Interpretation and Construction. The interpretation and
construction by the Board of Directors of any provision of the Plan or of any
agreement, notification or document evidencing the grant of Restricted Stock,
Option Rights or Appreciation Rights and any determination by the Board of
Directors pursuant to any provision of the Plan or of any such agreement,
notification or document, made in good faith, shall be final and conclusive. No
member of the Board of Directors shall be liable for any such action or
determination made in good faith.
ARTICLE VII
AMENDMENT AND TERMINATION
7.01 Amendment of the Plan. The Plan may be amended from time-to-time
by the Board of Directors without further approval by the shareholders of the
Company unless such amendment (i) increases the maximum number of shares
specified in Article II (except that adjustments authorized by Section 8.02
shall not be limited by this provision), (ii) changes the definition of
"Eligible Employees" or (iii) causes Rule 16b-3 issued under the Securities
Exchange Act of 1934 (or any successor rule to the same effect) to cease to be
applicable to the Plan.
7.02 Amendment of the Agreements. The Board of Directors may cancel or
amend any agreement evidencing Restricted Stock, Option Rights or Appreciation
Rights granted under the Plan provided that the terms and conditions of each
such agreement as amended are not inconsistent with the Plan.
7.03 Automatic Termination. The Plan will terminate at midnight on
February 16, 2003; provided, however, that Option Rights and Appreciation Rights
granted on or before that date may extend beyond that date and restrictions
imposed on Restricted Stock transferred on or before that date may extend beyond
such date.
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ARTICLE VIII
MISCELLANEOUS
8.01 Transferability. No Option Right or Appreciation Right shall be
transferable by a Participant other than by will or the laws of descent and
distribution. Option Rights and Appreciation Rights shall be exercisable during
the Participant's lifetime only by the Participant. No right or interest of any
Participant granted under the Plan shall be subject to alienation, anticipation,
encumbrance, garnishment, attachment, any lien, obligation or liability of such
Participant, or execution or levy of any kind, voluntary or involuntary, except
as provided herein or required by law.
8.02 Adjustments. The Board of Directors may make or provide for such
adjustments in the exercise price, sale price and the number or kind of shares
of the Company's Common Stock or other securities covered by outstanding Option
Rights, Appreciation Rights or Restricted Stock grants as such Board of
Directors in its sole discretion, exercised in good faith, may determine is
equitably required to prevent dilution or enlargement of the rights of
Participants that would otherwise result from (i) any stock dividend, stock
split, combination of shares, recapitalization or other change in the capital
structure of the Company, (ii) any merger, consolidation, separation,
reorganization or partial or complete liquidation, or (iii) any other corporate
transaction or event having an effect similar to any of the foregoing. The Board
of Directors may also make or provide for such adjustments in the number or kind
or shares of the Company's Common Stock or other securities which may be sold or
transferred under the Plan and in the maximum number of shares that may be
purchased or received by any person, as such Board of Directors in its sole
discretion, exercised in good faith, may determine is appropriate to reflect any
event of the type described in clauses (i) and/or (ii) of the preceding
sentence.
8.03 Fractional Shares. The Company shall not be required to sell or
transfer any fractional share of Common Stock pursuant to the Plan. The Board of
Directors may provide for the elimination of fractions or for the settlement of
fractions in cash.
8.04 Withholding Taxes. The Company shall have the right to deduct from
any transfer of shares or other payment under this Plan an amount equal to the
Federal, state and local income taxes and employment taxes required to be
withheld by it with respect to such transfer and payment and, if the cash
portion of any such payment is less than the amount of taxes required to be
withheld, to require the Participant or other person receiving such transfer or
payment, to pay to the Company the balance of such taxes so required to be
withheld. Notwithstanding the foregoing, when a Participant is required to pay
to the Company an amount required to be withheld under applicable income and
employment tax laws, the Participant may elect to satisfy the obligation, in
whole or in part, by electing to have withheld, from the shares required to be
delivered to the Participant, shares of Common Stock having a value equal to the
amount required to be withheld (except in the case of Restricted Stock where an
election under Section 83(b) of the Code has been made), or by delivering to the
Company other shares of Common Stock held by such Participant. The shares used
for tax withholding settlement will be valued at an amount
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equal to the Fair Market Value of such Common Stock on the Tax Date. Election by
a Participant to have shares withheld or to deliver other shares of Common Stock
for this purpose will be subject to the following restrictions: (i) such
election must be made prior to the Tax Date, (ii) such election will be
irrevocable, and (iii) such election will be subject to the disapproval of the
Board of Directors.
8.05 Not an Employment Contract. This Plan shall not confer upon any
Eligible Employee or Participant any right with respect to continuance of
employment with the Company or any Subsidiary, nor shall it interfere in any way
with any right such Eligible Employee, Participant, the Company or any
Subsidiary would otherwise have to terminate such Participant or Eligible
Employee's employment at any time.
8.06 Invalidity of Provisions. Should any part of the Plan for any
reason be declared by any court of competent jurisdiction to be invalid, such
decision shall not affect the validity of any remaining portion, which remaining
portion shall continue in full force and effect as if the Plan had been adopted
with the invalid portion hereof eliminated, it being the intention of the
Company that it would have adopted the remaining portion of the Plan without
including any such part, parts or portion which may for any reason be hereafter
declared invalid.
8.07 Effective Date. The Plan became effective at 12:00:01 a.m. on
February 16, 1994 following its approval at the April 28, 1993 Annual Meeting of
Shareholders of the Company by the affirmative vote of the holders of a majority
of the shares of Common Stock present, in person or by proxy, and entitled to
vote thereat. The Plan shall be deemed to have been adopted on the date of such
meeting.
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