<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Period Ended June 30, 1997
-------------
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Transition Period from _______________ to_______________
Commission file number 1-4851
------
THE SHERWIN-WILLIAMS COMPANY
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
OHIO 34-0526850
- ------------------------------------- -----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
101 Prospect Avenue, N.W., Cleveland, Ohio 44115-1075
------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
(216) 566-2000
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(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, $1.00 Par Value - 172,640,418 shares as of July 31, 1997.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE SHERWIN-WILLIAMS COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME (UNAUDITED)
Thousands of dollars, except per share data
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
--------------------------------------------------------------
1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 1,373,351 $ 1,145,254 $ 2,443,138 $ 2,003,025
Costs and expenses:
Cost of goods sold 775,795 675,273 1,401,968 1,195,551
Selling, general and administrative expenses 419,013 330,453 806,889 630,112
Interest expense 21,339 7,014 42,137 12,450
Interest and net investment income (2,078) (1,701) (5,038) (3,298)
Other 6,491 2,116 6,466 4,509
- -------------------------------------------------------------------------------------------------------------------
1,220,560 1,013,155 2,252,422 1,839,324
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Income before income taxes 152,791 132,099 190,716 163,701
Income taxes 59,588 50,197 74,379 62,206
- -------------------------------------------------------------------------------------------------------------------
Net income $ 93,203 $ 81,902 $ 116,337 $ 101,495
===================================================================================================================
Net income per share $ 0.54 $ 0.47 $ 0.67 $ 0.59
===================================================================================================================
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE> 3
THE SHERWIN-WILLIAMS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
Thousands of dollars
<TABLE>
<CAPTION>
JUNE 30, Dec. 31, June 30,
1997 1996 1996
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 7,406 $ 1,880 $ 12,666
Short-term investments 0 0 0
Accounts receivable, less allowance 688,732 452,421 602,200
Inventories:
Finished goods 607,282 529,148 481,607
Work in process and raw materials 144,383 113,539 101,665
- ------------------------------------------------------------------------------------------------------
751,665 642,687 583,272
Other current assets 240,320 319,199 258,355
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Total current assets 1,688,123 1,416,187 1,456,493
Deferred pension assets 264,269 254,376 241,424
Goodwill 1,223,596 546,461 533,738
Other assets 386,376 228,175 178,986
Property, plant and equipment 1,285,114 1,133,932 1,112,658
Less allowances for depreciation and
amortization 628,130 584,541 573,465
- ------------------------------------------------------------------------------------------------------
656,984 549,391 539,193
- ------------------------------------------------------------------------------------------------------
Total assets $ 4,219,348 $ 2,994,590 $ 2,949,834
======================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term borrowings $ 386,107 $ 168,001 $ 323,335
Accounts payable 462,760 385,928 390,847
Compensation and taxes withheld 89,783 103,353 81,519
Current portion of long-term debt 52,330 2,169 3,740
Other accruals 409,114 325,599 321,494
Accrued taxes 126,049 65,957 88,790
- ------------------------------------------------------------------------------------------------------
Total current liabilities 1,526,143 1,051,007 1,209,725
Long-term debt 796,233 142,679 134,638
Postretirement benefits other than pensions 197,775 184,551 182,080
Other long-term liabilities 216,115 215,121 129,630
Shareholders' equity
Common stock - $1.00 par value:
172,424,246, 171,831,178 and 171,547,674
shares outstanding at June 30, 1997,
December 31, 1996 and June 30, 1996,
respectively 204,019 101,650 101,432
Other capital 109,577 203,223 190,640
Retained earnings 1,492,344 1,411,295 1,313,691
Cumulative foreign currency translation
adjustment (22,506) (18,982) (19,139)
Treasury stock, at cost (300,352) (295,954) (292,863)
- ------------------------------------------------------------------------------------------------------
Total shareholders' equity 1,483,082 1,401,232 1,293,761
- ------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 4,219,348 $ 2,994,590 $ 2,949,834
======================================================================================================
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE> 4
THE SHERWIN-WILLIAMS COMPANY AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
Thousands of dollars
<TABLE>
<CAPTION>
Six months ended June 30,
-------------------------
1997 1996
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net income $ 116,337 $ 101,495
Non-cash adjustments:
Depreciation 41,831 36,761
Amortization of goodwill and intangible assets 24,535 13,163
Increase in deferred pension assets (9,778) (7,850)
Net increase in postretirement liability 2,798 2,377
Other 2,940 2,528
Change in current assets and liabilities-net (121,843) (89,357)
Proceeds of insurance settlement 53,883
Costs incurred for disposition of operations (5,651) (2,685)
Other (13,224) (8,243)
- --------------------------------------------------------------------------------------------------------------
Net operating cash 91,828 48,189
INVESTING
Capital expenditures (72,298) (69,281)
Decrease in short-term investments 0 20,000
Acquisitions of assets (867,876) (586,613)
(Increase) decrease in other investments (15,022) 28,797
Other (6,559) 12,453
- --------------------------------------------------------------------------------------------------------------
Net investing cash (961,755) (594,644)
FINANCING
Net increase in short-term borrowings 217,502 293,960
Increase in long-term debt 705,767 113,071
Payments of long-term debt (2,052) (74,385)
Payments of cash dividends (35,288) (29,971)
Proceeds from stock options exercised 2,825 7,177
Costs related to issuance of debt (14,253)
Other 952 (215)
- --------------------------------------------------------------------------------------------------------------
Net financing cash 875,453 309,637
- --------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents 5,526 (236,818)
Cash and cash equivalents at beginning of year 1,880 249,484
- --------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 7,406 $ 12,666
==============================================================================================================
Taxes paid on income $ 30,509 $ 12,267
Interest paid on debt 22,897 11,248
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE> 5
THE SHERWIN-WILLIAMS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Periods ended June 30, 1997 and 1996
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's Form 10-K for the fiscal year ended December
31, 1996. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. The consolidated results for the three months and six months ended
June 30, 1997 are not necessarily indicative of the results to be expected for
the fiscal year ending December 31, 1997.
NOTE B--DIVIDENDS
Dividends paid on common stock during each of the first two quarters of 1997 and
1996 were $.10 per share and $.0875 per share, respectively, on a post-split
basis (see Note F).
NOTE C--INVESTMENT IN LIFE INSURANCE
The Company invests in broad-based corporate owned life insurance. The cash
surrender values of the policies, net of policy loans, are included in Other
Assets. The net expense associated with such investment is included in Other
Costs and Expenses.
NOTE D--OTHER COSTS AND EXPENSES
Significant items included in other costs and expenses are as follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
(Thousands of dollars) June 30, June 30,
---------------------------- ---------------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Dividend and royalty income $ 954 $ 1,617 $ 1,868 $ 2,778
Net expense of financing and
investing activities (1,937) (3,953) (4,291) (7,613)
Foreign exchange gain(loss) (5,890) (461) (7,469) (749)
</TABLE>
The net expense of financing and investing activities represents the realized
gains or losses associated with disposing of fixed assets, the net gain or loss
associated with the investment of certain long-term asset funds and the net
pre-tax expense associated with the Company's investment in broad-based
corporate owned life insurance.
<PAGE> 6
NOTE E--ACQUISITION AND MERGER
Effective January 7, 1997, the Company, through a wholly-owned subsidiary,
acquired all outstanding shares of Thompson Minwax Holding Corp. (Thompson
Minwax). The total amount of funds required to acquire the shares and pay off
certain indebtedness of Thompson Minwax was approximately $830 million. The
excess purchase price over the fair value of the net assets acquired is being
amortized over 40 years using the straight-line method.
For financial statement purposes, the acquisition is being accounted for under
the purchase method of accounting. Accordingly, the results of operations of
Thompson Minwax since the date of acquisition are included in the Company's
statements of consolidated income. The following unaudited pro forma combined
condensed statements of consolidated income for the three months and six months
ended June 30, 1996 were prepared in accordance with Accounting Principles Board
Opinion No. 16 and assume the merger had occurred on January 1, 1996. The
following pro forma data reflects adjustments for interest expense, net
investment income and amortization of goodwill and intangible assets. In
management's opinion, the pro forma financial information is not necessarily
indicative of the results of operations which would have occurred had the
acquisition of Thompson Minwax taken place on January 1, 1996 or of future
results of operations of the combined companies under the ownership and
operation of the Company.
UNAUDITED PRO FORMA COMBINED
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
-------------------------------------------
<TABLE>
<CAPTION>
(Thousands of dollars, Three months ended Six months ended
except per share data) June 30, 1996 June 30, 1996
------------------ ----------------
<S> <C> <C>
Net sales $1,253,487 $2,200,842
========== ==========
Net income 87,797 102,374
========== ==========
Net income per share 0.51 0.59
========== ==========
</TABLE>
NOTE F--STOCK SPLIT
The par value of additional shares of common stock issued in connection with a
two-for-one stock split distributed during March 1997 was credited to common
stock and a like amount charged to other capital.
NOTE G--CAPITAL STOCK
On April 23, 1997, the Company adopted a new shareholder rights plan to replace
the original shareholder rights plan in effect since January 25, 1989. Under the
new rights plan, shareholders of record on May 6, 1997 received a dividend of
one right for each share of Sherwin-Williams common stock held. Each right
entitles the holder, upon the occurrence of certain events, to purchase one
one-hundredth (1/100th) of a share of Cumulative Redeemable Serial Preferred
Stock, without par value, or in certain circumstances Sherwin-Williams common
stock, for one hundred ten dollars ($110.00), subject to adjustment. The Bank of
New York became rights agent under the new rights plan on May 27, 1997. In
connection with the adoption of the new rights plan, the Company redeemed the
rights outstanding under the original rights plan.
NOTE H--RECLASSIFICATION
Certain amounts in the 1996 financial statements have been reclassified to
conform with the 1997 presentation.
<PAGE> 7
NOTE I--COMPUTATION OF NET INCOME PER SHARE
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
----------------------------- -----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Fully Diluted
Average shares outstanding 172,382,852 171,441,037 172,315,699 171,287,083
Options - treasury stock method 1,759,633 1,463,899 1,759,633 1,438,062
------------ ------------ ------------ ------------
Average fully diluted shares 174,142,485 172,904,936 174,075,332 172,725,145
============ ============ ============ ============
Net income $ 93,202 $ 81,901 $ 116,337 $ 101,495
============ ============ ============ ============
Net income per share $ 0.54 $ 0.47 $ 0.67 $ 0.59
============ ============ ============ ============
Primary
Average shares outstanding 172,382,852 171,441,037 172,315,699 171,287,083
Options - treasury stock method 1,684,803 1,370,412 1,681,239 1,316,243
------------ ------------ ------------ ------------
Average shares and equivalents 174,067,655 172,811,449 173,996,938 172,603,326
============ ============ ============ ============
Net income $ 93,202 $ 81,901 $ 116,337 $ 101,495
============ ============ ============ ============
Net income per share $ 0.54 $ 0.47 $ 0.67 $ 0.59
============ ============ ============ ============
</TABLE>
<PAGE> 8
NOTE J--BUSINESS SEGMENTS
Net External Sales/Operating Profit
- -----------------------------------
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
----------------------------------------------- -------------------------------------------------
1997 1996 1997 1996
----------------------- ----------------------- ----------------------- ------------------------
NET Net NET Net
EXTERNAL OPERATING External Operating EXTERNAL OPERATING External Operating
SALES PROFIT Sales Profit SALES PROFIT Sales Profit
----------- ---------- ------------ ---------- ------------ --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Paint Stores $ 716,767 $ 64,453 $ 659,318 $ 58,684 $ 1,248,940 $ 71,580 $ 1,134,015 $ 64,192
Coatings 653,893 121,483 482,667 92,664 1,188,673 186,744 862,446 136,040
Other 2,691 2,977 3,269 3,276 5,525 5,925 6,564 6,615
----------- ---------- ----------- --------- ------------ ---------- ------------ ----------
Segment totals $1,373,351 188,913 $1,145,254 154,624 $ 2,443,138 264,249 $ 2,003,025 206,847
=========== =========== ============ ============
Corporate expenses-net (36,122) (22,525) (73,533) (43,146)
--------- -------- --------- ---------
Income before income taxes $ 152,791 $132,099 $ 190,716 $ 163,701
========== ========= ========== ==========
==============================================================================================================================
Intersegment Transfers
- ----------------------
<CAPTION>
Three months ended June 30, Six months ended June 30,
---------------------------------- -----------------------------------
1997 1996 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Coatings $ 296,492 $ 261,762 $ 502,596 $ 440,415
Other 5,329 5,280 10,595 10,452
---------- ---------- ---------- ----------
Segment totals $ 301,821 $ 267,042 $ 513,191 $ 450,867
========== ========== ========== ==========
==============================================================================================================================
</TABLE>
Operating profit is total revenue, including realized profit on intersegment
transfers, less operating costs and expenses.
Export sales, sales of foreign subsidiaries, and sales to any individual
customer were each less than 10% of consolidated sales to unaffiliated customers
during all periods presented.
Intersegment transfers are accounted for at values comparable to normal
unaffiliated customer sales.
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
Consolidated net sales increased 19.9 percent in the second quarter and 22.0
percent in the first six months over the comparable 1996 periods. Excluding the
results of operations of Thompson Minwax Holding Corp. (Thompson Minwax),
acquired during January 1997, and other smaller acquisitions which occurred at
various times since the second quarter of 1996, comparable sales increased 4.6
percent in the quarter and 5.6 percent in the first half of the year. Net sales
in the Paint Stores Segment increased 8.7 percent in the second quarter and 10.1
percent in the first six months primarily due to increased paint gallons sold to
both retail and wholesale customers, combined with sales gains in each of its
remaining product lines (wallcovering, floorcovering, spray equipment and
associated products). Wholesale customers include professional painters,
contractors, and industrial and commercial maintenance accounts.
Comparable-store sales were up 6.9 percent in the quarter and 7.9 percent in the
first six months. Excluding the effects of all acquisitions, comparable sales in
the Paint Stores Segment increased 7.2 and 7.4 percent for the quarter and
year-to-date, respectively. The Coatings Segment's incremental sales from
acquisitions led to a 35.5 percent sales increase in the second quarter and a
37.8 percent year-to-date sales increase. Excluding these acquisitions, the
Segment's sales increased 1.1 percent and 3.3 percent for the respective periods
due to increased sales of new products, offset partially by the soft retail
environment of the second quarter due to poor weather, a soft automotive
refinish collision repair market due to the mild first quarter winter and the
partial phase-out of sales to a large customer. Revenue generated by real estate
operations in the Other Segment declined 17.7 percent in the quarter and 15.8
percent in the first six months due to the loss of a large tenant in one of its
office buildings as of December 31, 1996.
Consolidated gross profit as a percent of sales increased to 43.5 percent for
the second quarter from 41.0 percent last year and to 42.6 percent for the first
six months from 40.3 percent last year. Excluding the effects of all
acquisitions, consolidated second quarter and year-to-date margins were higher
than last year. The Paint Stores Segment's gross margins were slightly lower
than last year for the quarter and year-to-date due primarily to an unfavorable
product mix. Excluding acquisitions, the Segment's margins were lower than last
year for the quarter but above last year for the first six months. Margins in
the Coatings Segment were higher than last year for the second quarter and first
six months on both an as-reported basis and excluding the effects of
acquisitions due primarily to increased volume and higher-than-average margins
realized on its acquired businesses.
Consolidated selling, general and administrative expenses as a percent of sales
were unfavorable to last year for the second quarter and first six months on
both an as-reported basis and excluding the acquisitions. The Paint Stores
Segment's second quarter and year-to-date SG&A ratio was favorable to last year
due primarily to lower-than-average incremental expenses related to the
acquisitions. Excluding the acquisitions, the Segment's SG&A percentage was
favorable to last year for the quarter and essentially even with last year for
the first six months. SG&A expenses
<PAGE> 10
as a percent of sales for the second quarter and first six months were
unfavorable to last year in the Coatings Segment on both an as-reported basis
and excluding the acquisitions due primarily to increased merchandising costs
related to new products and new customers.
Interest expense in the second quarter and first six months was higher than the
comparable periods of last year due to additional debt incurred since the end of
June 1996 to finance acquisitions. Average short-term borrowing rates were
slightly higher than last year.
Other costs and expenses were higher than last year for the quarter and first
six months due primarily to increased foreign currency exchange losses offset
partially by decreased expenses of financing and investing activities.
Net income for the second quarter of 1997 increased 13.8 percent over last year
to $93,203,000, or $.54 per share, from $81,902,000, or $.47 per share, in 1996.
Year-to-date net income through June 30, 1997 increased 14.6 percent to
$116,337,000, or $.67 per share, from $101,495,000, or $.59 per share, in 1996.
Excluding the results of operations of all acquisitions and the related
financing costs, net income increased 12.2 percent for the quarter and 13.9
percent for the first six months.
FINANCIAL CONDITION
- -------------------
During the first six months of 1997, cash and cash equivalents increased $5.5
million, net long-term debt increased $703.7 million and short-term borrowings
increased $218.1 million. Short-term borrowings incurred during the year relate
to the Company's commercial paper program, which had unused borrowing
availability of $613.9 million at June 30, 1997. The aggregate principal amount
of unsecured short-term notes which can be issued under this program was
increased to $1,450.0 million in January 1997 and subsequently decreased to
$1,000.0 million in May 1997. Outstanding borrowings under this program are
backed by the Company's revolving credit agreements, whose maximum borrowing
amount was increased to $1,450.0 million in January 1997 and subsequently
reduced to $1,080.0 million in March 1997. The increase in long-term debt since
December 31, 1996 relates to the Company's issuance of $400.0 million of debt
securities issued under the Company's shelf registration statement and $300.0
million of debentures which were originally issued in a private offering not
registered under the Securities Act of 1933, as amended. On July 2, 1997, the
Company completed offers to exchange all of its outstanding $300.0 million of
debentures for an equal principal amount of newly-issued debentures containing
identical terms except that the newly-issued debentures were registered under
the Securities Act of 1933, as amended. The proceeds from the issuance of these
borrowings were used for the Thompson Minwax acquisition and other smaller
acquisitions totaling $867.9 million, capital expenditures of $72.3 million,
cash dividends of $35.3 million, costs related to the issuance of debt of $14.3
million and normal operating needs for seasonally higher accounts receivable and
inventories. Net cash received from operations of $91.8 million during the first
six months of 1997 includes the receipt of approximately $53.9 million related
to a settlement with certain insurance carriers pertaining to
environmental-related matters, which settlement was recorded in income during
1996. The decrease in the Company's current ratio from 1.35 at December 31, 1996
to 1.11 at June 30, 1997 occurred primarily due to the increase
<PAGE> 11
in short-term borrowings and the reclassification of certain long-term debt to
current liabilities. The increase in goodwill occurred due to the recording of
the Thompson Minwax acquisition and other smaller acquisitions in accordance
with Accounting Principles Board Opinion No. 16. Other assets increased $158.2
million since December 31, 1996 due primarily to the addition of intangible
assets from acquisitions. The increase in common stock and related decrease in
other capital since December 31, 1996 occurred due to the par value of $101.9
million which was credited to common stock and a like amount charged to other
capital for additional common shares issued in the form of a two-for-one stock
split in March 1997.
Since June 30, 1996, cash and cash equivalents decreased $5.3 million,
short-term borrowings increased $62.8 million and net long-term debt increased
$710.2 million. The proceeds of these borrowings combined with cash generated by
operations during this period of $376.2 million were used for acquisitions of
$952.0 million, capital expenditures of $125.7 million, payments of cash
dividends of $65.3 million, debt issue costs of $14.3 million and normal working
capital needs. The Company expects to remain in a borrowing position throughout
1997.
Capital expenditures during the first six months of 1997 represented primarily
the costs of upgrading or installing point-of-sale terminals at the paint
stores, and costs for construction, capacity expansion or upgrade of
distribution centers and manufacturing and research facilities. We do not
anticipate the need for any specific external financing to support our capital
programs.
During the first six months of 1997, approximately 72,000 shares of our own
stock were received in exchange from the exercise of stock options. We did not
acquire any of our own shares through open market purchases during this time
period. We acquire our own stock for general corporate purposes and, depending
upon our cash position and market conditions, we may acquire additional shares
of our own stock in the future. At the April 23, 1997 board meeting, the Board
of Directors authorized the Company to purchase, in the aggregate, 10,000,000
shares of common stock.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share", which is
required to be adopted on December 31, 1997. At that time, the Company will be
required to change the method currently used to compute earnings per share and
to restate all prior periods presented in comparative statements. Under the new
requirements for calculating primary earnings per share, the dilutive effect of
stock options will be excluded from the calculation. The adoption of SFAS No.
128 will result in immaterial changes to the primary earnings per share amounts
reported. The impact of SFAS No. 128 on the calculation of fully diluted
earnings per share for these periods is also expected to be immaterial.
The Company and certain other companies are defendants in a number of lawsuits
arising from the manufacture and sale of lead pigments and lead paints. It is
possible that additional lawsuits may be filed against the Company in the future
with similar allegations. The various existing lawsuits seek damages for
personal injuries and property damage, along with costs involving the abatement
of lead related paint from buildings and medical monitoring costs. The Company
believes that such lawsuits are without merit and is vigorously defending them.
The Company does not believe that
<PAGE> 12
any potential liability which may ultimately be determined to be attributable to
the Company arising out of such lawsuits will have a material adverse effect on
the Company's business or financial condition.
The operations of the Company, like those of other companies in our industry,
are subject to various federal, state and local environmental laws and
regulations. These laws and regulations not only govern our current operations
and products, but also impose potential liability on the Company for past
operations which were conducted utilizing practices and procedures that were
considered acceptable under the laws and regulations existing at that time. The
Company expects the environmental laws and regulations to impose increasingly
stringent requirements upon the Company and our industry in the future. The
Company believes it conducts its operations in compliance with applicable
environmental laws and regulations and has implemented various programs designed
to protect the environment and ensure continued compliance.
The Company is involved with environmental compliance and remediation activities
at some of its current and former sites. The Company, together with other
parties, has also been designated a potentially responsible party under federal
and state environmental protection laws for the remediation of hazardous waste
at a number of third-party sites, primarily Superfund sites. In general, these
laws provide that potentially responsible parties may be held jointly and
severally liable for investigation and remediation costs regardless of fault.
The Company may be similarly designated with respect to additional third-party
sites in the future.
Although the Company continuously assesses its potential liability for
remediation activities with respect to its past operations and third-party
sites, any potential liability ultimately determined to be attributable to the
Company is subject to a number of uncertainties including, among others, the
number and financial condition of parties involved with respect to any given
site, the volumetric contribution which may be attributed to the Company
relative to that attributable to other parties, the nature and magnitude of the
wastes involved, the various technologies that can be used for remediation and
the determination of acceptable remediation with respect to a particular site.
The Company has accrued for certain environmental remediation activities
relating to its past operations and third-party sites, including Superfund
sites, for which commitments or clean-up plans have been developed or for which
costs or minimum costs can be reasonably estimated. These environmental-related
accruals are adjusted as information becomes available upon which more accurate
costs can be reasonably estimated. In the opinion of the Company's management,
any potential liability ultimately attributed to the Company for its
environmental-related matters will not have a material adverse effect on the
Company's financial condition, liquidity or cash flow.
<PAGE> 13
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
A. The Annual Meeting of Shareholders of The Sherwin-Williams Company
was held on April 23, 1997. Holders of Common Stock of record at the close of
business on March 3, 1997 were the only shareholders entitled to vote at the
Annual Meeting of Shareholders. The additional shares of Common Stock which
were issued in March 1997 pursuant to the two-for-one stock split were not
entitled to be voted at the Annual Meeting of Shareholders.
B. The following persons were nominated to serve, and were elected, as
directors of the Company to serve until the next annual meeting and until their
successors are elected: 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. The voting results of the Annual Meeting of
Shareholders for each such nominee are as follows:
Name For Withheld
---- --- --------
J. M. Biggar 78,916,417 473,452
J. G. Breen 78,898,973 490,895
D. E. Collins 78,928,617 461,251
T. A. Commes 78,916,952 472,916
D. E. Evans 78,786,950 602,918
R. W. Mahoney 78,936,903 452,965
W. G. Mitchell 78,937,592 452,276
A. M. Mixon, III 78,944,111 445,757
C. E. Moll 78,909,612 480,256
H. O. Petrauskas 78,914,183 475,685
R. K. Smucker 78,908,559 481,309
C. A resolution to amend The Sherwin-Williams Company 1994 Stock Plan
was adopted with 56,676,387 shares voting for, 17,827,158 shares voting against,
1,272,833 shares abstaining and 3,613,490 broker non-votes.
D. A resolution to approve The Sherwin-Williams Company 1997 Stock Plan
for Nonemployee Directors was adopted with 67,751,075 shares voting for,
6,860,949 shares voting against, 1,503,293 shares abstaining and 3,274,551
broker non-votes.
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits
(10)(a) The Sherwin-Williams Company Director Deferred Fee
Plan (1997 Amendment and Restatement) (filed
herewith).
(10)(b) Forms of Severance Pay Agreements (filed herewith).
<PAGE> 14
(10)(c) Schedule of Certain Executive Officers who are Parties
to the Severance Pay Agreements in the Forms Attached
as Exhibit 10(b) (filed herewith).
(11) Computation of Net Income Per Share - See Note I to
Condensed Consolidated Financial Statements
(Unaudited).
(27) Financial Data Schedule for the period ended June 30,
1997 (filed herewith).
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K dated April 23,
1997 reporting in Item 5 that the Company (a) approved and
ordered the redemption of outstanding stock purchase rights
issued pursuant to the Rights Agreement, dated January 25,
1989, between the Company and Ameritrust Company National
Association (now known as KeyBank National Association), as
Rights Agent and (b) authorized and declared a dividend
distribution, payable on May 6, 1997, of stock purchase rights
issued pursuant to the terms of a Rights Agreement, dated as
of April 23, 1997, between the Company and KeyBank National
Association, as Rights Agent.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE SHERWIN-WILLIAMS COMPANY
August 13, 1997 By: /s/ J.L. Ault
-----------------------------------
J.L. Ault
Vice President-Corporate Controller
August 13, 1997 By: /s/ L.E. Stellato
-----------------------------------
L.E. Stellato
Vice President, General Counsel and Secretary
<PAGE> 15
INDEX TO EXHIBITS
-----------------
EXHIBIT NO. EXHIBIT
- ----------- -------
(10)(a) The Sherwin-Williams Company Director Deferred Fee Plan (1997
Amendment and Restatement) (filed herewith).
(10)(b) Forms of Severance Pay Agreements (filed herewith).
(10)(c) Schedule of Certain Executive Officers who are Parties to the
Severance Pay Agreements in the Forms Attached as Exhibit 10(b)
(filed herewith).
(11) Computation of Net Income Per Share - See Note I to Condensed
Consolidated Financial Statements (Unaudited).
(27) Financial Data Schedule for the period ended June 30, 1997 (filed
herewith).
<PAGE> 1
EXHIBIT 10(a)
THE SHERWIN-WILLIAMS COMPANY
DIRECTOR DEFERRED FEE PLAN
(1997 AMENDMENT AND RESTATEMENT)
1. PURPOSE. The purpose of The Sherwin-Williams Company Director Deferred
Fee Plan (1997 Amendment and Restatement) (the "Plan") is to provide
non-employee Directors of the Company with the opportunity to defer
taxation of all or a portion of such Director's Board Retainer and/or
Meeting Fees and to help build loyalty to the Company through increased
opportunity to invest in Company Common Stock.
2. DEFINITIONS. The following terms when used herein with initial capital
letters shall have the following respective meanings unless the text
clearly indicates otherwise:
(a) ADMINISTRATION COMMITTEE. "Administration Committee" means the
committee provided for in paragraph 11.
(b) BOARD OF DIRECTORS. "Board of Directors" means the Board of
Directors of the Company.
(c) BOARD RETAINER. "Board Retainer" means the compensation
payable monthly to Directors.
(d) COMMON STOCK. "Common Stock" means the common stock of the
Company or any security into which such Common Stock may be
changed by reason of: (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.
(e) COMMON STOCK ACCOUNT. "Common Stock Account" means the
bookkeeping account established and maintained under this Plan
which is credited with Common Stock in accordance with
paragraph 5(b).
(f) COMPANY. "Company" means The Sherwin-Williams Company, an Ohio
corporation or its successor(s) in interest.
(g) DEFERRED CASH ACCOUNT. "Deferred Cash Account" means the
bookkeeping account established and maintained under this Plan
which is valued in accordance with paragraph 5(a).
(h) DEFERRED COMPENSATION. "Deferred Compensation" means the
amount of the Board Retainer and/or Meeting Fee of the
Participant deferred pursuant to this Plan.
(i) DIRECTOR. "Director" means a member of the Board of Directors.
(j) ELIGIBLE DIRECTOR. "Eligible Director" means a Director who is
not an employee of the Company or a Subsidiary.
<PAGE> 2
(k) FAIR MARKET VALUE. "Fair Market Value" of Common Stock means:
(i) with respect to Deferred Compensation deferred prior to
April 23, 1997, the closing price of Common Stock as reported
on the New York Stock Exchange Composite Tape on the
applicable date, or, in the event that no sales take place on
such day, the closing price of Common Stock as reported on the
New York Stock Exchange (or any successor exchange) Composite
Tape on the nearest preceding day on which there were sales of
Common Stock; or (ii) with respect to Deferred Compensation
deferred on or after April 23, 1997, 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.
(l) FEES. "Fees" means the compensation payable to Directors for
their services as a director, including the Board Retainer and
Meeting Fee.
(m) MEETING FEE. "Meeting Fee" means the compensation payable at
the time of a meeting to a Director for each meeting of the
Board of Directors or committee of the Board of Directors that
such Director attends and/or chairs.
(n) PARTICIPANT. "Participant" means an Eligible Director who has
elected to participate in the Plan.
(o) PAYMENT DATE. "Payment Date" means (i) with respect to the
payment of a Board Retainer, the first business day of each
calendar month or (ii) with respect to the payment of a
Meeting Fee, the date on which a meeting of the Board of
Directors or a committee of the Board of Directors was held.
(p) PLAN. "Plan" means the plan set forth in this instrument, and
known as "The Sherwin-Williams Company Director Deferred Fee
Plan", as adopted at the meet ing of the Board of Directors
held February 20, 1991, and as further amended and restated
effective April 23, 1997.
(q) PLAN YEAR. "Plan Year" means the twelve consecutive month
period commencing on April 1 of a year and ending on March 31
of the following year.
(r) SHADOW STOCK. "Shadow Stock" means a unit of interest
equivalent to a share of Common Stock.
(s) SHADOW STOCK ACCOUNT. "Shadow Stock Account" means the
bookkeeping account established and maintained under this Plan
credited with Shadow Stock in accordance with paragraph 5(c).
(t) SUBSIDIARY. Any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if,
at the time of the time of investment in the Common Stock,
each of the corporations other than the last corporation in
the unbroken chain owns stock possessing fifty percent (50%)
or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
(u) TRUST. "Trust" means one or more trust funds established for
the purpose of (i) providing a source from which to pay
benefits under the Plan and (ii) purchasing and holding
assets, including shares of Common Stock. Any such trust funds
shall be subject to the claims of the Company's creditors in
the event of the Company's
2
<PAGE> 3
insolvency, though such trust funds may not necessarily hold
sufficient assets to satisfy all of the benefits to be
provided under the Plan.
3. ELIGIBILITY. An Eligible Director shall become a Participant upon
satisfaction of the following: (i) the later of the effective date of
the Plan or the date such Director becomes an Eligible Director; and
(ii) completion of an Election (as defined in paragraph 4).
4. ELECTION PROCEDURE. An Eligible Director wishing to participate in the
Plan must file a written notice on the Notice of Election form,
attached as Exhibit A, electing to defer payment for a Plan Year of all
or a portion of his Fees as a Director ("Election"). Such Election
shall be made within thirty (30) days after the later of: (i) the date
such Director initially becomes an Eligible Director or (ii) April 23,
1997. Any such Election shall be effective only with respect to Fees
earned after the effective date of the Election. Thereafter, a Director
for whom an Election is not in effect may only elect to participate in
the Plan by filing an Election on or before the March 31st of the Plan
Year immediately preceding the Plan Year for which the Election is to
become effective. An Election shall not be effective until receipt of
the fully and properly completed Notice of Election form by the
Secretary of the Company. A fully and properly completed Notice of
Election form must indicate: (i) the percentage of Fees to be deferred;
(ii) manner of payment upon distribution; (iii) payment commencement
date; and (iv) deemed investment election. Once effective for a Plan
Year, an Election is irrevocable and may not be changed for that Plan
Year. No subsequent election may change the manner of payment, the
payment commencement date or the deemed investment of the Fees
previously deferred. An Election shall apply to Fees payable with
respect to each subsequent Plan Year, unless terminated or modified as
described herein. An effective Election may be terminated or modified
for any subsequent Plan Year by filing either a new Notice of Election
form to effect modifications, or a Notice of Termination form, attached
as Exhibit B, to effect terminations, on or before the March 31st
immediately preceding the Plan Year for which such modification or
termination is to be effective. A person for whom an effective Election
is terminated may thereafter file a new Notice of Election form, in the
manner described above, for future Plan Years for which he is eligible
to participate in the Plan.
5. INVESTMENT ACCOUNTS. The amount of a Participant's Deferred
Compensation pursuant to an Election shall be deemed credited to the
investment options specified in this paragraph 5 in the manner elected
by the Participant. A Participant's election as to the investment
options in which his Deferred Compensation for a Plan Year shall be
deemed to be invested shall be irrevocable with respect to Deferred
Compensation and deemed earnings thereon, and Deferred Compensation and
deemed earnings thereon cannot be transferred between investment
accounts. A Participant may elect to credit no less than twenty-five
percent (25%) of his Deferred Compensation for a Plan Year (the
"Minimum Election") to any particular investment option. Any amounts in
excess of the Minimum Election shall be made in five percent (5%)
increments. If a Participant fails to direct the investment of any
Deferred Compensation, all such Deferred Compensation will be
3
<PAGE> 4
credited to the Participant's Deferred Cash Account. A Participant may
elect to have his Deferred Compensation deemed to be invested in one of
the following investment accounts:
(a) DEFERRED CASH ACCOUNT. Each Participant's Deferred Cash
Account shall accrue interest computed using the base lending
rate of interest as announced by Key Bank, Cleveland, Ohio in
effect during the immediately preceding calendar quarter. The
interest shall be computed on the actual balance in each
Participant's Deferred Cash Account during the previous
calendar quarter.
(b) COMMON STOCK ACCOUNT. The Participant's Common Stock Account
shall be credited with that quantity of Common Stock equal to
the number of full and fractional shares (to the nearest
thousandths) which could have been purchased by the Trust with
the portion of Deferred Compensation a Participant has elected
to allocate to the Common Stock Account based on the Fair
Market Value of such Common Stock on each Payment Date. There
will be credited to each Participant's Common Stock Account
amounts equal to the cash dividends, and other distributions,
paid on shares of issued and outstanding Common Stock
represented by the Participant's Common Stock Account which
the Participant would have received had he been a record owner
of shares of Common Stock equal to the amount of Common Stock
in his Common Stock Account at the time of payment of such
cash dividends or other distributions. The Participant's
Common Stock Account shall be credited with a quantity of
shares of Common Stock and fractions thereof (to the nearest
thousandths) that could have been purchased with the dividends
or other distributions based on the Fair Market Value of
Common Stock on the date of payment of such dividends or other
distributions.
(c) SHADOW STOCK ACCOUNT. The Participant's Shadow Stock Account
shall be credited with a quantity of Shadow Stock units and
fractions thereof (to the nearest thousandths) equal to the
amount of Common Stock that could have been purchased with the
portion of the Deferred Compensation credited to the Shadow
Stock Account on each Payment Date based on the Fair Market
Value of Common Stock on such Payment Date. There will be
credited to each Participant's Shadow Stock Account amounts
equal to the cash dividends, and other distributions, paid on
shares of issued and outstanding Common Stock represented by
the Participant's Shadow Stock Account which the Participant
would have received had he been a record owner of a number of
shares of Common Stock equal to the amount of Shadow Stock in
his Shadow Stock Account at the time of payment of such cash
dividends or other distributions. The Participant's Shadow
Stock Account shall be credited with a quantity of Shadow
Stock units and fractions thereof (to the nearest thousandths)
that could have been purchased with the dividends or other
distributions based on the Fair Market Value of Common Stock
on the date of payment of such dividends or other
distributions.
6. DEPOSITS TO THE TRUST. The Company shall transfer to the Trust, within
sixty (60) days of the date Fees would otherwise be paid, amounts which
a Participant has directed to be deferred in accordance with the Plan.
In addition, as of the first day of each calendar
4
<PAGE> 5
quarter, the Company shall deposit into the Trust the following cash
amounts accrued during the immediately preceding calendar quarter: (i)
all accrued interest on Participants' Deferred Cash Accounts; (ii) an
amount equal to cash dividends and other distributions paid on shares
of Common Stock represented by units of Shadow Stock and shares of
Common Stock credited to Participants' Shadow Stock Accounts and Common
Stock Accounts; (iii) an amount equal to the appreciation in the value
of a unit of Shadow Stock multiplied times the number of units of
Shadow Stock credit to Participants' Shadow Stock Accounts; and (iv) an
amount equal to the appreciation in the value of a share of Common
Stock multiplied by the number of shares of Common Stock credited to
Participants' Common Stock Accounts.
7. PAYMENT OF DEFERRED COMPENSATION.
(a) AMOUNT OF PAYMENT. The benefit that a Participant will receive
from the Company in accordance with the Plan shall be: (i) the
number of full shares of Common Stock credited to the
Participant's Common Stock Account; and (ii) cash equal to the
sum of (I) the amount credited to the Participant's Deferred
Cash Account; (II) the Fair Market Value of the fractional
shares (to the nearest thousandths) of Common Stock on the date
such fractional shares were credited to the Participant's
Common Stock Account; and (III) the value of the Shadow Stock
units and fractions thereof (to the nearest thousandths)
credited to the Participant's Shadow Stock Account. The value
of a Participant's Deferred Cash Account, fractional shares of
Common Stock and Shadow Stock Account shall be determined by
the Company as of the end of the calendar quarter immediately
preceding the calendar quarter in which a Participant is
entitled to a distribution hereunder in accordance with
paragraph 7(c) below. Notwithstanding the preceding sentence to
the contrary, in the event of a Change of Control or
termination of the Plan as provided in paragraphs 9 and 13,
respectively, the value of a Participant's Deferred Cash
Account, Shadow Stock Account and Common Stock Account shall be
determined by the Company immediately following such an event.
(b) MANNER OF PAYMENT. A Participant's Deferred Compensation for a
Plan Year, as adjusted for deemed earnings or losses thereon,
will be paid by the Company to him or, in the event of his
death, to the Participant's beneficiary, in kind, either (i) in
a lump sum or (ii) in substantially equal annual cash
installments over a period not exceeding ten (10) years, as
specified by the Participant in his Election with respect to
such Plan Year. Notwithstanding the foregoing, a Participant's
Deferred Compensation invested in the Common Stock Account
shall only be distributed to the Participant in kind in a lump
sum. If a Participant fails to elect a manner of payment, the
Participant will receive a lump sum. Upon the commencement of
installment payments hereunder, the value (as determined under
paragraph 7(a) above) of the Participant's Shadow Stock Account
shall be transferred to his Deferred Cash Account and the
Participant's Shadow Stock Account shall be eliminated. Amounts
credited to a Participant's Deferred Cash Account held
5
<PAGE> 6
pending distribution pursuant to this paragraph shall continue
to be credited with interest in accordance with the provisions
of paragraph 5(a) above.
(c) PAYMENT COMMENCEMENT DATE. Payments of Deferred Compensation
and earnings thereon shall commence within two (2) business
days following the first business day of the first calendar
quarter beginning after the earlier of the date the
Participant elects to receive payment or ceases to be a
Director. Notwithstanding a Participant's manner of payment
election hereunder, if a Participant dies before payments have
begun under the Plan, the Company shall pay to the
Participant's beneficiary or beneficiaries a lump sum on the
first business day of the first calendar quarter beginning
after the Participant's death. If a Participant dies while
payments are being made under the Plan, the Company shall
continue to pay installments to the Participant's beneficiary
or beneficiaries in accordance with the payment method elected
by the Participant prior to his death.
(d) ACCELERATION OF PAYMENT. In the event a Participant has
elected to receive distribution from the plan in the form of
installment payments, the Administration Committee may,
nonetheless, upon request of the Participant, in its sole
discretion, accelerate payment of all or any portion of the
Participant's remaining account under the Plan, if the
Administration Committee determines that the Participant has
experienced an unanticipated financial emergency beyond the
control of the Participant that would result in severe
financial hardship to the Participant and the amount of the
payment is the amount necessary to alleviate the hardship.
8. BENEFICIARIES. A Participant may, by executing and delivering to the
Secretary of the Company prior to the Participant's death a Beneficiary
Election form attached hereto as Exhibit C, designate a beneficiary or
beneficiaries to whom distribution of his interest under this Plan
shall be made in the event of his death prior to the full receipt of
his interest under this Plan, and he may designate the portions to be
distributed to each such designated beneficiary if there is more than
one. Any such designation may be revoked or changed by the Participant
at any time and from time to time by filing, prior to the Participant's
death, with the Secretary of the Company an executed Beneficiary
Election form. If there is no such designated beneficiary living upon
the death of the Participant, or if all such designated beneficiaries
die prior to the full distribution of the Participant's interest, then
any remaining unpaid amounts shall be paid in a cash lump sum to the
estate of the Participant or Participant's beneficiaries.
9. CHANGE OF CONTROL. In the event of a Change of Control, the amounts
held in the Trust shall be immediately distributed in a cash lump sum
to Participants. Any and all remaining benefits shall be immediately
paid by the Company in a cash lump sum to Participants. For purposes of
this Plan, a "Change of Control" shall be deemed to have occurred if:
(i) Any person (as such term is used in Sections 13(d) and
14(d)(2) of the Exchange Act) who or that, together with all
Affiliates and Associates of such person, is the
6
<PAGE> 7
Beneficial Owner of ten percent (10%) or more of the shares of
Common Stock of the Company then outstanding, except:
(A) the Company;
(B) any of the Company's subsidiaries in which a majority
of the voting power of the equity securities or
equity interests of such subsidiary is owned,
directly or indirectly, by the Company;
(C) any employee benefit or stock ownership plan of the
Company or any trustee or fiduciary with respect to
such a plan acting in such capacity; or
(D) any such person who has reported or may, pursuant to
Rule 13d-1(b)(1) of the General Rules and Regulations
under the Exchange Act, report such ownership (but
only as long as such person is the Beneficial Owner
of less than fifteen percent (15%) of the shares of
Common Stock then outstanding) on Schedule 13G (or
any comparable or successor report) under the
Exchange Act.
Notwithstanding the foregoing, (I) no person shall become the
Beneficial Owner of ten percent (10%) or more (fifteen percent
(15%) or more in the case of any person identified in clause
(D) above) solely as the result of an acquisition of Common
Stock by the Company that, by reducing the number of shares
outstanding, increases the proportionate number of shares
beneficially owned by such person to ten percent (10%) or more
(fifteen percent (15%) or more in the case of any person
identified in clause (D) above) of the shares of Common Stock
then outstanding; provided, however, that if a person becomes
the Beneficial Owner of ten percent (10%) or more (fifteen
percent (15%) or more in the case of any person identified in
clause (D) above) of the shares of Common Stock solely by
reason of purchases of Common Stock by the Company and shall,
after such purchases by the Company, become the Beneficial
Owner of any additional shares of Common Stock which has the
effect of increasing such person's percentage ownership of the
then-outstanding shares of Common Stock by any means
whatsoever, then such person shall be deemed to have triggered
a Change of Control, and (II) if the Board of Directors
determines that a person who would otherwise be the Beneficial
Owner of ten percent (10%) or more (fifteen percent (15%) or
more in the case of any person identified in clause (D) above)
of the shares of Common Stock has become such inadvertently
(including, without limitation, because (1) such person was
unaware that it Beneficially Owned ten percent (10%) or more
(fifteen percent (15%) or more in the case of any person
identified in clause (D) above) of the shares of Common Stock
or (2) such person was aware of the extent of such beneficial
ownership but such person acquired beneficial ownership of
such shares of Common Stock without the intention to change or
influence the control of the Company) and such person divests
itself as promptly as practicable of a sufficient number of
shares of Common Stock so that such person would no longer be
the Beneficial Owner of ten percent (10%) or more (fifteen
percent (15%) or more in the case of any person identified in
clause (D) above), then such person shall not be deemed to be,
or have been, the Beneficial
7
<PAGE> 8
Owner of ten percent (10%) or more (fifteen percent (15%) or
more in the case of any person identified in clause (D) above)
of the shares of Common Stock, and no Change of Control shall
be deemed to have occurred.
(ii) During any period of two consecutive years, individuals who at
the beginning of such period constituted the Board of
Directors of the Company and any new director (other than a
director initially elected or nominated as a director as a
result of an actual or threatened election contest with
respect to directors or any other actual or threatened
solicitation of proxies by or on behalf of such director)
whose election by the Board of Directors or nomination for
election by the Company's shareholders was approved by a vote
of at least two-thirds (2/3) of the directors then still in
office who either were directors at the beginning of the
period or whose election or nomination for election was
previously so approved, cease for any reason to constitute a
majority thereof.
(iii) There shall be consummated any consolidation, merger or other
combination of the Company with any other person or entity
other than:
(A) a consolidation, merger or other combination which
would result in the voting securities of the Company
outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by
being converted into voting securities of the
surviving entity) more than fifty-one percent (51%)
of the combined voting power of the voting securities
of the Company or such surviving entity outstanding
immediately after such consolidation, merger or other
combination; or
(B) a consolidation, merger or other combination effected
to implement a recapitalization and/or reorganization
of the Company (or similar transaction), or any other
consolidation, merger or other combination of the
Company, which results in no person (as such term is
used in Sections 13(d) and 14(d)(2) of the Exchange
Act), together with all Affiliates and Associates of
such person, becoming the Beneficial Owner of ten
percent (10%) or more (fifteen percent (15%) or more
in the case of any person identified in Section
1(c)(i)(D)) of the combined voting power of the
Company's then outstanding securities.
(iv) There shall be consummated any sale, lease, assignment,
exchange, transfer or other disposition (in one transaction or
a series of related transactions) of fifty percent (50%) or
more of the assets or earning power of the Company (including,
without limitation, any such sale, lease, assignment,
exchange, transfer or other disposition effected to implement
a recapitalization and/or reorganization of the Company (or
similar transaction)) which results in any person (as such
term is used in Sections 13(d) and 14(d)(2) of the Exchange
Act), together with all Affiliates and Associates of such
person, owning a proportionate share of such assets or earning
power greater than the proportionate share of the voting power
of the Company that such person, together with all Affiliates
and Associates of such person, owned immediately prior to any
such sale, lease, assignment, exchange, transfer or other
disposition.
8
<PAGE> 9
(v) The shareholders of the Company approve a plan of complete
liquidation of the Company.
10. NON-ASSIGNABILITY. Neither a Participant nor any beneficiary designated
by him shall have any right to, directly or indirectly, alienate,
assign or encumber any amount that is or may be payable hereunder.
11. ADMINISTRATION OF PLAN. Full discretionary power and authority to
construe, interpret and administer the Plan shall be vested in the
Administration Committee. The Administration Committee shall be consist
of three or more members who may be, but are not required to be,
directors or employees of the Company, one of whom shall be the Chief
Executive Officer of the Company and the others of whom shall be
appointed by the Chief Executive Officer of the Company. Members of the
Administration Committee, other than the Chief Executive Officer, 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 Administration Committee. The Administration
Committee shall have the power and authority to allocate among
themselves and to delegate any responsibility or power reserved to it
hereunder to any person or persons or any committee of the Board of
Directors, as it may, in its sole discretion, deem appropriate.
Decisions of the Administration Committee or its designee shall be
final, conclusive and binding upon all parties.
12. GOVERNING LAW. To the extent not preempted by federal law, the
provisions of this Plan shall be interpreted and construed in
accordance with the laws of the State of Ohio.
13. EFFECTIVE DATE/AMENDMENT/TERMINATION. This amendment and restatement of
the Plan shall become effective on April 23, 1997. The Board of
Directors may amend, suspend or terminate this Plan at any time;
provided that no such amendment, suspension or termination shall
adversely effect the amounts in any then-existing account. Upon
termination of the Plan, the amounts held in the Trust shall be
immediately distributed in a lump sum to Participants. Any and all
remaining benefits shall be immediately paid by the Company in a lump
sum to Participants.
IN WITNESS WHEREOF, the Company has caused the Plan to be executed
effective as of April 23, 1997.
ATTEST: THE SHERWIN-WILLIAMS COMPANY
By:
- ------------------------- ------------------------------------
Its:
------------------------------------
9
<PAGE> 10
EXHIBIT A
THE SHERWIN-WILLIAMS COMPANY
DIRECTOR DEFERRED FEE PLAN
(1997 Amendment and Restatement)
NOTICE OF ELECTION
------------------
I, the undersigned, __________________________ Print Name), a
non-employee director of The Sherwin-Williams Company (the "Company") hereby
irrevocably elect to participate in The Sherwin-Williams Company Director
Deferred Fee Plan (the "Plan"). I acknowledge that this deferral is effective
upon receipt of this Notice of Election form by the Secretary of the Company,
and is subject to all provisions stated in the Plan document. I understand that
this election shall be irrevocable as to fees payable to me during the next full
Plan Year (which runs from April 1st through March 31st), and shall continue in
effect for subsequent Plan Years except to the extent that I file either a new
notice of election changing my prior election or a notice of termination on or
before the March 31st prior to any subsequent Plan Year.
1. PERCENTAGE OF FEES DEFERRED. I irrevocably elect for the Plan
Year to defer the following percentages of the following fees:
Board Retainer: ________%
Meeting Fee: ________%
2. MANNER OF PAYMENT. I irrevocably elect that all amounts
deferred pursuant to this election and earnings thereon be
distributed to me as provided in the Plan:
_______________ in a cash lump sum; or
_______________ in _______ (specify number between two and
ten) annual cash installments.
I hereby acknowledge that if I do not select my preferred
manner of Plan distribution at this time, I will receive my
payment in a cash lump sum and I further acknowledge that,
notwithstanding the above election, any amounts invested in
the Common Stock Account shall be paid to me in an in-kind,
lump sum distribution.
3. PAYMENT COMMENCEMENT DATE. I irrevocably elect that the
payment of amounts deferred pursuant to this election and
earnings thereon begin within two (2)
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<PAGE> 11
business days following the first business day of the first
calendar quarter beginning after:
___________________, 199_ (specify date); or
_______________ the date I cease to be a Director.
4. INVESTMENT ACCOUNTS. I hereby irrevocably elect that all
amounts deferred pursuant to this election and earnings
thereon be invested as follows: (Note: elections must be no
less than 25% in any particular investment account and 5%
increments thereafter)
___________% in my Deferred Cash Account;
___________% in my Shadow Stock Account; and/or
___________% in my Common Stock Account.
I understand that my investment direction is irrevocable for
the Plan Year for amounts deferred under this election and
earnings thereon and that deferred amounts cannot be
transferred between investment accounts.
IN WITNESS WHEREOF, I have signed my name on this _________ day of
___________________, 199__.
--------------------------------
Signature
RECEIPT ACKNOWLEDGED ON BEHALF
OF THE SHERWIN-WILLIAMS COMPANY
Date: _________________
--------------------------------
Corporate Secretary
11
<PAGE> 12
EXHIBIT B
THE SHERWIN-WILLIAMS COMPANY
DIRECTOR DEFERRED FEE PLAN
(1997 Amendment and Restatement)
NOTICE OF TERMINATION
---------------------
Pursuant to the provisions of the Plan, I, the undersigned, ___________
(Print Name), hereby terminate my participation in the Plan effective as of
April 1, 199 .
Date: _____________________
--------------------------------
Signature
RECEIPT ACKNOWLEDGED ON BEHALF
OF THE SHERWIN-WILLIAMS COMPANY
Date: _____________________ --------------------------------
Corporate Secretary
12
<PAGE> 13
EXHIBIT C
THE SHERWIN-WILLIAMS COMPANY
DIRECTOR DEFERRED FEE PLAN
(1997 Amendment and Restatement)
BENEFICIARY ELECTION
--------------------
This form shall supersede any previous beneficiary designation
made by me with respect to deferred fees under the Plan. I reserve the right to
change my beneficiary in accordance with the terms of the Plan.
Any fees which were deferred under the Plan and remain unpaid
at my death shall be paid to the following primary beneficiary(ies):
- ---------------------------- ---------------------------
Name Relationship
- ---------------------------- Percentage _________%
Address
- ---------------------------- ---------------------------
Name Relationship
- ---------------------------- Percentage _________%
If the named primary beneficiary(ies) predeceases me, I
designate the following persons(s) as contingent beneficiary(ies) to receive any
such unpaid deferred fees:
- ---------------------------- ---------------------------
Name Relationship
- ---------------------------- Percentage _________%
Address
- ---------------------------- ---------------------------
Name Relationship
- ---------------------------- Percentage _________%
IN WITNESS WHEREOF, I have signed my name on this _________ day of
____________________ 199__.
----------------------------------
Signature
RECEIPT ACKNOWLEDGED ON BEHALF
OF THE SHERWIN-WILLIAMS COMPANY
Date:_________________ ---------------------------------
Corporate Secretary
13
<PAGE> 1
EXHIBIT 10(b)
FORM A OF SEVERANCE PAY AGREEMENT
---------------------------------
AMENDED AND RESTATED
SEVERANCE PAY AGREEMENT
-----------------------
THIS AMENDED AND RESTATED SEVERANCE PAY AGREEMENT ("Agreement") is made
and entered into effective as of the ____ day of ________, ____ by and
between THE SHERWIN-WILLIAMS COMPANY, an Ohio corporation (the "Company") and
____________ (the "Executive").
W I T N E S S E T H :
---------------------
WHEREAS, in the event a third party takes action toward a possible
business combination with the Company or acquisition of equity securities of the
Company, the Board of Directors believes it imperative that the Company and the
Board of Directors be able to rely upon Executive to continue in Executive's
position, and that the Company be able to receive and rely upon Executive's
objective advice as being in the best interests of the Company and its
shareholders;
WHEREAS, should the Company be in such a situation, in addition to
Executive's regular duties and responsibilities, Executive may be called upon to
assist in the assessment of proposals, advise management and the Board of
Directors as to whether the proposals would be in the best interests of the
Company and its shareholders, and to take such other actions as the Board of
Directors might determine to be appropriate;
WHEREAS, this Agreement is consistent with the Company's plan to
attract and retain key executives at all times; and
WHEREAS, the Company and Executive entered into a certain Severance Pay
Agreement, effective as of ________, 19__, and Company and Executive desire to
amend and restate said Severance Pay Agreement in accordance with the terms and
conditions set forth herein.
NOW, THEREFORE, to assure the Company that it will have continued
dedication of Executive and the availability of Executive's advice and counsel
notwithstanding the possibility of a threat or occurrence of a bid to take over
control of the Company, and to induce Executive to remain in the employ of the
Company during the period of uncertainties due to such threat of take-over, the
Company and Executive agree as follows:
1. DEFINITIONS. The following terms, when used herein with initial capital
letters, shall have the following respective meanings unless the
context clearly indicates otherwise:
<PAGE> 2
(a) "BASE SALARY" shall mean Executive's highest regular bi-weekly
compensation in effect at any time during the three (3) year
period immediately preceding the Date of Termination.
Executive's regular bi-weekly compensation referred to in the
preceding sentence shall be Executive's regular bi-weekly rate
before reduction, deduction or deferral for any amounts
including, without limitation, any deduction for withholding
of income taxes or F.I.C.A. taxes and/or any reduction or
deferral pursuant to Sections 401(k) or 125 of the Code, or
any other employee benefit plans, programs or arrangements in
which Executive participates.
(b) A person (as such term is used in Sections 13(d) and 14(d)(2)
of the Securities Exchange Act of 1934, as amended,
hereinafter "Exchange Act") shall be deemed the "BENEFICIAL
OWNER" of and shall be deemed to "beneficially own" any
securities:
(i) which such person or any of such person's
"Affiliates" or "Associates" (as such terms are
defined in Rule 12b-2, as in effect on April 23,
1997, of the General Rules and under the Exchange
Act) is considered to be a "beneficial owner" under
Rule 13d-3 of the General Rules and Regulations under
the Exchange Act, as in effect on April 23, 1997;
(ii) which such person or any of such person's Affiliates
or Associates, directly or indirectly, has or shares
the right to acquire, hold, vote (except pursuant to
a revocable proxy as described in the proviso to this
Section 1(b)) or dispose of such securities (whether
any such right is exercisable immediately or only
after the passage of time) pursuant to any agreement,
arrangement or understanding (whether or not in
writing), or upon the exercise of conversion rights,
exchange rights, rights, warrants or options, or
otherwise; provided, however, that a person shall not
be deemed to be the Beneficial Owner of, or to
beneficially own, securities tendered pursuant to a
tender or exchange offer made by or on behalf of such
person or any of such person's Affiliates or
Associates until such tendered securities are
accepted for purchase or exchange; or
(iii) which are beneficially owned, directly or indirectly,
by any other person (or any Affiliate or Associate of
such other person) with which such person (or any of
such person's Affiliates or Associates) has any
agreement, arrangement or understanding (whether or
not in writing), with respect to acquiring, holding,
voting (except as described in the proviso to this
Section 1(b)) or disposing of any securities of the
Company;
provided, however, that a person shall not be deemed the
Beneficial Owner of, nor to beneficially own, any security if
such person has the right to vote such security pursuant to an
agreement, arrangement or understanding which (A) arises
solely from a revocable proxy given to such person in response
to a public proxy or consent
2
<PAGE> 3
solicitation made pursuant to, and in accordance with, the
applicable rules and regulations under the Exchange Act, and
(B) is not also then reportable on Schedule 13D (or any
comparable or successor report) under the Exchange Act; and
provided, further, that nothing in this Section 1(b) shall
cause a person engaged in business as an underwriter of
securities to be the Beneficial Owner of, or to beneficially
own, any securities acquired through such person's
participation in good faith in a firm commitment underwriting
until the expiration of forty (40) days after the date of such
acquisition or such later date as the Board of Directors may
determine in any specific case.
(c) "CHANGE OF CONTROL" shall be deemed to have occurred if:
(i) Any person (as such term is used in Sections 13(d)
and 14(d)(2) of the Exchange Act) who or that,
together with all Affiliates and Associates of such
person, is the Beneficial Owner of ten percent (10%)
or more of the shares of Common Stock of the Company
then outstanding, except:
(A) the Company;
(B) any of the Company's subsidiaries in which a
majority of the voting power of the equity
securities or equity interests of such
subsidiary is owned, directly or indirectly,
by the Company;
(C) any employee benefit or stock ownership plan
of the Company or any trustee or fiduciary
with respect to such a plan acting in such
capacity; or
(D) any such person who has reported or may,
pursuant to Rule 13d-1(b)(1) of the General
Rules and Regulations under the Exchange
Act, report such ownership (but only as long
as such person is the Beneficial Owner of
less than fifteen percent (15%) of the
shares of Common Stock then outstanding) on
Schedule 13G (or any comparable or successor
report) under the Exchange Act.
Notwithstanding the foregoing, (I) no person shall
become the Beneficial Owner of ten percent (10%) or
more (fifteen percent (15%) or more in the case of
any person identified in clause (D) above) solely as
the result of an acquisition of Common Stock by the
Company that, by reducing the number of shares
outstanding, increases the proportionate number of
shares beneficially owned by such person to ten
percent (10%) or more (fifteen percent (15%) or more
in the case of any person identified in clause
3
<PAGE> 4
(D) above) of the shares of Common Stock then
outstanding; provided, however, that if a person
becomes the Beneficial Owner of ten percent (10%) or
more (fifteen percent (15%) or more in the case of
any person identified in clause (D) above) of the
shares of Common Stock solely by reason of purchases
of Common Stock by the Company and shall, after such
purchases by the Company, become the Beneficial Owner
of any additional shares of Common Stock which have
the effect of increasing such person's percentage
ownership of the then-outstanding shares of Common
Stock, by any means whatsoever, then such person
shall be deemed to have triggered a Change of
Control, and (II) if the Board of Directors
determines that a person who would otherwise be the
Beneficial Owner of ten percent (10%) or more
(fifteen percent (15%) or more in the case of any
person identified in clause (D) above) of the shares
of Common Stock has become such inadvertently
(including, without limitation, because (1) such
person was unaware that it Beneficially Owned ten
percent (10%) or more (fifteen percent (15%) or more
in the case of any person identified in clause (D)
above) of the shares of Common Stock or (2) such
person was aware of the extent of such beneficial
ownership but such person acquired beneficial
ownership of such shares of Common Stock without the
intention to change or influence the control of the
Company) and such person divests itself as promptly
as practicable of a sufficient number of shares of
Common Stock so that such person would no longer be
the Beneficial Owner of ten percent (10%) or more
(fifteen percent (15%) or more in the case of any
person identified in clause (D) above), then such
person shall not be deemed to be, or have been, the
Beneficial Owner of ten percent (10%) or more
(fifteen percent (15%) or more in the case of any
person identified in clause (D) above) of the shares
of Common Stock, and no Change of Control shall be
deemed to have occurred.
(ii) During any period of two consecutive years,
individuals who at the beginning of such period
constituted the Board of Directors of the Company and
any new director (other than a director initially
elected or nominated as a director as a result of an
actual or threatened election contest with respect to
directors or any other actual or threatened
solicitation of proxies by or on behalf of such
director) whose election by the Board of Directors or
nomination for election by the Company's shareholders
was approved by a vote of at least two-thirds (2/3)
of the directors then still in office who either were
directors at the beginning of the period or whose
election or nomination for election was previously so
approved, cease for any reason to constitute a
majority thereof.
(iii) There shall be consummated any consolidation, merger
or other combination of the Company with any other
person or entity other than:
(A) a consolidation, merger or other combination
which would result in the voting securities
of the Company outstanding immediately prior
thereto continuing to represent (either by
remaining outstanding or by being converted
into voting securities of the surviving
entity) more
4
<PAGE> 5
than fifty-one percent (51%) of the combined
voting power of the voting securities of the
Company or such surviving entity outstanding
immediately after such consolidation, merger
or other combination; or
(B) a consolidation, merger or other combination
effected to implement a recapitalization
and/or reorganization of the Company (or
similar transaction), or any other
consolidation, merger or other combination
of the Company, which results in no person
(as such term is used in Sections 13(d) and
14(d)(2) of the Exchange Act), together with
all Affiliates and Associates of such
person, becoming the Beneficial Owner of ten
percent (10%) or more (fifteen percent (15%)
or more in the case of any person identified
in Section 1(c)(i)(D)) of the combined
voting power of the Company's then
outstanding securities.
(iv) There shall be consummated any sale, lease,
assignment, exchange, transfer or other disposition
(in one transaction or a series of related
transactions) of fifty percent (50%) or more of the
assets or earning power of the Company (including,
without limitation, any such sale, lease, assignment,
exchange, transfer or other disposition effected to
implement a recapitalization and/or reorganization of
the Company (or similar transaction)) which results
in any person (as such term is used in Sections 13(d)
and 14(d)(2) of the Exchange Act), together with all
Affiliates and Associates of such person, owning a
proportionate share of such assets or earning power
greater than the proportionate share of the voting
power of the Company that such person, together with
all Affiliates and Associates of such person, owned
immediately prior to any such sale, lease,
assignment, exchange, transfer or other disposition.
(v) The shareholders of the Company approve a plan of
complete liquidation of the Company.
(d) "CODE" shall mean the Internal Revenue Code of 1986, as
amended.
(e) "COMPANY" shall mean The Sherwin-Williams Company and its
successor(s) in interest.
(f) "DATE OF TERMINATION" shall mean the date on which Executive's
services are terminated pursuant to Section 4.
(g) "DISABILITY" shall mean incapacity due to physical or mental
illness or injury which causes Executive to be absent from
employment duties for one hundred eighty (180) consecutive
calendar days and for which Executive is then currently
receiving
5
<PAGE> 6
and thereafter continues to receive payments under the
provisions of any plan of the Company which provides for
benefit payments as a consequence of such incapacity, provided
the payments which Executive receives during the four (4) year
period immediately following the Date of Termination, under
any such plan, are greater than the payments Executive would
otherwise have been entitled to receive under this Agreement.
(h) "INCENTIVE COMPENSATION" shall mean the amount paid or payable
under any incentive or bonus payment plan, program or
arrangement of the Company under which Executive is or was, at
any time during the three (3) year period immediately
preceding the Date of Termination, participating pursuant to
the provisions of such plan, program or arrangement.
(i) "RETIREMENT BENEFITS" shall mean the benefits Executive may be
entitled to receive pursuant to the provisions of any of the
following plans, programs or arrangements in which Executive
participates: (i) The Sherwin-Williams Company Salaried
Employees' Retirement Plan, The Sherwin-Williams Company
Salaried Employees' Revised Pension Investment Plan and/or The
Sherwin-Williams Company Employee Stock Purchase and Savings
Plan, or any successor or replacement plan with respect to any
of the foregoing; (ii) any retirement equalization program or
supplemental retirement plan relating to the qualified
retirement plans described in Section 1(i)(i); or (iii) any
other similar plans, programs or arrangements of the Company
(whether qualified or not) primarily intended to provide
benefits to an individual upon retirement.
(j) TERMINATION PERIOD" shall mean the period commencing on the
date of a Change of Control and ending on the second
anniversary date of such date.
(k) "TRUST" shall mean the trust funds established by the Company
in accordance with Section 6(b).
2. TERM. This Agreement shall be effective on the date hereof and shall
continue in effect until the Company has given no less than four (4)
years written notice to Executive that the Company is terminating this
Agreement; provided, however, notwithstanding the delivery of any such
notice, this Agreement shall become irrevocable upon the occurrence of
a Change of Control and shall continue in effect for a period of two
(2) years following a Change of Control, if such Change of Control
occurred during the term of this Agreement. Notwithstanding anything in
this Section 2 to the contrary, this Agreement shall terminate if
Executive or the Company terminates Executive's employment prior to a
Change of Control except as otherwise provided in Section 4(a).
3. EXECUTIVE'S OBLIGATIONS. In the event of a tender or exchange offer,
proxy contest, merger or other proposal which, if consummated, would
constitute a Change of
6
<PAGE> 7
Control, Executive agrees not to voluntarily leave the employ of the
Company (other than as a result of Disability or retirement) until the
Change of Control occurs or, if earlier, such tender or exchange offer,
proxy contest, merger or other proposal is terminated or abandoned.
Notwithstanding anything in this Agreement to the contrary, Executive's
sole liability for breaching the terms of this Section 3, and the
Company's sole and absolute remedy, shall be Executive's waiver of all
rights to receive any benefits pursuant to this Agreement.
4. TERMINATION OF EXECUTIVE'S SERVICES.
(a) TERMINATION AFTER CHANGE OF CONTROL. In the event of a Change
of Control, Executive shall become eligible for the benefits
hereunder upon Executive's termination of service within the
Termination Period, whether voluntary or involuntary, unless
such termination is:
(i) a result of the Executive's death; or
(ii) by the Company for Cause (as defined in Section
4(b)).
Anything in this Agreement to the contrary notwithstanding, if
Executive's employment is terminated prior to the date on
which a Change of Control occurs and it is reasonably
demonstrated that such termination (A) was at the request of a
third party who has taken steps reasonably calculated to
effect a Change of Control or (B) otherwise arose in
connection with or in anticipation of a Change of Control and
a Change of Control occurs within twelve (12) months of such
termination, then for purposes of this Agreement, such
termination shall be deemed to have occurred after and as a
result of a Change of Control, and Executive shall be entitled
to receive the benefits set forth in this Agreement.
(b) CAUSE. The Company may terminate Executive's employment for
Cause. For purposes of this Agreement, "Cause" shall mean:
(i) the willful engaging by Executive in illegal conduct
or gross misconduct, which conduct or misconduct is
materially and demonstrably injurious to the Company;
or
(ii) the willful and continued failure by Executive to
substantially perform Executive's duties with the
Company (other than any such failure resulting from
Executive's incapacity due to physical or mental
illness or any such failure subsequent to the Company
giving Executive a notice or termination without
Cause) after a written demand for substantial
performance is delivered to Executive by the Board of
Directors, which demand specifically identifies the
manner in which the Board of Directors believes
7
<PAGE> 8
that Executive has not substantially performed such
duties, and Executive has failed to remedy such
alleged failure to substantially perform such duties
within thirty (30) days of receipt of such written
demand.
For purposes of this Section 4(b), no act or failure to act by
Executive shall be considered "willful" unless done or omitted
to be done by Executive in bad faith and without reasonable
belief by Executive that such action or omission was in or not
opposed to the best interests of the Company. Any act, or
failure to act, based upon authority given pursuant to a
resolution duly adopted by the Board of Directors or based
upon the advice of counsel for the Company shall be
conclusively presumed to be done, or omitted to be done, by
Executive in good faith and in or not opposed to the best
interests of the Company. Notwithstanding the foregoing,
Executive may not be terminated for Cause until Executive: (I)
receives a certified copy of a resolution adopted by the
affirmative vote of at least three-fourths of the members of
the entire Board of Directors at a meeting of the Board of
Directors called and held for such purpose, finding that in
the good faith opinion of the Board of Directors an event set
forth in clauses (i) or (ii) has occurred, specifying the
particulars thereof in detail, and that the Company has fully
and in good faith complied with the terms and conditions of
this Agreement; (II) has been afforded reasonable notice of
the Board of Director's decision to terminate employment; and
(III) has had an opportunity (with the assistance and presence
of such counsel as Executive deems appropriate) to be heard
before and to dispute the basis of any allegations upon which
the decision to terminate has been based by the Board of
Directors.
(c) EFFECT OF VOLUNTARY TERMINATION. In the event Executive elects
to voluntarily terminate Executive's employment in accordance
with Section 4(a), such termination shall not be deemed a
voluntary termination of employment by Executive for the
purpose of any plan or practice of the Company or for any
other reason whatsoever (except as may be otherwise required
to facilitate Executive's right to receive the benefits set
forth in this Agreement).
5. BENEFITS. Upon termination of Executive's employment, if Executive is
eligible for benefits pursuant to Section 4(a), the Company will
provide the payments described below to Executive:
(a) ACCRUED SALARY. On or immediately prior to the Date of
Termination, the Company shall pay to Executive any accrued
salary not yet paid to Executive for services performed on and
prior to the Date of Termination.
(b) INCENTIVE COMPENSATION. On or immediately prior to the Date of
Termination, the Company shall pay to Executive an amount
equal to the sum of (i) any Incentive Compensation previously
earned by Executive which has not previously been paid
8
<PAGE> 9
to Executive, plus (ii) any Incentive Compensation not yet due
and payable to Executive for the then current year, covering
the period from the beginning of the then current year to the
end of the bi-weekly pay period during which Executive's Date
of Termination occurred, prorated for the number of bi-weekly
pay periods Executive was employed during the then current
year calculated using the greater of the following: (A) the
Incentive Compensation received by Executive for the year
immediately preceding the Date of Termination; (B) the
Incentive Compensation received by Executive for the year
immediately preceding the date of Change of Control; or (C)
the Incentive Compensation targeted for Executive for the year
in which the Date of Termination occurred, i.e., the amount of
Incentive Compensation Executive would have received for the
then current year had Executive reached one hundred percent
(100%) of any stated goals.
(c) VACATION PAY. On or immediately prior to the Date of
Termination, the Company shall pay to Executive, at a daily
salary rate calculated from Executive's Base Salary, an amount
equal to (i) all unused vacation days earned on and prior to
the Date of Termination and (ii) additional vacation pay
prorated for full months of service since the last qualifying
date.
(d) SEVERANCE PAY. On or immediately prior to the Date of
Termination, the Company shall pay to Executive a lump sum
cash amount equal to four (4) times the sum of (i) Executive's
Base Salary times twenty-six (26), plus (ii) the greater of
(a) the highest Incentive Compensation earned and/or received
by Executive, for any year or portion thereof, at any time
during the three (3) year period immediately preceding the
Date of Termination, or (b) the Incentive Compensation
targeted for Executive for the year in which the Date of
Termination occurred, i.e., the amount of Incentive
Compensation Executive would have received for the then
current year had Executive reached one hundred percent (100%)
of any stated goals. In the event Executive as of the Date of
Termination has another severance pay agreement or an
employment agreement providing for separation payments to be
paid by the Company, the amounts due under this Agreement
shall be off-set by the amounts of such separation payments
otherwise paid by the Company to Executive pursuant to such
other severance and/or separation agreement.
(e) INSURANCE. The Company shall maintain, upon the same terms and
conditions, in full force and effect for the continued benefit
of Executive all life, accident and medical benefit plans and
programs provided to Executive prior to the Change of Control
at no direct cost to Executive for a period of four (4) years
from the Date of Termination. At any time during said period
of four (4) years Executive may instruct the Company to
purchase on Executive's behalf an individual policy or
policies affording Executive individual coverage for all or
part of said group life, accident and health coverage and
long-term disability coverage. The Company shall pay (or cause
to be paid through the Trust) the premiums on any such policy
9
<PAGE> 10
or policies for the balance of the four (4) year period. At
the end of the four (4) year period, any such policy or
policies shall become the property of Executive, the Company
shall take all actions necessary to transfer ownership of any
such policy or policies to Executive and any subsequent
premiums due thereon shall become the responsibility of
Executive. In the event Executive accepts employment with
another company prior to the expiration of said four (4) year
period, the Company's obligation to continue the benefits
provided pursuant to this Section 5(e) shall severally
terminate with respect to any such plan or program as of the
date Executive first becomes eligible to participate in any
similar type plan or program with such other employer;
provided, however, in the case of medical benefit plans and
programs, in the event a medical condition being covered under
the Company's plans and programs is deemed to be a noncovered
pre-existing condition under such other employer's medical
benefit plans and programs (and Executive cannot obtain, after
using reasonable efforts which in no event shall include the
payment of higher premiums, a wavier of such pre-existing
condition under such other employer's medical benefit plans
and programs), then the Company's obligation to provide
medical benefit plans and programs shall continue solely with
respect to such medical condition until the earlier of: (i)
the expiration of the remainder of the four (4) year period;
or (ii) such time as the medical condition is covered by such
other employer's medical benefits plans and programs.
(f) RETIREMENT PLANS. Executive's participation in the Company's
qualified retirement plans including, but not limited to, the
Company's Stock Purchase and Savings Plan or any successor or
replacement plan thereto, shall continue only through the Date
of Termination; provided, however, that to the extent
permitted by such plans, Executive may be considered a
deferred vested participant who accrues no further benefit
with respect to periods following the Date of Termination. All
of Executive's rights, including but not limited to vesting
and distributions, with respect to any such plans shall be
determined solely with reference to the terms of such plans.
(g) SPECIAL RETIREMENT BENEFITS. The Company shall pay (or cause
to be paid through the Trust) to Executive "Special Retirement
Benefits" so that the total Retirement Benefits Executive
receives will equal the Retirement Benefits Executive would
have received had Executive continued in the employ of the
Company for four (4) years following the Date of Termination
(assuming all variable factors used to compute Executive's
Retirement Benefit, except years of service, remain constant
with those factors applicable as of the date of a Change of
Control or the Date of Termination, whichever date results in
the greatest aggregate Special Retirement Benefits being
payable to Executive). Should continued participation by
Executive in any plan affording to him Retirement Benefits be
precluded by law or the terms thereof, the Company shall pay
(or cause to be paid through the Trust) to Executive
10
<PAGE> 11
or, if applicable, to his beneficiaries, as an additional
supplemental benefit, an amount equal to the difference
between (i) the benefit that Executive would have been paid
under the plan had he continued to be employed for four (4)
years following the Date of Termination, and (ii) the benefit
actually payable under said plan(s). The Special Retirement
Benefits will be paid to Executive in the same manner as and
at the time Executive commences to receive or receives
Executive's Retirement Benefits.
(h) OTHER BENEFITS. The Company shall continue Executive's
participation in all fringe benefits Executive would have
participated in had Executive continued in the employ of the
Company for four (4) years following the Date of Termination
including, but not limited to, all ancillary rights regarding
Retirement Benefits, such as early retirement rights and joint
and survivor rights available under the applicable retirement
plans, and if Executive retires during said four (4) year
period, retiree group life and retiree group health insurance.
If Executive had been provided an automobile on the day prior
to a Change of Control under the Company's automobile policy,
the ownership of the automobile will be transferred to
Executive on the Date of Termination.
(i) OUTPLACEMENT SERVICES EXPENSES. The Company shall pay all
appropriate fees and expenses to employ the services of a full
service outplacement firm until the earlier of such time as:
(i) Executive has secured new employment; or (ii) the
expiration of the four (4) year period immediately following
Executive's Date of Termination.
6. REIMBURSEMENT OF EXPENSES; TRUST.
(a) REIMBURSEMENT OF EXPENSES. If any contest or dispute shall
arise under this Agreement to enforce or interpret any
provision contained herein (including, without limitation, any
contest or dispute relating to the termination of Executive's
employment and the Company's failure or refusal to perform
fully its obligations in accordance with the terms of this
Agreement), the Company agrees to reimburse Executive, on a
current basis, for all reasonable attorney's fees,
disbursements and expenses incurred by Executive in connection
with such contest or dispute (regardless of the result
thereof), and agrees to pay pre-judgment interest on any money
judgment obtained by Executive. Pre-judgment interest, if any,
shall be calculated at the base rate in effect from time to
time at KeyBank National Association of Cleveland, Ohio, from
the date that payments to Executive should have been made
under this Agreement.
(b) TRUST. In order to secure the benefits to be received by
Executive pursuant to this Agreement and similar arrangements
with other executives, the Company shall establish one or more
trust funds (the "Trust"). The Company will deposit in such
Trust, within five (5) business days after the occurrence of
an event that in the
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<PAGE> 12
reasonable opinion of the Board of Directors will likely
result in a Change of Control, an amount equal to
approximately the maximum aggregate benefits that could be
payable to Executive under the terms of this Agreement. Any
funds which may be placed into the Trust under this Agreement
shall continue for all purposes to be a part of the general
funds of the Company subject to the claims of the Company's
creditors in the event of the Company's insolvency and no
person shall by virtue of this Agreement have any interest in
such funds. To the extent that any person acquires a right to
receive payments from the Company under this Agreement, such
rights shall be no greater than the right of any unsecured
general creditor of the Company. Executive shall be entitled
to receive distributions from the funds held in the Trust
pursuant to the terms and conditions of this Agreement and the
agreement establishing the Trust between the Company and the
trustee. If prior to the date of a Change of Control, the
Board of Directors of the Company has actual knowledge that
all third parties have abandoned or terminated their efforts
to effect a Change of Control and a Change of Control at that
time is unlikely and the Board so advises Executive, the trust
funds and interest earned thereon, if any, shall be returned
to the Company by the trustee. Notwithstanding the provisions
of this Section 6(b), failure by the Company to place such
funds in Trust in no way relieves the Company from its
financial obligations and responsibilities to Executive under
the terms of this Agreement.
(c) FUNDING. All benefits to be paid pursuant to this Agreement,
including any amounts paid pursuant to Section 6(a) which were
not paid through the Trust established pursuant to Section
6(b), shall be paid from the general assets of the Company.
7. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) GROSS-UP. Any provision contained in this Agreement to the
contrary notwithstanding, in the event it shall be determined
that any payment (within the meaning of Section 280G(b)(2) of
the Code) or distribution, other than any such payments or
distributions related to any incentive stock options
previously granted to Executive, by the Company to or for the
benefit of Executive, whether paid or payable or distributed
or distributable pursuant to the terms of this Agreement or
otherwise (a "Payment"), would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or
penalties are incurred by Executive with respect to such
excise tax (such excise tax, together with any such interest
and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then Executive shall be entitled to receive an
additional payment under this Agreement (a "Gross-up Payment")
in an amount such that after payment by Executive of all taxes
(including any interest or penalties imposed with respect to
such taxes), including any Excise Tax, imposed upon the
Gross-up Payment, Executive retains an amount of the Gross-up
Payment equal to the Excise Tax imposed upon the Payments.
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<PAGE> 13
(b) ACCOUNTING FIRM. Subject to the provisions of Section 7(c),
all determinations required to be made under this Section 7,
including whether a Gross-up Payment is required and the
amount of such Gross-up Payment, shall be made by Ernst &
Young (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and Executive
within fifteen (15) business days of the Date of Termination,
if applicable, or such earlier time as is requested by the
Company. All fees and expenses of Accounting Firm shall be
borne solely by the Company and the Company shall enter into
any agreement required by the Accounting Firm in connection
with the performance of the services hereunder. The initial
Gross-up Payment, if any, as determined pursuant to this
Section 7(b), shall be paid to Executive within five (5) days
of the receipt of the Accounting Firm's determination. If the
Accounting Firm determines that no Excise Tax is payable by
Executive, it shall furnish Executive with an opinion that
failure to report the Excise Tax on Executive's applicable
federal income tax return would not result in the imposition
of a negligence or similar penalty. Any determination by the
Accounting Firm shall be binding upon the Company and
Executive. Executive shall prepare Executive's tax returns in
a manner consistent with the determinations of the Accounting
Firm as such tax returns relate to any Payment and Gross-up
Payment. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible
that Gross-up Payments which will not have been made by the
Company should have been made ("Underpayment"), consistent
with the calculations required to be made hereunder. In the
event that the Company exhausts its remedies pursuant to
Section 7(c) and Executive thereafter is required to make a
payment of any Excise Tax, the Accounting Firm shall determine
the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for
the benefit of Executive.
(c) NOTIFICATION. Executive shall notify the Company in writing of
any claim by the Internal Revenue Service that, if successful,
would require the payment by the Company of the Gross-up
Payment. Such notification shall be given as soon as
practicable but no later than ten (10) business days after
Executive knows of such claim and shall apprise the Company of
the nature of such claim and the date on which such claim is
requested to be paid. Executive shall not pay such claim prior
to the expiration of the thirty (30) day period following the
date on which Executive gives such notice to the Company (or
such shorter period ending on the date that any payment of
taxes with respect to such claim is due). If the Company
notifies Executive in writing prior to the expiration of such
period that it desires to contest such claim, Executive shall:
(i) give the Company any information reasonably
requested by the Company relating to such
claim;
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<PAGE> 14
(ii) take such action in connection with
contesting such claim as the Company shall
reasonably request in writing from time to
time including, without limitation,
accepting legal representation with respect
to such claim by an attorney reasonably
selected by the Company;
(iii) cooperate with the Company in good faith in
order effectively to contest such claim; and
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay
directly all costs and expenses (including additional interest
and penalties) incurred in connection with such contest and
shall indemnify and hold Executive harmless, on an after-tax
basis, for any Excise Tax or income tax, including interest
and penalties with respect thereto, imposed as a result of
such representation and payment of costs and expenses. Without
limitation on the foregoing provisions of this Section 7(c),
the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or
forego any and all administrative appeals, proceedings,
hearings and conferences with the taxing authority in respect
of such claim and may, at its sole option, either direct
Executive to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner, and Executive
agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction
and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs
Executive to pay such claims and sue for a refund, the Company
shall advance the amount of such payment to Executive, on an
interest-free basis and shall indemnify and hold Executive
harmless, on an after-tax basis, from any Excise Tax or income
tax, including interest or penalties with respect thereto,
imposed with respect to such advance or with respect to any
imputed income with respect to such advance; and further
provided that any extension of the statute of limitations
relating to payment of taxes for the taxable year of Executive
with respect to which such contested amount is claimed to be
due is limited solely to such contested amount. Furthermore,
the Company's control of the contest shall be limited to
issues with respect to which a Gross-up Payment would be
payable hereunder and Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.
(d) REFUND. If, after the receipt by Executive of an amount
advanced by the Company pursuant to Section 7(c), Executive
becomes entitled to receive any refund with respect to such
claim, Executive shall (subject to the Company's complying
with the requirements of Section 7(c)) promptly pay to the
Company the amount of such
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<PAGE> 15
refund (together with any interest paid or credited thereon
after taxes applicable thereto). If, after the receipt by
Executive of an amount advanced by the Company pursuant to
Section 7(c), a determination is made that Executive shall not
be entitled to any refund with respect to such claim and the
Company does not notify Executive in writing of its intent to
contest such denial of refund prior to the expiration of
thirty (30) days after such determination, then such advance
shall be forgiven and shall not be required to be repaid and
the amount of such advance shall offset, to the extent
thereof, the amount of Gross-up Payment required to be paid.
8. SUCCESSORS; BINDING AGREEMENT.
(a) SUCCESSORS. In the event of a Change of Control, the Company
will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the
Company, to expressly assume and agree to maintain this
Agreement, for a minimum period of two (2) years following any
such Change of Control in the same manner and to the same
extent that the Company would be required to maintain it if no
such succession had taken place. Failure of the Company to
obtain such assumption agreement prior to the effectiveness of
any such succession shall be a breach of this Agreement and
shall entitle Executive to receive from the Company, as
liquidated damages, an amount equal to the same amount of
benefits provided herein, and on the same terms set forth
herein, as Executive would have been entitled to receive if
Executive had terminated employment as provided in Section 4
after a Change of Control, on the date on which any succession
becomes effective.
(b) DEVISEES. All rights of Executive hereunder shall inure to the
benefit of and be enforceable by Executive's personal or legal
representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If Executive should die
prior to receiving all amounts of benefits payable hereunder,
all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to
Executive's devisee, legatee or other designee or, if there be
no such designee, to Executive's estate.
9. MISCELLANEOUS.
(a) SEGREGATION OF ASSETS. Except as provided in Section 6(b), the
Company shall not be required to segregate any assets with
respect to benefits under this Agreement. Any liability of the
Company to Executive shall be based solely upon the
contractual obligations created by this Agreement; no such
obligation shall be deemed to be secured by any pledge or any
encumbrance on the property of the Company other than the
rights Executive may have with respect to funds held in the
Trust.
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<PAGE> 16
(b) PAYMENT OBLIGATIONS ABSOLUTE. Except as set forth in the last
sentence of Section 5(d), the Company's obligation to pay
Executive the severance benefits and to make the arrangements
provided herein shall be absolute and unconditional and shall
not be affected by any circumstances including, without
limitation, any set-off, counterclaim, recoupment, defense or
other right which the Company may have against Executive or
anyone else. All amounts payable by the Company hereunder
shall be paid without notice or demand. Each and every payment
made hereunder by the Company whether or not paid through the
Trust shall be final and the Company will not seek to recover
all or any part of such payment from Executive or from
whomsoever may be entitled thereto, for any reason whatsoever.
Executive shall not be obligated to seek other employment in
mitigation of the amounts payable or arrangements made under
any provision of this Agreement, and the obtaining of any such
other employment shall in no event effect any reduction of the
Company's obligations to make the payments and arrangements
required to be made under this Agreement.
(c) ASSIGNMENT. No amount payable under this Agreement shall be
subject to assignment, transfer, sale, pledge, encumbrance,
alienation or change by Executive or the beneficiary of
Executive except as may be required by law.
(d) CONTINUING OBLIGATIONS. Executive shall retain in confidence
any confidential information known to Executive concerning the
Company and its subsidiaries and their respective businesses
so long as such information is not publicly disclosed.
(e) NOT EMPLOYMENT CONTRACT. Neither this Agreement nor any action
taken hereunder shall be construed either (i) as a contract of
employment, (ii) as giving Executive any right to be retained
in the employ of the Company, or (iii) as giving Executive any
right to receive severance benefits of a type or in an amount
similar to the benefits described in Section 5, unless the
conditions set forth in this Agreement are satisfied and
Executive therefore qualifies for benefits under this
Agreement.
(f) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Ohio.
(g) SEVERABILITY. The invalidity or unenforceability of any
provisions of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which
shall remain in full force and effect.
(h) NOTICES. Any notice or other communication provided for in
this Agreement shall be in writing and, unless otherwise
expressly stated herein, shall be deemed to have been duly
given if hand delivered or if mailed by United States
registered mail, return receipt requested, postage prepaid
addressed in the case of Executive to Executive's last known
address or in the case of the Company to The Sherwin-Williams
Company, 101 Prospect Avenue, N.W., Cleveland, Ohio 44115,
Attention: Vice President-Human Resources, with a copy sent to
The Sherwin-Williams Company, 101 Prospect Avenue, N.W.,
Cleveland, Ohio 44115,
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<PAGE> 17
Attention: Vice President, Secretary and General Counsel.
(i) MODIFICATION; WAIVER. No provision of this Agreement may be
modified or waived unless such modification or waiver is
agreed to in writing and signed by Executive and by a duly
authorized officer of the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of,
or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. Failure by
Executive or the Company to insist upon strict compliance with
any provision of this Agreement or to assert any right
Executive or the Company may have hereunder shall not be
deemed to be a waiver of such provision or right or any other
provision or right of this Agreement. Except as otherwise
specifically provided herein, the rights of, and benefits
payable to, Executive, Executive's estate or Executive's
beneficiaries pursuant to this Agreement are in addition to
any rights of, or benefits payable to, Executive, Executive's
estate or Executive's beneficiaries under any other employee
benefit plan or compensation program of the Company.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed effective as of the date and year first above written.
EXECUTIVE
---------------------------------------
Signature
---------------------------------------
Typed or printed name
THE SHERWIN-WILLIAMS COMPANY
---------------------------------------
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<PAGE> 18
FORM B OF SEVERANCE PAY AGREEMENT
---------------------------------
AMENDED AND RESTATED
SEVERANCE PAY AGREEMENT
-----------------------
THIS AMENDED AND RESTATED SEVERANCE PAY AGREEMENT ("Agreement") is made
and entered into effective as of the ____ day of _____, ____ by and between THE
SHERWIN-WILLIAMS COMPANY, an Ohio corporation (the "Company") and
__________________ (the "Executive").
W I T N E S S E T H :
---------------------
WHEREAS, in the event a third party takes action toward a possible
business combination with the Company or acquisition of equity securities of the
Company, the Board of Directors believes it imperative that the Company and the
Board of Directors be able to rely upon Executive to continue in Executive's
position, and that the Company be able to receive and rely upon Executive's
objective advice as being in the best interests of the Company and its
shareholders;
WHEREAS, should the Company be in such a situation, in addition to
Executive's regular duties and responsibilities, Executive may be called upon to
assist in the assessment of proposals, advise management and the Board of
Directors as to whether the proposals would be in the best interests of the
Company and its shareholders, and to take such other actions as the Board of
Directors might determine to be appropriate;
WHEREAS, this Agreement is consistent with the Company's plan to
attract and retain key executives at all times; and
WHEREAS, the Company and Executive entered into a certain Severance Pay
Agreement, effective as of ________, 19__, and Company and Executive desire to
amend and restate said Severance Pay Agreement in accordance with the terms and
conditions set forth herein.
NOW, THEREFORE, to assure the Company that it will have continued
dedication of Executive and the availability of Executive's advice and counsel
notwithstanding the possibility of a threat or occurrence of a bid to take over
control of the Company, and to induce Executive to remain in the employ of the
Company during the period of uncertainties due to such threat of take-over, the
Company and Executive agree as follows:
1. DEFINITIONS. The following terms, when used herein with initial capital
letters, shall have the following respective meanings unless the
context clearly indicates otherwise:
<PAGE> 19
(a) "BASE SALARY" shall mean Executive's highest regular bi-weekly
compensation in effect at any time during the three (3) year
period immediately preceding the Date of Termination.
Executive's regular bi-weekly compensation referred to in the
preceding sentence shall be Executive's regular bi-weekly rate
before reduction, deduction or deferral for any amounts
including, without limitation, any deduction for withholding
of income taxes or F.I.C.A. taxes and/or any reduction or
deferral pursuant to Sections 401(k) or 125 of the Code, or
any other employee benefit plans, programs or arrangements in
which Executive participates.
(b) A person (as such term is used in Sections 13(d) and 14(d)(2)
of the Securities Exchange Act of 1934, as amended,
hereinafter "Exchange Act") shall be deemed the "BENEFICIAL
OWNER" of and shall be deemed to "beneficially own" any
securities:
(i) which such person or any of such person's
"Affiliates" or "Associates" (as such terms are
defined in Rule 12b-2, as in effect on April 23,
1997, of the General Rules and under the Exchange
Act) is considered to be a "beneficial owner" under
Rule 13d-3 of the General Rules and Regulations under
the Exchange Act, as in effect on April 23, 1997;
(ii) which such person or any of such person's Affiliates
or Associates, directly or indirectly, has or shares
the right to acquire, hold, vote (except pursuant to
a revocable proxy as described in the proviso to this
Section 1(b)) or dispose of such securities (whether
any such right is exercisable immediately or only
after the passage of time) pursuant to any agreement,
arrangement or understanding (whether or not in
writing), or upon the exercise of conversion rights,
exchange rights, rights, warrants or options, or
otherwise; provided, however, that a person shall not
be deemed to be the Beneficial Owner of, or to
beneficially own, securities tendered pursuant to a
tender or exchange offer made by or on behalf of such
person or any of such person's Affiliates or
Associates until such tendered securities are
accepted for purchase or exchange; or
(iii) which are beneficially owned, directly or indirectly,
by any other person (or any Affiliate or Associate of
such other person) with which such person (or any of
such person's Affiliates or Associates) has any
agreement, arrangement or understanding (whether or
not in writing), with respect to acquiring, holding,
voting (except as described in the proviso to this
Section 1(b)) or disposing of any securities of the
Company;
provided, however, that a person shall not be deemed the
Beneficial Owner of, nor to beneficially own, any security if
such person has the right to vote such security pursuant to an
agreement, arrangement or understanding which (A) arises
solely from a revocable proxy given to such person in response
to a public proxy or consent
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<PAGE> 20
solicitation made pursuant to, and in accordance with, the
applicable rules and regulations under the Exchange Act, and
(B) is not also then reportable on Schedule 13D (or any
comparable or successor report) under the Exchange Act; and
provided, further, that nothing in this Section 1(b) shall
cause a person engaged in business as an underwriter of
securities to be the Beneficial Owner of, or to beneficially
own, any securities acquired through such person's
participation in good faith in a firm commitment underwriting
until the expiration of forty (40) days after the date of such
acquisition or such later date as the Board of Directors may
determine in any specific case.
(c) "CHANGE OF CONTROL" shall be deemed to have occurred if:
(i) Any person (as such term is used in Sections 13(d)
and 14(d)(2) of the Exchange Act) who or that,
together with all Affiliates and Associates of such
person, is the Beneficial Owner of ten percent (10%)
or more of the shares of Common Stock of the Company
then outstanding, except :
(A) the Company;
(B) any of the Company's subsidiaries in which a
majority of the voting power of the equity
securities or equity interests of such
subsidiary is owned, directly or indirectly,
by the Company;
(C) any employee benefit or stock ownership plan
of the Company or any trustee or fiduciary
with respect to such a plan acting in such
capacity; or
(D) any such person who has reported or may,
pursuant to Rule 13d-1(b)(1) of the General
Rules and Regulations under the Exchange
Act, report such ownership (but only as long
as such person is the Beneficial Owner of
less than fifteen percent (15%) of the
shares of Common Stock then outstanding) on
Schedule 13G (or any comparable or successor
report) under the Exchange Act.
Notwithstanding the foregoing, (I) no person shall
become the Beneficial Owner of ten percent (10%) or
more (fifteen percent (15%) or more in the case of
any person identified in clause
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(D) above) solely as the result of an acquisition of
Common Stock by the Company that, by reducing the
number of shares outstanding, increases the
proportionate number of shares beneficially owned by
such person to ten percent (10%) or more (fifteen
percent (15%) or more in the case of any person
identified in clause (D) above) of the shares of
Common Stock then outstanding; provided, however,
that if a person becomes the Beneficial Owner of ten
percent (10%) or more (fifteen percent (15%) or more
in the case of any person identified in clause (D)
above) of the shares of Common Stock solely by reason
of purchases of Common Stock by the Company and
shall, after such purchases by the Company, become
the Beneficial Owner of any additional shares of
Common Stock which has the effect of increasing such
person's percentage ownership of the then-outstanding
shares of Common Stock by any means whatsoever, then
such person shall be deemed to have triggered a
Change of Control, and (II) if the Board of Directors
determines that a person who would otherwise be the
Beneficial Owner of ten percent (10%) or more
(fifteen percent (15%) or more in the case of any
person identified in clause (D) above) of the shares
of Common Stock has become such inadvertently
(including, without limitation, because (1) such
person was unaware that it Beneficially Owned ten
percent (10%) or more (fifteen percent (15%) or more
in the case of any person identified in clause (D)
above) of the shares of Common Stock or (2) such
person was aware of the extent of such beneficial
ownership but such person acquired beneficial
ownership of such shares of Common Stock without the
intention to change or influence the control of the
Company) and such person divests itself as promptly
as practicable of a sufficient number of shares of
Common Stock so that such person would no longer be
the Beneficial Owner of ten percent (10%) or more
(fifteen percent (15%) or more in the case of any
person identified in clause (D) above), then such
person shall not be deemed to be, or have been, the
Beneficial Owner of ten percent (10%) or more
(fifteen percent (15%) or more in the case of any
person identified in clause (D) above) of the shares
of Common Stock, and no Change of Control shall be
deemed to have occurred.
(ii) During any period of two consecutive years,
individuals who at the beginning of such period
constituted the Board of Directors of the Company and
any new director (other than a director initially
elected or nominated as a director as a result of an
actual or threatened election contest with respect to
directors or any other actual or threatened
solicitation of proxies by or on behalf of such
director) whose election by the Board of Directors or
nomination for election by the Company's shareholders
was approved by a vote of at least two-thirds (2/3)
of the directors then still in office who either were
directors at the beginning of the period or whose
election or nomination for election was previously so
approved, cease for any reason to constitute a
majority thereof.
(iii) There shall be consummated any consolidation, merger
or other combination of the Company with any other
person or entity other than:
(A) a consolidation, merger or other combination
which would result in the voting securities
of the Company outstanding immediately prior
thereto continuing to represent (either by
remaining outstanding or by being converted
into voting securities of the surviving
entity) more
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<PAGE> 22
than fifty-one percent (51%) of the combined
voting power of the voting securities of the
Company or such surviving entity outstanding
immediately after such consolidation, merger
or other combination; or
(B) a consolidation, merger or other combination
effected to implement a recapitalization
and/or reorganization of the Company (or
similar transaction), or any other
consolidation, merger or other combination
of the Company, which results in no person
(as such term is used in Sections 13(d) and
14(d)(2) of the Exchange Act), together with
all Affiliates and Associates of such
person, becoming the Beneficial Owner of ten
percent (10%) or more (fifteen percent (15%)
or more in the case of any person identified
in Section 1(c)(i)(D)) of the combined
voting power of the Company's then
outstanding securities.
(iv) There shall be consummated any sale, lease,
assignment, exchange, transfer or other disposition
(in one transaction or a series of related
transactions) of fifty percent (50%) or more of the
assets or earning power of the Company (including,
without limitation, any such sale, lease, assignment,
exchange, transfer or other disposition effected to
implement a recapitalization and/or reorganization of
the Company (or similar transaction)) which results
in any person (as such term is used in Sections 13(d)
and 14(d)(2) of the Exchange Act), together with all
Affiliates and Associates of such person, owning a
proportionate share of such assets or earning power
greater than the proportionate share of the voting
power of the Company that such person, together with
all Affiliates and Associates of such person, owned
immediately prior to any such sale, lease,
assignment, exchange, transfer or other disposition.
(v) The shareholders of the Company approve a plan of
complete liquidation of the Company.
(d) "CODE" shall mean the Internal Revenue Code of 1986, as
amended.
(e) "COMPANY" shall mean The Sherwin-Williams Company and its
successor(s) in interest.
(f) "DATE OF TERMINATION" shall mean the date on which Executive's
services are terminated pursuant to Section 4.
(g) "DISABILITY" shall mean incapacity due to physical or mental
illness or injury which causes Executive to be absent from
employment duties for one hundred eighty (180) consecutive
calendar days and for which Executive is then currently
receiving
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<PAGE> 23
and thereafter continues to receive payments under the
provisions of any plan of the Company which provides for
benefit payments as a consequence of such incapacity, provided
the payments which Executive receives during the three (3)
year period immediately following the Date of Termination,
under any such plan, are greater than the payments Executive
would otherwise have been entitled to receive under this
Agreement.
(h) "INCENTIVE COMPENSATION" shall mean the amount paid or payable
under any incentive or bonus payment plan, program or
arrangement of the Company under which Executive is or was, at
any time during the three (3) year period immediately
preceding the Date of Termination, participating pursuant to
the provisions of such plan, program or arrangement.
(i) "RETIREMENT BENEFITS" shall mean the benefits Executive may be
entitled to receive pursuant to the provisions of any of the
following plans, programs or arrangements in which Executive
participates: (i) The Sherwin-Williams Company Salaried
Employees' Retirement Plan, The Sherwin-Williams Company
Salaried Employees' Revised Pension Investment Plan and/or The
Sherwin-Williams Company Employee Stock Purchase and Savings
Plan, or any successor or replacement plan with respect to any
of the foregoing; (ii) any retirement equalization program or
supplemental retirement plan relating to the qualified
retirement plans described in Section 1(i)(i); or (iii) any
other similar plans, programs or arrangements of the Company
(whether qualified or not) primarily intended to provide
benefits to an individual upon retirement.
(j) "TERMINATION PERIOD" shall mean the period commencing on the
date of a Change of Control and ending on the second
anniversary of such date.
(k) "TRUST" shall mean the trust funds established by the Company
in accordance with Section 6(b).
2. TERM. This Agreement shall be effective on the date hereof and shall
continue in effect until the Company has given no less than three (3)
years written notice to Executive that the Company is terminating this
Agreement; provided, however, notwithstanding the delivery of any such
notice, this Agreement shall become irrevocable upon the occurrence of
a Change of Control and shall continue in effect for a period of two
(2) years following a Change of Control, if such Change of Control
occurred during the term of this Agreement. Notwithstanding anything in
this Section 2 to the contrary, this Agreement shall terminate if
Executive or the Company terminates Executive's employment prior to a
Change of Control except as otherwise provided in Sections 4(a) and
(c).
3. EXECUTIVE'S OBLIGATIONS. In the event of a tender or exchange offer,
proxy contest, merger or other proposal which, if consummated, would
constitute a Change of
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<PAGE> 24
Control, Executive agrees not to voluntarily leave the employ of the
Company (other than as a result of Disability, retirement or an event
which would constitute Good Reason if a Change of Control occurs) until
the Change of Control occurs or, if earlier, such tender or exchange
offer, proxy contest, merger or other proposal is terminated or
abandoned. Notwithstanding anything in this Agreement to the contrary,
Executive's sole liability for breaching the terms of this Section 3,
and the Company's sole and absolute remedy, shall be Executive's waiver
of all rights to receive any benefits pursuant to this Agreement.
4. TERMINATION OF EXECUTIVE'S SERVICES.
(a) TERMINATION AFTER CHANGE OF CONTROL. In the event of a Change
of Control, Executive shall become eligible for the benefits
hereunder upon Executive's termination of service within the
Termination Period, including a voluntary termination by
Executive for any reason during the thirty (30) day period
immediately following the first anniversary of the date of a
Change of Control, unless such termination is:
(i) a result of the death or Disability of Executive;
(ii) by the Company for Cause (as defined in Section
4(b)); or
(iii) by Executive other than during the thirty (30) day
period previously identified in this Section 4(a) and
other than for Good Reason (as defined in Section
4(c)).
Anything in this Agreement to the contrary notwithstanding, if
Executive's employment is terminated prior to the date on
which a Change of Control occurs and it is reasonably
demonstrated that such termination (A) was at the request of a
third party who has taken steps reasonably calculated to
effect a Change of Control or (B) otherwise arose in
connection with or in anticipation of a Change of Control and
a Change of Control occurs within twelve (12) months of such
termination, then for purposes of this Agreement, such
termination shall be deemed to have occurred after and as a
result of a Change of Control, and Executive shall be entitled
to receive the benefits set forth in this Agreement.
(b) CAUSE. The Company may terminate Executive's employment for
Cause. For purposes of this Agreement, "Cause" shall mean:
(i) the willful engaging by Executive in illegal conduct
or gross misconduct, which conduct or misconduct is
materially and demonstrably injurious to the Company;
or
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(ii) the willful and continued failure by Executive to
substantially perform Executive's duties with the
Company (other than any such failure resulting from
Executive's incapacity due to physical or mental
illness or any such failure subsequent to the Company
giving Executive a notice of termination without
Cause) after a written demand for substantial
performance is delivered to Executive by the Board of
Directors, which demand specifically identifies the
manner in which the Board of Directors believes that
Executive has not substantially performed such
duties, and Executive has failed to remedy such
alleged failure to substantially perform such duties
within thirty (30) days of receipt of such written
demand.
For purposes of this Section 4(b), no act or failure to act by
Executive shall be considered "willful" unless done or omitted
to be done by Executive in bad faith and without reasonable
belief by Executive that such action or omission was in or not
opposed to the best interests of the Company. Any act, or
failure to act, based upon authority given pursuant to a
resolution duly adopted by the Board of Directors or based
upon the advice of counsel for the Company shall be
conclusively presumed to be done, or omitted to be done, by
Executive in good faith and in or not opposed to the best
interests of the Company. Notwithstanding the foregoing,
Executive may not be terminated for Cause until Executive: (I)
receives a certified copy of a resolution adopted by the
affirmative vote of at least three-fourths of the members of
the entire Board of Directors at a meeting of the Board of
Directors called and held for such purpose, finding that in
the good faith opinion of the Board of Directors an event set
forth in clauses (i) or (ii) has occurred, specifying the
particulars thereof in detail, and that the Company has fully
and in good faith complied with the terms and conditions of
this Agreement; (II) has been afforded reasonable notice of
the Board of Director's decision to terminate employment; and
(III) has had an opportunity (with the assistance and presence
of such counsel as Executive deems appropriate) to be heard
before and to dispute the basis of any allegations upon which
the decision to terminate has been based by the Board of
Directors.
(c) GOOD REASON. Executive may terminate his employment with the
Company for Good Reason any time during the Termination
Period. "Good Reason" for purposes of this Agreement shall
mean the occurrence of any of the following events without the
express written consent of Executive:
(i) assignment to Executive of duties and
responsibilities inconsistent with Executive's
position, authority, and regular duties and
responsibilities held, exercised and assigned during
the ninety (90) day period immediately preceding the
date of a Change of Control, any change in
Executive's reporting responsibilities as they
existed during the ninety (90) day period immediately
preceding the Change of Control, any removal from or
failure
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<PAGE> 26
to re-elect Executive to the position held during
the ninety (90) day period immediately preceding the
date of a Change of Control, or any significant
adverse alteration in the nature or status of
Executive's regular duties and responsibilities or
the conditions of Executive's employment from those
existing during the ninety (90) day period
immediately preceding the date of a Change of
Control;
(ii) any reduction in Executive's Base Salary or Incentive
Compensation opportunity as the same may be increased
from time to time;
(iii) failure to continue to provide benefits of a type and
at a level substantially similar to the benefits
provided to Executive prior to a Change of Control;
(iv) relocation of Executive to a location more than
thirty (30) miles from the location where Executive
was employed immediately preceding the date of a
Change of Control;
(v) a good faith determination by Executive that, as a
result of the Change of Control, Executive has been
rendered unable to effectively perform Executive's
regular duties and responsibilities to the Company;
(vi) any requirement that Executive travel on Company
business to an extent substantially greater than the
travel obligations of Executive which were necessary
to perform Executive's regular duties and
responsibilities immediately prior to such Change of
Control;
(vii) failure of the Company to obtain a satisfactory
agreement from any successor to assume and agree to
comply with the provisions of this Agreement in
accordance with Section 8; or
(viii) breach by the Company of any provision of this
Agreement.
Anything in this Agreement to the contrary notwithstanding,
any event or condition described in Sections 4(c)(i), (ii),
(iii), (iv) or (vi) that occurs prior to the date on which a
Change of Control occurs shall constitute Good Reason for
purposes of this Agreement if Executive reasonably
demonstrates that such event or condition (I) was at the
request of a third party who has taken steps reasonably
calculated to effect a Change of Control or (II) otherwise
arose in connection with or in anticipation of a Change of
Control and a Change of Control occurs within twelve (12)
months of the date of such event or condition. In such case,
Executive shall be entitled to receive the benefits set forth
in this Agreement.
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<PAGE> 27
(d) EFFECT OF CERTAIN TERMINATIONS. In the event Executive elects
to either: (i) voluntarily terminate Executive's employment
for any reason during the thirty (30) day period immediately
following the first anniversary date of a Change of Control in
accordance with Section 4(a); or (ii) terminate Executive's
employment for Good Reason in accordance with Section 4(c);
such termination shall not be deemed a voluntary termination
of employment by Executive for the purpose of any plan or
practice of the Company or for any other reason whatsoever
(except as may be otherwise required to facilitate Executive's
right to receive the benefits set forth in this Agreement).
5. BENEFITS. Upon termination of Executive's employment, if Executive is
eligible for benefits pursuant to Section 4(a), the Company will
provide the payments described below to Executive:
(a) ACCRUED SALARY. On or immediately prior to the Date of
Termination, the Company shall pay to Executive any accrued
salary not yet paid to Executive for services performed on and
prior to the Date of Termination.
(b) INCENTIVE COMPENSATION. On or immediately prior to the Date of
Termination, the Company shall pay to Executive an amount
equal to the sum of (i) any Incentive Compensation previously
earned by Executive which has not previously been paid to
Executive, plus (ii) any Incentive Compensation not yet due
and payable to Executive for the then current year, covering
the period from the beginning of the then current year to the
end of the bi-weekly pay period during which Executive's Date
of Termination occurred, prorated for the number of bi-weekly
pay periods Executive was employed during the then current
year calculated using the greater of the following: (A) the
Incentive Compensation received by Executive for the year
immediately preceding the Date of Termination; (B) the
Incentive Compensation received by Executive for the year
immediately preceding the date of Change of Control; or (C)
the Incentive Compensation targeted for Executive for the year
in which the Date of Termination occurred, i.e., the amount of
Incentive Compensation Executive would have received for the
then current year had Executive reached one hundred percent
(100%) of any stated goals.
(c) VACATION PAY. On or immediately prior to the Date of
Termination, the Company shall pay to Executive, at a daily
salary rate calculated from Executive's Base Salary, an amount
equal to (i) all unused vacation days earned on and prior to
the Date of Termination and (ii) additional vacation pay
prorated for full months of service since the last qualifying
date.
(d) SEVERANCE PAY. On or immediately prior to the Date of
Termination, the Company shall pay to Executive a lump sum
cash amount equal to three (3) times the sum of (i)
Executive's Base Salary times twenty-six (26), plus (ii) the
greater of (a) the
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<PAGE> 28
highest Incentive Compensation earned and/or received by
Executive, for any year or portion thereof, at any time during
the three (3) year period immediately preceding the Date of
Termination, or (b) the Incentive Compensation targeted for
Executive for the year in which the Date of Termination
occurred, i.e., the amount of Incentive Compensation Executive
would have received for the then current year had Executive
reached one hundred percent (100%) of any stated goals. In the
event Executive as of the Date of Termination has another
severance pay agreement or an employment agreement providing
for separation payments to be paid by the Company, the amounts
due under this Agreement shall be off-set by the amounts of
such separation payments otherwise paid by the Company to
Executive pursuant to such other severance and/or separation
agreement.
(e) INSURANCE. The Company shall maintain, upon the same terms and
conditions, in full force and effect for the continued benefit
of Executive all life, accident and medical benefit plans and
programs provided to Executive prior to the Change of Control
at no direct cost to Executive for a period of three (3) years
from the Date of Termination. At any time during said period
of three (3) years Executive may instruct the Company to
purchase on Executive's behalf an individual policy or
policies affording Executive individual coverage for all or
part of said group life, accident and health coverage and
long-term disability coverage. The Company shall pay (or cause
to be paid through the Trust) the premiums on any such policy
or policies for the balance of the three (3) year period. At
the end of the three (3) year period, any such policy or
policies shall become the property of Executive, the Company
shall take all actions necessary to transfer ownership of any
such policy or policies to Executive and any subsequent
premiums due thereon shall be the responsibility of Executive.
In the event Executive accepts employment with another company
prior to the expiration of said three (3) year period, the
Company's obligation to continue the benefits provided
pursuant to this Section 5(e) shall severally terminate with
respect to any such plan or program as of the date Executive
first becomes eligible to participate in any similar type plan
or program with such other employer; provided, however, in the
case of medical benefit plans and programs, in the event a
medical condition being covered under the Company's plans and
programs is deemed to be a noncovered pre-existing condition
under such other employer's medical benefit plans and programs
(and Executive cannot obtain, after using reasonable efforts
which in no event shall include the payment of higher
premiums, a wavier of such pre-existing condition under such
other employer's medical benefit plans and programs), then the
Company's obligation to provide medical benefit plans and
programs shall continue solely with respect to such medical
condition until the earlier of: (i) the expiration of the
remainder of the three (3) year period; or (ii) such time as
the medical condition is covered by such other employer's
medical benefits plans and programs.
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<PAGE> 29
(f) RETIREMENT PLANS. Executive's participation in the Company's
qualified retirement plans including, but not limited to, the
Company's Stock Purchase and Savings Plan or any successor or
replacement plan thereto, shall continue only through the Date
of Termination; provided, however, that to the extent
permitted by such plans, Executive may be considered a
deferred vested participant who accrues no further benefit
with respect to periods following the Date of Termination. All
of Executive's rights, including but not limited to vesting
and distributions, with respect to any such plans shall be
determined solely with reference to the terms of such plans.
(g) SPECIAL RETIREMENT BENEFITS. The Company shall pay (or cause
to be paid through the Trust) to Executive "Special Retirement
Benefits" so that the total Retirement Benefits Executive
receives will equal the Retirement Benefits Executive would
have received had Executive continued in the employ of the
Company for three (3) years following the Date of Termination
(assuming all variable factors used to compute Executive's
Retirement Benefit, except years of service, remain constant
with those factors applicable as of the date of a Change of
Control or the Date of Termination, whichever date results in
the greatest aggregate Special Retirement Benefits being
payable to Executive). Should continued participation by
Executive in any plan affording to him Retirement Benefits be
precluded by law or the terms thereof, the Company shall pay
(or cause to be paid through the Trust) to Executive or, if
applicable, to his beneficiaries, as an additional
supplemental benefit, an amount equal to the difference
between (i) the benefit that Executive would have been paid
under the plan had he continued to be employed for three (3)
years following the Date of Termination, and (ii) the benefit
actually payable under said plan(s). The Special Retirement
Benefits will be paid to Executive in the same manner as and
at the time Executive commences to receive or receives
Executive's Retirement Benefits.
(h) OTHER BENEFITS. The Company shall continue Executive's
participation in all fringe benefits Executive would have
participated in had Executive continued in the employ of the
Company for three (3) years following the Date of Termination
including, but not limited to, all ancillary rights regarding
Retirement Benefits, such as early retirement rights and joint
and survivor rights available under the applicable retirement
plans, and if Executive retires during said three (3) year
period, retiree group life and retiree group health insurance.
If Executive had been provided an automobile on the day prior
to a Change of Control under the Company's automobile policy,
the ownership of the automobile will be transferred to
Executive on the Date of Termination.
(i) OUTPLACEMENT SERVICES EXPENSES. The Company shall pay all
appropriate fees and expenses to employ the services of a full
service outplacement firm until the earlier of such time as:
(i) Executive has secured new employment; or (ii) the
expiration
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of the three (3) year period immediately following Executive's
Date of Termination.
6. REIMBURSEMENT OF EXPENSES; TRUST.
(a) REIMBURSEMENT OF EXPENSES. If any contest or dispute shall
arise under this Agreement to enforce or interpret any
provision contained herein (including, without limitation, any
contest or dispute relating to the termination of Executive's
employment and the Company's failure or refusal to perform
fully its obligations in accordance with the terms of this
Agreement), the Company agrees to reimburse Executive, on a
current basis, for all reasonable attorney's fees,
disbursements and expenses incurred by Executive in connection
with such contest or dispute (regardless of the result
thereof), and agrees to pay pre-judgment interest on any money
judgment obtained by Executive. Pre-judgment interest, if any,
shall be calculated at the base rate in effect from time to
time at KeyBank National Association of Cleveland, Ohio, from
the date that payments to Executive should have been made
under this Agreement.
(b) TRUST. In order to secure the benefits to be received by
Executive pursuant to this Agreement and similar arrangements
with other executives, the Company shall establish one or more
trust funds (the "Trust"). The Company will deposit in such
Trust, within five (5) business days after the occurrence of
an event that in the reasonable opinion of the Board of
Directors will likely result in a Change of Control, an amount
equal to approximately the maximum aggregate benefits that
could be payable to Executive under the terms of this
Agreement. Any funds which may be placed into the Trust under
this Agreement shall continue for all purposes to be a part of
the general funds of the Company subject to the claims of the
Company's creditors in the event of the Company's insolvency
and no person shall by virtue of this Agreement have any
interest in such funds. To the extent that any person acquires
a right to receive payments from the Company under this
Agreement, such rights shall be no greater than the right of
any unsecured general creditor of the Company. Executive shall
be entitled to receive distributions from the funds held in
the Trust pursuant to the terms and conditions of this
Agreement and the agreement establishing the Trust between the
Company and the trustee. If prior to the date of a Change of
Control, the Board of Directors of the Company has actual
knowledge that all third parties have abandoned or terminated
their efforts to effect a Change of Control and a Change of
Control at that time is unlikely and the Board so advises
Executive, the trust funds and interest earned thereon, if
any, shall be returned to the Company by the trustee.
Notwithstanding the provisions of this Section 6(b), failure
by the Company to place such funds in Trust in no way relieves
the Company from its financial obligations and
responsibilities to Executive under the terms of this
Agreement.
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<PAGE> 31
(c) FUNDING. All benefits to be paid pursuant to this Agreement,
including any amounts paid pursuant to Section 6(a) which were
not paid through the Trust established pursuant to Section
6(b), shall be paid from the general assets of the Company.
7. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) GROSS-UP. Any provision contained in this Agreement to the
contrary notwithstanding, in the event it shall be determined
that any payment (within the meaning of Section 280G(b)(2) of
the Code) or distribution, other than any such payments or
distributions related to any incentive stock options
previously granted to Executive, by the Company to or for the
benefit of Executive, whether paid or payable or distributed
or distributable pursuant to the terms of this Agreement or
otherwise (a "Payment"), would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or
penalties are incurred by Executive with respect to such
excise tax (such excise tax, together with any such interest
and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then Executive shall be entitled to receive an
additional payment under this Agreement (a "Gross-up Payment")
in an amount such that after payment by Executive of all taxes
(including any interest or penalties imposed with respect to
such taxes), including any Excise Tax, imposed upon the
Gross-up Payment, Executive retains an amount of the Gross-up
Payment equal to the Excise Tax imposed upon the Payments.
(b) ACCOUNTING FIRM. Subject to the provisions of Section 7(c),
all determinations required to be made under this Section 7,
including whether a Gross-up Payment is required and the
amount of such Gross-up Payment, shall be made by Ernst &
Young (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and Executive
within fifteen (15) business days of the Date of Termination,
if applicable, or such earlier time as is requested by the
Company. All fees and expenses of Accounting Firm shall be
borne solely by the Company and the Company shall enter into
any agreement required by the Accounting Firm in connection
with the performance of the services hereunder. The initial
Gross-up Payment, if any, as determined pursuant to this
Section 7(b), shall be paid to Executive within five (5) days
of the receipt of the Accounting Firm's determination. If the
Accounting Firm determines that no Excise Tax is payable by
Executive, it shall furnish Executive with an opinion that
failure to report the Excise Tax on Executive's applicable
federal income tax return would not result in the imposition
of a negligence or similar penalty. Any determination
by the Accounting Firm shall be binding upon the Company and
Executive. Executive shall prepare Executive's tax returns in
a manner consistent with the determinations of the Accounting
Firm as such tax returns relate to any Payment and Gross-up
Payment. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial
determination by the Accounting Firm
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<PAGE> 32
hereunder, it is possible that Gross-up Payments which will
not have been made by the Company should have been made
("Underpayment"), consistent with the calculations required to
be made hereunder. In the event that the Company exhausts its
remedies pursuant to Section 7(c) and Executive thereafter is
required to make a payment of any Excise Tax, the Accounting
Firm shall determine the amount of the Underpayment that has
occurred and any such Underpayment shall be promptly paid by
the Company to or for the benefit of Executive.
(c) NOTIFICATION. Executive shall notify the Company in writing of
any claim by the Internal Revenue Service that, if successful,
would require the payment by the Company of the Gross-up
Payment. Such notification shall be given as soon as
practicable but no later than ten (10) business days after
Executive knows of such claim and shall apprise the Company of
the nature of such claim and the date on which such claim is
requested to be paid. Executive shall not pay such claim prior
to the expiration of the thirty (30) day period following the
date on which Executive gives such notice to the Company (or
such shorter period ending on the date that any payment of
taxes with respect to such claim is due). If the Company
notifies Executive in writing prior to the expiration of such
period that it desires to contest such claim, Executive shall:
(i) give the Company any information reasonably
requested by the Company relating to such
claim;
(ii) take such action in connection with
contesting such claim as the Company shall
reasonably request in writing from time to
time including, without limitation,
accepting legal representation with respect
to such claim by an attorney reasonably
selected by the Company;
(iii) cooperate with the Company in good faith in
order effectively to contest such claim; and
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay
directly all costs and expenses (including additional interest
and penalties) incurred in connection with such contest and
shall indemnify and hold Executive harmless, on an after-tax
basis, for any Excise Tax or income tax, including interest
and penalties with respect thereto, imposed as a result of
such representation and payment of costs and expenses. Without
limitation on the foregoing provisions of this Section 7(c),
the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or
forego any and all administrative appeals,
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<PAGE> 33
proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole
option, either direct Executive to pay the tax claimed and sue
for a refund or contest the claim in any permissible manner,
and Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court
of initial jurisdiction and in one or more appellate courts,
as the Company shall determine; provided, however, that if the
Company directs Executive to pay such claims and sue for a
refund, the Company shall advance the amount of such payment
to Executive, on an interest-free basis and shall indemnify
and hold Executive harmless, on an after-tax basis, from any
Excise Tax or income tax, including interest or penalties with
respect thereto, imposed with respect to such advance or with
respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of
limitations relating to payment of taxes for the taxable year
of Executive with respect to which such contested amount is
claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of the contest shall be
limited to issues with respect to which a Gross-up Payment
would be payable hereunder and Executive shall be entitled to
settle or contest, as the case may be, any other issue raised
by the Internal Revenue Service or any other taxing authority.
(d) REFUND. If, after the receipt by Executive of an amount
advanced by the Company pursuant to Section 7(c), Executive
becomes entitled to receive any refund with respect to such
claim, Executive shall (subject to the Company's complying
with the requirements of Section 7(c)) promptly pay to the
Company the amount of such refund (together with any interest
paid or credited thereon after taxes applicable thereto). If,
after the receipt by Executive of an amount advanced by the
Company pursuant to Section 7(c), a determination is made that
Executive shall not be entitled to any refund with respect to
such claim and the Company does not notify Executive in
writing of its intent to contest such denial of refund prior
to the expiration of thirty (30) days after such
determination, then such advance shall be forgiven and shall
not be required to be repaid and the amount of such advance
shall offset, to the extent thereof, the amount of Gross-up
Payment required to be paid.
8. SUCCESSORS; BINDING AGREEMENT.
(a) SUCCESSORS. In the event of a Change of Control, the Company
will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the
Company, to expressly assume and agree to maintain this
Agreement, for a minimum period of two (2) years following any
such Change of Control in the same manner and to the same
extent that the Company would be required to maintain it if no
such succession had taken place. Failure of the Company to
obtain such assumption agreement prior to the effectiveness of
any such succession shall be a breach of this
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<PAGE> 34
Agreement and shall entitle Executive to receive from the
Company, as liquidated damages, an amount equal to the same
amount of benefits provided herein, and on the same terms set
forth herein, as Executive would have been entitled to receive
if Executive had terminated employment as provided in Section
4 after a Change of Control, on the date on which any
succession becomes effective.
(b) DEVISEES. All rights of Executive hereunder shall inure to the
benefit of and be enforceable by Executive's personal or legal
representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If Executive should die
prior to receiving all amounts of benefits payable hereunder,
all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to
Executive's devisee, legatee or other designee or, if there be
no such designee, to Executive's estate.
9. MISCELLANEOUS.
(a) SEGREGATION OF ASSETS. Except as provided in Section 6(b), the
Company shall not be required to segregate any assets with
respect to benefits under this Agreement. Any liability of the
Company to Executive shall be based solely upon the
contractual obligations created by this Agreement; no such
obligation shall be deemed to be secured by any pledge or any
encumbrance on the property of the Company other than the
rights Executive may have with respect to funds held in the
Trust.
(b) PAYMENT OBLIGATIONS ABSOLUTE. Except as set forth in the last
sentence of Section 5(d), the Company's obligation to pay
Executive the severance benefits and to make the arrangements
provided herein shall be absolute and unconditional and shall
not be affected by any circumstances including, without
limitation, any set-off, counterclaim, recoupment, defense or
other right which the Company may have against Executive or
anyone else. All amounts payable by the Company hereunder
shall be paid without notice or demand. Each and every payment
made hereunder by the Company whether or not paid through the
Trust shall be final and the Company will not seek to recover
all or any part of such payment from Executive or from
whomsoever may be entitled thereto, for any reason whatsoever.
Executive shall not be obligated to seek other employment in
mitigation of the amounts payable or arrangements made under
any provision of this Agreement, and the obtaining of any such
other employment shall in no event effect any reduction of the
Company's obligations to make the payments and arrangements
required to be made under this Agreement.
(c) ASSIGNMENT. No amount payable under this Agreement shall be
subject to assignment, transfer, sale, pledge, encumbrance,
alienation or change by Executive or the beneficiary of
Executive except as may be required by law.
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(d) CONTINUING OBLIGATIONS. Executive shall retain in confidence
any confidential information known to Executive concerning the
Company and its subsidiaries and their respective businesses
so long as such information is not publicly disclosed.
(e) NOT EMPLOYMENT CONTRACT. Neither this Agreement nor any action
taken hereunder shall be construed either (i) as a contract of
employment, (ii) as giving Executive any right to be retained
in the employ of the Company, or (iii) as giving Executive any
right to receive severance benefits of a type or in an amount
similar to the benefits described in Section 5, unless the
conditions set forth in this Agreement are satisfied and
Executive therefore qualifies for benefits under this
Agreement.
(f) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Ohio.
(g) SEVERABILITY. The invalidity or unenforceability of any
provisions of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which
shall remain in full force and effect.
(h) NOTICES. Any notice or other communication provided for in
this Agreement shall be in writing and, unless otherwise
expressly stated herein, shall be deemed to have been duly
given if hand delivered or if mailed by United States
registered mail, return receipt requested, postage prepaid
addressed in the case of Executive to Executive's last known
address or in the case of the Company to The Sherwin-Williams
Company, 101 Prospect Avenue, N.W., Cleveland, Ohio 44115,
Attention: Vice President-Human Resources, with a copy sent to
The Sherwin-Williams Company, 101 Prospect Avenue, N.W.,
Cleveland, Ohio 44115, Attention: Vice President, Secretary
and General Counsel.
(i) MODIFICATION; WAIVER. No provision of this Agreement may be
modified or waived unless such modification or waiver is
agreed to in writing and signed by Executive and by a duly
authorized officer of the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of,
or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. Failure by
Executive or the Company to insist upon strict compliance with
any provision of this Agreement or to assert any right
Executive or the Company may have hereunder shall not be
deemed to be a waiver of such provision or right or any other
provision or right of this Agreement. Except as otherwise
specifically provided herein, the rights of, and benefits
payable to, Executive, Executive's estate or Executive's
beneficiaries pursuant to this Agreement are in addition to
any rights of, or benefits payable to, Executive, Executive's
estate or Executive's beneficiaries under any other employee
benefit plan or compensation program of the Company.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed effective as of the date and year first above written.
18
<PAGE> 36
EXECUTIVE
---------------------------------------
Signature
---------------------------------------
Typed or printed name
THE SHERWIN-WILLIAMS COMPANY
---------------------------------------
19
<PAGE> 1
EXHIBIT 10(c)
SCHEDULE OF CERTAIN EXECUTIVE OFFICERS WHO ARE PARTIES
TO THE SEVERANCE PAY AGREEMENTS
----------
Form A of Severance Pay Agreement
- ---------------------------------
John G. Breen
Thomas A. Commes
Form B of Severance Pay Agreement
- ---------------------------------
John L. Ault
Frank E. Butler
Christopher M. Connor
Michael A. Galasso
Thomas E. Hopkins
Conway G. Ivy
T. Scott King
John C. Macatee
Larry J. Pitorak
Joseph M. Scaminace
Louis E. Stellato
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE PERIOD ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<CIK> 0000089800
<NAME> THE SHERWIN-WILLIAMS COMPANY
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 7,406
<SECURITIES> 0
<RECEIVABLES> 719,019
<ALLOWANCES> 30,287
<INVENTORY> 751,665
<CURRENT-ASSETS> 1,688,123
<PP&E> 1,285,114
<DEPRECIATION> 628,130
<TOTAL-ASSETS> 4,219,348
<CURRENT-LIABILITIES> 1,526,143
<BONDS> 796,233
0
0
<COMMON> 204,019
<OTHER-SE> 1,279,063
<TOTAL-LIABILITY-AND-EQUITY> 4,219,348
<SALES> 2,443,138
<TOTAL-REVENUES> 2,443,138
<CGS> 1,401,968
<TOTAL-COSTS> 1,401,968
<OTHER-EXPENSES> 6,466
<LOSS-PROVISION> 10,057
<INTEREST-EXPENSE> 42,137
<INCOME-PRETAX> 190,716
<INCOME-TAX> 74,379
<INCOME-CONTINUING> 116,337
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 116,337
<EPS-PRIMARY> 0.67
<EPS-DILUTED> 0.67
</TABLE>
