Executive Employment Contract - FERRO CORP - 3-31-1999

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Executive Employment Contract - FERRO CORP - 3-31-1999 Powered By Docstoc
					FERRO CORPORATION Executive Employment Contract I. Recitals (A) This Executive Employment Contract (this "Agreement") is between Ferro Corporation (the "Company") and Kent H. Lee (the "Executive") and is effective as of November 10, 1998. (B) The address of the Company is 1000 Lakeside Avenue, Cleveland, Ohio 44114. The address of the Executive is 31855 Woodsdale Lane, Solon, Ohio 44139. (C) The Executive is currently employed by the Company in the capacity of Vice President, Specialty Chemicals and the Executive is one of the key executives of the Company. (D) In consideration of the mutual promises contained herein and other good and valuable consideration, the Executive and the Company have entered into this Agreement. II. Definitions As used in this Agreement, the following terms shall have the meanings set forth below: "Agreement" means this Agreement. "Bank" has the meaning set forth in Section VI. "Base Salary" has the meaning set forth in Section III.D.(1). "Benefit Plans" has the meaning set forth in Section III.E.(2). "Board" means the Board of Directors of the Company. "Cause" has the meaning set forth in Section IV.B(1).

"change in control of the Company" has the meaning set forth in Section VI. "Company" means Ferro Corporation, as modified by Section VIII.A. "Contract Term" has the meaning set forth in Section III.A. "Date of Termination" has the meaning set forth in Section IV.A.(2). "Disabled" has the meaning set forth in Section IV.C.(1). "Excise Tax" has the meaning set forth in Section V.A.(1). "Escrow Account" has the meaning set forth in Section VI. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Executive" means the executive named in this Agreement. "Firm" has the meaning set forth in Section V.A.(2) and refers to certain Excise Tax matters.

"change in control of the Company" has the meaning set forth in Section VI. "Company" means Ferro Corporation, as modified by Section VIII.A. "Contract Term" has the meaning set forth in Section III.A. "Date of Termination" has the meaning set forth in Section IV.A.(2). "Disabled" has the meaning set forth in Section IV.C.(1). "Excise Tax" has the meaning set forth in Section V.A.(1). "Escrow Account" has the meaning set forth in Section VI. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Executive" means the executive named in this Agreement. "Firm" has the meaning set forth in Section V.A.(2) and refers to certain Excise Tax matters. "Good Reason" has the meaning set forth in Section IV.E. "Gross-Up Payment" has the meaning set forth in Section V.A.(1) and refers to certain Excise Tax matters. "Incentive Compensation Plan" has the meaning set forth in Section III.E.(1). "Normal Retirement Age" means the normal retirement age provided for in the Company's Pension Plan. "Notice of Termination" has the meaning set forth in Section IV.A.(1). "Payment" has the meaning set forth in Section V.A.(1) and refers to certain Excise Tax matters. -2-

"Pension Plan" means the Company's salaried employees' retirement plan, or any successor plan thereto. "Retirement" has the meaning set forth in Section IV.D.(1). "Total Disability" means total disability as defined in the Company's Pension Plan. "Underpayment" has the meaning set forth in Section V.A.(2) and refers to certain Excise Tax matters. III. Provisions Applicable to the Contract Term A. Contract Term Except as otherwise provided in this Agreement, the Company and the Executive agree that the Executive will remain in the employ of the Company for a primary term ending on November __, 2000 and that this Agreement will automatically continue after such primary term unless and until either party shall have given the other at least 24 months prior written Notice of Termination or, if earlier, until expiration of the Contract Term. The "Contract Term" shall refer to the period commencing on the date hereof and ending on November __, 2000 (or any continuation thereof pursuant to the preceding sentence); provided, however, that in no event shall the Contract Term extend beyond the earliest to occur of (A) the Executive's attaining Normal Retirement Age, (B) the date of death of the Executive, and (C) the Date of Termination resulting from the termination of this Agreement for

"Pension Plan" means the Company's salaried employees' retirement plan, or any successor plan thereto. "Retirement" has the meaning set forth in Section IV.D.(1). "Total Disability" means total disability as defined in the Company's Pension Plan. "Underpayment" has the meaning set forth in Section V.A.(2) and refers to certain Excise Tax matters. III. Provisions Applicable to the Contract Term A. Contract Term Except as otherwise provided in this Agreement, the Company and the Executive agree that the Executive will remain in the employ of the Company for a primary term ending on November __, 2000 and that this Agreement will automatically continue after such primary term unless and until either party shall have given the other at least 24 months prior written Notice of Termination or, if earlier, until expiration of the Contract Term. The "Contract Term" shall refer to the period commencing on the date hereof and ending on November __, 2000 (or any continuation thereof pursuant to the preceding sentence); provided, however, that in no event shall the Contract Term extend beyond the earliest to occur of (A) the Executive's attaining Normal Retirement Age, (B) the date of death of the Executive, and (C) the Date of Termination resulting from the termination of this Agreement for Disability (as defined in Section IV.C.(1) hereof); and provided, further, however, that, if a change in control of the Company (as defined in Section VI hereof) occurs during the Contract Term, then, subject to the preceding proviso in this sentence, the Contract Term -3-

shall not expire prior to the second anniversary of the date of such change in control of the Company. Nothing contained in this Agreement shall prevent the Company at any time from terminating the Executive's right and obligation to perform service for the Company or prevent the Company from removing the Executive from any position which the Executive holds in the Company, subject to the obligation of the Company to make payments and provide benefits if and to the extent required under this Agreement, which payments and benefits shall be full and complete liquidated damages for any such action taken by the Company. The Executive specifically acknowledges that, except for this Agreement, his employment by the Company is employment-atwill, subject to termination by the Executive, or by the Company, at any time with or without cause. The Executive acknowledges that such employment-at-will status cannot be modified except in a specific writing which has been authorized or ratified by the Board. -4-

B. Nature of Duties (1) The Executive agrees to serve the Company during the Contract Term. The Executive agrees to devote his full business time during normal business hours to the business and affairs of the Company (except as otherwise provided herein) and to use his best efforts to promote the interests of the Company and to perform faithfully and efficiently the responsibilities of the positions assigned to him from time to time in the discretion of the Company (whether officer positions or non-officer positions) in accordance with the terms of this Agreement to the extent necessary to discharge such responsibilities, except for (i) service on corporate, civic or charitable boards or committees not significantly interfering with the performance of such responsibilities, and (ii) periods of vacation and sick leave or other legitimate absences under Company benefit plans and established practices. (2) The Company agrees that, on or after a change in control of the Company (as defined in Section VI hereof), it will not, without the Executive's express written consent, (a) assign to the Executive duties inconsistent with his current positions, duties, responsibilities and status with the Company, or (b) change his titles as currently in effect, or (c) remove him from, or fail to re-elect him to, any of such positions,

shall not expire prior to the second anniversary of the date of such change in control of the Company. Nothing contained in this Agreement shall prevent the Company at any time from terminating the Executive's right and obligation to perform service for the Company or prevent the Company from removing the Executive from any position which the Executive holds in the Company, subject to the obligation of the Company to make payments and provide benefits if and to the extent required under this Agreement, which payments and benefits shall be full and complete liquidated damages for any such action taken by the Company. The Executive specifically acknowledges that, except for this Agreement, his employment by the Company is employment-atwill, subject to termination by the Executive, or by the Company, at any time with or without cause. The Executive acknowledges that such employment-at-will status cannot be modified except in a specific writing which has been authorized or ratified by the Board. -4-

B. Nature of Duties (1) The Executive agrees to serve the Company during the Contract Term. The Executive agrees to devote his full business time during normal business hours to the business and affairs of the Company (except as otherwise provided herein) and to use his best efforts to promote the interests of the Company and to perform faithfully and efficiently the responsibilities of the positions assigned to him from time to time in the discretion of the Company (whether officer positions or non-officer positions) in accordance with the terms of this Agreement to the extent necessary to discharge such responsibilities, except for (i) service on corporate, civic or charitable boards or committees not significantly interfering with the performance of such responsibilities, and (ii) periods of vacation and sick leave or other legitimate absences under Company benefit plans and established practices. (2) The Company agrees that, on or after a change in control of the Company (as defined in Section VI hereof), it will not, without the Executive's express written consent, (a) assign to the Executive duties inconsistent with his current positions, duties, responsibilities and status with the Company, or (b) change his titles as currently in effect, or (c) remove him from, or fail to re-elect him to, any of such positions, except in connection with the termination of his employment for Cause, Disability or Retirement or as a result of his death or voluntary termination. Except as so limited, the powers and duties of the Executive are to be more specifically determined and set by the Company from time to time. -5-

C. Place of Employment The Executive's initial place of employment is at the Company's principal executive offices in Cleveland, Ohio. The Company agrees that it will not, without the Executive's express written consent, require the Executive to be based anywhere other than Cuyahoga County, Ohio, or a county contiguous thereto, except for required travel on the Company's business to an extent substantially consistent with present business travel obligations. D. Compensation (1) Base Salary. During the Contract Term, the Executive shall receive an annual base salary (the "Base Salary"), payable in installments, substantially in accordance with current practice, at an annual rate at least equal to the aggregate annual Base Salary payable to the Executive as of the date hereof. The Base Salary may be increased (but may not be decreased) at any time and from time to time by action of the Board, and, if so increased, such increased Base Salary shall thereafter be the Base Salary for the purposes of this Agreement. (2) Incentive Compensation. During the Contract Term, the Company agrees to pay annual incentive compensation to the Executive in an amount at least equal to the annual incentive compensation that would have been payable to the Executive for such year in question under the Company's Incentive Compensation Plan as in effect for such applicable year, and giving effect to the highest position in the Company held by the Executive during the Contract Term.

B. Nature of Duties (1) The Executive agrees to serve the Company during the Contract Term. The Executive agrees to devote his full business time during normal business hours to the business and affairs of the Company (except as otherwise provided herein) and to use his best efforts to promote the interests of the Company and to perform faithfully and efficiently the responsibilities of the positions assigned to him from time to time in the discretion of the Company (whether officer positions or non-officer positions) in accordance with the terms of this Agreement to the extent necessary to discharge such responsibilities, except for (i) service on corporate, civic or charitable boards or committees not significantly interfering with the performance of such responsibilities, and (ii) periods of vacation and sick leave or other legitimate absences under Company benefit plans and established practices. (2) The Company agrees that, on or after a change in control of the Company (as defined in Section VI hereof), it will not, without the Executive's express written consent, (a) assign to the Executive duties inconsistent with his current positions, duties, responsibilities and status with the Company, or (b) change his titles as currently in effect, or (c) remove him from, or fail to re-elect him to, any of such positions, except in connection with the termination of his employment for Cause, Disability or Retirement or as a result of his death or voluntary termination. Except as so limited, the powers and duties of the Executive are to be more specifically determined and set by the Company from time to time. -5-

C. Place of Employment The Executive's initial place of employment is at the Company's principal executive offices in Cleveland, Ohio. The Company agrees that it will not, without the Executive's express written consent, require the Executive to be based anywhere other than Cuyahoga County, Ohio, or a county contiguous thereto, except for required travel on the Company's business to an extent substantially consistent with present business travel obligations. D. Compensation (1) Base Salary. During the Contract Term, the Executive shall receive an annual base salary (the "Base Salary"), payable in installments, substantially in accordance with current practice, at an annual rate at least equal to the aggregate annual Base Salary payable to the Executive as of the date hereof. The Base Salary may be increased (but may not be decreased) at any time and from time to time by action of the Board, and, if so increased, such increased Base Salary shall thereafter be the Base Salary for the purposes of this Agreement. (2) Incentive Compensation. During the Contract Term, the Company agrees to pay annual incentive compensation to the Executive in an amount at least equal to the annual incentive compensation that would have been payable to the Executive for such year in question under the Company's Incentive Compensation Plan as in effect for such applicable year, and giving effect to the highest position in the Company held by the Executive during the Contract Term. -6-

E. Benefit Plans (1) During the Contract Term, the Company agrees to continue the Company's Annual Incentive Compensation Plan as the same may be modified from time to time but substantially in the form presently in effect (the "Incentive Compensation Plan"). The Company agrees to continue the Executive as a participant in the Incentive Compensation Plan on a basis at least equivalent to the present basis of his participation for the calendar year in which the effective date of this Agreement occurs. (2) During the Contract Term, the Company agrees to continue in effect any perquisite, benefit or compensation plan (in addition to the Incentive Compensation Plan) including its pension plan, excess benefits plans, supplemental retirement program for short service executives, dental plan, life insurance plan, health and accident plan or disability plan in which the Executive is currently participating (but excluding the Company's stock option

C. Place of Employment The Executive's initial place of employment is at the Company's principal executive offices in Cleveland, Ohio. The Company agrees that it will not, without the Executive's express written consent, require the Executive to be based anywhere other than Cuyahoga County, Ohio, or a county contiguous thereto, except for required travel on the Company's business to an extent substantially consistent with present business travel obligations. D. Compensation (1) Base Salary. During the Contract Term, the Executive shall receive an annual base salary (the "Base Salary"), payable in installments, substantially in accordance with current practice, at an annual rate at least equal to the aggregate annual Base Salary payable to the Executive as of the date hereof. The Base Salary may be increased (but may not be decreased) at any time and from time to time by action of the Board, and, if so increased, such increased Base Salary shall thereafter be the Base Salary for the purposes of this Agreement. (2) Incentive Compensation. During the Contract Term, the Company agrees to pay annual incentive compensation to the Executive in an amount at least equal to the annual incentive compensation that would have been payable to the Executive for such year in question under the Company's Incentive Compensation Plan as in effect for such applicable year, and giving effect to the highest position in the Company held by the Executive during the Contract Term. -6-

E. Benefit Plans (1) During the Contract Term, the Company agrees to continue the Company's Annual Incentive Compensation Plan as the same may be modified from time to time but substantially in the form presently in effect (the "Incentive Compensation Plan"). The Company agrees to continue the Executive as a participant in the Incentive Compensation Plan on a basis at least equivalent to the present basis of his participation for the calendar year in which the effective date of this Agreement occurs. (2) During the Contract Term, the Company agrees to continue in effect any perquisite, benefit or compensation plan (in addition to the Incentive Compensation Plan) including its pension plan, excess benefits plans, supplemental retirement program for short service executives, dental plan, life insurance plan, health and accident plan or disability plan in which the Executive is currently participating (but excluding the Company's stock option plan and performance share plan, participation in which shall be at the sole discretion of the Company's Board of Directors, or any applicable committee thereof) (such plans are collectively referred to with the Incentive Compensation Plan as the "Benefit Plans"), or to maintain plans providing substantially similar benefits; provided, however, that the Company may make modifications in such Benefit Plans so long as such modifications (a) are generally applicable to all salaried employees of the Company and (b) do not discriminate against highly-paid employees of the Company. -7-

(3) During the Contract Term, except as permitted in the proviso contained in paragraph (2) above, the Company agrees not to take any action that would adversely affect the Executive's participation in, or materially reduce the benefits under, any of the Benefit Plans. (4) Benefits herein provided are in lieu of any severance payment benefit otherwise provided under any other agreement, policy, or practice provided by the Company and, in the event of an effective Notice of Termination hereunder, are also in lieu of any obligations of the Company in favor of the Executive with respect to vacation or vacation pay. The Executive waives all rights to such payments under any such agreement, policy or practice provided, however, that this waiver shall not extend to entitlements provided under any disability insurance plan, retirement plan, excess benefit plan, or applicable supplemental pension plan or agreement for short service executives and any related Benefit Plans (including health and insurance plans), other than those relating to severance or vacation.

E. Benefit Plans (1) During the Contract Term, the Company agrees to continue the Company's Annual Incentive Compensation Plan as the same may be modified from time to time but substantially in the form presently in effect (the "Incentive Compensation Plan"). The Company agrees to continue the Executive as a participant in the Incentive Compensation Plan on a basis at least equivalent to the present basis of his participation for the calendar year in which the effective date of this Agreement occurs. (2) During the Contract Term, the Company agrees to continue in effect any perquisite, benefit or compensation plan (in addition to the Incentive Compensation Plan) including its pension plan, excess benefits plans, supplemental retirement program for short service executives, dental plan, life insurance plan, health and accident plan or disability plan in which the Executive is currently participating (but excluding the Company's stock option plan and performance share plan, participation in which shall be at the sole discretion of the Company's Board of Directors, or any applicable committee thereof) (such plans are collectively referred to with the Incentive Compensation Plan as the "Benefit Plans"), or to maintain plans providing substantially similar benefits; provided, however, that the Company may make modifications in such Benefit Plans so long as such modifications (a) are generally applicable to all salaried employees of the Company and (b) do not discriminate against highly-paid employees of the Company. -7-

(3) During the Contract Term, except as permitted in the proviso contained in paragraph (2) above, the Company agrees not to take any action that would adversely affect the Executive's participation in, or materially reduce the benefits under, any of the Benefit Plans. (4) Benefits herein provided are in lieu of any severance payment benefit otherwise provided under any other agreement, policy, or practice provided by the Company and, in the event of an effective Notice of Termination hereunder, are also in lieu of any obligations of the Company in favor of the Executive with respect to vacation or vacation pay. The Executive waives all rights to such payments under any such agreement, policy or practice provided, however, that this waiver shall not extend to entitlements provided under any disability insurance plan, retirement plan, excess benefit plan, or applicable supplemental pension plan or agreement for short service executives and any related Benefit Plans (including health and insurance plans), other than those relating to severance or vacation. F. Conflicting Interests Prior to the Date of Termination, the Executive agrees not to accept any other employment or engage in any outside business or enterprise without the Company's written consent. It is understood, however, that outside activities are not prohibited provided they are legal; do not impair or interfere with the conscientious performance of Company duties and responsibilities; do not involve the misuse of the Company's influence, facilities or other resources; and do not reflect discredit upon the good name and reputation of the Company. -8-

G. Disclosure of Information During the Contract Term and thereafter, the Executive shall not reveal any confidential information of the Company to anyone except those employees of the Company entitled to receive such information, or as otherwise permitted under any contract or commitment of the Company, or as otherwise authorized. -9-

H. Certain Payments Upon the Occurrence of a Change in Control of the Company In the event a change in control of the Company (as defined in

(3) During the Contract Term, except as permitted in the proviso contained in paragraph (2) above, the Company agrees not to take any action that would adversely affect the Executive's participation in, or materially reduce the benefits under, any of the Benefit Plans. (4) Benefits herein provided are in lieu of any severance payment benefit otherwise provided under any other agreement, policy, or practice provided by the Company and, in the event of an effective Notice of Termination hereunder, are also in lieu of any obligations of the Company in favor of the Executive with respect to vacation or vacation pay. The Executive waives all rights to such payments under any such agreement, policy or practice provided, however, that this waiver shall not extend to entitlements provided under any disability insurance plan, retirement plan, excess benefit plan, or applicable supplemental pension plan or agreement for short service executives and any related Benefit Plans (including health and insurance plans), other than those relating to severance or vacation. F. Conflicting Interests Prior to the Date of Termination, the Executive agrees not to accept any other employment or engage in any outside business or enterprise without the Company's written consent. It is understood, however, that outside activities are not prohibited provided they are legal; do not impair or interfere with the conscientious performance of Company duties and responsibilities; do not involve the misuse of the Company's influence, facilities or other resources; and do not reflect discredit upon the good name and reputation of the Company. -8-

G. Disclosure of Information During the Contract Term and thereafter, the Executive shall not reveal any confidential information of the Company to anyone except those employees of the Company entitled to receive such information, or as otherwise permitted under any contract or commitment of the Company, or as otherwise authorized. -9-

H. Certain Payments Upon the Occurrence of a Change in Control of the Company In the event a change in control of the Company (as defined in Section VI hereof) occurs during the Contract Term, the Company shall pay to the Executive, within five days thereafter, an amount in cash, with respect to each grant of Performance Shares (as defined in the Company's Amended and Restated 1997 Performance Share Plan, as amended (the "Performance Share Plan")) previously awarded to the Executive under the Performance Share Plan (or any predecessor thereto) in respect of a Performance Period (as defined in the Performance Share Plan) which had not expired immediately prior to such change in control of the Company (Performance Shares awarded in respect of any such Performance Period being referred to as "Outstanding Performance Shares"), which amount shall be equal to the excess (but not less than zero) of (a) over (b), where (a) equals the product of (1) the number of Outstanding Performance Shares awarded to the Executive in respect of the applicable Performance Period, (2) the "fair market value of the Common Stock" (as defined in the Performance Share Plan) and (3) a fraction (not to exceed one) the numerator of which is the sum of (x) the number of days which had elapsed in the applicable Performance Period as of the date of such change in control of the Company plus (y) 730, and the denominator of which is the number of days in such applicable Performance Period, and where (b) equals the value payable to the Executive under the Performance Share Plan (or any predecessor thereto) in respect of such Outstanding Performance Shares in connection with such change in control of the Company. The provisions of this Section III.H. shall not affect in any manner the determination of amounts payable to the Executive under the Performance Share Plan (or any predecessor thereto). -10-

IV. Provisions Applicable to Termination of Employment

G. Disclosure of Information During the Contract Term and thereafter, the Executive shall not reveal any confidential information of the Company to anyone except those employees of the Company entitled to receive such information, or as otherwise permitted under any contract or commitment of the Company, or as otherwise authorized. -9-

H. Certain Payments Upon the Occurrence of a Change in Control of the Company In the event a change in control of the Company (as defined in Section VI hereof) occurs during the Contract Term, the Company shall pay to the Executive, within five days thereafter, an amount in cash, with respect to each grant of Performance Shares (as defined in the Company's Amended and Restated 1997 Performance Share Plan, as amended (the "Performance Share Plan")) previously awarded to the Executive under the Performance Share Plan (or any predecessor thereto) in respect of a Performance Period (as defined in the Performance Share Plan) which had not expired immediately prior to such change in control of the Company (Performance Shares awarded in respect of any such Performance Period being referred to as "Outstanding Performance Shares"), which amount shall be equal to the excess (but not less than zero) of (a) over (b), where (a) equals the product of (1) the number of Outstanding Performance Shares awarded to the Executive in respect of the applicable Performance Period, (2) the "fair market value of the Common Stock" (as defined in the Performance Share Plan) and (3) a fraction (not to exceed one) the numerator of which is the sum of (x) the number of days which had elapsed in the applicable Performance Period as of the date of such change in control of the Company plus (y) 730, and the denominator of which is the number of days in such applicable Performance Period, and where (b) equals the value payable to the Executive under the Performance Share Plan (or any predecessor thereto) in respect of such Outstanding Performance Shares in connection with such change in control of the Company. The provisions of this Section III.H. shall not affect in any manner the determination of amounts payable to the Executive under the Performance Share Plan (or any predecessor thereto). -10-

IV. Provisions Applicable to Termination of Employment A. Notice of Termination; Date of Termination (1) Any termination of the Executive's employment by the Company or the Executive shall be communicated by written Notice of Termination to the other party thereto. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination under the provision so indicated. Furthermore, either the Executive or the Company may give a Notice of Termination to the other party for the purpose of terminating this Agreement, as such, without terminating the Executive's employment with the Company, which Notice of Termination shall have the effect of terminating this Agreement at the expiration of the Contract Term as in effect on the date of giving such Notice of Termination. (2) "Date of Termination" shall mean the date on which the Executive's right and obligation to perform employment services for the Company shall terminate (subject to the right of the Company to accelerate such date pursuant to Section III.A.) and shall be: (a) If the Agreement is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that the Executive shall not have returned to the performance of his duties on a full-time basis during such thirty (30) day period), (b) If the Executive's employment is terminated by the Executive for Good Reason, pursuant to Section IV.E., the date specified in the Notice of Termination, which date (except with the written consent of the Company to the contrary) shall not be more than sixty (60) days after the date that the Notice of Termination is given,

H. Certain Payments Upon the Occurrence of a Change in Control of the Company In the event a change in control of the Company (as defined in Section VI hereof) occurs during the Contract Term, the Company shall pay to the Executive, within five days thereafter, an amount in cash, with respect to each grant of Performance Shares (as defined in the Company's Amended and Restated 1997 Performance Share Plan, as amended (the "Performance Share Plan")) previously awarded to the Executive under the Performance Share Plan (or any predecessor thereto) in respect of a Performance Period (as defined in the Performance Share Plan) which had not expired immediately prior to such change in control of the Company (Performance Shares awarded in respect of any such Performance Period being referred to as "Outstanding Performance Shares"), which amount shall be equal to the excess (but not less than zero) of (a) over (b), where (a) equals the product of (1) the number of Outstanding Performance Shares awarded to the Executive in respect of the applicable Performance Period, (2) the "fair market value of the Common Stock" (as defined in the Performance Share Plan) and (3) a fraction (not to exceed one) the numerator of which is the sum of (x) the number of days which had elapsed in the applicable Performance Period as of the date of such change in control of the Company plus (y) 730, and the denominator of which is the number of days in such applicable Performance Period, and where (b) equals the value payable to the Executive under the Performance Share Plan (or any predecessor thereto) in respect of such Outstanding Performance Shares in connection with such change in control of the Company. The provisions of this Section III.H. shall not affect in any manner the determination of amounts payable to the Executive under the Performance Share Plan (or any predecessor thereto). -10-

IV. Provisions Applicable to Termination of Employment A. Notice of Termination; Date of Termination (1) Any termination of the Executive's employment by the Company or the Executive shall be communicated by written Notice of Termination to the other party thereto. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination under the provision so indicated. Furthermore, either the Executive or the Company may give a Notice of Termination to the other party for the purpose of terminating this Agreement, as such, without terminating the Executive's employment with the Company, which Notice of Termination shall have the effect of terminating this Agreement at the expiration of the Contract Term as in effect on the date of giving such Notice of Termination. (2) "Date of Termination" shall mean the date on which the Executive's right and obligation to perform employment services for the Company shall terminate (subject to the right of the Company to accelerate such date pursuant to Section III.A.) and shall be: (a) If the Agreement is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that the Executive shall not have returned to the performance of his duties on a full-time basis during such thirty (30) day period), (b) If the Executive's employment is terminated by the Executive for Good Reason, pursuant to Section IV.E., the date specified in the Notice of Termination, which date (except with the written consent of the Company to the contrary) shall not be more than sixty (60) days after the date that the Notice of Termination is given, (c) The expiration or termination of the Contract Term, and (d) If the Executive's employment is terminated by the Company for Cause pursuant to Section IV.B.(1), the date on which a Notice of Termination is given. -11-

B. Termination for Cause

IV. Provisions Applicable to Termination of Employment A. Notice of Termination; Date of Termination (1) Any termination of the Executive's employment by the Company or the Executive shall be communicated by written Notice of Termination to the other party thereto. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination under the provision so indicated. Furthermore, either the Executive or the Company may give a Notice of Termination to the other party for the purpose of terminating this Agreement, as such, without terminating the Executive's employment with the Company, which Notice of Termination shall have the effect of terminating this Agreement at the expiration of the Contract Term as in effect on the date of giving such Notice of Termination. (2) "Date of Termination" shall mean the date on which the Executive's right and obligation to perform employment services for the Company shall terminate (subject to the right of the Company to accelerate such date pursuant to Section III.A.) and shall be: (a) If the Agreement is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that the Executive shall not have returned to the performance of his duties on a full-time basis during such thirty (30) day period), (b) If the Executive's employment is terminated by the Executive for Good Reason, pursuant to Section IV.E., the date specified in the Notice of Termination, which date (except with the written consent of the Company to the contrary) shall not be more than sixty (60) days after the date that the Notice of Termination is given, (c) The expiration or termination of the Contract Term, and (d) If the Executive's employment is terminated by the Company for Cause pursuant to Section IV.B.(1), the date on which a Notice of Termination is given. -11-

B. Termination for Cause (1) The Company may terminate the Executive's employment and the Contract Term for Cause. For the purposes of this Agreement, the Company shall have "Cause" to terminate employment hereunder only (a) if termination shall have been the result of an act or acts by the Executive which have been found in an applicable court to constitute a felony; or (b) if termination shall have been the result of an act or acts of dishonesty by the Executive resulting or intended to result directly or indirectly in significant gain or personal enrichment to the Executive at the expense of the Company; or (c) upon the wilful and continued failure by the Executive substantially to perform his duties with the Company (other than any such failure resulting from incapacity due to mental or physical illness) after a demand in writing for substantial performance is delivered by the Board, which demand specifically identifies the manner in which the Board believes that the Executive has not substantially performed his duties, and such failure results in demonstrably material injury to the Company. The Executive's employment shall in no event be considered to have been terminated by the Company for Cause if such termination took place as the result of (a) bad judgment or negligence, or (b) any act or omission believed in good faith to have been in or not opposed to the interest of the Company. The Executive shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to him a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board (after reasonable notice to the Executive and an opportunity for him, together with his counsel, to be heard before the Board), finding that in the good faith opinion of the Board the Executive was guilty of conduct set forth above in clauses (a), (b) or (c) of the second sentence of this paragraph and specifying the particulars thereof in detail. -12-

B. Termination for Cause (1) The Company may terminate the Executive's employment and the Contract Term for Cause. For the purposes of this Agreement, the Company shall have "Cause" to terminate employment hereunder only (a) if termination shall have been the result of an act or acts by the Executive which have been found in an applicable court to constitute a felony; or (b) if termination shall have been the result of an act or acts of dishonesty by the Executive resulting or intended to result directly or indirectly in significant gain or personal enrichment to the Executive at the expense of the Company; or (c) upon the wilful and continued failure by the Executive substantially to perform his duties with the Company (other than any such failure resulting from incapacity due to mental or physical illness) after a demand in writing for substantial performance is delivered by the Board, which demand specifically identifies the manner in which the Board believes that the Executive has not substantially performed his duties, and such failure results in demonstrably material injury to the Company. The Executive's employment shall in no event be considered to have been terminated by the Company for Cause if such termination took place as the result of (a) bad judgment or negligence, or (b) any act or omission believed in good faith to have been in or not opposed to the interest of the Company. The Executive shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to him a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board (after reasonable notice to the Executive and an opportunity for him, together with his counsel, to be heard before the Board), finding that in the good faith opinion of the Board the Executive was guilty of conduct set forth above in clauses (a), (b) or (c) of the second sentence of this paragraph and specifying the particulars thereof in detail. -12-

(2) If the Executive's employment shall be terminated for Cause, the Company shall pay the Executive his full Base Salary through the Date of Termination at the rate in effect at the time Notice of Termination is given and the Company shall have no further obligations to the Executive under this Agreement. C. Termination for Disability (1) The Company may terminate this Agreement on account of the Executive's "Disability" if the Executive is "Disabled." For purposes of this Agreement, the Executive shall be considered Disabled only if, as a result of his incapacity due to physical or mental illness, he shall have been absent from his duties with the Company on a fulltime basis for a period of six months and within thirty (30) days after written Notice of Termination is given, he shall not have returned to the full-time performance of his duties. (2) If the Company terminates this Agreement because the Executive is Disabled, the Company shall provide to the Executive (or his successors) the benefits specified in Paragraph (3) (continued participation in benefit plans) of Section IV.F. of this Agreement; provided, however, that for this purpose the Contract Term shall be determined as of the Date of Termination, but without regard to the termination of this Agreement by reason of the Executive's Disability. -13-

D. Termination Upon Retirement (1) This Agreement will terminate upon the Executive's Retirement. For purposes of this Agreement, "Retirement" shall mean termination of the Executive's employment at or after attaining Normal Retirement Age or early retirement if effected in accordance with any retirement arrangement established with the Executive's consent with respect to him. (2) In the event this Agreement terminates by reason of the Executive's Retirement, the Company shall pay to the Executive the amounts, and provide to the Executive the benefits, specified in Paragraph (3) (continued participation in benefit plans) of Section IV.F. of this Agreement. (3) Notwithstanding the preceding provisions of this Section IV.D., unless the Executive otherwise consents in

(2) If the Executive's employment shall be terminated for Cause, the Company shall pay the Executive his full Base Salary through the Date of Termination at the rate in effect at the time Notice of Termination is given and the Company shall have no further obligations to the Executive under this Agreement. C. Termination for Disability (1) The Company may terminate this Agreement on account of the Executive's "Disability" if the Executive is "Disabled." For purposes of this Agreement, the Executive shall be considered Disabled only if, as a result of his incapacity due to physical or mental illness, he shall have been absent from his duties with the Company on a fulltime basis for a period of six months and within thirty (30) days after written Notice of Termination is given, he shall not have returned to the full-time performance of his duties. (2) If the Company terminates this Agreement because the Executive is Disabled, the Company shall provide to the Executive (or his successors) the benefits specified in Paragraph (3) (continued participation in benefit plans) of Section IV.F. of this Agreement; provided, however, that for this purpose the Contract Term shall be determined as of the Date of Termination, but without regard to the termination of this Agreement by reason of the Executive's Disability. -13-

D. Termination Upon Retirement (1) This Agreement will terminate upon the Executive's Retirement. For purposes of this Agreement, "Retirement" shall mean termination of the Executive's employment at or after attaining Normal Retirement Age or early retirement if effected in accordance with any retirement arrangement established with the Executive's consent with respect to him. (2) In the event this Agreement terminates by reason of the Executive's Retirement, the Company shall pay to the Executive the amounts, and provide to the Executive the benefits, specified in Paragraph (3) (continued participation in benefit plans) of Section IV.F. of this Agreement. (3) Notwithstanding the preceding provisions of this Section IV.D., unless the Executive otherwise consents in writing, a termination of the Executive's employment which occurs on or after the date of a change in control of the Company (as defined in Section VI hereof) shall not be deemed to be a termination of employment for Retirement. E. Termination of Employment by the Executive for Good Reason (1) The Executive may terminate his employment for Good Reason. For purposes of this Agreement, Good Reason will exist if any one or more of the following occur: (a) Failure by the Company to honor any of its obligations under Sections III.B.2. (assignment of duties, responsibilities, etc., election to positions), III.C. (place of employment), III.D. (compensation), III.E. (benefit plans), VI (security) or VIII.A. (successors); or (b) Any purported termination by the Company of the Executive's employment that is not effected pursuant to a Notice of Termination satisfying the requirements of Section IV.A. above and, for purposes of this Agreement, no such purported termination shall be effective; or -14-

(c) The issuance by or on behalf of the Company, on or after a change in control of the Company (as defined in Section VI hereof), of a Notice of Termination described in the third sentence of Section IV.A.(1) hereof which specifies that such Notice of Termination is given for the purpose of terminating this Agreement and which does not serve to terminate the Executive's employment with the Company substantially concurrently therewith; or

D. Termination Upon Retirement (1) This Agreement will terminate upon the Executive's Retirement. For purposes of this Agreement, "Retirement" shall mean termination of the Executive's employment at or after attaining Normal Retirement Age or early retirement if effected in accordance with any retirement arrangement established with the Executive's consent with respect to him. (2) In the event this Agreement terminates by reason of the Executive's Retirement, the Company shall pay to the Executive the amounts, and provide to the Executive the benefits, specified in Paragraph (3) (continued participation in benefit plans) of Section IV.F. of this Agreement. (3) Notwithstanding the preceding provisions of this Section IV.D., unless the Executive otherwise consents in writing, a termination of the Executive's employment which occurs on or after the date of a change in control of the Company (as defined in Section VI hereof) shall not be deemed to be a termination of employment for Retirement. E. Termination of Employment by the Executive for Good Reason (1) The Executive may terminate his employment for Good Reason. For purposes of this Agreement, Good Reason will exist if any one or more of the following occur: (a) Failure by the Company to honor any of its obligations under Sections III.B.2. (assignment of duties, responsibilities, etc., election to positions), III.C. (place of employment), III.D. (compensation), III.E. (benefit plans), VI (security) or VIII.A. (successors); or (b) Any purported termination by the Company of the Executive's employment that is not effected pursuant to a Notice of Termination satisfying the requirements of Section IV.A. above and, for purposes of this Agreement, no such purported termination shall be effective; or -14-

(c) The issuance by or on behalf of the Company, on or after a change in control of the Company (as defined in Section VI hereof), of a Notice of Termination described in the third sentence of Section IV.A.(1) hereof which specifies that such Notice of Termination is given for the purpose of terminating this Agreement and which does not serve to terminate the Executive's employment with the Company substantially concurrently therewith; or (d) Voluntary resignation by the Executive at any time during the ninety-day period commencing on the first anniversary of a change in control of the Company (as defined in Section VI hereof). F. Compensation Upon Termination Other Than for Cause (1) If the Company shall terminate the Executive's employment other than pursuant to Sections IV.B. (Cause), IV.C. (Disability) or IV.D. (Retirement) hereof or if the Executive shall terminate his employment for Good Reason pursuant to Section IV.E. hereof, then the Company shall pay to the Executive the following amounts: (a) The Executive's Base Salary through the Date of Termination at the rate in effect at the time Notice of Termination is given; (b) In a lump sum (in lieu of the installment payments otherwise payable under this Agreement), payable on or before the fifth (5th) day following the Date of Termination, an amount equal to the Executive's Base Salary through the conclusion of the Contract Term; (c) In a lump sum (in lieu of the installment payments otherwise payable under this Agreement), payable on or before the fifth (5th) day following the Date of Termination, an amount equal to the Executive's annual incentive compensation payments, applicable to periods through the conclusion of the Contract Term. For this purpose, the annual

(c) The issuance by or on behalf of the Company, on or after a change in control of the Company (as defined in Section VI hereof), of a Notice of Termination described in the third sentence of Section IV.A.(1) hereof which specifies that such Notice of Termination is given for the purpose of terminating this Agreement and which does not serve to terminate the Executive's employment with the Company substantially concurrently therewith; or (d) Voluntary resignation by the Executive at any time during the ninety-day period commencing on the first anniversary of a change in control of the Company (as defined in Section VI hereof). F. Compensation Upon Termination Other Than for Cause (1) If the Company shall terminate the Executive's employment other than pursuant to Sections IV.B. (Cause), IV.C. (Disability) or IV.D. (Retirement) hereof or if the Executive shall terminate his employment for Good Reason pursuant to Section IV.E. hereof, then the Company shall pay to the Executive the following amounts: (a) The Executive's Base Salary through the Date of Termination at the rate in effect at the time Notice of Termination is given; (b) In a lump sum (in lieu of the installment payments otherwise payable under this Agreement), payable on or before the fifth (5th) day following the Date of Termination, an amount equal to the Executive's Base Salary through the conclusion of the Contract Term; (c) In a lump sum (in lieu of the installment payments otherwise payable under this Agreement), payable on or before the fifth (5th) day following the Date of Termination, an amount equal to the Executive's annual incentive compensation payments, applicable to periods through the conclusion of the Contract Term. For this purpose, the annual incentive compensation amounts payable shall be deemed to be thirty percent (30%) of the Base Salary, or such greater percentage thereof, as may be applicable to the Executive, at target levels, under the Incentive Compensation Plan as in effect (i) immediately prior to the Notice of Termination or (ii) immediately prior to a change in control of the Company (as defined in Section VI hereof), whichever is more favorable to the Executive; -15-

(d) In a lump sum, payable on or before the fifth (5th) day following the Date of Termination, an amount equal to the pro rata portion of the Executive's annual incentive compensation for the calendar year in which the Date of Termination occurs, such amount to be determined by multiplying the Executive's annual incentive compensation amount (as described below) by a fraction, the numerator of which is the number of days in such calendar year which had elapsed as of the Date of Termination and the denominator of which is 365; provided, however, that this Section IV.F.(1)(d) shall have effect only if the Date of Termination occurs in a calendar year following the calendar year in which occurs a change in control of the Company (as defined in Section VI hereof). For purposes of this paragraph, the Executive's annual incentive compensation amount shall be equal to the amount determined pursuant to the second sentence of Section IV.F.(1)(c) above; and (e) The Company shall also pay all legal fees and expenses incurred as a result of such termination (including all such fees and expenses, if any, incurred in seeking to obtain or enforce any right or benefit provided by this Agreement, or in interpreting this Agreement). (2) If the Company shall terminate the Executive's employment other than pursuant to Sections IV.B. (Cause), IV.C. (Disability) or IV.D. (Retirement) hereof or if the Executive shall terminate his employment for Good Reason pursuant to Section IV.E. hereof, then the Company shall pay him in one sum in cash, payable on or before the fifth (5th) day following the Date of Termination, an amount equal to the present value as of the Date of Termination (calculated at a discount rate equal to the discount rate used at the Date of Termination for computing the present value of commuted payments under the Pension Plan) of (a) the lump sum value (determined as of the Executive's Normal Retirement Age, using the same methods and assumptions used at the Date of Termination for purposes of the Pension Plan, of the retirement pension to which the Executive would have been entitled under the terms of the Pension Plan, excess benefits plan and supplemental retirement program

(d) In a lump sum, payable on or before the fifth (5th) day following the Date of Termination, an amount equal to the pro rata portion of the Executive's annual incentive compensation for the calendar year in which the Date of Termination occurs, such amount to be determined by multiplying the Executive's annual incentive compensation amount (as described below) by a fraction, the numerator of which is the number of days in such calendar year which had elapsed as of the Date of Termination and the denominator of which is 365; provided, however, that this Section IV.F.(1)(d) shall have effect only if the Date of Termination occurs in a calendar year following the calendar year in which occurs a change in control of the Company (as defined in Section VI hereof). For purposes of this paragraph, the Executive's annual incentive compensation amount shall be equal to the amount determined pursuant to the second sentence of Section IV.F.(1)(c) above; and (e) The Company shall also pay all legal fees and expenses incurred as a result of such termination (including all such fees and expenses, if any, incurred in seeking to obtain or enforce any right or benefit provided by this Agreement, or in interpreting this Agreement). (2) If the Company shall terminate the Executive's employment other than pursuant to Sections IV.B. (Cause), IV.C. (Disability) or IV.D. (Retirement) hereof or if the Executive shall terminate his employment for Good Reason pursuant to Section IV.E. hereof, then the Company shall pay him in one sum in cash, payable on or before the fifth (5th) day following the Date of Termination, an amount equal to the present value as of the Date of Termination (calculated at a discount rate equal to the discount rate used at the Date of Termination for computing the present value of commuted payments under the Pension Plan) of (a) the lump sum value (determined as of the Executive's Normal Retirement Age, using the same methods and assumptions used at the Date of Termination for purposes of the Pension Plan, of the retirement pension to which the Executive would have been entitled under the terms of the Pension Plan, excess benefits plan and supplemental retirement program for short service executives in which he participates (as in effect -16-

on the date of this Agreement) if the Executive's employment had continued through the conclusion of the Contract Term, at compensation levels consistent with those set forth in paragraphs (1)(b) (Base Salary) and (c) (Incentive Compensation) above (and including any other compensation, if any, which is to be considered under the formulas applicable to such plans), assuming commencement of payment of the Executive's pension at Normal Retirement Age, reduced by (b) the lump sum value (determined as of the Executive's Normal Retirement Age using the methods and assumptions hereinabove specified) of the retirement pension, if any, to which the Executive will be entitled under the terms of the Pension Plan, excess benefits plan and supplemental retirement program for short service executives in which the Executive participates (as in effect on the Date of Termination), based upon termination of the Executive's employment as of the Date of Termination and assuming commencement of payment of the Executive's pension benefits at his Normal Retirement Age. The lump sum value to be calculated under clause (a) of the immediately preceding sentence shall be determined (y) under the assumption that the Executive is fully vested in his retirement pension under the Pension Plan, excess benefits plan and supplemental retirement program for short service executives; and (z) without regard to any amendments to any of such plans, which amendments are adopted on or after the date of a change in control of the Company (as defined in Section VI hereof), to the extent any such amendments adversely affect in any manner the computation of benefits thereunder or are otherwise adverse to the Executive. (3) Unless the Executive is terminated for Cause, the Company shall maintain in full force and effect, for the Executive's continued benefit throughout the Contract Term, all active -17-

and retired employee Benefit Plans in which he was entitled to participate immediately prior to the Date of Termination (except as specified in paragraphs (2) (right of Company to make non-discriminatory changes in plans) and (4) (this Agreement in lieu of other plans as to severance and vacation) of Section III.E. of this Agreement), provided that continued participation is possible under the general terms and provisions of such plans and programs. In the event that participation in any such plan or program is barred, the Company shall arrange to provide him with benefits substantially similar to those which he is entitled to receive under such Benefit Plans. Unless the Executive is terminated for Cause, if

on the date of this Agreement) if the Executive's employment had continued through the conclusion of the Contract Term, at compensation levels consistent with those set forth in paragraphs (1)(b) (Base Salary) and (c) (Incentive Compensation) above (and including any other compensation, if any, which is to be considered under the formulas applicable to such plans), assuming commencement of payment of the Executive's pension at Normal Retirement Age, reduced by (b) the lump sum value (determined as of the Executive's Normal Retirement Age using the methods and assumptions hereinabove specified) of the retirement pension, if any, to which the Executive will be entitled under the terms of the Pension Plan, excess benefits plan and supplemental retirement program for short service executives in which the Executive participates (as in effect on the Date of Termination), based upon termination of the Executive's employment as of the Date of Termination and assuming commencement of payment of the Executive's pension benefits at his Normal Retirement Age. The lump sum value to be calculated under clause (a) of the immediately preceding sentence shall be determined (y) under the assumption that the Executive is fully vested in his retirement pension under the Pension Plan, excess benefits plan and supplemental retirement program for short service executives; and (z) without regard to any amendments to any of such plans, which amendments are adopted on or after the date of a change in control of the Company (as defined in Section VI hereof), to the extent any such amendments adversely affect in any manner the computation of benefits thereunder or are otherwise adverse to the Executive. (3) Unless the Executive is terminated for Cause, the Company shall maintain in full force and effect, for the Executive's continued benefit throughout the Contract Term, all active -17-

and retired employee Benefit Plans in which he was entitled to participate immediately prior to the Date of Termination (except as specified in paragraphs (2) (right of Company to make non-discriminatory changes in plans) and (4) (this Agreement in lieu of other plans as to severance and vacation) of Section III.E. of this Agreement), provided that continued participation is possible under the general terms and provisions of such plans and programs. In the event that participation in any such plan or program is barred, the Company shall arrange to provide him with benefits substantially similar to those which he is entitled to receive under such Benefit Plans. Unless the Executive is terminated for Cause, if prior to the expiration of the Contract Term the Executive attains Normal Retirement Age (or earlier retirement age should he so elect) as defined in the Pension Plan in effect on the Date of Termination hereunder, he shall have the right at any time prior to the expiration of the Contract Term to so retire and the Company shall thereafter maintain in full force and effect, for the Executive's continued benefit, all retired employee Benefit Plans applicable to him, as in effect immediately prior to the Date of Termination (except as specified in paragraphs (2) (right of Company to make non-discriminatory changes in plans) and (4) (this Agreement in lieu of other plans as to severance and vacation) of Section III.E. of this Agreement). If the termination of the Executive's employment occurs on or after a change in control of the Company (as defined in Section VI hereof), (a) the Company's obligation to maintain Benefit Plans pursuant to this Section IV.F.(3) shall be determined, on a plan-by-plan basis, based on the terms of the applicable Benefit Plan as in effect (i) immediately prior to such change in control of the Company or (ii) immediately prior to the Date of Termination, whichever is more favorable to the Executive, and (b) the Executive shall be treated as having remained in employment throughout the -18-

remainder of the Contract Term for purposes of determining his rights under any such Benefit Plans applicable to retired employees. (4) Upon termination of employment for any reason other than pursuant to Sections IV.B. (Cause), IV.C. (Disability) or IV.D. (Retirement), or by reason of the Executive's death, the Company will provide to the Executive, at the cost and expense of the Company, the services of an outplacement firm to be mutually agreed upon between the Company and the Executive. G. Compensation Upon Disability During any period that the Executive fails to perform his duties hereunder as a result of incapacity due to physical or mental illness, he shall continue to receive his full Base Salary and incentive compensation at the rate then in

and retired employee Benefit Plans in which he was entitled to participate immediately prior to the Date of Termination (except as specified in paragraphs (2) (right of Company to make non-discriminatory changes in plans) and (4) (this Agreement in lieu of other plans as to severance and vacation) of Section III.E. of this Agreement), provided that continued participation is possible under the general terms and provisions of such plans and programs. In the event that participation in any such plan or program is barred, the Company shall arrange to provide him with benefits substantially similar to those which he is entitled to receive under such Benefit Plans. Unless the Executive is terminated for Cause, if prior to the expiration of the Contract Term the Executive attains Normal Retirement Age (or earlier retirement age should he so elect) as defined in the Pension Plan in effect on the Date of Termination hereunder, he shall have the right at any time prior to the expiration of the Contract Term to so retire and the Company shall thereafter maintain in full force and effect, for the Executive's continued benefit, all retired employee Benefit Plans applicable to him, as in effect immediately prior to the Date of Termination (except as specified in paragraphs (2) (right of Company to make non-discriminatory changes in plans) and (4) (this Agreement in lieu of other plans as to severance and vacation) of Section III.E. of this Agreement). If the termination of the Executive's employment occurs on or after a change in control of the Company (as defined in Section VI hereof), (a) the Company's obligation to maintain Benefit Plans pursuant to this Section IV.F.(3) shall be determined, on a plan-by-plan basis, based on the terms of the applicable Benefit Plan as in effect (i) immediately prior to such change in control of the Company or (ii) immediately prior to the Date of Termination, whichever is more favorable to the Executive, and (b) the Executive shall be treated as having remained in employment throughout the -18-

remainder of the Contract Term for purposes of determining his rights under any such Benefit Plans applicable to retired employees. (4) Upon termination of employment for any reason other than pursuant to Sections IV.B. (Cause), IV.C. (Disability) or IV.D. (Retirement), or by reason of the Executive's death, the Company will provide to the Executive, at the cost and expense of the Company, the services of an outplacement firm to be mutually agreed upon between the Company and the Executive. G. Compensation Upon Disability During any period that the Executive fails to perform his duties hereunder as a result of incapacity due to physical or mental illness, he shall continue to receive his full Base Salary and incentive compensation at the rate then in effect until this Agreement is terminated pursuant to Section IV.C. hereof. Thereafter, his benefits shall be determined in accordance with the Company's Pension Plan, excess benefits plan, supplemental retirement program for short service executives and disability insurance plans in which the Executive participates, or a substitute plan then in effect; provided, however, that if the Executive's employment is terminated pursuant to Section IV.C. hereof following a change in control of the Company (as defined in Section VI hereof), the Company shall pay to the Executive (a) in a cash lump sum on or before the fifth (5th) day following the Date of Termination, the amounts described in Sections IV.F(1)(a) and (d) hereof, and (b) during each month commencing with the month in which occurs the Date of Termination and through and including the month in which occurs the expiration of the Contract Term (for this purpose the Contract Term shall be determined as of the Date of Termination, but without regard to the Executive's termination for Disability), an aggregate amount in cash equal to -19-

the excess (but not less than zero) of (i) one-twenty-fourth of the aggregate amount determined under Sections IV.F.(1)(b) and (c) hereof over (ii) the aggregate amount received by the Executive during such month under the Company's long-term disability plans. H. Compensation Upon Death In the event this Agreement terminates by reason of the Executive's death following a change in control of the Company (as defined in Section VI hereof), the Company shall pay to the Executive's legal representatives or

remainder of the Contract Term for purposes of determining his rights under any such Benefit Plans applicable to retired employees. (4) Upon termination of employment for any reason other than pursuant to Sections IV.B. (Cause), IV.C. (Disability) or IV.D. (Retirement), or by reason of the Executive's death, the Company will provide to the Executive, at the cost and expense of the Company, the services of an outplacement firm to be mutually agreed upon between the Company and the Executive. G. Compensation Upon Disability During any period that the Executive fails to perform his duties hereunder as a result of incapacity due to physical or mental illness, he shall continue to receive his full Base Salary and incentive compensation at the rate then in effect until this Agreement is terminated pursuant to Section IV.C. hereof. Thereafter, his benefits shall be determined in accordance with the Company's Pension Plan, excess benefits plan, supplemental retirement program for short service executives and disability insurance plans in which the Executive participates, or a substitute plan then in effect; provided, however, that if the Executive's employment is terminated pursuant to Section IV.C. hereof following a change in control of the Company (as defined in Section VI hereof), the Company shall pay to the Executive (a) in a cash lump sum on or before the fifth (5th) day following the Date of Termination, the amounts described in Sections IV.F(1)(a) and (d) hereof, and (b) during each month commencing with the month in which occurs the Date of Termination and through and including the month in which occurs the expiration of the Contract Term (for this purpose the Contract Term shall be determined as of the Date of Termination, but without regard to the Executive's termination for Disability), an aggregate amount in cash equal to -19-

the excess (but not less than zero) of (i) one-twenty-fourth of the aggregate amount determined under Sections IV.F.(1)(b) and (c) hereof over (ii) the aggregate amount received by the Executive during such month under the Company's long-term disability plans. H. Compensation Upon Death In the event this Agreement terminates by reason of the Executive's death following a change in control of the Company (as defined in Section VI hereof), the Company shall pay to the Executive's legal representatives or estate or as may be directed by the legal representatives of his estate, as the case may be, in a lump sum payable on or before the fifth (5th) day following the Executive's death, an amount in cash equal to the amounts determined under Sections IV.F.(1)(a), (b), (c) and (d) hereof (and for the purpose of determining such amounts payable under Sections IV.F.(1)(b) and (c), the Contract Term shall be determined as of the date of the Executive's death, but without regard to such death). I. Restrictions on Competition. (1) The Executive will not, at any time during the Restricted Period (as defined in Section IV.I.(2) below), accept employment with, own an interest in, form a partnership or joint venture with, consult with or otherwise assist any person or enterprise that manufactures or sells products ("Competitive Products") similar to, or competitive with, the products manufactured or sold by the Company on the Date of Termination. (2) The "Restricted Period" means: (a) 24 months after the Date of Termination; and -20-

(b) an additional 12 months thereafter (the "Additional Period") if:

the excess (but not less than zero) of (i) one-twenty-fourth of the aggregate amount determined under Sections IV.F.(1)(b) and (c) hereof over (ii) the aggregate amount received by the Executive during such month under the Company's long-term disability plans. H. Compensation Upon Death In the event this Agreement terminates by reason of the Executive's death following a change in control of the Company (as defined in Section VI hereof), the Company shall pay to the Executive's legal representatives or estate or as may be directed by the legal representatives of his estate, as the case may be, in a lump sum payable on or before the fifth (5th) day following the Executive's death, an amount in cash equal to the amounts determined under Sections IV.F.(1)(a), (b), (c) and (d) hereof (and for the purpose of determining such amounts payable under Sections IV.F.(1)(b) and (c), the Contract Term shall be determined as of the date of the Executive's death, but without regard to such death). I. Restrictions on Competition. (1) The Executive will not, at any time during the Restricted Period (as defined in Section IV.I.(2) below), accept employment with, own an interest in, form a partnership or joint venture with, consult with or otherwise assist any person or enterprise that manufactures or sells products ("Competitive Products") similar to, or competitive with, the products manufactured or sold by the Company on the Date of Termination. (2) The "Restricted Period" means: (a) 24 months after the Date of Termination; and -20-

(b) an additional 12 months thereafter (the "Additional Period") if: (i) the Company has not terminated the Executive's employment in accordance with Section IV.C. (Disability); (ii) the Company elects to impose the Additional Period by providing to the Executive written notice of such election not later than two months after the termination of the Executive's employment; and (iii) the Company pays the Executive, in twelve (12) monthly installments during the Additional Period, an aggregate amount equal to the Executive's Base Salary for the calendar year in which the Executive's employment terminated; and (c) in addition to the time period(s) set forth in (a) and, if applicable, (b) above, the remaining period of time, if any, until the Executive is 60 years old if: (i) this Agreement has terminated by reason of the Executive's Retirement before the Normal Retirement Age; (ii) the Executive is an officer of the Company; (iii) the Executive has elected to receive his or her early retirement benefit on the basis of the increased "Post1995 Factors" set forth in Section 4 of the Company's Excess -21-

Benefits Plan, as such provision may be amended from time to time. (3) Section IV.I.(1) above will not apply if the relevant person or enterprise acquires a business or product line that manufactures or sells Competitive Products after the commencement of the Executive's employment or other relationship with such person or enterprise and the Executive does not participate in any way in the business of

(b) an additional 12 months thereafter (the "Additional Period") if: (i) the Company has not terminated the Executive's employment in accordance with Section IV.C. (Disability); (ii) the Company elects to impose the Additional Period by providing to the Executive written notice of such election not later than two months after the termination of the Executive's employment; and (iii) the Company pays the Executive, in twelve (12) monthly installments during the Additional Period, an aggregate amount equal to the Executive's Base Salary for the calendar year in which the Executive's employment terminated; and (c) in addition to the time period(s) set forth in (a) and, if applicable, (b) above, the remaining period of time, if any, until the Executive is 60 years old if: (i) this Agreement has terminated by reason of the Executive's Retirement before the Normal Retirement Age; (ii) the Executive is an officer of the Company; (iii) the Executive has elected to receive his or her early retirement benefit on the basis of the increased "Post1995 Factors" set forth in Section 4 of the Company's Excess -21-

Benefits Plan, as such provision may be amended from time to time. (3) Section IV.I.(1) above will not apply if the relevant person or enterprise acquires a business or product line that manufactures or sells Competitive Products after the commencement of the Executive's employment or other relationship with such person or enterprise and the Executive does not participate in any way in the business of the Competitive Products for 24 months after the termination of the Executive's employment and, at the request of the Company, the Executive and the relevant person or enterprise certify to the Company in writing that the Executive has and will comply with the restrictions of this Section IV.I.(3). (4) Nothing in this Section IV.I. eliminates or affects any right to payments or benefits that the Executive otherwise has under other provisions of this Article IV; and nothing in this Section IV.I. gives the Executive the right to any payment or benefit under other provisions of this Article IV that he or she does not otherwise have. J. Mitigation The Executive shall not be required to mitigate the amount of any payment or benefit provided for in this Agreement by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for herein be reduced by any compensation earned by the -22-

Executive as the result of employment by another employer after the Date of Termination, or otherwise. V. Certain Tax Matters A. Additional Payments (1) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined (as hereafter provided) that any payment or distribution to or for the Executive's benefit, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise pursuant to or by reason of any other agreement, policy, plan, program or arrangement (including without limitation any stock option agreement or Performance Share Plan Participant agreement), or similar right (a "Payment"), would be subject to the excise

Benefits Plan, as such provision may be amended from time to time. (3) Section IV.I.(1) above will not apply if the relevant person or enterprise acquires a business or product line that manufactures or sells Competitive Products after the commencement of the Executive's employment or other relationship with such person or enterprise and the Executive does not participate in any way in the business of the Competitive Products for 24 months after the termination of the Executive's employment and, at the request of the Company, the Executive and the relevant person or enterprise certify to the Company in writing that the Executive has and will comply with the restrictions of this Section IV.I.(3). (4) Nothing in this Section IV.I. eliminates or affects any right to payments or benefits that the Executive otherwise has under other provisions of this Article IV; and nothing in this Section IV.I. gives the Executive the right to any payment or benefit under other provisions of this Article IV that he or she does not otherwise have. J. Mitigation The Executive shall not be required to mitigate the amount of any payment or benefit provided for in this Agreement by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for herein be reduced by any compensation earned by the -22-

Executive as the result of employment by another employer after the Date of Termination, or otherwise. V. Certain Tax Matters A. Additional Payments (1) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined (as hereafter provided) that any payment or distribution to or for the Executive's benefit, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise pursuant to or by reason of any other agreement, policy, plan, program or arrangement (including without limitation any stock option agreement or Performance Share Plan Participant agreement), or similar right (a "Payment"), would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986 (or any successor provision thereto), or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment or payments (a "Gross-Up Payment") in an amount such that, after payment by the 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, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (2) Subject to the provisions of Section V.A.(5), all determinations required to be made under this Section V.A., including whether an Excise Tax is payable by the Executive, the amount of such Excise Tax, whether a GrossUp Payment is required, and the amount of such -23-

Gross-Up Payment, shall be made by a nationally-recognized legal or accounting firm (the "Firm") selected by the Executive in the Executive's sole discretion. The Executive agrees to direct the Firm to submit its determination and detailed supporting calculations to both the Executive and the Company as promptly as practicable. If the Firm determines that any Excise Tax is payable by the Executive and that a Gross-Up Payment is required, the Company shall pay the Executive the required Gross-Up Payment within ten business days after receipt of such determination and calculations. If the Firm determines that no Excise Tax is payable by the Executive, it shall, at the same time as it makes such determination, furnish the Executive with an opinion that the Executive has substantial authority not to report any Excise Tax on the Executive's federal income tax return. Any determination by the Firm as to the amount of the Gross-Up Payment shall be binding upon the Executive and the Company.

Executive as the result of employment by another employer after the Date of Termination, or otherwise. V. Certain Tax Matters A. Additional Payments (1) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined (as hereafter provided) that any payment or distribution to or for the Executive's benefit, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise pursuant to or by reason of any other agreement, policy, plan, program or arrangement (including without limitation any stock option agreement or Performance Share Plan Participant agreement), or similar right (a "Payment"), would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986 (or any successor provision thereto), or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment or payments (a "Gross-Up Payment") in an amount such that, after payment by the 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, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (2) Subject to the provisions of Section V.A.(5), all determinations required to be made under this Section V.A., including whether an Excise Tax is payable by the Executive, the amount of such Excise Tax, whether a GrossUp Payment is required, and the amount of such -23-

Gross-Up Payment, shall be made by a nationally-recognized legal or accounting firm (the "Firm") selected by the Executive in the Executive's sole discretion. The Executive agrees to direct the Firm to submit its determination and detailed supporting calculations to both the Executive and the Company as promptly as practicable. If the Firm determines that any Excise Tax is payable by the Executive and that a Gross-Up Payment is required, the Company shall pay the Executive the required Gross-Up Payment within ten business days after receipt of such determination and calculations. If the Firm determines that no Excise Tax is payable by the Executive, it shall, at the same time as it makes such determination, furnish the Executive with an opinion that the Executive has substantial authority not to report any Excise Tax on the Executive's federal income tax return. Any determination by the Firm as to the amount of the Gross-Up Payment shall be binding upon the Executive and the Company. As a result of the uncertainty in the application of Section 4999 of the Internal Revenue Code of 1986 (or any successor provision thereto) at the time of the initial determination by the Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made (an "Underpayment"). In the event that the Company exhausts its remedies pursuant to Section V.A.(5) hereof and the Executive thereafter is required to make a payment of any Excise Tax, the Executive may direct the Firm to determine the amount of the Underpayment (if any) that has occurred and to submit its determination and detailed supporting calculations to both the Executive and the Company as promptly as possible. Any such Underpayment shall be promptly paid by the Company to the Executive, or for the Executive's benefit, within ten business days after receipt of such determination and calculations. -24-

(3) The Executive and the Company shall each provide the Firm access to and copies of any books, records and documents in the possession of the Company or the Executive, as the case may be, reasonably requested by the Firm, and otherwise cooperate with the Firm in connection with the preparation and issuance of the determination contemplated by Section V.A.(2) hereof. (4) The fees and expenses of the Firm for its services in connection with the determinations and calculations contemplated by Section V.A.(2) hereof shall be borne by the Company. If such fees and expenses are initially paid by the Executive, the Company shall reimburse the Executive the full amount of such fees and expenses within ten business days after receipt from the Executive of a statement therefor and reasonable evidence of the Executive's payment thereof.

Gross-Up Payment, shall be made by a nationally-recognized legal or accounting firm (the "Firm") selected by the Executive in the Executive's sole discretion. The Executive agrees to direct the Firm to submit its determination and detailed supporting calculations to both the Executive and the Company as promptly as practicable. If the Firm determines that any Excise Tax is payable by the Executive and that a Gross-Up Payment is required, the Company shall pay the Executive the required Gross-Up Payment within ten business days after receipt of such determination and calculations. If the Firm determines that no Excise Tax is payable by the Executive, it shall, at the same time as it makes such determination, furnish the Executive with an opinion that the Executive has substantial authority not to report any Excise Tax on the Executive's federal income tax return. Any determination by the Firm as to the amount of the Gross-Up Payment shall be binding upon the Executive and the Company. As a result of the uncertainty in the application of Section 4999 of the Internal Revenue Code of 1986 (or any successor provision thereto) at the time of the initial determination by the Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made (an "Underpayment"). In the event that the Company exhausts its remedies pursuant to Section V.A.(5) hereof and the Executive thereafter is required to make a payment of any Excise Tax, the Executive may direct the Firm to determine the amount of the Underpayment (if any) that has occurred and to submit its determination and detailed supporting calculations to both the Executive and the Company as promptly as possible. Any such Underpayment shall be promptly paid by the Company to the Executive, or for the Executive's benefit, within ten business days after receipt of such determination and calculations. -24-

(3) The Executive and the Company shall each provide the Firm access to and copies of any books, records and documents in the possession of the Company or the Executive, as the case may be, reasonably requested by the Firm, and otherwise cooperate with the Firm in connection with the preparation and issuance of the determination contemplated by Section V.A.(2) hereof. (4) The fees and expenses of the Firm for its services in connection with the determinations and calculations contemplated by Section V.A.(2) hereof shall be borne by the Company. If such fees and expenses are initially paid by the Executive, the Company shall reimburse the Executive the full amount of such fees and expenses within ten business days after receipt from the Executive of a statement therefor and reasonable evidence of the Executive's payment thereof. (5) The Executive agrees to notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of a Gross-Up Payment. Such notification shall be given as promptly as practicable but no later than ten (10) business days after the Executive actually receives notice of such claim. The Executive agrees to further apprise the Company of the nature of such claim and the date on which such claim is requested to be paid (in each case, to the extent known by the Executive). The Executive agrees not to pay such claim prior to the earlier of (a) the expiration of the 30-calendar-day period following the date on which the Executive gives such notice to the Company and (b) the date that any payment with respect to such claim is due. If the Company notifies the Executive in writing at least -25-

five business days prior to the expiration of such period that it desires to contest such claim, the Executive agrees to: (a) provide the Company with any written records or documents in the Executive's possession relating to such claim reasonably requested by the Company; (b) 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 competent in respect of the subject matter and reasonably selected by the Company; (c) cooperate with the Company in good faith in order effectively to contest such claim; and

(3) The Executive and the Company shall each provide the Firm access to and copies of any books, records and documents in the possession of the Company or the Executive, as the case may be, reasonably requested by the Firm, and otherwise cooperate with the Firm in connection with the preparation and issuance of the determination contemplated by Section V.A.(2) hereof. (4) The fees and expenses of the Firm for its services in connection with the determinations and calculations contemplated by Section V.A.(2) hereof shall be borne by the Company. If such fees and expenses are initially paid by the Executive, the Company shall reimburse the Executive the full amount of such fees and expenses within ten business days after receipt from the Executive of a statement therefor and reasonable evidence of the Executive's payment thereof. (5) The Executive agrees to notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of a Gross-Up Payment. Such notification shall be given as promptly as practicable but no later than ten (10) business days after the Executive actually receives notice of such claim. The Executive agrees to further apprise the Company of the nature of such claim and the date on which such claim is requested to be paid (in each case, to the extent known by the Executive). The Executive agrees not to pay such claim prior to the earlier of (a) the expiration of the 30-calendar-day period following the date on which the Executive gives such notice to the Company and (b) the date that any payment with respect to such claim is due. If the Company notifies the Executive in writing at least -25-

five business days prior to the expiration of such period that it desires to contest such claim, the Executive agrees to: (a) provide the Company with any written records or documents in the Executive's possession relating to such claim reasonably requested by the Company; (b) 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 competent in respect of the subject matter and reasonably selected by the Company; (c) cooperate with the Company in good faith in order effectively to contest such claim; and (d) 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 interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, from and against 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 limiting the foregoing provisions of this Section V.A.(5), the Company shall control all proceedings taken in connection with the contest of any claim contemplated by this Section V.A.(5) 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 (provided, however, that the Executive may participate therein at the Executive's own cost and expense) and may, at its option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the 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 -26-

Company directs the Executive to pay the tax claimed and sue for a refund, the Company shall advance the amount of such payment to the Executive on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax, including interest or penalties with respect

five business days prior to the expiration of such period that it desires to contest such claim, the Executive agrees to: (a) provide the Company with any written records or documents in the Executive's possession relating to such claim reasonably requested by the Company; (b) 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 competent in respect of the subject matter and reasonably selected by the Company; (c) cooperate with the Company in good faith in order effectively to contest such claim; and (d) 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 interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, from and against 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 limiting the foregoing provisions of this Section V.A.(5), the Company shall control all proceedings taken in connection with the contest of any claim contemplated by this Section V.A.(5) 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 (provided, however, that the Executive may participate therein at the Executive's own cost and expense) and may, at its option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the 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 -26-

Company directs the Executive to pay the tax claimed and sue for a refund, the Company shall advance the amount of such payment to the Executive on an interest-free basis and shall indemnify and hold the 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; and provided further, however, that any extension of the statute of limitations relating to payment of taxes for the Executive's taxable year with respect to which the contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of any such contested claim shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the 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. (6) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section V.A.(5) hereof, the Executive receives any refund with respect to such claim, the Executive agrees (subject to the Company's complying with the requirements of Section V.A.(5) hereof) to promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after any taxes applicable thereto). If, after the Executive's receipt of an amount advanced by the Company pursuant to Section V.A.(5) hereof, a determination is made that the Executive is not entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of thirty (30) calendar 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 pursuant to this Section V.A. -27-

VI. Security To secure payment of the benefits provided for in this Agreement, the Company agrees forthwith to establish an

Company directs the Executive to pay the tax claimed and sue for a refund, the Company shall advance the amount of such payment to the Executive on an interest-free basis and shall indemnify and hold the 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; and provided further, however, that any extension of the statute of limitations relating to payment of taxes for the Executive's taxable year with respect to which the contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of any such contested claim shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the 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. (6) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section V.A.(5) hereof, the Executive receives any refund with respect to such claim, the Executive agrees (subject to the Company's complying with the requirements of Section V.A.(5) hereof) to promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after any taxes applicable thereto). If, after the Executive's receipt of an amount advanced by the Company pursuant to Section V.A.(5) hereof, a determination is made that the Executive is not entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of thirty (30) calendar 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 pursuant to this Section V.A. -27-

VI. Security To secure payment of the benefits provided for in this Agreement, the Company agrees forthwith to establish an irrevocable escrow account (the "Escrow Account") at National City Bank (the "Escrow Agent"), Cleveland, Ohio, or, in the event that National City Bank shall resign, any other financial institution satisfactory to the Company and the Executive (or the Executive's executor or other personal representative) or appointed by a court of competent jurisdiction and to keep on deposit in the Escrow Account such amount, if any, as shall at all times be at least equal to the required security hereinafter provided for. The maximum amount of required security to be kept on deposit at any time shall be (A) the sum of $657,800 (the "Maximum Amount") or (B) if there has been determination with the Executive's written consent or by a final arbitral award rendered in accordance with this Agreement that a specific lesser amount fully secures the Company's obligations under this Agreement, then such specific lesser amount or, in the case that the Company has fully performed its obligations under this Agreement, nothing. Subject to the provisions hereof, the Maximum Amount of required security shall be kept on deposit at all times after (i) the expiration of five days following the occurrence of a "potential change in control of the Company" or (ii) a "change in control of the Company" (as such terms are hereinafter defined), whichever occurs earlier. For purposes of this Agreement, a "change in control of the Company" shall be deemed to have occurred if the conditions set forth in any one of the following paragraphs shall have been satisfied: (1) Any "person" (as that term is used in Sections 13(d) and 14(d)(2) of the Exchange Act) is or becomes the beneficial owner, directly or indirectly, of securities of the -28-

Company representing twenty-five percent (25%) or more of the combined voting power of the Company's then outstanding voting securities; or (2) 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 designated by a person who has entered into an agreement or arrangement with the Company to effect a transaction described in clause (1) or (3) of this sentence) whose appointment, election, 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 appointment, election or nomination for election was previously so approved,

VI. Security To secure payment of the benefits provided for in this Agreement, the Company agrees forthwith to establish an irrevocable escrow account (the "Escrow Account") at National City Bank (the "Escrow Agent"), Cleveland, Ohio, or, in the event that National City Bank shall resign, any other financial institution satisfactory to the Company and the Executive (or the Executive's executor or other personal representative) or appointed by a court of competent jurisdiction and to keep on deposit in the Escrow Account such amount, if any, as shall at all times be at least equal to the required security hereinafter provided for. The maximum amount of required security to be kept on deposit at any time shall be (A) the sum of $657,800 (the "Maximum Amount") or (B) if there has been determination with the Executive's written consent or by a final arbitral award rendered in accordance with this Agreement that a specific lesser amount fully secures the Company's obligations under this Agreement, then such specific lesser amount or, in the case that the Company has fully performed its obligations under this Agreement, nothing. Subject to the provisions hereof, the Maximum Amount of required security shall be kept on deposit at all times after (i) the expiration of five days following the occurrence of a "potential change in control of the Company" or (ii) a "change in control of the Company" (as such terms are hereinafter defined), whichever occurs earlier. For purposes of this Agreement, a "change in control of the Company" shall be deemed to have occurred if the conditions set forth in any one of the following paragraphs shall have been satisfied: (1) Any "person" (as that term is used in Sections 13(d) and 14(d)(2) of the Exchange Act) is or becomes the beneficial owner, directly or indirectly, of securities of the -28-

Company representing twenty-five percent (25%) or more of the combined voting power of the Company's then outstanding voting securities; or (2) 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 designated by a person who has entered into an agreement or arrangement with the Company to effect a transaction described in clause (1) or (3) of this sentence) whose appointment, election, 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 appointment, election or nomination for election was previously so approved, cease for any reason to constitute a majority of the Board of Directors of the Company; or (3) There is consummated a merger or consolidation of the Company or a subsidiary thereof with or into any other corporation, other than a merger or consolidation which would result in the holders of the voting securities of the Company outstanding immediately prior thereto holding securities which represent immediately after such merger or consolidation more than fifty (50%) of the combined voting power of the voting securities of either the Company or the other entity which survives such merger or consolidation or the parent of the entity which survives such merger or consolidation; or (4) There is consummated a sale or disposition by the Company of all or substantially all the Company's assets. -29-

For purposes of this Agreement, a "potential change in control of the Company" shall be deemed to have occurred if the conditions set forth in any one of the following paragraphs shall have been satisfied: (a) any person is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing twenty percent (20%) or more of the combined voting power of the Company's then outstanding voting securities; or (b) the Company enters into an agreement, the consummation of which would result in the occurrence of a change in control of the Company; or

Company representing twenty-five percent (25%) or more of the combined voting power of the Company's then outstanding voting securities; or (2) 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 designated by a person who has entered into an agreement or arrangement with the Company to effect a transaction described in clause (1) or (3) of this sentence) whose appointment, election, 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 appointment, election or nomination for election was previously so approved, cease for any reason to constitute a majority of the Board of Directors of the Company; or (3) There is consummated a merger or consolidation of the Company or a subsidiary thereof with or into any other corporation, other than a merger or consolidation which would result in the holders of the voting securities of the Company outstanding immediately prior thereto holding securities which represent immediately after such merger or consolidation more than fifty (50%) of the combined voting power of the voting securities of either the Company or the other entity which survives such merger or consolidation or the parent of the entity which survives such merger or consolidation; or (4) There is consummated a sale or disposition by the Company of all or substantially all the Company's assets. -29-

For purposes of this Agreement, a "potential change in control of the Company" shall be deemed to have occurred if the conditions set forth in any one of the following paragraphs shall have been satisfied: (a) any person is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing twenty percent (20%) or more of the combined voting power of the Company's then outstanding voting securities; or (b) the Company enters into an agreement, the consummation of which would result in the occurrence of a change in control of the Company; or (c) any person publicly announces an intention to take or to consider taking actions which, if consummated, would constitute or result in a change in control of the Company; or (d) any person commences a solicitation (as defined in Rule 14a-1 of the General Rules and Regulations under the Exchange Act) of proxies or consents which has the purpose of effecting or would (if successful) result in a change in control of the Company; or (e) a tender or exchange offer for voting securities of the Company, made by a person (other than the Company, any subsidiary thereof, any employee benefit plan of the Company or any person organized, appointed or established by the Company for or pursuant to the terms of any such plan), is first published or sent or given (within the meaning of Rule 14d-2(a) of the General Rules and Regulations under the Exchange Act). Until the Maximum Amount of required security is required to be kept on deposit, the Company shall only be obliged to maintain on deposit in the Escrow Account an amount (the "Required Security") at least equal to sixty percent (60%) of the Maximum Amount of required security; provided, however, that if a potential change in control of the -30-

Company shall occur prior to a change in control of the Company and if a change in control of the Company does not occur within twelve months after the most recent occurrence of a potential change in control of the Company, the Escrow Agent shall be entitled, upon receipt of a written request by the Company, to return to the Company any amounts in excess of the Required Security (or reduce the amount of any letter of credit to an amount equal to the Required Security). Except as provided in the immediately preceding sentence and in the

For purposes of this Agreement, a "potential change in control of the Company" shall be deemed to have occurred if the conditions set forth in any one of the following paragraphs shall have been satisfied: (a) any person is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing twenty percent (20%) or more of the combined voting power of the Company's then outstanding voting securities; or (b) the Company enters into an agreement, the consummation of which would result in the occurrence of a change in control of the Company; or (c) any person publicly announces an intention to take or to consider taking actions which, if consummated, would constitute or result in a change in control of the Company; or (d) any person commences a solicitation (as defined in Rule 14a-1 of the General Rules and Regulations under the Exchange Act) of proxies or consents which has the purpose of effecting or would (if successful) result in a change in control of the Company; or (e) a tender or exchange offer for voting securities of the Company, made by a person (other than the Company, any subsidiary thereof, any employee benefit plan of the Company or any person organized, appointed or established by the Company for or pursuant to the terms of any such plan), is first published or sent or given (within the meaning of Rule 14d-2(a) of the General Rules and Regulations under the Exchange Act). Until the Maximum Amount of required security is required to be kept on deposit, the Company shall only be obliged to maintain on deposit in the Escrow Account an amount (the "Required Security") at least equal to sixty percent (60%) of the Maximum Amount of required security; provided, however, that if a potential change in control of the -30-

Company shall occur prior to a change in control of the Company and if a change in control of the Company does not occur within twelve months after the most recent occurrence of a potential change in control of the Company, the Escrow Agent shall be entitled, upon receipt of a written request by the Company, to return to the Company any amounts in excess of the Required Security (or reduce the amount of any letter of credit to an amount equal to the Required Security). Except as provided in the immediately preceding sentence and in the penultimate paragraph of this Section VI, amounts deposited in the Escrow Account shall be paid out by the Escrow Agent only (a) to the Company, to the extent that the amount on deposit exceeds the maximum amount of required security as specified in joint written instructions from the Executive and the Company to the Escrow Agent or in a final arbitral award rendered pursuant to Section VII hereof, or (b) to the Executive, (i) if prior to a change in control of the Company, in amounts specified in joint written instructions from the Executive and the Company or in a final arbitral award rendered pursuant to Section VII hereof or (ii) if after a change in control of the Company in such amounts as the Executive shall certify to the Escrow Agent as amounts that the Company is in default in paying the Executive under this Agreement. The Company shall have the right, at any time and from time to time, to instruct the Escrow Agent to invest all or any or any part of the funds in the Escrow Account in time deposits or certificates of deposit with, or repurchase or other obligations of, National City Bank, in its individual corporate capacity, or any of its domestic or foreign branches, or any other "bank" (as determined by the Company), or obligations issued or guaranteed by the United States or any of its agencies or instrumentalities, provided that no such investment shall be for a period in excess of ninety (90) days. The Escrow Agent shall have no liability whatsoever for following the -31-

instructions of the Company regarding any such investment, or for any loss in value of the Escrow Account as a consequence of any such investment or the liquidation thereof.

Company shall occur prior to a change in control of the Company and if a change in control of the Company does not occur within twelve months after the most recent occurrence of a potential change in control of the Company, the Escrow Agent shall be entitled, upon receipt of a written request by the Company, to return to the Company any amounts in excess of the Required Security (or reduce the amount of any letter of credit to an amount equal to the Required Security). Except as provided in the immediately preceding sentence and in the penultimate paragraph of this Section VI, amounts deposited in the Escrow Account shall be paid out by the Escrow Agent only (a) to the Company, to the extent that the amount on deposit exceeds the maximum amount of required security as specified in joint written instructions from the Executive and the Company to the Escrow Agent or in a final arbitral award rendered pursuant to Section VII hereof, or (b) to the Executive, (i) if prior to a change in control of the Company, in amounts specified in joint written instructions from the Executive and the Company or in a final arbitral award rendered pursuant to Section VII hereof or (ii) if after a change in control of the Company in such amounts as the Executive shall certify to the Escrow Agent as amounts that the Company is in default in paying the Executive under this Agreement. The Company shall have the right, at any time and from time to time, to instruct the Escrow Agent to invest all or any or any part of the funds in the Escrow Account in time deposits or certificates of deposit with, or repurchase or other obligations of, National City Bank, in its individual corporate capacity, or any of its domestic or foreign branches, or any other "bank" (as determined by the Company), or obligations issued or guaranteed by the United States or any of its agencies or instrumentalities, provided that no such investment shall be for a period in excess of ninety (90) days. The Escrow Agent shall have no liability whatsoever for following the -31-

instructions of the Company regarding any such investment, or for any loss in value of the Escrow Account as a consequence of any such investment or the liquidation thereof. The Company may meet its obligation to keep amounts on deposit in the Escrow Account through (a) deposits of assets; (b) one or more letters of credit deposited in escrow; or (c) any combination of the foregoing. The Company shall have right, at any time and from time to time, to substitute one form of permitted deposit in the Escrow Account for another form of permitted deposit in the Escrow Account. Intending that the Escrow Agent and its successors and assigns shall have the right to rely hereon, the Executive consents to the agreement pertaining to the Escrow Account to be maintained pursuant to this Section VI (the "Escrow Agreement") substantially in the form attached hereto as Exhibit A, and consents to the amendment and restatement, pursuant to the Escrow Agreement, of all prior escrow agreements which have been made between the Company and National City Bank (in any capacity) and of which the Executive is a beneficiary. The Executive further consents to amendments, modifications, restatements and clarifications of the Escrow Agreement from time to time, so long as, after giving effect to each such amendment, modification, restatement or clarification, the then aggregate amount (whether in the form of cash, investments which the Company has instructed the Escrow Agent to make as hereinbefore provided (the amount of which shall be determined, in each case, at the time of the investment), amounts available to be drawn by the Escrow Agent under one or more letters of credit, or any combination of the foregoing) credited to the Escrow Account by the Escrow Agent would not be less than the required security provided -32-

for in this Section VI. The Escrow Agent and its successors and assigns shall have the right to rely upon such consent of the Executive. VII. Arbitration Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Cleveland, Ohio in accordance with the rules of the American Arbitration Association then in effect; provided that all arbitration expenses shall be borne by the Company. Judgment may be entered on the arbitrators' award in any court having jurisdiction; provided, however, that the Executive shall be entitled to seek

instructions of the Company regarding any such investment, or for any loss in value of the Escrow Account as a consequence of any such investment or the liquidation thereof. The Company may meet its obligation to keep amounts on deposit in the Escrow Account through (a) deposits of assets; (b) one or more letters of credit deposited in escrow; or (c) any combination of the foregoing. The Company shall have right, at any time and from time to time, to substitute one form of permitted deposit in the Escrow Account for another form of permitted deposit in the Escrow Account. Intending that the Escrow Agent and its successors and assigns shall have the right to rely hereon, the Executive consents to the agreement pertaining to the Escrow Account to be maintained pursuant to this Section VI (the "Escrow Agreement") substantially in the form attached hereto as Exhibit A, and consents to the amendment and restatement, pursuant to the Escrow Agreement, of all prior escrow agreements which have been made between the Company and National City Bank (in any capacity) and of which the Executive is a beneficiary. The Executive further consents to amendments, modifications, restatements and clarifications of the Escrow Agreement from time to time, so long as, after giving effect to each such amendment, modification, restatement or clarification, the then aggregate amount (whether in the form of cash, investments which the Company has instructed the Escrow Agent to make as hereinbefore provided (the amount of which shall be determined, in each case, at the time of the investment), amounts available to be drawn by the Escrow Agent under one or more letters of credit, or any combination of the foregoing) credited to the Escrow Account by the Escrow Agent would not be less than the required security provided -32-

for in this Section VI. The Escrow Agent and its successors and assigns shall have the right to rely upon such consent of the Executive. VII. Arbitration Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Cleveland, Ohio in accordance with the rules of the American Arbitration Association then in effect; provided that all arbitration expenses shall be borne by the Company. Judgment may be entered on the arbitrators' award in any court having jurisdiction; provided, however, that the Executive shall be entitled to seek specific performance of his right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. -33-

VIII. Miscellaneous A. Successors, Binding Agreement 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, by agreement in form and substance satisfactory to the Executive, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as would apply if the Executive terminated his employment for Good Reason, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid that executes and delivers the agreement provided for in this section or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amount payable hereunder remains unpaid, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive's

for in this Section VI. The Escrow Agent and its successors and assigns shall have the right to rely upon such consent of the Executive. VII. Arbitration Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Cleveland, Ohio in accordance with the rules of the American Arbitration Association then in effect; provided that all arbitration expenses shall be borne by the Company. Judgment may be entered on the arbitrators' award in any court having jurisdiction; provided, however, that the Executive shall be entitled to seek specific performance of his right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. -33-

VIII. Miscellaneous A. Successors, Binding Agreement 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, by agreement in form and substance satisfactory to the Executive, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as would apply if the Executive terminated his employment for Good Reason, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid that executes and delivers the agreement provided for in this section or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amount payable hereunder remains unpaid, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive's devisee, legatee, or other designee or, if there be no such designee, to his estate. -34-

B. Notice Notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement, provided that all notices to the Company shall be directed to the attention of the Secretary of the Company, or to such other address as either party may have furnished to the other in writing in accordance herewith. -35-

C. Waiver and Amendment; Governing Law No provisions of this Agreement may be modified, waived or discharged unless such modification, waiver or discharge is agreed to in writing signed by the Executive and such officer as may be specifically designated by the Board (which shall in any event include the Company's Chief Executive Officer). 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. No agreement or representations, oral or otherwise,

VIII. Miscellaneous A. Successors, Binding Agreement 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, by agreement in form and substance satisfactory to the Executive, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as would apply if the Executive terminated his employment for Good Reason, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid that executes and delivers the agreement provided for in this section or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amount payable hereunder remains unpaid, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive's devisee, legatee, or other designee or, if there be no such designee, to his estate. -34-

B. Notice Notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement, provided that all notices to the Company shall be directed to the attention of the Secretary of the Company, or to such other address as either party may have furnished to the other in writing in accordance herewith. -35-

C. Waiver and Amendment; Governing Law No provisions of this Agreement may be modified, waived or discharged unless such modification, waiver or discharge is agreed to in writing signed by the Executive and such officer as may be specifically designated by the Board (which shall in any event include the Company's Chief Executive Officer). 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. No agreement or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement, and this Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof. Without limiting the generality of the foregoing, this Agreement supersedes and replaces in its entirety any prior agreement relating to the subject matter hereof (other than agreements between the Executive and the Company which constitute Benefit Plans). The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Ohio. D. Release and Reaffirmation In connection with any termination of the Executive's employment prior to a change in control of the Company (as defined in Section VI hereof), the Company may, as a condition to the payment by the Company to the Executive of any post-employment benefits under this Agreement, condition such payment upon the execution and delivery by the Executive to the Company of: -36-

B. Notice Notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement, provided that all notices to the Company shall be directed to the attention of the Secretary of the Company, or to such other address as either party may have furnished to the other in writing in accordance herewith. -35-

C. Waiver and Amendment; Governing Law No provisions of this Agreement may be modified, waived or discharged unless such modification, waiver or discharge is agreed to in writing signed by the Executive and such officer as may be specifically designated by the Board (which shall in any event include the Company's Chief Executive Officer). 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. No agreement or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement, and this Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof. Without limiting the generality of the foregoing, this Agreement supersedes and replaces in its entirety any prior agreement relating to the subject matter hereof (other than agreements between the Executive and the Company which constitute Benefit Plans). The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Ohio. D. Release and Reaffirmation In connection with any termination of the Executive's employment prior to a change in control of the Company (as defined in Section VI hereof), the Company may, as a condition to the payment by the Company to the Executive of any post-employment benefits under this Agreement, condition such payment upon the execution and delivery by the Executive to the Company of: -36-

(1) A release, in form reasonably acceptable to the Company, releasing the Company from any further obligations to the Executive, except for obligations under Benefit Plans which remain in favor of the Executive and any other remaining obligations under the specific terms of this Agreement or any other written agreement in effect between the Company and the Executive; and (2) A reaffirmation by the Executive of his obligations under this Agreement and any other agreement theretofore in effect between the Executive and the Company relating to confidentiality, restrictions on competition or intellectual property rights. This Section IX.D. shall not apply in connection with any termination of the Executive's employment on or after the date on which a change in control of the Company (as defined in Section VI hereof) shall have occurred. E. Validity The invalidity or unenforceability of any one or more 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. F. Certain Obligations of the Company All obligations of the Company to make payments and provide benefits under this Agreement shall survive the expiration of the Contract Term.

C. Waiver and Amendment; Governing Law No provisions of this Agreement may be modified, waived or discharged unless such modification, waiver or discharge is agreed to in writing signed by the Executive and such officer as may be specifically designated by the Board (which shall in any event include the Company's Chief Executive Officer). 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. No agreement or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement, and this Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof. Without limiting the generality of the foregoing, this Agreement supersedes and replaces in its entirety any prior agreement relating to the subject matter hereof (other than agreements between the Executive and the Company which constitute Benefit Plans). The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Ohio. D. Release and Reaffirmation In connection with any termination of the Executive's employment prior to a change in control of the Company (as defined in Section VI hereof), the Company may, as a condition to the payment by the Company to the Executive of any post-employment benefits under this Agreement, condition such payment upon the execution and delivery by the Executive to the Company of: -36-

(1) A release, in form reasonably acceptable to the Company, releasing the Company from any further obligations to the Executive, except for obligations under Benefit Plans which remain in favor of the Executive and any other remaining obligations under the specific terms of this Agreement or any other written agreement in effect between the Company and the Executive; and (2) A reaffirmation by the Executive of his obligations under this Agreement and any other agreement theretofore in effect between the Executive and the Company relating to confidentiality, restrictions on competition or intellectual property rights. This Section IX.D. shall not apply in connection with any termination of the Executive's employment on or after the date on which a change in control of the Company (as defined in Section VI hereof) shall have occurred. E. Validity The invalidity or unenforceability of any one or more 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. F. Certain Obligations of the Company All obligations of the Company to make payments and provide benefits under this Agreement shall survive the expiration of the Contract Term. G. Counterparts This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. -37-

FERRO CORPORATION
BY:/s/ Hector R. Ortino

(1) A release, in form reasonably acceptable to the Company, releasing the Company from any further obligations to the Executive, except for obligations under Benefit Plans which remain in favor of the Executive and any other remaining obligations under the specific terms of this Agreement or any other written agreement in effect between the Company and the Executive; and (2) A reaffirmation by the Executive of his obligations under this Agreement and any other agreement theretofore in effect between the Executive and the Company relating to confidentiality, restrictions on competition or intellectual property rights. This Section IX.D. shall not apply in connection with any termination of the Executive's employment on or after the date on which a change in control of the Company (as defined in Section VI hereof) shall have occurred. E. Validity The invalidity or unenforceability of any one or more 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. F. Certain Obligations of the Company All obligations of the Company to make payments and provide benefits under this Agreement shall survive the expiration of the Contract Term. G. Counterparts This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. -37-

FERRO CORPORATION
BY:/s/ Hector R. Ortino -------------------------------------------

/s/ Kent H. Lee ------------------------------------------Kent H. Lee

-38-

EXHIBIT 11 FERRO CORPORATION AND SUBSIDIARIES STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
12 Months December 1998 ----------36,419,090 69,282 (3,789) -----------$65,493 $1.80 12 Months December 1997 --------38,131,631 ($37,277) (3,757) ---------($41,034) ($1.08)

(Dollars in thousands, except per share data)

Basic: Weighted Average Common Shares Outstanding Net Income (Loss) Less Preferred Stock Dividend, Net of Tax Net Income (Loss) Available to Common Shareholders Basic Earnings Per Common Share

FERRO CORPORATION
BY:/s/ Hector R. Ortino -------------------------------------------

/s/ Kent H. Lee ------------------------------------------Kent H. Lee

-38-

EXHIBIT 11 FERRO CORPORATION AND SUBSIDIARIES STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
12 Months December 1998 ----------36,419,090 69,282 (3,789) -----------$65,493 $1.80 12 Months December 1997 --------38,131,631 ($37,277) (3,757) ---------($41,034) ($1.08)

(Dollars in thousands, except per share data)

Basic: Weighted Average Common Shares Outstanding Net Income (Loss) Less Preferred Stock Dividend, Net of Tax Net Income (Loss) Available to Common Shareholders Basic Earnings Per Common Share

Diluted: Weighted Average Common Shares Outstanding Adjustments for assumed conversion of convertible preferred stock and common stock options

36,419,090

38,131,631

Net Income (Loss) Additional ESOP Contribution, Net of Tax Adjusted Net Income (Loss) Diluted Earnings Per Share

4,060,051 ----------40,479,141 $69,282 (1,584) -----------$67,698 $1.67

4,136,397 ---------42,268,028 ($37,277) (1,803) ---------($39,080) ($0.92)

Note: Due to the anti-dilutive effect of the net loss in 1997, Basic Earnings Per Share is reported for both Basic and Diluted Earnings Per Share.

EXHIBIT 12 FERRO CORPORATION AND SUBSIDIARIES RATIO OF EARNINGS TO FIXED CHARGES
12 months DECEMBER 1998 --------12 months DECEMBER 1997 ---------

(Dollars in Thousands)

Earnings: Pre-Tax Income (Loss)

69,282

(48,470)

EXHIBIT 11 FERRO CORPORATION AND SUBSIDIARIES STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
12 Months December 1998 ----------36,419,090 69,282 (3,789) -----------$65,493 $1.80 12 Months December 1997 --------38,131,631 ($37,277) (3,757) ---------($41,034) ($1.08)

(Dollars in thousands, except per share data)

Basic: Weighted Average Common Shares Outstanding Net Income (Loss) Less Preferred Stock Dividend, Net of Tax Net Income (Loss) Available to Common Shareholders Basic Earnings Per Common Share

Diluted: Weighted Average Common Shares Outstanding Adjustments for assumed conversion of convertible preferred stock and common stock options

36,419,090

38,131,631

Net Income (Loss) Additional ESOP Contribution, Net of Tax Adjusted Net Income (Loss) Diluted Earnings Per Share

4,060,051 ----------40,479,141 $69,282 (1,584) -----------$67,698 $1.67

4,136,397 ---------42,268,028 ($37,277) (1,803) ---------($39,080) ($0.92)

Note: Due to the anti-dilutive effect of the net loss in 1997, Basic Earnings Per Share is reported for both Basic and Diluted Earnings Per Share.

EXHIBIT 12 FERRO CORPORATION AND SUBSIDIARIES RATIO OF EARNINGS TO FIXED CHARGES
12 months DECEMBER 1998 --------12 months DECEMBER 1997 ---------

(Dollars in Thousands)

Earnings: Pre-Tax Income (Loss) Add: Fixed Charges Less: Interest Capitalization Total Earnings

69,282 18,761 (637) ------87,406 =======

(48,470) 15,293 (482) ------(33,659) =======

Fixed Charges: Interest Expense Interest Capitalization Interest Portion of Rental Expense Total Fixed Charges Total Earnings

15,284 637 2,840 ------18,761 ======= 87,406

12,163 482 2,648 ------15,293 ======= (33,659)

EXHIBIT 12 FERRO CORPORATION AND SUBSIDIARIES RATIO OF EARNINGS TO FIXED CHARGES
12 months DECEMBER 1998 --------12 months DECEMBER 1997 ---------

(Dollars in Thousands)

Earnings: Pre-Tax Income (Loss) Add: Fixed Charges Less: Interest Capitalization Total Earnings

69,282 18,761 (637) ------87,406 =======

(48,470) 15,293 (482) ------(33,659) =======

Fixed Charges: Interest Expense Interest Capitalization Interest Portion of Rental Expense Total Fixed Charges Total Earnings

15,284 637 2,840 ------18,761 ======= 87,406

12,163 482 2,648 ------15,293 ======= (33,659)

Divided By: Total Fixed Charges Ratio 18,761 ------4.66 15,293 ------(2.20)

Note: Preferred dividends are excluded. Amortization of debt expense and discounts and premiums were deemed immaterial to the above calculation. Interest portion of rental expense includes conservative estimates based on calculations from prior years.

Exhibit 13 [LOGO-FERRO] REALIZING OUR VISION 1998 ANNUAL REPORT

OUR VISION To achieve market leadership positions through a customer-centered and highly creative organization committed to delivering top-quality products and outstanding services to customers worldwide and superior returns to shareholders. CONTENTS 1 Financial Highlights 2 Letter to Shareholders 6 Growing Our Operations

Exhibit 13 [LOGO-FERRO] REALIZING OUR VISION 1998 ANNUAL REPORT

OUR VISION To achieve market leadership positions through a customer-centered and highly creative organization committed to delivering top-quality products and outstanding services to customers worldwide and superior returns to shareholders. CONTENTS 1 Financial Highlights 2 Letter to Shareholders 6 Growing Our Operations 8 Products and Markets 10 Customer Focus 12 Creativity 14 Quality Products 16 Worldwide Reach 18 Financial Section 46 Directors and Officers 47 Corporate Information [photo] We are committed to realizing our vision and, indeed, already have the distinction of market leadership in a number of our core businesses. Our strategies are designed to firmly maintain our leadership positions or achieve them as quickly as possible. Each element of our vision - customer focus, creativity, quality products and services, and worldwide reach - is contributing to a long and growing list of satisfied customers and the kind of growth and profitability that benefits shareholders. Throughout this annual report, you'll read about and see examples of specific businesses and products that exemplify the elements of our vision. Our powder coatings business, represented on the cover by powder-coated aluminum wheels, is particularly well positioned to expand its market leadership.

1998 SALES BY SEGMENT
Plastics Chemicals 18% 22%

OUR VISION To achieve market leadership positions through a customer-centered and highly creative organization committed to delivering top-quality products and outstanding services to customers worldwide and superior returns to shareholders. CONTENTS 1 Financial Highlights 2 Letter to Shareholders 6 Growing Our Operations 8 Products and Markets 10 Customer Focus 12 Creativity 14 Quality Products 16 Worldwide Reach 18 Financial Section 46 Directors and Officers 47 Corporate Information [photo] We are committed to realizing our vision and, indeed, already have the distinction of market leadership in a number of our core businesses. Our strategies are designed to firmly maintain our leadership positions or achieve them as quickly as possible. Each element of our vision - customer focus, creativity, quality products and services, and worldwide reach - is contributing to a long and growing list of satisfied customers and the kind of growth and profitability that benefits shareholders. Throughout this annual report, you'll read about and see examples of specific businesses and products that exemplify the elements of our vision. Our powder coatings business, represented on the cover by powder-coated aluminum wheels, is particularly well positioned to expand its market leadership.

1998 SALES BY SEGMENT
Plastics Chemicals Coatings 18% 22% 60%

1998 SALES BY REGION
Asia-Pacific Latin America Europe 5% 8% 33%

1998 SALES BY SEGMENT
Plastics Chemicals Coatings 18% 22% 60%

1998 SALES BY REGION
Asia-Pacific Latin America Europe United States and Canada 5% 8% 33%

54%

FINANCIAL HIGHLIGHTS Ferro Corporation and subsidiaries
(dollars in thousands except per share data) 1998 1997 1996 -----------------------------------------------------------------------------------------------------OPERATING RESULTS Net sales $ 1,361,844 1,381,280 1,355,685 Net income (loss) (a) $ 69,282 (37,277) 54,586 PER COMMON SHARE DATA(A)(B) Basic earnings (loss) Diluted earnings (loss) Cash dividends

$ $ $

1.80 1.67 0.495

(1.08) (1.08) 0.43

1.29 1.21 0.39

OTHER Average shares outstanding(b) 36,419,090 38,131,631 39,506,572 Net cash provided by operations $ 80,031 130,283 111,572 Return on average shareholders' equity(a) 25% -14% Number of holders of common stock (year-end) 2,257 2,945 3,090 Number of employees (year-end) 6,693 6,851 6,912 ------------------------------------------------------------------------------------------------------

(a) Included in 1997 numbers is a pre-tax realignment charge of $152.8 million, which on an after-tax basis is $100.0 million, or $2.52 per common share. Excluding the realignment charge, the Company recorded net income for 1997 of $62.7 million, or $1.44 per diluted common share. (b) Basic earnings (loss) per share are based on a weighted average of common shares outstanding. Diluted earnings per share reflect the potential dilution of earnings per share assuming that certain stock options whose exercise price is less than the average market price of the stock are exercised and that convertible preferred shares are converted into common shares. Outstanding shares and per share data are adjusted to reflect a 3-for2 stock split in November 1997. FERRO CORPORATION is a major global producer of performance materials for manufacturers. We are the world's largest supplier of ceramic glaze and porcelain enamel coatings. We also hold leading market positions in powder coatings, pigments, specialty plastic compounds and colors, and polymer additives. Our materials are used extensively in the markets of building and renovation, major appliances, household furnishings, transportation and industrial products. Headquartered in Cleveland, Ohio, Ferro has operations in 19 countries and sells products in more than 100 countries.

Albert C. Bersticker, Chairman (left) Hector R. Ortino, President and Chief Executive Officer (right) [photo] TO OUR SHAREHOLDERS Profitable growth is what Ferro is all about. You've heard us state it many times before, and it remains our singular focus. In 1998, we continued our momentum of recent years and made significant progress toward profitable growth by delivering double-digit earnings growth. Back in 1996, we concentrated our strategic efforts on four key areas - organization, productivity improvement, marketing and technology. We also set major financial targets for earnings growth and gross margin expansion. Our performance over the past three years demonstrates that our strategies have been paying off. We have now recorded 12 consecutive quarters of year-over-year earnings improvement. Ten of those quarters have been double-digit improvements and nine of them record quarters. In addition, our gross margins have climbed 260 basis points during the past three years. How have we done it? Hard work toward a shared vision of success. As this annual report shows, we have successfully improved every element of our vision, including our customer focus, creativity, quality products and worldwide reach. We believe that, guided by our vision, we will continue to deliver consistent returns on your investment. 2/3

"We remain dedicated to maintaining Ferro's momentum and to achieving profitable growth." However, we aim to accomplish much more. We are reshaping Ferro to become a stronger and more competitive company with a higher sustainable growth rate. Among all of our achievements last year, one result more than any other demonstrates our progress in reshaping our company. For the first time, profits of our products based on organic chemistry, which are relatively new to our history, exceeded those of our products based on inorganic chemistry, which have been part of Ferro since our beginning. In 1999 and in the years ahead, we will become even more aggressive in directing our efforts and resources toward our organic and other growth businesses. WHAT WE'VE ACHIEVED We had many significant achievements in 1998. It was another year of strong improvement in gross margins and a record year for operating profit, net income and earnings per share. However, sales for the year fell short of our expectations. Net sales of $1.36 billion were down slightly from 1997. Negative currency translation, divestitures and a decline in domestic chemical volumes, combined with economic difficulties in Latin America and Asia, had a negative impact on revenues. Additionally, as we continue to focus resources on our most profitable sales accounts, we walked away from significant volumes in low-margin accounts. On the positive side, European sales showed strong improvement, and our powder coatings business continued to record excellent performance. Although sales in Asia were down, we were able to gain market share, due to our advantage of being the only major local producer in the tile market there. That puts us in the enviable position of being a leader in the tile market as the Asian economy continues its recovery. Net income was $69.3 million, up 10.5 percent, excluding a 1997 realignment charge. Earnings per share (diluted) were $1.67, up 16 percent from 1997, excluding the charge. In the past three years, we have achieved earnings per share growth at levels above our target for 12 percent compound annual earnings growth. We made strong progress toward our gross margin target, reaching a yearly rate of 26.7 percent versus 25.6

"We remain dedicated to maintaining Ferro's momentum and to achieving profitable growth." However, we aim to accomplish much more. We are reshaping Ferro to become a stronger and more competitive company with a higher sustainable growth rate. Among all of our achievements last year, one result more than any other demonstrates our progress in reshaping our company. For the first time, profits of our products based on organic chemistry, which are relatively new to our history, exceeded those of our products based on inorganic chemistry, which have been part of Ferro since our beginning. In 1999 and in the years ahead, we will become even more aggressive in directing our efforts and resources toward our organic and other growth businesses. WHAT WE'VE ACHIEVED We had many significant achievements in 1998. It was another year of strong improvement in gross margins and a record year for operating profit, net income and earnings per share. However, sales for the year fell short of our expectations. Net sales of $1.36 billion were down slightly from 1997. Negative currency translation, divestitures and a decline in domestic chemical volumes, combined with economic difficulties in Latin America and Asia, had a negative impact on revenues. Additionally, as we continue to focus resources on our most profitable sales accounts, we walked away from significant volumes in low-margin accounts. On the positive side, European sales showed strong improvement, and our powder coatings business continued to record excellent performance. Although sales in Asia were down, we were able to gain market share, due to our advantage of being the only major local producer in the tile market there. That puts us in the enviable position of being a leader in the tile market as the Asian economy continues its recovery. Net income was $69.3 million, up 10.5 percent, excluding a 1997 realignment charge. Earnings per share (diluted) were $1.67, up 16 percent from 1997, excluding the charge. In the past three years, we have achieved earnings per share growth at levels above our target for 12 percent compound annual earnings growth. We made strong progress toward our gross margin target, reaching a yearly rate of 26.7 percent versus 25.6 percent a year ago. Our target of 28 percent gross margins exiting 1999 is clearly in sight. All our business groups showed improvement in operating profits, driven largely by improved product mixes and continuous productivity improvements. Our plastics group had record operating profits, spurred by an improved mix of products for higher-margin applications and substantial productivity improvements. Our powder coatings business, which continued to improve profitability, benefited from the introduction of new products, strong performance in the domestic appliance market and increased market share in automotive products. Our ceramic tile business posted good improvement in profits, particularly in Europe, by broadening its product offerings and commercializing new products.

Advancing Toward Our Goals We are pleased to report we have made steady progress toward our performance goals, thanks to careful execution of our strategies. We are aiming to achieve a compound annual growth rate (CAGR) of 12 percent in earnings and to expand consolidated gross margins to 28 percent by year-end 1999. Here's how we are measuring up: Diluted Earnings per Share 3-year CAGR = 17%
1.04 ---1.21 ---1.44 ---1.67 ----

Advancing Toward Our Goals We are pleased to report we have made steady progress toward our performance goals, thanks to careful execution of our strategies. We are aiming to achieve a compound annual growth rate (CAGR) of 12 percent in earnings and to expand consolidated gross margins to 28 percent by year-end 1999. Here's how we are measuring up: Diluted Earnings per Share 3-year CAGR = 17%
1.04 ---95 1.21 ---96 1.44 ---97 1.67 ---98

* EXCLUDES REALIGNMENT CHARGE GROSS MARGIN 28% 26 NEED PLOT POINTS! 24 22 95 96 97 98 Results by quarter Most important, our total return on investment, measured by stock price appreciation, was 7 percent, giving us one of the best performances in the specialty chemicals industry, which endured a difficult year. The Standard and Poor's Mid-Cap Chemical Stock Index, of which Ferro is a part, was down 25 percent for 1998. WHAT WE ARE DOING Over the past three years, we have been working hard to change the way we operate. Most of our efforts to date have focused on our key strategies to build a solid foundation and structure for our growth plans to succeed. For example, we have reshaped our operating structure to reflect a more market- oriented, entrepreneurial style. We are also well along with our corporate-wide realignment plan, a three-year program that began in May 1997 and is to be completed in 1999. We are significantly reducing the number of our worldwide manufacturing facilities. 4/5

Additionally, we expect that our emphasis on marketing and new product development will support our efforts to produce profitable growth. So far we have benefited from new marketing training and marketing tools designed to help us better understand our customers and our markets. We also are applying our core technologies in new markets or in fast-growing segments of existing markets and have reorganized our R&D programs to become more market-focused.

Additionally, we expect that our emphasis on marketing and new product development will support our efforts to produce profitable growth. So far we have benefited from new marketing training and marketing tools designed to help us better understand our customers and our markets. We also are applying our core technologies in new markets or in fast-growing segments of existing markets and have reorganized our R&D programs to become more market-focused. Furthermore, we are moving aggressively to build our businesses through acquisitions and geographic expansion. We have transferred the responsibility for acquisitions to our group vice presidents and, as a result, we are very active in researching many opportunities and have a number of acquisitions in various stages of development. We fully expect to announce several key acquisitions within the year. In 1998, we established our first-ever operation in China by acquiring Ningbo Powder Coatings Company, reflecting our optimism in the vast potential of China and the future of Asian markets. WHAT TO EXPECT As you can see, we have taken many steps to improve our long-term performance and, while we've been successful, we are committed to doing much more. Toward this end, we are developing new plans and are prepared to take more decisive actions in reshaping Ferro to spur top-line growth. We have started 1999 with a fresh leadership agenda to support our focus on growth. In order to revitalize topline growth, it is imperative that we challenge our current course. We intend to direct resources more intensely on those business units that will have significant growth opportunities and to seek new business opportunities that build upon our strengths. Where businesses are mature and growth prospects less robust, we will selectively invest to improve and maintain current positions. In all cases, we will remain focused on the bottom line. Our expectations are that 1999 will prove to be another year of slowing economic growth and increasing competitive conditions in specialty chemicals markets. However, we are confident that our company is well positioned to face those challenges. We remain dedicated to maintaining Ferro's momentum and to achieving profitable growth. Again, that's what Ferro is all about. MANAGEMENT TRANSITION To allow for an orderly transition in Ferro's senior management, in October 1998 Ferro's Board of Directors appointed Hector Ortino to become President and Chief Executive Officer beginning on January 1, 1999. After 40 years of extraordinary service to Ferro, Al Bersticker will retire in April 1999. OUR THANKS Our optimism for the future derives largely from the talents of our employees and their determination to achieve our goals. We thank them for embracing change and delivering strong performance. We also offer sincere thanks to our fellow board members for their counsel and guidance, to our customers for their confidence in our solutions, and to you, our investors, for your unending support and enthusiasm for Ferro's future. Sincerely,
/s/ Albert C. Bersticker Albert C. Bersticker Chairman /s/ Hector R. Ortino Hector R. Ortino President and Chief Executive Officer

[photo] GROWING OUR OPERATIONS JIM FISHER is Senior Vice President, Ceramics and Colorants, with responsibility for Ferro's worldwide

[photo] GROWING OUR OPERATIONS JIM FISHER is Senior Vice President, Ceramics and Colorants, with responsibility for Ferro's worldwide ceramic glaze coatings, specialty ceramics, pigments and electronic materials businesses. He has been with Ferro since 1959. "We have several exciting efforts in motion designed to reward us with good growth going forward. We are continuing to achieve efficiencies from the consolidation of our global operations. We also expect further market share gains as we expand our range of products and services to ceramic tile manufacturers around the world. In another promising area, we are committed to building our electronic materials business into an important player in a high-growth industry. Indeed, we plan to grow this business into one of Ferro's core businesses." Q&A WHAT DO YOU SEE AS THE GREATEST GROWTH OPPORTUNITIES IN THE BUSINESSES LARRY JAMESON is Vice President, Industrial Coatings, managing Ferro's porcelain enamel and powder coatings operations worldwide. He has extensive career experience with international business and markets and joined Ferro in 1996. "Thanks to closer relationships with longtime customers, we are enjoying growth opportunities in our traditional markets such as appliances and automotive, as new applications of powder coatings continue to penetrate the paint market. For example, Ferro continues to develop new business in the automotive market with powder coatings as a replacement for liquid coatings as a full-body primer. We're also working to establish a presence in the profitable small-customer niche of the general industrial finishing market, which is growing at a faster rate than traditional markets. Longer term, the prospect of powder coatings for wood and plastic applications could provide additional growth opportunities. Finally, we're enthusiastic about our opportunities for global expansion, particularly in China and the rest of Asia. Our new powder coatings joint venture in China gives us a stepping stone for further growth in that region." 6/7

[photo] JAY FINCH is Vice President, Specialty Plastics, managing Ferro's worldwide businesses in thermo- plastic compounds, colorants, additives, thermoset gel coats and dispersions. He has more than 30 years of experience in the plastics industry and has been with Ferro since 1991. "The combination of Ferro's exceptional products and favorable industry trends should lead to significant opportunities for our specialty plastics business. Customers are continuing to look for ways to differentiate their products through the use of plastic colors and special effects. Ferro's innovative products anticipate these trends and continue to offer customers advantages in selling their products. In addition, our quick response to color matching and order delivery is an excellent competitive advantage in an industry where speed is key. Furthermore, we are continuing to benefit from the ability of our lower-cost plastic compounds to replace highercost plastics with the same performance characteristics. For instance, we expect our metallocene-based products

[photo] JAY FINCH is Vice President, Specialty Plastics, managing Ferro's worldwide businesses in thermo- plastic compounds, colorants, additives, thermoset gel coats and dispersions. He has more than 30 years of experience in the plastics industry and has been with Ferro since 1991. "The combination of Ferro's exceptional products and favorable industry trends should lead to significant opportunities for our specialty plastics business. Customers are continuing to look for ways to differentiate their products through the use of plastic colors and special effects. Ferro's innovative products anticipate these trends and continue to offer customers advantages in selling their products. In addition, our quick response to color matching and order delivery is an excellent competitive advantage in an industry where speed is key. Furthermore, we are continuing to benefit from the ability of our lower-cost plastic compounds to replace highercost plastics with the same performance characteristics. For instance, we expect our metallocene-based products to continue to displace expensive plastics, especially in the automotive arena. In addition, we expect the appliance industry to be a source of creative plastic applications in standard appliances and even in entirely new appliances." UNDER YOUR RESPONSIBILITY? [photo] KENT LEE is Vice President, Specialty Chemicals, with responsibility for Ferro's worldwide polymer additives, industrial specialties and petroleum additives businesses. He is a seasoned veteran of the specialty chemicals industry and has been with Ferro since 1996. "Bolstered by the acquisition of Synpro in late 1995 and by new product and marketing initiatives over the past three years, our polymer additive products have achieved leading positions in each of their major markets in North America. Last year we strengthened our chemical management teams in Europe and Asia in preparation for taking these excellent products into selected new geographic markets. We are excited about the prospects for geographic expansion and are confident that our products will be well received by customers in these markets concerned with maintaining quality and lowering manufacturing costs. In addition, we are excited about growth coming from new applications for our industrial chemicals in life sciences and other markets new to Ferro. These new prospects, developed in recent years, are now ready to be leveraged into applications for pharmaceuticals, food preparation, batteries and other non-polymer markets." [photo]

FERRO Ferro's performance materials and technology help customers in many industries lower costs, improve safety, raise quality and durability and enrich the appearance of finished items. Consumers worldwide enjoy the benefit of products that make their lives more pleasant and productive. TOUCHES [PICTURE] TRANSPORTATION. Cars are often "loaded" with Ferro materials. Our powder coatings are used as primers and for coating wheels, trim, parts and numerous underbody applications. Our plastic compounds and colorants are found in parts and trim, and our glass decorating enamels on windshields. Our petroleum additives boost fuel efficiency and cleanliness, and our polymer additives protect fabrics, electrical components and interior plastic panels. MAJOR APPLIANCES. Ferro helps you cook and clean up. Stoves, refrigerators, washers and other major appliances are often finished with our porcelain enamel and powder coatings. Interior components are crafted with our plastic compounds and colorants, pigments and polymer additives. Controls utilize our electronic

FERRO Ferro's performance materials and technology help customers in many industries lower costs, improve safety, raise quality and durability and enrich the appearance of finished items. Consumers worldwide enjoy the benefit of products that make their lives more pleasant and productive. TOUCHES [PICTURE] TRANSPORTATION. Cars are often "loaded" with Ferro materials. Our powder coatings are used as primers and for coating wheels, trim, parts and numerous underbody applications. Our plastic compounds and colorants are found in parts and trim, and our glass decorating enamels on windshields. Our petroleum additives boost fuel efficiency and cleanliness, and our polymer additives protect fabrics, electrical components and interior plastic panels. MAJOR APPLIANCES. Ferro helps you cook and clean up. Stoves, refrigerators, washers and other major appliances are often finished with our porcelain enamel and powder coatings. Interior components are crafted with our plastic compounds and colorants, pigments and polymer additives. Controls utilize our electronic materials. Oven and microwave doors incorporate our glass decorating enamels. BUILDING AND RENOVATION. Structures of all kinds are created with Ferro materials. Our ceramic glaze materials and colors finish and decorate tiles and fixtures. Our polymer additives increase the life of floor and wall coverings, siding, cable, piping and more. Our porcelain enamel coats building panels and sanitary ware. HOUSEHOLD FURNISHINGS. Ferro is right at home in homes everywhere. Our porcelain enamel and powder coatings and colors protect cookware, grills, small appliances, lighting fixtures and furniture. Our glaze coatings and colors beautify tableware and artware, and our plastic compounds and colorants shape small appliances, furniture, utensils and power tool housings. Our polymer additives and flame retardants preserve items ranging from upholstery to television cabinets. INDUSTRIAL PRODUCTS. Ferro materials are at work in many industrial products and processes. Our polymer additives reduce deterioration and discoloration in PVC pipe. What's more, our materials are used in everything from chemical processing and material handling to ceramic firing systems and water treatment facilities. 8/9

YOUR [PICTURE] LIFE END-USE MARKETS ---------------------------------------------------------------------------Building and Major Household Transportation Industrial PRODUCTS renovation appliances furnishings products --------------------------------------------------------------------------------------------------------CERAMICS AND COLORANTS Ceramic glaze coatings X X --------------------------------------------------------------------------------------------------------Pigments and colorants X X X X X --------------------------------------------------------------------------------------------------------Electronic materials X X X --------------------------------------------------------------------------------------------------------Specialty ceramics X X --------------------------------------------------------------------------------------------------------INDUSTRIAL COATINGS Porcelain enamel coatings X X X X --------------------------------------------------------------------------------------------------------Powder coatings X X X X X --------------------------------------------------------------------------------------------------------PLASTICS Plastic colorants X X X X X --------------------------------------------------------------------------------------------------------Filled and reinforced plastics X X X X X --------------------------------------------------------------------------------------------------------Liquid coatings and dispersions X X X X --------------------------------------------------------------------------------------------------------CHEMICALS Polymer additives X X X X X --------------------------------------------------------------------------------------------------------Industrial specialties X --------------------------------------------------------------------------------------------------------Petroleum additives X X

YOUR [PICTURE] LIFE END-USE MARKETS ---------------------------------------------------------------------------Building and Major Household Transportation Industrial PRODUCTS renovation appliances furnishings products --------------------------------------------------------------------------------------------------------CERAMICS AND COLORANTS Ceramic glaze coatings X X --------------------------------------------------------------------------------------------------------Pigments and colorants X X X X X --------------------------------------------------------------------------------------------------------Electronic materials X X X --------------------------------------------------------------------------------------------------------Specialty ceramics X X --------------------------------------------------------------------------------------------------------INDUSTRIAL COATINGS Porcelain enamel coatings X X X X --------------------------------------------------------------------------------------------------------Powder coatings X X X X X --------------------------------------------------------------------------------------------------------PLASTICS Plastic colorants X X X X X --------------------------------------------------------------------------------------------------------Filled and reinforced plastics X X X X X --------------------------------------------------------------------------------------------------------Liquid coatings and dispersions X X X X --------------------------------------------------------------------------------------------------------CHEMICALS Polymer additives X X X X X --------------------------------------------------------------------------------------------------------Industrial specialties X --------------------------------------------------------------------------------------------------------Petroleum additives X X ---------------------------------------------------------------------------------------------------------

*Packaging, leisure products and miscellaneous end-use markets [photo]

CUSTOMER FOCUS [photo] (above) Ferro is increasing sales of its electronic materials to flat panel display manufacturers and other producers of high-tech products, largely through account managers who serve strategic customers. (right) Serving as a onesource resource for tile finishing materials has earned Ferro top-of-mind awareness in the global tile industry and new business from existing and new customers.

[picture] CUSTOMER FOCUS. Putting ourselves in our customers' shoes ... it has become a passion for Ferro and a key means of growth. By developing a deeper understanding of customers and their objectives, we help them resolve challenges, achieve better financial returns and please their own customers. Through ongoing training, we are sharpening our ability to design programs that allow us to bring the greatest value to our customers. At the broadest levels, we are restructuring our major businesses to better serve customers. In businesses such as ceramic tile, color and porcelain enamel, we have moved effectively from a site-based, manufacturing-oriented approach to a market- and customer-focused structure. For example, we are now better positioned to provide customers with everything they need for tile finishing, from glaze coatings, colors and additives to designs, screens and technical assistance. In addition, we provide grinding media and kiln furniture for firing tiles. Our businesses are also teaming with each other to offer more value for customers. Account managers have

CUSTOMER FOCUS [photo] (above) Ferro is increasing sales of its electronic materials to flat panel display manufacturers and other producers of high-tech products, largely through account managers who serve strategic customers. (right) Serving as a onesource resource for tile finishing materials has earned Ferro top-of-mind awareness in the global tile industry and new business from existing and new customers.

[picture] CUSTOMER FOCUS. Putting ourselves in our customers' shoes ... it has become a passion for Ferro and a key means of growth. By developing a deeper understanding of customers and their objectives, we help them resolve challenges, achieve better financial returns and please their own customers. Through ongoing training, we are sharpening our ability to design programs that allow us to bring the greatest value to our customers. At the broadest levels, we are restructuring our major businesses to better serve customers. In businesses such as ceramic tile, color and porcelain enamel, we have moved effectively from a site-based, manufacturing-oriented approach to a market- and customer-focused structure. For example, we are now better positioned to provide customers with everything they need for tile finishing, from glaze coatings, colors and additives to designs, screens and technical assistance. In addition, we provide grinding media and kiln furniture for firing tiles. Our businesses are also teaming with each other to offer more value for customers. Account managers have established strong partnerships between Ferro and our largest customers, in part by offering them a strategic sourcing approach, including a full array of Ferro products. Through better service and stronger relationships, we have gained business in targeted accounts in the electronic materials, appliance and automotive industries. Multi-business teams are working together on new solutions to meet customer needs and create opportunities for new business. For example, our powder coatings, plastic colorants and glass decoration businesses are helping a top global beverage producer standardize its color applications worldwide. We also are perfecting the details of everyday service. For instance, our plastic colorants business offers customers up-to-the-minute price information and quick color-matching skills, which have enabled us to capture more business. These customer-focused efforts are resulting in vibrant growth with key customers as well as opportunities with new customers. 10/11

[photo] CREATIVITY. In all aspects of our business, we are striving to think "out-of-the-box." Fresh, future-oriented thinking gives our customers an advantage, provides a more invigorating work environment and helps us seize opportunities for growth. We prize our position on the leading edge of new designs and applications of performance materials. For example, a Ferro team was instrumental in the design of a major part for the revolutionary front-end-loading Neptune(TM) washer by Maytag, which became an immediate best-seller upon its introduction in 1998. Our development of an innovative chemical replacement for lead in wire and cable compounds offers manufacturers an effective and environmentally friendly material and offers Ferro further penetration of a high-growth market. We continue to explore products with great potential, including powder coatings-on-plastic applications, special effects for plastics, and reformulations of inorganic pigments that provide performance characteristics at lower costs.

[picture] CUSTOMER FOCUS. Putting ourselves in our customers' shoes ... it has become a passion for Ferro and a key means of growth. By developing a deeper understanding of customers and their objectives, we help them resolve challenges, achieve better financial returns and please their own customers. Through ongoing training, we are sharpening our ability to design programs that allow us to bring the greatest value to our customers. At the broadest levels, we are restructuring our major businesses to better serve customers. In businesses such as ceramic tile, color and porcelain enamel, we have moved effectively from a site-based, manufacturing-oriented approach to a market- and customer-focused structure. For example, we are now better positioned to provide customers with everything they need for tile finishing, from glaze coatings, colors and additives to designs, screens and technical assistance. In addition, we provide grinding media and kiln furniture for firing tiles. Our businesses are also teaming with each other to offer more value for customers. Account managers have established strong partnerships between Ferro and our largest customers, in part by offering them a strategic sourcing approach, including a full array of Ferro products. Through better service and stronger relationships, we have gained business in targeted accounts in the electronic materials, appliance and automotive industries. Multi-business teams are working together on new solutions to meet customer needs and create opportunities for new business. For example, our powder coatings, plastic colorants and glass decoration businesses are helping a top global beverage producer standardize its color applications worldwide. We also are perfecting the details of everyday service. For instance, our plastic colorants business offers customers up-to-the-minute price information and quick color-matching skills, which have enabled us to capture more business. These customer-focused efforts are resulting in vibrant growth with key customers as well as opportunities with new customers. 10/11

[photo] CREATIVITY. In all aspects of our business, we are striving to think "out-of-the-box." Fresh, future-oriented thinking gives our customers an advantage, provides a more invigorating work environment and helps us seize opportunities for growth. We prize our position on the leading edge of new designs and applications of performance materials. For example, a Ferro team was instrumental in the design of a major part for the revolutionary front-end-loading Neptune(TM) washer by Maytag, which became an immediate best-seller upon its introduction in 1998. Our development of an innovative chemical replacement for lead in wire and cable compounds offers manufacturers an effective and environmentally friendly material and offers Ferro further penetration of a high-growth market. We continue to explore products with great potential, including powder coatings-on-plastic applications, special effects for plastics, and reformulations of inorganic pigments that provide performance characteristics at lower costs. Expressions of our creativity also extend to how we market our products. Our technicians can show up to 500 tile designs via CD-ROM, resulting in more efficient service for customers and additional sales opportunities for Ferro. Our marketing representatives conduct training in color trends, counseling major customers in selecting plastic colorants to satisfy consumer tastes. In all businesses, we're using new marketing techniques to pinpoint and best serve our highest potential customers. Some of our most creative work involves our efforts to improve productivity. Simple, yet powerful, equipment design changes have contributed to substantial improvements in our coatings production, without new capital investments. The program's focus is on using this new capacity and lower cost base to support more sales. In another example, we've rationalized our color line, offering a palette of standardized colors while still retaining the

[photo] CREATIVITY. In all aspects of our business, we are striving to think "out-of-the-box." Fresh, future-oriented thinking gives our customers an advantage, provides a more invigorating work environment and helps us seize opportunities for growth. We prize our position on the leading edge of new designs and applications of performance materials. For example, a Ferro team was instrumental in the design of a major part for the revolutionary front-end-loading Neptune(TM) washer by Maytag, which became an immediate best-seller upon its introduction in 1998. Our development of an innovative chemical replacement for lead in wire and cable compounds offers manufacturers an effective and environmentally friendly material and offers Ferro further penetration of a high-growth market. We continue to explore products with great potential, including powder coatings-on-plastic applications, special effects for plastics, and reformulations of inorganic pigments that provide performance characteristics at lower costs. Expressions of our creativity also extend to how we market our products. Our technicians can show up to 500 tile designs via CD-ROM, resulting in more efficient service for customers and additional sales opportunities for Ferro. Our marketing representatives conduct training in color trends, counseling major customers in selecting plastic colorants to satisfy consumer tastes. In all businesses, we're using new marketing techniques to pinpoint and best serve our highest potential customers. Some of our most creative work involves our efforts to improve productivity. Simple, yet powerful, equipment design changes have contributed to substantial improvements in our coatings production, without new capital investments. The program's focus is on using this new capacity and lower cost base to support more sales. In another example, we've rationalized our color line, offering a palette of standardized colors while still retaining the ability for the local blending that customers value.

CREATIVITY [picture] (above) The popular Maytag Neptune(TM) washer uses 17 pounds of Ferro plastics and Ferro powder coatings in an innovative design that offers customers energy cost-savings, greater capacity, a better and gentler cleaning cycle and an appealing look. (left) Packaging companies use creative special effects and new colors from Ferro to differentiate and sell their products to consumer markets such as cosmetics.

Quality Products [picture] (above) Our new powder coatings are a top choice for manufacturers of automotive headlamps in Europe because they simulate chrome yet resist corrosion and do not distort light. (right) Colorful architectural window and door frames will retain their appearance for decades thanks to the durability and quality of Ferro's powder coatings.

[picture] QUALITY PRODUCTS AND SERVICES. The quality of our products and services has long been one of our greatest assets. In the past year, customers such as Hamilton Beach, Whirlpool, Bosch-Siemens and United Technologies/Carrier have honored us for our quality and our ability to meet their needs - often leading to further business with these key accounts.

CREATIVITY [picture] (above) The popular Maytag Neptune(TM) washer uses 17 pounds of Ferro plastics and Ferro powder coatings in an innovative design that offers customers energy cost-savings, greater capacity, a better and gentler cleaning cycle and an appealing look. (left) Packaging companies use creative special effects and new colors from Ferro to differentiate and sell their products to consumer markets such as cosmetics.

Quality Products [picture] (above) Our new powder coatings are a top choice for manufacturers of automotive headlamps in Europe because they simulate chrome yet resist corrosion and do not distort light. (right) Colorful architectural window and door frames will retain their appearance for decades thanks to the durability and quality of Ferro's powder coatings.

[picture] QUALITY PRODUCTS AND SERVICES. The quality of our products and services has long been one of our greatest assets. In the past year, customers such as Hamilton Beach, Whirlpool, Bosch-Siemens and United Technologies/Carrier have honored us for our quality and our ability to meet their needs - often leading to further business with these key accounts. First, customers can count on Ferro to get the basics right. For example, our high-quality manufacturing capabilities in many locations give us preference over the competition in the race for new business. Many of our products are custom formulated to meet exact specifications. Second, customers look to us for new products that address their market needs. Over the past year, we've enhanced our product mix for stronger growth. Our new superhard glazes are ideal for areas of high traffic and aesthetic needs, such as shopping malls, and our new soluble salts offer a range of decoration possibilities for porcelain tile. Our new color pellets feature higher concentrations of pigments for more efficient coloring. And our pre-formulated electronic powders offer a comprehensive solution for manufacturers of multi-layer ceramic capacitors. We've also developed new technologies for applying our materials to our customers' products or for creating our own materials. Our new plastics technology eliminates contaminant airborne material in the production of rotational molded parts, such as toys and tanks. Our unique process for producing porcelain enamel results in greater efficiency and control of colors. New technology for ultra-low-fire ceramic dielectric powders offers advantages over the competition for the use of lower-cost metal electrodes in capacitors. This emphasis on quality products that add value is translating into strengthened global leadership for Ferro, competitive advantages for our customers and more value for our shareholders. 14/15

[picture] WORLDWIDE REACH. Global thinking is not new for us, but we are pursuing global growth with new energy and resources. All of our major businesses now have global managers, and many have regional presidents in areas such as Europe and Asia. In key businesses, we have moved from being country- and site-centric to a true

Quality Products [picture] (above) Our new powder coatings are a top choice for manufacturers of automotive headlamps in Europe because they simulate chrome yet resist corrosion and do not distort light. (right) Colorful architectural window and door frames will retain their appearance for decades thanks to the durability and quality of Ferro's powder coatings.

[picture] QUALITY PRODUCTS AND SERVICES. The quality of our products and services has long been one of our greatest assets. In the past year, customers such as Hamilton Beach, Whirlpool, Bosch-Siemens and United Technologies/Carrier have honored us for our quality and our ability to meet their needs - often leading to further business with these key accounts. First, customers can count on Ferro to get the basics right. For example, our high-quality manufacturing capabilities in many locations give us preference over the competition in the race for new business. Many of our products are custom formulated to meet exact specifications. Second, customers look to us for new products that address their market needs. Over the past year, we've enhanced our product mix for stronger growth. Our new superhard glazes are ideal for areas of high traffic and aesthetic needs, such as shopping malls, and our new soluble salts offer a range of decoration possibilities for porcelain tile. Our new color pellets feature higher concentrations of pigments for more efficient coloring. And our pre-formulated electronic powders offer a comprehensive solution for manufacturers of multi-layer ceramic capacitors. We've also developed new technologies for applying our materials to our customers' products or for creating our own materials. Our new plastics technology eliminates contaminant airborne material in the production of rotational molded parts, such as toys and tanks. Our unique process for producing porcelain enamel results in greater efficiency and control of colors. New technology for ultra-low-fire ceramic dielectric powders offers advantages over the competition for the use of lower-cost metal electrodes in capacitors. This emphasis on quality products that add value is translating into strengthened global leadership for Ferro, competitive advantages for our customers and more value for our shareholders. 14/15

[picture] WORLDWIDE REACH. Global thinking is not new for us, but we are pursuing global growth with new energy and resources. All of our major businesses now have global managers, and many have regional presidents in areas such as Europe and Asia. In key businesses, we have moved from being country- and site-centric to a true regional or global approach, which has given us added efficiency and effectiveness in serving global customers as well as new growth opportunities. We are taking our quality product lines into new geographic markets. Our chemicals group is building its presence in Europe and Asia-Pacific, as demand for our chemicals for vinyl and for wire and cabling grows along with the building and renovation markets there. Our electronic materials for solar cells are growing in India, where remote villages rely on solar-generated electricity to pump water. In 1998, we entered into new partnerships to grow globally, most notably a new distribution agreement for inorganic pigments and a powder coatings joint venture, both in China. We will continue to pursue acquisitions and distribution agreements to build our global presence.

[picture] QUALITY PRODUCTS AND SERVICES. The quality of our products and services has long been one of our greatest assets. In the past year, customers such as Hamilton Beach, Whirlpool, Bosch-Siemens and United Technologies/Carrier have honored us for our quality and our ability to meet their needs - often leading to further business with these key accounts. First, customers can count on Ferro to get the basics right. For example, our high-quality manufacturing capabilities in many locations give us preference over the competition in the race for new business. Many of our products are custom formulated to meet exact specifications. Second, customers look to us for new products that address their market needs. Over the past year, we've enhanced our product mix for stronger growth. Our new superhard glazes are ideal for areas of high traffic and aesthetic needs, such as shopping malls, and our new soluble salts offer a range of decoration possibilities for porcelain tile. Our new color pellets feature higher concentrations of pigments for more efficient coloring. And our pre-formulated electronic powders offer a comprehensive solution for manufacturers of multi-layer ceramic capacitors. We've also developed new technologies for applying our materials to our customers' products or for creating our own materials. Our new plastics technology eliminates contaminant airborne material in the production of rotational molded parts, such as toys and tanks. Our unique process for producing porcelain enamel results in greater efficiency and control of colors. New technology for ultra-low-fire ceramic dielectric powders offers advantages over the competition for the use of lower-cost metal electrodes in capacitors. This emphasis on quality products that add value is translating into strengthened global leadership for Ferro, competitive advantages for our customers and more value for our shareholders. 14/15

[picture] WORLDWIDE REACH. Global thinking is not new for us, but we are pursuing global growth with new energy and resources. All of our major businesses now have global managers, and many have regional presidents in areas such as Europe and Asia. In key businesses, we have moved from being country- and site-centric to a true regional or global approach, which has given us added efficiency and effectiveness in serving global customers as well as new growth opportunities. We are taking our quality product lines into new geographic markets. Our chemicals group is building its presence in Europe and Asia-Pacific, as demand for our chemicals for vinyl and for wire and cabling grows along with the building and renovation markets there. Our electronic materials for solar cells are growing in India, where remote villages rely on solar-generated electricity to pump water. In 1998, we entered into new partnerships to grow globally, most notably a new distribution agreement for inorganic pigments and a powder coatings joint venture, both in China. We will continue to pursue acquisitions and distribution agreements to build our global presence. In businesses where we already have global strength, we are using it to our greatest advantage. In our tile business, we developed an entirely new brand of glaze in Indonesia for local tastes as well as new precious metal decorations and colors for the preferences of other nations. We recently won the business of a major tile manufacturer because of our ability to service its needs in plant locations from England to Greece to Australia. We plan to realize significant synergies from an expanded global presence. Sharing best manufacturing practices worldwide is leading to substantial improvements in our ceramic glaze and porcelain enamel plants. Interna-tional forums are boosting our product development in businesses such as powder coatings and plastics. Corporatewide, we are installing a new enterprise resource planning system that is designed to enable us to achieve greater efficiencies from being a global operation.

[picture] WORLDWIDE REACH. Global thinking is not new for us, but we are pursuing global growth with new energy and resources. All of our major businesses now have global managers, and many have regional presidents in areas such as Europe and Asia. In key businesses, we have moved from being country- and site-centric to a true regional or global approach, which has given us added efficiency and effectiveness in serving global customers as well as new growth opportunities. We are taking our quality product lines into new geographic markets. Our chemicals group is building its presence in Europe and Asia-Pacific, as demand for our chemicals for vinyl and for wire and cabling grows along with the building and renovation markets there. Our electronic materials for solar cells are growing in India, where remote villages rely on solar-generated electricity to pump water. In 1998, we entered into new partnerships to grow globally, most notably a new distribution agreement for inorganic pigments and a powder coatings joint venture, both in China. We will continue to pursue acquisitions and distribution agreements to build our global presence. In businesses where we already have global strength, we are using it to our greatest advantage. In our tile business, we developed an entirely new brand of glaze in Indonesia for local tastes as well as new precious metal decorations and colors for the preferences of other nations. We recently won the business of a major tile manufacturer because of our ability to service its needs in plant locations from England to Greece to Australia. We plan to realize significant synergies from an expanded global presence. Sharing best manufacturing practices worldwide is leading to substantial improvements in our ceramic glaze and porcelain enamel plants. Interna-tional forums are boosting our product development in businesses such as powder coatings and plastics. Corporatewide, we are installing a new enterprise resource planning system that is designed to enable us to achieve greater efficiencies from being a global operation.

WORLDWIDE REACH [picture] (above) The popularity of electronic applications that use rechargeable batteries is growing rapidly worldwide, and Ferro's chemical solutions for batteries are part of that growth trend. (left) Ferro's stearates are used in the production of pharmaceutical products, representing a new market for polymer additives and a target for aggressive growth.

Gary H. Ritondaro, Vice President and Chief Financial Officer [picture] Financials 19 Management's Discussion and Analysis 27 Financial Statements 31 Notes to Financial Statements 42 Independent Auditors' Report 44 11-Year Summary of Financial Data 18/19

WORLDWIDE REACH [picture] (above) The popularity of electronic applications that use rechargeable batteries is growing rapidly worldwide, and Ferro's chemical solutions for batteries are part of that growth trend. (left) Ferro's stearates are used in the production of pharmaceutical products, representing a new market for polymer additives and a target for aggressive growth.

Gary H. Ritondaro, Vice President and Chief Financial Officer [picture] Financials 19 Management's Discussion and Analysis 27 Financial Statements 31 Notes to Financial Statements 42 Independent Auditors' Report 44 11-Year Summary of Financial Data 18/19

Ferro Corporation and subsidiaries Ferro Corporation is a global producer of performance materials for manufacturers. The Company's business segments consist of coatings, chemicals and plastics. Geographically, the Company operates in North America, Europe, Latin America and Asia-Pacific. See Note 13 to the consolidated financial statements for segment operating data. 1998 RESULTS OF OPERATIONS Consolidated net sales of $1.36 billion for 1998 were 1.4% lower than 1997 net sales. The variety of products sold by the Company makes it difficult to determine with certainty the increases or decreases in sales resulting from changes in the volume of products sold and selling prices. However, management's best estimate of volume and selling price changes, as well as changes in other factors, follows:
Currency -1.0% Volume -0.7% Price/Mix +0.7% Acquisitions +0.3% Divestitures -0.7% ------------------------------------------------------Total -1.4% =======================================================

Net income and earnings per share for 1998 were records of $69.3 million and $1.67 (diluted), respectively, compared with a net loss of $37.3 million and a loss of $1.08 (diluted) in 1997. The 1997 loss was due to a second quarter pre-tax realignment charge of $152.8 million. Excluding the effects of this charge, net income and

Gary H. Ritondaro, Vice President and Chief Financial Officer [picture] Financials 19 Management's Discussion and Analysis 27 Financial Statements 31 Notes to Financial Statements 42 Independent Auditors' Report 44 11-Year Summary of Financial Data 18/19

Ferro Corporation and subsidiaries Ferro Corporation is a global producer of performance materials for manufacturers. The Company's business segments consist of coatings, chemicals and plastics. Geographically, the Company operates in North America, Europe, Latin America and Asia-Pacific. See Note 13 to the consolidated financial statements for segment operating data. 1998 RESULTS OF OPERATIONS Consolidated net sales of $1.36 billion for 1998 were 1.4% lower than 1997 net sales. The variety of products sold by the Company makes it difficult to determine with certainty the increases or decreases in sales resulting from changes in the volume of products sold and selling prices. However, management's best estimate of volume and selling price changes, as well as changes in other factors, follows:
Currency -1.0% Volume -0.7% Price/Mix +0.7% Acquisitions +0.3% Divestitures -0.7% ------------------------------------------------------Total -1.4% =======================================================

Net income and earnings per share for 1998 were records of $69.3 million and $1.67 (diluted), respectively, compared with a net loss of $37.3 million and a loss of $1.08 (diluted) in 1997. The 1997 loss was due to a second quarter pre-tax realignment charge of $152.8 million. Excluding the effects of this charge, net income and earnings per share for 1997 would have been $62.7 million and $1.44 (diluted), respectively. Thus, excluding the charge, net income was up 10.5% and earnings per share were up 16.0% for 1998. Gross margins improved from 25.6% to 26.7%. Gross margin improvement was broad-based across all segments and regions. The major contributions to gross margin expansion came from a better mix of products sold and manufacturing efficiencies from continuous productivity improvement initiatives, including benefits from the Company's previously announced plant consolidation plan. New product introductions in the plastics and coatings segments, particularly in the ceramic tile and powder coatings businesses, have helped improve sales of higher-margin products and develop business in new markets. Simultaneously, the Company has been reallocating resources away from low-margin accounts and increasing its penetration of higher-margin accounts.

Ferro Corporation and subsidiaries Ferro Corporation is a global producer of performance materials for manufacturers. The Company's business segments consist of coatings, chemicals and plastics. Geographically, the Company operates in North America, Europe, Latin America and Asia-Pacific. See Note 13 to the consolidated financial statements for segment operating data. 1998 RESULTS OF OPERATIONS Consolidated net sales of $1.36 billion for 1998 were 1.4% lower than 1997 net sales. The variety of products sold by the Company makes it difficult to determine with certainty the increases or decreases in sales resulting from changes in the volume of products sold and selling prices. However, management's best estimate of volume and selling price changes, as well as changes in other factors, follows:
Currency -1.0% Volume -0.7% Price/Mix +0.7% Acquisitions +0.3% Divestitures -0.7% ------------------------------------------------------Total -1.4% =======================================================

Net income and earnings per share for 1998 were records of $69.3 million and $1.67 (diluted), respectively, compared with a net loss of $37.3 million and a loss of $1.08 (diluted) in 1997. The 1997 loss was due to a second quarter pre-tax realignment charge of $152.8 million. Excluding the effects of this charge, net income and earnings per share for 1997 would have been $62.7 million and $1.44 (diluted), respectively. Thus, excluding the charge, net income was up 10.5% and earnings per share were up 16.0% for 1998. Gross margins improved from 25.6% to 26.7%. Gross margin improvement was broad-based across all segments and regions. The major contributions to gross margin expansion came from a better mix of products sold and manufacturing efficiencies from continuous productivity improvement initiatives, including benefits from the Company's previously announced plant consolidation plan. New product introductions in the plastics and coatings segments, particularly in the ceramic tile and powder coatings businesses, have helped improve sales of higher-margin products and develop business in new markets. Simultaneously, the Company has been reallocating resources away from low-margin accounts and increasing its penetration of higher-margin accounts. The decrease in foreign currency gains to $0.9 million from $2.2 million in 1997 is largely attributable to the strengthening of the U.S. dollar versus foreign currencies. Foreign currency gains accrue from option contracts purchased by the parent company to hedge the earnings of selected foreign subsidiaries, primarily in Europe. For further information, see Note 14 to the consolidated financial statements. The increase in interest expense from $12.2 million to $15.3 million in 1998 is primarily attributable to the issuance of $55.0 million 71/8% debentures in March. COATINGS Worldwide sales of $817.8 million for this segment were 0.3% greater than 1997 sales. Growth in sales was largely due to significantly improved performance in the powder coatings business worldwide and the electronics business domestically. Additionally, continued improvement in European results had a positive impact on sales. The effect of the stronger U.S. dollar had a major negative impact on sales. Segment income was up 6.1% to $89.3 million. Improvements were led by strong European results for the ceramic tile business and by the powder coatings business worldwide. A combination of manufacturing efficiencies and improvement in the mix of products sold were the main factors contributing to the improvements in ceramic tile. New product introductions for the tile market have broadened the product line in this business and generated additional high-margin business.

CHEMICALS Sales for this segment were $305.3 million, down 6.9% compared with 1997. Sales were negatively impacted by volume declines in the United States, particularly in the petroleum additives business. Additionally, sales were impacted negatively by currency translation and a divestiture of a joint venture operation in Asia. Segment income improved by 12.3% to establish a new record of $36.4 million. The improvement was largely due to outstanding performance in the domestic industrial chemicals business and continued improvement in polymer additives. Overall, the chemicals segment has benefited from productivity improvements and an improvement in the mix of products sold through careful key account selection and improved sales of highermargin products.

PLASTICS Sales improved 0.3% over 1997, reaching $238.7 million for the year. Strong domestic volume improvement, particularly in the plastic colorants and filled and reinforced plastics businesses, was offset by a weak domestic price environment. Segment income of $22.2 million set a new record, 22.7% above the previous record established in 1997. Margin improvements resulted from excellent performance in both the plastic colorants business and the filled and reinforced plastics business. The plastics segment has improved margins through the introduction of new products

PLASTICS Sales improved 0.3% over 1997, reaching $238.7 million for the year. Strong domestic volume improvement, particularly in the plastic colorants and filled and reinforced plastics businesses, was offset by a weak domestic price environment. Segment income of $22.2 million set a new record, 22.7% above the previous record established in 1997. Margin improvements resulted from excellent performance in both the plastic colorants business and the filled and reinforced plastics business. The plastics segment has improved margins through the introduction of new products for new applications at several key accounts. Additionally, improved manufacturing efficiencies and lower costs for raw materials had a positive impact on margins. 1997 RESULTS OF OPERATIONS For the fourth consecutive year, the Company achieved record net sales, with 1997 sales of $1.38 billion exceeding the prior-year sales by 1.9%. The variety of products sold by the Company makes it difficult to determine with certainty the increases or decreases in sales resulting from changes in the volume of products sold and selling prices. However, management's best estimate of volume and selling price changes, as well as changes in other factors, follows:
Currency -3.9% Volume +6.9% Price/Mix -0.4% Acquisitions +0.8% Divestitures -1.5% ------------------------------------------------------Total +1.9% =======================================================

During the second quarter, the Company announced an aggressive three-year realignment plan to significantly reduce the Company's cost base and reallocate resources to strategies designed to foster profitable growth. Associated with this realignment was a $152.8 million pre-tax, or $100.0 million after-tax, charge in the second quarter. The plan calls for consolidation of manufacturing facilities worldwide, gross margin expansion and resulting improvements in operating profit. Including the realignment charge, the Company had a net loss of $37.3 million, or $1.08 per diluted share. Net income, excluding the effects of the realignment charge, increased 14.8% to $62.7 million. On the same basis, earnings per share increased 19.0% to a new record of $1.44 (diluted). The effects of the realignment plan, coupledwith strong volume improvements in all regions and all segments, drove gross margin from 24.5% to 25.6%. The increase in foreign currency gains to $2.2 million from $0.8 million in 1996 is largely attributable to gains on foreign currency option contracts purchased by the parent company to hedge the earnings of selected foreign subsidiaries, primarily in Europe. For further information, see Note 14 to the consolidated financial statements. COATINGS Worldwide sales of $815.4 million for this segment were 4.4% greater than 1996 sales. This growth was primarily attributable to improved demand both domestically and internationally for most of the product offerings. Were it not for the negative impact of the stronger U.S. dollar, the sales increase would have been in the low double digits. Led by strong double-digit improvements primarily in ceramic glaze and powder coatings due to manufacturing efficiencies and mix changes to higher-margin products, segment income, excluding the realignment charge, was up 7.0% to $84.2 million. In general, raw material prices were flat to down relative to 1996. Recognition of the realignment charge reduced segment income to $13.6 million.

CHEMICALS Sales from ongoing operations for this segment were essentially flat compared with 1996, as positive volume gains were more than offset largely by negative currency influences. Sales of $328.0 million were down nearly 2.6% due to the late-1996 divestiture of a domestic dispersion business. Volume and currency factors offset each other. Segment income surged 21.3% to establish a new record of $32.4 million, excluding the realignment charge. The improvement was largely due to outstanding performance in domestic polymer additives, though each product line bettered its 1996 performance. Margins were also aided by further productivity enhancements. Including the realignment charge, the segment would have incurred a loss of $20.2 million. 20/21

PLASTICS Sales from ongoing operations exceeded 1996 sales by 4.5% primarily because significant volume increases more than offset unfavorable currency influence. Total sales of $237.9 million, which reflected the impact of 1996 divestitures, were comparable to 1996 sales. Segment income of $18.1 million, excluding the realignment charge, set a new record, 14.6% above the previous record established in 1996. Operating margins expanded most notably in the domestic businesses, where volume increases fueled higher capacity utilization. Inclusion of the realignment charge resulted in a segment loss of $0.3 million. OTHER ITEMS YEAR 2000 READINESS DISCLOSURE Historically, many computer software programs were written to refer to years in terms of their final two digits only. Such programs may interpret the year 2000 to mean the year 1900 instead. The Company is aware of the implications and issues associated with this problem and could be faced with disruption of operations and a corresponding impact on the Company's results of operations if the Year 2000 issues are not resolved in a timely manner. The Company currently operates multiple computer systems, including hardware and software, in its global business operations. The Company believes it has identified the issues that affect its global computer operations and is in the process of implementing appropriate plans to address this problem. Local area networks, telephone systems, business systems, financial systems, shop floor devices, facility operations and end-user computing systems are being assessed globally. In order to determine fully the readiness of its production and other equipment with the Year 2000 issue, the Company has substantially completed a comprehensive inventory of operations systems that it believes may be impacted. The Company is using multiple strategies to address the Year 2000 issues. New software is being purchased and installed, current software is being rewritten, and hardware that is non-Year 2000 compliant is being replaced. The Company has contracted with a third-party consultant with special expertise in this area. The Company expects that all correction and testing will be completed by the end of the second quarter of 1999. In addition, the Company is in the process of developing contingency plans in the event that these corrective actions are not implemented in a timely manner as expected. The Company has established millennium watch teams to develop and coordinate a contingency plan to be implemented at all of the Company's sites. Readiness plans are being established to ensure internal resources are in place from the second half of December 1999 through the end of January 2000. Based upon findings to date, the Company's total external costs (historical plus estimated future costs) are currently estimated to be in the range of $11.0 million to $12.0 million, of which approximately $8.0 million has

PLASTICS Sales from ongoing operations exceeded 1996 sales by 4.5% primarily because significant volume increases more than offset unfavorable currency influence. Total sales of $237.9 million, which reflected the impact of 1996 divestitures, were comparable to 1996 sales. Segment income of $18.1 million, excluding the realignment charge, set a new record, 14.6% above the previous record established in 1996. Operating margins expanded most notably in the domestic businesses, where volume increases fueled higher capacity utilization. Inclusion of the realignment charge resulted in a segment loss of $0.3 million. OTHER ITEMS YEAR 2000 READINESS DISCLOSURE Historically, many computer software programs were written to refer to years in terms of their final two digits only. Such programs may interpret the year 2000 to mean the year 1900 instead. The Company is aware of the implications and issues associated with this problem and could be faced with disruption of operations and a corresponding impact on the Company's results of operations if the Year 2000 issues are not resolved in a timely manner. The Company currently operates multiple computer systems, including hardware and software, in its global business operations. The Company believes it has identified the issues that affect its global computer operations and is in the process of implementing appropriate plans to address this problem. Local area networks, telephone systems, business systems, financial systems, shop floor devices, facility operations and end-user computing systems are being assessed globally. In order to determine fully the readiness of its production and other equipment with the Year 2000 issue, the Company has substantially completed a comprehensive inventory of operations systems that it believes may be impacted. The Company is using multiple strategies to address the Year 2000 issues. New software is being purchased and installed, current software is being rewritten, and hardware that is non-Year 2000 compliant is being replaced. The Company has contracted with a third-party consultant with special expertise in this area. The Company expects that all correction and testing will be completed by the end of the second quarter of 1999. In addition, the Company is in the process of developing contingency plans in the event that these corrective actions are not implemented in a timely manner as expected. The Company has established millennium watch teams to develop and coordinate a contingency plan to be implemented at all of the Company's sites. Readiness plans are being established to ensure internal resources are in place from the second half of December 1999 through the end of January 2000. Based upon findings to date, the Company's total external costs (historical plus estimated future costs) are currently estimated to be in the range of $11.0 million to $12.0 million, of which approximately $8.0 million has been incurred and the majority of which has been capitalized. The Company does not separately track internal costs for Year 2000 compliance, which are primarily for payroll and related costs of information systems personnel. The Company does not now anticipate that the total estimated cost of being in compliance with Year 2000 will materially exceed the estimate. The Company is assessing the plans and progress of key suppliers and customers in addressing the Year 2000 problem. To the extent that these key suppliers and customers are impacted by their failure to address the Year 2000 problem, such disruption could have a direct impact on the Company. The Company is exploring a variety of contingency plans to minimize the impact of third-party failures on the Company. This plan will focus on availability of raw materials, energy and other resources critical to maintaining operations. The Company's expectations outlined above with respect to the Year 2000 are subject to uncertainties and are forward-looking statements that express the Company's current expectations or forecasts of future events. The Company believes that it has identified the Year 2000 issues that affect its global computer operations. However, if the Company is unsuccessful in identifying or solving all Year 2000 issues in its critical operations, or if the Company is materially and adversely affected by the inability of its key suppliers and customers to identify and

solve their Year 2000 issues, the Company's results of operations or financial condition could be materially impacted.

Furthermore, the total costs that the Company will incur with respect to Year 2000 issues will be influenced by the Company's ability to successfully identify and solve Year 2000 issues, the extent and complexity of programming required to fix affected programs, the related labor and consulting costs the Company will incur and the ability of third parties with whom the Company has business relationships to successfully identify and solve their own Year 2000 issues. These and other unforeseen factors could have a material adverse effect on the Company's results of operations or financial condition. IMPACT OF THE EURO CONVERSION On January 1, 1999, 11 of 15 member countries of the European Economic and Monetary Union (the "EMU") established fixed conversion rates between their existing sovereign currencies ("legacy currencies") and the European Union's common currency, the euro. As of that date, the euro traded on currency exchanges and may be used in business transactions. The legacy currencies remain legal tender in the participating countries for a transition period between January 1, 1999 and at least January 1, 2002 (but not later than July 1, 2002). Beginning in January 2002, new euro-denominated bills and coins will be issued, and legacy currencies will be withdrawn from circulation. The Company has implemented a plan that enables each of its businesses to effectively process the necessary transactions in both euro and local currencies during this transition period. The plan includes, among other things, the need to adapt computer and financial systems to accommodate euro-denominated transactions and the impact of one common currency on pricing. Since financial systems and processes currently accommodate multiple currencies, the Company does not anticipate system conversion costs to be material. Since the euro conversion may affect cross-border competition by creating cross-border price transparency, the Company will be assessing its pricing strategies to ensure it remains competitive in a broader European market. Continuing analysis and development efforts by project teams among the Company's business units will help ensure that the implementation of the Company's plans meets the timetable and regulations established by the EMU. The Company's exposure to changes in foreign exchange rates may be reduced as a result of the euro conversion. Conversely, changes in the value of the euro/U.S. dollar exchange rate may have a greater impact because there will be less diversity in the Company's exposure to foreign currencies. Based on information currently available and our current assessment, the Company does not anticipate that the conversion to the euro will have a material effect on its results of operations or financial condition. ENVIRONMENTAL The Company is party to judicial and administrative proceedings that commenced in November 1998 relating to emissions from its plant in Hammond, Indiana. In these proceedings, the State of Indiana is seeking to impose fines and to alter or terminate the Company's right to produce Pyro-Chek(R) at the Hammond plant. See the description in Note 9 to the consolidated financial statements on page 36. The Company is vigorously contesting these claims and evaluating alternatives for mitigating the impact should the Company not prevail. If the State of Indiana were to prevail on all of its claims, it could have a material adverse effect on the Company. In 1996, the Company signed a Consent Decree whereby the Company agreed to pay a civil penalty of $0.4 million and to pay $1.4 million (the "Settlement Amount") into a fund to be established to help clean sediment in the West Branch of the Grand Calumet River following entry of the Consent Decree by the Court. The Consent Decree was entered by the Court in February 1997. The Company paid the Settlement Amount in March 1997. Additionally, governmental agencies have identified several disposal sites for clean-up under Superfund and similar laws to which the Company has been named a Potential Responsible Party. The Company is participating in the cost of certain clean-up efforts. However, the Company's share of such costs has not been material and is not expected to have a material adverse impact on the Company's financial condition or results of operations.

Furthermore, the total costs that the Company will incur with respect to Year 2000 issues will be influenced by the Company's ability to successfully identify and solve Year 2000 issues, the extent and complexity of programming required to fix affected programs, the related labor and consulting costs the Company will incur and the ability of third parties with whom the Company has business relationships to successfully identify and solve their own Year 2000 issues. These and other unforeseen factors could have a material adverse effect on the Company's results of operations or financial condition. IMPACT OF THE EURO CONVERSION On January 1, 1999, 11 of 15 member countries of the European Economic and Monetary Union (the "EMU") established fixed conversion rates between their existing sovereign currencies ("legacy currencies") and the European Union's common currency, the euro. As of that date, the euro traded on currency exchanges and may be used in business transactions. The legacy currencies remain legal tender in the participating countries for a transition period between January 1, 1999 and at least January 1, 2002 (but not later than July 1, 2002). Beginning in January 2002, new euro-denominated bills and coins will be issued, and legacy currencies will be withdrawn from circulation. The Company has implemented a plan that enables each of its businesses to effectively process the necessary transactions in both euro and local currencies during this transition period. The plan includes, among other things, the need to adapt computer and financial systems to accommodate euro-denominated transactions and the impact of one common currency on pricing. Since financial systems and processes currently accommodate multiple currencies, the Company does not anticipate system conversion costs to be material. Since the euro conversion may affect cross-border competition by creating cross-border price transparency, the Company will be assessing its pricing strategies to ensure it remains competitive in a broader European market. Continuing analysis and development efforts by project teams among the Company's business units will help ensure that the implementation of the Company's plans meets the timetable and regulations established by the EMU. The Company's exposure to changes in foreign exchange rates may be reduced as a result of the euro conversion. Conversely, changes in the value of the euro/U.S. dollar exchange rate may have a greater impact because there will be less diversity in the Company's exposure to foreign currencies. Based on information currently available and our current assessment, the Company does not anticipate that the conversion to the euro will have a material effect on its results of operations or financial condition. ENVIRONMENTAL The Company is party to judicial and administrative proceedings that commenced in November 1998 relating to emissions from its plant in Hammond, Indiana. In these proceedings, the State of Indiana is seeking to impose fines and to alter or terminate the Company's right to produce Pyro-Chek(R) at the Hammond plant. See the description in Note 9 to the consolidated financial statements on page 36. The Company is vigorously contesting these claims and evaluating alternatives for mitigating the impact should the Company not prevail. If the State of Indiana were to prevail on all of its claims, it could have a material adverse effect on the Company. In 1996, the Company signed a Consent Decree whereby the Company agreed to pay a civil penalty of $0.4 million and to pay $1.4 million (the "Settlement Amount") into a fund to be established to help clean sediment in the West Branch of the Grand Calumet River following entry of the Consent Decree by the Court. The Consent Decree was entered by the Court in February 1997. The Company paid the Settlement Amount in March 1997. Additionally, governmental agencies have identified several disposal sites for clean-up under Superfund and similar laws to which the Company has been named a Potential Responsible Party. The Company is participating in the cost of certain clean-up efforts. However, the Company's share of such costs has not been material and is not expected to have a material adverse impact on the Company's financial condition or results of operations. 22/23

GEOGRAPHICAL United States sales of $737.3 million declined 1.5% from 1997 as strong domestic volume improvements in the plastics segment and in the coatings segment, specifically, powder coatings and electronic materials products, were offset by a volume decline in chemicals and price declines in plastics due to declining raw material costs. Generally, an improved mix of products sold and productivity improvements led to improved segment income for the region of $82.8 million. European sales of $445.9 million improved by 2.1% over 1997. European sales were helped by a shift in the mix of products sold toward higher priced products that offset negative currency translation effects. Improvement in segment income to $50.7 million was led by a strong margin improvement in ceramic tile products within the coatings segment, through the introduction of new products and increased market share. Latin American sales of $107.3 million decreased 4.5% primarily because of the economic downturn in the Mercosur region, particularly Brazil, and as a result of pricing pressure from imported goods. In addition, divestitures had a negative impact on sales. Improvement in segment income to $8.2 million stemmed from improved manufacturing efficiencies and an improved mix of products sold. Sales in Asia-Pacific were down 14.9% to $71.3 million. Volume declines as a result of the economic difficulties in the region, combined with negative currency translation and the divestiture of a joint venture, led to the decline. Being a local producer in the region versus the competition's imports has led to improved market share in the region, and the trend in performance toward the latter half of 1998 was positive. Segment income declined to $6.2 million as market share improvements were not enough to offset negative currency translation and volume declines. ACCOUNTING CHANGES During 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 132, "Employers' Disclosures About Pensions and Other Postretirement Benefits," standardizing disclosure requirements. The Statement was effective for years beginning after December 15, 1997. The Company adopted the Statement effective with the year ending December 31, 1998. During 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," which establishes accounting and reporting standards for derivative instruments and for hedging activities. This Statement is effective for all quarters of fiscal years beginning after June 15, 1999. While the Company has not yet determined the effects the Statement will have on its financial position or results of its operations, it does not anticipate a material impact. During 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income," which establishes standards for reporting and displaying comprehensive income and its components in a full set of general-purpose financial statements. The Company adopted the Statement effective with the quarter ending March 31, 1998. During 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and Related Information," which provides that public enterprises report certain information about business segments in complete sets of financial statements and information concerning products and services, geographic areas in which they operate and major customers. The Company adopted the Statement effective with the year ending December 31, 1998. In the first quarter of 1998, the American Institute of Certified Public Accountants issued Statement of Position (SOP) No. 98-1, "Accounting for Costs of Computer Software Developed or Obtained for Internal Use," which requires that certain internal and external costs to develop or obtain software for internal use be expensed or capitalized when incurred. Generally, costs incurred during the preliminary project stage and postimplementation/operation stages must be expensed. The Statement will be effective for fiscal years beginning after December 15, 1998 and can be adopted early for 1998 as of January 1, 1998. The Company is currently assessing the effect of this Statement, but does not anticipate a material impact on the results of operations.

In the first quarter of 1998, the American Institute of Certified Public Accountants issued Statement of Position (SOP) No. 98-5, "Reporting on the Costs of Startup Activities," which requires that the cost of startup activities be expensed as incurred. The Statement will amend provisions of a number of existing SOPs and audit and accounting guides. The Statement will be effective for fiscal years beginning after December 15, 1998. The Company is currently assessing the effect of this Statement, but does not anticipate a material impact on the results of operations. CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS Certain statements contained in this Management's Discussion and Analysis and elsewhere in this report reflect the Company's current expectations with respect to the future performance of the Company and may constitute "forward-looking statements" within the meaning of the federal securities laws. These statements are subject to a variety of uncertainties, unknown risks and other factors concerning the Company's operations and business environment, and actual events or results may differ materially from the results discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to: changes in customer requirements, markets or industries served; changing economic conditions within the regions we serve; foreign exchange rates, especially in Europe or Asia-Pacific; changes in the prices of major raw materials; significant technological or competitive developments; the Company's conversion to a single European currency, the euro; and disruption of operations associated with certain computer-based systems that rely on date routines in connection with the year 2000. MARKET RISK MANAGEMENT The Company's consolidated cash flows and earnings are subject to fluctuations due to changes in foreign currency exchange rates. The Company attempts to limit its exposure to changing foreign currency exchange rates through operational and financial market actions. The Company manufactures and sells its products in a number of locations around the world, resulting in a welldiversified revenue and cost base that is exposed to fluctuations in European, Latin American and Asian currencies. This diverse base of foreign currency revenues and costs serves to create a natural hedge that limits the Company's net exposure to fluctuations in these foreign currencies. Exposures to changing foreign currency exchange rates in selective currencies are managed by financial market transactions, principally through the purchase of put options on currencies and forward foreign exchange contracts. Put options are purchased to offset the exposure of foreign currency-denominated earnings to a depreciation in the value of the local currency versus the U.S. dollar. The Company's primary foreign currency put option market exposures are in Dutch guilders, French francs, German marks and Spanish pesetas. Foreign exchange forward contracts are denominated in the same currency as the receivable or payable being covered, and the term and amount of the forward foreign exchange contract substantially mirror the term and amount of the underlying receivable or payable. The Company covers measurable exposed receivables and payables denominated in foreign currencies that have a liquid, cost-effective forward foreign exchange market. The receivables and payables being covered arise from trade and financing transactions of the Company and also foreign subsidiaries. The Company has hedged transactions denominated in Brazilian reals, Dutch guilders, Hong Kong dollars, Indonesian rupiah and Taiwan dollars. Foreign subsidiaries hedge their exposure to the cost of raw materials denominated in U.S. dollars through the forward purchase of dollars to cover the future payable. The Company does not have significant exposure to fluctuations in interest rates because of the low levels of marketable securities and the low cost of fixed-rate debt on the Company's balance sheet. The Company does not undertake any specific actions to cover its exposure to interest rate risk, and the Company is not a party to any interest rate risk management transactions. Derivative financial instruments are entered into with a diversified group of major financial institutions in order to manage the Company's exposure to nonperformance on such instruments. The Company does not purchase or hold any derivative financial instruments for trading or speculative purposes. 24/25

The fair value of foreign currency put options is sensitive to changes in foreign currency exchange rates. The selected 10% change in the value of the U.S. dollar is expected to reflect reasonably possible near-term changes in the foreign currencies' exchange rates. If the actual change in the value of foreign currencies is substantially different than expected, the net impact of foreign currency exchange rate risk on the Company's earnings may be materially different than that disclosed below. As of December 31, 1998, a 10% appreciation in the U.S. dollar from the prevailing market rates would increase the related unrealized gain by $0.6 million. Conversely, a 10% depreciation in the U.S. dollar from the prevailing market rates would decrease the related unrealized gain by $0.2 million. With regard to forward foreign exchange contracts, the fair market value is also sensitive to changes in foreign currency exchange rates. As of December 31, 1998, a 10% appreciation in the U.S. dollar from the prevailing market rates would increase the related unrealized gain by $1.4 million. Conversely, a 10% depreciation in these currencies from the prevailing market rates would decrease the related unrealized gain by $2.5 million. Unrealized gains/losses in foreign currency exchange contracts are defined as the difference between the contract rate at the inception date of the foreign currency exchange contract and the current market exchange rates. Consistent with the nature of the economic hedge of such foreign currency exchange contracts, such unrealized gains or losses would be offset by corresponding decreases or increases, respectively, of the underlying instrument or transaction being hedged. ACQUISITIONS AND DIVESTITURES In May 1998, the Company acquired a majority interest in Ningbo Powder Coatings Company of the People's Republic of China. A new company called Ferro Ningbo Powder Coatings Company was formed. In March 1998, the Company sold a majority of its shares in Ferro Ecuatoriana S.A. of Ecuador. Neither of these transactions was material to Ferro. In July 1997, the Company sold the remaining interest in Nissan-Ferro Organic Chemical Company, Ltd., located in Japan. The results of this operation were not material to Ferro. In January 1996, the Company purchased the remaining interest in Ferro Industrias Quimicas S.A., located in Portugal. In November 1996, the Company purchased Ceramica Technica Industrial S.A. of Spain. Neither of these transactions was material to Ferro. In October 1996, the Company sold the dispersions portion of Synthetic Products Company (Synpro) acquired in the prior October from Cookson Group plc. The Company also sold two small plastics operations located in Canada. The results of these operations were not material to Ferro. LIQUIDITY AND CAPITAL RESOURCES Cash flow provided by operations declined to $80.0 million in 1998 mainly due to increases in accounts and trade notes receivable and inventories. Cash provided by operations was more than sufficient to enable the Company to meet financial obligations, including repurchasing approximately 2.6 million shares of Ferro common stock and providing for capital expenditures. The Company purchased 2,595,482 shares of common stock during 1998, 1,346,627 shares during 1997 and 1,455,014 shares during 1996 under share repurchase authorizations. Capital expenditures for plant and equipment were $60.3 million in 1998, $45.1 million in 1997 and $46.7 million in 1996. Capital expenditures for 1999 are estimated to be $70.0 million. The Company's estimate for higher capital expenditures for 1999 includes some of the expenditures for the implementation of a global enterprise-wide management information system. The project supports the Company's strategies both to improve customer service and to improve Ferro's cost structure by reducing complexity and increasing efficiency. When fully implemented, the system will provide immediate, worldwide access to information so that resources will be shared and processes will be standardized and integrated across global sites. The project was initiated in 1998, and the Company estimates that it will take several years to implement the system. During 1998, the Company's principal focus was to design and configure templates for this system for the implementation at five locations in the first phase. The Company expects the system to become operational at

The fair value of foreign currency put options is sensitive to changes in foreign currency exchange rates. The selected 10% change in the value of the U.S. dollar is expected to reflect reasonably possible near-term changes in the foreign currencies' exchange rates. If the actual change in the value of foreign currencies is substantially different than expected, the net impact of foreign currency exchange rate risk on the Company's earnings may be materially different than that disclosed below. As of December 31, 1998, a 10% appreciation in the U.S. dollar from the prevailing market rates would increase the related unrealized gain by $0.6 million. Conversely, a 10% depreciation in the U.S. dollar from the prevailing market rates would decrease the related unrealized gain by $0.2 million. With regard to forward foreign exchange contracts, the fair market value is also sensitive to changes in foreign currency exchange rates. As of December 31, 1998, a 10% appreciation in the U.S. dollar from the prevailing market rates would increase the related unrealized gain by $1.4 million. Conversely, a 10% depreciation in these currencies from the prevailing market rates would decrease the related unrealized gain by $2.5 million. Unrealized gains/losses in foreign currency exchange contracts are defined as the difference between the contract rate at the inception date of the foreign currency exchange contract and the current market exchange rates. Consistent with the nature of the economic hedge of such foreign currency exchange contracts, such unrealized gains or losses would be offset by corresponding decreases or increases, respectively, of the underlying instrument or transaction being hedged. ACQUISITIONS AND DIVESTITURES In May 1998, the Company acquired a majority interest in Ningbo Powder Coatings Company of the People's Republic of China. A new company called Ferro Ningbo Powder Coatings Company was formed. In March 1998, the Company sold a majority of its shares in Ferro Ecuatoriana S.A. of Ecuador. Neither of these transactions was material to Ferro. In July 1997, the Company sold the remaining interest in Nissan-Ferro Organic Chemical Company, Ltd., located in Japan. The results of this operation were not material to Ferro. In January 1996, the Company purchased the remaining interest in Ferro Industrias Quimicas S.A., located in Portugal. In November 1996, the Company purchased Ceramica Technica Industrial S.A. of Spain. Neither of these transactions was material to Ferro. In October 1996, the Company sold the dispersions portion of Synthetic Products Company (Synpro) acquired in the prior October from Cookson Group plc. The Company also sold two small plastics operations located in Canada. The results of these operations were not material to Ferro. LIQUIDITY AND CAPITAL RESOURCES Cash flow provided by operations declined to $80.0 million in 1998 mainly due to increases in accounts and trade notes receivable and inventories. Cash provided by operations was more than sufficient to enable the Company to meet financial obligations, including repurchasing approximately 2.6 million shares of Ferro common stock and providing for capital expenditures. The Company purchased 2,595,482 shares of common stock during 1998, 1,346,627 shares during 1997 and 1,455,014 shares during 1996 under share repurchase authorizations. Capital expenditures for plant and equipment were $60.3 million in 1998, $45.1 million in 1997 and $46.7 million in 1996. Capital expenditures for 1999 are estimated to be $70.0 million. The Company's estimate for higher capital expenditures for 1999 includes some of the expenditures for the implementation of a global enterprise-wide management information system. The project supports the Company's strategies both to improve customer service and to improve Ferro's cost structure by reducing complexity and increasing efficiency. When fully implemented, the system will provide immediate, worldwide access to information so that resources will be shared and processes will be standardized and integrated across global sites. The project was initiated in 1998, and the Company estimates that it will take several years to implement the system. During 1998, the Company's principal focus was to design and configure templates for this system for the implementation at five locations in the first phase. The Company expects the system to become operational at these sites in the first half of 1999.

Cash used for financing activities principally includes repurchases of stock and cash dividends paid, partially offset by proceeds from long-term debt. In October 1995, the Company filed a $300.0 million Shelf Registration with the Securities and Exchange Commission. This registration will enable the Company to offer, either separately or together, debt securities, common stock and/or preferred stock, warrants, stock purchase contracts, depositary shares and stock purchase units. Proceeds would be used for general corporate purposes. In March 1998, the Company issued $55.0 million 71/8% debentures under this registration. The debentures have a 30-year maturity. The Company filed a $100.0 million Shelf Registration with the Securities and Exchange Commission in August 1992. Securities sold under that registration include the following: On November 7, 1995, the Company issued $25.0 million 73/8% debentures with a 20-year maturity; on June 20, 1995, the Company issued $50.0 million 8% debentures with a 30-year maturity; and on May 13, 1993, the Company issued $25.0 million 75/8% debentures with a 20-year maturity. In October 1998, the Company increased the quarterly common stock cash dividend by 12.5% to $0.135 per share, or an annual rate of $0.54. The annual dividend payout for 1998 was $0.495 per common share, an increase of 15.1% over 1997. In November 1997, the Company effected a 3-for-2 stock split, and the common stock cash dividend was increased 16.1% to a post-split annual rate of $0.48 per common share. The common stock cash dividend was increased 14.8% during 1996 to an annual post-split rate of $0.41 per common share. Common stock cash dividends were paid in the amount of $0.43 per share in 1997 and $0.39 per share in 1996. See page 43 for additional dividend data. The Company's financial condition remains strong, and the Company has the resources necessary to meet future anticipated funding requirements. In addition to cash flow provided by operations, the Company has sufficient unused debt capacity, including a $150.0 million line of credit and $245.0 million remaining from the $300.0 million Shelf Registration previously mentioned, to finance its ongoing capital requirements and to take advantage of acquisition opportunities. INFLATION Management does not consider its business as a whole to be subject to significant effects of inflationary pressures. Because of the diverse geographic distribution of the Company's operations, the high inflation in certain countries in which the Company operates is not considered to create an unacceptable risk to conducting business worldwide. 26/27

Consolidated Statements of Income Ferro Corporation and subsidiaries
(dollars in thousands except per share data) Years ended December 31 1998 1997 1996 --------------------------------------------------------------------------------------------------------NET SALES $1,361,844 1,381,280 1,355,685 Cost of sales 997,583 1,028,069 1,023,401 Selling, administrative and general expense 235,155 233,674 226,518 Realignment charge -152,790 -Other charges (income): Interest expense 15,284 12,163 13,031 Interest earned (2,936) (2,286) (2,528) Foreign currency transactions (944) (2,246) (812) Miscellaneous - net 7,221 7,586 7,868 ---------------------------------------------------------------------------------------------------18,625 15,217 17,559 ---------------------------------------------------------------------------------------------------INCOME (LOSS) BEFORE TAXES 110,481 (48,470) 88,207

Cash used for financing activities principally includes repurchases of stock and cash dividends paid, partially offset by proceeds from long-term debt. In October 1995, the Company filed a $300.0 million Shelf Registration with the Securities and Exchange Commission. This registration will enable the Company to offer, either separately or together, debt securities, common stock and/or preferred stock, warrants, stock purchase contracts, depositary shares and stock purchase units. Proceeds would be used for general corporate purposes. In March 1998, the Company issued $55.0 million 71/8% debentures under this registration. The debentures have a 30-year maturity. The Company filed a $100.0 million Shelf Registration with the Securities and Exchange Commission in August 1992. Securities sold under that registration include the following: On November 7, 1995, the Company issued $25.0 million 73/8% debentures with a 20-year maturity; on June 20, 1995, the Company issued $50.0 million 8% debentures with a 30-year maturity; and on May 13, 1993, the Company issued $25.0 million 75/8% debentures with a 20-year maturity. In October 1998, the Company increased the quarterly common stock cash dividend by 12.5% to $0.135 per share, or an annual rate of $0.54. The annual dividend payout for 1998 was $0.495 per common share, an increase of 15.1% over 1997. In November 1997, the Company effected a 3-for-2 stock split, and the common stock cash dividend was increased 16.1% to a post-split annual rate of $0.48 per common share. The common stock cash dividend was increased 14.8% during 1996 to an annual post-split rate of $0.41 per common share. Common stock cash dividends were paid in the amount of $0.43 per share in 1997 and $0.39 per share in 1996. See page 43 for additional dividend data. The Company's financial condition remains strong, and the Company has the resources necessary to meet future anticipated funding requirements. In addition to cash flow provided by operations, the Company has sufficient unused debt capacity, including a $150.0 million line of credit and $245.0 million remaining from the $300.0 million Shelf Registration previously mentioned, to finance its ongoing capital requirements and to take advantage of acquisition opportunities. INFLATION Management does not consider its business as a whole to be subject to significant effects of inflationary pressures. Because of the diverse geographic distribution of the Company's operations, the high inflation in certain countries in which the Company operates is not considered to create an unacceptable risk to conducting business worldwide. 26/27

Consolidated Statements of Income Ferro Corporation and subsidiaries
(dollars in thousands except per share data) Years ended December 31 1998 1997 1996 --------------------------------------------------------------------------------------------------------NET SALES $1,361,844 1,381,280 1,355,685 Cost of sales 997,583 1,028,069 1,023,401 Selling, administrative and general expense 235,155 233,674 226,518 Realignment charge -152,790 -Other charges (income): Interest expense 15,284 12,163 13,031 Interest earned (2,936) (2,286) (2,528) Foreign currency transactions (944) (2,246) (812) Miscellaneous - net 7,221 7,586 7,868 ---------------------------------------------------------------------------------------------------18,625 15,217 17,559 ---------------------------------------------------------------------------------------------------INCOME (LOSS) BEFORE TAXES 110,481 (48,470) 88,207 Income tax expense (benefit) 41,199 (11,193) 33,621 ----------------------------------------------------------------------------------------------------

Consolidated Statements of Income Ferro Corporation and subsidiaries
(dollars in thousands except per share data) Years ended December 31 1998 1997 1996 --------------------------------------------------------------------------------------------------------NET SALES $1,361,844 1,381,280 1,355,685 Cost of sales 997,583 1,028,069 1,023,401 Selling, administrative and general expense 235,155 233,674 226,518 Realignment charge -152,790 -Other charges (income): Interest expense 15,284 12,163 13,031 Interest earned (2,936) (2,286) (2,528) Foreign currency transactions (944) (2,246) (812) Miscellaneous - net 7,221 7,586 7,868 ---------------------------------------------------------------------------------------------------18,625 15,217 17,559 ---------------------------------------------------------------------------------------------------INCOME (LOSS) BEFORE TAXES 110,481 (48,470) 88,207 Income tax expense (benefit) 41,199 (11,193) 33,621 ---------------------------------------------------------------------------------------------------Net income (loss) 69,282 (37,277) 54,586 Dividend on preferred stock, net of tax 3,789 3,757 3,735 ---------------------------------------------------------------------------------------------------NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS $ 65,493 (41,034) 50,851 ---------------------------------------------------------------------------------------------------PER COMMON SHARE DATA Basic earnings (loss) $ 1.80 (1.08) 1.29 Diluted earnings (loss) 1.67 (1.08) 1.21 ======================================================================================================

See accompanying notes to consolidated financial statements.

Consolidated Balance Sheets Ferro Corporation and subsidiaries
(dollars in thousands) December 31 1998 1997 --------------------------------------------------------------------------------------------------------Assets CURRENT ASSETS Cash and cash equivalents $ 12,185 16,337 Accounts and trade notes receivable after deduction of $9,737 in 1998 and $8,280 in 1997 for possible losses 249,771 232,927 Inventories 140,970 127,175 Other current assets 53,967 50,591 ---------------------------------------------------------------------------------------------------Total current assets 456,893 427,030 OTHER ASSETS Unamortized intangibles 50,617 54,355 Miscellaneous other assets 67,603 64,114 ---------------------------------------------------------------------------------------------------Total other assets 118,220 118,469 PROPERTY, PLANT AND EQUIPMENT Land 14,583 13,545 Buildings 140,117 128,486 Machinery and equipment 486,944 419,150 ---------------------------------------------------------------------------------------------------641,644 561,181 Less accumulated depreciation and amortization 367,592 321,001 ---------------------------------------------------------------------------------------------------Net plant and equipment 274,052 240,180 ---------------------------------------------------------------------------------------------------Total assets $849,165 785,679 ---------------------------------------------------------------------------------------------------Liabilities and shareholders' equity CURRENT LIABILITIES Notes and loans payable

$ 30,987

23,269

Consolidated Balance Sheets Ferro Corporation and subsidiaries
(dollars in thousands) December 31 1998 1997 --------------------------------------------------------------------------------------------------------Assets CURRENT ASSETS Cash and cash equivalents $ 12,185 16,337 Accounts and trade notes receivable after deduction of $9,737 in 1998 and $8,280 in 1997 for possible losses 249,771 232,927 Inventories 140,970 127,175 Other current assets 53,967 50,591 ---------------------------------------------------------------------------------------------------Total current assets 456,893 427,030 OTHER ASSETS Unamortized intangibles 50,617 54,355 Miscellaneous other assets 67,603 64,114 ---------------------------------------------------------------------------------------------------Total other assets 118,220 118,469 PROPERTY, PLANT AND EQUIPMENT Land 14,583 13,545 Buildings 140,117 128,486 Machinery and equipment 486,944 419,150 ---------------------------------------------------------------------------------------------------641,644 561,181 Less accumulated depreciation and amortization 367,592 321,001 ---------------------------------------------------------------------------------------------------Net plant and equipment 274,052 240,180 ---------------------------------------------------------------------------------------------------Total assets $849,165 785,679 ---------------------------------------------------------------------------------------------------Liabilities and shareholders' equity CURRENT LIABILITIES Notes and loans payable $ 30,987 23,269 Accounts payable 105,932 109,958 Income taxes 4,006 6,563 Accrued payrolls 19,762 17,501 Accrued expenses/other current liabilities 121,869 120,416 ---------------------------------------------------------------------------------------------------Total current liabilities 282,556 277,707 OTHER LIABILITIES Long-term liabilities, less current portion 156,283 102,020 ESOP loan guarantee 4,067 13,815 Postretirement liabilities 45,426 44,462 Other non-current liabilities 77,572 74,524 SHAREHOLDERS' EQUITY Serial convertible preferred stock, without par value. Authorized 2,000,000 shares; 1,520,215 shares issued 70,500 70,500 Guaranteed ESOP obligation (4,067) (13,815) Common stock, par value $1 per share. Authorized 300,000,000 shares; 47,323,053 shares issued 47,323 47,323 Paid-in capital 7,954 1,908 Retained earnings 453,265 405,768 Accumulated other comprehensive income (44,927) (54,403) Other (6,758) (4,998) ---------------------------------------------------------------------------------------------------523,290 452,283 Less cost of treasury stock: Common - 11,995,955 shares-1998 and 9,999,844 shares-1997 226,076 167,974 Preferred - 300,881 shares-1998 and 240,592 shares-1997 13,953 11,158 ---------------------------------------------------------------------------------------------------Total shareholders' equity 283,261 273,151 Commitments and contingencies -----------------------------------------------------------------------------------------------------Total liabilities and shareholders' equity $849,165 785,679 ----------------------------------------------------------------------------------------------------

See accompanying notes to consolidated financial statements. 28/29

Consolidated Statements of Shareholders' Equity Ferro Corporation and subsidiaries
Years ended December 31 (dollars i --------------------------------------------------------------------------------------------------------Accumulated Common Pr Guaranteed other com- stock s Preferred ESOP Common Paid-in Retained prehensive held in h stock obligation stock capital earnings income(b) treasury tr --------------------------------------------------------------------------------------------------------BALANCES AT DECEMBER 31, 1995 $70,500 (30,470) 31,549 13,237 427,611 (23,909) (97,626) Comprehensive income Net income 54,586 Other comprehensive income (loss), net of tax(a) Foreign currency translation adjustment (3,728) Minimum pension liability adjustment (167) Other comprehensive income (loss) Comprehensive income Cash dividends: Common (15,311) Preferred (4,408) Federal tax benefits 699 Transactions involving benefit plans 7,878 870 4,285 Purchase of treasury stock (39,254) --------------------------------------------------------------------------------------------------------BALANCES AT DECEMBER 31, 1996 $70,500 (22,592) 31,549 14,107 463,177 (27,804) (132,595) Comprehensive income (loss) Net income (loss) (37,277) Other comprehensive income (loss), net of tax(a) Foreign currency translation adjustment (27,467) Minimum pension liability adjustment 868 Other comprehensive income (loss) Comprehensive income (loss) Cash dividends: Common (16,428) Preferred (4,229) Federal tax benefits 525 Transactions involving benefit plans 8,777 3,589 7,871 Three-for-two stock split 15,774 (15,788) Purchase of treasury stock (43,250) --------------------------------------------------------------------------------------------------------BALANCES AT DECEMBER 31, 1997 $70,500 (13,815) 47,323 1,908 405,768 (54,403) (167,974) Comprehensive income Net income 69,282 Other comprehensive income (loss), net of tax(a) Foreign currency translation adjustment 11,005 Minimum pension liability adjustment (1,529) Other comprehensive income (loss) Comprehensive income Cash dividends: Common (18,072) Preferred (4,038) Federal tax benefits 325 Transactions involving benefit plans 9,748 6,046 6,082 Purchase of treasury stock (64,184) --------------------------------------------------------------------------------------------------------BALANCES AT DECEMBER 31, 1998 $70,500 (4,067) 47,323 7,954 453,265 (44,927) (226,076) ---------------------------------------------------------------------------------------------------------

(a) Income tax benefits related to the components of other comprehensive income (loss) were $679, $340 and $248 in 1998, 1997 and 1996, respectively. (b) Accumulated translation adjustments were $(40,766), $(51,771), $(24,304) and $(20,576) and accumulated

minimum pension liability adjustments were $(4,161), $(2,632), $(3,500) and $(3,333) at December 31, 1998, 1997, 1996 and 1995, respectively. See accompanying notes to consolidated financial statements.

Consolidated Statements of Cash Flows Ferro Corporation and subsidiaries
(dollars in thousands) Years ended December 31 1998 1997 1996 ----------------------------------------------------------------------------------------------------CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 69,282 (37,277) 54,586 Adjustments to reconcile net income (loss) to net cash provided by operating activities Depreciation and amortization 43,122 44,975 49,635 Change in deferred income taxes 4,652 (48,823) (2,575) Realignment charge -152,790 -Changes in current assets and liabilities, net of effects of acquisitions Accounts and trade notes receivable (14,687) (1,119) 13,297 Inventories (13,357) 23,544 2,169 Other current assets (902) (10,939) (8,901) Accounts payable (5,290) (2,238) (1,218) Accrued expenses and other current liabilities (3,037) 11,414 2,386 Other operating activities 248 (2,044) 2,193 ----------------------------------------------------------------------------------------------------NET CASH PROVIDED BY OPERATING ACTIVITIES 80,031 130,283 111,572 CASH FLOW FROM INVESTING ACTIVITIES Proceeds from sale of equipment 2,298 2,709 933 Capital expenditures for plant and equipment (60,274) (45,129) (46,655) Proceeds from divestitures 562 4,623 6,049 Acquisition of companies, net of cash acquired (4,146) -(13,345) Transactions with affiliated companies (315) -830 Other investing activities 303 1,250 (704) ----------------------------------------------------------------------------------------------------NET CASH USED FOR INVESTING ACTIVITIES (61,572) (36,547) (52,892) CASH FLOW FROM FINANCING ACTIVITIES Net borrowings (payments) under short-term lines 7,718 (25,290) (3,878) Proceeds from long-term debt 54,297 760 2,626 Principal payments on long-term debt (1,254) (1,938) (1,533) Proceeds from sale of stock 5,084 4,801 2,069 Purchase of treasury stock (64,184) (43,250) (40,524) Cash dividends paid to minority shareholders of subsidiaries (590) (1,560) (646) Cash dividends paid (22,110) (20,657) (19,719) ----------------------------------------------------------------------------------------------------NET CASH USED FOR FINANCING ACTIVITIES (21,039) (87,134) (61,605) Effect of exchange rate changes on cash (1,572) (4,291) 256 ----------------------------------------------------------------------------------------------------INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (4,152) 2,311 (2,669) Cash and cash equivalents at beginning of period 16,337 14,026 16,695 ----------------------------------------------------------------------------------------------------CASH AND CASH EQUIVALENTS AT END OF PERIOD $12,185 16,337 14,026 ===================================================================================================== CASH PAID DURING THE PERIOD FOR Interest $13,879 8,473 11,927 Income taxes $40,909 36,917 35,026

See accompanying notes to consolidated financial statements. 30/31

Notes to Consolidated Financial Statements Ferro Corporation and subsidiaries

Consolidated Statements of Cash Flows Ferro Corporation and subsidiaries
(dollars in thousands) Years ended December 31 1998 1997 1996 ----------------------------------------------------------------------------------------------------CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 69,282 (37,277) 54,586 Adjustments to reconcile net income (loss) to net cash provided by operating activities Depreciation and amortization 43,122 44,975 49,635 Change in deferred income taxes 4,652 (48,823) (2,575) Realignment charge -152,790 -Changes in current assets and liabilities, net of effects of acquisitions Accounts and trade notes receivable (14,687) (1,119) 13,297 Inventories (13,357) 23,544 2,169 Other current assets (902) (10,939) (8,901) Accounts payable (5,290) (2,238) (1,218) Accrued expenses and other current liabilities (3,037) 11,414 2,386 Other operating activities 248 (2,044) 2,193 ----------------------------------------------------------------------------------------------------NET CASH PROVIDED BY OPERATING ACTIVITIES 80,031 130,283 111,572 CASH FLOW FROM INVESTING ACTIVITIES Proceeds from sale of equipment 2,298 2,709 933 Capital expenditures for plant and equipment (60,274) (45,129) (46,655) Proceeds from divestitures 562 4,623 6,049 Acquisition of companies, net of cash acquired (4,146) -(13,345) Transactions with affiliated companies (315) -830 Other investing activities 303 1,250 (704) ----------------------------------------------------------------------------------------------------NET CASH USED FOR INVESTING ACTIVITIES (61,572) (36,547) (52,892) CASH FLOW FROM FINANCING ACTIVITIES Net borrowings (payments) under short-term lines 7,718 (25,290) (3,878) Proceeds from long-term debt 54,297 760 2,626 Principal payments on long-term debt (1,254) (1,938) (1,533) Proceeds from sale of stock 5,084 4,801 2,069 Purchase of treasury stock (64,184) (43,250) (40,524) Cash dividends paid to minority shareholders of subsidiaries (590) (1,560) (646) Cash dividends paid (22,110) (20,657) (19,719) ----------------------------------------------------------------------------------------------------NET CASH USED FOR FINANCING ACTIVITIES (21,039) (87,134) (61,605) Effect of exchange rate changes on cash (1,572) (4,291) 256 ----------------------------------------------------------------------------------------------------INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (4,152) 2,311 (2,669) Cash and cash equivalents at beginning of period 16,337 14,026 16,695 ----------------------------------------------------------------------------------------------------CASH AND CASH EQUIVALENTS AT END OF PERIOD $12,185 16,337 14,026 ===================================================================================================== CASH PAID DURING THE PERIOD FOR Interest $13,879 8,473 11,927 Income taxes $40,909 36,917 35,026

See accompanying notes to consolidated financial statements. 30/31

Notes to Consolidated Financial Statements Ferro Corporation and subsidiaries Years ended December 31, 1998, 1997 and 1996 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS

Notes to Consolidated Financial Statements Ferro Corporation and subsidiaries Years ended December 31, 1998, 1997 and 1996 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS Ferro Corporation is a worldwide producer of performance materials for manufacturers. Ferro produces a variety of coatings, chemicals and plastics by utilizing organic and inorganic chemistry. The Company's materials are used extensively in the markets of building and renovation, major appliances, household furnishings, transportation and industrial products. Ferro's products are sold principally in the United States and Europe; however, operations extend to the Latin America and Asia-Pacific regions. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and all of its subsidiaries after elimination of significant intercompany accounts, transactions and profits. Certain amounts in the 1997 and 1996 financial statements and the accompanying notes have been reclassified to conform to the 1998 presentation. Financial results for acquisitions are included in the consolidated financial statements from the date of acquisition. TRANSLATION OF FOREIGN CURRENCIES Except for international companies whose functional currency is the U.S. dollar, financial statements of international companies are translated to U.S. dollar equivalents at the following exchange rates: (1) balance sheet accounts at year-end rates; (2) income statement accounts at exchange rates weighted by the monthly volume of transactions occurring during the year. Translation gains or losses are recorded in shareholders' equity as a component of accumulated other comprehensive income, and transaction gains and losses are reflected in net income. The U.S. dollar is the functional currency of the Company's operations in Indonesia, Mexico and Venezuela due to the high inflation experienced in those countries. Translation and transaction gains or losses for these operations are reflected in net income. CASH EQUIVALENTS Cash equivalents consist of highly liquid instruments with a maturity of three months or less and are carried at cost, which approximates market value. MARKETABLE SECURITIES Marketable securities consist of highly liquid investments carried at cost, which approximates market value. RISK MANAGEMENT DERIVATIVES Derivatives primarily consist of foreign-currency forward exchange contracts and foreign-currency options. Gains and losses related to qualifying hedges of firm commitments are deferred and are recognized as adjustments of carrying amounts when the hedged transaction occurs. Gains and losses on derivative financial instruments that do not qualify as hedges are recognized as foreign currency transaction gains or losses. Premiums paid on purchased options are deferred and amortized over the life of the option. NEW ACCOUNTING PRONOUNCEMENTS During 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 132, "Employers' Disclosures About Pensions and Other Postretirement Benefits," standardizing disclosure

requirements. The Statement was effective for years beginning after December 15, 1997. The Company adopted the Statement effective with the year ending December 31, 1998. During 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income," which establishes standards for reporting and displaying comprehensive income and its components in a full set of general-purpose financial statements. The Company adopted the Statement effective with the quarter ending March 31, 1998. During 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and Related Information," which provides that public enterprises report certain information about business segments in complete sets of financial statements and information concerning products and services, geographic areas in which they operate and major customers. The Company adopted this Statement effective with the year ending December 31, 1998. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

INVENTORIES Inventories are valued at the lower of cost or market. Cost is determined utilizing the first-in, first-out (FIFO) method, except for selected domestic and international inventories which utilize the last-in, first-out (LIFO) method. LONG-LIVED ASSETS In the case of goodwill and other intangibles, the excess cost over equity in net assets of acquired companies is being amortized over periods benefited, with the most extended period being 40 years. Accumulated amortization was $25.9 million and $21.5 million at December 31, 1998 and 1997, respectively. The realizability of goodwill and other intangibles is evaluated periodically as events or circumstances warrant. As such, the Company recognized as part of the realignment charge in 1997 an impairment loss in the pre-tax amount of $33.2 million for goodwill and other intangibles under the provisions of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Plant and equipment is carried at cost. Depreciation of plant and equipment is provided on a straight-line basis for financial reporting purposes. The annual depreciation provision has been based on the following estimated useful lives:
Buildings Machinery and equipment 20 to 40 years 5 to 15 years

In 1997, under the provisions of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," the Company recognized an impairment loss in the pre-tax amount of $55.7 million as part of the realignment charge for plant and equipment at certain domestic and international facilities which will be closed or sold. ENVIRONMENTAL COSTS The Company expenses recurring costs associated with control and disposal of hazardous materials in current operations. Costs associated with the remediation of environmental pollution are accrued when it becomes probable that a liability has been incurred and the costs can be reasonably estimated.

INVENTORIES Inventories are valued at the lower of cost or market. Cost is determined utilizing the first-in, first-out (FIFO) method, except for selected domestic and international inventories which utilize the last-in, first-out (LIFO) method. LONG-LIVED ASSETS In the case of goodwill and other intangibles, the excess cost over equity in net assets of acquired companies is being amortized over periods benefited, with the most extended period being 40 years. Accumulated amortization was $25.9 million and $21.5 million at December 31, 1998 and 1997, respectively. The realizability of goodwill and other intangibles is evaluated periodically as events or circumstances warrant. As such, the Company recognized as part of the realignment charge in 1997 an impairment loss in the pre-tax amount of $33.2 million for goodwill and other intangibles under the provisions of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Plant and equipment is carried at cost. Depreciation of plant and equipment is provided on a straight-line basis for financial reporting purposes. The annual depreciation provision has been based on the following estimated useful lives:
Buildings Machinery and equipment 20 to 40 years 5 to 15 years

In 1997, under the provisions of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," the Company recognized an impairment loss in the pre-tax amount of $55.7 million as part of the realignment charge for plant and equipment at certain domestic and international facilities which will be closed or sold. ENVIRONMENTAL COSTS The Company expenses recurring costs associated with control and disposal of hazardous materials in current operations. Costs associated with the remediation of environmental pollution are accrued when it becomes probable that a liability has been incurred and the costs can be reasonably estimated. INCOME TAXES Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. EARNINGS PER SHARE Basic earnings per share are based on a weighted average of common shares outstanding. Diluted earnings per share reflect the potential dilution of earnings per share assuming that certain stock options whose exercise price is less than the average market price of the stock are exercised and that convertible preferred shares are converted into common shares. 2. REALIGNMENT CHARGE In 1997, the Company recorded a $152.8 million pre-tax charge associated with a plan to significantly reduce the Company's cost base and allocate resources to strategies designed to foster profitable growth. The three-year plan provided for consolidation of worldwide manufacturing facilities and reduction in work force levels. Items included in the charge consisted of the write-off of certain long-lived assets totaling $88.9 million, including

goodwill of $33.2 million, termination benefits of $45.3 million for work force reductions, and $18.6 million for facility closure and other costs. Work force reductions through the end of 1998 were approximately 500 persons. Cash payments were $15.6 million and $4.2 million, of which $14.1 million and $3.9 million were for termination costs in 1998 and 1997, respectively. The remaining accrued balance is $40.7 million, which is expected to be utilized over the remaining 18 months of the three-year plan period. 3. INVENTORIES The portion of inventories valued on a LIFO basis at December 31, 1998 and 1997 is as follows:
1998 1997 --------------------------------------------------------United States 52% 51% Outside the United States 9 9 Consolidated 27 26 =========================================================

If the FIFO method of inventory valuation had been used exclusively by the Company, inventories would have been $14.5 million and $14.4 million higher than reported at December 31, 1998 and 1997, respectively. Inasmuch as certain of the inventory costs are determined by use of the LIFO dollar value method (under which the raw materials, work in process and finished goods are included in one pool), it is impracticable to separate LIFO inventory values among raw materials, work in process and finished goods. 32/33

4. FINANCING AND LONG-TERM LIABILITIES Long-term liabilities at December 31, 1998 and 1997 are as follows:
(dollars in thousands) 1998 1997 -----------------------------------------------------------Parent Company: Unsecured: Debentures, 7.125%, due 2028 $ 54,385 -Debentures, 7.625%, due 2013 24,808 24,801 Debentures, 8.0%, due 2025 49,388 49,364 Debentures, 7.375%, due 2015 24,939 24,936 Software lease obligation 368 -Secured: Mortgages, 7.207% payable to 2017 -74 Subsidiary Companies: Unsecured: Notes payable, 0.0% to 13.0% payable to 2003 784 1,482 Secured: Mortgages, 0.0% to 12.5% payable to 2002 2,721 2,263 -----------------------------------------------------------157,393 102,920 Less current portion(a) 1,110 900 -----------------------------------------------------------Total $156,283 102,020 ============================================================

(a) Included in notes and loans payable. The aggregate principal payments on long-term indebtedness for the next five years are as follows: (dollars in thousands)

4. FINANCING AND LONG-TERM LIABILITIES Long-term liabilities at December 31, 1998 and 1997 are as follows:
(dollars in thousands) 1998 1997 -----------------------------------------------------------Parent Company: Unsecured: Debentures, 7.125%, due 2028 $ 54,385 -Debentures, 7.625%, due 2013 24,808 24,801 Debentures, 8.0%, due 2025 49,388 49,364 Debentures, 7.375%, due 2015 24,939 24,936 Software lease obligation 368 -Secured: Mortgages, 7.207% payable to 2017 -74 Subsidiary Companies: Unsecured: Notes payable, 0.0% to 13.0% payable to 2003 784 1,482 Secured: Mortgages, 0.0% to 12.5% payable to 2002 2,721 2,263 -----------------------------------------------------------157,393 102,920 Less current portion(a) 1,110 900 -----------------------------------------------------------Total $156,283 102,020 ============================================================

(a) Included in notes and loans payable. The aggregate principal payments on long-term indebtedness for the next five years are as follows: (dollars in thousands)
1999 2000 2001 2002 2003 --------------------------------------------------------1,110 745 537 507 -==========================================================

At December 31, 1998, $2.7 million of long-term indebtedness was secured by property, equipment and certain other assets with a net book value approximating $3.5 million. In 1993, the Company issued $25.0 million 75/8% debentures under the 1992 Shelf Registration. These debentures mature in the year 2013, and the fair market value was approximately $27.7 million at December 31, 1998. In 1995, the Company issued $50.0 million 8% debentures under the 1992 Shelf Registration. These debentures mature in the year 2025, and the fair market value was approximately $53.6 million at December 31, 1998. In 1995, the Company issued $25.0 million 73/8% debentures under the 1992 Shelf Registration. These debentures mature in the year 2015, and the fair market value was approximately $26.9 million at December 31, 1998. This issuance exhausted the $100.0 million Shelf Registration filed in 1982. In 1995, the Company filed a $300.0 million Shelf Registration with the Securities and Exchange Commission. This registration will enable the Company to offer, separately or together, debt securities, common stock and/or preferred stock, warrants, stock purchase contracts, depositary shares and stock purchase units. Proceeds would be used for general corporate purposes. In 1998, the Company issued $55.0 million 71/8% debentures under the 1995 Shelf Registration. These debentures mature in the year 2028, and the fair market value was approximately $54.9 million at December 31, 1998.

1998. The Company has a five-year revolving credit agreement in the amount of $150.0 million, which matures on August 1, 2003. The agreement permits the maturity date to be extended for one year with the consent of the parties. Interest on revolving credit borrowings is payable at floating prime or lower rates based on Company options. There is a commitment fee of 3/16% per year. At December 31, 1998, the Company had no outstanding borrowing under this agreement. There are no covenants in the revolving credit agreement which significantly limit the dividend payment capability of the Company, and the Company does not expect to include any such covenants in future offerings under the Shelf Registration. In addition, there are no significant restrictions on the payment of dividends by the subsidiaries and affiliates of the Company. In 1989, the Company created an Employee Stock Ownership Plan (ESOP). The ESOP borrowed $63.5 million at an interest rate of 8.5% and $7.0 million at an adjustable interest rate in 10-year loans guaranteed by the Company. Interest paid by the ESOP totaled $0.9 million, $1.7 million and $2.4 million in 1998, 1997 and 1996, respectively. The Company has reflected the guaranteed ESOP borrowings as a loan guarantee on its balance sheet with a like amount of "Guaranteed ESOP Obligation" recorded as a reduction of shareholders' equity. As the Company and its employees make contributions to the ESOP, these contributions, plus the dividends paid on the Company's preferred stock held by the ESOP, are used to service the borrowings. As the principal amounts of the loans are repaid, the "Guaranteed ESOP Obligation" is reduced accordingly. Capitalized interest was $0.6 million, $0.5 million and $0.6 million in 1998, 1997 and 1996, respectively. The maintenance of minimum cash balances is informally agreed to with certain banks as a result of loans, commitments and services rendered. Cash balances maintained to meet operating needs on a daily basis are sufficient to satisfy these informal agreements. These balances are available for use by the Company and its subsidiaries at all times and do not contain legal restrictions. Cash in excess of such operating requirements is invested in short-term securities.

5. STOCK PLANS The Company maintains the following stock plans for the benefit of its employees: a stock option plan, a performance share plan and a savings and stock ownership plan which includes an investment savings plan and an ESOP. The stock option plan provides for the issuance of stock options at no less than the then current market price. Stock options have a maximum term of 10 years and vest evenly over four years. Information pertaining to these stock options is shown below:
1998 1997 1996 ----------------------------------------------------------Shares granted 642,935 682,942 584,273 Average option price $23.58 19.56 15.91 Shares exercised 277,139 379,149 79,536 Average option price $12.96 11.18 8.63 Shares which became exercisable 461,739 363,454 241,341 Average option price $18.29 17.85 19.02 Shares unexercised at year-end 2,820,764 2,478,641 2,200,199 Option price range per share $8.89 8.89 6.52 to $29.25 to 22.67 to 22.67 Shares cancelled 23,673 25,304 23,224 Shares available for granting future options 1,377,273 1,996,535 2,654,174 ===========================================================

5. STOCK PLANS The Company maintains the following stock plans for the benefit of its employees: a stock option plan, a performance share plan and a savings and stock ownership plan which includes an investment savings plan and an ESOP. The stock option plan provides for the issuance of stock options at no less than the then current market price. Stock options have a maximum term of 10 years and vest evenly over four years. Information pertaining to these stock options is shown below:
1998 1997 1996 ----------------------------------------------------------Shares granted 642,935 682,942 584,273 Average option price $23.58 19.56 15.91 Shares exercised 277,139 379,149 79,536 Average option price $12.96 11.18 8.63 Shares which became exercisable 461,739 363,454 241,341 Average option price $18.29 17.85 19.02 Shares unexercised at year-end 2,820,764 2,478,641 2,200,199 Option price range per share $8.89 8.89 6.52 to $29.25 to 22.67 to 22.67 Shares cancelled 23,673 25,304 23,224 Shares available for granting future options 1,377,273 1,996,535 2,654,174 ===========================================================

Significant option groups outstanding at December 31, 1998 and the related weighted-average price for the exercisable options and remaining life information are as follows:
Options Outstanding Options Exercisable ---------------------------------------------------------Range of Average RemainAverage exercise exerciseing average exercise prices Shares pricelife (years) Shares price --------------------------------------------------------$26-30 33,500 $28.60 10 -$-22-26 745,045 22.96 8 139,500 22.67 18-22 982,602 19.82 7 863,486 20.42 10-18 976,488 15.65 5 652,131 15.56 8-10 83,129 8.89 2 83,129 8.89 --------------------------------------------------------$ 8-30 2,820,764 $18.99 7 1,738,246 $18.23 =========================================================

All options were granted at an exercise price equal to the fair market value of the Company's common stock at the date of grant. The weighted-average fair market value at date of grant for options granted during 1998, 1997 and 1996 were $8.16, $6.89 and $6.18 per option, respectively. The fair value of options at date of grant was estimated using the Black-Scholes model with the following weighted-average assumptions:
1998 1997 1996 --------------------------------------------------------Expected life (years) 8.5 8.5 10 Interest rate 5.85% 5.84% 6.25% Volatility 25.25 25.25 26.40 Dividend yield 1.88 1.88 1.92 ---------------------------------------------------------

On a pro forma basis, had compensation cost for the Company's stock option plan been determined based on

On a pro forma basis, had compensation cost for the Company's stock option plan been determined based on the fair value at the grant date consistent with the provisions of Statement of Accounting Standards No. 123, "Accounting for Stock-Based Compensation," the Company's net income and earnings per share would have been reduced to the pro forma amounts shown below:
1998 1997 1996 ------------------------------------------------------------Net income (loss) as reported $69,282 (37,277) 54,586 Net income (loss) pro forma 67,013 (39,138) 53,770 Income (loss) per share (diluted) as reported $ 1.67 (1.08) 1.21 Income (loss) per share (diluted) pro forma 1.61 (1.13) 1.19 =============================================================

The pro forma effects on net income (loss) are not representative of the pro forma effects on net income in future years because they do not take into consideration pro forma compensation expense related to grants made prior to 1996. The Company maintains a performance share plan whereby awards, expressed as shares of common stock of the Company, are earned only if the Company meets specific performance targets over a three-year period. The plan pays 50% cash and 50% common stock for the value of any earned performance shares. Performance share awards in the amount of 832,007 shares, 601,802 shares and 243,479 shares were outstanding at the end of 1998, 1997 and 1996, respectively. The Company accrues amounts based on performance reflecting the value of cash and common stock, which is anticipated to be earned. The effect of the plan was to reduce income by $3.5 million, $2.7 million and $0.6 million in 1998, 1997 and 1996, respectively. The ESOP provides for the Company to match eligible employee pre-tax savings. Amounts expensed under the ESOP were $3.5 million, $3.3 million and $2.9 million in 1998, 1997 and 1996, respectively. 6. CAPITAL STOCK In 1989, Ferro issued 1,520,215 shares of 7% Series A ESOP Convertible Preferred Stock to National City Bank, trustee for the Ferro ESOP. The shares were issued at a price of $46.375 per share for a total consideration of $70.5 million. Each share of ESOP convert34/35

ible preferred stock is convertible into 2.5988 shares of common stock. As the loans are repaid by the trustee, preferred shares are allocated to participating individual employee accounts. The Company is required to repurchase at the original issue price, for cash or common stock at the Company's option, the preferred shares allocated to an employee's ESOP account upon distribution of such account to the employee unless such shares have been converted to common stock. Each preferred share carries one vote, voting together with the common stock on most matters. On January 26, 1996, the Board of Directors authorized the repurchase of up to 3,000,000 shares of Ferro common stock in addition to any previously authorized shares. These shares are to be purchased on the open market from time to time. On January 23, 1998, the Board of Directors authorized the repurchase of up to 5,000,000 shares of Ferro common stock in addition to any previously authorized shares. These shares are to be purchased on the open market from time to time. The Company purchased 2,595,482 shares of common stock in 1998 at an aggregate cost of $64.2 million; 1,346,627 shares of common stock in 1997 at an aggregate cost of $43.3 million; and 1,455,015 shares of common stock in 1996 at an aggregate cost of $39.3 million. At December 31, 1998, the Company had

ible preferred stock is convertible into 2.5988 shares of common stock. As the loans are repaid by the trustee, preferred shares are allocated to participating individual employee accounts. The Company is required to repurchase at the original issue price, for cash or common stock at the Company's option, the preferred shares allocated to an employee's ESOP account upon distribution of such account to the employee unless such shares have been converted to common stock. Each preferred share carries one vote, voting together with the common stock on most matters. On January 26, 1996, the Board of Directors authorized the repurchase of up to 3,000,000 shares of Ferro common stock in addition to any previously authorized shares. These shares are to be purchased on the open market from time to time. On January 23, 1998, the Board of Directors authorized the repurchase of up to 5,000,000 shares of Ferro common stock in addition to any previously authorized shares. These shares are to be purchased on the open market from time to time. The Company purchased 2,595,482 shares of common stock in 1998 at an aggregate cost of $64.2 million; 1,346,627 shares of common stock in 1997 at an aggregate cost of $43.3 million; and 1,455,015 shares of common stock in 1996 at an aggregate cost of $39.3 million. At December 31, 1998, the Company had remaining authorization to acquire 2,967,912 shares under the then current treasury stock purchase program. The Company maintains a Shareholder Rights Plan ("the Plan") whereby, until the occurrence of certain events, each share of the outstanding common stock represents ownership of one right (Right). The Rights become exercisable only if a person or group acquires 20% or more of the Company's common stock (10% under certain circumstances) or commences a tender or exchange offer upon consummation of which such person or group would control 20% or more of the common shares or is declared an Adverse Person (as defined in the Plan) by the Board of Directors. The Rights, which do not have the right to vote or receive dividends, expire on April 8, 2006. Rights may be redeemed by the Company at $0.03 1/3 per Right at any time until the 15th day following public announcement that a person or group has acquired 20% or more of the voting power, unless such period is extended by the Board of Directors while the Rights are redeemable. If any person becomes the owner of 20% or more of the common stock (10% under certain circumstances), or if the Company is the surviving corporation in a merger with a 20% or more stockholder and its common shares are not changed or converted, or if a 20% or more stockholder engages in certain self-dealing transactions with the Company, then each Right not owned by such person or related parties will entitle its holder to purchase shares of common stock at a purchase price of 50% of the then current market price of the common stock up to a value of $73.33 per Right. In the event the Company engages in a merger or other business combination transaction in which the Company is not the surviving corporation or the Company is the surviving corporation but its common stock is changed or exchanged or 50% or more of the Company's assets or earning power is sold or transferred, each holder of a Right shall have the right to receive, upon exercise thereof at the then current exercise price of the Right, that number of shares of common stock of the surviving company which at the time of the transaction would have a market value of two times the exercise price of the Right. 7. EARNINGS PER SHARE COMPUTATION Information concerning the calculation of basic and diluted earnings per share (EPS) is shown below:
(in thousands, except EPS) 1998 1997 1996 ----------------------------------------------------------Basic EPS Computation Numerator: Net income (loss) available $65,493 (41,034) 50,851 Denominator: Weighted-average common shares outstanding 36,419 38,132 39,507 ----------------------------------------------------------Basic EPS $ 1.80 (1.08) 1.29

Basic EPS $ 1.80 (1.08) 1.29 ----------------------------------------------------------Diluted EPS Computation Numerator: Net income (loss) available $65,493 (41,034) 50,851 Convertible preferred stock 2,205 (a) 1,862 Net income (loss) assuming conversion $67,698 (41,034) 52,713 Denominator: Weighted-average common shares outstanding 36,419 38,132 39,507 Convertible preferred stock 3,247 (a) 3,528 Options 813 (a) 382 Total shares 40,479 38,132 43,417 ----------------------------------------------------------Diluted EPS $ 1.67 (1.08) 1.21 ===========================================================

(a) Use basic EPS since conversion of preferred shares and options would be anti-dilutive.

8. ACQUISITIONS AND DIVESTITURES In May 1998, the Company acquired the assets of Ningbo Powder Coatings Company Ltd., located in the People's Republic of China. This transaction was not material to Ferro. In March 1998, the Company sold a majority of its shares in Ferro Ecuatoriana S.A., located in Ecuador. The results of this operation were not material to Ferro. In July 1997, the Company sold the remaining interest in Nissan-Ferro Organic Chemical Company, Ltd., located in Japan. The results of this operation were not material to Ferro. In January 1996, the Company purchased the remaining interest in Ferro Industrias Quimicas S.A., located in Portugal. In November 1996, the Company purchased Ceramica Technica Industrial S.A. of Spain. Neither of these transactions was material to Ferro. In October 1996, the Company sold the dispersions portion of Synthetic Products Company (Synpro) acquired in October 1995 from Cookson Group plc. The Company also sold two small plastics operations located in Canada. The results of these operations were not material to Ferro. The Company sold or closed operations representing annual sales of $1.7 million, $16.8 million, and $31.3 million in 1998, 1997 and 1996, respectively. 9. CONTINGENT LIABILITIES In 1994, the Company's Keil Chemical Division (Keil) settled an enforcement proceeding brought by the Indiana Department of Environmental Management (IDEM) concerning air emissions from Keil's Pyro-Chek(R) process. The settlement was in the form of an Agreed Order with IDEM. The Agreed Order confirmed the Company's plans to install additional controls and imposed certain aggregate limitations on air emissions from the Pyro-Chek (R) production process while the Company applied for and obtained a construction and operating permit for the existing air source. The control equipment was installed, but the Company has had a continuing disagreement with the agency over whether it has been in compliance with the Agreed Order, including which methods should be used to demonstrate compliance. In November 1998, IDEM filed suit in Indiana state court seeking to shut down operation of the

8. ACQUISITIONS AND DIVESTITURES In May 1998, the Company acquired the assets of Ningbo Powder Coatings Company Ltd., located in the People's Republic of China. This transaction was not material to Ferro. In March 1998, the Company sold a majority of its shares in Ferro Ecuatoriana S.A., located in Ecuador. The results of this operation were not material to Ferro. In July 1997, the Company sold the remaining interest in Nissan-Ferro Organic Chemical Company, Ltd., located in Japan. The results of this operation were not material to Ferro. In January 1996, the Company purchased the remaining interest in Ferro Industrias Quimicas S.A., located in Portugal. In November 1996, the Company purchased Ceramica Technica Industrial S.A. of Spain. Neither of these transactions was material to Ferro. In October 1996, the Company sold the dispersions portion of Synthetic Products Company (Synpro) acquired in October 1995 from Cookson Group plc. The Company also sold two small plastics operations located in Canada. The results of these operations were not material to Ferro. The Company sold or closed operations representing annual sales of $1.7 million, $16.8 million, and $31.3 million in 1998, 1997 and 1996, respectively. 9. CONTINGENT LIABILITIES In 1994, the Company's Keil Chemical Division (Keil) settled an enforcement proceeding brought by the Indiana Department of Environmental Management (IDEM) concerning air emissions from Keil's Pyro-Chek(R) process. The settlement was in the form of an Agreed Order with IDEM. The Agreed Order confirmed the Company's plans to install additional controls and imposed certain aggregate limitations on air emissions from the Pyro-Chek (R) production process while the Company applied for and obtained a construction and operating permit for the existing air source. The control equipment was installed, but the Company has had a continuing disagreement with the agency over whether it has been in compliance with the Agreed Order, including which methods should be used to demonstrate compliance. In November 1998, IDEM filed suit in Indiana state court seeking to shut down operation of the Pyro-Chek(R) process. At a hearing held on December 4, 1998, the court denied IDEM's request for a preliminary injunction, and later dismissed the claim for a permanent injunction on grounds that the dispute arising out of the Agreed Order should be addressed before the Indiana Office of Environmental Adjudication. The day before this hearing, IDEM denied Keil's application for a permit for air emissions for the Pyro-Chek(R) process. The Company appealed IDEM's denial of Keil's permit application to the Indiana Office of Environmental Adjudication. On December 29, 1998, IDEM wrote to the Company alleging that because Keil is in violation of the Agreed Order, operation of the Pyro-Chek(R) process is prohibited, and that the Company will be subject to fines of up to $25,000 for each day of continued operation. The Company filed a petition for review before the Indiana Office of Environmental Adjudication seeking to confirm that operation of the Pyro-Chek(R) process has been and remains in compliance with the Agreed Order. A hearing date has not yet been scheduled for either petition before the Indiana Office of Environmental Adjudication. Accordingly, the Company is unable at this time to determine if any potential liability exists, and if it does, cannot estimate what that liability may be. If the State of Indiana were to prevail on all of its claims, it could have a material adverse effect on the operating results and financial condition of the Company. There are also pending against the Company and its consolidated subsidiaries various other lawsuits and claims. In the opinion of management, the ultimate liabilities resulting from such other lawsuits and claims will not materially affect the consolidated financial position or results of operations or liquidity of the Company. 10. RESEARCH AND DEVELOPMENT EXPENSE

Amounts expended for development or significant improvement of new and/or existing products, services and techniques approximated $29.4 million, $26.6 million and $23.8 million in 1998, 1997 and 1996, respectively. 36/37

11. RETIREMENT BENEFITS Information concerning the pension and other postretirement benefit plans of the Company and consolidated subsidiaries is as follows:
Pension Benefits Other Benef --------------------------------------------------------------------------------------------------------(dollars in thousands) 1998 1997 1998 --------------------------------------------------------------------------------------------------------Change in benefit obligation Benefit obligation at beginning of year $242,733 220,893 $ 35,253 Service cost 7,363 6,658 777 Interest cost 16,808 16,118 2,515 Amendments 347 68 -Effect of curtailment gain (loss) (737) --Plan participants' contributions 468 484 -Benefits paid (11,206) (10,504) (1,822) Actuarial loss (gain) 21,873 20,406 1,747 Exchange rate effect 2,644 (11,390) ---------------------------------------------------------------------------------------------------------Benefit obligation at end of year 280,293 242,733 38,470 --------------------------------------------------------------------------------------------------------Change in plan assets Fair value of plan assets at beginning of year 220,575 200,955 -Actual return on plan assets 21,702 33,015 -Employer contribution 3,516 3,351 1,822 Plan participants' contributions 468 484 -Benefits paid (11,206) (10,504) (1,822) Exchange rate effect 2,981 (6,726) ---------------------------------------------------------------------------------------------------------Fair value of plan assets at end of year 238,036 220,575 ---------------------------------------------------------------------------------------------------------Funded status (42,257) (22,158) (38,470) Unrecognized net actuarial loss 8,703 (9,822) (6,255) Unrecognized prior service cost 7,194 8,592 (701) --------------------------------------------------------------------------------------------------------Net amount recognized $ (26,360) (23,388) $(45,426) ========================================================================================================= Amounts recognized in the statement of financial position consist of: Prepaid benefit cost $ 3,099 1,396 $ -Accrued benefit liability (39,971) (33,420) (45,426) Intangible asset 4,111 4,587 -Accumulated other comprehensive income 6,401 4,049 ---------------------------------------------------------------------------------------------------------Net amount recognized $ (26,360) (23,388) $(45,426) --------------------------------------------------------------------------------------------------------Weighted-average assumptions as of December 31 Discount rate 6.50% 7.08% 6.84% Expected return on plan assets 8.10% 8.38% N/A Rate of compensation increase 4.1% 4.2% N/A =========================================================================================================

For measurement purposes, a 7.81% increase in the cost of covered health care benefits was assumed for 1999, gradually decreasing to 4% for 2015 and later years.

Pension Benefits Other Benefit --------------------------------------------------------------------------------------------------------(dollars in thousands) 1998 1997 1996 1998 1997 --------------------------------------------------------------------------------------------------------Components of net periodic cost

11. RETIREMENT BENEFITS Information concerning the pension and other postretirement benefit plans of the Company and consolidated subsidiaries is as follows:
Pension Benefits Other Benef --------------------------------------------------------------------------------------------------------(dollars in thousands) 1998 1997 1998 --------------------------------------------------------------------------------------------------------Change in benefit obligation Benefit obligation at beginning of year $242,733 220,893 $ 35,253 Service cost 7,363 6,658 777 Interest cost 16,808 16,118 2,515 Amendments 347 68 -Effect of curtailment gain (loss) (737) --Plan participants' contributions 468 484 -Benefits paid (11,206) (10,504) (1,822) Actuarial loss (gain) 21,873 20,406 1,747 Exchange rate effect 2,644 (11,390) ---------------------------------------------------------------------------------------------------------Benefit obligation at end of year 280,293 242,733 38,470 --------------------------------------------------------------------------------------------------------Change in plan assets Fair value of plan assets at beginning of year 220,575 200,955 -Actual return on plan assets 21,702 33,015 -Employer contribution 3,516 3,351 1,822 Plan participants' contributions 468 484 -Benefits paid (11,206) (10,504) (1,822) Exchange rate effect 2,981 (6,726) ---------------------------------------------------------------------------------------------------------Fair value of plan assets at end of year 238,036 220,575 ---------------------------------------------------------------------------------------------------------Funded status (42,257) (22,158) (38,470) Unrecognized net actuarial loss 8,703 (9,822) (6,255) Unrecognized prior service cost 7,194 8,592 (701) --------------------------------------------------------------------------------------------------------Net amount recognized $ (26,360) (23,388) $(45,426) ========================================================================================================= Amounts recognized in the statement of financial position consist of: Prepaid benefit cost $ 3,099 1,396 $ -Accrued benefit liability (39,971) (33,420) (45,426) Intangible asset 4,111 4,587 -Accumulated other comprehensive income 6,401 4,049 ---------------------------------------------------------------------------------------------------------Net amount recognized $ (26,360) (23,388) $(45,426) --------------------------------------------------------------------------------------------------------Weighted-average assumptions as of December 31 Discount rate 6.50% 7.08% 6.84% Expected return on plan assets 8.10% 8.38% N/A Rate of compensation increase 4.1% 4.2% N/A =========================================================================================================

For measurement purposes, a 7.81% increase in the cost of covered health care benefits was assumed for 1999, gradually decreasing to 4% for 2015 and later years.

Pension Benefits Other Benefit --------------------------------------------------------------------------------------------------------(dollars in thousands) 1998 1997 1996 1998 1997 --------------------------------------------------------------------------------------------------------Components of net periodic cost Service cost $ 7,363 6,658 6,477 $ 777 671 Interest cost 16,808 16,118 15,526 2,515 2,479 Expected return on plan assets (18,208) (16,513) (15,791) --Amortization of prior service cost 1,278 1,276 1,209 (177) (177) Net amortization and deferral (282) (336) (327) (330) (507) Curtailment effect (609) ------------------------------------------------------------------------------------------------------------Net periodic pension cost $ 6,350 7,203 7,094 $2,785 2,466

Pension Benefits Other Benefit --------------------------------------------------------------------------------------------------------(dollars in thousands) 1998 1997 1996 1998 1997 --------------------------------------------------------------------------------------------------------Components of net periodic cost Service cost $ 7,363 6,658 6,477 $ 777 671 Interest cost 16,808 16,118 15,526 2,515 2,479 Expected return on plan assets (18,208) (16,513) (15,791) --Amortization of prior service cost 1,278 1,276 1,209 (177) (177) Net amortization and deferral (282) (336) (327) (330) (507) Curtailment effect (609) ------------------------------------------------------------------------------------------------------------Net periodic pension cost $ 6,350 7,203 7,094 $2,785 2,466 =========================================================================================================

Costs for defined contribution pension plans were $0.6 million in 1998, 1997 and 1996. The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for the pension plans with accumulated benefit obligations in excess of plan assets were $42.2 million, $40.7 million and $16.2 million, respectively, as of December 31, 1998, and $34.3 million, $33.1 million and $12.2 million, respectively, as of December 31, 1997. A one-percentage point change in assumed health care cost trend rates would have the following effect:
1-Percentage 1-Percentage (dollars in thousands) Point Increase Point Decrease ---------------------------------------------------------Effect on total of service and interest cost component $ 246 (224) Effect on postretirement benefit obligation $3,030 (2,756) ----------------------------------------------------------

12. INCOME TAX EXPENSE Income tax expense (benefit) is comprised of the following components:
(dollars in thousands) 1998 1997 1996 ---------------------------------------------------------Current: U.S. federal $19,583 21,958 18,641 Foreign 20,753 14,354 12,968 State and local 3,416 3,758 3,345 ---------------------------------------------------------43,752 40,070 34,954 ---------------------------------------------------------Deferred: U.S. federal (1,381) (25,173) (588) Foreign (774) (21,908) (663) State and local (398) (4,182) (82) ---------------------------------------------------------(2,553) (51,263) (1,333) Total income tax $41,199 (11,193) 33,621 ----------------------------------------------------------

In addition to the 1998 income tax expense of $41,199, certain tax benefits of $2.2 million were allocated directly to shareholders' equity. The above taxes are based on earnings before income taxes. These earnings (losses) aggregated $60.7 million, $(14.5) million and $53.7 million for domestic operations and $49.8 million, $(34.0) million and $34.5 million for foreign operations in 1998, 1997 and 1996, respectively. A reconciliation of the statutory federal income tax rate and the effective tax rate follows:
1998 1997 1996 ---------------------------------------------------------

--------------------------------------------------------Statutory federal income tax rate 35.0% (35.0) 35.0 Realignment charge -7.2 -Foreign tax rate difference 2.3 1.6 0.4 U.S. taxes on dividends from subsidiaries 0.4 1.4 0.9 Foreign sales corporation (1.0) (0.3) -State and local taxes net of federal 1.8 3.9 2.4 Miscellaneous (1.2) (1.9) (0.6) --------------------------------------------------------Effective tax rate 37.3% (23.1) 38.1 =========================================================

38/29

The components of deferred tax assets and liabilities at December 31 were:
(dollars in thousands) 1998 1997 --------------------------------------------------------Deferred tax assets: Realignment reserves $24,434 31,865 Pension and other benefit programs 29,502 25,466 Accrued liabilities 5,680 6,577 Net operating loss carryforwards 8,342 8,628 Inventories 3,730 4,342 Other 11,409 10,117 -------------------------------------------------------Total deferred tax assets $83,097 86,995 -------------------------------------------------------Deferred tax liabilities: Property and equipment depreciation and amortization 14,211 11,143 Other -111 -------------------------------------------------------Total deferred tax liabilities $14,211 11,254 -------------------------------------------------------Net deferred tax asset before valuation allowance 68,886 75,741 Valuation allowance (6,475) (8,678) -------------------------------------------------------Net deferred tax asset $62,411 67,063 ========================================================

At December 31, 1998, the Company's foreign subsidiaries had deferred tax assets relating to net operating loss carryforwards for income tax purposes of $8.3 million that expire in years 1999 through 2002, and in three instances have no expiration period. For financial reporting purposes, a valuation allowance of $1.8 million has been recognized to offset the deferred tax assets relating to the net operating loss carryforwards. In connection with the 1997 realignment charge, a valuation allowance in the amount of $4.7 million has been recognized to offset the deferred tax assets relating to the realignment charge. Of the total deferred tax assets, $32.3 million and $34.0 million were classified as current at December 31, 1998 and 1997, respectively. Undistributed earnings of the Company's foreign subsidiaries amounted to approximately $99.7 million. Deferred income taxes are not provided on these earnings as it is intended that the majority of these earnings are indefinitely invested in these entities. 13. REPORTING FOR SEGMENTS

The components of deferred tax assets and liabilities at December 31 were:
(dollars in thousands) 1998 1997 --------------------------------------------------------Deferred tax assets: Realignment reserves $24,434 31,865 Pension and other benefit programs 29,502 25,466 Accrued liabilities 5,680 6,577 Net operating loss carryforwards 8,342 8,628 Inventories 3,730 4,342 Other 11,409 10,117 -------------------------------------------------------Total deferred tax assets $83,097 86,995 -------------------------------------------------------Deferred tax liabilities: Property and equipment depreciation and amortization 14,211 11,143 Other -111 -------------------------------------------------------Total deferred tax liabilities $14,211 11,254 -------------------------------------------------------Net deferred tax asset before valuation allowance 68,886 75,741 Valuation allowance (6,475) (8,678) -------------------------------------------------------Net deferred tax asset $62,411 67,063 ========================================================

At December 31, 1998, the Company's foreign subsidiaries had deferred tax assets relating to net operating loss carryforwards for income tax purposes of $8.3 million that expire in years 1999 through 2002, and in three instances have no expiration period. For financial reporting purposes, a valuation allowance of $1.8 million has been recognized to offset the deferred tax assets relating to the net operating loss carryforwards. In connection with the 1997 realignment charge, a valuation allowance in the amount of $4.7 million has been recognized to offset the deferred tax assets relating to the realignment charge. Of the total deferred tax assets, $32.3 million and $34.0 million were classified as current at December 31, 1998 and 1997, respectively. Undistributed earnings of the Company's foreign subsidiaries amounted to approximately $99.7 million. Deferred income taxes are not provided on these earnings as it is intended that the majority of these earnings are indefinitely invested in these entities. 13. REPORTING FOR SEGMENTS Effective for the year ended December 31, 1998, the Company adopted Statement of Financial Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and Related Information," requiring that companies disclose segment data based on how management makes resource allocation decisions and evaluates segment operating performance. In applying the Statement, the Company considered its operating and management structure and the types of information subject to regular review by its "chief operating decision maker." On this basis, the Company's reportable segments include Coatings, Chemicals and Plastics. The segment disclosures are presented on this new basis for 1998, as well as retroactively. The Coatings segment is an aggregation of the Company's Ceramics and Colorants and Industrial Coatings operating segments. Principal products from which the Coatings segment derives its revenues are ceramic glaze coatings, inorganic color, powder and porcelain enamel coatings. The Chemicals segment generates its revenues through the sale of polymer and petroleum additives as well as industrial specialties. Revenues for the Plastics segment result primarily from the sale of plastic colorants and filled and reinforced plastics.

The accounting policies of the segments are consistent with those described for the consolidated financial statements in the summary of significant accounting policies (see Note 1). The Company measures segment profit for internal reporting purposes as net operating profit before interest and tax. Excluded from net operating profit are such items as realignment charges and unallocated corporate expenses. A complete reconciliation of segment income to consolidated income before tax is presented below. Sales to external customers are presented in the following chart. Intersegment sales are not material.
(dollars in millions) 1998 1997 1996 ----------------------------------------------------------Net sales Coatings $ 817.8 815.4 781.0 Chemicals 305.3 328.0 336.7 Plastics 238.7 237.9 238.0 ----------------------------------------------------------Total $1,361.8 1,381.3 1,355.7 ===========================================================

Income and reconciliation to income (loss) before taxes follows: 1998 1997 1996 ----------------------------------------------------------Coatings $ 89.3 84.2 78.7 Chemicals 36.4 32.4 26.7 Plastics 22.2 18.1 15.8 ----------------------------------------------------------Segment income 147.9 134.7 121.2 Unallocated expenses 18.7 15.1 15.4 Realignment charge -152.8 -Interest expense 15.3 12.2 13.0 Interest earned (2.9) (2.3) (2.5) Foreign currency (0.9) (2.2) (0.8) Miscellaneous-net 7.2 7.6 7.9 ----------------------------------------------------------Income (loss) before taxes $110.5 (48.5) 88.2 ===========================================================

Unallocated expenses consist primarily of corporate costs. Had realignment costs been charged to segments, 1997 segment income would have been reduced by $70.6 million in Coatings, $52.6 million in Chemicals and $18.4 million in Plastics.
1998 1997 1996 --------------------------------------------------------Depreciation & amortization Coatings $ 25.7 25.8 27.1 Chemicals 10.8 12.2 14.4 Plastics 4.6 5.2 6.1 --------------------------------------------------------Segment depreciation and amortization 41.1 43.2 47.6 Other 2.0 1.8 2.0 --------------------------------------------------------Total consolidated $ 43.1 45.0 49.6 ========================================================= Assets Coatings $452.4 403.9 450.8 Chemicals 163.2 163.5 218.1 Plastics 83.1 75.4 83.0 --------------------------------------------------------Segment assets 698.7 642.8 751.9 Other assets 150.5 142.9 118.6 --------------------------------------------------------Total consolidated $849.2 785.7 870.5 =========================================================

Income and reconciliation to income (loss) before taxes follows: 1998 1997 1996 ----------------------------------------------------------Coatings $ 89.3 84.2 78.7 Chemicals 36.4 32.4 26.7 Plastics 22.2 18.1 15.8 ----------------------------------------------------------Segment income 147.9 134.7 121.2 Unallocated expenses 18.7 15.1 15.4 Realignment charge -152.8 -Interest expense 15.3 12.2 13.0 Interest earned (2.9) (2.3) (2.5) Foreign currency (0.9) (2.2) (0.8) Miscellaneous-net 7.2 7.6 7.9 ----------------------------------------------------------Income (loss) before taxes $110.5 (48.5) 88.2 ===========================================================

Unallocated expenses consist primarily of corporate costs. Had realignment costs been charged to segments, 1997 segment income would have been reduced by $70.6 million in Coatings, $52.6 million in Chemicals and $18.4 million in Plastics.
1998 1997 1996 --------------------------------------------------------Depreciation & amortization Coatings $ 25.7 25.8 27.1 Chemicals 10.8 12.2 14.4 Plastics 4.6 5.2 6.1 --------------------------------------------------------Segment depreciation and amortization 41.1 43.2 47.6 Other 2.0 1.8 2.0 --------------------------------------------------------Total consolidated $ 43.1 45.0 49.6 ========================================================= Assets Coatings $452.4 403.9 450.8 Chemicals 163.2 163.5 218.1 Plastics 83.1 75.4 83.0 --------------------------------------------------------Segment assets 698.7 642.8 751.9 Other assets 150.5 142.9 118.6 --------------------------------------------------------Total consolidated $849.2 785.7 870.5 =========================================================

Segment assets consist of trade receivables, inventories, intangibles, and property, plant and equipment net of applicable reserves. Other assets include cash, deferred taxes and other items.
1998 1997 1996 ---------------------------------------------------------Expenditures for long-lived assets Coatings $38.7 29.0 39.0 Chemicals 9.0 11.2 13.1 Plastics 6.8 3.7 4.2 ---------------------------------------------------------Total $54.5 43.9 56.3 ==========================================================

Geographic information follows: 1998 1997 1996 ----------------------------------------------------------

Net sales United States and Canada $ 737.3 748.6 733.9 Europe 445.9 436.6 439.7 Latin America 107.3 112.3 97.1 Asia-Pacific 71.3 83.8 85.0 ---------------------------------------------------------Total $1,361.8 1,381.3 1,355.7 ==========================================================

Geographic revenues are based on region in which the customer invoice was generated. The United States of America is the single largest country for customer sales. No other single country represents greater than 10% of consolidated sales.
1998 1997 1996 --------------------------------------------------------Segment income United States and Canada $ 82.8 78.1 67.7 Europe 50.7 42.3 40.3 Latin America 8.2 7.5 8.1 Asia-Pacific 6.2 6.8 5.1 --------------------------------------------------------Total $147.9 134.7 121.2 =========================================================

Had realignment costs been charged to geographic regions in 1997, segment income in the United States and Canada, Europe, Latin America and Asia-Pacific would have been reduced by $59.3 million, $39.6 million, $19.9 million and $22.8 million, respectively.
1998 1997 1996 --------------------------------------------------------Long-lived assets United States and Canada $218.4 207.0 251.0 Europe 84.3 69.8 105.7 Latin America 9.2 10.1 14.7 Asia-Pacific 12.8 7.6 29.3 --------------------------------------------------------Total $324.7 294.5 400.7 =========================================================

Except for the United States of America, no single country has greater than 10% of consolidated long-lived assets. 40/41

14. FINANCIAL INSTRUMENTS The carrying amounts of cash and cash equivalents, trade receivables, other current assets, accounts payable and amounts included in investments and accruals meeting the definition of a financial instrument approximate fair value. It is the Company's hedging policy to neutralize or mitigate the potentially negative effects of currency movements and raw material prices. The Company's use of derivative financial instruments is limited to the hedging of underlying exposures. The Company does not engage in speculative transactions for trading purposes. The Company uses forward exchange contracts and currency options to hedge its exposure to foreign currency fluctuations. Several of the Company's foreign subsidiaries enter into forward contracts to protect against the risk of increased cost of non-local currency-denominated raw materials. The most prevalent transactions involve the

14. FINANCIAL INSTRUMENTS The carrying amounts of cash and cash equivalents, trade receivables, other current assets, accounts payable and amounts included in investments and accruals meeting the definition of a financial instrument approximate fair value. It is the Company's hedging policy to neutralize or mitigate the potentially negative effects of currency movements and raw material prices. The Company's use of derivative financial instruments is limited to the hedging of underlying exposures. The Company does not engage in speculative transactions for trading purposes. The Company uses forward exchange contracts and currency options to hedge its exposure to foreign currency fluctuations. Several of the Company's foreign subsidiaries enter into forward contracts to protect against the risk of increased cost of non-local currency-denominated raw materials. The most prevalent transactions involve the purchase of U.S. dollars against Dutch guilders and Spanish pesetas. The maturity of the hedges is consistent with the underlying exposure, generally not beyond one year. At December 31, 1998, the market value of such forward contracts was $7.1 million, compared with a contract value of $7.1 million. The Company enters into foreign currency options to protect the U.S. dollar value of profits generated by certain European operations. Such activity involves the purchase of put options for the Dutch guilder, German mark, Spanish peseta and French franc against the U.S. dollar. The maturity of the options is generally under one year. At December 31, 1998, the face value or notional amount of all outstanding currency options was $16.4 million. If liquidated at year-end 1998, these options would have produced a cash amount of $0.2 million versus an unamortized cost of $0.3 million. The Company enters into selective foreign currency forward contracts to protect the U.S. dollar value of certain intercompany loans or subsidiary currency exposures. Such activities involve the forward sale of foreign currencies against the U.S. dollar. The maturity date of the forward contract is usually under one year. At December 31, 1998, the contract value of all outstanding forward contracts was $13.0 million. If liquidated at year-end 1998, these forward contracts would have produced a cash loss amount of $0.9 million. All forward contract, option and hedging activity is executed with major reputable multinational financial institutions. Accordingly, the Company does not anticipate counterparty default. 15. LEASE COMMITMENT In 1995, in conjunction with the Synthetic Products Company acquisition, the Company entered into a five-year operating lease agreement for certain land, buildings, machinery and equipment. The Company has the option to purchase the assets at the end of the lease term for a price of $29.6 million. In the event the Company chooses not to exercise this option, the Company is obligated to pay, or is entitled to receive from the lessor, the difference between the net sales proceeds and the outstanding lease balance. Rentals are based on floating rates, and the total annual lease payments, based on the amount outstanding as of December 31, 1998, are estimated to be $1.8 million.

Independent Auditors' Report Ferro Corporation and subsidiaries To the Shareholders and Board of Directors of Ferro Corporation We have audited the accompanying consolidated balance sheets of Ferro Corporation and subsidiaries as of December 31, 1998 and 1997 and the related consolidated statements of income, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that

Independent Auditors' Report Ferro Corporation and subsidiaries To the Shareholders and Board of Directors of Ferro Corporation We have audited the accompanying consolidated balance sheets of Ferro Corporation and subsidiaries as of December 31, 1998 and 1997 and the related consolidated statements of income, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Ferro Corporation and subsidiaries at December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1998 in conformity with generally accepted accounting principles.
/s/ KPMG LLP KPMG LLP Cleveland, Ohio January 25, 1999

42/43

Quarterly Data (Unaudited) Ferro Corporation and subsidiaries (dollars in thousands except per share data)
Per common share ------------------------------Net Basic Diluted Gross income earnings earnings Cash Quarter Net sales profit (loss) (loss) (loss) dividends --------------------------------------------------------------------------------------------------------1998 1 $ 339,763 90,141 17,055 0.43 0.40 0.120 $3 2 348,004 92,551 18,402 0.47 0.44 0.120 2 3 334,388 89,965 16,762 0.44 0.41 0.120 2 4 339,689 91,604 17,063 0.46 0.42 0.135 2 --------------------------------------------------------------------------------------------------------Total $1,361,844 364,261 69,282 1.80 1.67 0.495 --------------------------------------------------------------------------------------------------------1997 1 $ 342,197 86,427 15,194 0.37 0.35 0.103 $2 2(a) 363,045 92,881 (83,946) (2.21) (2.21) 0.103 2 3 338,957 86,778 15,364 0.38 0.35 0.103 2 4 337,081 87,125 16,111 0.40 0.38 0.120 2 --------------------------------------------------------------------------------------------------------Total(a) $1,381,280 353,211 (37,277) (1.08) (1.08) 0.430 =========================================================================================================

Per share data has been adjusted to reflect a 3-for-2 split in November 1997.

Quarterly Data (Unaudited) Ferro Corporation and subsidiaries (dollars in thousands except per share data)
Per common share ------------------------------Net Basic Diluted Gross income earnings earnings Cash Quarter Net sales profit (loss) (loss) (loss) dividends --------------------------------------------------------------------------------------------------------1998 1 $ 339,763 90,141 17,055 0.43 0.40 0.120 $3 2 348,004 92,551 18,402 0.47 0.44 0.120 2 3 334,388 89,965 16,762 0.44 0.41 0.120 2 4 339,689 91,604 17,063 0.46 0.42 0.135 2 --------------------------------------------------------------------------------------------------------Total $1,361,844 364,261 69,282 1.80 1.67 0.495 --------------------------------------------------------------------------------------------------------1997 1 $ 342,197 86,427 15,194 0.37 0.35 0.103 $2 2(a) 363,045 92,881 (83,946) (2.21) (2.21) 0.103 2 3 338,957 86,778 15,364 0.38 0.35 0.103 2 4 337,081 87,125 16,111 0.40 0.38 0.120 2 --------------------------------------------------------------------------------------------------------Total(a) $1,381,280 353,211 (37,277) (1.08) (1.08) 0.430 =========================================================================================================

Per share data has been adjusted to reflect a 3-for-2 split in November 1997. The common stock of the Company is listed on the New York Stock Exchange. Ticker Symbol: FOE At January 31, 1999, the Company had 2,510 holders of its common stock. The Company's total earnings per share for 1997 differ from the sum of the quarterly amounts because of the effect of anti-dilutive securities in the second quarter 1997 calculation and due to rounding differences and changes in the basis of shares used to calculate earnings per share. (a) Included in 1997 is a pre-tax realignment charge of $152.8 million, which on an after-tax basis is $100.0 million, or $2.52 per share. Excluding the realignment charge, net income for 1997 would have been $62.7 million, or $1.44 per common share.

Selected Financial Data Ferro Corporation and subsidiaries
Years ended December 31, 1988 through 1998 (dollars in thousands except per share data and sales per employee data) 1998 1997 1996 1995 --------------------------------------------------------------------------------------------------------OPERATING RESULTS (a) Net sales $ 1,361,844 1,381,280 1,355,685 1,322,954 Income (loss) before taxes and cumulative effect of changes in accounting principles 110,481 (48,470) 88,207 80,159 Income tax expense (benefit) $ 41,199 (11,193) 33,621 30,905 Net income (loss) $ 69,282 (37,277) 54,586 49,254 Income as a percent of sales before cumulative effect of changes in accounting principles 5.1% -4.0% 3.7% RETURN ON AVERAGE SHAREHOLDERS' EQUITY PER COMMON SHARE DATA (a,b) Average shares outstanding Basic earnings Diluted earnings

24.9%

--

14.2%

13.2%

$

36,419,090 1.80 1.67

38,131,631 (1.08) (1.08)

39,506,572 1.29 1.21

41,419,578 1.10 1.04

4

Selected Financial Data Ferro Corporation and subsidiaries
Years ended December 31, 1988 through 1998 (dollars in thousands except per share data and sales per employee data) 1998 1997 1996 1995 --------------------------------------------------------------------------------------------------------OPERATING RESULTS (a) Net sales $ 1,361,844 1,381,280 1,355,685 1,322,954 Income (loss) before taxes and cumulative effect of changes in accounting principles 110,481 (48,470) 88,207 80,159 Income tax expense (benefit) $ 41,199 (11,193) 33,621 30,905 Net income (loss) $ 69,282 (37,277) 54,586 49,254 Income as a percent of sales before cumulative effect of changes in accounting principles 5.1% -4.0% 3.7% RETURN ON AVERAGE SHAREHOLDERS' EQUITY PER COMMON SHARE DATA (a,b) Average shares outstanding Basic earnings Diluted earnings Cash dividends Book value

24.9%

--

14.2%

13.2%

$

36,419,090 1.80 1.67 0.495 8.02

38,131,631 (1.08) (1.08) 0.43 7.32

39,506,572 1.29 1.21 0.39 9.99

41,419,578 1.10 1.04 0.36 9.49

4

FINANCIAL CONDITION AT YEAR-END Current assets $ 456,893 427,030 416,522 433,530 Current liabilities 282,556 277,707 252,333 258,472 --------------------------------------------------------------------------------------------------------Working capital 174,337 149,323 164,189 175,058 --------------------------------------------------------------------------------------------------------Plant and equipment 641,644 561,181 683,129 653,352 Accumulated depreciation and amortization 367,592 321,001 375,746 364,064 --------------------------------------------------------------------------------------------------------Net plant and equipment 274,052 240,180 307,383 307,288 --------------------------------------------------------------------------------------------------------Other assets 118,220 118,469 146,563 136,294 Total assets 849,165 785,679 870,468 872,112 Long-term liabilities 156,283 102,020 105,308 104,910 ESOP loan guarantee 4,067 13,815 22,592 30,470 Postretirement liabilities 45,426 44,462 44,846 43,570 Other non-current liabilities 77,572 74,524 61,185 57,540 Shareholders' equity 283,261 273,151 384,204 382,150 PLANT AND EQUIPMENT Capital expenditures and acquisitions 64,420 45,129 50,592 60,733 Depreciation 38,650 39,421 42,283 40,233 EMPLOYEES Number (year-end) 6,693 6,851 6,912 6,914 Sales per employee $ 203,473 201,617 196,135 191,344 =========================================================================================================

44/45

1993 1992 1991 1990 1989 1988 -------------------------------------------------------------------------------------1,065,748 1,097,793 1,056,940 1,124,833 1,083,573 1,008,990

89,289 31,784 36,955

97,689 38,861 58,828

20,349 15,532 4,817

43,509 24,090 19,419

83,764 34,016 49,748

88,436 41,816 46,620

5.4%

5.4%

0.5%

1.7%

4.6%

4.6%

1993 1992 1991 1990 1989 1988 -------------------------------------------------------------------------------------1,065,748 1,097,793 1,056,940 1,124,833 1,083,573 1,008,990

89,289 31,784 36,955

97,689 38,861 58,828

20,349 15,532 4,817

43,509 24,090 19,419

83,764 34,016 49,748

88,436 41,816 46,620

5.4%

5.4%

0.5%

1.7%

4.6%

4.6%

16.3%

18.1%

1.6%

6.4%

16.8%

16.8%

43,601,090 0.77 0.73 0.34 8.21

43,301,822 1.29 1.18 0.30 7.95

42,689,787 0.04 0.04 0.29 7.11

43,074,468 0.38 0.35 0.29 7.18

45,695,063 1.04 0.97 0.27 6.80

46,327,196 1.01 -0.21 6.35

411,253 414,927 405,740 386,704 408,692 356,972 198,958 205,043 212,575 221,155 210,059 194,171 -----------------------------------------------------------------------------------------212,295 209,884 193,165 165,549 198,633 162,801 -----------------------------------------------------------------------------------------538,188 497,561 511,605 519,044 446,290 399,785 280,367 269,998 276,885 263,114 226,268 202,563 -----------------------------------------------------------------------------------------257,821 227,563 234,720 255,930 220,022 197,222 -----------------------------------------------------------------------------------------98,820 54,055 31,465 43,029 40,417 33,946 767,894 696,545 671,925 685,663 669,131 588,140 79,349 53,210 55,658 58,047 60,764 63,163 44,076 50,897 57,229 62,649 68,020 -40,096 -----46,618 42,422 41,176 38,210 33,219 35,472 358,797 344,973 305,287 305,602 297,069 295,334

75,037 33,812

48,761 33,451

39,005 32,686

61,408 30,389

53,471 27,574

53,753 24,696

6,627 6,535 7,266 8,205 8,045 8,374 160,820 167,990 145,460 137,090 134,690 120,490 =========================================================================================

(a) Included in 1997 is a pre-tax realignment charge of $152.8 million, which on an after-tax basis is $100.0 million, or $2.52 per common share. Excluding the realignment charge, net income for 1997 would have been $62.7 million, or $1.44 per common share. Included in 1993 is a pre-tax charge of $3.0 million, which on an after-tax basis is $1.8 million, or $0.04 per common share. Also included in 1993 is the cumulative effect of accounting changes of $20.6 million, which on an after-tax basis is $0.47 per common share. Included in 1991 is a pre-tax restructuring charge of $45.3 million, which on an after-tax basis is $31.7 million, or $0.74 per common share. A litigation charge of $12.0 million is included in 1990, which on an after-tax basis is $7.9 million, or $0.18 per common share. Excluding the charges in 1991 and 1990, net income for 1991 would have been $36.5 million, or $0.78 per common share, and net income for 1990 would have been $27.3 million, or $0.56 per common share. (b) Basic earnings per share are based on a weighted average of common shares outstanding. Diluted earnings per share further reflect the potential dilution of earnings per share, assuming that certain stock options whose exercise price is less than the average market price for the stock are exercised and that convertible preferred shares are converted into common shares. Book value is based on outstanding common shares and net worth at the end of the year. Outstanding common shares and per share data are adjusted to reflect the 3-for-2 stock split in August 1989, 3-for-2 stock split in August 1992 and 3-for-2 stock split in November 1997.

Directors SANDRA HARDEN AUSTIN (1994) President and CEO, Austin and Associates, a management consulting firm; Former President and Chief Executive Officer, Sedona Healthcare Group, Inc., Age 51 [2,3,4] ALBERT C. BERSTICKER (1978) Chairman, Age 64 [3] DR. GLENN R. BROWN (1988) Retired Senior Vice President and Director, Standard Oil Company (now BP America), Age 68 [1,2] MICHAEL H. BULKIN (1998) Private investor; Retired Director, McKinsey & Company, a management consulting firm, Age 60 [2] WILLIAM E. BUTLER (1992) Retired Chairman and Chief Executive Officer, Eaton Corporation, a manufacturer of engineered products for automotive, industrial, commercial and military markets, Age 67 [2,3] JOHN C. MORLEY (1987) President, Evergreen Ventures, Ltd.; Retired Director, President and Chief Executive Officer, Reliance Electric Company, a manufacturer of industrial motors and controls, mechanical power transmission products and specialty telecommunication systems and products, Age 67 [1,3] HECTOR R. ORTINO (1993) President and Chief Executive Officer, Age 56 [3] REX A. SEBASTIAN (1986) Private investor; Retired Senior Vice President, Operations, Dresser Industries, a producer of energy and industrial-related products and services, Age 69 [3,4] WILLIAM J. SHARP (1998) President, Global Support Operations, The Goodyear

Directors SANDRA HARDEN AUSTIN (1994) President and CEO, Austin and Associates, a management consulting firm; Former President and Chief Executive Officer, Sedona Healthcare Group, Inc., Age 51 [2,3,4] ALBERT C. BERSTICKER (1978) Chairman, Age 64 [3] DR. GLENN R. BROWN (1988) Retired Senior Vice President and Director, Standard Oil Company (now BP America), Age 68 [1,2] MICHAEL H. BULKIN (1998) Private investor; Retired Director, McKinsey & Company, a management consulting firm, Age 60 [2] WILLIAM E. BUTLER (1992) Retired Chairman and Chief Executive Officer, Eaton Corporation, a manufacturer of engineered products for automotive, industrial, commercial and military markets, Age 67 [2,3] JOHN C. MORLEY (1987) President, Evergreen Ventures, Ltd.; Retired Director, President and Chief Executive Officer, Reliance Electric Company, a manufacturer of industrial motors and controls, mechanical power transmission products and specialty telecommunication systems and products, Age 67 [1,3] HECTOR R. ORTINO (1993) President and Chief Executive Officer, Age 56 [3] REX A. SEBASTIAN (1986) Private investor; Retired Senior Vice President, Operations, Dresser Industries, a producer of energy and industrial-related products and services, Age 69 [3,4] WILLIAM J. SHARP (1998) President, Global Support Operations, The Goodyear Tire & Rubber Company,

a worldwide manufacturer of tires, chemicals and engineered products, Age 57 [1, 4] DENNIS W. SULLIVAN (1992) Executive Vice President, Parker Hannifin Corporation, a manufacturer of fluid power products, Age 60 [3,4] Note: Figures in parentheses indicate the year the Director was elected to the Board. Figures in brackets indicate the Committee(s) on which a Director serves. [1] Audit [2] Compensation & Organization [3] Executive [4] Finance CORPORATE OFFICERS ALBERT C. BERSTICKER (1958) Chairman, Age 64 DAVID G. CAMPOPIANO (1989) Vice President, Mergers and Acquisitions, Age 49 MARK A. CUSICK (1995) Secretary Principal Occupation: Partner, Squire, Sanders & Dempsey LLP, Attorneys at Law, Age 50 R. JAY FINCH (1991) Vice President, Specialty Plastics, Age 57 JAMES F. FISHER (1959) Senior Vice President, Ceramics and Colorants, Age 61 J. Larry Jameson (1996) Vice President, Industrial Coatings, Age 61 KENT H. LEE, JR. (1996) Vice President, Specialty Chemicals, Age 57 CHARLES M. LESS (1995) Vice President, Marketing, Age 49 HECTOR R. ORTINO (1971)

President and Chief Executive Officer, Age 56 MILLICENT W. PITTS (1998) Vice President, Global Operations Support, Age 44 THOMAS O. PURCELL (1990) Vice President, Chief Technical Officer, Age 54 PAUL V. RICHARD (1983) Vice President, Human Resources, Age 39 GARY H. RITONDARO (1986) Vice President and Chief Financial Officer, Age 52 Note: Figures in parentheses indicate the year the Officer joined the Corporation. 46/47

CORPORATE INFORMATION AUTOMATIC DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN This Plan provides an opportunity for shareholders to purchase additional shares of Ferro common stock by automatic reinvestment of dividends and by optional additional periodic cash payments, without paying service charges or brokerage commissions. These costs will be paid by Ferro. The Plan is administered by National City Bank. Any questions or correspondence about the Plan should be addressed to: National City Bank Corporate Trust Department P.O. Box 92301 Cleveland, Ohio 44193-0900 216-476-8573 Toll free: 800-622-6757 BROKERAGE ACCOUNTS To reduce communication delays that exist for some Ferro shareholders who hold their stock in brokerage accounts, the Company will send its various printed communications directly to these shareholders. If you would like to take advantage of this service, please write to Treasury Department, Ferro Corporation, 1000 Lakeside Avenue, P.O. Box 147000, Cleveland, Ohio 44114-7000, U.S.A., indicating the number of Ferro shares owned and the name and address of the brokerage firm that administers your account. STOCK TRANSFER AGENT/REGISTRAR AND DIVIDEND DISBURSING AGENT National City Bank P.O. Box 5756 Cleveland, Ohio 44101-0756 TRUSTEE 73/8%, 75/8%, 71/8% AND 8% DEBENTURES

CORPORATE INFORMATION AUTOMATIC DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN This Plan provides an opportunity for shareholders to purchase additional shares of Ferro common stock by automatic reinvestment of dividends and by optional additional periodic cash payments, without paying service charges or brokerage commissions. These costs will be paid by Ferro. The Plan is administered by National City Bank. Any questions or correspondence about the Plan should be addressed to: National City Bank Corporate Trust Department P.O. Box 92301 Cleveland, Ohio 44193-0900 216-476-8573 Toll free: 800-622-6757 BROKERAGE ACCOUNTS To reduce communication delays that exist for some Ferro shareholders who hold their stock in brokerage accounts, the Company will send its various printed communications directly to these shareholders. If you would like to take advantage of this service, please write to Treasury Department, Ferro Corporation, 1000 Lakeside Avenue, P.O. Box 147000, Cleveland, Ohio 44114-7000, U.S.A., indicating the number of Ferro shares owned and the name and address of the brokerage firm that administers your account. STOCK TRANSFER AGENT/REGISTRAR AND DIVIDEND DISBURSING AGENT National City Bank P.O. Box 5756 Cleveland, Ohio 44101-0756 TRUSTEE 73/8%, 75/8%, 71/8% AND 8% DEBENTURES Chase Manhattan Trust Company National Association Chase Financial Tower 250 West Huron Road, Suite 220 Cleveland, Ohio 44113 INDEPENDENT AUDITORS KPMG LLP 1500 National City Center 1900 East Ninth Street Cleveland, Ohio 44114 EXCHANGE LISTING New York Stock Exchange Common Stock Stock symbol: FOE FORM 10-K Ferro Corporation's Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 1998 is available to shareholders upon written request to: Investor Relations Ferro Corporation

1000 Lakeside Avenue P.O. Box 147000 Cleveland, Ohio 44114-7000 or call 216-641-8585, ext. 2100 INVESTOR CONTACTS Aidan Gormley, Manager, Investor Relations, or D. Thomas George, Treasurer 216-641-8580 ANNUAL MEETING April 23, 1999, 9:00 a.m. Great Lakes Science Center Auditorium 601 Erieside Avenue Cleveland, Ohio 44114 EXECUTIVE OFFICES Ferro Corporation 1000 Lakeside Avenue P.O. Box 147000 Cleveland, Ohio 44114-7000 216-641-8580

WORLDWIDE OPERATING UNITS UNITED STATES Coatings California, Georgia, New York, Ohio, Pennsylvania, Tennessee Plastics Indiana, New Jersey, Ohio Chemicals Indiana, Louisiana, Ohio, Texas EUROPE France Ferro France S.a.R.L., Ferro Chemicals S.A. Germany Ferro (Deutschland) GmbH, Ruhr-Pulverlack GmbH Great Britain Ferro (Great Britain) Ltd. Holland Ferro (Holland) B.V. Italy Ferro (Italia) S.R.L.

WORLDWIDE OPERATING UNITS UNITED STATES Coatings California, Georgia, New York, Ohio, Pennsylvania, Tennessee Plastics Indiana, New Jersey, Ohio Chemicals Indiana, Louisiana, Ohio, Texas EUROPE France Ferro France S.a.R.L., Ferro Chemicals S.A. Germany Ferro (Deutschland) GmbH, Ruhr-Pulverlack GmbH Great Britain Ferro (Great Britain) Ltd. Holland Ferro (Holland) B.V. Italy Ferro (Italia) S.R.L. Portugal Ferro Industrias Quimicas, S.A. Spain Ferro Enamel Espanola, S.A. Turkey Ege-Ferro Kimya A.S. (49.9%) LATIN AMERICA Argentina Ferro Enamel Argentina, S.A.I.C.y.M. Brazil Ferro Enamel do Brasil I.C.L. Mexico Ferro Mexicana S.A. de C.V. Venezuela Ferro de Venezuela, C.A. (51%) ASIA-PACIFIC Australia Ferro Corporation (Australia) Pty. Ltd.

Indonesia P.T. Ferro Mas Dinamika (55%) Japan Ferro (Japan) K.K. People's Republic of China Ferro (Ningbo) Powder Coatings, Ltd. Taiwan, Republic of China Ferro Industrial Products Limited Ferro Toyo Co., Ltd. (60%) Thailand Ferro (Thailand) Co. Ltd. (49%) Note: Percentages in parentheses indicate Ferro's ownership. [LOGO-FERRO] is a trademark of Ferro Corporation.

FERRO CORPORATION 1000 LAKESIDE AVENUE CLEVELAND OHIO 44114 www.ferro.com

EXHIBIT 21 LIST OF SUBSIDIARIES
Sovereign power under Name of Subsidiary* the laws of which organized -------------------------------------------------------------------------------Ferro Industrial Products Ltd. Canada Ferro B.V. The Netherlands Ferro (Holland) B.V. The Netherlands Ferro France S.a.R.L. France Ferro Plastics S.A. France Ferro Chemicals S.A. France Ruhr-Pulverlack G.m.b.H. Germany Ferro Plastics (Germany) G.m.b.H. Germany Ferro (Deutschland) G.m.b.H. Germany Ferro (Italia) S.R.L. Italy Ferro Industrias Quimicas S.A. Portugal Ferro Toyo Co., Ltd. (60%) Taiwan, Republic of China Ferro Enamel Espanola S.A. Spain Ege-Ferro Kimya A.S. (49.9%) Turkey Ferro (Great Britain) Ltd. United Kingdom Ferro Enamel Argentina S.A.I.C.y.M. Argentina Ferro Enamel do Brasil, I.C.L. Brazil Ferro Mexicana S.A. de C.V. Mexico Ferro de Venezuela C.A. ( 51%) Venezuela Ferro Corporation (Australia) Pty. Ltd. Australia Ferro Far East, Ltd. Peoples Republic of China Ferro (Ningbo) Powder Coatings, Ltd. Peoples Republic of China Ferro Industrial Products Limited (Taiwan) Taiwan, Republic of China Ferro (Thailand) Co., Ltd. (49%) Thailand Ferro Japan K.K. Japan PT Ferro Mas Dinamika (55%) Indonesia --------------------------------------------------------------------------------

FERRO CORPORATION 1000 LAKESIDE AVENUE CLEVELAND OHIO 44114 www.ferro.com

EXHIBIT 21 LIST OF SUBSIDIARIES
Sovereign power under Name of Subsidiary* the laws of which organized -------------------------------------------------------------------------------Ferro Industrial Products Ltd. Canada Ferro B.V. The Netherlands Ferro (Holland) B.V. The Netherlands Ferro France S.a.R.L. France Ferro Plastics S.A. France Ferro Chemicals S.A. France Ruhr-Pulverlack G.m.b.H. Germany Ferro Plastics (Germany) G.m.b.H. Germany Ferro (Deutschland) G.m.b.H. Germany Ferro (Italia) S.R.L. Italy Ferro Industrias Quimicas S.A. Portugal Ferro Toyo Co., Ltd. (60%) Taiwan, Republic of China Ferro Enamel Espanola S.A. Spain Ege-Ferro Kimya A.S. (49.9%) Turkey Ferro (Great Britain) Ltd. United Kingdom Ferro Enamel Argentina S.A.I.C.y.M. Argentina Ferro Enamel do Brasil, I.C.L. Brazil Ferro Mexicana S.A. de C.V. Mexico Ferro de Venezuela C.A. ( 51%) Venezuela Ferro Corporation (Australia) Pty. Ltd. Australia Ferro Far East, Ltd. Peoples Republic of China Ferro (Ningbo) Powder Coatings, Ltd. Peoples Republic of China Ferro Industrial Products Limited (Taiwan) Taiwan, Republic of China Ferro (Thailand) Co., Ltd. (49%) Thailand Ferro Japan K.K. Japan PT Ferro Mas Dinamika (55%) Indonesia --------------------------------------------------------------------------------

* Percentages in parentheses indicate Ferro's ownership. Ferro has a number of sales and warehousing subsidiaries throughout the world which are omitted from the foregoing list because they are considered in the aggregate or individually not to constitute a significant subsidiary.

EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS To The Shareholders and The Board of Directors Ferro Corporation: We consent to incorporation by reference in the Registration Statements (File Nos. 2-61407, 33-28520, and 33-45582) on Form S-8 and in the Registration Statements (File Nos. 33-51284 and 33-63855) on Form S-3 of Ferro Corporation of our report dated January 25, 1999 relating to the consolidated balance sheets of Ferro Corporation and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1998, which report appears in the December 31, 1998 Annual Report on Form 10-K of Ferro Corporation.
/s/ KPMG LLP -----------KPMG LLP Cleveland, Ohio

EXHIBIT 21 LIST OF SUBSIDIARIES
Sovereign power under Name of Subsidiary* the laws of which organized -------------------------------------------------------------------------------Ferro Industrial Products Ltd. Canada Ferro B.V. The Netherlands Ferro (Holland) B.V. The Netherlands Ferro France S.a.R.L. France Ferro Plastics S.A. France Ferro Chemicals S.A. France Ruhr-Pulverlack G.m.b.H. Germany Ferro Plastics (Germany) G.m.b.H. Germany Ferro (Deutschland) G.m.b.H. Germany Ferro (Italia) S.R.L. Italy Ferro Industrias Quimicas S.A. Portugal Ferro Toyo Co., Ltd. (60%) Taiwan, Republic of China Ferro Enamel Espanola S.A. Spain Ege-Ferro Kimya A.S. (49.9%) Turkey Ferro (Great Britain) Ltd. United Kingdom Ferro Enamel Argentina S.A.I.C.y.M. Argentina Ferro Enamel do Brasil, I.C.L. Brazil Ferro Mexicana S.A. de C.V. Mexico Ferro de Venezuela C.A. ( 51%) Venezuela Ferro Corporation (Australia) Pty. Ltd. Australia Ferro Far East, Ltd. Peoples Republic of China Ferro (Ningbo) Powder Coatings, Ltd. Peoples Republic of China Ferro Industrial Products Limited (Taiwan) Taiwan, Republic of China Ferro (Thailand) Co., Ltd. (49%) Thailand Ferro Japan K.K. Japan PT Ferro Mas Dinamika (55%) Indonesia --------------------------------------------------------------------------------

* Percentages in parentheses indicate Ferro's ownership. Ferro has a number of sales and warehousing subsidiaries throughout the world which are omitted from the foregoing list because they are considered in the aggregate or individually not to constitute a significant subsidiary.

EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS To The Shareholders and The Board of Directors Ferro Corporation: We consent to incorporation by reference in the Registration Statements (File Nos. 2-61407, 33-28520, and 33-45582) on Form S-8 and in the Registration Statements (File Nos. 33-51284 and 33-63855) on Form S-3 of Ferro Corporation of our report dated January 25, 1999 relating to the consolidated balance sheets of Ferro Corporation and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1998, which report appears in the December 31, 1998 Annual Report on Form 10-K of Ferro Corporation.
/s/ KPMG LLP -----------KPMG LLP Cleveland, Ohio

March 31, 1999

EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS To The Shareholders and The Board of Directors Ferro Corporation: We consent to incorporation by reference in the Registration Statements (File Nos. 2-61407, 33-28520, and 33-45582) on Form S-8 and in the Registration Statements (File Nos. 33-51284 and 33-63855) on Form S-3 of Ferro Corporation of our report dated January 25, 1999 relating to the consolidated balance sheets of Ferro Corporation and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1998, which report appears in the December 31, 1998 Annual Report on Form 10-K of Ferro Corporation.
/s/ KPMG LLP -----------KPMG LLP Cleveland, Ohio

March 31, 1999

ARTICLE 5 CIK: 0000035214 NAME: FERRO CORPORATION MULTIPLIER: 1,000

PERIOD TYPE FISCAL YEAR END PERIOD START PERIOD END CASH SECURITIES RECEIVABLES ALLOWANCES INVENTORY CURRENT ASSETS PP&E DEPRECIATION TOTAL ASSETS CURRENT LIABILITIES BONDS PREFERRED MANDATORY PREFERRED COMMON OTHER SE TOTAL LIABILITY AND EQUITY SALES TOTAL REVENUES CGS TOTAL COSTS OTHER EXPENSES LOSS PROVISION INTEREST EXPENSE INCOME PRETAX INCOME TAX INCOME CONTINUING DISCONTINUED EXTRAORDINARY CHANGES NET INCOME EPS PRIMARY EPS DILUTED

YEAR DEC 31 1998 JAN 01 1998 DEC 31 1998 12,185 0 249,771 0 140,970 456,893 641,644 367,592 849,165 282,556 156,283 0 0 47,323 235,938 849,165 1,361,844 1,361,844 997,583 1,232,738 18,625 0 15,284 110,481 41,199 69,282 0 0 0 69,282 1.80 1.67

ARTICLE 5 CIK: 0000035214 NAME: FERRO CORPORATION MULTIPLIER: 1,000

PERIOD TYPE FISCAL YEAR END PERIOD START PERIOD END CASH SECURITIES RECEIVABLES ALLOWANCES INVENTORY CURRENT ASSETS PP&E DEPRECIATION TOTAL ASSETS CURRENT LIABILITIES BONDS PREFERRED MANDATORY PREFERRED COMMON OTHER SE TOTAL LIABILITY AND EQUITY SALES TOTAL REVENUES CGS TOTAL COSTS OTHER EXPENSES LOSS PROVISION INTEREST EXPENSE INCOME PRETAX INCOME TAX INCOME CONTINUING DISCONTINUED EXTRAORDINARY CHANGES NET INCOME EPS PRIMARY EPS DILUTED

YEAR DEC 31 1998 JAN 01 1998 DEC 31 1998 12,185 0 249,771 0 140,970 456,893 641,644 367,592 849,165 282,556 156,283 0 0 47,323 235,938 849,165 1,361,844 1,361,844 997,583 1,232,738 18,625 0 15,284 110,481 41,199 69,282 0 0 0 69,282 1.80 1.67