SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
THE VALSPAR CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transactions applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11. (Set forth the amount on which the
filing fee is calculated and state how it was determined.)
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing party:
(4) Date filed:
<PAGE>
THE VALSPAR CORPORATION
------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
FEBRUARY 25, 1998
The annual meeting of stockholders of The Valspar Corporation will be held
at the Research Center of the Corporation at 312 South 11th Avenue, Minneapolis,
Minnesota, on Wednesday, February 25, 1998 at 11:00 A.M., for the following
purposes:
1. To elect three directors (Class III) for a term of three years;
2. To approve the Corporation's Stock Option Plan for Non-Employee
Directors;
3. To ratify the appointment of independent auditors to examine the
Corporation's accounts for the fiscal year ending October 30, 1998;
and
4. To transact such other business as may properly come before the
meeting or any adjournments thereof.
Stockholders of record at the close of business on December 31, 1997 are
entitled to notice of and to vote at the meeting.
Your attention is directed to the Proxy Statement accompanying this Notice
for a more complete statement of the matters to be considered at the meeting. A
copy of the Annual Report for the year ended October 31, 1997 also accompanies
this Notice.
By Order of the Board of Directors,
ROLF ENGH,
SECRETARY
Approximate Date of Mailing of Proxy Material:
January 23, 1998
PLEASE SIGN, DATE AND RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE.
<PAGE>
THE VALSPAR CORPORATION
1101 THIRD STREET SOUTH
P.O. BOX 1461
MINNEAPOLIS, MINNESOTA 55440
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
FEBRUARY 25, 1998
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of proxies in the accompanying form. Shares will be voted
in the manner directed by the stockholders. A stockholder giving a proxy may
revoke it at any time before it is exercised by giving written notice of
revocation to the Office of the Secretary of the Corporation.
Proxies are being solicited by mail, and, in addition, directors, officers
and employees of the Corporation may solicit proxies personally, by telephone,
telegram, or letter at no additional compensation to them. The Corporation will
pay the expense of soliciting proxies and will reimburse brokerage firms and
others for their expenses in forwarding proxy materials to beneficial owners of
Common Stock.
If a shareholder abstains from voting on any matter, the Corporation
intends to count the abstention as present for purposes of determining whether a
quorum is present at the Annual Meeting of Stockholders for the transaction of
business. Additionally, the Corporation intends to count broker "non-votes" as
present for purposes of determining the presence or absence of a quorum for the
transaction of business. A non-vote occurs when a nominee holding shares for a
beneficial owner votes on one proposal, but does not vote on another proposal
because the nominee does not have discretionary voting power and has not
received instructions from the beneficial owner. Abstentions and non-votes will
not be counted as votes cast for or against items submitted for a vote of
stockholders. Therefore, abstentions and broker non-votes have the same effect
as votes against the proposals.
PROPOSAL NUMBER ONE
ELECTION OF DIRECTORS
In accordance with the Corporation's By-Laws, the Board of Directors in
1997 increased the number of members from eleven to twelve, with the additional
director serving in Class II. Each of the three classes consists of four seats,
with each director serving a term of three years. There are currently ten
directors serving on the Board of Directors. The terms of Class III directors
will expire at the annual meeting in 1998. The Board of Directors has nominated
Kendrick B. Melrose, Gregory R. Palen and Lawrence Perlman for re-election as
Class III directors. William W. George, presently a Class III director, is not
standing for re-election. Unless otherwise directed by the stockholders, it is
intended that shares represented by proxy will be voted in favor of the election
of the three nominees listed in Class III below, to hold office until the annual
meeting in 2001 and until their successors are elected and qualify. If any of
the nominees is unable or unwilling to stand for election, it is intended that
shares represented by proxy will be voted for a substitute nominee recommended
by the Board of Directors, unless the stockholder otherwise directs. The Board
is not aware that any of the nominees is unable or unwilling to stand for
election.
<PAGE>
NAMES, PRINCIPAL OCCUPATIONS FOR THE PAST FIVE YEARS AND SELECTED
OTHER INFORMATION CONCERNING NOMINEES AND DIRECTORS
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CLASS I DIRECTORS CONTINUING IN OFFICE UNTIL 1999
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THOMAS R. MCBURNEY President, McBurney Management Advisors,
Director since 1987 a management consulting firm for small businesses
Age -- 59
Mr. McBurney has held his present position as President since 1990. Mr. McBurney
is also a director of Security American Financial Enterprises, Wenger
Corporation, Space Center Enterprises, Inc., Allina Health System, Strategist
Fund Group and Greenspring Companies.
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RICHARD M. ROMPALA President and Chief Executive Officer
Director since 1994 of the Corporation
Age -- 51
Mr. Rompala has held his present position as Chief Executive Officer since
October 1995 and President since March 1994. Prior to 1994, Mr. Rompala served
as Group Vice President-Coatings and Resins for two years and Group Vice
President-Chemicals for five years at PPG Industries, Inc. Mr. Rompala is also a
director of Kerr-McGee Corporation and Olin Corporation.
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MICHAEL P. SULLIVAN President and Chief Executive Officer,
Director since 1990 International Dairy Queen, Inc.
Age -- 63
Mr. Sullivan has held his present position as President and Chief Executive
Officer since 1987. Mr. Sullivan is also a director of International Dairy
Queen, Inc., Allianz Life Insurance Company of North America and Opus U.S.
Corporation.
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C. ANGUS WURTELE Chairman of the Board of the Corporation
Director since 1970
Age -- 63
Mr. Wurtele has held his present position as Chairman since 1973 and served as
Chief Executive Officer from 1970 through October 1995. Mr. Wurtele is also a
director of General Mills, Inc., Bemis Company, Inc. and IDS Mutual Fund Group.
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CLASS II DIRECTORS CONTINUING IN OFFICE UNTIL 2000
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SUSAN S. BOREN President, Trillium Advisors, Inc.
Director since 1991
Age -- 50
Ms. Boren is the Principal of Trillium Advisors, Inc., a firm she founded in
1996 to advise executives and boards on governance issues. Previously, she
served for 15 years as an executive with Dayton Hudson Corporation in senior
financial, human resources, operating and marketing positions. Ms. Boren is also
a director of Dain Rauscher, Inc.
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JEFFREY H. CURLER President, Bemis Company, Inc.
Director since 1997
Age -- 47
Mr. Curler has held his present position as President since May 1996. Prior to
1996, Mr. Curler served as Executive Vice President since 1991. Mr. Curler is
also a director of Bemis Company, Inc.
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<PAGE>
NAMES, PRINCIPAL OCCUPATIONS FOR THE PAST FIVE YEARS AND SELECTED
OTHER INFORMATION CONCERNING NOMINEES AND DIRECTORS
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EDWARD B. POLLAK Vice President - Asia Pacific,
Director since 1997 Witco Corporation
Age -- 63
Mr. Pollak has held his present position as Vice President - Asia Pacific since
August 1997. Prior to 1997, Mr. Pollak served as Vice President - International,
OSi Specialties, Inc., a subsidiary of Witco Corporation, since 1994. Prior to
1994, Mr. Pollak served as Corporate Senior Vice President of Olin Corporation
since 1991 and President and Chief Executive Officer of Olin Hunt Specialty
Products, a wholly-owned subsidiary of Olin corporation, since 1986.
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CLASS III NOMINEES FOR TERM EXPIRING IN 2001
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KENDRICK B. MELROSE Chairman and Chief Executive Officer,
Director since 1984 The Toro Company
Age -- 57
Mr. Melrose has held his present position as Chief Executive Officer since 1983
and Chairman since 1987. Mr. Melrose is also a director of SurModics, Inc.,
Donaldson Company, Inc., Jostens, Inc. and The Toro Company.
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GREGORY R. PALEN Chairman and Chief Executive Officer,
Director since 1992 Spectro Alloys Corporation; Chief
Age -- 42 Executive Officer, Palen/Kimball Company
Mr. Palen has held his present position as Chairman and Chief Executive Officer
with Spectro Alloys Corporation, an aluminum recycler and manufacturing company,
since 1988. He has been Chief Executive Officer of Palen/Kimball Company, a
mechanical service company, since May 1993 and previously had been President
since 1983. Mr. Palen is also a director of Palen/Kimball Company, North Central
Life Insurance Company, Summit Leasing, Spectro Alloys Corporation, Polaris
Industries Inc. and Conduit Software, Inc.
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LAWRENCE PERLMAN Chairman, President and Chief Executive
Director since 1992 Officer, Ceridian Corporation
Age -- 59
Mr. Perlman was elected Chairman of the Board in November 1992 and has held the
position of President and Chief Executive Officer since 1990. Mr. Perlman is
also a director of Seagate Technology, Inc. and Computer Network Technology.
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<PAGE>
BOARD COMMITTEES
The standing committees of the Board of Directors for 1997 were as follows:
NAME OF COMMITTEE MEMBERSHIP
----------------- ----------
Audit Committee Susan S. Boren -- Chair, Jeffrey H. Curler,
William W. George, Thomas R. McBurney,
Kendrick B. Melrose, Gregory R. Palen,
Lawrence Perlman, Edward B. Pollak and
Michael P. Sullivan
Executive Committee Thomas R. McBurney, Richard M. Rompala --
Chair and C. Angus Wurtele
Compensation Committee Susan S. Boren, William W. George, Thomas R.
McBurney, Kendrick B. Melrose, Lawrence
Perlman and Michael P. Sullivan -- Chair
Governance Committee Susan S. Boren, Jeffrey H. Curler, William
W. George, Thomas R. McBurney, Kendrick B.
Melrose, Gregory R. Palen, Lawrence Perlman,
Edward B. Pollak, Michael P. Sullivan and C.
Angus Wurtele -- Chair
The Board of Directors met six times during fiscal 1997.
The Audit Committee held two meetings during the fiscal year at which it
reviewed the extent and scope of the audit and non-audit services provided by
the Corporation's independent accountants, reviewed internal accounting
procedures and controls with the Corporation's financial and accounting staff,
and reviewed the comments made by the independent accountants in their letter of
recommendation to management.
The Governance Committee held four meetings during the fiscal year at which
it conducted Chief Executive Officer performance evaluations, reviewed ongoing
management transition matters, nominated directors to fill prospective vacancies
created by retiring directors and nominated Class III directors.
The Compensation Committee held four meetings during the fiscal year at
which it reviewed and approved the compensation plans and arrangements or
granted options for officers, key employees and directors.
The Governance Committee will consider nominees for Board membership
submitted by stockholders. Any such recommendation should be submitted in
writing to the Corporation in care of Corporate Secretary, at 1101 Third Street
South, Minneapolis, Minnesota 55415, along with the written consent of such
nominee to serve as a director if so elected. Candidates for director should be
persons with broad training and experience in their chosen fields and who have
earned distinction in their activities.
During fiscal 1997, each director attended 75% or more of the meetings of
the Board and of the committees on which the director served, with the exception
of Mr. Curler who attended 1 of 2 such meetings held during the time he served
on the Board, Ms. Boren who attended 5 of 7 such meetings and Mr. Melrose who
attended 4 of 7 such meetings.
DIRECTOR COMPENSATION
Directors who are not officers of the Corporation receive an annual fee of
$28,000. Prior to January 1, 1998, directors who were not officers of the
Corporation received an annual fee of $16,000,
<PAGE>
an attendance fee of $1,000 for each meeting of the Board of Directors and
$1,000 for each meeting of a committee of the Board of Directors not held the
same day as a Board of Directors meeting. At a director's option, the annual fee
may be paid by the Corporation purchasing shares of its Common Stock in the open
market on behalf of the director. Any costs of such purchases are paid by the
Corporation. In addition, immediately after each annual meeting of stockholders,
each non-employee director receives a grant of restricted stock under the
Corporation's Restricted Stock Plan for Non-Employee Directors (the "Directors
Plan"). The number of shares granted is determined by dividing one-half of the
amount of the director's fees earned by the non-employee director for his or her
services during the most recently ended fiscal year by the average closing price
of the Corporation's Common Stock for the ten business days immediately prior to
the date of the annual meeting. The shares of restricted stock are not subject
to forfeiture. The non-employee director cannot sell, assign, pledge or
otherwise transfer any of the shares of restricted stock granted under the
Directors Plan until he or she ceases to be a member of the Board of Directors.
This Directors Plan will automatically terminate following the issuance of the
restricted stock grant that was earned for services during 1997. Commencing with
the 1999 annual meeting, non-employee directors will receive annual grants of
non-qualified stock options under the Corporation's Stock Option Plan for
Non-Employee Directors described in Proposal Number Two below, assuming approval
of such Plan by the stockholders.
CERTAIN TRANSACTIONS
The Leveraged Equity Purchase Plan (the "LEPP"), which was approved by the
stockholders in February 1991, provides key employees (including executive
officers) with loans from the Corporation, up to an aggregate amount of
$6,000,000, to permit them to acquire Common Stock of the Corporation in the
open market. The LEPP is administered by the Compensation Committee, with the
Committee selecting the individuals to be granted loans and determining the size
of such loans. A participant may borrow from the Corporation 90% of the cost of
the shares being purchased, such loan being evidenced by a nonrecourse
promissory note bearing interest at a reasonable market rate and having a term
up to five years. All loans reflected in the table below were granted in fiscal
1994, 1995 and 1996 and bear an interest rate of 6.5%, 8% and 6.5%,
respectively. The following lists each director and executive officer whose loan
from the Corporation exceeded $60,000 at any time during fiscal 1997, and
indicates (i) the largest loan amount outstanding for such director and officer
at any time since October 26, 1996, and (ii) the loan amount outstanding for
such director and officer as of December 31, 1997:
LARGEST AMOUNT
NAME OF OUTSTANDING AMOUNT OUTSTANDING
EXECUTIVE OFFICER SINCE OCTOBER 26, 1996 AS OF DECEMBER 31, 1997
---------------------- ---------------------- -----------------------
Larry B. Brandenburger $201,898 $198,577
Stephen M. Briggs 209,104 200,821
Rolf Engh 176,152 162,713
Steven L. Erdahl 201,526 178,224
Joel C. Hart 177,862 173,872
William L. Mansfield 165,523 136,752
Robert E. Pajor 150,738 56,942
Paul C. Reyelts 199,354 163,167
Richard M. Rompala 945,044 910,754
Robert T. Smith 205,987 202,210
Thomas A. White 204,477 204,477
C. Angus Wurtele 213,308 135,240
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table shows, for the fiscal years ended October 31, 1997,
October 25, 1996 and October 27, 1995, the cash compensation paid by the
Corporation, as well as certain other compensation paid or accrued for those
years, to Richard M. Rompala, the Corporation's President and Chief Executive
Officer, and each of the four other most highly compensated executive officers
of the Corporation (together with Mr. Rompala, the "Named Executives"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG TERM
COMPENSATION COMPENSATION AWARDS
------------------- -------------------------------------
RESTRICTED STOCK OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION* YEAR SALARY BONUS(1) AWARDS(2)(3) (NO. OF SHARES)(4) COMPENSATION(5)
- ---------------------------- ---- -------- -------- ---------------- ------------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Richard M. Rompala 1997 $559,620 $72,751 $640,206 12,600 $66,558
President and 1996 497,698 54,747 348,388 114,230 40,315
Chief Executive Officer(6) 1995 431,539 51,785 233,894 17,600 74,716
Paul C. Reyelts 1997 257,308 33,450 232,606 5,900 31,402
Vice President, Finance 1996 236,827 26,051 163,410 5,140 29,182
1995 220,769 26,492 112,710 9,520 28,988
Stephen M. Briggs 1997 230,192 63,303 200,268 6,100 29,231
Vice President, Consumer 1996 207,885 44,071 127,225 3,290 27,850
Coatings Group 1995 194,712 32,370 54,033 18,990 23,794
Rolf Engh 1997 257,308 33,450 200,700 6,200 31,402
Vice President, International 1996 236,827 26,051 170,516 4,970 29,509
and Secretary 1995 224,039 26,885 108,794 10,560 21,462
William L. Mansfield 1997 239,423 31,125 215,480 4,300 28,365
Vice President, Packaging 1996 211,827 23,301 118,623 7,020 29,109
Coatings Group 1995 195,769 23,492 153,874 17,630 25,537
</TABLE>
- ------------------
* As of October 31, 1997.
(1) Includes, for these fiscal years, (i) cash bonuses under the Incentive Bonus
Plan and (ii) deferred bonuses awarded pursuant to the Deferred Bonus Plan
for Management, subject to forfeiture if the individual voluntarily
terminates employment or is discharged for cause within three years. Does
not include bonuses under the Incentive Bonus Plan for these fiscal years
received in restricted stock pursuant to elections under the Key Employee
Annual Bonus Plan. See note (2) below and "Compensation Committee Report on
Executive Compensation."
(2) Pursuant to the Key Employee Annual Bonus Plan, each of these individuals
elected to receive all or a portion of his bonus under the Incentive Bonus
Plan for fiscal 1997, 1996 and 1995 in restricted stock, subject to
forfeiture if the individual's employment terminates within three years for
any reason other than death, disability, retirement or a change of control.
See "Compensation Committee Report on Executive Compensation." The
restricted stock received has a market value equal to twice the amount of
the cash bonus that would have been paid absent the election.
(3) As of October 31, 1997, such individuals held the following numbers of
shares of restricted stock with the following market values, based on the
closing sale price of the Company's common stock on such date: Mr. Rompala,
40,772 shares, $1,202,774; Mr. Reyelts, 20,526 shares, $605,517; Mr. Briggs,
13,770 shares, $406,215; Mr. Engh, 21,642 shares, $638,439; Mr. Mansfield,
15,090 shares, $445,155. Dividends are paid on shares of restricted stock
from the date of grant.
<PAGE>
(4) Options indicated for fiscal 1997 were granted pursuant to the Key Employee
Annual Bonus Plan based on twice the level of each individual's cash bonus
for fiscal 1996. A portion of Mr. Rompala's 1996 option was granted in
connection with his initial employment with the Corporation. Options
indicated for fiscal 1997 exclude options granted in January 1998 pursuant
to the Key Employee Annual Bonus Plan. See "Compensation Committee Report on
Executive Compensation." All shares reported have been adjusted for a
2-for-1 stock split on March 21, 1997.
(5) Represents contributions or allocations by the Corporation to defined
contribution or savings plans (tax-qualified and supplemental) on behalf of
the Named Executive.
(6) As of October 28, 1995, Mr. Rompala was elected Chief Executive Officer.
STOCK OPTIONS
The following table contains information concerning grants of stock options
under the Corporation's 1991 Stock Option Plan to the Named Executives during
fiscal 1997:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE VALUE
-------------------------------------------------------- AT ASSUMED ANNUAL
% OF TOTAL RATE OF STOCK PRICE
OPTIONS APPRECIATION FOR
GRANTED TO OPTION TERM(3)
EMPLOYEES ----------------------
OPTIONS IN FISCAL EXERCISE PRICE EXPIRATION
NAME GRANTED(1) YEAR PER SHARE(2) DATE 5% 10%
- ---- ---------- ---------- -------------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Richard M. Rompala ......... 12,600 5.0 $ 28.3125 01/02/07 $224,406 $568,638
Paul C. Reyelts ............ 5,900 2.4 28.3125 01/02/07 105,079 266,267
Stephen M. Briggs .......... 6,100 2.4 28.3125 01/02/07 108,641 275,293
Rolf Engh .................. 6,200 2.5 28.3125 01/02/07 110,422 279,806
William L. Mansfield ....... 4,300 1.7 28.3125 01/02/07 76,583 194,059
</TABLE>
- ------------------
(1) All options granted become exercisable starting one year from date of grant
in 20% increments. Options include the right to pay the exercise price in
cash or in previously acquired Common Stock.
(2) Exercise price is the fair market value of the Corporation's Common Stock,
defined as the closing price on the day preceding the date that the option
is granted.
(3) These assumed values result from certain prescribed rates of stock price
appreciation. The actual value of these option grants is dependent on future
performance of the Common Stock and overall stock market conditions. There
is no assurance that the values reflected in this table will be achieved.
<PAGE>
OPTION EXERCISES AND HOLDINGS
The following table sets forth information with respect to the Named
Executives concerning the exercise of options during fiscal 1997 and unexercised
options held as of October 31, 1997:
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
SHARES OCTOBER 31, 1997 AT OCTOBER 31, 1997(2)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard M. Rompala ......... 0 -- 120,420 140,380 $1,387,415 $1,418,155
Paul C. Reyelts ............ 1,638 $ 27,572 11,046 19,116 147,829 157,954
Stephen M. Briggs .......... 12,676 211,284 9,865 21,099 122,173 181,319
Rolf Engh .................. 0 -- 55,618 29,112 942,897 335,947
William L. Mansfield ....... 1,008 16,967 9,818 20,822 118,675 181,897
</TABLE>
- ------------------
(1) The value realized on the exercise of options is based on the difference
between the exercise price and the fair market value of the Corporation's
Common Stock on the date of exercise.
(2) The value of unexercised in-the-money options is based on the difference
between the exercise price of the options and the fair market value of the
Corporation's Common Stock on October 31, 1997.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee") is
comprised entirely of independent non-employee directors. The Committee is
responsible for setting and administering the policies which govern both annual
compensation and stock ownership programs. The Company's incentive plans are
designed to condition a significant amount of an executive's compensation on the
performance of the executive and of the Company as a whole. The compensation
plans are also designed to encourage employee stock ownership. The Compensation
Committee believes such ownership effectively motivates executives to increase
shareholder value and aligns the interests of employees with those of the
shareholders. In its administration of the various compensation plans, the
Committee focuses on these goals of tying compensation to performance and
encouraging executive stock ownership.
COMPENSATION OF EXECUTIVE OFFICERS
SALARY. In setting each executive officer's base salary, the Committee
considers quantitative measures related to the Corporation's financial
performance as well as a number of qualitative measures related to the
executive's duties and responsibilities. The Committee also compares the salary
of its executive officers with salaries of executive officers of other companies
of similar size and profitability, including, but not limited to, the companies
in the peer group used in connection with the stock performance graph on page
11. Increases in base salary are determined on a calendar year basis in December
of each year. The base salary of the Named Executives increased by an average of
7.0% from 1996 to 1997. The increases for 1997 reflected general corporate
performance, based on sales, expenses, profits, unit growth and return on equity
for fiscal 1996.
BONUS PROGRAMS. Since prior to fiscal 1988, the Corporation has had a
policy of granting incentive bonuses to its key employees (including executive
officers), referred to as the "Incentive Bonus Plan." In the first quarter of
each fiscal year, specific performance targets are identified for each
participant in the Incentive Bonus Plan, including both general corporate
measures of performance (such as net income, gallon sales growth, return on
equity and total expenses) and specific measures of performance
<PAGE>
within the participant's area of responsibility. After the end of such fiscal
year, if the participant remains employed by the Corporation, a bonus of up to a
specified percentage of the participant's salary (45%-65% for executive officers
in fiscal 1997) will be paid, depending on the level of achievement of such
participant's performance targets. For executive officers, general corporate
performance measures and specific measures within the executive's area of
responsibility are included. Among these corporate performance measures, net
income is generally weighted most heavily. The bonus earned by the Named
Executives under the Incentive Bonus Plan for fiscal 1997 ranged from 39% to 57%
of salary. Each of the Named Executives elected to receive all or a portion of
the bonus in restricted stock pursuant to the Key Employee Annual Bonus Plan
described in the following paragraph, with the restricted stock vesting in three
years and with the market value of the shares of restricted stock equal to twice
the amount of the cash bonus on the date of grant. In January 1997, the Named
Executives received stock options pursuant to the Key Employee Annual Bonus
Plan, with the aggregate market value of the shares covered by the option on the
date of grant equal to twice the amount of the cash bonus. In January 1998, the
Named Executives will receive stock options pursuant to the Key Employee Annual
Bonus Plan, with the aggregated market value of the shares covered by the option
on the date of grant calculated as a percentage of base salary for the fiscal
year based on performance.
Pursuant to the Key Employee Annual Bonus Plan, adopted for fiscal 1993 and
subsequent years, the Committee may select those key employees (including
executive officers) who are eligible to participate in the plan. Prior to the
beginning of each fiscal year, an employee selected for that fiscal year to
participate in the plan can elect to convert all or any portion of his or her
cash bonus under the Incentive Bonus Plan into a grant of restricted stock, with
the number of shares granted having a market value equal to twice the amount of
the cash bonus. The participant must be employed on the last day of the fiscal
year to receive the restricted stock grant for that fiscal year, and the
restricted stock is granted in January of the following year. The restricted
stock is forfeitable for three years from the date of grant if the participant's
employment with the Corporation terminates for any reason other than death,
disability, retirement or a change of control. In addition, each employee
selected for the fiscal year to participate in this plan also receives a
non-qualified stock option, with the number of shares subject to the option
calculated as a percentage of base salary for the fiscal year based on
performance. Thirty-one employees, including all executive officers, were
selected to participate for fiscal year 1997 in the plan. In addition, 164
employees were selected to participate in the Annual Option Bonus Plan, in which
a participant receives stock options, with the number of options calculated as a
percentage of base salary for the fiscal year based on performance.
In addition, the Management Committee, consisting of all executive officers
for fiscal 1997, participate in the Deferred Bonus Plan, which provides for the
award of deferred cash incentive bonuses. On January 1 of each year, the
Corporation calculates the amount of the deferred bonus for each executive
officer with respect to the Corporation's preceding fiscal year. The amount of
such deferred bonus equals a percentage, ranging from 0% to 15% of the
employee's salary earned in the previous fiscal year, depending on the
Corporation's three-year trailing averages for earnings per share growth, return
on average equity and gallon sales growth computed as set forth in the Deferred
Bonus Plan. These three factors are weighted equally under the plan. The
deferred bonus earned for each of the Named Executives was 13% of salary for
fiscal 1997, reflecting the Corporation's three-year trailing average for these
factors. The deferred bonus becomes payable on the third anniversary of the
calculation date (the "Maturity Date"), and is subject to forfeiture if the
participant voluntarily terminates employment or is discharged for cause prior
to such date. Additionally, the deferred bonus will at the maturity date be
applied toward payment of any outstanding loans under the Corporation's
Leveraged Equity Purchase Plan. The Deferred Bonus Plan will be discontinued
after the 1997 deferred
<PAGE>
bonus is awarded and be replaced with a non-qualified stock option, with the
number of shares subject to the option calculated as a percentage of base salary
for the fiscal year.
OPTION PROGRAMS. In 1991, the Corporation's stockholders approved the
adoption of the Corporation's 1991 Stock Option Plan. Currently, 4,000,000
shares of common stock are reserved for issuance upon exercise of options
granted thereunder. Options granted under the 1991 Plan are granted at exercise
prices equal to the fair market value of the Corporation's Common Stock at the
closing price on the day preceding the date of grant. The options granted to the
Named Executives in 1997 were calculated under the Key Employee Annual Bonus
Plan as described under "Bonus Programs" above.
DEDUCTIBILITY OF COMPENSATION. Section 162(m) of the Internal Revenue Code,
enacted in 1993, generally limits to $1 million the tax deductibility of
compensation paid by a public company to its chief executive and four other most
highly compensated executive officers. Certain performance-based compensation is
not subject to the limitation. In December 1995, the Internal Revenue Service
issued final regulations under Section 162(m). The Committee will continue to
consider the continued deductibility of future compensation arrangements, in
light of the final regulations, as one factor to consider in executive
compensation decisions for executives. However, deductibility will not be the
sole factor used by the Committee in ascertaining appropriate levels or modes of
compensation. Since corporate objectives may not always be consistent with the
requirements for full deductibility, it is conceivable that the Corporation may
enter into compensation arrangements in the future under which compensation in
excess of $1 million is not deductible under Section 162(m).
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
In setting Mr. Rompala's base salary, the Committee considered quantitative
measures related to the Corporation's financial performance as well as a number
of qualitative measures related to Mr. Rompala's duties and responsibilities.
The Committee also compared Mr. Rompala's salary with salaries of chief
executive officers of other companies of similar size and profitability,
including, but not limited to, the companies in the peer group used in
connection with the stock performance graph on page 11. Mr. Rompala's base
salary increased approximately 10% from fiscal 1996 to fiscal 1997, which
included a market adjustment based on the Committee's review of salaries of
Chief Executive Officers. The remainder of the increase reflected general
corporate performance, based on sales, expenses, profits, unit growth and return
on equity. The Corporation also granted an incentive bonus to Mr. Rompala under
the Incentive Bonus Plan. Mr. Rompala's performance targets included net income,
gallon sales growth, return on equity and total expenses. Mr. Rompala was
eligible for a bonus of up to 65% of his salary, depending upon the level of
achievement of these performance targets. Net income of the Corporation was
weighted most heavily in connection with Mr. Rompala's compensation. Mr.
Rompala's bonus earned under the Incentive Bonus Plan for fiscal 1997 was
$320,103 if received in cash, or 57% of his salary. As described above under
"Compensation of Executive Officers -- Bonus Programs," Mr. Rompala elected to
receive the bonus in restricted stock and will also receive stock options in
January 1998 pursuant to the Key Employee Annual Bonus Plan. Mr. Rompala also
has participated in the Deferred Bonus Plan which is described above. For fiscal
1997, Mr. Rompala's deferred bonus was $72,751, or 13% of salary, reflecting the
Corporation's three-year trailing average for earnings per share growth, return
on average equity and gallon sales growth.
SUBMITTED BY THE COMPENSATION COMMITTEE
OF THE COMPANY'S BOARD OF DIRECTORS:
Susan S. Boren Kendrick B. Melrose
William W. George Lawrence Perlman
Thomas R. McBurney Michael P. Sullivan
<PAGE>
STOCK PERFORMANCE GRAPH
The graph below compares the Corporation's cumulative total shareholder
return for the last five fiscal years with the cumulative total return of (1)
the Standard & Poor's 500 Stock Index and (2) a Peer Group of companies selected
by the Corporation on a line-of-business basis. The graph assumes the investment
of $100 in the Corporation's Common Stock, the S&P 500 Index and the Peer Group
at the end of fiscal 1992 and the reinvestment of all dividends.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG THE VALSPAR CORPORATION, THE S&P 500 INDEX AND A PEER GROUP*
[PLOT POINTS GRAPH]
CUMULATIVE TOTAL RETURN
-----------------------
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
Valspar $100 $126 $146 $158 $202 $246
Peer Group $100 $111 $126 $131 $171 $188
S&P 500 $100 $115 $119 $151 $187 $247
Assumes $100 invested on October 31, 1992 in the Common Stock of The Valspar
Corporation, the S&P 500 Index and a line-of-business Peer Group, including
reinvestment of dividends.
*PPG Industries, Inc., Rohm and Haas Company, Ferro Corporation, NL Industries,
Inc., H.B. Fuller Company, The Sherwin-Williams Company, RPM, Inc., Standard
Brands Paint Company, Lilly Industries, Inc., Lawter International, Inc., and
Detrex Corporation. Grow Group, Inc., Guardsman Products, Inc. and Pratt &
Lambert, Inc. were excluded from the Peer Group as a result of being acquired
during 1995 or 1996.
<PAGE>
PROPOSAL NUMBER TWO
APPROVAL OF THE VALSPAR CORPORATION STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
On December 10, 1997, the Corporation's Board of Directors adopted The
Valspar Corporation Stock Option Plan for Non-Employee Directors (the "Plan"),
and reserved 250,000 shares of Common Stock for issuance subject to approval of
the stockholders of the Corporation. The Plan was developed to serve as part of
a compensation plan for directors who are not employees of the Corporation or
any of its subsidiaries, which will enhance the Corporation's ability to attract
and retain the services of experienced and knowledgeable independent directors
and provide additional incentive for these directors to increase their interest
in the Corporation's long-term success and progress.
SUMMARY OF THE PLAN
Only members of the Corporation's Board of Directors who are not employees
of the Corporation or any of its subsidiaries ("Non-Employee Directors") are
eligible to receive option grants under the Plan. Commencing with the annual
stockholder meeting in 1999, each Non-Employee Director serving as a member of
the Board of Directors of the Corporation on the December 31 immediately
preceding each annual meeting of the stockholders of the Corporation, will
automatically be granted on the date of such annual meeting a stock option with
a value equal to 50% of the amount of the current retainer paid to Non-Employee
Directors for their service on the Board of Directors for the preceding fiscal
year. All options granted under the Plan will be designated as Non-Qualified
Stock Options. The per share option exercise price will be equal to 100% of the
Fair Market Value of the Corporation's Common Stock on the date of grant, as
determined by the closing price of the Corporation's Common Stock on the last
business day prior to the annual meeting date. The number of shares subject to
the option will be determined by using the same option valuation model used to
value options for purposes of the notes to the Corporation's audited financial
statements for the prior fiscal year. If no option valuation model is used for
financial reporting purposes, the Board of Directors will determine the
appropriate valuation model to be used for this purpose.
For example, if the Plan were currently in force and the Non-Employee
Directors were receiving options on the date of the 1998 Annual Meeting, the
Company's options would be valued using the same Black-Scholes valuation model
used for purposes of Note 7 of the Consolidated Financial Statements of the
Corporation for the fiscal year ended October 31, 1997 included in the 1997
Annual Report to Stockholders. For ten-year stock options with an exercise price
equal to the fair market value of the common stock, this would result in an
option valuation at the time of grant equal to approximately 25% of the total
exercise price of the option. To provide a desired option value of $14,000
(one-half of the current retainer amount) and assuming a fair market value of
$31.875 per share of common stock (based on the closing sale price on December
31, 1997), each Non-Employee Director would receive an option to purchase 1,757
shares at an exercise price of $31.875 per share.
Each option will be immediately exercisable in full, and have a term of ten
years. Each option granted under the Plan is nontransferable during the lifetime
of the optionee. Upon termination of a person's service as a director of the
Corporation, such director will be allowed to exercise the option for the
shorter of the remaining term of the option or a period of three years after the
date on which such person ceased to be a director.
The Plan will become effective as of February 25, 1998, the date
stockholders of the Corporation approve such Plan. The first option grant under
this Plan will be granted on the date of the annual stockholders meeting held in
1999 to all Non-Employee Directors who were members of the Board of
<PAGE>
Directors on December 31, 1998. This Plan is being adopted to replace The
Valspar Corporation Restricted Stock Plan for Non-Employee Directors, which will
automatically terminate following the issuance of the restricted stock grant
that was earned for services during 1997.
The Plan is subject to approval of the stockholders. 250,000 shares of
Common Stock are reserved for issuance under the Plan. A registration statement
covering these shares will be filed on or about February 25, 1998 with the
Securities and Exchange Commission. Non-qualified stock options may be granted
pursuant to the Plan until the Plan is discontinued or terminated by the
Compensation Committee of the Board of Directors. Following is a summary of
certain other provisions of the Plan.
ADMINISTRATION. The Plan is administered by the Compensation Committee of
the Board of Directors. The Plan vests broad powers in the Committee to
administer and interpret the Plan, including the authority to prescribe the form
and conditions of the options.
ELIGIBILITY. Each Non-Employee Director of the Company will be eligible to
participate in the Plan. The Corporation currently has eight Non-Employee
Directors.
EXERCISE OF OPTIONS. Upon exercise of an option under the Plan, the
exercise price is to be paid in cash, by check or by delivering Common Stock of
the Corporation valued at its then fair market value. The closing price of the
Corporation's Common Stock was $31.875 on December 31, 1997.
AMENDMENT. The Compensation Committee may from time to time suspend or
discontinue the Plan for Non-Employee Directors or revise or amend it in any
respect; provided, however, that no such revision or amendment would impair the
terms and conditions of any option which is outstanding on the date of such
revision or amendment to the material detriment of the optionee without the
consent of the optionee. In addition, no such revision or amendment may, without
the approval of the Corporation's stockholders, (i) materially increase the
number of shares subject to the Plan except as provided in the case of stock
splits, consolidations, stock dividends or similar events, (ii) change the
designation of the class of individuals eligible to receive options, or (iii)
materially increase the benefits accruing to optionees under the Plan.
The Committee may equitably adjust the maximum number of shares of Common
Stock reserved for issuance under the Plan, the number of shares covered by each
outstanding option and the option price per share in the event of stock splits
or consolidations, stock dividends or other transactions in which the
Corporation receives no consideration. The Committee may also provide for the
protection of optionees in the event of a merger, liquidation, or reorganization
of the Corporation.
FEDERAL INCOME TAX CONSEQUENCES
Nonqualified stock option grants are not intended to and do not qualify for
the favorable tax treatment permitted for incentive stock options. Under present
law, an optionee will not realize any taxable income on the date an option is
granted to the optionee pursuant to the Plan. Upon exercise of the option,
however, the optionee will realize, in the year of exercise, ordinary income to
the extent of the difference between the option price and the fair market value
on the date of exercise. Upon the sale of shares, any resulting gain or loss
will be treated as capital gain or loss. The Corporation will receive a
deduction in its fiscal year in which options are exercised, equal to the amount
of compensation required to be included as ordinary income by those optionees
exercising options.
VOTE REQUIRED
The Board recommends that the stockholders approve the adoption of The
Valspar Corporation Stock Option Plan for Non-Employee Directors. The
affirmative vote of a majority of the shares represented at the annual meeting
is required for approval.
<PAGE>
PROPOSAL NUMBER THREE
APPOINTMENT OF AUDITORS
Unless otherwise directed by the stockholders, shares represented by proxy
at the meeting will be voted in favor of ratification of the appointment of the
firm of Ernst & Young LLP to examine the accounts of the Corporation for the
year ending October 30, 1998. Management believes that neither Ernst & Young LLP
nor any of its partners presently has or has held within the past three years
any direct or indirect interest in the Corporation. A representative of Ernst &
Young LLP is expected to be present at the 1998 annual meeting and will be given
an opportunity to make a statement if so desired and to respond to appropriate
questions.
At least once each year, the non-officer directors, acting as the Audit
Committee, review the services that may be provided by Ernst & Young LLP during
the year, consider the effect that performing such services might have on audit
independence, and approve guidelines under which management may engage Ernst &
Young LLP to perform non-audit services.
OUTSTANDING SHARES AND VOTING RIGHTS
Stockholders of record on December 31, 1997 will be entitled to receive
notice of and vote at the meeting. As of the record date, there were outstanding
and entitled to be voted at the meeting 43,677,588 shares of Common Stock, each
share being entitled to one vote.
SHARE OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following information concerning ownership of Common Stock of the
Corporation is furnished as of the record date, unless otherwise indicated, with
respect to all persons known by the Corporation to be the owner, of record or
beneficially, of more than five percent of the outstanding Common Stock of the
Corporation. Unless otherwise indicated, the stockholders listed in the table
below have sole voting and investment powers with respect to the shares
indicated.
NAME AND ADDRESS SHARES PERCENT
OF BENEFICIAL OWNER BENEFICIALLY OWNED OF CLASS
--------------------------------- ------------------ --------
C. Angus Wurtele 4,604,204(1) 10.5%
1101 Third Street South
Minneapolis, MN 55415
The Capital Group Companies, Inc. 4,998,640(2) 11.4%
333 South Hope Street
Los Angeles, CA 90071
Nicholas Company, Inc. 2,201,650(3) 5.0%
700 North Water Street
Milwaukee, WI 54202
(1) Includes 188,323 shares held as of October 31, 1997 through the Valspar
Stock Ownership Trust, 19,019 shares held as of October 31, 1997 through
the Valspar Profit Sharing Plan, 37,578 shares which may be acquired within
60 days by exercise of outstanding options, 43,748 shares owned by Mr.
Wurtele's wife and 652,080 shares held for his benefit as co-trustee with
Resource Trust Company.
(2) Shares reported on Schedule 13G as of December 31, 1996 (adjusted for a
2-for-1 stock split on March 21, 1997). Certain operating subsidiaries of
The Capital Group Companies, Inc. exercised investment discretion over
various institutional accounts which held all of such shares as of December
31, 1996. Such subsidiaries held voting power over 918,040 of such shares.
Capital Research and Management Company, a registered
<PAGE>
investment adviser and one of such operating subsidiaries, had investment
discretion with respect to 4,036,000 of the above shares as of December 31,
1996 and did not have voting power over any of such shares.
(3) Nicholas Company, Inc., as an investment adviser, reports no voting power
over such shares and sole investment power over all such shares.
SHARE OWNERSHIP OF MANAGEMENT
The following table lists, as of December 31, 1997, the beneficial
ownership of Common Stock for all directors, each of the Named Executives and
all directors and executive officers as a group. Except as otherwise indicated,
no director or executive officer owns as much as 1% of the total outstanding
shares of Common Stock.
<TABLE>
<CAPTION>
NAME SHARES(1) NAME SHARES(1)
- ---- --------- ---- ---------
<S> <C>
Susan S. Boren ............. 7,941(2) Robert E. Pajor ........... 646,465(4)
Stephen M. Briggs .......... 77,395(3) Gregory R. Palen .......... 11,127(5)
Jeffrey H. Curler .......... 2,263 Lawrence Perlman .......... 6,699
Rolf Engh .................. 99,165(3) Edward B. Pollak .......... 1,263
William W. George .......... 33,517 Paul C. Reyelts ........... 375,153(3)(6)
William L. Mansfield ....... 71,260(3) Richard M. Rompala ........ 228,937(3)
Thomas R. McBurney ......... 13,263 Michael P. Sullivan ....... 12,861(7)
Kendrick B. Melrose ........ 14,437
All directors and executive
officers as a group ................................................. 6,544,720(3)(8)
</TABLE>
- ------------------
(1) Except as otherwise indicated, each person possesses sole voting and
investment power with respect to shares shown as beneficially owned.
(2) Includes 804 shares for which Ms. Boren is Custodian for minor children.
(3) Includes shares indirectly owned as of October 31, 1997 through the Valspar
Stock Ownership Trust and the Valspar Profit Sharing Plan, respectively and
over which each participant has sole voting power, as follows: Mr. Rompala
-- 1,166 and 225; Mr. Reyelts -- 32,443 and 9,886; Mr. Briggs -- 3,506 and
1,332; Mr. Engh -- 1,587 and 4,172; Mr. Mansfield -- 9,820 and 0 and
executive officers as a group, 92,210 and 29,869. Also includes the
following numbers of shares which may be acquired within 60 days by
exercise of outstanding options under the Corporation's stock option plans,
as follows: Mr. Rompala, 128,594 shares; Mr. Reyelts, 15,732 shares; Mr.
Briggs, 16,027 shares; Mr. Engh, 59,964 shares; Mr. Mansfield, 15,772
shares; and executive officers as a group, 287,255 shares.
(4) Includes 156,599 shares held as of October 31, 1997 through the Valspar
Stock Ownership Trust, 30,529 shares held as of October 31, 1997 through
the Valspar Profit Sharing Plan, 80,000 shares owned by Mr. Pajor's wife,
32,042 shares held in a family limited partnership and 35,093 shares which
may be acquired within 60 days by exercise of outstanding options. Mr.
Pajor beneficially owns 1.5% of the outstanding Common Stock.
(5) Includes 120 shares owned by Mr. Palen's wife.
(6) Includes 30,080 shares owned by Mr. Reyelts' wife.
(7) Does not include 526 shares owned by a household member for which Mr.
Sullivan disclaims any beneficial ownership.
(8) Represents 15% of the outstanding Common Stock. Includes shares owned by C.
Angus Wurtele as indicated under "Share Ownership of Certain Beneficial
Owners" above.
<PAGE>
ADDITIONAL INFORMATION
OTHER BUSINESS
Management is not aware of any matters to be presented for action at the
meeting, except matters discussed in the Proxy Statement. If any other matters
properly come before the meeting, it is intended that the shares represented by
proxies will be voted in accordance with the judgment of the persons voting the
proxies.
1999 STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the Annual Meeting in
1999 must be submitted to the Corporation in appropriate written form on or
before September 30, 1998.
By Order of the Board of Directors,
ROLF ENGH,
SECRETARY
Minneapolis, Minnesota
January 23, 1998
PLEASE SIGN, DATE AND RETURN
YOUR PROXY IN THE ENCLOSED ENVELOPE.
<PAGE>
PROXY
THE VALSPAR CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints THOMAS R. MCBURNEY, RICHARD M. ROMPALA and C.
ANGUS WURTELE, and each of them, as proxies with full power of substitution, to
vote on behalf of the undersigned the same number of shares which the
undersigned is then entitled to vote, at the Annual Meeting of the Stockholders
of The Valspar Corporation to be held on Wednesday, February 25, 1998, at 11:00
A.M., at the Research Center of the Corporation at 312 South 11th Avenue,
Minneapolis, Minnesota, and at any adjournments thereof, on any matter properly
coming before the meeting, and specifically the following:
Please mark your vote as indicated in this example [X]
(1) To elect three directors (Class III) for a term of three years:
KENDRICK B. MELROSE, GREGORY R. PALEN, LAWRENCE PERLMAN
FOR all nominees listed WITHHOLD (Instructions: To withhold
(except as marked to the authority to vote for authority to vote for any
contrary) all nominees listed nominee, write that
nominee's name in the space
provided below.)
[ ] [ ] ---------------------------
(CONTINUED ON THE OTHER SIDE)
<PAGE>
(2) To approve the Corporation's Stock Option Plan for Non-Employee Directors.
For Against Abstain
[ ] [ ] [ ]
(3) Ratification of the appointment of Ernst & Young LLP as the independent
public accountants of the Corporation.
For Against Abstain
[ ] [ ] [ ]
(4) The undersigned authorizes the Proxies to vote in their discretion upon
such other business as may properly come before the meeting.
This proxy when properly executed will
be voted in the manner directed herein
by the undersigned stockholder. If no
direction is made, this proxy will be
voted FOR items 1, 2, and 3.
________________________________________
________________________________________
Signature of Stockholder(s)
Date: __________________________________
NOTE: Please sign your name exactly as
it is shown at the left. When signing as
attorney, executor, administrator,
trustee, guardian or corporate officer,
please give your full title as such.
EACH joint owner is requested to sign.
Please sign, date and return this proxy promptly in the enclosed postage paid
envelope.
<PAGE>
THE VALSPAR CORPORATION STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
SECTION 1. PURPOSE.
This plan is known as "The Valspar Corporation Stock Option Plan for
Non-Employee Directors" and is hereinafter referred to as the "Plan." The
purpose of the Plan is to promote the interests of The Valspar Corporation, a
Delaware corporation (the "Company"), by enhancing its ability to attract and
retain the services of experienced and knowledgeable independent directors and
by providing additional incentive for these directors to increase their interest
in the Company's long-term success and progress.
SECTION 2. PARTICIPATION IN THE PLAN.
Each director of the Company who is not an employee of the Company or
any subsidiary of the Company (a "Non-Employee Director") will be eligible to
participate in the Plan.
SECTION 3. STOCK SUBJECT TO THE PLAN.
Shares to be issued under the Plan shall be common stock of the Company
(par value $.50 per share) ("common stock"), not to exceed a maximum of 250,000
shares, and may be unissued shares or reacquired shares. If options granted
under the Plan expire or terminate without having been exercised in full, such
unpurchased shares shall be available for other option grants. If shares of
common stock are delivered as full or partial payment upon exercise of an
option, the number of shares so delivered shall again be available for other
option grants.
SECTION 4. NON-QUALIFIED STOCK OPTION GRANTS.
Each Non-Employee Director serving as a member of the Board of
Directors of the Company on the December 31 immediately preceding each annual
meeting of the stockholders of the Company, will automatically be granted on the
date of such annual meeting a Non-Qualified Stock Option with a value equal to
50% of the amount of the current annual retainer paid to Non-Employee Directors
for their service on the Board of Directors for the preceding fiscal year. The
per share option exercise price will be equal to 100% of the Fair Market Value
of one share of the Company's common stock on the date of grant, as determined
by the closing price of the Company's common stock on the last business day
prior to the annual meeting date. The number of shares subject to the option
will be determined by using the same option valuation model used to value
options for purposes of the notes to the Company's audited financial statements
for the prior fiscal year. If no option valuation model is used for financial
reporting purposes, the Board of Directors will determine the appropriate model
to be used for this purpose. All such options will be designated as
Non-Qualified Stock Options. Each option will be immediately exercisable in full
and have a term of ten years. Upon termination of a person's service as a
director of the Company, such Non-Employee Director will be allowed to exercise
the option for a period of three years after the date on which such person
ceased to be a director, but in no event may the option be exercised after the
expiration of its original term.
<PAGE>
SECTION 5. OPTION AGREEMENT AND EXERCISE OF OPTION.
Promptly after determination of the number of stock options to be
granted to each Non-Employee Director under Section 4, the Company will prepare
and deliver a Non-Qualified Stock Option Agreement to each Non-Employee
Director, containing the terms described in this Plan. Optionee is not required
to exercise options in the sequential order that the options were granted. An
option shall be exercised by written notice in a form designated by the Company
accompanied by full payment of the purchase price. All or part of the purchase
price may be paid by surrender (or deemed surrender through attestation) of
previously acquired shares of common stock valued at the fair market value at
the closing price on the day preceding the date of exercise. Until an option is
exercised and the stock certificate issued, the Optionee shall have no rights as
a stockholder with respect to such option.
SECTION 6. WITHHOLDING OF TAXES.
Upon exercise of an option, the Optionee shall (i) pay cash, (ii)
surrender previously acquired shares of common stock or (iii) authorize the
withholding of shares from the shares issued upon exercise of an option for all
taxes required to be withheld.
SECTION 7. NON-TRANSFERABILITY.
Options shall not be transferable, voluntarily or involuntarily,
except by will or applicable laws of descent and distribution. Only the Optionee
or Optionee's legal representative or guardian may exercise the option.
SECTION 8. DILUTION OR OTHER ADJUSTMENTS.
The number of shares subject to the Plan, the outstanding options and
the exercise price may be adjusted by the Committee as it deems equitable in the
event of stock split, stock dividend, recapitalization, reclassification or
similar event to prevent dilution or enhancement of option rights.
SECTION 9. MERGERS, ACQUISITIONS, OR OTHER REORGANIZATION.
The Committee may make provision, as it deems equitable, for the
protection of Optionees with grants of outstanding options in the event of (a)
merger of the Company into, or the acquisition of substantially all of the stock
or assets of the Company by, another entity; or (b) liquidation; or (c) other
reorganization of the Company.
SECTION 10. ADMINISTRATION AND AMENDMENT OF THE PLAN.
The Plan shall be administered by the Compensation Committee of the
Board of Directors. The Committee may suspend or discontinue the Plan or revise
or amend it in any
<PAGE>
respect deemed advisable and in the best interests of the Company; provided,
however, that no such revision or amendment would impair the terms and
conditions of any option which is outstanding on the date of such revision or
amendment to the material detriment of the Optionee without the consent of the
Optionee. In addition, no such revision or amendment may, without the approval
of the Corporation's stockholders, (i) materially increase the number of shares
subject to the Plan except as provided in the case of stock splits,
consolidations, stock dividends or similar events, (ii) change the designation
of the class of individuals eligible to receive options, or (iii) materially
increase the benefits accruing to Optionees under the Plan.
SECTION 11. EFFECTIVE DATE OF THE PLAN.
The Plan will become effective as of February 25, 1998, the date
stockholders of the Company approve such Plan. The first option grant under this
Plan will be granted on the date of the annual stockholder meeting held in 1999
to all Non-Employee Directors who were members of the Board of Directors on
December 31, 1998. This Plan is being adopted to replace The Valspar Corporation
Restricted Stock Plan for Non-Employee Directors, which will automatically
terminate following the issuance of the restricted stock grant that was earned
for services during 1997.
