VALSPAR CORP, DEF 14A, 1999-01-22

VALSPAR CORP
DEF 14A, 1999-01-22
PAINTS, VARNISHES, LACQUERS, ENAMELS & ALLIED PRODS

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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 24, 1999

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 24, 1999 at 11:00 A.M., for the following
purposes:

1. To elect four directors (Class I) for a term of three years;

2. To approve amendments to the Corporation's 1991 Stock Option Plan to
permit compliance with Internal Revenue Code Section 162(m) and to
increase the number of shares reserved for issuance under the Plan;

3. To approve the Corporation's Amended and Restated Key Employee Annual
Bonus Plan to permit compliance with Internal Revenue Code Section
162(m);

4. To ratify the appointment of independent auditors to examine the
Corporation's accounts for the fiscal year ending October 29, 1999;
and

5. 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, 1998 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 30, 1998 also accompanies
this Notice.

By Order of the Board of Directors,

ROLF ENGH,
SECRETARY

Approximate Date of Mailing of Proxy Material:
January 22, 1999

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 24, 1999

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 stockholder 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 number of directors is
currently fixed at twelve, divided into three classes. Each class 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 I
directors will expire at the annual meeting in 1999. The Board of Directors has
nominated Thomas R. McBurney, Richard M. Rompala, Michael P. Sullivan and C.
Angus Wurtele for re-election as Class I directors. Unless otherwise directed by
the stockholders, it is intended that shares represented by proxy will be voted
in favor of the election of the four nominees listed in Class I below, to hold
office until the annual meeting in 2002 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

- --------------------------------------------------------------------------------
CLASS I NOMINEES FOR TERM EXPIRING IN 2002
- --------------------------------------------------------------------------------
THOMAS R. MCBURNEY President, McBurney Management Advisors,
Director since 1987 a management consulting firm for small businesses
Age -- 60

Mr. McBurney has held his present position as President since 1990. Mr. McBurney
is also a director of Wenger Corporation, Space Center Enterprises, Inc., Allina
Health System, Strategist Fund Group and Greenspring Companies.
- --------------------------------------------------------------------------------
RICHARD M. ROMPALA Chairman, President and Chief Executive Officer
Director since 1994 of the Corporation
Age -- 52

Mr. Rompala has held his present position as Chairman since February 1998, 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.
- --------------------------------------------------------------------------------
MICHAEL P. SULLIVAN President and Chief Executive Officer,
Director since 1990 International Dairy Queen, Inc.
Age -- 64

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.
- --------------------------------------------------------------------------------
C. ANGUS WURTELE Retired Chairman of the Board of the Corporation
Director since 1970
Age -- 64

Mr. Wurtele retired as Chairman of the Board in February 1998. Prior to 1998,
Mr. Wurtele served as Chairman of the Board since 1973 and 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.
- --------------------------------------------------------------------------------
CLASS II DIRECTORS CONTINUING IN OFFICE UNTIL 2000
- --------------------------------------------------------------------------------
SUSAN S. BOREN Director, SpencerStuart
Director since 1991
Age -- 51

Ms. Boren is Director-Minneapolis office of SpencerStuart, an executive search
firm, since May 1998. Prior to 1998, Ms. Boren was the President of Trillium
Advisors, Inc., a firm she founded in 1996 to advise executives and boards on
the strategic integration of leadership, governance and organizational values.
Previously, she served for 15 years as an executive with Dayton Hudson
Corporation in senior financial, human resources, and operating and marketing
positions. Ms. Boren is also a director of Dain Rauscher Corporation.
- --------------------------------------------------------------------------------

<PAGE>

NAMES, PRINCIPAL OCCUPATIONS FOR THE PAST FIVE YEARS AND SELECTED
OTHER INFORMATION CONCERNING NOMINEES AND DIRECTORS
- --------------------------------------------------------------------------------
JEFFREY H. CURLER President and Chief Operating Officer,
Director since 1997 Bemis Company, Inc.
Age -- 48

Mr. Curler has held his present position as President since May 1996 and Chief
Operating Officer since May 1998. Prior to 1996, Mr. Curler served as Executive
Vice President since 1991. Mr. Curler is also a director of Bemis Company, Inc.
- --------------------------------------------------------------------------------
EDWARD B. POLLAK Vice President-Asia Pacific,
Director since 1997 Witco Corporation
Age -- 64

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.
- --------------------------------------------------------------------------------
CLASS III DIRECTORS CONTINUING IN OFFICE UNTIL 2001
- --------------------------------------------------------------------------------
KENDRICK B. MELROSE Chairman and Chief Executive Officer,
Director since 1984 The Toro Company
Age -- 58

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.
- --------------------------------------------------------------------------------
GREGORY R. PALEN Chairman and Chief Executive Officer,
Director since 1992 Spectro Alloys Corporation; Chief Executive
Age -- 43 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.
- --------------------------------------------------------------------------------
LAWRENCE PERLMAN Chairman and Chief Executive Officer,
Director since 1992 Ceridian Corporation
Age -- 60

Mr. Perlman has been Chairman of the Board since November 1992 and Chief
Executive Officer since 1990. Mr. Perlman served as President from 1990 through
March 1998. Mr. Perlman is also a director of Seagate Technology, Inc., Amdocs
Limited and Computer Network Technology.
- --------------------------------------------------------------------------------

<PAGE>

BOARD COMMITTEES

The standing committees of the Board of Directors for 1998 were as follows:

NAME OF COMMITTEE MEMBERSHIP
----------------- ----------

Audit Committee Susan S. Boren -- Chair, Jeffrey H. Curler,
Thomas R. McBurney, Kendrick B. Melrose,
Gregory R. Palen, Lawrence Perlman, Edward B.
Pollak, Michael P. Sullivan and C. Angus Wurtele

Executive Committee Thomas R. McBurney, Richard M. Rompala --
Chair and C. Angus Wurtele

Compensation Committee Susan S. Boren, Thomas R. McBurney, Kendrick
B. Melrose, Lawrence Perlman and Michael P.
Sullivan -- Chair

Governance Committee Susan S. Boren, Jeffrey H. Curler, 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 seven times during fiscal 1998.

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 three meetings during the fiscal year at
which it conducted Chief Executive Officer performance evaluations and other
matters related to corporate governance.

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 1998, 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. Perlman who attended 5 of 7 such meetings.

<PAGE>

DIRECTOR COMPENSATION

Directors who are not officers of the Corporation receive an annual fee of
$28,000, with the Chairs of the Audit and Compensation Committees receiving an
annual fee of $31,000 and the Chair of the Governance Committee receiving an
annual fee of $38,000. Prior to January 1, 1999, directors who were not officers
of the Corporation received an annual fee of $28,000. 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, commencing with the 1999 annual
meeting, each non-employee director will automatically be granted on the date of
each annual meeting of stockholders a non-qualified stock option under the
Corporation's Stock Option Plan for Non-Employee Directors with a value equal to
one-half of the amount of the current retainer paid for the preceding fiscal
year. 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. 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. Each
option will be immediately exercisable in full, have a term of ten years and be
nontransferable during the lifetime of the optionee. Prior to 1999, each
non-employee director received a grant of restricted stock under the
Corporation's Restricted Stock Plan for Non-Employee Directors with the number
of shares granted determined by dividing one-half of the director fees earned
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. This plan was terminated following the issuance of
the restricted stock grant that was earned for services during 1997.

<PAGE>

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 1998, and
indicates (i) the largest loan amount outstanding for such director and officer
at any time since November 1, 1997, and (ii) the loan amount outstanding for
such director and officer as of December 31, 1998:

LARGEST AMOUNT
NAME OF OUTSTANDING AMOUNT OUTSTANDING
EXECUTIVE OFFICER SINCE NOVEMBER 1, 1997 AS OF DECEMBER 31, 1998
---------------------- ---------------------- -----------------------

Larry B. Brandenburger $198,987 $162,853
Stephen M. Briggs 201,342 154,602
Rolf Engh 163,541 108,691
Steven L. Erdahl 178,804 137,186
Joel C. Hart 174,020 169,660
William L. Mansfield 137,448 0
Paul C. Reyelts 163,993 109,383
Richard M. Rompala 910,754 798,326
Robert T. Smith 202,237 198,070
Thomas A. White 212,664 212,664
C. Angus Wurtele 135,531 25,875

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934, as amended (the "1934
Act"), requires the Corporation's directors, executive officers and beneficial
owners of more than 10% of the Common Stock of the Corporation to file with the
Securities and Exchange Commission ("SEC") certain reports regarding the
ownership or any changes in such ownership. Officers, directors and greater than
10% stockholders are required by SEC regulations to furnish the Corporation with
copies of all Section 16(a) forms that they file.

Based solely on its review of the copies of such reports received by it,
and/or written representations from certain reporting persons that no Forms 5
were required for such persons, the Corporation believes that, during the year
ended October 30, 1998 and except as set forth below, the Corporation has
complied with all filing requirements of Section 16(a) of the 1934 Act. There
was a late filing of one Form 5 on behalf of Mr. Robert T. Smith and Mr. Thomas
A. White, executive officers of the Corporation, reporting the purchase and
subsequent dividend reinvestment of Common Stock under the Corporation's payroll
deduction plan, due to an inadvertent omission by the Corporation. Both Forms 5
were promptly filed upon discovery of the oversights.

<PAGE>

EXECUTIVE COMPENSATION

SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION

The following table shows, for the fiscal years ended October 30, 1998,
October 31, 1997 and October 25, 1996, 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 1998 $574,238 $ 0 $597,208 45,000 $73,789
Chairman, President and 1997 559,620 72,751 640,206 12,600 66,558
Chief Executive Officer 1996 497,698 54,747 348,388 114,230 40,315

Paul C. Reyelts 1998 256,462 0 226,968 15,000 34,025
Vice President, Finance 1997 257,308 33,450 232,606 5,900 31,402
1996 236,827 26,051 163,410 5,140 29,182

Steven L. Erdahl 1998 233,885 0 243,240 11,000 30,636
Vice President, Industrial 1997 230,192 29,925 161,134 4,900 27,694
Group 1996 207,885 22,867 135,124 1,990 25,708

William L. Mansfield 1998 243,885 19,999 159,989 14,000 31,007
Vice President, Packaging 1997 239,423 31,125 215,480 4,300 28,365
Group 1996 211,827 23,301 118,623 7,020 29,109

Stephen M. Briggs 1998 233,885 26,312 157,872 13,000 33,758
Vice President, Consumer 1997 230,192 63,303 200,268 6,100 29,231
Group 1996 207,885 44,071 127,225 3,290 27,850
</TABLE>

- --------------------
* As of October 30, 1998.

(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 during 1997 and 1996, 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 1998, 1997 and 1996 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 30, 1998, such individuals held the following numbers of
shares of restricted stock with the following market values, based on the
closing sale price of the Corporation's common stock on such date: Mr.
Rompala, 43,606 shares, $1,223,693; Mr. Reyelts, 18,428 shares, $517,136;
Mr. Erdahl, 11,983 shares, $336,273; Mr. Mansfield, 18,154 shares,
$509,447; Mr. Briggs, 13,422 shares, $376,655. Dividends are paid on shares
of restricted stock from the date of grant.

<PAGE>

(4) Options indicated for fiscal 1998 were granted pursuant to the Key Employee
Annual Bonus Plan based on a percentage of each individual's base salary
for fiscal 1997. A portion of Mr. Rompala's 1996 option was granted in
connection with his initial employment with the Corporation. Options
indicated for fiscal 1998 exclude options granted in December 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.

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 1998:

OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL
--------------------------------------------------- REALIZABLE VALUE
% OF TOTAL AT ASSUMED ANNUAL
OPTIONS RATE OF STOCK PRICE
GRANTED TO APPRECIATION FOR
EMPLOYEES OPTION TERM(3)
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 ....... 45,000 11.3 $31.25 01/08/08 $884,250 $2,241,000
Paul C. Reyelts .......... 15,000 3.8 31.25 01/08/08 294,750 747,000
Steven L. Erdahl ......... 11,000 2.8 31.25 01/08/08 216,150 547,800
William L. Mansfield ..... 14,000 3.5 31.25 01/08/08 275,100 697,200
Stephen M. Briggs ........ 13,000 3.3 31.25 01/08/08 255,450 647,400
</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 1998 and unexercised
options held as of October 30, 1998:

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 30, 1998 AT OCTOBER 30, 1998(2)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard M. Rompala ........... 0 -- 172,580 133,220 $1,712,411 $737,777
Paul C. Reyelts .............. 1,122 $16,966 15,732 28,308 165,426 82,999
Steven L. Erdahl ............. 0 -- 16,182 24,328 170,165 98,933
William L. Mansfield ......... 870 13,155 14,902 28,868 141,292 104,820
Stephen M. Briggs ............ 152 2,298 15,875 27,937 158,302 101,415
</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 30, 1998.

BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

The Compensation Committee of the Board of Directors (the "Committee") is
comprised entirely of outside directors within the meaning of Section 162(m) of
the Internal Revenue Code of 1986, as amended (the "Code") and the rules and
regulations thereunder. The Committee is responsible for setting and
administering the policies which govern both annual compensation and stock
ownership programs. The Corporation's incentive plans are designed to condition
a significant amount of an executive's compensation on the performance of the
executive and of the Corporation as a whole. The compensation plans are also
designed to encourage employee stock ownership. The Committee believes such
ownership effectively motivates executives to increase stockholder value and
aligns the interests of employees with those of the stockholders. 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
12. 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
4.6% from 1997 to 1998. The increases for 1998 reflected general corporate
performance, based on sales, expenses, profits, unit growth and return on equity
for fiscal 1997.

<PAGE>

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 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 (60%-80% for executive officers in fiscal
1998) 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 1998 ranged from 41% to 52% 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. At the Annual Meeting, the stockholders are
voting on the approval of an Amended and Restated Key Employee Annual Bonus Plan
that would restrict the criteria by which the bonuses under the Incentive Bonus
Plan for certain officers could be determined. See "Proposal Number Three --
Approval of Amended and Restated Key Employee Annual Bonus Plan."

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. See "Proposal
Three -- Approval of Amended and Restated Key Employee Annual Bonus 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. The value of the shares subject to options for fiscal 1998 bonuses
were 250% of the 1998 base salary for the Named Executives and 350% for the
Chief Executive Officer. These options were granted in December 1998 with an
exercise price based on the fair market value of the Corporation's Common Stock
at the closing price on the day preceding the date of grant. These grants are
higher than prior years, in part to replace the Deferred Bonus Plan, which was
discontinued following the award of the fiscal 1997 deferred bonus. Thirty-two
employees, including all executive officers, were selected to participate for
fiscal year 1998 in the plan. In addition, 491 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.

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. The stockholders are considering a proposal at the Annual
Meeting to increase the shares reserved to 6,000,000 shares. See "Proposal Two
- -- Approval of

<PAGE>

Amendments to 1991 Stock Option Plan." 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 1998 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). Amendments to the
1991 Stock Option Plan and the provisions of the Key Employee Annual Bonus Plan
being considered by the stockholders at the Annual Meeting are intended to
permit future compensation income of the Named Executives received under such
plans to be deductible by the Corporation.

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 12. Mr. Rompala's base
salary increased approximately 5.45% from fiscal 1997 to fiscal 1998. This
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, sales growth, cash flow and total
expenses. Mr. Rompala was eligible for a bonus of up to 80% 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 1998 was $298,604 if received in cash, or 52% of his salary. As described
above under "Compensation of Executive Officers -- Bonus Programs," Mr. Rompala
elected to receive the bonus in restricted stock and received stock options in
December 1998 pursuant to the Key Employee Annual Bonus Plan. Under the formula
provided in the Annual Bonus Plan, the value of the shares subject to the
options for Mr. Rompala's fiscal 1998 bonus was 350% of his 1998 base salary.

SUBMITTED BY THE COMPENSATION COMMITTEE
OF THE CORPORATION'S BOARD OF DIRECTORS:

Susan S. Boren Lawrence Perlman
Thomas R. McBurney Michael P. Sullivan
Kendrick B. Melrose

<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 1993 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 CHART]

CUMULATIVE TOTAL RETURN
-------------------------------------------------
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----

Valspar $100 $116 $126 $161 $196 $188
Peer Group $100 $113 $118 $154 $171 $179
S&P 500 $100 $104 $131 $163 $215 $263

Assumes $100 invested on October 31, 1993 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., 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 and
Standard Brands Paint Company was excluded as a result of bankruptcy.

<PAGE>

PROPOSAL NUMBER TWO

APPROVAL OF AMENDMENTS TO 1991 STOCK OPTION PLAN

In December 1998, the Corporation's Board of Directors approved two
amendments to the 1991 Stock Option Plan (the "Plan"), subject to stockholder
approval. The first amendment increases the number of shares reserved for
issuance under the Plan from 4,000,000 shares to 6,000,000 shares. The second
amendment limits the number of shares subject to options that may be granted to
certain executive officers under the Plan in a single fiscal year to 500,000
shares.

SUMMARY OF THE 1991 STOCK OPTION PLAN

On February 27, 1991, the stockholders of the Corporation adopted the Plan.
The purpose of the Plan is to promote the success of the Corporation by
facilitating the employment and retention of competent personnel and by
furnishing incentives to employees and others upon whose efforts the success of
the Corporation will depend to a large degree by encouraging stock ownership in
order to increase such individuals' proprietary interest in the Corporation's
success.

TERM. Incentive stock options may be granted pursuant to the Plan through
December 16, 2008, ten years from the date the amendments were adopted by the
Board. Nonqualified Stock Options may be granted pursuant to the Plan until the
Plan is discontinued or terminated by the Board of Directors.

ADMINISTRATION. The Plan is administered by a Committee (the "Committee")
appointed by the Board from time to time which shall consist of not less than
two members of the Board who are non-employee directors within the meaning of
Rule 16b-3 under the Securities Exchange Act of 1934 or any successor Rule and
outside directors within the meaning of Section 162(m) of the Code. The Plan
vests broad powers in the Committee to administer and interpret the Plan,
including the authority to select the individuals to be granted options and to
prescribe the type, form and conditions of the options (which may vary from
optionee to optionee). The Board has appointed the Compensation Committee to
serve as the Committee administering the Plan.

ELIGIBILITY. All salaried officers and employees of the Corporation or any
subsidiary of the Corporation, and all other persons performing services for the
Corporation (including directors, consultants or advisors) are eligible to
receive options under the Plan. The Corporation currently has approximately
3,800 employees and an undetermined number of advisors or consultants.

OPTIONS. When an option is granted under the Plan, the Committee in its
discretion will specify the number of shares of Common Stock which may be
purchased upon exercise of the option, the option price (which may not be less
than 100% of the fair market value of the Corporation's Common Stock at the
closing price on the day preceding the date of grant), the term of the option
and whether it will be an incentive or nonqualified stock option. The closing
sale price of the Corporation's Common Stock was $37.3125 on December 31, 1998.

The term during which the option may be exercised and whether the option
will be exercisable immediately, in stages, or otherwise will be set by the
Committee when the option is granted, but in no event will the term of an
incentive stock option exceed ten years. Each option granted under the Plan is
nontransferable during the lifetime of the optionee. The Committee may impose
additional or alternative conditions and restrictions on the incentive or
nonqualified stock options granted under the Plan; however, each incentive stock
option must contain such limitations and restrictions upon its exercise as are
necessary to ensure that the option will be an incentive stock option as defined
under the Code.

<PAGE>

Upon exercise of an option under the Plan, the exercise price is to be paid
in cash, by check or by surrender (or deemed surrender through attestation) of
previously acquired shares of Common Stock of the Corporation which has been
owned for more than six months on the date of surrender valued at its then fair
market value.

AMENDMENT. The Board of Directors may from time to time suspend or
discontinue the Plan or revise or amend it in any respect; provided, however,
that no such revision or amendment shall 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. Furthermore, the Plan may not,
without approval of the Corporation's stockholders, be amended in any manner
which will cause the incentive stock options to fail to meet the requirements of
incentive stock options as defined under the Code.

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 OF THE PLAN

Some of the options to be granted to employees pursuant to the Plan may be
intended to qualify as "incentive" stock options under Section 422 of the
Internal Revenue Code. Under such Section, the optionee realizes no taxable
income when the incentive stock option is granted. In addition, an optionee
generally will not realize taxable compensation income upon the exercise of an
incentive stock option if he or she exercises it as an employee or within three
months after termination of employment (or within one year after termination if
the termination results from a permanent and total disability). The amount by
which the fair market value of the shares purchased exceeds the aggregate option
price at the time of exercise will be alternative minimum taxable income for
purposes of applying the alternative minimum tax. If the optionee does not
dispose of the shares acquired upon such exercise for a period of two years from
the granting of the incentive stock option and one year after exercise of the
option, the optionee will not realize any taxable income until he or she sells
the shares. If the applicable holding periods are not satisfied, then any gain
realized in connection with the disposition of such stock will generally be
taxable as ordinary compensation income in the year in which the disposition
occurred, to the extent of the difference between the fair market value of such
stock on the date of exercise and the option exercise price. The Corporation is
entitled to a tax deduction only to the extent, and at the time, the participant
realizes compensation income. The balance of any gain will be characterized as a
capital gain.

Nonqualified stock options granted under the Plan are not intended to and
do not qualify for the tax treatment described above 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

<PAGE>

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.

PROPOSED AMENDMENTS TO 1991 STOCK OPTION PLAN

The first proposed amendment increases the maximum aggregate number of
shares issuable for stock grants under the Plan to 6,000,000 shares. As of
December 31, 1998, without giving effect to this amendment, 4,000,000 shares had
been reserved for issuance under the Plan and a total of 1,691,481 shares
remained available for further option grants.

The second proposed amendment limits the number of shares of Common Stock
that may be covered by option grants to a person covered by Section 162(m) of
the Internal Revenue Code during any fiscal year to 500,000 shares. Stockholder
approval of this amendment will enable the Corporation to maximize the
deductibility of compensation of these officers upon exercise of their future
stock option grants under the 1991 Stock Option Plan.

VOTE REQUIRED

The Board recommends that the stockholders approve the amendments to the
1991 Stock Option Plan. The affirmative vote of a majority of the shares
represented at the annual meeting is required for approval.

PROPOSAL NUMBER THREE

APPROVAL OF AMENDED AND RESTATED KEY EMPLOYEE ANNUAL BONUS PLAN

In December 1998, the Board of Directors of the Corporation adopted The
Valspar Corporation Amended and Restated Key Employee Annual Bonus Plan (the
"Annual Bonus Plan"), subject to approval by the stockholders. The amendments
established certain additional guidelines for granting restricted stock awards
under the Annual Bonus Plan in order to permit compliance with the provisions of
Section 162(m) under the Internal Revenue Code of 1986, as amended.

SUMMARY OF THE ANNUAL BONUS PLAN

On February 24, 1993, the stockholders of the Corporation originally
approved the Annual Bonus Plan. The Corporation adopted the Annual Bonus Plan
primarily to afford certain key employees (including executive officers), upon
whose judgment, initiatives and efforts the Corporation is largely dependent for
the successful conduct of its business, the opportunity to obtain a proprietary
interest in the growth and performance of the Corporation. This purpose is
accomplished by encouraging the conversion of performance based cash bonuses to
grants of the Corporation's restricted stock and by granting options to acquire
the Corporation's stock based on the performance of the participant.

ADMINISTRATION AND TYPES OF AWARDS. The Annual Bonus Plan is administered
by the Board's Compensation Committee, which has the power to interpret the
Annual Bonus Plan and select those key employees (including executive officers)
who are eligible to receive restricted stock and stock options pursuant to the
Annual Bonus Plan in connection with their cash bonus under the Corporation's
Incentive Bonus Plan. Thirty-two employees, including all executive officers,
were selected to participate for fiscal year 1998 in the Annual Bonus Plan. The
Annual Bonus Plan, as amended, defines certain additional standards for awards
to executive officers and other key employees of the Corporation as described
under "Proposed Amendments to Annual Bonus Plan" below.

<PAGE>

RESTRICTED STOCK AWARDS. Prior to the beginning of each fiscal year, an
employee selected for that fiscal year to participate in the Annual Bonus Plan
can elect to convert all or any portion of the cash bonus that the participant
may earn under the Incentive Bonus Plan into a grant of restricted stock. The
number of shares granted is determined by dividing twice the amount of the cash
bonus that is converted into restricted stock by the average closing price of
the Corporation's Common Stock for the ten business days immediately prior to
the date on which the cash bonus would have been otherwise paid. On December 31,
1998, the closing sale price of the Corporation's Common Stock was $37.3125 per
share. The maximum number of shares currently issuable for restricted stock
grants under the Annual Bonus Plan is 1,400,000.

The Annual Bonus Plan, as amended and restated in 1998, defines certain
additional standards for awards to certain executive officers designated by the
Compensation Committee (the "Designated Executive Officers") and other key
employees of the Corporation, who shall always include the Chief Executive
Officer, the Chief Operating Officer and the President. With respect to the
Designated Executive Officers, (i) the Compensation Committee will identify
specific performance targets and maximum bonus levels, as a percentage of base
salary, for each Designated Executive Officer under the Incentive Bonus Plan
within the first 90 days of each fiscal year and record these targets and bonus
levels in writing; (ii) the performance targets for Designated Executive
Officers shall be limited to one or more of the following categories for the
fiscal year, either on an absolute basis or a comparative basis with other
fiscal years: gross or net sales, expenses as a percentage of net sales,
inventory turns, earnings per share, return on average equity, cash flow and
gallon sales; (iii) the Committee will certify in writing following the end of
the fiscal year whether the performance targets have been met and the level of
the Cash Bonus Amount earned under the Incentive Bonus Plan; and (iv) the
maximum Cash Bonus Amount for any Designated Executive Officer under the
Incentive Bonus Plan for any Fiscal Year shall be $1,000,000. The maximum number
of shares of restricted stock that may be granted to any Designated Executive
Officer under the Annual Bonus Plan in any fiscal year is 250,000 shares.

The participant must be employed on the last day of any fiscal year to
receive any restricted stock grant for that fiscal year. Any restricted stock
generally shall be 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 in control." For purposes of the
Annual Bonus Plan, a "change of control" means: (i) an increase or decrease of
any person's equity ownership in the Corporation by more than twenty percentage
points from the level on December 16, 1998, or (ii) certain changes in the
composition of the Corporation's Board of Directors.

STOCK OPTION GRANTS. In addition, each employee selected for the fiscal
year to participate in the Annual Bonus Plan who earns a cash bonus under the
Incentive Bonus Plan shall receive a nonqualified stock option. Such options are
granted under the terms of the 1991 Stock Option Plan and do not reduce the
number of shares available for restricted stock grants under the Annual Bonus
Plan. Each option will be granted on the date on which the participant's cash
bonus option shall be determined, with the number of shares subject to the
option calculated as a percentage of base salary for the fiscal year based on
performance. The percentage of base salary upon which the option is based is
determined each year for each participant by the Compensation Committee. The
option price shall be the closing price of a share of the Corporation's Common
Stock on the day prior to the date on which the number of shares included in the
nonqualified stock option is determined. Generally, each option shall have a
term of ten years. Options granted through fiscal 1998 were exercisable as to
20% of the shares on each of the five succeeding anniversaries of the date of
grant and options granted in fiscal 1999 and subsequent fiscal years become
exercisable as to one-third of the shares on each of the three succeeding
anniversaries of

<PAGE>

the date of grant. If the participant's employment terminates because of death,
disability, retirement or a "change of control," the option shall immediately
become fully exercisable.

AMENDMENT. The Board of Directors or the Compensation Committee may
terminate or amend the Annual Bonus Plan at any time, except that the terms of
the nonqualified stock options or restricted stock grants then outstanding shall
not be affected without the consent of the participant. Neither the Board of
Directors nor the Compensation Committee may amend the Annual Bonus Plan without
the approval of the Corporation's stockholders if the amendment would materially
increase the total number of shares of Common Stock that may be granted to
participants, materially increase the benefits accruing to any participant or
materially modify the requirements as to eligibility for participation in the
Annual Bonus Plan.

CERTAIN FEDERAL INCOME TAX CONSIDERATIONS. Participants who receive all or
any portion of their cash bonus in the form of restricted stock are not required
to recognize compensation taxable as ordinary income in the year that the
restricted stock is granted. Instead, these participants will recognize
compensation taxable as ordinary income for the year in which the shares of
stock are no longer subject to a risk of forfeiture. Any dividends paid with
respect to restricted stock prior to the time that the risk of forfeiture lapses
will be taxed as additional compensation income, while dividends paid after the
risk of forfeiture lapses will be taxed as dividend income.

Nonqualified stock options granted to participants under the terms of the
1991 Stock Option Plan are not intended to and do not qualify for the favorable
tax treatment available to incentive stock options under Section 422 of the
Internal Revenue Code. Generally, no tax results upon the grant of a
nonqualified stock option. In the year that the nonqualified stock option is
exercised, the participant must recognize compensation taxable as ordinary
income equal to the difference between the option price and the fair market
value of the shares on the date of exercise.

The Corporation will receive a deduction equal to the amount of
compensation the participant is required to recognize as ordinary income,
whether from a cash payment, the lapse of the risk of forfeiture on restricted
stock or the exercise of a nonqualified stock option, if the Corporation
complies with any applicable federal income tax withholding.

<PAGE>

RESTRICTED STOCK AND STOCK OPTIONS GRANTED UNDER THE ANNUAL BONUS PLAN

Approximately 535,680 shares of restricted stock have been granted to date
under the Annual Bonus Plan. The following table sets forth information as to
the restricted stock granted in January 1999 and stock options granted in
December 1998 that were granted to each of the Named Executives and each of the
groups described below for performance in fiscal 1998 pursuant to the Annual
Bonus Plan.

RESTRICTED STOCK AND STOCK OPTION GRANTS

<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF
NAME OF INDIVIDUAL POSITION OR TITLE RESTRICTED STOCK OF RESTRICTED OPTION SHARES
OR NUMBER IN GROUP AS OF OCTOBER 30, 1998 DOLLAR VALUE ($) STOCK GRANTED GRANTED
- ---------------------------------- -------------------------------- ---------------- ---------------- -------------
<S> <C> <C> <C> <C>
Richard M. Rompala Chairman, President and CEO $ 597,208 16,659 55,000
Paul C. Reyelts Vice President, Finance 226,968 6,331 17,500
Steven L. Erdahl Vice President, Industrial Group 243,240 6,785 17,500
William L. Mansfield Vice President, Packaging Group 159,989 4,463 17,500
Stephen M. Briggs Vice President, Consumer Group 157,872 4,404 17,500

All executive officers as a group,
consisting of 10 persons $1,954,104 54,509 194,500
Non-executive employee group $1,211,700 33,797 115,850
</TABLE>

APPROVAL OF AMENDED AND RESTATED ANNUAL BONUS PLAN

The Board is seeking stockholder approval of the Annual Bonus Plan, as
amended and restated, including the categories of performance targets for the
Designated Executive Officers under the Incentive Bonus Plan. This approval is
intended to permit compliance with the requirements of Section 162(m) of the
Internal Revenue Code, which restricts the deductibility of compensation of the
chief executive officer and certain other executive officers to $1 million per
year. Stockholder approval of these amendments will enable the Corporation to
maximize the deductibility of compensation of these officers upon vesting of
their restricted stock grants under the Annual Bonus Plan.

VOTE REQUIRED

The Board recommends that the stockholders approve the Amended and Restated
Key Employee Annual Bonus Plan. The affirmative vote of the majority of the
shares represented at the annual meeting is required for approval of the Amended
and Restated Key Employee Annual Bonus Plan.

PROPOSAL NUMBER FOUR

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 29, 1999. 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 1999 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.

<PAGE>

OUTSTANDING SHARES AND VOTING RIGHTS

Stockholders of record on December 31, 1998 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 43,428,113 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 4,579,978(1) 10.5%
1101 Third Street South
Minneapolis, MN 55415

Resource Trust Company 4,042,281(2) 9.25%
900 Second Avenue South
Minneapolis, MN 55402

Capital Research and Management Co. 3,341,000(3) 7.6%
333 South Hope Street
Los Angeles, CA 90071

Nicholas Company, Inc. 2,236,650(4) 5.2%
700 North Water Street
Milwaukee, WI 54202

- ---------------------
(1) Includes 188,334 shares held as of October 31, 1998 through the Valspar
Stock Ownership Trust, 19,361 shares held as of October 31, 1998 through
the Valspar Profit Sharing Plan, 49,580 shares which may be acquired within
60 days by exercise of outstanding options, 43,128 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, 1997. Resource Trust
Company reports shared investment and voting power over all such shares,
including the shares disclosed in Note (1) above.

(3) Shares reported on Schedule 13G as of December 31, 1997. Capital Research
and Management Company, an investment adviser, reports no voting power over
such shares and sole investment power over all such shares.

(4) Nicholas Company, Inc., as an investment adviser, reports no voting power
over such shares and sole investment power over all such shares.

<PAGE>

SHARE OWNERSHIP OF MANAGEMENT

The following table lists, as of December 31, 1998, 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> <C> <C>
Susan S. Boren .................... 8,949(2) Gregory R. Palen ............. 12,150(4)
Stephen M. Briggs ................. 92,065(3) Lawrence Perlman ............. 7,722
Jeffrey H. Curler ................. 3,091 Edward B. Pollak ............. 3,106
Steven L. Erdahl .................. 160,527(3) Paul C. Reyelts .............. 392,066(3)(5)
William L. Mansfield .............. 80,244(3) Richard M. Rompala ........... 302,984(3)
Thomas R. McBurney ................ 13,453 Michael P. Sullivan .......... 10,961(6)
Kendrick B. Melrose ............... 14,980
All directors and executive officers as a group ................................... 6,031,204(3)(7)
</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, 1998 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
-- 1,427 and 416; Mr. Reyelts -- 32,770 and 10,240; Mr. Erdahl -- 18,638
and 14,796; Mr. Mansfield -- 10,186 and 0; Mr. Briggs -- 3,891 and 1,462
and executive officers as a group, 96,149 and 27,188. 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, 189,754 shares; Mr. Reyelts, 24,540 shares; Mr.
Erdahl, 24,284 shares; Mr. Mansfield, 23,656 shares; Mr. Briggs, 24,638
shares; and executive officers as a group, 419,472 shares.

(4) Includes 120 shares owned by Mr. Palen's wife.

(5) Includes 30,080 shares owned by Mr. Reyelts' wife.

(6) Does not include 1,015 shares owned by a household member for which Mr.
Sullivan disclaims any beneficial ownership.

(7) Represents 13.9% 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.

2000 STOCKHOLDER PROPOSALS

The deadline for submission of stockholder proposals pursuant to Rule 14a-8
under the Securities Exchange Act of 1934, as amended, for inclusion in the
Corporation's proxy statement for its 2000 Annual Meeting of Stockholders is
September 30, 1999. Additionally, if the Corporation receives notice of a
stockholder proposal after December 7, 1999, such proposal will be considered
untimely pursuant to Rules 14a-4 and 14a-5(e), and the persons named in proxies
solicited by the Board of Directors of the Corporation for its 2000 Annual
Meeting of Stockholders may exercise discretionary voting power with respect to
such proposal.

By Order of the Board of Directors,

ROLF ENGH,
SECRETARY

Minneapolis, Minnesota
January 22, 1999

PLEASE SIGN, DATE AND RETURN
YOUR PROXY IN THE ENCLOSED ENVELOPE.

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THE VALSPAR CORPORATION APPENDIX A
1991 STOCK OPTION PLAN
AS AMENDED 12/16/98

1. PURPOSES OF THE PLAN

The purposes of the 1991 Stock Option Plan (the "Plan") are (i) to
enhance the ability of The Valspar Corporation (the "Company") and its
subsidiary companies to attract and retain superior personnel and (ii) to
stimulate and reward their interest and initiative. The Plan is designed to
enable key officers and employees, and certain other key individuals who perform
services for the Company, to contribute to the Company's strategic performance
objectives by making such individuals eligible to receive options to purchase
common stock of the Company as provided herein. Subject to the provisions of the
Plan, options may contain such terms and conditions as shall be required so as
to be either nonqualified stock options or incentive stock options as defined in
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
Subject to such limits as may be imposed by existing or future laws or by the
Plan, nonqualified stock options or incentive stock options or both may be
granted to eligible individuals.

2. 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
4,000,000 shares, and may be unissued shares or reacquired shares. If any
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.

3. ADMINISTRATION

The Plan shall be administered by a committee (the "Committee"),
appointed from time to time by the Company's Board of Directors (the "Board"),
consisting of not less than two members of the Board. Each Committee member
shall be (a) non-employee director within the meaning of Rule 16b-3 under the
Securities Exchange Act of 1934 (the "Exchange Act") or any successor Rule and
(b) an outside director within the meaning of Section 162(m) of the Internal
Revenue Code of 1986, as amended, and the rules and regulations thereunder.
Except as provided below, the Committee shall determine from time to time (i)
the individuals to whom grants will be made; (ii) the number of shares to be
granted; and (iii) the terms and provisions of each option (which need not be
identical). Except as provided below, each grant shall be in such form and
content as the Committee shall determine.

The Committee may from time to time adopt rules for carrying out the Plan
and for its interpretation and construction which rules shall be final,
conclusive and binding on all parties. All determinations of the Committee shall
be made by a majority of the Committee. Any determination reduced to writing and
signed by all members shall be as effective as if it had been made by a majority
vote at a duly constituted meeting.

The Company's Chief Executive Officer may, on a discretionary basis and
without Committee review or approval, grant options to purchase up to 5,000
shares each to new employees of the Company who are not officers of the Company.
Such discretionary option grants shall not exceed 25,000 shares in total in any
fiscal year. Subject to the foregoing limitations, the Chief Executive Office
shall determine from time to time (i) the new employees to whom grants will be
made, (ii) the number of shares to be granted, and (iii) the terms and
provisions of each option (which need not be identical).

4. ELIGIBILITY

Options will be granted only to salaried officers and employees of the
Company or of a subsidiary (as defined in Section 425 of the Code) and to any
other individual who performs services for the Company and contributes to its
strategic performance objectives, including, without limitation, members of the
Board of Directors, consultants and advisors ("Optionee"); provided, however,
that a consultant or advisor shall not be eligible to receive stock options
hereunder unless such consultant or advisor renders bona fide services to the
Company or a subsidiary and such services are not in connection with the offer
or sale of securities in a capital-raising transaction.

Notwithstanding any other provisions of the Plan, the maximum number of
shares of Common Stock that may be covered by option grants to a person covered
by Section 162(m) of the Code during any fiscal year shall be 500,000 shares.

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5. OPTION PRICE

The exercise price of each option shall be not less than 100% of the fair
market value of the common stock at the closing price on the day preceding the
date that such option is granted.

6. EXERCISE OF OPTION

The Committee may prescribe at the time of grant that the option will be
exercisable in full or in installments at any time or from time to time.
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 which has
been owned for more than six months on the date of surrender 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.

7. 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.

8. 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.

9. 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.

10. MERGERS, ACQUISITION 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.

11. AMENDMENT OF THE PLAN

The Plan may be amended, suspended or discontinued in whole or in part at
any time and from time to time by the Board, provided, however, that no
amendment to increase the number of shares with respect to which options may be
granted, or to increase materially the benefits accruing to Optionees, or to
materially modify the requirements as to eligibility, shall be effective without
stockholder approval where the failure to obtain such approval would adversely
affect the compliance of the Plan with Rule 16b-3 under the Exchange Act or
successor rule and with other applicable law, including the Code. No amendment
of the Plan shall adversely affect in a material manner any right of any
Optionee with respect to a prior grant without such Optionee's written consent.

12. DURATION OF THE PLAN

The Amended Plan shall become effective as of December 16, 1998, subject
to stockholder approval of the limitation on options granted to a person covered
by Section 162(m) of the Code pursuant to Section 4. Incentive Stock Options may
be granted from time to time during a period of ten (10) years from the
effective date of the Amended Plan. Nonqualified stock options may be granted
from time to time from the effective date until the Plan is discontinued or
terminated by the Board.

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THE VALSPAR CORPORATION APPENDIX B
KEY EMPLOYEE ANNUAL BONUS PLAN

PURPOSE:

The purpose of The Valspar Corporation Key Employee Annual Bonus Plan is to more
closely align the goals and motivation of management with those of other Valspar
shareholders and to provide key personnel with a long-term capital appreciation
opportunity. This purpose is accomplished by granting options to acquire Valspar
stock based on the performance of the Participant and Valspar and by encouraging
the conversion of performance based cash bonuses to grants of restricted Valspar
stock.

DEFINITIONS:

"Bonus and Election Form" shall mean the form used from time to time by Valspar
for Participants to make elections under the Plan for each Fiscal Year.

"Cash Bonus Amount" shall mean the amount determined for a Participant for a
particular Fiscal Year as set forth in Section 2 below. The amount of the Cash
Bonus Amount will not change if all or part is converted into a restricted stock
grant pursuant to the terms of this Plan.

"Change of Control" shall be deemed to have occurred if (i) any person increases
or decreases its percentage equity ownership in Valspar by more than twenty
percentage points from that person's percentage equity ownership in Valspar on
the date hereof or (ii) a majority of the members of the board of directors of
Valspar were not nominated and approved by the board of directors as it existed
prior to the election of such directors. For the purposes of this definition, a
"person" shall include an individual, corporation, partnership, trust or other
legal entity or any group of such persons acting in concert. In calculating the
ownership interest of any person, all securities for which such person is a
beneficial owner as that term is used in Rule 13d-3, as then in effect, under
the Securities Exchange Act of 1934 shall be included.

"Committee" shall mean the Compensation Committee of the Board of Directors of
Valspar as constituted from time to time; provided, however, each member of the
Committee shall be an outside director within the meaning of Section 162(m) of
the Internal Revenue Code of 1986, as amended (the "Code") and the rules and
regulations thereunder.

"Disability" shall mean permanent disability as that term is defined under the
long term disability insurance coverage offered by Valspar to its employees at
the time the determination is to be made.

"Eligible Employee" shall mean an Employee that the Committee has determined to
permit to become a Participant.

"Employee" shall mean each person who is an employee of Valspar which term shall
include both full and part-time employees but shall not include independent
contractors providing services to Valspar.

"Fiscal Year" shall mean the period corresponding with each of the fiscal years
of Valspar.

"Option Plan" shall mean The Valspar Corporation 1991 Stock Option Plan, or any
other stock option plan of Valspar designated by the Committee.

"Participant" shall mean an Eligible Employee that has executed a Bonus and
Election Form and who remains a Participant pursuant to the provisions of
Section 1 of the Plan.

"Plan" shall mean The Valspar Corporation Key Employee Annual Bonus Plan, as set
forth herein and as amended from time to time.

"Plan Administrator" shall mean the person or persons designated as such from
time to time by the Committee. If no person is designated as the Plan
Administrator, the Plan Administrator shall be the Secretary of Valspar.

"Retirement" shall mean the termination of employment with Valspar at any time
after the Employee has attained the age of sixty years (or age fifty-five with
an executed non-compete agreement) for any reason other than Termination for
Cause.

"Stock" shall mean the common stock of Valspar, par value $.50 per share.

<PAGE>

"Termination for Cause" shall mean the termination of employment with Valspar as
a result of an illegal act, gross insubordination or willful violation of a
Valspar policy by an Employee.

"Valspar" shall mean The Valspar Corporation, a Delaware corporation, with its
principal offices in Minneapolis, Minnesota.

PLAN:

1. PARTICIPANTS: From time to time, the Committee shall determine the
Employees who will be Eligible Employees under the Plan. As soon as possible
after the Committee has made its determination, the Plan Administrator will
notify each Eligible Employee of his/her eligibility. An Eligible Employee shall
become a participant by executing a Bonus and Election Form and filing it with
the Plan Administrator. A Participant will cease being a Participant upon the
earlier of (i) his/her termination of employment with Valspar for any reason or
(ii) a determination by the Committee that he/she shall no longer be an Eligible
Employee.

2. CASH BONUS DETERMINATION AND AMOUNT:

(a) Each Participant will be eligible to earn a Cash Bonus Amount
calculated as a percentage of that Participant's base salary for the Fiscal Year
based on the performance of the Participant and/or Valspar for such Fiscal Year
as determined pursuant to The Valspar Corporation Incentive Bonus Plan for Key
Employees (the "Incentive Plan").

(b) With respect to any executive officers designated by the Committee
(the "Designated Executive Officers"), who shall always include the Chief
Executive Officer, the Chief Operating Officer and the President, (i) the
Committee will identify specific performance targets and maximum bonus levels,
as a percentage of base salary, for each Designated Executive Officer under the
Incentive Plan within the first 90 days of each Fiscal Year and record these
targets and bonus levels in writing; (ii) the performance targets for Designated
Executive Officers shall be limited to one or more of the following categories
for the Fiscal Year, either on an absolute basis or a comparative basis with
other Fiscal Years: gross or net sales, expenses as a percentage of net sales,
inventory turns, earnings per share, return on average equity, cash flow, and
gallon sales; (iii) the Committee will certify in writing following the end of
the Fiscal Year whether the performance targets have been met and the level of
the Cash Bonus Amount earned under the Incentive Plan; and (iv) the maximum Cash
Bonus Amount for any Designated Executive Officer under the Incentive Plan for
any Fiscal Year shall be $1,000,000.00.

3. RESTRICTED STOCK GRANT:

(a) A Participant may elect prior to the beginning of each Fiscal Year to
convert all or any portion of his/her Cash Bonus Amount for that Fiscal Year
into a grant of restricted Stock. The number of shares of Stock contained in the
grant of restricted Stock for each Fiscal Year shall be determined by dividing
twice the Cash Bonus Amount for that Fiscal Year that is converted into a grant
of restricted Stock by the average closing price of one share of Stock on the
New York Stock Exchange for the ten business days immediately prior to the date
on which the Cash Bonus Amount for such Fiscal Year was to be paid. The maximum
number of shares that may be granted to any Designated Executive Officer under
this Section 3(a) for any Fiscal year shall be 250,000 shares.

(b) Notwithstanding the fact that the number of shares of Stock contained
in the grant of restricted Stock is not determined until after the end of each
Fiscal Year, a Participant who is a Participant on the last day of a Fiscal Year
shall be entitled to his/her Cash Bonus Amount and/or grant of restricted Stock
for such Fiscal Year even if such Participant is not a Participant on the date
the Cash Bonus Amount is determined or paid or when the number of shares of
Stock to be contained in the grant of restricted Stock is determined or the
certificate representing those shares is issued.

(c) Immediately upon determination of the number of shares of Stock
contained in the grant of restricted Stock, Valspar shall cause to be issued a
stock certificate representing such shares of Stock in the name of the
Participant. All certificates representing shares of Stock that are subject to
the risk of forfeiture set forth in Section 3(d) below shall be held for Valspar
by the Plan Administrator; provided, however, the person in whose name the
certificate is issued shall be entitled to vote the shares represented by such
certificate and receive dividends attributable thereto until such time, if ever,
the shares are forfeited pursuant to Section 3(d) below.

(d) The shares of Stock contained in each grant of restricted Stock are
forfeitable for three years from the date of the grant if the Participant's
employment with Valspar terminates for any reason other than death, Disability,
Retirement or Change of Control. Such shares of Stock shall not be forfeitable
if the Participant's employment with Valspar terminates during such three year
period as a result of the Participant's death, Disability or Retirement or a
Change of Control of

<PAGE>

Valspar or if the Participant's employment with Valspar terminates after the end
of such three year period. At such time as the foregoing risk of forfeiture
lapses, the certificate representing the shares of Stock shall be distributed to
the person in whose name it was issued, or if appropriate that person's estate.
If the shares of Stock are forfeited, the certificate representing those shares
shall be canceled.

(e) A maximum of 1,400,000 shares of Stock may be issued as restricted
Stock under the Plan.

4. NONSTATUTORY STOCK OPTIONS:

(a) For each Fiscal Year, each Participant will be granted a nonstatutory
stock option under the Option Plan. The number of shares of Stock included in
the nonstatutory stock option will be determined by dividing a percentage of the
participant's base salary by the average closing price of one share of Stock on
the New York Stock Exchange for the ten business days prior to the date on which
the Cash Bonus Amount for such Fiscal Year was to be paid.

(b) Each such option shall be evidenced by an option agreement between
the Participant and Valspar which shall be prepared and executed as soon as
possible after the determination of the number of shares of Stock to be covered
by the option. The option agreement shall provide for an exercise price per
share equal to the closing price of one share of Stock on the New York Stock
Exchange on the day prior to the date on which the number of shares of Stock
included in the nonstatutory stock option is determined, a term of ten years,
vesting at the rate of 33 1/3% per year so that the option will be fully
exercisable three years after the date of grant and will permit the option to be
exercised by surrendering other shares of Stock owned by the Participant.

5. MISCELLANEOUS:

(a) The Board of Directors of Valspar or the Committee may, at any time
and without further action on the part of the shareholders of Valspar, terminate
this Plan or make such amendments as it deems advisable and in the best
interests of Valspar; provided, however, that no such termination or amendment
shall, without the consent of the Participant, materially adversely affect or
impair the right of the Participant with respect to a Cash Bonus Amount that the
Participant has already earned or a grant of restricted Stock or a nonstatutory
stock option that the Participant has already received; and provided, further,
that unless the shareholders of Valspar shall have approved the same, no
amendment shall, either directly or indirectly:

(1) Materially increase the total number of shares of Stock that
may be awarded under this Plan to all Participants;

(2) Materially increase the benefits accruing to Participants under
the Plan; or

(3) Materially modify the requirements as to eligibility for
participation in the Plan.

(b) Valspar shall be entitled to withhold and deduct from future wages of
a Participant or from the Cash Bonus Amount, or make other arrangements for the
collection of, all legally required amounts necessary to satisfy any and all
federal, state and local withholding and employment-related tax requirements
attributable to the lapse of restrictions applicable to the grant of restricted
Stock pursuant to the Plan, or shall require the Participant promptly to remit
the amount of such withholding tax obligations to Valspar before issuing any
certificate for shares of Stock awarded under a grant of restricted Stock.
Subject to such rules as the Committee may adopt, the Committee may, in its sole
discretion, permit a Participant to satisfy such withholding tax obligations, in
whole or in part, with shares of Stock having an equivalent fair market value or
by electing to have Valspar withhold shares of Stock having an equivalent fair
market value from the shares that may be issued pursuant to a grant of
restricted Stock; provided, however, that the Participant must comply with any
applicable provisions of Rule 16b-3 or its successor, as then in effect, of the
General Rules and Regulations under the Securities and Exchange Act of 1934, as
amended.

(c) The categories of performance criteria for Designated Executive
Officers under Section 2(b) shall be subject to shareholder approval at the
first shareholders meeting following the Fiscal Year ending October 30, 1998.
These categories, or new categories of performance criteria for the Designated
Executive Officers, shall be subject to shareholder approval at the first
shareholders meeting following the end of each fifth Fiscal Year after 1998.

<PAGE>

PROXY

THE VALSPAR CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned hereby appoints THOMAS R. MCBURNEY and RICHARD M. ROMPALA, 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 24, 1999, 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:

(1) To elect four directors (Class I) for a term of three years:

THOMAS R. MCBURNEY, RICHARD M. ROMPALA,
MICHAEL P. SULLIVAN, C. ANGUS WURTELE

FOR all nominees listed WITHHOLD
(except as marked to the authority to vote for
contrary) [ ] all nominees listed [ ]

(Instructions: To withhold authority to vote for any nominee, write that
nominee's name in the space provided below.)

------------------------------------------------------------------------

(CONTINUED ON THE OTHER SIDE)

<PAGE>

(2) To approve amendments to the Corporation's 1991 Stock Option Plan and an
increase in the shares reserved under the Plan.

For Against Abstain

[ ] [ ] [ ]

(3) To approve the Corporation's Amended and Restated Key Employee Annual Bonus
Plan.

For Against Abstain

[ ] [ ] [ ]

(4) Ratification of the appointment of Ernst & Young LLP as the independent
public accountants of the Corporation.

For Against Abstain

[ ] [ ] [ ]

(5) 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, 3 and 4.

______________________________________

______________________________________
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.