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
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(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 23, 2000
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 23, 2000 at 11:00 A.M., for the following
purposes:
1. To elect three directors (Class II) for a term of three years;
2. To ratify the appointment of independent auditors to examine the
Corporation's accounts for the fiscal year ending October 27, 2000;
and
3. 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, 1999 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 29, 1999 also accompanies
this Notice.
By Order of the Board of Directors,
ROLF ENGH,
SECRETARY
Approximate Date of Mailing of Proxy Material:
January 21, 2000
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 23, 2000
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 eleven directors serving on the Board of Directors. The terms of Class
II directors will expire at the annual meeting in 2000. The Board of Directors
has nominated Susan S. Boren, Jeffrey H. Curler and Edward B. Pollak for
re-election as Class II 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 three nominees listed in Class II below, to hold
office until the annual meeting in 2003 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.
1
<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 2002
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THOMAS R. MCBURNEY President, McBurney Management Advisors
Director since 1987
Age -- 61
Mr. McBurney has held his present position as President of McBurney Management
Advisors, a management consulting firm for small businesses, since 1990. Mr.
McBurney is also a director of Wenger Corporation, Meritex Enterprises, Inc.,
Allina Health System, Strategist Funds, IDS Certificate Company, IDS Life Series
Fund, Inc., IDS Life Variable Annuity Funds A & B and Greenspring Companies.
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RICHARD M. ROMPALA Chairman, President and Chief Executive
Director since 1994 Officer of the Corporation
Age -- 53
Mr. Rompala has held his present position as Chairman since February 1998, Chief
Executive Officer since October 1995 and President since March 1994. Mr. Rompala
is also a director of Olin Corporation.
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MICHAEL P. SULLIVAN President and Chief Executive Officer,
Director since 1990 International Dairy Queen, Inc.
Age -- 65
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
Corporation.
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C. ANGUS WURTELE Retired Chairman of the Board of the
Director since 1970 Corporation
Age -- 65
Mr. Wurtele retired as Chairman of the Board in February 1998 and will be
retiring as a director of the Corporation in February 2000. 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.
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CLASS II NOMINEES FOR TERM EXPIRING IN 2003
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SUSAN S. BOREN Director, SpencerStuart
Director since 1991
Age -- 52
Ms. Boren has been 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.
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2
<PAGE>
NAMES, PRINCIPAL OCCUPATIONS FOR THE PAST FIVE YEARS AND SELECTED
OTHER INFORMATION CONCERNING NOMINEES AND DIRECTORS
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JEFFREY H. CURLER President and Chief Operating Officer,
Director since 1997 Bemis Company, Inc.
Age -- 49
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.
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EDWARD B. POLLAK Vice President -- CK Witco Corporation
Director since 1997
Age -- 65
Mr. Pollak has held his present position as Vice President since October 1999.
Prior to 1999, Mr. Pollak served as Vice President -- Asia Pacific, Witco
Corporation since August 1997 and served as Vice President -- International, OSi
Specialties, Inc., a subsidiary of Witco Corporation, since July 1994.
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CLASS III DIRECTORS CONTINUING IN OFFICE UNTIL 2001
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CHARLES W. GAILLARD Retired President, General Mills, Inc.
Director since June 1999
Age -- 59
Mr. Gaillard retired as President of General Mills, Inc. on October 1, 1999.
Prior to 1999, Mr. Gaillard served as President since May 1995 and Vice Chairman
since December 1993. Mr. Gaillard is also a director of U.S. Can Company and
Whitman Corporation.
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KENDRICK B. MELROSE Chairman and Chief Executive Officer,
Director since 1984 The Toro Company
Age -- 59
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 -- 44 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. Mr. Palen is also a director of
Palen/Kimball Company, Spectro Alloys Corporation, Opus Northwest LLC and
Polaris Industries Inc.
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LAWRENCE PERLMAN Chairman, Ceridian Corporation
Director since 1992
Age -- 61
Mr. Perlman has held his present position as Chairman since November 1992 and
previously served as Chief Executive Officer from 1990 through 1999. Mr. Perlman
is also Chairman and a director of Seagate Technology, Inc. and a director of
Amdocs Limited, Carlson Companies, Inc. and Computer Network Technology.
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3
<PAGE>
BOARD COMMITTEES
The standing committees of the Board of Directors for 1999 were as follows:
NAME OF COMMITTEE MEMBERSHIP
----------------- ----------
Audit Committee Susan S. Boren -- Chair, Jeffrey H. Curler,
Thomas R. McBurney, Gregory R. Palen and
C. Angus Wurtele
Executive Committee Thomas R. McBurney, Richard M. Rompala --
Chair and C. Angus Wurtele
Compensation Committee Thomas R. McBurney, Kendrick B. Melrose,
Lawrence Perlman, Edward B. Pollak and
Michael P. Sullivan -- Chair
Governance Committee Susan S. Boren, Jeffrey H. Curler, Thomas R.
McBurney -- Chair, Kendrick B. Melrose,
Gregory R. Palen, Lawrence Perlman,
Edward B. Pollak, Michael P. Sullivan and C.
Angus Wurtele
The Board of Directors met six times during fiscal 1999.
The Audit Committee held three 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 two meetings during the fiscal year at which
it conducted Chief Executive Officer performance evaluations, considered
nominations for Board membership, nominated a director to Class III 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 1999, 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 7 of 10 such meetings.
4
<PAGE>
DIRECTOR COMPENSATION
Directors who are not officers of the Corporation receive an annual fee of
$30,000, with the Chairs of the Audit and Compensation Committees receiving an
annual fee of $33,000 and the Chair of the Governance Committee receiving an
annual fee of $40,000. Attendance fees of $1,000 are paid 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. Prior to
January 1, 2000, directors who were not officers of the Corporation received 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. 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 is automatically granted 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 director fees earned during the
most recently ended fiscal year. The per share option exercise price is equal to
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 number of shares subject to
the option is 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 is immediately exercisable in
full, has a term of ten years and is nontransferable during the lifetime of the
optionee. On February 24, 1999, the non-employee directors received options to
purchase the following numbers of shares at an exercise price of $33.1875 per
share: Ms. Boren, 1,700 shares; Mr. Curler, 1,700 shares; Mr. McBurney, 1,700
shares; Mr. Melrose, 1,700 shares; Mr. Palen, 1,700 shares; Mr. Perlman, 1,700
shares; Mr. Pollak, 1,700 shares; and Mr. Sullivan, 1,700 shares.
5
<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, 1996 and 1999 and bear an interest rate of 6.5%, 8%, 6.5 % and 5.1%,
respectively. The following lists each director and executive officer whose loan
from the Corporation exceeded $60,000 at any time during fiscal 1999, and
indicates (i) the largest loan amount outstanding for such director and officer
at any time since November 1, 1998, and (ii) the loan amount outstanding for
such director and officer as of December 31, 1999:
LARGEST AMOUNT
NAME OF OUTSTANDING AMOUNT OUTSTANDING
EXECUTIVE OFFICER SINCE NOVEMBER 1, 1998 AS OF DECEMBER 31, 1999
---------------------- ---------------------- -----------------------
Larry B. Brandenburger $164,186 $127,189
Stephen M. Briggs 161,617 155,417
Rolf Engh 294,591 291,216
Steven L. Erdahl 138,952 93,505
Joel C. Hart 170,095 165,584
William L. Mansfield 168,187 159,922
Paul C. Reyelts 111,748 57,741
Richard M. Rompala 798,326 291,763
Robert T. Smith 198,264 189,311
Thomas A. White 216,544 206,406
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 29, 1999, the reporting persons have complied with all filing
requirements of Section 16(a) of the 1934 Act.
6
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table shows, for the fiscal years ended October 29, 1999,
October 30, 1998 and October 31, 1997, 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 1999 $586,923 $ 0 $873,342 55,000 $75,031
Chairman, President and 1998 574,238 0 597,208 45,000 73,789
Chief Executive Officer 1997 559,620 72,751 640,206 12,600 66,558
William L. Mansfield 1999 254,654 0 323,410 17,500 31,493
Senior Vice President, 1998 243,885 19,999 159,989 14,000 31,007
Packaging and Industrial 1997 239,423 31,125 215,480 4,300 28,365
Coatings
Paul C. Reyelts 1999 262,500 0 304,500 17,500 33,408
Senior Vice President, 1998 256,462 0 226,968 15,000 34,025
Finance and Chief 1997 257,308 33,450 232,606 5,900 31,402
Financial Officer
Steven L. Erdahl 1999 244,308 0 302,942 17,500 30,808
Senior Vice President, 1998 233,885 0 243,240 11,000 30,636
Operations 1997 230,192 29,925 161,134 4,900 27,694
Rolf Engh 1999 262,500 103,766 102,218 17,500 35,060
Senior Vice President, 1998 256,462 51,292 102,585 15,000 34,025
General Counsel and 1997 257,308 33,450 200,700 6,200 31,402
Secretary
</TABLE>
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* As of October 29, 1999
(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, 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 "Board 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 1999, 1998 and 1997 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 "Board Compensation Committee Report on Executive Compensation." The
restricted stock received had a market value equal to twice the amount of
the cash bonus that would have been paid absent the election.
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<PAGE>
(3) As of October 29, 1999, 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, 49,597 shares, $1,497,209; Mr. Mansfield, 15,599 shares, $470,895;
Mr. Reyelts, 19,619 shares, $592,249; Mr. Erdahl, 16,778 shares, $506,486;
and Mr. Engh, 15,388 shares, $464,525. Dividends are paid on shares of
restricted stock from the date of grant.
(4) Options indicated for fiscal 1999 were granted pursuant to the Key Employee
Annual Bonus Plan based on a percentage of each individual's base salary
for fiscal 1998. Options indicated for fiscal 1999 exclude options granted
in December 1999 pursuant to the Key Employee Annual Bonus Plan. See "Board
Compensation Committee Report on Executive Compensation." Shares reported
for fiscal 1997 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 1999:
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 .......... 55,000 7.9 $35.00 12/16/08 $1,210,550 $3,067,900
William L. Mansfield ........ 17,500 2.5 35.00 12/16/08 385,175 976,150
Paul C. Reyelts ............. 17,500 2.5 35.00 12/16/08 385,175 976,150
Steven L. Erdahl ............ 17,500 2.5 35.00 12/16/08 385,175 976,150
Rolf Engh ................... 17,500 2.5 35.00 12/16/08 385,175 976,150
</TABLE>
- --------------------
(1) All options granted become exercisable starting one year from date of grant
in one-third 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.
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<PAGE>
OPTION EXERCISES AND HOLDINGS
The following table sets forth information with respect to the Named
Executives concerning the exercise of options during fiscal 1999 and unexercised
options held as of October 29, 1999:
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 29, 1999 AT OCTOBER 29, 1999(2)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard M. Rompala ........... 0 -- 233,740 127,060 $2,678,197 $322,971
William L. Mansfield ......... 0 -- 23,656 37,614 234,455 74,095
Paul C. Reyelts .............. 0 -- 24,540 37,000 260,387 48,669
Steven L. Erdahl ............. 0 -- 24,284 33,726 270,490 60,406
Rolf Engh .................... 0 -- 79,910 37,320 1,291,215 51,175
</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 29, 1999.
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 Compensation 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 uses compensation
studies provided by an independent consultant to compare 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 Graphs on pages 12
and 13. The Committee does not use the market value or performance of the
Corporation's Common Stock as a direct factor in determining the base salaries
or bonuses of the executive officers. Increases in base salary are determined
from time to time based on the Corporation's financial performance. The base
salary of the Named Executives increased by an average of 3% from fiscal 1998 to
fiscal 1999. The increases for 1999 reflected general corporate performance,
based on sales, profits, expense control, unit growth and return on equity for
fiscal 1998.
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<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 sales, profits, expense control, unit growth
and return on equity) 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 1999) will be paid, depending on the level of achievement of the
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 1999 ranged from 58% to 74%
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.
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 fiscal 1999, an employee selected for that fiscal year to
participate in the plan could 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 was required to be employed on the last day of
fiscal 1999 to receive the restricted stock grant for that fiscal year, and the
restricted stock was granted in January 2000. 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 1999 bonuses
ranged from 300 to 350% of the 1999 base salary for the Named Executives and
400% for the Chief Executive Officer. These options were granted in December
1999 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.
Thirty-two employees, including all executive officers, were selected to
participate for fiscal year 1999 in the plan. In addition, 551 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, 6,000,000
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 1999 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. The Committee considers the deductibility of
compensation
10
<PAGE>
arrangements as one factor in executive compensation decisions for executives.
However, deductibility is not the sole factor used by the Committee in
ascertaining appropriate levels or modes of compensation. At the 1999 Annual
Meeting, stockholders approved amendments to the 1991 Stock Option Plan and the
provisions of the Key Employee Annual Bonus Plan which were intended to permit
future compensation income of the Named Executives received under such plans to
be deductible by the Corporation. 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 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 Graphs on pages 12 and 13. Mr. Rompala's
base salary increased approximately 2.2% from fiscal 1998 to fiscal 1999. This
increase reflected general corporate performance, based on sales, profits,
expense control, 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 expenses as
a percent of net sales. 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 1999 was $436,671 if received in cash, or 74.4% 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 1999 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 1999 bonus was 400% of his 1999 base
salary.
SUBMITTED BY THE COMPENSATION COMMITTEE
OF THE CORPORATION'S BOARD OF DIRECTORS:
Thomas R. McBurney Edward B. Pollak
Kendrick B. Melrose Michael P. Sullivan
Lawrence Perlman
11
<PAGE>
STOCK PERFORMANCE GRAPHS
The graphs below compare the Corporation's cumulative total shareholder
return for the last five fiscal years and the last ten 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 graphs assume the investment of $100 in the Corporation's Common Stock, the
S&P 500 Index and the Peer Group at the end of fiscal 1994 and fiscal 1989,
respectively, and the reinvestment of all dividends.
The companies selected to form the peer group index are: 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.; and Detrex Corporation. Grow Group, Inc., Guardsman Products, Inc., Pratt
& Lambert, Inc. and Lawter International, Inc. were excluded from the Peer
Group as a result of being acquired, and Standard Brands Paint Company was
excluded as a result of bankruptcy.
The Corporation included the ten-year graph because it believes the
ten-year graph provides useful information regarding performance of the
Corporation's Common Stock over an extended period.
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
- -------------------------------------------------------------------------------
1994 1995 1996 1997 1998 1999
- -------------------------------------------------------------------------------
Valspar $100 $108 $138 $168 $162 $177
- -------------------------------------------------------------------------------
Peer Group $100 $104 $137 $153 $161 $165
- -------------------------------------------------------------------------------
S&P 500 $100 $126 $157 $207 $253 $299
- -------------------------------------------------------------------------------
Assumes $100 invested on October 31, 1994 in the Common Stock of The Valspar
Corporation, the S&P 500 Index and the Peer Group, including reinvestment of
dividends.
12
<PAGE>
COMPARISON OF TEN YEAR CUMULATIVE TOTAL RETURN
AMONG THE VALSPAR CORPORATION, THE S&P 500 INDEX AND A PEER GROUP
[PLOT POINTS CHART]
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN
- -----------------------------------------------------------------------------------------------
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Valspar $100 $101 $151 $214 $270 $251 $272 $347 $422 $407 $443
- -----------------------------------------------------------------------------------------------
Peer Group $100 $ 92 $131 $160 $179 $204 $214 $281 $312 $329 $338
- -----------------------------------------------------------------------------------------------
S&P 500 $100 $ 93 $124 $136 $156 $162 $205 $254 $336 $410 $515
- -----------------------------------------------------------------------------------------------
</TABLE>
Assumes $100 invested on October 31, 1989 in the Common Stock of The Valspar
Corporation, the S&P 500 Index and the Peer Group, including reinvestment of
dividends.
PROPOSAL NUMBER TWO
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 27, 2000. 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 2000 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 Audit Committee reviews the services that may
be provided by Ernst & Young LLP during the year, considers the effect that
performing such services might have on audit independence and approves
guidelines under which management may engage Ernst & Young LLP to perform
non-audit services.
13
<PAGE>
OUTSTANDING SHARES AND VOTING RIGHTS
Stockholders of record on December 31, 1999 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 42,973,685 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 3,866,634(1) 9.0%
1101 Third Street South
Minneapolis, MN 55415
Capital Research and Management Co. 3,766,000(2) 8.8%
333 South Hope Street
Los Angeles, CA 90071
Resource Trust Company 3,445,060(3) 8.0%
900 Second Avenue South
Minneapolis, MN 55402
Nicholas Company, Inc. 2,240,650(4) 5.2%
700 North Water Street
Milwaukee, WI 54202
- --------------------
(1) Includes 188,679 shares held as of October 29, 1999 through the Valspar
Stock Ownership Trust, 54,858 shares which may be acquired within 60 days
by exercise of outstanding options, and 40,476 shares owned by Mr.
Wurtele's wife.
(2) Shares reported on Schedule 13G as of December 31, 1998. Capital Research
and Management Company, as an investment adviser, reports no voting power
over such shares and sole investment power over all such shares.
(3) Shares reported on Schedule 13G as of December 31, 1998. Resource Trust
Company reports shared investment power over all such shares, shared voting
power over 3,262,349 shares and sole voting power over 182,711 shares.
Shares reported included shares held for Mr. Wurtele's benefit as
co-trustee with Resource Trust Company which have subsequently been
transferred by Mr. Wurtele during 1999.
(4) Shares reported on Schedule 13G as of December 31, 1998. Nicholas Company,
Inc., as an investment adviser, reports no voting power over such shares
and sole investment power over all such shares.
14
<PAGE>
SHARE OWNERSHIP OF MANAGEMENT
The following table lists, as of December 31, 1999, 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 .......... 11,498(2)(7) Kendrick B. Melrose ..... 13,932(7)
Jeffrey H. Curler ....... 5,558(7) Gregory R. Palen ........ 14,617(4)(7)
Rolf Engh ............... 143,020(3) Lawrence Perlman ........ 10,189(7)
Steven L. Erdahl ........ 180,587(3)(8) Edward B. Pollak ........ 6,573(7)
Charles W. Gaillard ..... 1,476 Paul C. Reyelts ......... 409,648(3)(5)
William L. Mansfield .... 102,296(3) Richard M. Rompala ...... 406,685(3)
Thomas R. McBurney ...... 15,020(7) Michael P. Sullivan ..... 10,810(6)(7)
All directors and executive officers as a group ....................... 5,576,525(3)(7)(9)
</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, 1999 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 -- 2,570 and 2,203; Mr. Mansfield -- 10,614 and 0; Mr. Reyelts --
33,229 and 10,596; Mr. Erdahl -- 19,081 and 15,445; Mr. Engh -- 3,182 and
0; and executive officers as a group, 100,797 and 30,292. 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, 269,248 shares; Mr. Mansfield, 38,080 shares; Mr.
Reyelts, 37,486 shares; Mr. Erdahl, 37,386 shares; Mr. Engh, 93,090 shares;
and executive officers as a group, 608,058 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 1,284 shares owned by a household member for which Mr.
Sullivan disclaims any beneficial ownership.
(7) Includes shares which may be acquired within 60 days by exercise of
outstanding options under the Corporation's Stock Option Plan for
Non-Employee Directors, as follows: Ms. Boren, 1,700 shares; Mr. Curler,
1,700 shares; Mr. McBurney, 1,700 shares; Mr. Melrose, 1,700 shares; Mr.
Palen, 1,700 shares; Mr. Perlman, 1,700 shares; Mr. Pollak, 1,700 shares;
Mr. Sullivan, 1,700 shares.
(8) Includes 38,053 shares owned by Mr. Erdahl's wife and 940 shares held in
trust for children.
(9) Represents 13% of the outstanding Common Stock. Includes shares owned by C.
Angus Wurtele as indicated under "Share Ownership of Certain Beneficial
Owners" above.
15
<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.
2001 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 2001 Annual Meeting of Stockholders is
September 23, 2000. Additionally, if the Corporation receives notice of a
stockholder proposal after December 7, 2000, 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 2001 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 21, 2000
- --------------------------------------------------------------------------------
PLEASE SIGN, DATE AND RETURN
YOUR PROXY IN THE ENCLOSED ENVELOPE.
- --------------------------------------------------------------------------------
16
<PAGE>
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 23, 2000, 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:
<TABLE>
<S> <C>
1. To elect three directors (Class II) for a term of three years: SUSAN S. BOREN, JEFFREY H. CURLER,
EDWARD B. POLLAK
FOR all nominees listed WITHHOLD authority (Instructions: To withhold authority to
(except as marked to the to vote for all vote for any nominee, write that
contrary) nominees listed nominee's name in the space provided
below.)
[ ] [ ]
---------------------------------------
2. Ratification of the appointment of Ernst & Young LLP as
the independent public accountants of the Corporation.
For Against Abstain 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 AND 2.
---------------------------------------
---------------------------------------
3. The undersigned authorizes the Proxies to vote in their Signature of Stockholder(s)
discretion upon such other business as may properly come
before the meeting. 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.
</TABLE>
