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)
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(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:
THE VALSPAR CORPORATION
------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
FEBRUARY 28, 2001
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 28, 2001 at 11:00 A.M., for the following
purposes:
1. To elect three directors (Class III) for a term of three years;
2. To approve an increase in the shares reserved under the Corporation's
1991 Stock Option Plan;
3. To approve the Corporation's 2001 Stock Incentive Plan;
4. To ratify the appointment of independent auditors to examine the
Corporation's accounts for the fiscal year ending October 26, 2001;
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 29, 2000 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 27, 2000 also accompanies
this Notice.
By Order of the Board of Directors,
ROLF ENGH,
SECRETARY
Approximate Date of Mailing of Proxy Material:
January 26, 2001
PLEASE SIGN, DATE AND RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE.
THE VALSPAR CORPORATION
1101 THIRD STREET SOUTH
P.O. BOX 1461
MINNEAPOLIS, MINNESOTA 55440
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
FEBRUARY 28, 2001
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; provided, however, that if no
direction is given by a stockholder, the shares will be voted as recommended by
the Corporation's Board of Directors. 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 abstention will be
counted for purposes of determining whether a quorum is present at the Annual
Meeting of Stockholders for the transaction of business as well as shares
entitled to vote on that matter. Under Section 216 of the Delaware General
Corporation Law, in all matters other than the election of directors, an action
of the stockholders requires the affirmative vote of shares present in person or
represented by proxy at the meeting and entitled to vote on the matter.
Accordingly, an abstention on any matter other than the election of directors
will have the same effect as a vote against that matter. 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. Broker
non-votes on a matter are counted as present for purposes of establishing a
quorum for the meeting, but are not considered entitled to vote on that
particular matter. Consequently, non-votes do not have the same effect as a
negative vote on the matter.
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
III directors will expire at the annual meeting in 2001. The Board of Directors
has nominated Charles W. Gaillard, Gregory R. Palen and Lawrence Perlman for
re-election as Class III directors. Kendrick B. Melrose, presently a Class III
director, is not standing for re-election. Unless otherwise directed by the
stockholders, it is intended that shares represented by proxy will be voted in
favor of the election of the three nominees listed in Class III below, to hold
office until the annual meeting in 2004 and until their successors are elected
and qualify. If any of the nominees is unable or unwilling to stand for
election, it
1
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.
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 -- 62
Mr. McBurney has held his present position as President of McBurney Management
Advisors, a management consulting firm, since 1990. Mr. McBurney is also a
director of Wenger Corporation, Meritex Enterprises, Inc., Allina Health System,
American Express 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 Officer of
Director since 1994 the Corporation
Age -- 54
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 Chairman, International Dairy Queen, Inc.
Director since 1990
Age -- 66
Mr. Sullivan has held his present position as Chairman since January 2001 and
previously served 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, Adler Trust Company and Opus Corporation.
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RICHARD L. WHITE, PH.D. Former Executive Vice President, Bayer Corporation
Director since 2000
Age -- 61
Dr. White retired as Executive Vice President of Bayer Corporation on November
1, 1999. Prior to 1999, Dr. White served as Executive Vice President since July
1991. Dr. White is also a director of Petro Rem.
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CLASS II DIRECTORS CONTINUING IN OFFICE UNTIL 2003
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SUSAN S. BOREN Principal, Spencer Stuart
Director since 1991
Age -- 53
Ms. Boren has been Principal-Minneapolis office of Spencer Stuart, an executive
search firm, since May 2000. Prior to 2000, Ms. Boren was Director-Minneapolis
office of Spencer Stuart, 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
Target Corporation in senior financial, human resources and operating and
marketing positions.
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2
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 Executive Officer,
Director since 1997 Bemis Company, Inc.
Age -- 50
Mr. Curler has held his present position as Chief Executive Officer since May
2000 and served 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 Chief Executive Officer,
Director since 1997 Yellow Cab Management, Inc.
Age -- 66
Mr. Pollak has held his present position as Chief Executive Officer since
November 2000. Prior to 2000, Mr. Pollak served as Vice President of Crompton
Corporation (formerly CK Witco Corporation) since October 1999 and served as
Vice President - Asia Pacific, Witco Corporation since August 1997. Prior to
1997, Mr. Pollak served as Vice President - International, OSi Specialties,
Inc., a subsidiary of Witco Corporation, since July 1994.
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CLASS III NOMINEES FOR TERM EXPIRING IN 2004
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CHARLES W. GAILLARD Retired President, General Mills, Inc.
Director since June 1999
Age -- 60
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 Whitman Corporation.
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GREGORY R. PALEN Chairman and Chief Executive Officer,
Director since 1992 Spectro Alloys Corporation; Chief Executive Officer,
Age -- 45 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 Private Investor
Director since 1992
Age -- 62
Mr. Perlman retired as Chairman of Ceridian Corporation in April 2000 and as
Co-Chairman of Seagate Technology, Inc. in December 2000. Prior to 2000, Mr.
Perlman served as Chairman since November 1992 and Chief Executive Officer from
1990 through 1999 of Ceridian Corporation and as Co-Chairman of Seagate
Technology, Inc. since 1998. Mr. Perlman is also Chairman and a director of The
Arbitron Company, Inc. and a director of Amdocs Limited, Carlson Companies, Inc.
and Computer Network Technology.
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3
BOARD COMMITTEES
The standing committees of the Board of Directors for 2000 were as follows:
NAME OF COMMITTEE MEMBERSHIP
----------------- ----------
Audit Committee Susan S. Boren -- Chair, Jeffrey H. Curler,
Charles W. Gaillard, Thomas R. McBurney,
Gregory R. Palen and Richard L. White
Executive Committee Thomas R. McBurney, Richard M. Rompala --
Chair and Michael P. Sullivan
Compensation Committee Susan S. Boren, Thomas R. McBurney, Kendrick
B. Melrose, Lawrence Perlman, Edward B. Pollak
and Michael P. Sullivan -- Chair
Governance Committee Susan S. Boren, Jeffrey H. Curler, Charles W.
Gaillard, Thomas R. McBurney -- Chair, Kendrick
B. Melrose, Gregory R. Palen, Lawrence Perlman,
Edward B. Pollak, Michael P. Sullivan and Richard
L. White
The Board of Directors met nine times during fiscal 2000.
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,
reviewed the internal audit function of the Corporation and reviewed the
comments made by the independent accountants in their letter of recommendation
to management.
The Governance Committee held four meetings during the fiscal year at which
it conducted Chief Executive Officer performance evaluations, considered
nominations for Board membership, nominated a director to Class I and considered
other matters related to corporate governance.
The Compensation Committee held three 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 2000, each director attended 75% or more of the meetings of
the Board and of the committees on which the director served, with the exception
of Mr. Curler and Mr. Gaillard who each attended 6 of 9 such meetings.
4
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. At a
director's option, the annual fee and attendance 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 23, 2000, the non-employee directors received options to
purchase the following numbers of shares at an exercise price of $34.6875 per
share: Ms. Boren, 1,800 shares; Mr. Curler, 1,650 shares; Mr. Gaillard, 1,100
shares; Mr. McBurney, 2,100 shares; Mr. Melrose, 1,650 shares; Mr. Palen, 1,650
shares; Mr. Perlman, 1,650 shares; Mr. Pollak, 1,650 shares; and Mr. Sullivan,
1,800 shares.
5
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
1996, 1999 and 2000 and bear an interest rate of 6.5%, 5.1% and 6.39%,
respectively. The following lists each director and executive officer whose loan
from the Corporation exceeded $60,000 at any time during fiscal 2000, and
indicates (i) the largest loan amount outstanding for such director and officer
at any time since October 30, 1999, and (ii) the loan amount outstanding for
such director and officer as of December 29, 2000:
LARGEST AMOUNT
NAME OF OUTSTANDING SINCE AMOUNT OUTSTANDING
EXECUTIVE OFFICER OCTOBER 30, 1999 AS OF DECEMBER 29, 2000
----------------- ---------------- -----------------------
John M. Ballbach $151,931 $117,532
Stephen M. Briggs 157,678 98,226
Rolf Engh 292,478 232,713
Steven L. Erdahl 133,144 127,176
William L. Mansfield 162,296 105,999
Paul C. Reyelts 107,685 102,009
Richard M. Rompala 298,097 127,769
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 their
ownership of common stock 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 27, 2000, and except as set forth below, the reporting persons
have complied with all filing requirements of Section 16(a) of the 1934 Act.
There was a late filing of one Form 4 on behalf of Mr. Steven L. Erdahl, an
executive officer of the Corporation, reporting an open market purchase of
common stock, and a Form 3 was filed on a timely basis on behalf of Ms. Lori A.
Walker, Controller, which subsequently was amended to report the correct
indirect beneficial ownership of shares in the Corporation's ESOP. These were
inadvertent omissions, and both forms were promptly filed upon discovery of the
oversight.
6
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table shows, for the fiscal years ended October 27, 2000,
October 29, 1999 and October 30, 1998, 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
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)
---------------------------- ---- -------- -------- ---------------- ------------------ ---------------
Richard M. Rompala 2000 $640,000 $ 0 $ 0 165,296 $91,378
Chairman, President and 1999 586,923 0 873,342 55,000 75,031
Chief Executive Officer 1998 574,238 0 597,208 45,000 73,789
Steven L. Erdahl 2000 276,149 0 0 66,053 37,889
Senior Vice President, 1999 244,308 0 302,942 17,500 30,808
Packaging and Industrial 1998 233,885 0 243,240 11,000 30,636
Coatings
Paul C. Reyelts 2000 278,264 0 0 66,580 40,208
Senior Vice President, 1999 262,500 0 304,500 17,500 33,408
Finance and Chief 1998 256,462 0 226,968 15,000 34,025
Financial Officer
William L. Mansfield 2000 278,264 0 0 61,667 40,896
Senior Vice President, 1999 254,654 0 323,410 17,500 31,493
Architectural, Automotive 1998 243,885 19,999 159,989 14,000 31,007
and Specialty Coatings
Rolf Engh 2000 271,000 0 0 62,059 46,440
Senior Vice President, 1999 262,500 103,766 102,218 17,500 35,060
General Counsel and 1998 256,462 51,292 102,585 15,000 34,025
Secretary
--------------------------
* As of October 27, 2000
(1) Includes, for these fiscal years, cash bonuses under the Incentive Bonus
Plan. Does not include bonuses under the Incentive Bonus Plan for these
fiscal years received in restricted stock or stock options 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 and 1998 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. For fiscal
2000, each of these individuals agreed to accept a stock option grant under
the 1991 Stock Option Plan in lieu of the restricted stock or the cash
bonus. See "Board Compensation Committee Report on Executive Compensation."
(3) As of October 27, 2000, 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:
7
Mr. Rompala, 58,564 shares, $1,490,454; Mr. Erdahl, 19,376 shares,
$493,119; Mr. Reyelts, 21,241 shares, $540,583; Mr. Mansfield, 19,292
shares, $490,981; and Mr. Engh, 11,781 shares, $299,826. Dividends are paid
on shares of restricted stock from the date of grant.
(4) Options indicated for fiscal 2000 were granted pursuant to the Key Employee
Annual Bonus Plan based on (i) a percentage of each individual's base
salary for fiscal 1999 and (ii) the individual's election to accept a stock
option grant in lieu of a fiscal 2000 restricted stock grant. Options
indicated for fiscal 2000 exclude options granted in December 2000 pursuant
to the Key Employee Annual Bonus Plan. See "Board Compensation Committee
Report on Executive Compensation."
(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 2000:
OPTION GRANTS IN LAST FISCAL YEAR
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%
---- ---------- ---------- -------------- ---------- ---------- ----------
Richard M. Rompala .......... 70,000 8.4 $ 40.25 12/15/09 $1,771,700 $4,490,500
95,296 16.1 23.64 10/18/10 1,417,052 3,590,753
Steven L. Erdahl ............ 24,000 2.9 40.25 12/15/09 607,440 1,539,600
42,053 7.1 23.64 10/18/10 625,328 1,584,557
Paul C. Reyelts ............. 27,500 3.3 40.25 12/15/09 696,025 1,764,125
39,080 6.6 23.64 10/18/10 581,120 1,472,534
William L. Mansfield ........ 24,000 2.9 40.25 12/15/09 607,440 1,539,600
37,667 6.4 23.64 10/18/10 560,108 1,419,293
Rolf Engh ................... 24,000 2.9 40.25 12/15/09 607,440 1,539,600
38,059 6.4 23.64 10/18/10 565,937 1,434,063
--------------------
(1) Options granted on December 15, 1999 at $40.25 per share become exercisable
starting one year from date of grant in one-third increments and options
granted on October 18, 2000 at $23.64 per share are immediately exercisable
in full. 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.
8
OPTION EXERCISES AND HOLDINGS
The following table sets forth information with respect to the Named
Executives concerning the exercise of options during fiscal 2000 and unexercised
options held as of October 27, 2000:
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
SHARES OCTOBER 27, 2000 AT OCTOBER 27, 2000(2)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
Richard M. Rompala ......... 0 -- 364,544 161,552 $1,719,513 $127,495
Steven L. Erdahl ........... 0 -- 79,439 44,624 257,278 1,229
Paul C. Reyelts ............ 0 -- 76,566 51,554 234,577 3,174
William L. Mansfield ....... 0 -- 75,747 47,190 221,970 4,335
Rolf Engh .................. 0 -- 131,149 48,140 981,732 3,069
--------------------
(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 27, 2000.
CHANGE IN CONTROL AGREEMENTS
The Corporation has entered into agreements with certain key employees,
including the Named Executives, providing for the continued employment of such
executives for a period of up to two years following a change in control of the
Corporation. During such two-year period, executives would continue to be
employed and compensated commensurate with their positions and compensation
prior to the change in control. Each agreement continues in effect until the
earlier of (i) a termination of the executive's employment prior to the
occurrence of a change in control or (ii) a payment event shall have occurred
and the Corporation shall have satisfied all of its obligations under the
agreement. Payment event means the occurrence of a change in control coincident
with or followed at any time before the end of 24-month period immediately
following the month in which the change in control occurred, by the termination
of the executive's employment with the Corporation or a subsidiary for any
reason other than: (a) by the executive without good reason; (b) by the
Corporation as a result of the disability of the executive or for cause; or (c)
as a result of the death of the executive. Payments required under each
agreement include a severance payment amount which, in the case of the Named
Executives, is equal to: (a) the higher of: (i) three times the sum of
executive's annual base salary in effect prior to the change in control and the
amounts pursuant to all incentive compensation plans or (ii) three times the sum
of executive's annual base salary in effect prior to the payment event and the
amounts pursuant to all incentive compensation plans; plus (b) the pro rata
portion of the target potential amount payable to the executive under all
incentive compensation plans for the year during which the termination occurs.
The Corporation will also pay any excise taxes that the executive may incur as a
result of such payments, and any income and excise taxes on such excise tax
payments.
9
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 14
and 15. 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 8% from fiscal 1999 to
fiscal 2000. The increases for 2000 reflected general corporate performance,
based on sales, profits, expense control, unit growth and return on equity for
fiscal 1999.
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 (81.25%-100% for executive officers in
fiscal 2000) 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 2000 ranged from 40% to 45%
of salary.
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. The plan is
comprised of three elements: a stock option grant, a cash bonus and a restricted
stock award equal to the cash bonus.
Participants in this plan receive a nonqualified 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
10
of the shares subject to options for fiscal 2000 bonuses ranged from 300 to 350%
of the 2000 base salary for the Named Executives and 400% for the Chief
Executive Officer. These options were granted in December 2000 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-one employees,
including all executive officers, were selected to participate for fiscal year
2000 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.
As to the cash bonus element, participants could elect prior to the
beginning of fiscal 2000 to convert all or any portion of his or her cash bonus
under the Incentive Bonus Plan into a grant of restricted stock. The participant
was required to be employed on the last day of fiscal 2000 to receive the
restricted stock grant for that fiscal year, and the restricted stock would be
granted in January 2001. 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
in control of the Corporation. In addition, participants receive a restricted
stock grant equal in amount to their cash bonus.
During fiscal 2000, the participants, including the Named Executives, were
allowed, by action of the Compensation Committee, to elect to receive a special
stock option grant in lieu of the cash bonuses and restricted stock. This
special stock option election was offered in fiscal 2000 as a means of
increasing stock ownership by executives and reducing compensation expense to
the Company. Each of the Named Executives elected to receive a stock option
grant in lieu of cash bonuses and restricted stock. This option is immediately
exercisable in full, has a term of ten years, remains exercisable regardless of
employment status and is nontransferable during the lifetime of the optionee.
Each option was granted in October 2000, and the market value of the option
shares was equal to four times the amount of the cash bonus on the date of
grant.
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. See "Proposal Two -- Approval of Increase in Shares Reserved
Under the 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 2000 were determined 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 arrangements as one factor in executive compensation decisions.
However, deductibility is not the sole factor used by the Committee in
ascertaining appropriate levels or modes of compensation. The provisions of the
1991 Stock Option Plan and the Key Employee Annual Bonus Plan are intended to
permit 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
11
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 14
and 15. Mr. Rompala's base salary increased approximately 9% from fiscal 1999 to
fiscal 2000. 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, net sales and
modified cash flow. Mr. Rompala was eligible for a bonus of up to 100% 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 2000 was $281,600 if received in cash, or 44% of his salary. As
described above under "Compensation of Executive Officers -- Bonus Programs,"
for fiscal 2000, Mr. Rompala elected to receive the bonus in a stock option
grant in lieu of restricted stock. The option was granted in October 2000, is
immediately exercisable in full, has a term of ten years, remains exercisable
regardless of employment status and is nontransferable during the lifetime of
the optionee. The market value of the option shares was equal to four times the
amount of the cash bonus on the date of grant. Mr. Rompala also received stock
options in December 2000 under the formula provided in the Key Employee Annual
Bonus Plan. The value of the shares subject to these options for Mr. Rompala's
fiscal 2000 bonus was 400% of his 2000 base salary.
SUBMITTED BY THE COMPENSATION COMMITTEE
OF THE CORPORATION'S BOARD OF DIRECTORS:
Susan S. Boren Lawrence Perlman
Thomas R. McBurney Edward B. Pollak
Kendrick B. Melrose Michael P. Sullivan
12
BOARD AUDIT COMMITTEE REPORT
The primary purpose of the Audit Committee is to assist the Board of
Directors in fulfilling its oversight responsibilities relating to accounting,
reporting practices and the quality and integrity of the financial reports and
other publicly disseminated financial information of the Corporation. In this
context, the Audit Committee has met with management (including the Chief
Executive Officer, Chief Financial Officer and Director of Internal Audit) and
Ernst & Young LLP, the Corporation's independent public accountants
("Independent Auditors").
The Audit Committee held meetings with the Corporation's internal auditors
and Independent Auditors, both in the presence of management and privately, to
discuss the overall scope and plans for their respective audits, the results of
their examinations, the evaluations of the Corporation's internal controls, and
the overall quality of the Corporation's financial reports.
The Audit Committee has reviewed and discussed the audited consolidated
financial statements with management and the Independent Auditors. The Audit
Committee also discussed with the Independent Auditors the matters required by
Statement on Auditing Standards No. 61 (Communication With Audit Committees).
With respect to independence, the Audit Committee has received the written
disclosures from the Independent Auditors required by the Independence Standards
Board Standard No. 1 (Independence Discussions With Audit Committees) and has
discussed with the Independent Auditors their independence.
Based upon the reviews and discussions referred to above, the Audit
Committee recommended to the Board of Directors, and the Board has approved, (i)
the selection of the Independent Auditors for the 2001 fiscal year and (ii) that
the audited financial statements be included in the Corporation's Annual Report
on Form 10-K for the year ended October 27, 2000 for filing with the Securities
and Exchange Commission.
The Charter adopted by the Audit Committee during fiscal 2000 appears as
Appendix A to this proxy statement.
SUBMITTED BY THE AUDIT COMMITTEE
OF THE CORPORATION'S BOARD OF DIRECTORS
Susan S. Boren Thomas R. McBurney
Jeffrey H. Curler Gregory R. Palen
Charles W. Gaillard Richard L. White
13
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 1995 and fiscal 1990,
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
1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ----
Valspar $100 $128 $155 $150 $163 $150
Peer Group $100 $132 $146 $154 $158 $136
S&P 500 $100 $124 $164 $200 $251 $267
Assumes $100 invested on October 31, 1995 in the Common Stock of The Valspar
Corporation, the S&P 500 Index and the Peer Group, including reinvestment of
dividends.
14
COMPARISON OF TEN YEAR CUMULATIVE TOTAL RETURN
AMONG THE VALSPAR CORPORATION, THE S&P 500 INDEX AND A PEER GROUP
[PLOT POINTS CHART]
CUMULATIVE TOTAL RETURN
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Valspar $100 $149 $212 $267 $248 $269 $343 $418 $402 $438 $403
Peer Group $100 $142 $174 $195 $222 $232 $305 $339 $357 $367 $316
S&P 500 $100 $133 $147 $169 $175 $222 $275 $363 $443 $557 $591
Assumes $100 invested on October 31, 1990 in the common stock of The Valspar
Corporation, the S&P 500 Index and the Peer Group, including reinvestment of
dividends.
PROPOSAL NUMBER TWO
APPROVAL OF INCREASE IN SHARES RESERVED UNDER THE 1991 STOCK OPTION PLAN
In December 2000, the Corporation's Board of Directors amended the 1991
Stock Option Plan (the "Plan"), subject to approval by the stockholders, to
increase the total number of shares reserved for issuance upon exercise of
options to be granted under the Plan. The amendment increases the total number
of shares available for stock option grants by 2,000,000 shares to a total of
8,000,000 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
15
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 12, 2010. 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. At fiscal year-end, the Corporation had
approximately 4,685 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 $32.18 on December 29, 2000.
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. Upon any change of control, each option becomes immediately
exercisable in full for the remainder of the term without regard to any vesting
or installment exercise provisions then applicable to the option.
Upon exercise of an option under the Plan, the exercise price is to be paid
in cash, by check or by surrender (or deemed surrendered through attestation) of
previously acquired shares of common stock of the Corporation which have been
owned for more than six months on the date of surrender valued at the fair
market value based on the closing price on the day preceding the date of
exercise.
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,
16
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 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.
STOCK OPTION GRANTS UNDER THE 1991 STOCK OPTION PLAN
The maximum number of shares currently issuable for stock grants under the
Plan is 6,000,000. Approximately 4,562,884 option shares have been granted to
date under the Plan, and approximately 1,666,117 shares are currently available
for further option grants. On adoption of the proposed amendment, the maximum
aggregate number of shares issuable under the Plan will be increased by
2,000,000, to 8,000,000 shares.
17
VOTE REQUIRED
The Board recommends that the stockholders approve the increase in the
shares reserved under the 1991 Stock Option Plan. The affirmative vote of a
majority of the shares represented at the annual meeting and entitled to vote is
required for approval.
PROPOSAL NUMBER THREE
APPROVAL OF THE CORPORATION'S 2001 STOCK INCENTIVE PLAN
In December 2000, the Board of Directors of the Corporation adopted The
Valspar Corporation 2001 Stock Incentive Plan (the "Incentive Plan"), subject to
approval by the stockholders. The Incentive Plan permits awards of restricted or
unrestricted stock to employees of the Corporation or any subsidiary.
SUMMARY OF THE STOCK INCENTIVE PLAN
PURPOSES. The Corporation adopted the Incentive Plan to provide a
continuing, long-term incentive to eligible employees of the Corporation and any
subsidiary; to provide a means of rewarding outstanding performance; and to
enable the Corporation to maintain a competitive position to attract and retain
personnel necessary for continued growth and profitability.
SHARES AVAILABLE UNDER PLAN. Up to 1,000,000 shares of common stock may be
issued pursuant to awards under the Incentive Plan. Shares which become
available as a result of canceled, lapsed or terminated awards granted under the
Incentive Plan will become available again for issuance pursuant to awards
subsequently granted under the Incentive Plan. If the outstanding shares of
common stock of the Corporation are changed or exchanged by the declaration of a
stock dividend, stock split, combination of shares or recapitalization, the
number and kind of shares subject to the Incentive Plan or subject to any
restricted or unrestricted, performance or non-performance based awards granted
to that date will be adjusted appropriately.
ADMINISTRATION. The Incentive Plan is administered by the Board's
Compensation Committee, which has the power to interpret the Incentive Plan and
select those employees of the Corporation and its subsidiaries who are eligible
to receive awards of shares of restricted or unrestricted common stock under the
Incentive Plan. The Committee generally has the authority to determine when and
to whom to grant awards of stock, the number of shares covered by each award,
the time or times within which such awards may be subject to forfeiture, and all
other conditions of the awards. The Committee may also condition the grant of an
award upon the attainment of specified performance targets.
The Board has the authority to withdraw the Committee's authority and to
administer the Plan. Except as prohibited by law or stock exchange rules, the
Committee may delegate to executive officers of the Corporation the authority to
exercise the Committee's authority under the Incentive Plan, subject to the
review of the Committee or the Board.
STOCK INCENTIVE AWARDS. The Committee may designate whether an award of
shares under the Incentive Plan will be subject to restrictions and whether the
award will be payable only upon achievement of performance goals, or both. Each
award under the Plan will be evidenced by an agreement that describes the terms
of the award.
The Committee may provide that an award is subject to a restriction period
during which the shares awarded will be subject to the risk of forfeiture and
other terms and conditions as the Committee may
18
specify. The Committee may, at any time, accelerate the date of lapse of
restrictions with respect to all or any part of the shares awarded to a
recipient. Recipients of restricted awards generally will not be required to
make any payment or provide consideration other than the rendering of services.
During the period of the restrictions, the recipient may not transfer the shares
or any rights in the shares. Otherwise, the recipient generally will have all of
the rights of a shareholder with respect to the shares awarded, including the
right to vote the shares and the right to receive any cash or stock dividends.
The Committee may permit or require the payment of cash dividends to be deferred
and, if the Committee so determines, reinvested in additional shares of stock
subject to the same restrictions as the shares of stock on which the dividends
were issued.
The Committee may also award unrestricted stock to any recipient. The
Committee may grant the shares without conditions, or may establish performance
criteria and performance targets for each recipient or group of recipients and
the performance period over which such performance will be measured. Except for
the awards to Designated Executive Officers described below, the Committee may
accelerate the achievement of performance targets, award a pro rata portion of a
stock award prior to the end of a performance measurement period or make any
other adjustment during the performance period as it deems appropriate,
including in the event of a change in control. Unless the award otherwise
provides, shares subject to an award based on the achievement of performance
goals will not be considered as outstanding for any purpose, and no dividends,
voting or other rights will attach to the shares to be issued based on the
achievement of performance goals until such time as the shares are issued to the
recipient.
The Incentive Plan defines additional standards for awards to certain
executive officers designated by the Committee and other key employees of the
Corporation (the "Designated Executive Officers"), who will always include the
Chairman, the Chief Executive Officer, the Chief Operating Officer and the
President. With respect to awards based on performance criteria for a Designated
Executive Officer: (a) the Committee will identify in writing specific
performance targets, performance period and maximum award levels within the
first ninety days of each fiscal year of the Corporation; (b) the performance
targets for Designated Executive Officers shall include one or more of the
following categories, either on an absolute basis or a comparative basis: market
capitalization, share price, operating income, gross or net sales, gross or net
margins, expenses as a percentage of net sales, inventory turns, earnings per
share, return on average equity, cash flow, modified cash flow, working capital
and gallon sales; (c) the Committee will certify in writing following the end of
the performance period whether the performance targets have been met and the
level earned under the criteria; and (d) the maximum award based on performance
criteria for any Designated Executive Officer under the Incentive Plan for any
fiscal year shall be 100,000 shares. These limitations are intended to allow the
awards to comply 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.
The Incentive Plan provides for acceleration of awards upon a "Change in
Control" as defined in the Incentive Plan. Upon a Change in Control, unless the
agreement for any award provides otherwise: (a) any restrictions on a restricted
stock award will lapse and be of no further force and effect and (b) the
recipient will receive any award outstanding at the time of the Change in
Control without regard to the achievement of any performance targets yet to be
achieved or the completion of the performance period. A Change in Control is
defined to include mergers and sales of stock that cause a transfer of
significant voting control of the Corporation, sales of all or substantially all
of the assets of the Corporation, liquidations or dissolutions, significant
changes in the Board of Directors or other events described in the Incentive
Plan.
19
AMENDMENT. The Incentive Plan may be amended or terminated at any time by
the Board of Directors of the Corporation or by the Committee, without further
action on the part of the stockholders of the Corporation, provided that (a) no
amendment or termination of the Plan, without the consent of the recipient, will
materially adversely affect or impair a recipient's rights under any award
granted under the Incentive Plan, and (b) unless stockholder approval is
obtained, no amendment will materially increase the total number of shares that
may be awarded under the Incentive Plan to all recipients, or materially
increase the benefits accruing to recipients under the Incentive Plan.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS. Recipients of unrestricted stock
will recognize compensation taxable as ordinary income in the year that the
stock award is received. If the award is subject to the attainment of
performance targets, the recipient will recognize the compensation as income at
the time the targets are attained.
Recipients of restricted stock awards are not required to recognize
compensation taxable as ordinary income in the year that the restricted stock is
granted. Instead, these recipients 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.
The Corporation will receive a deduction equal to the amount of
compensation the participant is required to recognize as ordinary income,
whether from receipt of an unrestricted stock award or the lapse of the risk of
forfeiture on restricted stock, if the Corporation complies with any applicable
federal income tax withholding.
APPROVAL OF INCENTIVE PLAN. The Board is seeking stockholder approval of
the Incentive Plan including the categories of performance targets for awards to
the Designated Executive Officers. Approval of these categories is necessary to
allow the awards to the Designated Executive Officers to comply with the
requirements of Section 162(m) of the Internal Revenue Code.
VOTE REQUIRED. The Board recommends that the stockholders approve the 2001
Stock Incentive Plan. The affirmative vote of a majority of the shares
represented at the annual meeting and entitled to vote is required for approval
of the Incentive 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 26, 2001. A representative of Ernst & Young LLP is expected
to be present at the 2001 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. See "Board Audit Committee Report."
20
OUTSTANDING SHARES AND VOTING RIGHTS
Stockholders of record on December 29, 2000 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 42,493,022 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 3,902,176(1) 9.2%
821 Marquette Avenue
Minneapolis, MN 55402
Capital Research and Management Co. 3,611,100(2) 8.5%
333 South Hope Street
Los Angeles, CA 90071
Resource Trust Company 3,299,743(3) 7.8%
900 Second Avenue South
Minneapolis, MN 55402
Nicholas Company, Inc. 2,211,800(4) 5.2%
700 North Water Street
Milwaukee, WI 54202
-------------------------
(1) Includes 219,069 shares held as of October 27, 2000 through the Valspar
Stock Ownership Trust, 60,010 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, 1999. 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, 1999. Resource Trust
Company reports shared investment power over 2,576,680 shares, sole
investment power over 723,063 shares and sole voting power over 3,299,743
shares.
(4) Shares reported on Schedule 13G as of December 31, 1999. Nicholas Company,
Inc., as an investment adviser, reports no voting power over such shares
and sole investment power over all such shares.
21
SHARE OWNERSHIP OF MANAGEMENT
The following table lists, as of December 29, 2000, the beneficial
ownership of Common Stock for all directors, each of the Named Executives and
all directors and executive officers as a group. No director or executive
officer individually owns as much as 1% of the total outstanding shares of
Common Stock.
NAME SHARES(1) NAME SHARES(1)
---- --------- ---- ---------
Susan S. Boren ........... 14,527(2)(7) Kendrick B. Melrose ...... 17,557(7)
Jeffrey H. Curler ........ 8,249(7) Gregory R. Palen ......... 17,408(4)(7)
Rolf Engh ................ 201,319(3) Lawrence Perlman ......... 12,947(7)
Steven L. Erdahl ......... 235,375(3)(8) Edward B. Pollak ......... 11,398(7)
Charles W. Gaillard ...... 3,617(7) Paul C. Reyelts .......... 484,837(3)(5)
William L. Mansfield ..... 143,248(3) Richard M. Rompala ....... 593,932(3)
Thomas R. McBurney ....... 17,994(7) Michael P. Sullivan ...... 12,911(6)(7)
Richard L. White ......... 963(7)
All directors and executive officers as a group ........................ 1,995,743(3)(7)(9)
--------------------
(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, 2000 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 -- 3,007 and 2,647; Mr. Erdahl -- 19,703 and 0; Mr. Reyelts --
38,582 and 11,385; Mr. Mansfield -- 11,103 and 0; Mr. Engh -- 3,644 and 0;
and executive officers as a group, 85,484 and 20,903. 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, 440,577 shares; Mr. Erdahl, 96,850 shares; Mr.
Reyelts, 96,774 shares; Mr. Mansfield, 94,644 shares; Mr. Engh, 150,216
shares; and executive officers as a group, 1,010,627 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 1,444 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, 3,500 shares; Mr. Curler,
3,350 shares; Mr. Gaillard, 1,100 shares; Mr. McBurney, 3,800 shares; Mr.
Melrose, 3,350 shares; Mr. Palen, 3,350 shares; Mr. Perlman, 3,350 shares;
Mr. Pollak, 3,350 shares; Mr. Sullivan, 3,500 shares; Mr. White, 0 shares.
(8) Includes 44,523 shares owned by Mr. Erdahl's wife and 2,200 shares held in
trust for children.
(9) Represents 4.7% of the outstanding Common Stock.
22
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.
2002 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 2002 Annual Meeting of Stockholders is
September 28, 2001. Additionally, if the Corporation receives notice of a
stockholder proposal after December 12, 2001, 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 26, 2001
--------------------------------------------------------------------------------
PLEASE SIGN, DATE AND RETURN
YOUR PROXY IN THE ENCLOSED ENVELOPE.
--------------------------------------------------------------------------------
23
APPENDIX A
THE VALSPAR CORPORATION
AUDIT COMMITTEE OF THE BOARD
CHARTER
PURPOSE This charter establishes the responsibilities of the Audit Committee
("Committee") of the Board of Directors ("Board") of The Valspar Corporation
(the "Company").
COMPOSITION The Committee shall be comprised of at least three directors who are
independent of the management of the Company and are free of any relationship
that, in the opinion of the Board, would interfere with their exercise of
independent judgment as Committee members. Each member of the Committee shall be
financially literate, as such qualification is interpreted by the Board in its
business judgment, or must become financially literate within a reasonable
period of time after his or her appointment to the Committee; and at least one
member of the Committee must have accounting or related financial management
expertise, as the Board interprets such qualifications in its business judgment.
STATEMENT OF POLICY The Committee shall provide assistance to the Board in
fulfilling its responsibility to shareholders, potential shareholders and the
investment community relating to corporate accounting, reporting practices of
the Company and the quality and integrity of financial reports of the Company.
In so doing, it is the responsibility of the Committee to maintain free and open
communication among the Board, the independent auditors, the internal auditors
and the senior executive and financial management of the Company.
RESPONSIBILITIES In carrying out its responsibilities, the Committee believes
its policies and procedures should remain flexible, in order to best respond to
changing conditions and to ensure the Board and shareholders that the corporate
accounting and reporting practices of the Company are in accordance with all
requirements.
In carrying out these responsibilities, the Committee will:
* Obtain the full Board's approval of this Charter.
* Review and recommend to the Board the independent auditors to be selected
to audit the financial statements of the Company and its divisions and
subsidiaries.
* Review and approve management's termination or replacement of the director
of internal audit.
* Meet with the independent auditors and financial management of the Company
to review the scope of the proposed audit and the quarterly reviews for the
current year, the procedures to be utilized, and the independent auditor's
compensation. At the conclusion of the audit, review the management letter
issued by the independent auditors, including management's response and
corrective actions taken.
* Review with the independent auditors, the Company's internal auditor and
financial and accounting personnel, the adequacy and effectiveness of the
accounting and financial controls of the Company, and elicit any
recommendations for the improvement of such internal controls or particular
areas where new or more detailed controls or procedures are desirable.
Particular emphasis should be given to the adequacy of internal controls to
expose any payments, transactions, or procedures that might be deemed
illegal or otherwise improper.
* Review legal and regulatory matters that may have a material effect on the
financial statements or related Company compliance policies.
* Inquire of management, the internal auditor and the independent auditors
about significant risks or exposures and assess the steps management has
taken to minimize such risks to the Company.
* Review the internal audit function of the Company including the
independence and authority of its reporting obligations; the proposed audit
plans for the coming year and the coordination of such plans with the
independent auditors.
* Review semiannually a summary of significant findings from internal audits
and a progress report on the proposed internal audit plan, with
explanations for major deviations from the original plan.
* Annually review with financial management and the independent auditors the
results of their timely analysis of significant financial reporting issues
and practices, including changes in, or adoptions of, accounting principles
and disclosure practices. Also review with financial management and the
independent auditors their qualitative judgments about the appropriateness,
not just acceptability, of accounting principles, underlying estimates and
financial disclosure practices used by the Company.
* Review with financial management and the independent auditors any
significant matters identified during the quarterly interim reviews
conducted by the independent auditors.
* Provide sufficient opportunity for the internal and independent auditors to
meet with the members of the Committee, without members of management
present. Among the items to be discussed in these meetings are the
auditors' evaluation of the Company's financial, accounting and auditing
personnel and the cooperation that the independent auditors received during
the course of audit.
* Report the results of the annual audit to the Board.
* Submit the minutes of all meetings of the Committee to, or discuss the
matters discussed at each Committee meeting with, the Board.
* Investigate any matter brought to the attention of the Committee within the
scope of its duties, with the power to retain outside counsel for this
purpose if, in the Committee's judgment, that is appropriate.
* Make a timely recommendation to the Board as to the inclusion of the
audited financial statements in the Annual Report on Form 10-K for filing
with the Securities and Exchange Commission.
* Confirm with independent auditors that they are ultimately accountable to
the Board and the Committee. The Board and the Committee are responsible
for the selection, evaluation and replacement of the independent auditors.
The Committee is responsible for ensuring the independence of the
independent auditors. The Committee shall annually obtain from the
independent auditors a formal written statement delineating all
relationships between the independent auditors and the Company and shall
review, and discuss with the Board if necessary, any disclosed
relationships between the independent auditors and the Company and the
nature and scope of other professional services provided to the Company
that may adversely affect the independence of the auditors.
* Review and reassess the adequacy of this charter on an annual basis and
provide the New York Stock Exchange with timely annual written affirmation
of having conducted such review and reassessment.
APPENDIX B
THE VALSPAR CORPORATION
1991 STOCK OPTION PLAN
AS AMENDED THROUGH DECEMBER 12, 2000
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.
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
8,000,000 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.
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).
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.
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.
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.
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.
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.
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.
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.
CHANGE OF CONTROL
Upon any Change of Control, each outstanding option shall immediately
become exercisable in full for the remainder of its term without regard to any
vesting or installment exercise provisions then applicable to the option. This
section applies to all options outstanding under this Plan as of June 16, 1999,
as well as to all options granted under this Plan thereafter. For purposes of
this Plan, the term "Change of Control" means any of the following:
A. Any individual, entity or group becomes a beneficial owner (as
defined in Rule 13d-3 of the Securities Exchange Act of 1934), directly or
indirectly, of 20% or more of the voting stock of the Company;
B. The persons who were directors of the Company immediately prior to
any contested election or series of contested elections, tender offer, exchange
offer, merger, consolidation, other business combinations, or any combination of
the foregoing cease to constitute a majority of the members of the Board of
Directors of the Company immediately following such occurrence;
C. Any merger, consolidation, reorganization or other business
combination where the individuals or entities who constituted the Company's
shareholders immediately prior to the combination will not immediately after the
combination own at least 50% of the voting securities of the business resulting
from the combination;
D. The sale, lease, exchange or other transfer of all or substantially
all the assets of the Company to any individual, entity or group not affiliated
with the Company;
E. The liquidation or dissolution of the Company; or
F. The occurrence of any other event by which the Company no longer
operates as an independent public company.
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.
DURATION OF THE PLAN
The Amended Plan shall become effective as of December 12, 2000,
subject to stockholder approval of the increase in shares reserved under the
Plan. 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.
APPENDIX C
THE VALSPAR CORPORATION
2001 STOCK INCENTIVE PLAN
SECTION 1. Purpose.
The purpose of The Valspar Corporation 2001 Stock Incentive Plan (the "Plan") is
to provide a continuing, long-term incentive to eligible employees of The
Valspar Corporation ("Valspar") and of any subsidiary corporation of Valspar (a
"Subsidiary"), as herein defined; to provide a means of rewarding outstanding
performance; and to enable Valspar to maintain a competitive position to attract
and retain personnel necessary for continued growth and profitability.
SECTION 2. Definitions.
The following words and phrases as used herein shall have the meanings set forth
below:
2.1 "Agreement" means an Agreement by and between Valspar and a
Recipient of an award under this Plan setting forth the terms and conditions of
that award.
2.2 "Board" shall mean the Board of Directors of Valspar.
2.3 "Change in Control" shall mean any of the following: (i) any
individual, entity or group becomes a "Beneficial Owner" (as defined in Rule
13d-3 of the Exchange Act), directly or indirectly, of at least 20% but less
than 50% of the voting stock of Valspar in a transaction that is not previously
approved by the Board of Directors of Valspar; (ii) any individual, entity or
group becomes a Beneficial Owner, directly or indirectly, of at least 50% of the
voting stock of Valspar; (iii) the persons who were directors of Valspar
immediately prior to any contested election or series of contested elections,
tender offer, exchange offer, merger, consolidation, other business combination,
or any combination of the foregoing cease to constitute a majority of the
members of the Board of Directors of Valspar immediately following such
occurrence; (iv) any merger, consolidation, reorganization or other business
combination where the individuals or entities who constituted Valspar's
shareholders immediately prior to the combination will not immediately after the
combination own at least 50% of the voting securities of the business resulting
from the combination; (v) the sale, lease, exchange or other transfer of all or
substantially all the assets of Valspar to any individual, entity or group not
affiliated with Valspar; (vi) the liquidation or dissolution of Valspar; or
(vii) the occurrence of any other event by which Valspar no longer operates as
an independent public company.
2.4 "Code" shall mean the Internal Revenue Code of 1986, as amended.
2.5 "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 Code and the rules and regulations thereunder.
2.6 "Common Stock" or "Stock" shall mean the common stock, $.50 par
value, of Valspar.
2.7 "Designated Executive Officers" shall mean any executive officer
designated by the Committee, but shall always include the Chairman, the Chief
Executive Officer, the Chief Operating Officer and the President.
2.8 "Fair Market Value" of Common Stock on any given date shall be
determined by the Committee as follows:
(a) the average of the highest and lowest sales prices reported on the
New York Stock Exchange on the date in question, or if such Stock shall not have
been traded on such exchange on such date, the average of the highest and lowest
sales price reported on such exchange on the first day prior thereto on which
such Stock was so traded; or
(b) if (a) is not applicable, by any means fair and reasonable by the
Committee, which determination shall be final and binding on all parties.
2.9 "Performance Period" shall mean the period of time over which the
performance criteria and target are determined for the achievement of a Stock
Incentive Award.
2.10 "Plan" shall mean this 2001 Stock Incentive Plan of Valspar.
2.11 "Recipient" shall mean a person to whom a Stock Incentive Award is
granted.
2.12 "Restriction Period" shall mean the period of time during which
any restrictions apply to a restricted Stock Incentive Award.
2.13 "Stock Incentive Award" shall mean an award of shares of Common
Stock, which may, in the discretion or the Committee, be subject to certain
restrictions and may, in the discretion of the Committee, be awarded only upon
the achievement of certain performance goals.
2.14 "Subsidiary" shall mean any corporation that at the time qualifies
as a subsidiary of Valspar under Section 424(f) of the Code.
2.15 "Valspar" shall mean The Valspar Corporation, a Delaware
corporation, with its principal offices in Minneapolis, Minnesota.
SECTION 3. Shares Available Under Plan.
The number of shares which may be issued pursuant to Stock Incentive
Awards under this Plan shall not exceed 1,000,000 shares of the Common Stock of
Valspar; provided, however, that shares which become available as a result of
canceled, lapsed or terminated Stock Incentive Awards granted under this Plan
shall be available for issuance pursuant to Stock Incentive Awards subsequently
granted under this Plan. The shares issued pursuant to a Stock Incentive Award
granted under this Plan may be authorized and unissued shares. In the event of
any merger, reorganization, consolidation, recapitalization, stock dividend,
other change in corporate structure affecting the Common Stock, or spin-off or
other distribution of assets to shareholders, such substitution or adjustment
shall be made in the aggregate number of shares reserved for issuance under the
Plan and in the number of shares subject to outstanding Stock Incentive Awards
granted under the Plan as may be determined to be appropriate by the Committee,
in its sole discretion, provided that the number of shares subject to any award
shall always be a whole number.
SECTION 4. Administration.
4.1 The Plan will be administered by the Committee. Other than
references in this Section 4.1, references to the "Committee" in this Plan shall
be deemed to refer to the Board where the Board has, by resolution duly adopted,
withdrawn from the Committee the authority to administer the Plan. Except to the
extent prohibited by applicable law or the applicable rules of a stock exchange,
the Committee may delegate to executive officers of Valspar the authority to
exercise the powers granted to the Committee in this Plan, subject to the review
of the Committee or the Board as set forth in Section 4.5 below.
4.2 The Committee will have plenary authority, subject to provisions of
the Plan, to determine when and to whom to grant Stock Incentive Awards, the
number of shares covered by each award, the time or times within which such
awards may be subject to forfeiture, and all other conditions of the awards. The
Committee may also condition the grant of a Stock Incentive Award upon the
attainment of specified performance targets. The provisions of Stock Incentive
Awards need not be the same with respect to each Recipient.
4.3 The Committee will have the sole responsibility for construing and
interpreting the Plan, for establishing and amending any rules and regulations
as it deems necessary or desirable for the proper administration of the Plan,
and for resolving all questions arising under the Plan. Any decision or action
taken by the Committee arising out of or about the construction, administration,
interpretation or effect of the Plan and of its rules and regulations will, to
the extent permitted by law, be within its absolute discretion, except as
otherwise specifically provided herein, and will be conclusive and binding on
all Recipients, all successors, and any other person, whether that person is
claiming under or through any Recipient or otherwise.
4.4 No member of the Committee will be liable, in the absence of bad
faith, for any act or omission with respect to his or her services on the
Committee. Service on the Committee will constitute service as a member of the
Board, so that the members of the Committee will be entitled to indemnification
and reimbursement as Board members pursuant to its Bylaws.
4.5 The Committee will regularly inform the Board as to its actions
with respect to all Stock Incentive Awards granted under the Plan and the terms
and conditions and any such awards in a manner, at any times, and in any form as
the Board may reasonably request.
SECTION 5. Recipients.
Employees of Valspar and any Subsidiary who are responsible for or contribute to
the management, growth and/or profitability of the business of Valspar and any
Subsidiary, are eligible to be granted Stock Incentive Awards under the Plan.
Recipients under the Plan shall be selected from time to time by the Committee,
in its sole discretion, from those eligible, and the Committee shall determine,
in its sole discretion, the number of shares covered by each award. Stock
Incentive Awards may be granted under this Plan to persons who have previously
received Stock Incentive Awards or other benefits under other plans of Valspar.
SECTION 6. Stock Incentive Awards.
6.1 A Recipient of a Stock Incentive Award shall not have any rights
with respect to such award, unless and until such Recipient has executed an
Agreement evidencing the award and has delivered a fully executed copy thereof
to Valspar, and has otherwise complied with the then applicable terms and
conditions. The Committee may designate whether such Stock Incentive Award will
be subject to restrictions and whether such Stock Incentive Award will be
payable only upon achievement of performance goals, or both.
6.2 Subject to the provision of this Plan and the Agreement, at the
time of the grant of a restricted Stock Incentive Award, the Committee shall
determine the Restriction Period during which the shares awarded shall be
subject to the risk of forfeiture and other terms and conditions as the
Committee may specify. The Committee may, at any time, accelerate the date of
lapse of restrictions with respect to all or any part of the shares awarded to a
Recipient. Except as provided in Section 12 and as otherwise provided in the
Agreement, Recipients of restricted Stock Incentive Awards shall not be required
to make any payment or provide consideration other than the rendering of
services. The shares subject to a restricted Stock Incentive Award shall be held
by Valspar during the Restriction Period and no rights therein may be
transferred, gifted, or otherwise alienated or hypothecated during the
Restriction Period. If the shares are maintained in uncertificated form, Valspar
shall denote such shares as being subject to restrictions as set forth in the
Agreement as part of the book entry of the restricted Stock Incentive Award on
Valspar's Stock records.
6.4 Except as provided in Sections 6.2 and 6.3 above or as otherwise
provided in the Agreement, the Recipient shall have, with respect to the shares
of Stock awarded, all of the rights of a shareholder of Valspar, including the
right to vote the shares and the right to receive any cash or stock dividends.
The Committee, in its sole discretion, may permit or require the payment of cash
dividends to be deferred and, if the Committee so determines, reinvested in
additional shares of Stock (to the extent shares are available under Section 3),
subject to the same restrictions as the shares of Stock on which such dividends
were issued. Valspar shall mark its Stock records that the Recipient is the
owner of unrestricted Common Stock promptly after, and only after, the
Restriction Period, if any, shall have expired without forfeiture in respect of
such shares of restricted Stock.
6.5 The Committee, in its sole discretion, may determine those
Recipients who are eligible for an unrestricted Stock Incentive Award and the
number of shares covered by such Award. The Committee may award unrestricted
Stock to any Recipient, including Designated Executive Officers, or may
establish performance criteria and performance targets for each Recipient or
group of Recipients and the Performance Period over which such performance will
be measured, and such other terms and conditions as the Committee shall
determine; provided, however, that with respect to Stock Incentive Awards based
on performance criteria for a Designated Executive Officer: (i) the Committee
will identify in writing specific performance targets, Performance Period and
maximum Stock Incentive Award levels within the first ninety days of each fiscal
year of Valspar; (ii) the performance targets for Designated Executive Officers
shall include one or more of the following categories, either on an absolute
basis or a comparative basis: market capitalization, share price, operating
income, gross or net sales, gross or net margins, expenses as a percentage of
net sales, inventory turns, earnings per share, return on average equity, cash
flow, modified cash flow, working capital, and gallon sales; (iii) the Committee
will certify in writing following the end of the Performance Period whether the
performance targets have been met and the level earned under the criteria; and
(iv) the maximum Stock Incentive Award for any Designated Executive Officer
under this Plan for any fiscal year shall be 100,000 shares. Subject to the
limitations described above on awards to Designated Executive Officers, the
Committee may accelerate the achievement of performance targets, award a pro
rata portion of the Stock Incentive Award prior to the end of a Performance
Period or make any other adjustment during the Performance Period as it deems
appropriate, including in the event of a Change in Control. Upon achievement of
such performance targets as determined by the Committee, Valspar shall cause to
be issued to the Recipient a stock certificate representing such Shares as the
Recipient earned. Unless the Stock Incentive Award otherwise provides, a Stock
Incentive Award based on the achievement of performance goals shall not be
considered as outstanding for any purpose, and no dividends, voting or other
rights shall attach to such Shares to be issued based on the achievement of
performance goals until such time as the Shares are issued to the Recipient.
SECTION 7. Rights of Corporation, Rights of Employees and Recipients.
7.1 Nothing in the Plan shall interfere with or limit in any way the
right of Valspar or any Subsidiary to terminate any employee's or Recipient's
employment at any time, nor confer upon any employee or Recipient any right to
continue in the employ of Valspar or any Subsidiary.
7.2 In the event of a Change in Control, unless the Agreement provides
otherwise: (i) any restrictions on any restricted Stock Incentive Award shall
lapse and be of no further force and effect; and (ii) the Recipient shall
receive any Stock Incentive Award outstanding at the time of the event
constituting a Change in Control, without regard to the achievement of the
performance targets or the completion of the Performance Period.
7.3 The existence of outstanding awards shall not affect in any way the
right or power of Valspar, any of its Subsidiaries or Valspar's stockholders to
make or authorize any or all adjustments, recapitalizations, reorganizations or
other changes in Valspar's capital structure or its business, or any issuance of
Common Stock or subscription rights thereto, or any merger or consolidation of
Valspar, or any issuance of bonds, debentures, preferred or prior preference
stock ahead of or affecting the Common Stock or the rights thereof, or the
dissolution or liquidation of Valspar, or any sale or transfer of all or any
part of its assets or business, or any other corporate act or proceeding,
whether of a similar character or otherwise; provided, however, that if the
outstanding shares of Common Stock of Valspar shall at any time be changed or
exchanged by declaration of a stock dividend, stock split, combination of shares
or recapitalization, the number and kind of shares subject to the Plan or
subject to any restricted or unrestricted, performance or non-performance based
Stock Incentive Awards theretofore granted, shall be adjusted as provided in
Section 3.
7.4 The rights and interests of any Recipient in the Plan shall not be
assignable or transferable otherwise than by will or by the laws of descent and
distribution.
SECTION 8. Stockholder Approval; Securities Registration.
8.1 The adoption of this Plan and the categories of performance
criteria for Designated Executive Officers under Section 6.5 shall be subject to
the approval of the stockholders of Valspar, and the categories of performance
criteria, or new categories of performance criteria for Designated Executive
Officers shall be subject to stockholder approval at the first meeting of
stockholders following the end of each fifth fiscal year after 2001.
8.2 As promptly as practicable, Valspar shall prepare, file and
maintain with the Securities and Exchange Commission, an effective registration
statement on Form S-8 (or, in Valspar's sole discretion, on any appropriate
comparable form under the Securities Act of 1933, as amended, as may then be
available to Valspar) relating to the resale of Common Stock granted pursuant to
the Plan.
8.3 All shares of Common Stock issued in book entry form on Valspar's
Stock records pursuant to any Stock Incentive Award under this Plan shall be
subject to such stop-transfer orders and other restrictions as the Committee may
deem advisable under the rules, regulations and other requirements of the
Securities and Exchange Commission, any stock exchange upon which the Common
Stock is then listed and any applicable Federal or state securities laws, and
the Committee may cause a legend or legends to be put on any such certificates
or to make appropriate reference to such restrictions on the book entry with
regard to uncertificated shares of Stock. The Committee may require each
Recipient to represent to and agree with Valspar in writing that the Recipient
is acquiring the shares without a view to distribution thereof.
SECTION 9. Effect on Other Plans.
Nothing contained in this Plan shall prevent the Board of Directors from
adopting other or additional compensation arrangements, subject to stockholder
approval if such approval is required; and such arrangements may be either
generally applicable or applicable only in specific cases. Participation in the
Plan shall not affect a Recipient's eligibility to participate in any other
benefit or incentive plan of Valspar and any Stock Incentive Awards made
pursuant to the Plan shall not be included in the Recipient's remuneration for
the purpose of determining the benefits provided under any other plan of Valspar
unless specifically provided in such other plan.
SECTION 10. Amendment and Termination.
The Plan may be amended or terminated at any time by the Board of Directors of
Valspar or by the Committee, without further action on the part of the
stockholders of Valspar, provided that no amendment or termination of the Plan,
without the consent of the Recipient, shall materially adversely affect or
impair a Recipient's rights under any Stock Incentive Award granted pursuant
hereto, and further provided that, unless the stockholders of Valspar shall have
approved the same, no amendment shall, either directly or indirectly: (i)
materially increase the total number of shares of Stock that maybe awarded under
this Plan to all Recipients; or (ii) materially increase the benefits accruing
to Recipients under the Plan.
SECTION 11. Legal Requirements; Governing Law.
11.1 The delivery of shares of Common Stock of Valspar pursuant to the
Plan shall be subject to all applicable laws, rules and regulations, and shall
not be made until all required approvals of the proper government agencies have
been obtained.
11.2 The Plan, and all Agreements hereunder, shall be construed in
accordance with and governed by the laws of the State of Delaware.
SECTION 12. Withholding Taxes.
Each Recipient shall, no later than the date as of which any part of the value
of an award first becomes includable as compensation in the gross income of the
Recipient for Federal income tax purposes, pay to Valspar, or make arrangements
satisfactory to the Committee regarding payment of, any Federal, state, or local
taxes of any kind required by law to be withheld with respect to the award. The
obligations of Valspar under the Plan shall be conditional on such payment or
arrangements, and Valspar and its Subsidiaries shall, to the extent permitted by
law, have the right to deduct any such taxes from any payment of any kind
otherwise due to the Recipient. With respect to any award under the Plan, if the
terms of such award so permit, a Recipient may elect by written notice to
Valspar to satisfy part or all of the withholding tax requirements associated
with the award by (i) authorizing Valspar to retain from the number of shares of
Common Stock that would otherwise be deliverable to the Recipient, or (ii)
delivering to Valspar from shares of Common Stock already owned by the
Recipient, that number of shares having an aggregate Fair Market Value equal to
part or all of the tax payable by the Recipient under this Section 12. Any such
election shall be in accordance with, and subject to, applicable tax and
securities laws, regulations and rulings, and in the event shares are withheld,
the amount withheld may not exceed the minimum required federal, state and FICA
withholding amount.
SECTION 13. Duration of the Plan.
Unless earlier terminated by action of the Board of Directors and subject to the
limitations under Section 10, the Plan shall remain in effect until all shares
awarded under the Plan are free of all restrictions imposed by the Plan and the
Agreements.
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 28, 2001, 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 three directors (Class III) for a term of three years: CHARLES W. GAILLARD, GREGORY R. PALEN AND
LAWRENCE PERLMAN
FOR all nominees listed WITHHOLD authority (Instructions: To withhold authority to vote for any
(except as marked to the to vote for all nominee, write that nominee's name in the space
contrary) nominees listed provided below.)
[ ] [ ]
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(2) To approve an increase in the shares reserved under the
Corporation's 1991 Stock Option Plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
(3) To approve the Corporation's 2001 Stock Incentive Plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
(4) To approve the ratification of the appointment of Ernst & Young
LLP as the independent public accountants of the Corporation.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN
FOR AGAINST ABSTAIN 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.
----------------------------------------------------
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(5) The undersigned authorizes the Proxies to vote in their discretion Signature of Stockholder(s)
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.