UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
SCHEDULE 14A
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:
[X] Preliminary Proxy Statement [_] Soliciting Material Pursuant to
[_] Confidential, For Use of the SS.240.14a-11(c) or SS.240.14a-12
Commission Only (as permitted
by Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
The Valspar Corporation
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
--------------------------------------------------------------------------------
2) Aggregate number of securities to which transaction 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 26, 2003
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 26, 2003 at 11:00 A.M., for the
following purposes:
1. To elect three directors (Class II) 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 a proposed amendment of Article Fourth of the
Corporation's Certificate of Incorporation to increase the
authorized number of shares of stock;
4. To ratify the appointment of independent auditors to examine
the Corporation's accounts for the fiscal year ending October
31, 2003; and
5. To transact such other business as may properly come before
the meeting or any adjournments thereof.
Stockholders of record at the close of business on December 31, 2002
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 25, 2002 also
accompanies this Notice.
By Order of the Board of Directors,
ROLF ENGH,
SECRETARY
Approximate Date of Mailing of Proxy Material:
January 24, 2003
PLEASE REFER TO THE ENCLOSED PROXY CARD AND THE ATTACHED PROXY STATEMENT
FOR INFORMATION ON NEW VOTING OPTIONS: INTERNET - TELEPHONE
THE VALSPAR CORPORATION
1101 THIRD STREET SOUTH
P.O. BOX 1461
MINNEAPOLIS, MINNESOTA 55440
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
FEBRUARY 26, 2003
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 (i) giving written notice of revocation to
the Office of the Secretary of the Corporation, (ii) delivering a duly executed
proxy bearing a later date, or (iii) voting in person at the Annual Meeting..
This year, registered stockholders may vote in one of three ways: by
completing and returning the enclosed proxy card via regular mail or by voting
via the internet or telephone, as permitted by Delaware law. Specific
instructions for using these methods are set forth on the enclosed proxy card.
The internet and telephone procedures are designed to authenticate the
stockholder's identity and to allow stockholders to vote their shares and
confirm that their instructions have been properly recorded.
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, on matters other than the election of directors, an action of
the stockholders generally 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 generally do
not have the same effect as a negative vote on the matter. However, the proposal
to adopt an amendment to the Certificate of Incorporation requires the
affirmative vote of holders of a majority of the outstanding common stock.
Accordingly, a non-vote on that proposal will have the same effect as a vote
against that proposal.
PROPOSAL NUMBER ONE
ELECTION OF DIRECTORS
In accordance with the Corporation's By-Laws, the number of directors
is currently fixed at twelve, divided into three classes. Each class consists of
four seats, with each director serving a term of three years. There are
currently eleven directors serving on the Board of Directors. The terms of Class
II directors will expire at the annual meeting in 2003. The Board of Directors
has nominated Susan S. Boren, Jeffrey H. Curler and Edward B. Pollak for
re-election as Class II directors. Unless otherwise directed by the
stockholders, it is intended that shares represented by proxy will be voted in
favor of the election of the three nominees listed in Class II below, to hold
office until the annual meeting in 2006 or until their successors are elected
and qualify. If any of the nominees is unable or unwilling to stand for
election, it is intended that shares represented by proxy will be voted for a
substitute nominee recommended by the Board of Directors, unless the stockholder
otherwise directs. The Board is not aware that any of the nominees is unable or
unwilling to stand for election.
NAMES, PRINCIPAL OCCUPATIONS FOR THE PAST FIVE YEARS AND SELECTED
OTHER INFORMATION CONCERNING NOMINEES AND DIRECTORS
--------------------------------------------------------------------------------
CLASS I DIRECTORS CONTINUING IN OFFICE UNTIL 2005
--------------------------------------------------------------------------------
THOMAS R. MCBURNEY President, McBurney Management Advisors
Director since 1987
Age - 64
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., American Express
Certificate Company, IDS Life Series Fund, Inc., IDS Life Variable Annuity Funds
A & B, American Express FSB and Greenspring Companies.
--------------------------------------------------------------------------------
RICHARD M. ROMPALA Chairman and Chief Executive Officer
Director since 1994 of the Corporation
Age - 56
Mr. Rompala has held his present position as Chairman since February 1998 and
Chief Executive Officer since October 1995. Mr. Rompala served as President from
March 1994 to December 2001. Mr. Rompala is also a director of Olin Corporation.
--------------------------------------------------------------------------------
MICHAEL P. SULLIVAN, SR. Chairman, International Dairy Queen, Inc.
Director since 1990
Age - 68
Mr. Sullivan has held his present position as Chairman of International Dairy
Queen, Inc. since January 2001 and previously served as President and Chief
Executive Officer from 1987 to 2001. Mr. Sullivan is also a director of
International Dairy Queen, Inc., Allianz Life Insurance Company of North America
and Adler Trust Company.
--------------------------------------------------------------------------------
RICHARD L. WHITE, PH.D. Former Executive Vice President,
Director since 2000 Bayer Corporation
Age - 63
Dr. White retired as Executive Vice President of Bayer Corporation on November
1, 1999. Prior to 1999, Dr. White served as Executive Vice President of Bayer
Corporation since July 1991.
--------------------------------------------------------------------------------
CLASS II NOMINEES FOR TERM EXPIRING IN 2006
--------------------------------------------------------------------------------
SUSAN S. BOREN Partner, SpencerStuart
Director since 1991
Age - 55
Ms. Boren has been a Managing Partner - Minneapolis office of SpencerStuart, an
executive search firm, since May 2001. Prior to 2001, Ms. Boren was a Principal
with the Minneapolis office since May 2000 and was Director with the Minneapolis
office from May 1998 to May 2000. 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.
--------------------------------------------------------------------------------
JEFFREY H. CURLER President and Chief Executive Officer,
Director since 1997 Bemis Company, Inc.
Age - 52
Mr. Curler has held his present position as Chief Executive Officer since May
2000 and President since May 1996. Mr. Curler previously served as Chief
Operating Officer of Bemis Company, Inc. from 1998 to 2000. Mr. Curler is also a
director of Bemis Company, Inc.
--------------------------------------------------------------------------------
NAMES, PRINCIPAL OCCUPATIONS FOR THE PAST FIVE YEARS AND SELECTED
OTHER INFORMATION CONCERNING NOMINEES AND DIRECTORS
--------------------------------------------------------------------------------
EDWARD B. POLLAK Retired Senior Vice President,
Director since 1997 Olin Corporation
Age - 68
Mr. Pollak served as Chief Executive Officer of Yellow Cab Management, Inc. from
November 2000 to November 2001. 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. Prior to
1994, Mr. Pollak served as Senior Vice President of Olin Corporation since 1991
and President and Chief Executive Officer of Olin Hunt Specialty Products, a
wholly-owned subsidiary of Olin Corporation, since 1986.
--------------------------------------------------------------------------------
CLASS III DIRECTORS CONTINUING IN OFFICE UNTIL 2004
--------------------------------------------------------------------------------
CHARLES W. GAILLARD Retired President, General Mills, Inc.
Director since 1999
Age - 62
Mr. Gaillard retired as President of General Mills, Inc. on October 1, 1999.
Prior to 1999, Mr. Gaillard served as President of General Mills, Inc. since May
1995 and Vice Chairman since December 1993. Mr. Gaillard is also a director of
PepsiAmericas, Inc. (formerly Whitman Corporation).
--------------------------------------------------------------------------------
MAE C. JEMISON, M.D. President, The Jemison Group, Inc.;
Director since January 2002 President, BioSentient Corporation
Age - 46
Dr. Jemison has been President of The Jemison Group, Inc. since 1993. The
Jemison Group is a technology consulting company that applies and integrates
science and advanced technology considering the worldwide social and
technological circumstances of the users. She is also President of BioSentient
Corporation, a medical technology company she founded in December 2000. Dr.
Jemison founded and directs The Earth We Share, an international science camp
for students ages 12-16 worldwide. She is A.D. White Professor At-Large at
Cornell University. From 1987 to 1993, she was an astronaut with the National
Aeronautics and Space Administration (NASA) and was a member of the Space
Shuttle Endeavor Flight in September 1992. Dr. Jemison is also a director of
Scholastic, Inc., a publishing company, and Kimberly-Clark Corporation.
--------------------------------------------------------------------------------
GREGORY R. PALEN Chairman and Chief Executive Officer,
Director since 1992 Spectro Alloys Corporation; Chief Executive
Age - 47 Officer, Palen/Kimball Company
Mr. Palen has held his present position as Chairman and Chief Executive Officer
with Spectro Alloys Corporation, an aluminum recycler and manufacturing company,
since 1988. He has been Chief Executive Officer of Palen/Kimball Company, a
mechanical service company, since May 1993. Mr. Palen is also a director of
Palen/Kimball Company, Spectro Alloys Corporation and Opus Northwest LLC and the
Non-Executive Chairman of Polaris Industries Inc.
--------------------------------------------------------------------------------
LAWRENCE PERLMAN Retired Chairman and Chief Executive
Director since 1992 Officer, Ceridian Corporation; Chairman,
Age - 64 Arbitron, Inc.; Consultant and Private
Investor
Mr. Perlman has held his present position as Chairman of Arbitron, Inc. since
March 2001 and he served as Chairman and Chief Executive Officer of XIOtech
Corporation from August 2001 to February 2002. Prior to 2001, 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 a director of Arbitron, Inc., XIOtech Corporation,
Amdocs Limited and Carlson Companies, Inc.
--------------------------------------------------------------------------------
BOARD COMMITTEES
The standing committees of the Board of Directors for 2002 were as
follows:
NAME OF COMMITTEE MEMBERSHIP
----------------- ----------
Audit Committee Susan S. Boren, Jeffrey H. Curler - Chair, Charles W. Gaillard, Mae C.
Jemison, Thomas R. McBurney 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, Gregory R. Palen, Lawrence Perlman,
Edward B. Pollak and Michael P. Sullivan - Chair
Governance Committee Susan S. Boren, Jeffrey H. Curler, Charles W. Gaillard, Mae C. Jemison,
Thomas R. McBurney - Chair, Gregory R. Palen, Lawrence Perlman, Edward B.
Pollak, Michael P. Sullivan and Richard L. White
The Board of Directors met six times during fiscal 2002.
The Audit Committee held five meetings during the fiscal year. The
Audit Committee Chair also held four teleconferences with management and the
Independent Auditors, one prior to each quarterly earnings release. The duties
and activities of the Audit Committee are described in the Board Audit Committee
Report starting on page __. All members of the Audit Committee are
"independent", as required by the applicable listing standards of the New York
Stock Exchange.
The Compensation Committee held six 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 held two meetings during the fiscal year at
which it conducted Chief Executive Officer performance evaluations, considered
nominations for Board membership and considered other matters related to
corporate governance.
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 2002, 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 Dr. Jemison who attended 7 of 10 such meetings.
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 $35,000 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. Prior to April 17, 2002, attendance fees of $1,000 were
paid only for meetings of a committee 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, each non-employee director is automatically granted a
non-qualified stock option every year under the Corporation's Stock Option Plan
for Non-Employee Directors. For grants in respect of service in fiscal year 2002
and subsequent fiscal years, each Non-Employee Director serving as a member of
the Board of Directors on the date of the October board meeting in any year will
automatically be granted on the date of such meeting a non-qualified stock
option with a value equal to 100% of the amount of the current annual retainer
and meeting fees paid for service during the current fiscal year. The per share
option exercise price is equal to 100% of the fair market value of the
Corporation's Common Stock on the date of grant as determined by the closing
price 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 current fiscal year. Each option is immediately exercisable
in full, has a term of ten years and is transferable to family members during
the lifetime of the optionee. For grants in respect of service for fiscal year
2001, each Non-Employee Director serving as a member of the Board on October 26,
2001 was granted on the date of the Company's annual meeting in February 2002, a
non-qualified stock option with a
value equal to 100% of the annual retainer and meeting fees paid to Non-Employee
Directors for their service on the Board of Directors and board committees
during fiscal 2001. The per share option price was equal to 100% of the fair
market value of the Corporation's Common Stock on the date of grant as
determined by the closing price of the Corporation's Common Stock on the day
preceding the date of grant. The Non-Employee Directors received options on
February 27, 2002 (for service in fiscal 2001) and October 16, 2002 (for service
in fiscal 2002) to purchase the following numbers of shares at an exercise price
of $44.76 and $41.30 per share, respectively: Ms. Boren, 3,400 shares and 4,300
shares; Mr. Curler, 3,600 shares and 4,400 shares; Mr. Gaillard, 3,250 shares
and 3,900 shares; Dr. Jemison, 0 shares and 3,500 shares; Mr. McBurney, 4,300
shares and 5,350 shares; Mr. Palen, 3,350 shares and 3,700 shares; Mr. Perlman,
3,050 shares and 3,900 shares; Mr. Pollak, 3,500 shares and 4,000 shares; Mr.
Sullivan, 3,800 shares and 4,500 shares; and Dr. White, 3,250 shares and 3,900
shares.
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 could have borrowed 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
1999, 2000 and 2001 and bear an interest rate of 5.1%, 6.39% and 6.09%,
respectively. The aggregate outstanding loan balance at fiscal year-end 2000,
2001 and 2002 was $2,378,619, $1,880,424 and $1,401,494, respectively. Pursuant
to the Sarbanes-Oxley Act of 2002, new loans to executive officers by the
Corporation are prohibited, and existing loans may not be amended or extended.
As a result, the Corporation will not grant any new loans or extend or amend any
existing loans under the LEPP. The LEPP will be terminated when the last LEPP
loan to have been granted before enactment of the Sarbanes-Oxley Act of 2002 has
been satisfied, which is expected to be on or before February 13, 2007. The
following lists each director and executive officer whose loan from the
Corporation exceeded $60,000 at any time during fiscal 2002, and indicates (i)
the largest loan amount outstanding for such individual at any time since
October 27, 2001, and (ii) the loan amount outstanding for such individual as of
December 31, 2002:
LARGEST AMOUNT AMOUNT
NAME OF OUTSTANDING SINCE OUTSTANDING AS OF
EXECUTIVE OFFICER OCTOBER 27, 2001 DECEMBER 31, 2002
--------------------- ----------------- -----------------
John M. Ballbach $ 81,015 $ 33,208
Rolf Engh 166,033 138,767
Steven L. Erdahl 110,094 74,790
William L. Mansfield 86,556 49,221
Richard M. Rompala 105,879 0
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 25, 2002, 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 each of the following
directors: Susan S. Boren, Jeffrey H. Curler, Charles W. Gaillard, Mae C.
Jemison, Thomas R. McBurney, Gregory R. Palen, Lawrence Perlman, Edward B.
Pollak, Michael P. Sullivan and Richard L. White, reporting a stock option
grant. This was an inadvertent administrative omission by the Corporation, and
each of the Forms 4 were promptly filed upon discovery of the oversight.
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table shows, for the fiscal years ended October 25, 2002,
October 26, 2001 and October 27, 2000, 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
LONG TERM
ANNUAL COMPENSATION AWARDS
COMPENSATION -------------------
------------ 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 2002 $876,914 $1,000,000 $1,000,000 0 $83,800
Chairman and Chief 2001 732,300 213,207 213,207 176,500 73,087
Executive Officer 2000 640,000 0 0 165,296 91,378
John M. Ballbach 2002 396,148 322,755 982,840 69,000 43,356
President and Chief 2001 283,070 101,594 101,594 52,000 36,269
Operating Officer 2000 253,269 107,108 0 35,123 43,950
William L. Mansfield 2002 364,990 290,000 950,085 28,000 35,937
Executive Vice President, 2001 300,184 90,055 90,055 55,500 23,951
Architectural, Packaging 2000 278,264 0 0 61,667 40,896
and Specialty Coatings
Paul C. Reyelts 2002 341,930 258,439 918,524 19,000 32,544
Senior Vice President, Finance 2001 300,184 0 188,276 64,500 23,951
and Chief Financial Officer 2000 278,264 0 0 66,580 40,208
Steven L. Erdahl 2002 364,990 230,000 890,085 28,000 36,207
Executive Vice President, 2001 300,184 99,061 99,061 55,500 23,740
Industrial and Automotive 2000 276,149 0 0 66,053 37,889
Coatings
-------------------------------------
* As of October 25, 2002
(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." Also does
not include awards under the Key Employee Long Term Incentive Bonus
Program. See Long Term Incentive Plans table below.
(2) Pursuant to the 2001 Stock Incentive Plan, each of the Named Executives,
other than Mr. Rompala, received a restricted stock grant in fiscal 2002 as
additional compensation for services. Each such person received a grant of
16,711 shares, which had an aggregate market value of $660,085 on the date
of grant. The grant of restricted stock is subject to forfeiture if the
individual's employment terminates on or before April 30, 2004 for any
reason other than death, disability or a change in control. Pursuant to the
Key Employee Annual Bonus Plan, each of the Named Executives elected to
receive their bonus under the Incentive Bonus Plan for fiscal 2002 in cash,
and each Named Executive received an additional restricted stock grant with
a value equal to the amount of the bonus. For fiscal 2001, Mr. Reyelts
elected to receive his bonus in restricted stock, and each Named Executive
received an additional restricted stock grant with a value equal to the
amount of the bonus. For fiscal 2000, each of the Named Executives, other
than Mr. Ballbach, agreed to accept a stock option grant under the 1991
Stock Option Plan in lieu of the restricted stock or the cash bonus. Each
grant of restricted stock under the Key Employee Annual Bonus Plan is
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.
(3) As of October 25, 2002, such individuals held the following numbers of
shares of restricted stock with the following market values, based on the
closing sale price of the Corporation's common stock on such date: Mr.
Rompala, 26,903 shares, $1,109,480; Mr. Ballbach, 19,299 shares, $795,891;
Mr. Mansfield, 26,956 shares, $1,111,665; Mr. Reyelts, 28,994 shares,
$1,195,713; and Mr. Erdahl, 26,683 shares, $1,100,407. Dividends are paid
on shares of restricted stock from the date of grant.
(4) Options indicated for fiscal 2002 and 2001 were granted pursuant to the Key
Employee Annual Bonus Plan based on a percentage of each individual's base
salary. Options granted to Messrs. Rompala, Erdahl, Reyelts and Mansfield
in fiscal 2000 included the individual's election to accept a stock option
grant in lieu of a fiscal 2000 restricted stock grant.
(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 2002:
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
-------------------------------------------------------------
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATE OF STOCK
% OF TOTAL PRICE APPRECIATION FOR OPTION
OPTIONS TERM(3)
GRANTED TO --------------------------------
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION
NAME GRANTED(1) FISCAL YEAR PER SHARE(2) DATE 5% 10%
---- --------- ----------- ----------- ---- ---------- ----------
Richard M. Rompala............. 0 -- -- -- -- --
John M. Ballbach............... 25,000 2.7 $39.60 1/02/12 $ 622,500 $1,577,750
44,000 4.8 41.30 10/16/12 1,142,680 2,896,080
William L. Mansfield........... 10,000 1.1 39.60 1/02/12 249,000 631,100
18,000 1.9 41.30 10/16/12 467,460 1,184,760
Paul C. Reyelts................ 19,000 2.0 41.30 10/16/12 493,430 1,250,580
Steven L. Erdahl............... 10,000 1.1 39.60 1/02/12 249,000 631,100
18,000 1.9 41.30 10/16/12 467,460 1,184,760
--------------------------------
(1) All options granted become exercisable starting one year from date of
grant in one-third increments. Options include the right to pay the
exercise price in cash or in previously acquired Common Stock.
(2) Exercise price is the fair market value of the Corporation's Common
Stock, defined as the closing price on the day preceding the date that
the option is granted.
(3) These assumed values result from certain prescribed rates of stock
price appreciation. The actual value of these option grants is
dependent on future performance of the Common Stock and overall stock
market conditions. There is no assurance that the values reflected in
this table will be achieved.
OPTION EXERCISES AND HOLDINGS
The following table sets forth information with respect to the Named
Executives concerning the exercise of options during fiscal 2002 and unexercised
options held as of October 25, 2002:
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS
ACQUIRED OCTOBER 25, 2002 AT OCTOBER 25, 2002(2)
ON VALUE ---------------- ----------------------
NAME EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- ----------- ----------- ------------- ----------- -------------
Richard M. Rompala ......... 0 -- 552,597 149,999 $8,337,306 $1,066,159
John M. Ballbach ........... 0 -- 85,151 110,532 1,083,597 321,883
William L. Mansfield........ 17,630 $454,854 113,007 75,800 1,183,796 346,090
Paul C. Reyelts ............ 29,040 733,040 108,415 74,165 1,039,006 390,831
Steven L. Erdahl ........... 0 -- 132,363 75,200 1,662,228 340,630
-------------------------------
(1) The value realized on the exercise of options is based on the difference
between the exercise price and the fair market value of the Corporation's
Common Stock on the date of exercise.
(2) The value of unexercised in-the-money options is based on the difference
between the exercise price of the options and the fair market value of the
Corporation's Common Stock on October 25, 2002.
LONG TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR
NUMBER OF
SHARES, PERFORMANCE OR
UNITS OR OTHER PERIOD
OTHER UNTIL
RIGHTS MATURATION OR ESTIMATED FUTURE PAYOUTS UNDER
NAME (#)(1) PAYOUT NON-STOCK PRICE-BASED PLANS
------------- -------------- -------------------------------------------
Threshold Target Maximum
($ or #)(1) ($ or #)(1) ($ or #)(1)
----------- ----------- -----------
Richard M. Rompala....... -- -- $ 0 $ 0 $ 0
John M. Ballbach......... -- 11/01/01- 45,000 112,500 180,000
10/31/04
William L. Mansfield..... -- 11/01/01- 47,250 118,125 189,000
10/31/04
Paul C. Reyelts.......... -- 11/01/01- 55,125 137,813 220,501
10/31/04
Steven L. Erdahl......... -- 11/01/01- 47,250 118,125 189,000
10/31/04
--------------------
(1) The participants in The Valspar Corporation Key Employee Long-Term Incentive
Bonus Program have been selected to receive a cash bonus in the range described
above based on the achievement by the Corporation of a specified range of
earnings per share for the three-year period. The Compensation Committee has the
authority to accelerate the achievement of performance goals or make other
adjustments it deems appropriate. The threshold and maximum amounts set forth in
the table are the minimum and maximum bonus levels for each participant. To be
eligible to receive the award, the participant must be an active employee of the
Corporation on the last day of the performance period, provided that the
participant will receive a prorated amount if his or her employment terminated
during the performance period due to death, disability or retirement.
EQUITY COMPENSATION PLANS
WEIGHTED-AVERAGE NUMBER OF SECURITIES
NUMBER OF SECURITIES TO EXERCISE PRICE OF REMAINING AVAILABLE
BE ISSUED UPON EXERCISE OUTSTANDING FOR FUTURE ISSUANCE
OF OUTSTANDING OPTIONS, OPTIONS, WARRANTS UNDER EQUITY
PLAN CATEGORY WARRANTS AND RIGHTS AND RIGHTS COMPENSATION PLANS(1)
------------------------------------ ----------------------- ----------------- ---------------------
Equity Compensation Plans
Approved by Security Holders........ 6,192,953 $32.63 2,107,215
Equity Compensation Plans Not
Approved by Security Holders........ None None None
Total............................... 6,192,953 $32.63 2,107,215
-----------------------
(1) The number of securities remaining available for future issuance under
equity compensation plans consists of the following Corporate plans:
The Valspar Corporation 1991 Stock Option Plan, The Valspar Corporation
Key Employee Annual Bonus Plan, The Valspar Corporation Stock Option
Plan for Non-Employee Directors and the 2001 Stock Incentive Plan.
TERMINATION OF EMPLOYMENT AND 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) the occurence of a payment event and
the satisfaction by the Corporation of 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
target potential amount payable to the executive under all incentive
compensation plans with a performance period commencing coincident with or most
recently prior to the date on which a payment event occurs, assuming continuous
employment until the end of the performance period (the "applicable incentive
amount") or (ii) three times the sum of executive's annual base salary in effect
prior to the payment event and the applicable incentive amount; plus (b) the pro
rata portion of the applicable incentive amount 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.
Effective October 29, 2001, the Corporation established the Valspar
Corporation Supplemental Executive Retirement Plan for Richard Rompala (the
"SERP"), a non-qualified unfunded retirement plan. Mr. Rompala will be entitled
to receive the benefits under the SERP if his employment terminates due to
death, disability, involuntary termination by the Corporation other than for
cause or normal retirement. If Mr. Rompala is eligible, payments will commence
on a date selected by him after the date of termination of employment. The basic
SERP benefit will be an annual annuity amount specified in the SERP, ranging
from $250,000 to $400,000 per year, depending on the date of termination. In
lieu of the annuity payment, Mr. Rompala can elect to receive a lump sum payment
equal to the actuarial equivalent of the annuity payments for his life, with a
minimum lump sum payment ranging from $2,790,000 to $4,000,000, depending on the
date of termination. If Mr. Rompala elects the lump sum payment option, the
actual lump sum payment may exceed the minimum, depending on the date of
termination and interest rates prevailing at the time of payment. In lieu of
these amounts, Mr. Rompala may also elect an annual payment for the joint lives
of Mr. Rompala and his wife, or an annual payment for his life and, upon his
death, 50% of the annual payment for the life of his wife. These amounts are
calculated to be the actuarial equivalent of the annual annuity payment for his
life set forth in the SERP.
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
____. The purpose of using these studies is to assure that the Corporation's
compensation of executive officers reflects financial performance and is
competitive with compensation offered by comparable companies. The base salary
of the Named Executives increased by an average of 23.4% from fiscal 2001 to
fiscal 2002. 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.
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,
cash flow 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 not to exceed a
specified percentage of the participant's salary (capped at 81.25% - 125% for
executive officers in fiscal 2002) 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 2002
ranged from 63.0% to 114.0% of salary.
Pursuant to the Key Employee Annual Bonus Plan (the "Key Employee 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. Twenty-eight employees, including all executive officers, were selected to
participate for fiscal year 2002 in the plan. In addition, 503 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. The Key Employee 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 the Key Employee 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 of the shares
subject to options for fiscal 2002 bonuses ranged from 300 to 350% of the 2002
base salary for the Named Executives. However, the Chief Executive Officer did
not receive the stock option grant for fiscal 2002, as described below under
"Compensation of Chief Executive Officer". These options were granted in October
2002 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.
As to the cash bonus element of the Key Employee Plan, each participant
could elect prior to the beginning of fiscal 2002 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 2002 to receive the restricted stock grant for that fiscal year, and the
restricted stock was granted in January 2003. 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 in the Key Employee Plan receive a restricted stock grant equal in
amount to their cash bonus and having the same forfeiture provisions.
In addition, on January 16, 2002, the Committee awarded a one-time
restricted stock grant of an aggregate 156,916 shares under the 2001 Stock
Incentive Plan to 16 employees, including all of the Named Executives, other
than Mr. Rompala. The purposes of the grant were to provide the employees with
an additional incentive to remain with the Corporation and to enhance the
long-term value of the Corporation. The value of this grant was $660,085 for
each of the Named Executives based on the market
value of the common stock on January 16, 2002. The restricted stock is
forfeitable until April 30, 2004 if the participant's employment with the
Corporation terminates for any reason other than death, disability or a change
in control of the Corporation.
On January 22, 2002, the Committee approved The Valspar Corporation Key
Employee Long-Term Incentive Bonus Program (the "LTIP"). The purpose of the LTIP
is to provide long-term incentives for the participants and to reduce dependence
on stock option grants as a component of executive compensation. Sixteen
officers of the Corporation, including all of the Named Executives other than
Mr. Rompala, have been selected to receive a cash bonus based on the achievement
by the Corporation of a specified range of earnings per share for the three-year
period. The Compensation Committee has the authority to accelerate the
achievement of performance goals or make other adjustments it deems appropriate.
To be eligible to receive the award, the participant must be an active employee
of the Corporation on the last day of the performance period, provided that the
participant will receive a prorated amount if his or her employment terminated
during the performance period due to death, disability or retirement. The ranges
of bonuses awarded to each of the Named Executives in fiscal 2002 are described
under "Executive Compensation - Long-Term Incentive Plans - Awards in Last
Fiscal Year" above. These bonuses will be paid after the end of the three-year
performance period in October 2004.
OPTION PROGRAMS. In 1991, the Corporation's stockholders approved the
adoption of the Corporation's 1991 Stock Option Plan. Currently, 8,000,000
shares of common stock are reserved for issuance upon exercise of options
granted thereunder. At the Annual Meeting, the stockholders are considering a
proposal to increase the shares reserved under the 1991 Plan by 2,000,000
shares. 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 2002 were determined under the Key Employee 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 for
executives. 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 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 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 ___. Mr. Rompala's base
salary increased approximately 19.7% from fiscal 2001 to fiscal 2002. This
increase reflected general corporate performance, based on sales, profits,
expense control, unit growth, cash flow 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 125% 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 2002 was $1,000,000 or 114.0% of his salary. Under the terms of the Key
Employee Plan, Mr. Rompala elected to receive the bonus in cash and also
received a grant of restricted stock with a fair market value equal to the
amount of the bonus.
As described under "Termination of Employment and Change in Control
Agreements," the Corporation established a supplemental non-qualified unfunded
retirement plan (the "SERP") for Mr. Rompala effective October 29, 2001. The
SERP provides for annuity or lump-sum payments to Mr. Rompala upon his
retirement or in certain other circumstances. The Committee established the SERP
to provide Mr. Rompala with additional compensation in lieu of his participation
in the one-time restricted stock grant program in January 2002 as described
under "Compensation of Executive Officers".
Mr. Rompala did not receive a stock option grant in October 2002 pursuant
to the Key Employee Plan. He elected to waive the right to receive the stock
option as a result of discussions with the Compensation Committee of a potential
deferred compensation plan. Subsequent to the end of the fiscal year, in
December 2002, the Compensation Committee authorized such a deferred
compensation plan for Mr. Rompala. This plan is intended to be in lieu of any
annual stock option grant for Mr. Rompala during the period the plan is in
effect. Under this plan annually, commencing in December 2002, the Corporation
allocates to a deferred compensation account an amount equal to 90% of his then
current base salary, plus any additional amount, the Compensation Committee may
determine. The account accrues interest in an amount equal to the long-term
applicable federal rate, adjusted annually. Mr. Rompala will be entitled to
receive the deferred compensation upon retirement or in certain other
circumstances.
SUBMITTED BY THE COMPENSATION COMMITTEE
OF THE CORPORATION'S BOARD OF DIRECTORS:
Susan S. Boren Lawrence Perlman
Thomas R. McBurney Edward B. Pollak
Gregory R. Palen Michael P. Sullivan
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, the
overall quality of the Corporation's financial reports, the reasonableness of
significant judgments and the clarity of disclosures in the financial
statements.
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 2003 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 25, 2002 for filing with the Securities
and Exchange Commission.
SUBMITTED BY THE AUDIT COMMITTEE
OF THE CORPORATION'S BOARD OF DIRECTORS
Susan S. Boren Mae C. Jemison
Jeffrey H. Curler Thomas R. McBurney
Charles W. Gaillard Richard L. White
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 1997 and fiscal 1992,
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.; and Detrex Corporation. Grow
Group, Inc., Guardsman Products, Inc., Pratt & Lambert, Inc., Lawter
International, Inc. and Lilly Industries, 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
----------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN
------------------------- ----------------------------------------------------------------------------------------------
1997 1998 1999 2000 2001 2002
------------------------- --------------- -------------- --------------- -------------- ---------------- ---------------
Valspar $100 $ 96 $105 $ 97 $121 $152
------------------------- --------------- -------------- --------------- -------------- ---------------- ---------------
Peer Group $100 $105 $109 $ 92 $102 $110
------------------------- --------------- -------------- --------------- -------------- ---------------- ---------------
S&P 500 $100 $122 $153 $163 $122 $104
------------------------- --------------- -------------- --------------- -------------- ---------------- ---------------
Assumes $100 invested on October 31, 1997 in the Common Stock of The Valspar
Corporation, the S&P 500 Index and the Peer Group, including reinvestment of
dividends.
COMPARISON OF TEN YEAR CUMULATIVE TOTAL RETURN
AMONG THE VALSPAR CORPORATION, THE S&P 500 INDEX AND A PEER GROUP
-----------------------------------------------------------------------------------------------------------------
Cumulative Total Return
------------------ -----------------------------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
------------------ --------- ---------- ---------- --------- ---------- ---------- ---------- ---------- ---------- ---------- -----
Valspar $100 $126 $117 $127 $162 $197 $190 $207 $190 $238 $300
------------------ --------- ---------- ---------- --------- ---------- ---------- ---------- ---------- ---------- ---------- -----
Peer Group $100 $111 $127 $133 $174 $194 $205 $211 $178 $199 $213
------------------ --------- ---------- ---------- --------- ---------- ---------- ---------- ---------- ---------- ---------- -----
S&P 500 $100 $115 $119 $151 $187 $247 $302 $379 $403 $302 $257
------------------ --------- ---------- ---------- --------- ---------- ---------- ---------- ---------- ---------- ---------- -----
Assumes $100 invested on October 31, 1992 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 2002, 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
10,000,000 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 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 to
increase such individuals' proprietary interest in the Corporation's success.
TERM. Incentive stock options may be granted pursuant to the Plan through
December 11, 2012. 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 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. 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. 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 Officer 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. 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 7,000 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 $44.18 on December 31, 2002.
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. Except as otherwise provided by the
Committee, options shall not be transferable, voluntarily or involuntarily,
except by will or applicable laws of descent and distribution. Only the
optionee, optionee's legal representative or guardian or a permitted transferee
may exercise the option. 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 at 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, 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 8,000,000. Approximately 7,904,008 option shares have been granted to
date under the Plan, and approximately 545,067 shares of unissued and reacquired
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 10,000,000 shares.
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
AMENDMENT OF CERTIFICATE OF INCORPORATION
The Board of Directors has adopted a resolution proposing that Article
Fourth of the Corporation's Certificate of Incorporation be amended to increase
the authorized number of shares of common stock from 120 million to 250 million
shares.
The amendment would be effected by adoption of the following resolution at
the Annual Meeting of Stockholders:
"RESOLVED: That the first sentence of Article Fourth of the Certificate of
Incorporation of The Valspar Corporation be and it hereby is amended to read as
follows:
'Fourth. The total number of shares of stock which the corporation shall
have authority to issue is two hundred fifty million (250,000,000) shares of
Common Stock of the par value of Fifty Cents ($.50) per share.' "
As of December 31, 2002, 50,207,636 shares of Common Stock were outstanding
(net of 10,013,676 shares in treasury) and approximately 2,107,215 shares were
reserved for issuance under the Corporation's stock incentive and stock option
plans. An additional 2,000,000 shares will be reserved for issuance if
stockholders approve Proposal Two, above, relating to the authorization of
additional shares for issuance under the Corporation's 1991 Stock Option Plan.
The Board of Directors believes that the proposed increase in the number of
authorized shares of Common Stock will benefit the Corporation by improving its
flexibility in responding to future business needs and opportunities. The
additional authorized shares could be used for possible stock splits, future
acquisitions, financings, stock dividends and other corporate purposes. If the
amendment is approved, the Board would be authorized to issue shares of Common
Stock without additional stockholder approval, subject to the rules of the New
York Stock Exchange (NYSE), the terms of any agreements or securities the
Corporation may enter into or issue in the future, if any, and applicable law.
Current NYSE rules generally require stockholder approval before the Company may
issue shares of Common Stock, or securities convertible into or exercisable for
shares of Common Stock, when such newly issued shares or other securities
represent, or upon issuance will represent at least 20 percent of (1) the voting
power outstanding immediately prior to the issuance, or (2) the number of shares
of Common Stock outstanding prior to the issuance. The NYSE rules provide for
exceptions to the stockholder approval requirement, however, when the issuance
involves a public offering for cash or a private financing where shares of
common stock are sold at a price at least as great as each of book value and
market value.
Subject to such limits, shares of Common Stock could be issued in one or
more transactions. An issuance of additional shares of Common Stock could have
the effect of diluting the Corporation's earnings per share and book value per
share of Common Stock and the stock ownership of existing stockholders. The
Board of Directors has no present plans, understandings or agreements to issue
any additional shares except pursuant to the Corporation's stock incentive and
stock option plans, including the 1991 Stock Option Plan that is described under
Proposal Two, above.
Increasing the authorized Common Stock of the Corporation may have certain
anti-takeover effects, such as deterring certain mergers, tender offers and
proxy contests or other takeover attempts that some or a majority of
stockholders may deem to be in their best interests. In particular, the
Corporation adopted a common stock purchase rights plan in 2000 pursuant to
which
additional shares of Common Stock are issuable to the Corporation's stockholders
in the event of certain tender offers or other events. Accordingly, if the
proposed amendment is adopted, the increased number of authorized shares could
be used to satisfy the Corporation's obligations under the rights plan.
Management is not aware of any specific attempt to accumulate the Corporation's
securities or to obtain control of the Corporation by means of a merger, tender
offer, proxy contest or otherwise. In addition, the proposed amendment is not
part of a plan to adopt further amendments to the Corporation's Certificate of
Incorporation that would affect the ability of third parties to take over or
change control of the Corporation.
The additional shares of Common Stock that would be authorized by the
amendment would have the same rights and privileges as, and otherwise be
identical to, the shares of Common Stock currently authorized and outstanding.
Holders of the Corporation's shares have no preemptive rights and, as a result,
existing stockholders would not have any preferential right to purchase any of
the additional shares of Common Stock when issued.
VOTE REQUIRED
The Board recommends that the stockholders approve the amendment of Article
Fourth of the Corporation's Certificate of Incorporation. The amendment requires
the affirmative vote of holders of a majority of the outstanding shares of
stock.
PROPOSAL NUMBER FOUR
APPOINTMENT OF AUDITORS
The Board of Directors has appointed Ernst & Young LLP to examine the
Corporation's consolidated financial statements for the fiscal year ending
October 31, 2003. Ernst & Young LLP acted as the Corporation's auditors for the
fiscal year ended October 25, 2002. A representative of Ernst & Young LLP is
expected to be present at the 2003 annual meeting and will be given an
opportunity to make a statement if so desired and to respond to appropriate
questions.
FEES PAID TO INDEPENDENT AUDITORS. The following table shows the aggregate
fees billed to the Corporation by Ernst & Young LLP for services rendered during
the fiscal year ended October 25, 2002:
DESCRIPTION OF FEES $ AMOUNT
------------------- -----------
Audit Fees(1)................................... $ 693,300
Financial Information Systems Design
and Implementation.............................. $ 0
All Other Fees
Audit Related Services(2).................. $ 419,000
Tax Fees(3)................................ $ 939,700
Total All Other Fees(4)............... $ 1,358,700
-----------------------------
(1) Includes fees for audit of the October 25, 2002 financial statements and
reviews of the related quarterly financial statements.
(2) Includes fees for certain statutory audits, accounting and reporting
assistance and audit work related to registration statements.
(3) Includes fees related to international tax planning, tax return preparation
and assistance and state sales tax matters.
(4) The Audit Committee of the Board of Directors has considered whether
providing these non-audit services is compatible with maintaining Ernst &
Young LLP's independence.
OUTSTANDING SHARES AND VOTING RIGHTS
Stockholders of record on December 31, 2002 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 50,207,636 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 3,602,013(1) 7.2%
80 South 8th Street
Minneapolis, MN 55402
Capital Research and Management Co. 2,677,300(2) 5.3%
333 South Hope Street
Los Angeles, CA 90071
-----------------------------------
(1) Includes 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, 2001. Capital Research
and Management Company, as an investment adviser, reports no voting power
over such shares and sole investment power over all such shares.
SHARE OWNERSHIP OF MANAGEMENT
The following table lists, as of December 31, 2002, the beneficial
ownership of Common Stock for all directors, each of the Named Executives and
all directors and executive officers as a group. Except as otherwise indicated,
no director or executive officer individually owns as much as 1% of the total
outstanding shares of Common Stock.
NAME SHARES(1) NAME SHARES (1)
---- ---------- ---- ----------
John M. Ballbach........................... 146,330(3) Gregory R. Palen.......................... 28,453(4)(7)
Susan S. Boren............................. 26,821(2)(7) Lawrence Perlman.......................... 24,088(7)
Jeffrey H. Curler.......................... 20,529(7) Edward B. Pollak.......................... 23,279(7)
Steven L. Erdahl........................... 276,597(3)(8) Paul C. Reyelts........................... 566,409(3)(5)(10)
Charles W. Gaillard........................ 14,684(7) Richard M. Rompala........................ 757,061(3)(10)
Mae C. Jemison............................. 3,688(7)(9) Michael P. Sullivan....................... 23,811(6)(7)
William L. Mansfield....................... 179,943(3) Richard L. White.......................... 12,025(7)
Thomas R. McBurney......................... 30,560(7)
All directors and executive officers as a group........................................................... 2,297,977(3)(7)(1)
----------------------------
(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, 2002 through the Valspar
401(k) Employee Stock Ownership Trust and the Valspar Profit Sharing
Retirement Plan, respectively, and over which each participant has sole
voting power, as follows: Mr. Rompala - 4,055 and 3,528; Mr. Ballbach -
5,477 and 6,044; Mr. Mansfield - 12,321 and 0; Mr. Reyelts - 39,307 and
12,044; Mr. Erdahl - 18,593 and 0; and executive officers as a group,
84,374 and 21,616. 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, 610,430 shares;
Mr. Ballbach, 108,184 shares; Mr. Mansfield, 135,641 shares; Mr. Reyelts,
130,414 shares; Mr. Erdahl, 154,397 shares; and executive officers as a
group, 1,265,659 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 1,729 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, 13,750 shares; Mr. Curler,
13,500 shares; Mr. Gaillard, 10,400 shares; Dr. Jemison, 3,500 shares; Mr.
McBurney, 16,400 shares; Mr. Palen, 12,750 shares; Mr. Perlman, 12,600
shares; Mr. Pollak, 13,250 shares; Mr. Sullivan, 14,400 shares; Dr. White,
9,150 shares.
(8) Includes 22,377 shares owned by Mr. Erdahl's wife and 4,184 shares held in
trust for children.
(9) Dr. Jemison was elected to the Board effective January 1, 2002.
(10) Percentages of the outstanding shares of Common Stock beneficially owned by
these persons are as follows: Mr. Reyelts, 1.1%; Mr. Rompala, 1.5%; all
directors and executive officers as a group, 4.6%.
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.
2004 STOCKHOLDER PROPOSALS
Pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as
amended, a stockholder proposal must be received by the Corporation in its
principal executive offices on or before September 26, 2003 in order to be
considered timely and included in the Corporation's proxy statement for its 2004
Annual Meeting of Stockholders. Additionally, if the Corporation receives notice
of a stockholder proposal after December 10, 2003, 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 2003
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 24, 2003
--------------------------------------------------------------------------------
PLEASE SIGN, DATE AND RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE
OR
VOTE VIA THE INTERNET OR TELEPHONE
--------------------------------------------------------------------------------
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 26, 2003, 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 II) for a term of three years: SUSAN S. BOREN, JEFFREY H. CURLER AND
EDWARD B. POLLAK
FOR all nominees listed WITHHOLD authority (Instructions: To withhold authority to vote for
(except as marked to the to vote for all any nominee, write that nominee's name in the
contrary) nominees listed space provided below.)
---------------------------------------------------
(2) To approve an increase in the shares reserved under the Corporation's 1991
Stock Option Plan.
FOR AGAINST ABSTAIN
(3) To approve the amendment of Article Fourth of the Corporation's Certificate
of Incorporation to increase the authorized number of shares of stock.
FOR AGAINST ABSTAIN
(4) To approve the ratification of the appointment of Ernst & Young LLP as the
independent public accountants of the Corporation.
FOR AGAINST ABSTAIN
(5) The undersigned authorizes the Proxies to vote in their discretion upon
such other business as may properly come before the meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN
THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED
STOCKHOLDER. IF NO DIRECTION IS MADE, FOR ITEMS 1,
2, 3 AND 4.
___________________________________________________
___________________________________________________
Signature of Stockholder(s)
Date
________________________________________
NOTE: Please sign your name exactly as it is shown
at the left. When signing as attorney, executor,
administrator, trustee, guardian or corporate
officer, please give your full title as such. EACH
joint owner is requested to sign.
PLEASE SIGN, DATE AND RETURN THIS PROXY PROMPTLY IN
THE ENCLOSED POSTAGE PAID ENVELOPE OR VOTE VIA THE
INTERNET OR TELEPHONE.
APPENDIX A
THE VALSPAR CORPORATION
1991 STOCK OPTION PLAN
AS AMENDED THROUGH DECEMBER 11, 2002
1. PURPOSES OF THE PLAN
The purposes of the 1991 Stock Option Plan (the "Plan") are (i) to enhance the
ability of The Valspar Corporation (the "Company") and its subsidiary companies
to attract and retain superior personnel and (ii) to stimulate and reward their
interest and initiative. The Plan is designed to enable key officers and
employees, and certain other key individuals who perform services for the
Company, to contribute to the Company's strategic performance objectives by
making such individuals eligible to receive options to purchase common stock of
the Company as provided herein. Subject to the provisions of the Plan, options
may contain such terms and conditions as shall be required so as to be either
nonqualified stock options or incentive stock options as defined in Section 422
of the Internal Revenue Code of 1986, as amended (the "Code"). Subject to such
limits as may be imposed by existing or future laws or by the Plan, nonqualified
stock options or incentive stock options or both may be granted to eligible
individuals.
2. STOCK SUBJECT TO THE PLAN
Shares to be issued under the Plan shall be common stock of the Company (par
value $.50 per share) ("common stock"), not to exceed a maximum of 10,000,000
shares, and may be unissued shares or reacquired shares. If any options granted
under the Plan expire or terminate without having been exercised in full, such
unpurchased shares shall be available for other option grants. If shares of
common stock are delivered as full or partial payment upon exercise of an
option, the number of shares so delivered shall again be available for other
option grants.
3. ADMINISTRATION
The Plan shall be administered by a committee (the "Committee"), appointed from
time to time by the Company's Board of Directors (the "Board"), consisting of
not less than two members of the Board. Each Committee member shall be (a)
non-employee director within the meaning of Rule 16b-3 under the Securities
Exchange Act of 1934 (the "Exchange Act") or any successor Rule and (b) an
outside director within the meaning of Section 162(m) of the Internal Revenue
Code of 1986, as amended, and the rules and regulations thereunder. Except as
provided below, the Committee shall determine from time to time (i) the
individuals to whom grants will be made; (ii) the number of shares to be
granted; and (iii) the terms and provisions of each option (which need not be
identical). Except as provided below, each grant shall be in such form and
content as the Committee shall determine.
The Committee may from time to time adopt rules for carrying out the Plan and
for its interpretation and construction which rules shall be final, conclusive
and binding on all parties. All determinations of the Committee shall be made by
a majority of the Committee. Any determination reduced to writing and signed by
all members shall be as effective as if it had been made by a majority vote at a
duly constituted meeting.
The Company's Chief Executive Officer may, on a discretionary basis and without
Committee review or approval, grant options to purchase up to 5,000 shares each
to new employees of the Company who are not officers of the Company. Such
discretionary option grants shall not exceed 25,000 shares in total in any
fiscal year. Subject to the foregoing limitations, the Chief Executive Office
shall determine from time to time (i) the new employees to whom grants will be
made, (ii) the number of shares to be granted, and (iii) the terms and
provisions of each option (which need not be identical).
4. ELIGIBILITY
Options will be granted only to salaried officers and employees of the Company
or of a subsidiary (as defined in Section 425 of the Code) and to any other
individual who performs services for the Company and contributes to its
strategic performance objectives, including, without limitation, members of the
Board of Directors, consultants and advisors ("Optionee"); provided, however,
that a consultant or advisor shall not be eligible to receive stock options
hereunder unless such consultant or advisor renders bona fide services to the
Company or a subsidiary and such services are not in connection with the offer
or sale of securities in a capital-raising transaction.
Notwithstanding any other provisions of the Plan, the maximum number of shares
of Common Stock that may be covered by option grants to a person covered by
Section 162(m) of the Code during any fiscal year shall be 500,000 shares.
5. OPTION PRICE
The exercise price of each option shall be not less than 100% of the fair market
value of the common stock at the closing price on the day preceding the date
that such option is granted.
6. EXERCISE OF OPTION
The Committee may prescribe at the time of grant that the option will be
exercisable in full or in installments at any time or from time to time.
Optionee is not required to exercise options in the sequential order that the
options were granted. An option shall be exercised by written notice in a form
designated by the Company accompanied by full payment of the purchase price. All
or part of the purchase price may be paid by surrender (or deemed surrender
through attestation) of previously acquired shares of common stock which has
been owned for more than six months on the date of surrender valued at the fair
market value at the closing price on the day preceding the date of exercise.
Until an option is exercised and the stock certificate issued, the optionee
shall have no rights as a stockholder with respect to such option.
7. WITHHOLDING OF TAXES
Upon exercise of an option, the Optionee shall (i) pay cash, (ii) surrender
previously acquired shares of common stock or (iii) authorize the withholding of
shares from the shares issued upon exercise of an option for all taxes required
to be withheld.
8. NON-TRANSFERABILITY
Except as otherwise provided by the Committee, Options shall not be
transferable, voluntarily or involuntarily, except by will or applicable laws of
descent and distribution. Only the Optionee, Optionee's legal representative or
guardian or a permitted transferee may exercise the option.
9. DILUTION OR OTHER ADJUSTMENTS
The number of shares subject to the Plan, the outstanding options and the
exercise price may be adjusted by the Committee as it deems equitable in the
event of stock split, stock dividend, recapitalization, reclassification or
similar event to prevent dilution or enhancement of option rights.
10. MERGERS, ACQUISITION OR OTHER REORGANIZATION
The Committee may make provision, as it deems equitable, for the protection of
Optionees with grants of outstanding options in the event of (a) merger of the
Company into, or the acquisition of substantially all of the stock or assets of
the Company by, another entity; or (b) liquidation; or (c) other reorganization
of the Company.
11. 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.
12. 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.
13. DURATION OF THE PLAN
The Amended Plan shall become effective as of December 11, 2002, 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.