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]
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Check the appropriate box:
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[_] 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))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
THE VALSPAR CORPORATION
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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1) Title of each class of securities to which transaction applies:
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[_] 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:
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4) Date Filed:
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THE VALSPAR CORPORATION
------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
FEBRUARY 27, 2002
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 27, 2002 at 11:00 A.M., for the following
purposes:
1. To elect four directors (Class I) for a term of three years;
2. To approve an amendment to the Corporation's Stock Option Plan for
Non-Employee Directors;
3. To ratify the appointment of independent auditors to examine the
Corporation's accounts for the fiscal year ending October 25, 2002;
and
4. To transact such other business as may properly come before the
meeting or any adjournments thereof.
Stockholders of record at the close of business on December 31, 2001 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 26, 2001 also accompanies
this Notice.
By Order of the Board of Directors,
/s/ Rolf Engh
ROLF ENGH,
SECRETARY
Approximate Date of Mailing of Proxy Material:
January 25, 2002
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 27, 2002
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of proxies in the accompanying form. Shares will be voted
in the manner directed by the stockholders; provided, however, that if no
direction is given by a stockholder, the shares will be voted as recommended by
the Corporation's Board of Directors. A stockholder giving a proxy may revoke it
at any time before it is exercised by giving written notice of revocation to the
Office of the Secretary of the Corporation.
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, in all matters other than the election of directors, an action
of the stockholders requires the affirmative vote of shares present in person or
represented by proxy at the meeting and entitled to vote on the matter.
Accordingly, an abstention on any matter other than the election of directors
will have the same effect as a vote against that matter. A non-vote occurs when
a nominee holding shares for a beneficial owner votes on one proposal, but does
not vote on another proposal because the nominee does not have discretionary
voting power and has not received instructions from the beneficial owner. Broker
non-votes on a matter are counted as present for purposes of establishing a
quorum for the meeting, but are not considered entitled to vote on that
particular matter. Consequently, non-votes do not have the same effect as a
negative vote on the matter.
PROPOSAL NUMBER ONE
ELECTION OF DIRECTORS
In accordance with the Corporation's By-Laws, the number of directors is
currently fixed at twelve, divided into three classes. Each class consists of
four seats, with each director serving a term of three years. There are
currently eleven directors serving on the Board of Directors. The terms of Class
I directors will expire at the annual meeting in 2002. The Board of Directors
has nominated
1
Thomas R. McBurney, Richard M. Rompala, Michael P. Sullivan and Richard L. White
for re-election as Class I directors. Unless otherwise directed by the
stockholders, it is intended that shares represented by proxy will be voted in
favor of the election of the four nominees listed in Class I below, to hold
office until the annual meeting in 2005 and until their successors are elected
and qualify. If any of the nominees is unable or unwilling to stand for
election, it is intended that shares represented by proxy will be voted for a
substitute nominee recommended by the Board of Directors, unless the stockholder
otherwise directs. The Board is not aware that any of the nominees is unable or
unwilling to stand for election.
NAMES, PRINCIPAL OCCUPATIONS FOR THE PAST FIVE YEARS AND SELECTED
OTHER INFORMATION CONCERNING NOMINEES AND DIRECTORS
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CLASS I NOMINEES FOR TERM EXPIRING IN 2005
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THOMAS R. MCBURNEY President, McBurney Management Advisors
Director since 1987
Age -- 63
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 and Greenspring Companies.
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RICHARD M. ROMPALA Chairman, President and Chief Executive Officer of
Director since 1994 the Corporation
Age -- 55
Mr. Rompala has held his present position as Chairman since February 1998, Chief
Executive Officer since October 1995 and President since March 1994. Mr. Rompala
is also a director of Olin Corporation.
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MICHAEL P. SULLIVAN Chairman, International Dairy Queen, Inc.
Director since 1990
Age -- 67
Mr. Sullivan has held his present position as Chairman 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.
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RICHARD L. WHITE, PH.D. Former Executive Vice President, Bayer Corporation
Director since 2000
Age -- 62
Dr. White retired as Executive Vice President of Bayer Corporation on November
1, 1999. Prior to 1999, Dr. White served as Executive Vice President since July
1991. Dr. White is also a director of Petro Rem.
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2
NAMES, PRINCIPAL OCCUPATIONS FOR THE PAST FIVE YEARS AND SELECTED
OTHER INFORMATION CONCERNING NOMINEES AND DIRECTORS
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CLASS II DIRECTORS CONTINUING IN OFFICE UNTIL 2003
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SUSAN S. BOREN Principal, SpencerStuart
Director since 1991
Age -- 54
Ms. Boren has been Principal-Minneapolis office of SpencerStuart, an executive
search firm, since May 2000. Prior to 2000, Ms. Boren was Director-Minneapolis
office of SpencerStuart, since May 1998. Prior to 1998, Ms. Boren was the
President of Trillium Advisors, Inc., a firm she founded in 1996 to advise
executives and boards on the strategic integration of leadership, governance and
organizational values.
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JEFFREY H. CURLER President and Chief Executive Officer,
Director since 1997 Bemis Company, Inc.
Age -- 51
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 from 1998 to 2000. Mr. Curler is also a director of Bemis
Company, Inc.
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EDWARD B. POLLAK Retired Senior Vice President,
Director since 1997 Olin Corporation
Age -- 67
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.
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CLASS III DIRECTORS CONTINUING IN OFFICE UNTIL 2004
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CHARLES W. GAILLARD Retired President, General Mills, Inc.
Director since 1999
Age -- 61
Mr. Gaillard retired as President of General Mills, Inc. on October 1, 1999.
Prior to 1999, Mr. Gaillard served as President since May 1995 and Vice Chairman
since December 1993. Mr. Gaillard is also a director of PepsiAmericas, Inc.
(formerly Whitman Corporation).
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3
NAMES, PRINCIPAL OCCUPATIONS FOR THE PAST FIVE YEARS AND SELECTED
OTHER INFORMATION CONCERNING NOMINEES AND DIRECTORS
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MAE C. JEMISON, M.D. President, The Jemison Group, Inc.
Director since January 2002
Age -- 45
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 is a professor of Environmental Studies at Dartmouth College and directs
the Jemison Institute for Advancing Technology in Developing Countries at
Dartmouth College. 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.
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GREGORY R. PALEN Chairman and Chief Executive Officer,
Director since 1992 Spectro Alloys Corporation; Chief Executive
Age -- 46 Officer, Palen/Kimball Company
Mr. Palen has held his present position as Chairman and Chief Executive Officer
with Spectro Alloys Corporation, an aluminum recycler and manufacturing company,
since 1988. He has been Chief Executive Officer of Palen/Kimball Company, a
mechanical service company, since May 1993. Mr. Palen is also a director of
Palen/Kimball Company, Spectro Alloys Corporation, Opus Northwest LLC and
Polaris Industries Inc.
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LAWRENCE PERLMAN Chairman, Arbitron, Inc.; Chairman and
Director since 1992 Chief Executive Officer, XIOtech Corporation;
Age -- 63 Private Investor
Mr. Perlman has held his present position as Chairman of Arbitron, Inc. since
March 2001 and Chairman and Chief Executive Officer of XIOtech Corporation since
August 2001. 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.
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4
BOARD COMMITTEES
The standing committees of the Board of Directors for 2001 were as follows:
NAME OF COMMITTEE MEMBERSHIP
----------------- ----------
Audit Committee Susan S. Boren, Jeffrey H. Curler -- Chair,
Charles W. Gaillard, Thomas R. McBurney,
Gregory R. Palen and Richard L. White
Executive Committee Thomas R. McBurney, Richard M. Rompala --
Chair and Michael P. Sullivan
Compensation Committee Susan S. Boren, Thomas R. McBurney,
Lawrence Perlman, Edward B. Pollak and
Michael P. Sullivan -- Chair
Governance Committee Susan S. Boren, Jeffrey H. Curler,
Charles W. Gaillard, Thomas R. McBurney --
Chair, Gregory R. Palen, Lawrence Perlman,
Edward B. Pollak, Michael P. Sullivan and
Richard L. White
Dr. Mae C. Jemison was appointed to the Audit and Governance Committees,
effective January 2002.
The Board of Directors met seven times during fiscal 2001.
The Audit Committee held three meetings during the fiscal year and held
four teleconferences with the Audit Committee Chair prior to each quarterly
earnings release. The duties and activities of the Audit Committee are described
in the Board Audit Committee Report on page 14. The Board of Directors has
determined, in its business judgment, that all members of the Audit Committee
are "independent", as required by the applicable listing standards of the New
York Stock Exchange.
The Governance Committee held four 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 Compensation Committee held two meetings during the fiscal year at
which it reviewed and approved the compensation plans and arrangements or
granted options for officers, key employees and directors.
The Governance Committee will consider nominees for Board membership
submitted by stockholders. Any such recommendation should be submitted in
writing to the Corporation in care of Corporate Secretary, at 1101 Third Street
South, Minneapolis, Minnesota 55415, along with the written consent of such
nominee to serve as a director if so elected. Candidates for director should be
persons with broad training and experience in their chosen fields and who have
earned distinction in their activities.
During fiscal 2001, each director attended 75% or more of the meetings of
the Board and of the committees on which the director served, with the exception
of Mr. Perlman who attended 5 of 9 such meetings.
5
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. Prior to January 1, 2002, the annual fee for the Chairs
of the Audit and Compensation Committees was $33,000. Attendance fees of $1,000
are paid for each meeting of the Board of Directors and $1,000 for each meeting
of a committee of the Board of Directors not held the same day as a Board of
Directors meeting. At a director's option, the annual fee and attendance fee may
be paid by the Corporation purchasing shares of its Common Stock in the open
market on behalf of the director. Any costs of such purchases are paid by the
Corporation. In addition, 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. See "Proposal Number Two -- Approval of Amendment of
The Valspar Corporation Stock Option Plan for Non-Employee Directors." For
grants in respect of service in fiscal year 2001, each Non-Employee Director
serving as a member of the Board on October 26, 2001 will automatically be
granted a non-qualified stock option, on the date of the Company's annual
meeting in 2002. Assuming that the stockholders approve the proposed amendment
to the plan, the value of the stock option will be equal to 100% of the annual
retainer and meeting fees for the preceding year. Prior to the amendment, the
non-qualified stock option grants have had a value equal to one-half of the
amount of the director's annual retainer for the most recently ended fiscal
year. The per share option exercise price is equal to 100% of the fair market
value of the Corporation's Common Stock at the closing price on the day
preceding the date of grant. The number of shares subject to the option is
determined by using the same option valuation model used to value options for
purposes of the notes to the Corporation's audited financial statements for the
prior fiscal year. Each option is immediately exercisable in full, has a term of
ten years and is transferable to family members during the lifetime of the
optionee. On February 28, 2001, the non-employee directors received options to
purchase the following numbers of shares at an exercise price of $32.75 per
share: Ms. Boren, 2,550 shares; Mr. Curler, 2,150 shares; Mr. Gaillard, 2,150
shares; Mr. McBurney, 2,950 shares; Mr. Palen, 2,350 shares; Mr. Perlman, 2,300
shares; Mr. Pollak, 2,400 shares; Mr. Sullivan, 2,600 shares; and Mr. White,
2,000 shares.
6
CERTAIN TRANSACTIONS
The Leveraged Equity Purchase Plan (the "LEPP"), which was approved by the
stockholders in February 1991, provides key employees (including executive
officers) with loans from the Corporation, up to an aggregate amount of
$6,000,000, to permit them to acquire Common Stock of the Corporation in the
open market. The LEPP is administered by the Compensation Committee, with the
Committee selecting the individuals to be granted loans and determining the size
of such loans. A participant may borrow from the Corporation 90% of the cost of
the shares being purchased, such loan being evidenced by a nonrecourse
promissory note bearing interest at a reasonable market rate and having a term
up to five years. All loans reflected in the table below were granted in fiscal
1999, 2000 and 2001 and bear an interest rate of 5.1%, 6.39% and 6.09%,
respectively. The following lists each director and executive officer whose loan
from the Corporation exceeded $60,000 at any time during fiscal 2001, and
indicates (i) the largest loan amount outstanding for such individual at any
time since October 28, 2000, and (ii) the loan amount outstanding for such
individual as of December 31, 2001:
LARGEST AMOUNT
NAME OF OUTSTANDING SINCE AMOUNT OUTSTANDING
EXECUTIVE OFFICER OCTOBER 28, 2000 AS OF DECEMBER 31, 2001
-------------------- ----------------- -----------------------
John M. Ballbach $119,858 $ 77,718
Rolf Engh 234,470 163,288
Steven L. Erdahl 129,674 106,318
William L. Mansfield 108,954 82,924
Paul C. Reyelts 104,774 37,448
Richard M. Rompala 144,225 94,802
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 26, 2001, and except as set forth below, the reporting persons
have complied with all filing requirements of Section 16(a) of the 1934 Act.
There was a late filing of one Form 4 on behalf of Mr. John M. Ballbach, an
executive officer of the Corporation, reporting an open market sale of common
stock. This was an inadvertent omission and the Form 4 was promptly filed upon
discovery of the oversight.
7
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table shows, for the fiscal years ended October 26, 2001,
October 27, 2000 and October 29, 1999, the cash compensation paid by the
Corporation, as well as certain other compensation paid or accrued for those
years, to Richard M. Rompala, the Corporation's President and Chief Executive
Officer, and each of the four other most highly compensated executive officers
of the Corporation (together with Mr. Rompala, the "Named Executives"):
SUMMARY COMPENSATION TABLE
ANNUAL LONG TERM
COMPENSATION COMPENSATION AWARDS
-------------------- -------------------------------------
RESTRICTED STOCK OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION* YEAR SALARY BONUS(1) AWARDS(2)(3) (NO. OF SHARES)(4) COMPENSATION(5)
---------------------------- ---- -------- -------- ---------------- ------------------ ---------------
Richard M. Rompala 2001 $732,300 $213,207 $213,207 176,500 $73,087
Chairman, President and 2000 640,000 0 0 165,296 91,378
Chief Executive Officer 1999 586,923 0 873,342 55,000 75,031
Steven L. Erdahl 2001 300,184 99,061 99,061 55,500 23,740
Senior Vice President, 2000 276,149 0 0 66,053 37,889
Industrial and Automotive 1999 244,308 0 302,942 17,500 30,808
Coatings
Paul C. Reyelts 2001 300,184 0 188,276 64,500 23,951
Senior Vice President, 2000 278,264 0 0 66,580 40,208
Finance and Chief 1999 262,500 0 304,500 17,500 33,408
Financial Officer
John M. Ballbach 2001 283,070 101,594 101,594 52,000 36,269
Senior Vice President, 2000 253,269 107,108 0 35,123 43,950
EPS, Color Corporation of 1999 205,385 121,177 0 9,000 25,008
America and Operations
William L. Mansfield 2001 300,184 90,055 90,055 55,500 23,951
Senior Vice President, 2000 278,264 0 0 61,667 40,896
Architectural, Packaging 1999 254,654 0 323,410 17,500 31,493
and Specialty Coatings
----------------------------
* As of October 26, 2001
(1) Includes, for these fiscal years, cash bonuses under the Incentive Bonus
Plan. Does not include bonuses under the Incentive Bonus Plan for these
fiscal years received in restricted stock or stock options pursuant to
elections under the Key Employee Annual Bonus Plan. See note (2) below and
"Board Compensation Committee Report on Executive Compensation."
(2) Pursuant to the Key Employee Annual Bonus Plan, Mr. Reyelts elected to
receive his bonus under the Incentive Bonus Plan for fiscal 2001 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. For fiscal 1999, each of the Named
Executives, other than Mr. Ballbach, elected to receive all of his bonus in
the form of a grant of restricted stock with a value equal
8
to two times the amount of the bonus. Each grant of restricted stock 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 26, 2001, 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, 38,130 shares, $1,301,377; Mr. Erdahl, 14,233 shares, $485,772;
Mr. Reyelts, 13,817 shares, $471,574; Mr. Ballbach, 0 shares, $0; and Mr.
Mansfield, 12,414 shares, $423,690. Dividends are paid on shares of
restricted stock from the date of grant.
(4) Options indicated for fiscal 2001 were granted on December 12, 2000 and
October 17, 2001 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 include 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. Due to an interim plan change under the Profit Sharing
Retirement Plan, the contribution period reported represents a two-month
period.
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 2001:
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS POTENTIAL
--------------------------------------------------- REALIZABLE VALUE
% OF TOTAL AT ASSUMED ANNUAL
OPTIONS RATE OF STOCK PRICE
GRANTED TO APPRECIATION FOR
EMPLOYEES OPTION TERM(3)
OPTIONS IN FISCAL EXERCISE PRICE EXPIRATION ------------------------
NAME GRANTED(1) YEAR PER SHARE(2) DATE 5% 10%
---- ---------- --------- -------------- ---------- ---------- ----------
Richard M. Rompala .......... 76,500 8.2 $ 29.92 12/12/10 $1,439,730 $3,647,520
100,000 6.8 33.60 10/17/11 2,113,000 5,355,000
Steven L. Erdahl ............ 25,500 2.7 29.92 12/12/10 479,910 1,215,840
30,000 2.0 33.60 10/17/11 633,900 1,606,500
Paul C. Reyelts ............. 29,500 3.2 29.92 12/12/10 555,190 1,406,560
35,000 2.4 33.60 10/17/11 739,550 1,874,250
John M. Ballbach ............ 23,500 2.5 29.92 12/12/10 442,270 1,120,480
28,500 1.9 33.60 10/17/11 602,205 1,526,175
William L. Mansfield ........ 25,500 2.7 29.92 12/12/10 479,910 1,215,840
30,000 2.0 33.60 10/17/11 633,900 1,606,500
--------------------
(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.
9
OPTION EXERCISES AND HOLDINGS
The following table sets forth information with respect to the Named
Executives concerning the exercise of options during fiscal 2001 and unexercised
options held as of October 26, 2001:
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
SHARES OCTOBER 26, 2001 AT OCTOBER 26, 2001(2)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
Richard M. Rompala ......... 0 -- 440,577 262,019 $4,934,800 $372,608
Steven L. Erdahl ........... 0 -- 96,850 82,713 871,939 120,320
Paul C. Reyelts ............ 0 -- 96,774 95,846 823,286 141,802
John M. Ballbach ........... 0 -- 57,350 69,333 572,066 105,192
William L. Mansfield ....... 0 -- 94,644 83,793 811,237 122,700
--------------------
(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 26, 2001.
CHANGE IN CONTROL AGREEMENTS
The Corporation has entered into agreements with certain key employees,
including the Named Executives, providing for the continued employment of such
executives for a period of up to two years following a change in control of the
Corporation. During such two-year period, executives would continue to be
employed and compensated commensurate with their positions and compensation
prior to the change in control. Each agreement continues in effect until the
earlier of (i) a termination of the executive's employment prior to the
occurrence of a change in control or (ii) a payment event shall have occurred
and the Corporation shall have satisfied all of its obligations under the
agreement. Payment event means the occurrence of a change in control coincident
with or followed at any time before the end of 24-month period immediately
following the month in which the change in control occurred, by the termination
of the executive's employment with the Corporation or a subsidiary for any
reason other than: (a) by the executive without good reason; (b) by the
Corporation as a result of the disability of the executive or for cause; or (c)
as a result of the death of the executive. Payments required under each
agreement include a severance payment amount which, in the case of the Named
Executives, is equal to: (a) the higher of: (i) three times the sum of
executive's annual base salary in effect prior to the change in control and the
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.
10
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 15
and 16. The Committee does not use the market value or performance of the
Corporation's Common Stock as a direct factor in determining the base salaries
or bonuses of the executive officers. Increases in base salary are determined
from time to time based on the Corporation's financial performance. The base
salary of the Named Executives increased by an average of 10.1% from fiscal 2000
to fiscal 2001. The increases for 2001 reflected general corporate performance,
based on sales, profits, expense control, unit growth and return on equity for
fiscal 2000.
BONUS PROGRAMS. Since prior to fiscal 1988, the Corporation has had a
policy of granting incentive bonuses to its key employees (including executive
officers), referred to as the "Incentive Bonus Plan." In the first quarter of
each fiscal year, specific performance targets are identified for each
participant in the Incentive Bonus Plan, including both general corporate
measures of performance (such as sales, profits, expense control, unit growth
and return on equity) and specific measures of performance within the
participant's area of responsibility. After the end of such fiscal year, if the
participant remains employed by the Corporation, a bonus of up to a specified
percentage of the participant's salary (81.25% -- 100% for executive officers in
fiscal 2001) 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 2001 ranged from 29.1% to
35.9% of salary.
Pursuant to the Key Employee Annual Bonus Plan, adopted for fiscal 1993 and
subsequent years, the Committee may select those key employees (including
executive officers) who are eligible to participate in the plan. The plan is
comprised of three elements: a stock option grant, a cash bonus and a restricted
stock award equal to the cash bonus.
Participants in this plan receive a nonqualified stock option, with the
number of shares subject to the option calculated as a percentage of base salary
for the fiscal year based on performance. The value
11
of the shares subject to options for fiscal 2001 bonuses ranged from 300 to 350%
of the 2001 base salary for the Named Executives and 400% for the Chief
Executive Officer. These options were granted in October 2001 with an exercise
price based on the fair market value of the Corporation's Common Stock at the
closing price on the day preceding the date of grant. Thirty-two employees,
including all executive officers, were selected to participate for fiscal year
2001 in the plan. In addition, 991 employees were selected to participate in the
Annual Option Bonus Plan, in which a participant receives stock options, with
the number of options calculated as a percentage of base salary for the fiscal
year based on performance.
As to the cash bonus element, participants elected prior to the beginning
of fiscal 2001 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 2001 to receive the restricted
stock grant for that fiscal year, and the restricted stock is granted in January
2002. The restricted stock is forfeitable for three years from the date of grant
if the participant's employment with the Corporation terminates for any reason
other than death, disability, retirement or a change in control of the
Corporation. In addition, participants receive a restricted stock grant equal in
amount to their cash bonus and having the same forfeiture provisions.
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. 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 2001 were determined under the Key Employee Annual Bonus
Plan as described under "Bonus Programs" above.
DEDUCTIBILITY OF COMPENSATION. Section 162(m) of the Internal Revenue Code,
enacted in 1993, generally limits to $1 million the tax deductibility of
compensation paid by a public company to its chief executive and four other most
highly compensated executive officers. Certain performance-based compensation is
not subject to the limitation. The Committee considers the deductibility of
compensation arrangements as one factor in executive compensation decisions 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 Annual Bonus Plan are intended
to permit compensation income of the Named Executives received under such plans
to be deductible by the Corporation. Since corporate objectives may not always
be consistent with the requirements for full deductibility, it is conceivable
that the Corporation may enter into compensation arrangements under which
compensation in excess of $1 million is not deductible under Section 162(m).
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
In setting Mr. Rompala's base salary, the Committee considered quantitative
measures related to the Corporation's financial performance as well as a number
of qualitative measures related to 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 15 and 16. Mr. Rompala's
base salary increased approximately 14.4% from fiscal 2000 to fiscal 2001. This
increase reflected general corporate performance, based on sales, profits,
expense control, unit growth and return on equity. The Corporation also granted
an incentive bonus to Mr. Rompala under the Incentive Bonus Plan. Mr. Rompala's
performance targets included net income, net sales and modified cash flow. Mr.
Rompala was eligible for a bonus of up to 100% of his salary, depending upon
12
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 2001 was $213,207, or 29.1% of his salary. Under the terms of the
Incentive Bonus 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. He also received stock options in October 2001 under the
formula provided in the Key Employee Annual Bonus Plan. The value of the shares
subject to these options for Mr. Rompala's fiscal 2001 bonus was 400% of his
2001 base salary.
SUBMITTED BY THE COMPENSATION COMMITTEE
OF THE CORPORATION'S BOARD OF DIRECTORS:
Susan S. Boren Edward B. Pollack
Thomas R. McBurney Michael P. Sullivan
Lawrence Perlman
13
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 2002 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 26, 2001 for filing with the Securities
and Exchange Commission.
SUBMITTED BY THE AUDIT COMMITTEE
OF THE CORPORATION'S BOARD OF DIRECTORS
Susan S. Boren Thomas R. McBurney
Jeffrey H. Curler Gregory R. Palen
Charles W. Gaillard Richard L. White
14
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 1996 and fiscal 1991,
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
[PLOT POINTS CHART]
CUMULATIVE TOTAL RETURN
-----------------------
1996 1997 1998 1999 2000 2001
---- ---- ---- ---- ---- ----
Valspar $100 $122 $117 $128 $117 $147
Peer Group $100 $111 $117 $121 $102 $114
S&P 500 $100 $132 $161 $203 $215 $161
Assumes $100 invested on October 31, 1996 in the Common Stock of The Valspar
Corporation, the S&P 500 Index and the Peer Group, including reinvestment of
dividends.
15
COMPARISON OF TEN YEAR CUMULATIVE TOTAL RETURN
AMONG THE VALSPAR CORPORATION, THE S&P 500 INDEX AND A PEER GROUP
[PLOT POINTS CHART]
CUMULATIVE TOTAL RETURN
-----------------------
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Valspar $100 $142 $179 $166 $180 $230 $280 $269 $294 $270 $338
Peer Group $100 $123 $136 $155 $163 $214 $238 $251 $259 $218 $243
S&P 500 $100 $110 $126 $131 $166 $206 $272 $332 $417 $443 $332
Assumes $100 invested on October 31, 1991 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 AMENDMENT TO
THE VALSPAR CORPORATION STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
On December 11, 2001, the Compensation Committee of the Corporation's Board
of Directors approved an amendment, subject to approval of the stockholders of
the Corporation, to The Valspar Corporation Stock Option Plan for Non-Employee
Directors (the "Director Plan") increasing the value of the annual stock option
granted to each non-employee director under the Director Plan beginning with
grants at the 2002 Annual Meeting. The stockholders are being asked to approve
this amendment.
16
BACKGROUND OF THE DIRECTOR PLAN
The Corporation's Board of Directors adopted the Director Plan on December
10, 1997, and reserved 250,000 shares of Common Stock for issuance under the
Director Plan, subject to approval of the stockholders of the Corporation, which
was obtained on February 25, 1998. The Director Plan was developed to serve as
part of a compensation program for non-employee directors. The Director Plan is
intended to enhance the Corporation's ability to attract and retain the services
of experienced and knowledgeable independent directors and to provide additional
incentive for these directors to increase their interest in the Corporation's
long-term success and progress. A registration statement covering the shares
issuable under the Director Plan was filed in February 1998 with the Securities
and Exchange Commission. Non-qualified stock options may be granted pursuant to
the Director Plan until the Director Plan is discontinued or terminated by the
Compensation Committee of the Board of Directors.
SUMMARY OF THE DIRECTOR PLAN AND AMENDMENT
OPTION GRANTS UNDER THE DIRECTOR PLAN. Only members of the Corporation's
Board of Directors who are not employees of the Corporation or any of its
subsidiaries ("Non-Employee Directors") are eligible to receive option grants
under the Director Plan. Commencing with the annual stockholder meeting in 1999,
each Non-Employee Director serving as a member of the Board of Directors of the
Corporation on the December 31 immediately preceding each annual meeting of the
stockholders of the Corporation, was automatically granted a stock option on the
date of such annual meeting.
Under the Director Plan as originally adopted, each stock option granted
under the Director Plan had a value equal to 50% of the amount of the current
retainer paid to Non-Employee Directors for their service on the Board of
Directors for the preceding fiscal year. The number of shares subject to the
option is determined by using the same option valuation model used to value
options for purposes of the notes to the Corporation's audited financial
statements for the prior fiscal year. If no option valuation model is used for
financial reporting purposes, the Board of Directors will determine the
appropriate valuation model to be used for this purpose. For all years in which
the Director Plan has been in effect, the Corporation has used the Black-Scholes
valuation model for purposes of valuing the options. The options granted in
February 2001 under the Director Plan are described under "Election of Directors
-- Director Compensation."
AMENDMENT PROPOSED FOR APPROVAL. The amendment adopted in December 2001,
subject to stockholder approval, increases the value of the option grants to
Non-Employee Directors starting with the grants at the 2002 Annual Meeting. If
the stockholders approve the amendment, each Non-Employee Director who served as
a member of the Board of Directors of the Corporation on October 26, 2001, will
receive a stock option with a value of 100% of the amount of the annual retainer
and meeting fees paid to the Non-Employee Director for his or her service on the
Board of Directors and board committees for fiscal year 2001, compared to a
value of 50% of the amount of the annual retainer for options granted before the
Director Plan was amended. For subsequent fiscal years, the option grant will
continue to have a value of 100% of the amount of the annual retainer and
meeting fees paid to Non-Employee Directors for their service on the Board of
Directors and board committees for the fiscal year, and will be made to each
Non-Employee Director serving as a member of the Board of Directors of the
Corporation as of the date of the October Board meeting of each year.
TERMS OF STOCK OPTIONS. All options granted under the Director Plan are
designated as non-qualified stock options. 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 of the Corporation's
Common Stock on the last business day prior to the date of grant. Each option is
17
immediately exercisable in full and has a term of ten years. Upon termination of
a person's service as a director of the Corporation, such director will be
allowed to exercise the option for the shorter of the remaining term of the
option or a period of three years after the date on which such person ceased to
be a director. Under an amendment to the Director Plan adopted by the
Compensation Committee in December 2001, each option granted under the Director
Plan is transferable during the lifetime of the optionee to certain of the
optionee's family members and related entities, or to entities exempt from
federal income taxation pursuant to Section 501(c)(3) of the Internal Revenue
Code of 1986, as amended.
ADMINISTRATION. The Director Plan is administered by the Compensation
Committee of the Board of Directors. The Director Plan vests broad powers in the
Committee to administer and interpret the Director Plan, including the authority
to prescribe the form and conditions of the options.
ELIGIBILITY. Each Non-Employee Director of the Company will be eligible to
participate in the Director Plan. The Corporation currently has ten
Non-Employee Directors.
EXERCISE OF OPTIONS. Upon exercise of an option under the Director Plan,
the exercise price is to be paid in cash, by check or by delivering Common Stock
of the Corporation valued at its then fair market value. The closing price of
the Corporation's Common Stock was $39.60 on December 31, 2001.
AMENDMENT. The Compensation Committee may from time to time suspend or
discontinue the Director Plan for Non-Employee Directors 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 Director 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 Director
Plan.
The Compensation Committee may equitably adjust the maximum number of
shares of Common Stock reserved for issuance under the Director 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
Compensation Committee may also provide for the protection of optionees in the
event of a merger, liquidation or reorganization of the Corporation.
FEDERAL INCOME TAX CONSEQUENCES
Nonqualified stock option grants are not intended to and do not qualify for
the favorable tax treatment permitted for incentive stock options. Under present
law, an optionee will not realize any taxable income on the date an option is
granted to the optionee pursuant to the Director Plan. Upon exercise of the
option, however, the optionee will realize, in the year of exercise, ordinary
income to the extent of the difference between the option price and the fair
market value on the date of exercise. Upon the sale of shares, any resulting
gain or loss will be treated as capital gain or loss. The Corporation will
receive a deduction in its fiscal year in which options are exercised, equal to
the amount of compensation required to be included as ordinary income by those
optionees exercising options.
VOTE REQUIRED
The Board recommends that the stockholders approve the amendment to The
Valspar Corporation Stock Option Plan for Non-Employee Directors. The
affirmative vote of a majority of the shares represented at the Annual Meeting
and entitled to vote is required for approval.
18
PROPOSAL NUMBER THREE
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 25, 2002. Ernst & Young LLP acted as the Corporation's principal
auditors for the fiscal year ended October 26, 2001. A representative of Ernst &
Young LLP is expected to be present at the 2002 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 26, 2001:
DESCRIPTION OF FEES $ AMOUNT
------------------- ----------
Audit Fees(1) $ 603,800
Financial Information Systems Design and Implementation $ 0
All Other Fees
Audit Related Services(2) $ 321,000
Other Fees(3) $ 871,300
Total All Other Fees(4) $1,192,300
--------------------
(1) Includes fees for audit of the October 26, 2001 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.
19
OUTSTANDING SHARES AND VOTING RIGHTS
Stockholders of record on December 31, 2001 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 49,598,813 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 3,677,013(1) 7.4%
80 South 8th Street
Minneapolis, MN 55402
Capital Research and Management Co. 2,677,300(2) 5.4%
333 South Hope Street
Los Angeles, CA 90071
Resource Trust Company 3,259,904(3) 6.6%
900 Second Avenue South
Minneapolis, MN 55402
--------------------
(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, 2000. Capital Research
and Management Company, as an investment adviser, reports no voting power
over such shares and sole investment power over all such shares.
(3) Shares reported on Schedule 13G as of December 31, 2000. Resource Trust
Company reports shared investment power over 2,539,666 shares, sole
investment power over 720,238 shares and sole voting power over 3,259,904
shares.
20
SHARE OWNERSHIP OF MANAGEMENT
The following table lists, as of December 31, 2001, 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 ....... 93,627(3) Gregory R. Palen ...... 20,803(4)(7)
Susan S. Boren ......... 18,146(2)(7) Lawrence Perlman ...... 16,268(7)
Jeffrey H. Curler ...... 11,532(7) Edward B. Pollak ...... 14,867(7)
Steven L. Erdahl ....... 257,472(3)(8) Paul C. Reyelts ....... 513,055(3)(5)(10)
Charles W. Gaillard .... 6,643(7) Richard M. Rompala .... 668,138(3)(10)
Mae C. Jemison ......... 0(7)(9) Michael P. Sullivan ... 15,511(6)(7)
William L. Mansfield ... 152,852(3) Richard L. White ...... 3,984(7)
Thomas R. McBurney ..... 21,615(7)
All directors and executive officers as a group ...................... 1,930,971(3)(7)(10)
--------------------
(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, 2001 through the Valspar
401(K) Employee Stock Ownership Plan and the Valspar Profit Sharing
Retirement Plan, respectively, and over which each participant has sole
voting power, as follows: Mr. Rompala -- 3,539 and 3,149; Mr. Erdahl --
18,728 and 0; Mr. Reyelts -- 38,917 and 11,754; Mr. Ballbach -- 5,009 and
5,641; Mr. Mansfield -- 11,740 and 0; and executive officers as a group,
82,090 and 20,544. 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, 519,263 shares;
Mr. Erdahl, 122,363 shares; Mr. Reyelts, 125,788 shares; Mr. Ballbach,
75,651 shares; Mr. Mansfield, 120,637 shares; and executive officers as a
group, 1,061,628 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 1,604 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, 6,050 shares; Mr. Curler,
5,500 shares; Mr. Gaillard, 3,250 shares; Dr. Jemison, 0 shares; Mr.
McBurney, 6,750 shares; Mr. Palen, 5,700 shares; Mr. Perlman, 5,650 shares;
Mr. Pollak, 5,750 shares; Mr. Sullivan, 6,100 shares; Mr. White, 2,000
shares.
(8) Includes 44,011 shares owned by Mr. Erdahl's wife and 3,224 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, 1.0%; Mr. Rompala, 1.3%; all
directors and executive officers as a group, 3.9%.
21
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.
2003 STOCKHOLDER PROPOSALS
The deadline for submission of stockholder proposals pursuant to Rule 14a-8
under the Securities Exchange Act of 1934, as amended, for inclusion in the
Corporation's proxy statement for its 2003 Annual Meeting of Stockholders is
September 27, 2002. Additionally, if the Corporation receives notice of a
stockholder proposal after December 11, 2002, 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 2002 Annual
Meeting of Stockholders may exercise discretionary voting power with respect to
such proposal.
By Order of the Board of Directors,
/s/ Rolf Engh
ROLF ENGH,
SECRETARY
Minneapolis, Minnesota
January 25, 2002
--------------------------------------------------------------------------------
PLEASE SIGN, DATE AND RETURN
YOUR PROXY IN THE ENCLOSED ENVELOPE
OR VOTE VIA THE INTERNET OR TELEPHONE.
--------------------------------------------------------------------------------
22
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 27, 2002, 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:
(CONTINUED ON THE OTHER SIDE)
[ARROW] FOLD AND DETACH HERE [ARROW]
LOCATION OF
THE VALSPAR CORPORATION
ANNUAL MEETING OF STOCKHOLDERS
WEDNESDAY, FEBRUARY 27, 2002
11:00 A.M.
MEETING ADDRESS: VALSPAR RESEARCH CENTER
312 SOUTH 11TH AVENUE
MINNEAPOLIS, MINNESOTA 55415
PARKING: VALSPAR CORPORATE OFFICES
1101 THIRD STREET SOUTH
MINNEAPOLIS, MINNESOTA 55415
NOTE: THESE TWO LOCATIONS ARE DIRECTLY ACROSS
FROM EACH OTHER ON 11TH AVENUE.
THE PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR ITEMS 1, 2 AND 3.
PLEASE MARK YOUR VOTES AS INDICATED IN THIS EXAMPLE [X]
(1) To elect four directors (Class I) for a term of three years:
FOR all nominees WITHHOLD AUTHORITY
listed (except as marked to vote for all
to the contrary) nominees listed
[ ] [ ]
01 Thomas R. McBurney, 02 Richard M. Rompala,
03 Michael P. Sullivan, 04 Richard L. White
(Instructions: To withhold authority to vote for any nominee, write that
nominee's name in the space provided below.)
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(2) To approve an amendment to the Corporation's Stock Option Plan for
Non-Employee Directors.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
(3) To approve the ratification of the appointment of Ernst & Young LLP as the
independent public accountants of the Corporation.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
(4) The undersigned authorizes the Proxies to vote in their discretion upon
such other business as may properly come before the meeting.
SIGNATURE _____________________ SIGNATURE _____________________ DATE ___________
NOTE: PLEASE SIGN YOUR NAME EXACTLY AS IT IS SHOWN ABOVE. WHEN SIGNING AS
ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE, GUARDIAN OR CORPORATE OFFICER,
PLEASE GIVE FULL TITLE AS SUCH. EACH JOINT OWNER IS REQUIRED TO SIGN. PLEASE
RETURN THIS PROXY PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE OR VOTE VIA THE
INTERNET OR TELEPHONE.
[ARROW] FOLD AND DETACH HERE [ARROW]
VOTE BY INTERNET OR TELEPHONE OR MAIL
24 HOURS A DAY, 7 DAYS A WEEK
INTERNET AND TELEPHONE VOTING IS AVAILABLE THROUGH 4:00 P.M. EASTERN TIME
ON FEBRUARY 26, 2002
YOUR INTERNET OR TELEPHONE VOTE AUTHORIZES THE NAMED PROXIES TO VOTE YOUR SHARES
IN THE SAME MANNER AS IF YOU MARKED, SIGNED AND RETURNED YOUR PROXY CARD.
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INTERNET
http://www.eproxy.com/val
Use the Internet to vote your proxy. Have your proxy card in hand when you
access the web site. You will be prompted to enter your control number, located
in the box below, to create and submit an electronic ballot.
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OR
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TELEPHONE
1-800-435-6710
Use any touch-tone telephone to vote your proxy. Have your proxy card in hand
when you call. You will be prompted to enter your control number, located in the
box below, and then follow the directions given.
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OR
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MAIL
Mark, sign and date your proxy card and return it in the enclosed postage-paid
envelope.
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IF YOU VOTE YOUR PROXY BY INTERNET OR BY TELEPHONE,
YOU DO NOT NEED TO MAIL BACK YOUR PROXY CARD.
Appendix A
THE VALSPAR CORPORATION STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS, AS AMENDED 12/12/2001
SECTION 1. PURPOSE.
This plan is known as "The Valspar Corporation Stock Option Plan for
Non-Employee Directors" and is hereinafter referred to as the "Plan." The
purpose of the Plan is to promote the interests of The Valspar Corporation, a
Delaware corporation (the "Company"), by enhancing its ability to attract and
retain the services of experienced and knowledgeable independent directors and
by providing additional incentive for these directors to increase their interest
in the Company's long-term success and progress.
SECTION 2. PARTICIPATION IN THE PLAN.
Each director of the Company who is not an employee of the Company or
any subsidiary of the Company (a "Non-Employee Director") will be eligible to
participate in the Plan.
SECTION 3. STOCK SUBJECT TO THE PLAN.
Shares to be issued under the Plan shall be common stock of the Company
(par value $.50 per share) ("common stock"), not to exceed a maximum of 250,000
shares, and may be unissued shares or reacquired shares. If options granted
under the Plan expire or terminate without having been exercised in full, such
unpurchased shares shall be available for other option grants. If shares of
common stock are delivered as full or partial payment upon exercise of an
option, the number of shares so delivered shall again be available for other
option grants.
SECTION 4. NON-QUALIFIED STOCK OPTION GRANTS.
a.) For grants in respect of board service in fiscal year 2000 and prior
fiscal years, each Non-Employee Director serving as a member of the
Board of Directors of the Company on the December 31 immediately
preceding each annual meeting of the stockholders of the Company, will
automatically be granted on the date of such annual meeting a
Non-Qualified Stock Option with a value equal to 50% of the amount of
the current annual retainer and meeting fees paid to Non-Employee
Directors for their service on the Board of Directors and board
committees for the preceding fiscal year. The per share option exercise
price will be equal to 100% of the Fair Market Value of one share of
the Company's common stock on the date of grant, as determined by the
closing price of the Company's common stock on the last business day
prior to the annual meeting date.
b.) For grants in respect of service in fiscal year 2001, each Non-Employee
Director serving as a member of the Board of Directors of the Company
on October 26, 2001 will automatically be granted, on the date of the
Company's annual meeting in 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 year 2001. The per share option price
will be equal to 100% of the fair market value of one share of the
Company's common stock on the date of grant as determined by the
closing price of the Company's common stock on the last business day
prior to such annual meeting.
c.) 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 of the Company 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 to
Non-Employee Directors for service on the Board of Directors and board
committees during the current fiscal year. The per share option
exercise price will be equal to 100% of the fair market value of one
share of the Company's common stock on the date of grant, as determined
by the closing price of the Company's common stock on the last business
day prior to such October board meeting date. In the event no Board
meeting is held in October of any year, the grant date shall be the
last day of the current fiscal year and the per share option exercise
price shall be equal to 100% of the fair market value of one share of
the Company's common stock on the last business day preceding such
grant date.
The number of shares subject to the option will be determined by using
the same option valuation model used to value options for purposes of the notes
to the Company's audited financial statements for the prior fiscal year. If no
option valuation model is used for financial reporting purposes, the Board of
Directors will determine the appropriate model to be used for this purpose. All
such options will be designated as Non-Qualified Stock Options. Each option will
be immediately exercisable in full and have a term of ten years. Upon
termination of a person's service as a director of the Company, such
Non-Employee Director will be allowed to exercise the option for a period of
three years after the date on which such person ceased to be a director, but in
no event may the option be exercised after the expiration of its original term.
SECTION 5. OPTION AGREEMENT AND EXERCISE OF OPTION.
Promptly after determination of the number of stock options to be
granted to each Non-Employee Director under Section 4, the Company will prepare
and deliver a Non-Qualified Stock Option Agreement to each Non-Employee
Director, containing the terms described in this Plan. Optionee is not required
to exercise options in the sequential order that the options were granted. An
option shall be exercised by written notice in a form designated by the Company
accompanied by full payment of the purchase price. All or part of the purchase
price may be paid by surrender (or deemed surrender through attestation) of
previously acquired shares of common stock valued at the fair market value at
the closing price on the day preceding the date of exercise. Until an option is
exercised and the stock certificate issued, the Optionee shall have no rights as
a stockholder with respect to such option.
SECTION 6. WITHHOLDING OF TAXES.
Upon exercise of an option, the Optionee shall (i) pay cash, (ii)
surrender previously acquired shares of common stock or (iii) authorize the
withholding of shares from the shares issued upon exercise of an option for all
taxes required to be withheld.
SECTION 7. NON-TRANSFERABILITY.
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.
SECTION 8. DILUTION OR OTHER ADJUSTMENTS.
The number of shares subject to the Plan, the outstanding options and
the exercise price may be adjusted by the Committee as it deems equitable in the
event of stock split, stock dividend, recapitalization, reclassification or
similar event to prevent dilution or enhancement of option rights.
SECTION 9. MERGERS, ACQUISITIONS, OR OTHER REORGANIZATION.
The Committee may make provision, as it deems equitable, for the
protection of Optionees with grants of outstanding options in the event of (a)
merger of the Company into, or the acquisition of substantially all of the stock
or assets of the Company by, another entity; or (b) liquidation; or (c) other
reorganization of the Company.
SECTION 10. ADMINISTRATION AND AMENDMENT OF THE PLAN.
The Plan shall be administered by the Compensation Committee of the
Board of Directors. The Committee may suspend or discontinue the Plan or revise
or amend it in any respect deemed advisable and in the best interests of the
Company; provided, however, that no such revision or amendment would impair the
terms and conditions of any option which is outstanding on the date of such
revision or amendment to the material detriment of the Optionee without the
consent of the Optionee. In addition, no such revision or amendment may, without
the approval of the Corporation's stockholders, (i) materially increase the
number of shares subject to the Plan except as provided in the case of stock
splits, consolidations, stock dividends or similar events, (ii) change the
designation of the class of individuals eligible to receive options, or (iii)
materially increase the benefits accruing to Optionees under the Plan.
SECTION 11. EFFECTIVE DATE OF THE PLAN.
The Plan will become effective as of February 25, 1998, the date
stockholders of the Company approve such Plan. The first option grant under this
Plan will be granted on the date of the annual stockholder meeting held in 1999
to all Non-Employee Directors who were members of the Board of Directors on
December 31, 1998. This Plan is being adopted to replace The Valspar Corporation
Restricted Stock Plan for Non-Employee Directors, which will automatically
terminate following the issuance of the restricted stock grant that was earned
for services during 1997. The effectiveness of the amendments to Section 4
relating to grants in fiscal 2001 and subsequent years is subject to shareholder
approval of such amendments.