Document:

Exhibit 10.3

THE VALSPAR CORPORATION

KEY EMPLOYEE ANNUAL BONUS PLAN

(as amended through August 21, 2007)

 

KEY EMPLOYEE - OFFICER

 

PURPOSE:

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

 

DEFINITIONS:

“Cash Bonus Amount” shall mean the amount determined for a Participant for a particular Fiscal Year as set forth in Section 2 below. 

 

“Change of Control” shall mean any of the following:  (i) any individual, entity or group becomes a “Beneficial Owner” (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of at least 20% but less than 50% of the voting stock of the Company in a transaction that is not previously approved by the Board of Directors of the Company; (ii) any individual, entity or group becomes a Beneficial Owner, directly or indirectly, of at least 50% of the voting stock of the Company; (iii) 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 combination, 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; (iv) 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; (v) 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; (vi) the liquidation or dissolution of the Company; or (vii) the occurrence of any other event by which the Company no longer operates as an independent public company.

 

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

 

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

 

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

 

“Fair Market Value” of a share of Stock shall mean the closing price of one share of Stock on the New York Stock Exchange on the date of grant of Restricted Stock or a stock option under this Plan.

 

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

“LTI Target Value” shall mean the target long term incentive value established by the Committee for each Participant for each Fiscal Year as provided herein, as determined by the Committee.

 

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

 

“Participant” shall mean an Employee whom the Committee has determined to permit to become a Participant, who remains a Participant pursuant to the provisions of Section 1 of the Plan.

 

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

 

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

 

“Restricted Stock” shall mean Stock which is awarded by the Company to a Participant subject to restrictions on its sale or other transfer by the Participant and subject to forfeiture in certain circumstances, as set forth in an agreement evidencing the award.

 

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

 

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

 

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

 

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

 

PLAN:

 

1.   Participants:  From time to time, the Committee shall determine the Employees who will be Participants under the Plan. As soon as possible after the Committee has made its determination, the Plan Administrator will notify each Participant of his/her eligibility.  A Participant will cease being a Participant upon the earlier of (i) his/her termination of employment with Valspar for any reason or (ii) a determination by the Committee that he/she shall no longer be a Participant.

 

	
             
 	
            2.   Cash Bonus Determination and Amount:
 

 

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

 

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(b)  With respect to any executive officers designated by the Committee (the “Designated Executive Officers”), who shall always include the Chief Executive Officer, the Chief Operating Officer, the President and any Executive or Senior Vice Presidents, (i) the Committee will identify specific performance targets and maximum bonus levels, as a percentage of base salary, for each Designated Executive Officer under the Incentive Plan within the first 90 days of each Fiscal Year and record these targets and bonus levels in writing; (ii) the performance targets for Designated Executive Officers shall be limited to one or more of the following categories for the Fiscal Year, either on an absolute basis or a comparative basis with other Fiscal Years: gross or net sales, expenses as a percentage of net sales, inventory turns, profits, return on average equity (including return on
invested capital) and cash flow; (iii) the Committee will certify in writing following the end of the Fiscal Year whether the performance targets have been met and the level of the Cash Bonus Amount earned under the Incentive Plan; and (iv) the maximum Cash Bonus Amount for any Designated Executive Officer under the Incentive Plan for any Fiscal Year shall be $2,000,000.00.

 

(c)  Notwithstanding the fact that the Cash Bonus Amount is not determined until after the end of each Fiscal Year, a Participant who is a Participant on the last day of a Fiscal Year shall be entitled to his/her Cash Bonus Amount for such Fiscal Year even if such Participant is not a Participant on the date the Cash Bonus Amount is determined or paid.

 

	
             
 	
            3.  Restricted Stock Grant:
 

 

(a)  Each Participant will be eligible to earn a grant of Restricted Stock for each Fiscal Year, with the target level of the grant based upon the LTI Target Value for that Participant for the Fiscal Year as established by the Committee within the first 90 days of such Fiscal Year. 

 

(b)  The amount of the Restricted Stock grant for each Participant will be determined as follows:  (i) the Committee will identify specific performance targets and the minimum, maximum and target levels for the grant of Restricted Stock for each Participant, with the target level for the amount of the grant equal to fifty percent (50%) of the LTI Target Value; (ii) the performance targets for the Restricted Stock grant for each Participant may, but need not, be the same targets as those used for the Incentive Bonus calculation described in Section 2(b); (iii) the performance targets for Designated Executive Officers shall be limited to one or more of the following categories for the Fiscal Year, either on an absolute basis or a comparative basis with other Fiscal Years: gross or net sales, expenses as a percentage of net sales, inventory turns, profits, return on average equity
(including pre-tax return on capital) and cash flow; (iv) the Committee will certify in writing following the end of the Fiscal Year whether the performance targets have been met and the amount of the Restricted Stock grant earned; (v) the shares of Stock covered by the grant shall have an aggregate Fair Market Value equal to the amount of the grant that has been earned; and (vi) the maximum number of shares of Restricted Stock that may be granted to any Designated Executive Officer under this Section 3 for any Fiscal Year shall be 250,000 shares.  The Committee shall have the discretion to award, in lieu of such Restricted Stock grant, a cash payment equal to one hundred percent (100%) of the amount of the Restricted Stock grant earned.

 

(c)  A person who is a Participant on the last day of a Fiscal Year shall be entitled to his/her grant of Restricted Stock for such Fiscal Year (or, if applicable, the cash payment in lieu of such grant), even if he or she is not a Participant on the date the amount of the grant of Restricted Stock is determined or the certificate representing those shares is issued.

 

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

 

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(e)  The shares of Stock contained in each grant of Restricted Stock are forfeitable for three years from the date of the grant if the Participant’s employment with Valspar terminates for any reason other than death, Disability, Retirement or Change of Control. Such shares of Stock shall not be forfeitable if (i) the Participant’s employment with Valspar terminates during such three year period as a result of the Participant’s death, Disability or Retirement, (ii) any Change of Control (see Definitions) occurs during such three year period, or (iii) the Participant’s employment with Valspar terminates after the end of such three year period. At such time as the foregoing risk of forfeiture lapses, the certificate representing the shares of Stock shall be distributed to the person in whose name it was issued, or if appropriate that person’s estate. If the
shares of Stock are forfeited, the certificate representing those shares shall be canceled.

 

	
             
 	
            (f)  A maximum of 2,800,000 shares of Stock may be issued as Restricted Stock under the Plan.
 

 

	
             
 	
            4.   Nonstatutory Stock Options:
 

 

(a)  For each Fiscal Year, each Participant will be granted a nonstatutory stock option under the Option Plan. The number of shares of Stock included in the nonstatutory stock option for each Participant will be calculated so that the fair value of the stock option for purposes of the Company’s financial statements will be equal to fifty percent (50%) of the LTI Target Value for that Participant.

 

(b)  Each such option shall be evidenced by an option agreement between the Participant and Valspar which shall be prepared and executed as soon as possible after the determination of the number of shares of Stock to be covered by the option. The option agreement shall provide for an exercise price per share equal to the Fair Market Value of the Stock covered by the stock option, a term of ten years, vesting at the rate of 33 1/3% per year so that the option will be fully exercisable three years after the date of grant and will permit the option to be exercised by surrendering other shares of Stock owned by the Participant. The option agreement shall also provide for full vesting in the event that (i) the Participant’s employment with Valspar terminates as a result of death, Disability or Retirement or (ii) a Change of Control (see Definitions) occurs. Terms of the stock
options are described in the attached Appendix.

 

	
             
 	
            5.  Change of Control:
 

 

Upon any Change of Control (see Definitions), each outstanding option shall immediately become exercisable in full for the remainder of its term, without regard to any vesting or installment exercise provisions theretofore applicable to the option, and all restrictions shall immediately lapse with respect to each grant of Restricted Stock. This section applies to all options and grants of Restricted Stock outstanding under this Plan as of June 16, 1999, as well as to all options and Restricted Stock granted under this Plan thereafter.

 

	
             
 	
            6.  Miscellaneous:   
 

 

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

 

	
             
 	
            (1)
 	
            Materially increase the total number of shares of Stock that may be awarded under this Plan to all Participants;
 
	
             
 	
            (2)
 	
            Materially increase the benefits accruing to Participants under the Plan; or
 
	
             
 	
            (3)
 	
            Materially modify the requirements as to eligibility for participation in the Plan.
 

 

 

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

 

(c)  The categories of performance criteria for Designated Executive Officers under Section 2(b) shall be subject to shareholder approval at the first shareholders meeting following the Fiscal Year ending October 31, 2008. These categories, or new categories of performance criteria for the Designated Executive Officers, shall be subject to shareholder approval at the first shareholders meeting following the end of each fifth Fiscal Year after 2008.

 

 

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            APPENDIX
 OFFICERS
 
	
            STOCK OPTION TERMS AND CONDITIONS
 
	
            Option Term
 	
            •
 	
            10 years
 
	
            Vesting
 	
            •
 	
            33 1/3% per year, fully exercisable three years after date of grant
 
	
            Retirement After Age 60
 	
            •
 	
            100% vested
 
	
            or
 	
            •
 	
            fully exercisable for remainder of option term*
 
	
            Retirement After Age 55 with non-compete agreement executed at time of retirement
 	
             
 	
             
 
	
             
 	
             
 	
             
 
	
            Death and Disability 
 	
            •
 	
            100% vested
 
	
             
 	
            •
 	
            1 year to exercise, not to exceed original option term
 
	
            Change of Control
 	
            •
 	
            100% vested for remainder of option term
 
	
            Termination 
 	
            •
 	
            per cent vested at time of termination
 
	
             
 	
            •
 	
            30 days to exercise, not to exceed original option term
 
	
            Termination For Cause
 	
            •
 	
            forfeit unexercised options
 

 

* These terms are applicable to options granted pursuant to this Plan on or after August 22, 2007. Options granted pursuant to this Plan prior to August 22, 2007 shall remain subject to the terms of the original option agreement.

 

6Exhibit 10.4

THE VALSPAR CORPORATION STOCK OPTION PLAN

FOR NON-EMPLOYEE DIRECTORS

(as amended through October 17, 2007)

 

	
            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 1,000,000 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 years 2002 and 2003, 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.

d.)        For grants in respect of service in fiscal year 2004 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 $65,000.00.  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.

 

e.)        For grants in respect of service in fiscal year 2007 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 $65,000.00.  The per share option exercise price will be equal to the closing price of one share of Stock on the New York Stock Exchange on the date of grant.  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 the closing price of one share of Stock on the New York Stock Exchange on the date of grant.

 

The number of shares subject to the option will be determined by using the same option valuation model used to value options for purposes of the notes to the 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.  For option grants in October 2007 and
subsequent grants, upon termination of a person’s service as a director of the Company, the option grant will be exercisable for the full remainder of the ten-year 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.

 

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            Section 8.
 	
            Dilution or Other Adjustments.
 

 

In the event of any change in the outstanding common stock of the Company by reason of a stock dividend, stock split, reverse stock split, combination of shares, spin-off, dividend (other than regular, quarterly cash dividends), recapitalization, merger or similar event, the number of shares of common stock then subject to this Plan, including shares subject to outstanding options, the other numbers of shares of common stock provided in this Plan, and the exercise price of outstanding options shall be adjusted appropriately by the Committee to reflect the change in outstanding shares of common stock, in order to provide participants with the same relative rights before and after such adjustment.

 

	
            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(b) relating to grants in fiscal 2001 was approved by stockholders on February 27, 2002.

 

 

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