THE VALSPAR CORPORATION KEY EMPLOYEE ANNUAL BONUS PLAN (as amended through August 21, 2007) KEY EMPLOYEE - OFFICER

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.

(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.

(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.

(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.

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.

(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:

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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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* 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.

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