<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED OCTOBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 000-8088
FURON COMPANY
(Exact name of registrant as specified in its charter)
California 95-1947155
- --------------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
29982 Ivy Glenn Drive
Laguna Niguel, CA 92677
- --------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (949) 831-5350
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Number of shares of common stock outstanding as of December 4, 1998: 18,422,774
<PAGE> 2
FURON COMPANY
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I - FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
October 31, and January 31, 1998 3
Condensed Consolidated Statements of Income
Three and nine months ended October 31, 1998 and
November 1, 1997 5
Condensed Consolidated Statements of Cash Flows Three
and nine months ended October 31, 1998 and
November 1, 1997 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
PART II - OTHER INFORMATION 23
- ---------------------------
</TABLE>
2
<PAGE> 3
ITEM 1. FINANCIAL STATEMENTS
FURON COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
October 31, January 31,
In thousands 1998 1998
- -------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,804 $ --
Accounts receivable, less allowance for
doubtful accounts of $1,939 at October 31, 1998
and $1,741 at January 31, 1998 74,169 75,661
Inventories, net 58,641 54,704
Deferred income taxes 11,356 11,052
Prepaid expenses and other current assets 4,896 4,959
--------- --------
Total current assets 152,866 146,376
Property, plant & equipment, at cost:
Land 6,667 6,976
Buildings and leasehold improvements 30,747 31,493
Machinery and equipment 171,817 158,999
--------- --------
209,231 197,468
Less accumulated depreciation and amortization (100,085) (87,832)
--------- --------
Net property, plant and equipment 109,146 109,636
Intangible assets, at cost less accumulated
amortization of $37,428 at October 31, 1998
and $35,354 at January 31, 1998 90,914 83,129
Other assets 9,884 7,208
--------- --------
TOTAL ASSETS $ 362,810 $346,349
========= ========
</TABLE>
See accompanying notes.
3
<PAGE> 4
FURON COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
October 31, January 31,
In thousands, except share data 1998 1998
- -------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Cash, less checks outstanding $ -- $ 1,025
Accounts payable 24,060 25,384
Salaries, wages and related benefits payable 17,084 18,203
Income taxes payable 2,221 4,228
Current portion of long-term debt 1,431 966
Facility rationalization and severance 7,214 10,091
Other current liabilities 16,932 14,035
-------- --------
Total current liabilities 68,942 73,932
Long-term debt 152,742 148,657
Other long-term liabilities 26,000 23,883
Deferred income taxes 18,743 18,738
Commitments and contingencies -- --
Shareholders' equity:
Preferred stock without par value, 2,000,000 shares
authorized, none issued or outstanding -- --
Common stock without par value, 30,000,000 shares
authorized, 18,298,924 shares issued and
outstanding at October 31, 1998 and 18,227,898
at January 31, 1998 41,100 40,864
Employee Benefit Trust shares (1,538) --
Accumulated other comprehensive income (1,445) (4,236)
Unearned ESOP shares (2,630) (3,229)
Unearned compensation (151) (232)
Retained earnings 61,047 47,972
-------- --------
Total shareholders' equity 96,383 81,139
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $362,810 $346,349
======== ========
</TABLE>
See accompanying notes.
4
<PAGE> 5
FURON COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
-----------------------------------------------------------
October 31, November 1, October 31, November 1,
In thousands, except per share amounts 1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $120,720 $123,209 $365,571 $361,554
Cost of sales 85,793 84,304 253,181 245,848
-------- -------- -------- --------
Gross profit 34,927 38,905 112,390 115,706
Selling, general and administrative
expenses 27,598 28,898 84,430 85,662
Nonrecurring charges and facilities
rationalization -- -- (417) --
Other (income), expense (1,331) (603) (3,023) (1,025)
Interest expense, net 3,062 2,632 9,256 8,199
-------- -------- -------- --------
Income before income taxes 5,598 7,978 22,144 22,870
Provision for income taxes 1,763 2,513 6,975 7,204
-------- -------- -------- --------
Net income $ 3,835 $ 5,465 $ 15,169 $ 15,666
======== ======== ======== ========
Basic income per share $ 0.21 $ 0.31 $ 0.84 $ 0.88
======== ======== ======== ========
Diluted income per share $ 0.21 $ 0.29 $ 0.82 $ 0.84
======== ======== ======== ========
Cash dividends per share $ 0.03 $ 0.03 $ 0.09 $ 0.09
======== ======== ======== ========
</TABLE>
See accompanying notes.
5
<PAGE> 6
FURON COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
--------------------------------------------------------
October 31, November 1, October 31, November 1,
In thousands 1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 3,835 $ 5,465 $ 15,169 $ 15,666
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation 4,455 4,111 13,006 12,412
Amortization 1,413 1,489 4,574 4,274
Provision for losses on accounts receivable 469 (64) 609 85
Deferred income taxes 5 4 (369) (23)
Nonrecurring charges and facilities
rationalization -- -- (417) --
(Gain) loss on sale of assets (163) 37 (61) 45
Working capital changes, net of
acquisitions and disposals:
Accounts receivable 613 (5,190) 2,048 (3,044)
Inventories (343) (237) (2,267) 3,823
Accounts payable and accrued liabilities 2,829 4,026 (1,886) 2,759
Income taxes payable (2,559) (525) (3,210) 2,262
Other current assets and liabilities, net (4,921) (43) (731) (290)
Changes in other long-term operating
assets and liabilities 1,406 130 511 862
------- -------- --------- --------
Net cash provided by operating activities 7,039 9,203 26,976 38,831
INVESTING ACTIVITIES
Acquisition of businesses, net of cash acquired -- (11,100) (11,311) (11,100)
Purchases of property, plant and equipment (3,545) (3,156) (13,455) (8,633)
Proceeds from sale of businesses 151 395 432 814
Proceeds from sale of equipment 968 196 1,168 229
Decrease in notes receivable 689 -- 859 --
------- -------- --------- --------
Net cash used in investing activities (1,737) (13,665) (22,307) (18,690)
FINANCING ACTIVITIES
Proceeds from long-term debt 7,528 15,077 155,713 19,158
Principal payments on long-term debt (13,617) (11,168) (151,632) (37,973)
Deferred debt costs (34) -- (4,198) --
Employee benefit trust funding (342) -- (1,984) --
Proceeds, net of cancellations, from
issuance of common stock 15 (35) 168 612
Loan to ESOP -- (355) -- (621)
Principal payments received from loan to ESOP -- -- 599 529
Dividends paid on common stock (549) (541) (1,647) (1,625)
------- -------- --------- --------
Net cash provided by (used in)
financing activities (6,999) 2,978 (2,981) (19,920)
EFFECT OF EXCHANGE RATE CHANGES ON CASH 1,624 1,320 2,116 (221)
------- -------- --------- --------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (73) (164) 3,804 --
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,877 164 -- --
------- -------- --------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,804 $ -- $ 3,804 $ --
======= ======== ========= ========
</TABLE>
See accompanying notes.
6
<PAGE> 7
FURON COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1998
(Unaudited)
1. GENERAL
The accompanying unaudited consolidated financial statements have been
condensed in certain respects and should, therefore, be read in
conjunction with the consolidated financial statements and related notes
thereto, contained in the Company's Annual Report on Form 10-K for the
fiscal year ended January 31, 1998. Certain reclassifications have been
made to prior year amounts in order to be consistent with the current
year presentation.
In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary
(consisting only of normal recurring adjustments) to present fairly the
financial position of the Company as of October 31, 1998, and the
results of operations and cash flows for the three and nine months ended
October 31, 1998 and November 1, 1997. Results of the Company's
operations for the three and nine months ended October 31, 1998 are not
necessarily indicative of the results to be expected for the full year.
2. INVENTORIES
Inventories, stated at the lower of cost (first-in, first-out) or
market, are summarized as follows:
<TABLE>
<CAPTION>
October 31, January 31,
In thousands 1998 1998
---------------------------------------------------------------------------
<S> <C> <C>
Raw materials and purchased parts $23,930 $24,781
Work-in-process 13,086 11,538
Finished goods 21,625 18,385
------- -------
$58,641 $54,704
======= =======
</TABLE>
3. INTANGIBLES
Intangible assets, primarily acquired in business combinations, net of
accumulated amortization, are summarized as follows:
<TABLE>
<CAPTION>
October 31, January 31,
In thousands 1998 1998
---------------------------------------------------------------------------
<S> <C> <C>
Goodwill $64,462 $54,476
Other intangible assets 26,452 28,653
------- -------
$90,914 $83,129
======= =======
</TABLE>
7
<PAGE> 8
FURON COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1998
(Unaudited)
4. LONG-TERM DEBT
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
October 31, January 31,
In thousands 1998 1998
--------------------------------------------------------------------------------
<S> <C> <C>
Senior Subordinated Notes $125,000 $ --
Loans under bank credit agreements
due through fiscal year 2002 24,000 142,000
Industrial Revenue Bonds 3,600 6,175
Other 1,573 1,448
-------- --------
Total long-term debt 154,173 149,623
Less current portion 1,431 966
-------- --------
Due after one year $152,742 $148,657
======== ========
</TABLE>
Effective February 3, 1998, the Company amended and restated its credit
facility agreement to decrease the aggregate credit facility from $250.0
million to $200.0 million.
On March 4, 1998 the Company issued $125.0 million of 8.125% Senior
Subordinated Notes (the "Notes") due March 1, 2008 (the "Offering"). The
Company used the net proceeds of the Offering to repay a portion of
existing indebtedness under the Company's amended credit facility
agreement. Interest on the Notes is payable semi-annually on March 1 and
September 1 of each year.
During the three months ended August 1, 1998, the Company retired
approximately $2.6 million of the Industrial Revenue Bonds.
For the three and nine months ended October 31, 1998, the weighted
average interest rate on the loans under the credit facility agreement
was 6.1% and 6.2%, respectively.
Interest paid for the three and nine months ended October 31, 1998 was
$5.6 million and $8.2 million, respectively. Interest paid for the three
and nine months ended November 1, 1997 was $2.7 million and $7.7
million, respectively.
5. INCOME TAXES
The Company's effective tax rate for the three and nine months ended
October 31, 1998 was 31.5% as compared with 31.5% for the same periods
in the prior year.
8
<PAGE> 9
FURON COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1998
(Unaudited)
5. INCOME TAXES (CONTINUED)
Income taxes paid for the three and nine months ended October 31, 1998
were $3.2 million and $8.1 million, respectively. Income taxes paid for
the three and nine months ended November 1, 1997 were $2.5 million and
$4.7 million, respectively.
6. CONTINGENCIES
At October 31, 1998, the Company had approximately $0.7 million of
foreign currency hedge contracts outstanding consisting of
over-the-counter forward contracts. Net unrealized losses from hedging
activities were not material as of October 31, 1998.
At October 31, 1998, the Company is obligated under irrevocable letters
of credit totaling $5.9 million.
The Company is currently involved in various litigation. While no
assurance can be given, management of the Company is of the opinion that
the ultimate resolution of such litigation should not have a material
adverse effect on the Company's consolidated financial position or
results of operations.
Compliance with environmental laws and regulations designed to regulate
the discharge of materials into the environment or otherwise protect the
environment requires continuing management effort and expenditures by
the Company. While no assurance can be given, the Company does not
believe that the operating costs incurred in the ordinary course of
business to satisfy air and other permit requirements, properly dispose
of hazardous wastes and otherwise comply with these laws and regulations
form or are reasonably likely to form a material component of its
operating costs or have or are reasonably likely to have a material
adverse effect on its competitive or consolidated financial positions.
9
<PAGE> 10
FURON COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1998
(Unaudited)
6. CONTINGENCIES (CONTINUED)
As of October 31, 1998 the Company's reserves for environmental matters
totaled approximately $1.6 million. The Company or one or more of its
subsidiaries is currently involved in environmental investigation or
remediation directly or as an EPA-named potentially responsible party or
private cost recovery/contribution action defendant at various sites,
including certain "superfund" waste disposal sites. While neither the
timing nor the amount of the ultimate costs associated with these
matters can be determined with certainty, based on information currently
available to the Company, including investigations to determine the
nature of the potential liability, the estimated amount of investigation
and remedial costs expected to be incurred and other factors, the
Company presently believes that its current environmental reserves
should be sufficient to cover most, if not all, of the Company's
aggregate liability for these matters and, while no assurance can be
given, it does not expect them to have a material adverse effect on its
consolidated financial position or results of operations. The actual
costs to be incurred by the Company at each site will depend on a number
of factors, including one or more of the following: the final
delineation of contamination; the final determination of the remedial
action required; negotiations with governmental agencies with respect to
cleanup levels; changes in regulatory requirements; innovations in
investigatory and remedial technology; effectiveness of remedial
technologies employed; and the ultimate ability to pay of any other
responsible parties.
10
<PAGE> 11
FURON COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1998
(Unaudited)
7. SHAREHOLDERS' EQUITY
Earnings Per Share
On November 20, 1997, the Company's Board of Directors approved a
two-for-one stock split. One share of the Company's common stock for
each full share of common stock outstanding to holders of record on
December 2, 1997 was distributed on December 16, 1997. Accordingly, all
numbers of Common Shares, and all per share data have been restated to
reflect this stock split.
The calculation of earnings per share is presented below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
-----------------------------------------------------------
IN THOUSANDS, EXCEPT SHARE AND PER OCTOBER 31, NOVEMBER 1, OCTOBER 31, NOVEMBER 1,
SHARE AMOUNTS 1998 1997 1998 1997
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $ 3,835 $ 5,465 $ 15,169 $ 15,666
=========== =========== =========== ===========
Weighted average shares
outstanding for basic income
per share 18,002,128 17,851,126 18,016,389 17,823,154
----------- ----------- ----------- -----------
Effect of dilutive securities:
Employee stock options and awards 499,081 1,023,958 571,133 829,012
----------- ----------- ----------- -----------
Weighted average shares
outstanding for diluted income
per share 18,501,209 18,875,084 18,587,522 18,652,166
----------- ----------- ----------- -----------
Basic income per share $ 0.21 $ 0.31 $ 0.84 $ 0.88
=========== =========== =========== ===========
Diluted income per share $ 0.21 $ 0.29 $ 0.82 $ 0.84
=========== =========== =========== ===========
</TABLE>
Employee Benefits Trust
On March 24, 1998, the Company entered into an Employee Benefits Trust
(the "Trust") with Wachovia Bank, N.A., Trustee. The Trust was
established to provide a source of funds to assist the Company in
meeting obligations under various employee benefit plans. During the
nine months ended October 31, 1998, the Company contributed
approximately $2.0 million to the Trust to purchase shares of the
Company's common stock on the open market. During the first nine months
of fiscal year 1999, the Trust purchased 96,671 shares of common stock
at an average cost of $20.60 per share (96,671 shares held at October
31, 1998).
11
<PAGE> 12
FURON COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1998
(Unaudited)
7. SHAREHOLDERS' EQUITY (CONTINUED)
For financial reporting purposes, the Trust is consolidated with the
Company. The shares are accounted for by the treasury stock method. The
fair market value of the shares held by the Trust is shown as a
reduction to shareholders' equity in the Company's consolidated balance
sheet. Any dividend transactions between the Company and the Trust are
eliminated. Shares will be released from the Trust as granted to
participants in connection with various benefit plans. Common stock held
in the Trust is not considered outstanding for earnings per share
calculations until they are granted to participants. The Trustee is
responsible for voting the shares of common stock held in the Trust.
8. COMPREHENSIVE INCOME
As of February 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income".
SFAS No. 130 establishes new rules for the reporting and display of
comprehensive income and its components; however, the adoption of this
Statement had no impact on the Company's net income or shareholders'
equity. SFAS No. 130 requires the change in the minimum pension
liability and the foreign currency translation adjustments, which prior
to adoption were reported separately in shareholders' equity, to be
included in other comprehensive income. Prior years' financial
statements have been reclassified to conform to these requirements.
The components of comprehensive income, net of related tax, are as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
-----------------------------------------------------------
OCTOBER 31, NOVEMBER 1, OCTOBER 31, NOVEMBER 1,
IN THOUSANDS 1998 1997 1998 1997
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $3,835 $5,465 $15,169 $15,666
Foreign currency translation
adjustments 2,215 1,704 2,791 (97)
------ ------ ------- -------
Comprehensive income $6,050 $7,169 $17,960 $15,569
====== ====== ======= =======
</TABLE>
12
<PAGE> 13
FURON COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1998
(Unaudited)
9. SEGMENT INFORMATION
The Company operates in two business segments: Industrial Products,
including highly engineered seals and bearings, fluid handling
components, tapes, films and coated fabrics, hose and tubing, wire and
cable, and plastic formed components; and Medical Device Products,
including critical care products and infusion systems for medical and
surgical applications.
The factors impacting the Company's basis for reportable segments
include separate management teams, infrastructures, and discrete
financial information about each. Additionally, the long-term financial
performance of the Medical Device Products segment is affected by an
environment governed by regulatory standards.
Sales, operating profit, interest expense, net and identifiable assets
are set forth in the following table:
<TABLE>
<CAPTION>
INDUSTRIAL MEDICAL
IN THOUSANDS PRODUCTS DEVICE PRODUCTS ADJUSTMENT CONSOLIDATED
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Three months ended October 31, 1998:
- ------------------------------------
Sales to unaffiliated customers $ 93,259 $ 27,461 $120,720
Operating profit 6,277 1,052 7,329
Interest expense, net -- -- $ 3,062 3,062
Identifiable assets 215,157 147,653 362,810
Nine months ended October 31, 1998:
- -----------------------------------
Sales to unaffiliated customers $287,777 $ 77,794 $365,571
Operating profit 24,600 3,360 27,960
Interest expense, net -- -- $ 9,256 9,256
Identifiable assets 215,157 147,653 362,810
Three months ended November 1, 1997:
- ------------------------------------
Sales to unaffiliated customers $ 96,522 $ 26,687 $123,209
Operating profit 6,899 3,108 10,007
Interest expense, net -- -- $ 2,632 2,632
Identifiable assets 208,445 139,532 347,977
Nine months ended November 1, 1997:
- -----------------------------------
Sales to unaffiliated customers $280,820 $ 80,734 $361,554
Operating profit 19,249 10,795 30,044
Interest expense, net -- -- $ 8,199 8,199
Identifiable assets 208,445 139,532 347,977
</TABLE>
13
<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following discussion and analysis is based upon and should be read in
conjunction with the historical consolidated financial statements of the Company
and related notes thereto. The Company's fiscal 1999 third quarter ended October
31, 1998 and fiscal 1998 third quarter ended November 1, 1997. The fiscal 1999
and 1998 quarters each consisted of 13 weeks.
RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED OCTOBER 31, 1998 COMPARED WITH THREE AND NINE MONTHS
ENDED NOVEMBER 1, 1997
NET SALES. Net sales of $120.7 million for the three months ended October 31,
1998 ("Q3 1999 Period") decreased $2.5 million, or 2.0%, from $123.2 million for
the three months ended November 1, 1997 ("Q3 1998 Period"). Net sales of $365.6
million for the nine months ended October 31, 1998 ("YTD Q3 1999 Period")
increased $4.0 million, or 1.1%, from $361.6 million for the nine months ended
November 1, 1997 ("YTD Q3 1998 Period"). The current quarter's decrease in net
sales was the result of reduced demand for industrial products, partially offset
by an increase in net sales of medical device products due to acquisitions. Net
of acquisitions and divestitures, sales for the Q3 1999 Period decreased 3.5%,
while YTD Q3 1999 Period sales increased slightly over the same periods of the
prior year.
GROSS PROFIT. Gross Profit of $34.9 million for the Q3 1999 Period decreased
$4.0 million, or 10.2%, from $38.9 million in the Q3 1998 Period. Gross Profit
of $112.4 million for the YTD Q3 1999 Period decreased $3.3 million, or 2.9%,
from $115.7 million for the YTD Q3 1998 Period. For the Q3 1999 Period, the
decrease in gross profit resulted from lower volumes from the Industrial
Products Segment coupled with continued unfavorable manufacturing variances and
cost containment challenges affecting the Medical Device Products Segment. For
the YTD Q3 1999 Period, the decrease in gross profit was due to the lower
volumes and cost containment affecting the Medical Device Products Segment,
which more than offset continued cost containment achieved by the Industrial
Products Segment.
14
<PAGE> 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("SG&A") expenses of $27.6 million in the Q3 1999 Period
decreased $1.3 million, or 4.5%, from $28.9 million in the Q3 1998 Period. This
decrease was primarily due to reduced labor, travel, legal and outside services
costs together with decreased performance based incentive compensation awards,
which more than offset increased professional fees and relocation expenses. SG&A
expenses of $84.4 million in the YTD Q3 1999 Period decreased $1.3 million, or
1.4% from $85.7 million in the YTD Q3 1998 Period. SG&A expenses as a percentage
of sales decreased to 22.9% in the Q3 1999 Period and 23.1% in the YTD Q3 1999
Period from 23.5% and 23.7%, respectively, in the same periods of the prior
year. The decline in SG&A expenses as a percentage of sales was primarily due to
reduced labor, travel, legal and outside services costs together with decreased
performance based incentive compensation awards, which more than offset
increased professional fees and relocation expenses.
Research and development expenses of $3.4 million for the Q3 1999 Period
decreased $0.2 million, or 4.8%, from the Q3 1998 period primarily due to lower
labor expenses. However, research and development expenses of $10.6 million for
the YTD Q3 1999 Period increased $0.3 million, or 3.1%, from the YTD Q3 1998
Period primarily because higher labor costs for the first two fiscal quarters
more than offset the third quarter reduction.
OTHER INCOME. Other income of $1.3 million for the Q3 1999 Period and $3.0
million for the YTD Q3 1999 Period increased $0.7 million and $2.0 million from
$0.6 million and $1.0 million from the same periods of the prior year. For the
Q3 1999 Period, the increase resulted primarily from the following items: a gain
on the cash surrender value of a life insurance policy and a gain from the sale
of a building for the Medical Device Products Segment, and a legal settlement
and a miscellaneous write-off taken in prior year periods but not repeated in
this year's periods for the Industrial Products Segment. For the YTD Q3 1999
Period, this increase is primarily the result of a turnaround in foreign
exchange losses experienced in the same period of the prior year.
INTEREST EXPENSE, NET. Interest expense, net of $3.1 million for the Q3 1999
Period and $9.3 million for the YTD Q3 1999 Period increased $0.4 million and
$1.1 million from the same periods of the prior year. The increase in the
Company's interest expense was primarily the result of the higher interest rates
attributable to the Company's subordinated debt, as compared to the Company's
bank borrowing rate.
INCOME BEFORE INCOME TAXES. Income before income taxes of $5.6 million in the Q3
1999 Period decreased $2.4 million, or 29.8%, from $8.0 million in the Q3 1998
Period. Income before income taxes of $22.1 million in the YTD Q3 1999 Period
decreased $0.8 million, or 3.2%, from $22.9 million in the YTD Q3 1998 Period.
These decreases are generally the result of lower sales, reduced margins and
higher interest expense somewhat offset by lower operating expenses and
increased other income.
15
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
PROVISION FOR INCOME TAXES. Provision for income taxes of $1.8 million for the
Q3 1999 Period decreased $0.7 million from the same period of the prior year.
Provision for income taxes of $7.0 million for the YTD Q3 1999 Period decreased
$0.2 million from the same period of the prior year. The Company's effective tax
rate for the Q3 1999 and YTD Q3 1999 Periods was 31.5%, unchanged from the same
periods of the prior year.
SEGMENT RESULTS
A discussion of the operations of the business segments follows. The Company
operates in two business segments: Industrial Products, including highly
engineered seals and bearings, fluid handling components, tapes, films and
coated fabrics, hose and tubing, wire and cable, and plastic formed components;
and Medical Device Products, including critical care products and infusion
systems for medical and surgical applications. For additional financial
information about industry segments see Note 9 of the "Notes to Condensed
Consolidated Financial Statements."
INDUSTRIAL PRODUCTS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------------------------------------------
OCTOBER 31, NOVEMBER 1, OCTOBER 31, NOVEMBER 1,
IN THOUSANDS 1998 1997 1998 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $93,259 $96,522 $287,777 $280,820
Operating profit 6,277 6,899 25,017 19,249
Operating profit before nonrecurring
and facilities rationalizations 6,277 6,899 24,600 19,249
</TABLE>
NET SALES. Industrial net sales for the Q3 1999 Period and YTD Q3 1999 Period
decreased $3.3 million and increased $7.0 million, respectively, over the same
periods of the prior year. Net of acquisitions and divestitures, for the Q3 1999
Period and YTD Q3 1999 Period, Industrial Products net sales decreased 1.2% and
increased 4.3%, respectively, compared to the same periods of the prior year. In
the current quarter, domestic net sales in the commercial aircraft, heavy duty
truck, and business equipment markets continued to show growth. This growth was
more than offset by reduced demand in most industrial process markets such as
off-shore exploration, along with the general softness in the electronics and
semiconductor markets. Sustained demand in Europe across most product lines
during the current quarter and an acquisition resulted in increased net sales
over the same period of the prior year of 24.0% and was further assisted by the
favorable effect of foreign currency exchange rates, resulting in increased
dollar net sales of 28.1% over the same period of the prior year. Net of the
acquisition, for the Q3 1999 Period, Industrial Product net sales were 14.4%
higher than the same period the prior year.
16
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
GROSS PROFIT. The gross profit margin for the Q3 1999 Period was 27.6%, a
decrease from 28.3% the same period of the prior year. This decrease was
primarily the result of increased material usage due to product mix content. For
the YTD Q3 1999 Period, spending controls in variable and fixed overhead more
than offset the higher raw material content, as a percentage of net sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses as a percentage of
net sales decreased 0.2% and 1.3% to 20.9% and 20.5%, for the Q3 1999 Period and
YTD Q3 1999 Period, respectively, from the same periods of the prior year.
Favorable selling, general and administrative variances include salaries and
benefits, including lower performance based incentive compensation, travel and
outside services, partially offset by increased professional and relocation
fees. Favorable variances in research and development also contributed to lower
operating expenses.
OPERATING PROFIT, BEFORE NONRECURRING CHARGES AND FACILITIES RATIONALIZATION.
Operating profit, before nonrecurring charges and facilities rationalization,
decreased 9.0% to $6.3 million and increased 27.8% to $24.6 million for the Q3
1999 Period and YTD Q3 1999 Period, respectively, from the same periods of the
prior year. The Q3 1999 Period reflects the impact of lower domestic volumes on
overhead and unfavorable product mix partially offset by reduced operating
expenses. The YTD Q3 1999 Period improvement in profitability reflects higher
net sales volumes and margins, reduced operating expenses and increased other
income.
MEDICAL DEVICE PRODUCTS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------------------------------------------
OCTOBER 31, NOVEMBER 1, OCTOBER 31, NOVEMBER 1,
IN THOUSANDS 1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $27,461 $26,687 $77,794 $80,734
Operating profit 1,052 3,108 3,360 10,795
Operating profit before nonrecurring
and facilities rationalizations 1,052 3,108 3,360 10,795
</TABLE>
NET SALES. Net sales for the Q3 1999 Period increased $0.8 million, or 2.9%,
over the same period of the prior year. The increase is the net result of a
39.9% increase in European sales, primarily related to an acquisition, offset by
lower domestic volumes in the fluid and drug, pressure monitoring,
cardiovascular, and infusion systems markets. For the YTD Q3 1999 Period, sales
were down 3.6% over the same period of the prior year. This is due to lower
domestic volumes as noted above.
17
<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
GROSS PROFIT. The gross profit margin for the Q3 1999 Period and YTD Q3 1999
Period was 33.5% and 36.9% as compared to 43.5% and 43.6% for the Q3 1998 Period
and YTD Q3 1998 Period, respectively. This resulted from reduced volume impact
on manufacturing overhead and unfavorable product mix. In addition, cost of
sales was further negatively impacted by manufacturing difficulties specifically
related to the moves of the silicone products plant and the SDM operation
(acquired August 1997) from California to Dublin, Ohio.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses as a percentage of
net sales for the Q3 1999 Period and YTD Q3 1999 Period, decreased by 2.1% to
29.7% and increased by 2.4% to 32.6%, respectively, over same periods of the
prior year. Current quarter favorable selling, general and administrative
variances included lower performance based incentive compensation and
reclassification of freight, somewhat offset by increases due to the Corotec
acquisition (April 1998) and product development expenses. For the YTD Q3 1999
Period, SG&A expenses include costs associated with the integration of the
Corotec acquisition and increased product development expenses leveraged against
lower sales volumes partially offset by freight reclassification.
OPERATING PROFIT, BEFORE NONRECURRING CHARGES AND FACILITIES RATIONALIZATION.
Operating profit, before nonrecurring charges and facilities rationalization,
decreased 66.2% and 68.9% for the Q3 1999 Period and YTD Q3 1999 Period,
respectively, from $3.1 million and $10.8 million, respectively, the same
periods of the prior year. These decreases reflect lower net sales volumes and
margins in addition to certain relocation and start-up costs which were incurred
in connection with the move of two production facilities.
LIQUIDITY AND CAPITAL RESOURCES
On March 4, 1998, the Company completed the Offering of its 8.125% Senior
Subordinated Notes (see Note 4 of the "Notes to Condensed Consolidated Financial
Statements"). The net proceeds from the Offering were approximately $121.0
million. In conjunction with the Offering, the Company amended the credit
facility agreement to, among other things, reduce the maximum principal amount
available from $250.0 million to $200.0 million (the "Credit Facility"). The
Company used the net proceeds of the Offering to repay a portion of existing
indebtedness under the Credit Facility. Amounts borrowed under the Credit
Facility mature November 12, 2001. The Notes mature March 1, 2008.
The Company's financial condition remained strong at October 31, 1998. The ratio
of current assets to current liabilities was 2.2 to 1.0, an increase from 2.0 to
1.0 at January 31, 1998. Net working capital of $83.9 million increased by $11.5
million from January 31, 1998.
CASH PROVIDED BY OPERATING ACTIVITIES. Cash provided by operating activities for
the Q3 1999 Period decreased $2.2 million from $9.2 million from the same period
of the prior year. This decrease is primarily due to a decrease in net income of
$1.6 million and net changes in working capital and other long-term assets and
liabilities.
18
<PAGE> 19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
CASH USED IN INVESTING ACTIVITIES. Cash used in investing activities for the Q3
1999 Period of $1.7 million decreased by $11.9 million from the same period of
the prior year. This change is due primarily to the acquisition of SDM and AS
Medical for $11.1 million during August 1997. During the Q3 1999 Period, the
Company invested $3.5 million in renovation of existing facilities, leasehold
improvements and the replacement of existing equipment. Capital expenditures for
the Q3 1999 Period increased $0.3 million from $3.2 million from the same period
of the prior year.
The Company believes that it generates sufficient cash flow from its operations
to finance near and long-term internal growth, capital expenditures and
principal and interest payments on its loans payable to banks and the Notes. The
Company continually evaluates its employment of capital resources, including
asset management and other sources of financing.
CONTINGENCIES
For information regarding environmental matters and other contingencies, see the
sections entitled "Business - Medical Device Business - FDA Compliance/Product
Regulation" and "Legal Proceedings" in Part I of the Company's 1998 Annual
Report on Form 10-K and Note 6 of the "Notes to Condensed Consolidated Financial
Statements" in this 10-Q.
Year 2000 Readiness Disclosure
All statements contained in the Quarterly Report on Form 10-Q, including those
contained in the following section are "Year 2000 Readiness Disclosures" within
the meaning of the Year 2000 Information and Disclosure Act.
The Year 2000 ("Y2K") Problem in computers arises from the common industry
practice of using two digits to represent a date in computer software code and
databases to enhance both processing time and save storage space. Therefore,
when dates in the year 2000 and beyond are indicated and computer programs read
the date "00," the computer may default to the year "1900" rather than the
correct "2000." This could result in incorrect calculations, faulty data and
computer shutdowns, potentially impairing the conduct of business.
The Company has instituted a Y2K readiness program (the "Program") to address
these issues as they relate to the Company. The Company's Program is divided
into two phases and is being conducted in three areas. The two phases of the
Program are: (i) identifying potentially non-complaint areas and (ii) addressing
those areas to make them Y2K ready. This two phase process is being conducted
across three areas. The three areas include: (i) Information Technology Systems
and Equipment; (ii) Non-Information Technology Systems and Equipment, and (iii)
compliance of third party vendors and suppliers with which the Company has
material relationships.
19
<PAGE> 20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Year 2000 Readiness Disclosure (continued)
The Company believes it has made a great deal of progress in Phase I of the
Program. With respect to Information Technology Systems and Equipment, the
Company has identified applications systems, hardware/networks, personal
computers and telecommunications equipment that is potentially Y2K sensitive.
With respect to Non-Information Technology Systems and Equipment, the Company
has identified its Industrial Products Segment manufacturing equipment that is
potentially Y2K sensitive and is in the process of completing a similar task for
its Medical Device Products Segment. The Company has already completed a survey
of its complete product line across both the Industrial Products and Medical
Device Products segments and believes its product offering addresses material
Y2K issues.
Phase II of the Company's Program is in process. The majority of application
systems and personal computers were replaced with Y2K ready systems, and the
Company expects the remaining systems to be Y2K ready by the first quarter of
1999. The Company believes a majority of its hardware/networks and
telecommunications systems are Y2K ready. With respect to Non-Information
Technology Systems and Equipment, the Company has completed the process of
identifying manufacturing equipment used in its Industrial Products Segment that
potentially has Y2K issues and is in the process of completing a similar task
for its Medical Device Products Segment. The Company is contacting the suppliers
of its manufacturing equipment to determine whether the equipment is Y2K ready.
Large scale testing to verify that the Company's Y2K ready Information
Technology and Non-Information Technology Systems and Equipment are operational
is expected to begin the first quarter of 1999 and is expected to be completed
by mid-year 1999.
The Company has identified its key third party vendors and suppliers and has
asked them to disclose their state of Y2K readiness. Further, the Company's
Industrial Products Segment has identified and its Medical Device Products
Segment is in the process of identifying, and both expect to audit selected
"critical" suppliers, and develop strategies for working with them through Y2K
issues and develop contingency plans in the event of a problem with obtaining
materials from these "critical" suppliers. The Company intends to survey its key
customers to determine their state of Y2K readiness. For the nine months ended
October 31, 1998, no single customer accounted for more than 4% of the Company's
net sales of Industrial Products or more than 7% of the Company's net sales of
Medical Device Products.
The Company expended approximately $9 million between 1994 and 1997 replacing
Information Technology Systems and Equipment with systems and equipment that is
Y2K ready. The Company has expended approximately $1 million and expects to have
recurring operating costs of approximately $1.2 million per year to lease
upgraded personal computers. The system and equipment replacements that have
been made were scheduled to occur without regard for the Program and the Program
is being conducted by the Company's employees. While no assurance can be given,
at this time the Company does not anticipate that the Y2K Problem will have a
material adverse impact on the Company's business, financial condition or
results of operation.
20
<PAGE> 21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Euro Conversion
Eleven of the fifteen member countries of the European Monetary Union have
agreed to adopt the euro as their common legal currency commencing January 1,
1999. Fixed conversion rates between these participating countries' present
currencies, or "legacy currencies", and the euro are scheduled to be established
as of January 1, 1999. The legacy currencies are scheduled to remain legal
tender in the participating countries as denominations of the euro between
January 1, 1999 and January 1, 2002. Beginning January 1, 2002, the
participating countries will issue new euro-denominated bills and coins. No
later than July 1, 2002, the participating countries will withdraw all bills and
coins denominated in their legacy currencies.
Transition to the euro creates a number of issues for the Company. Business
issues that must be addressed include product pricing policies and ensuring the
continuity of business and financial contracts. The increased price transparency
resulting from the use of a single currency may affect the ability of the
Company to price its products differently in the various European markets. For
the nine months ended October 31, 1998, approximately 15% of the Company's net
sales were made to countries that have agreed to adopt the euro as their
currency. Finance and accounting issues include the conversion of accounting
systems, statutory records, tax books and payroll systems to the euro, as well
as conversion of bank accounts and other treasury and cash management
activities.
While the Company is still in the process of assessing potential issues caused
by conversion to the euro and possible ways to resolve those issues, based on
the information currently available to it, the Company does not expect that
conversion to the euro will have a material adverse impact on its results of
operations, financial position or liquidity.
21
<PAGE> 22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
STATEMENT REGARDING FORWARD LOOKING DISCLOSURE
This Quarterly Report on Form 10-Q contains "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended and Section
21E of the Securities Exchange Act of 1934, as amended, including, without
limitation, statements that include the words "believes," "expects,"
"anticipates," or similar expressions and statements relating to anticipated
cost savings, the Company's Year 2000 readiness effort and progress toward that
goal, the Company's Year 2000 Readiness Disclosure, Euro conversion, the
Company's strategic plans, capital expenditures, industry trends and prospects
and the Company's financial position. Such forward-looking statements involve
known and unknown risks, uncertainties and other factors that may cause actual
results, performance or achievements of the Company to differ materially from
those expressed or implied by such forward-looking statements. Although the
Company believes that its plans, intentions and expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
plans, intentions or expectations will be achieved. For a more complete
discussion of risk factors, please refer to the "Risk Factors" section of the
Company's 1998 Annual Report on Form 10-K. All written and oral forward-looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by the cautionary statements contained in
this Form 10-Q and cautionary statements and the "Risk Factors" section in the
Company's 1998 Annual Report on Form 10-K.
22
<PAGE> 23
PART II - OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
Not applicable.
23
<PAGE> 24
PART II - OTHER INFORMATION (CONTINUED)
---------------------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
10.1A* Amendments to Furon Company 1982 Stock Incentive Plan
effective August 25, 1998.
10.7* Furon Company Deferred Compensation Plan, as amended and
restated effective February 1, 1998.
10.9A* Amendments to Furon Company 1995 Stock Incentive Plan
effective August 25, 1998.
10.16* Furon Company Option Gain Deferral Program.
27 Financial Data Schedule.
(b) Reports on Form 8-K:
None
- --------------------
* A management contract or compensatory plan or arrangement.
24
<PAGE> 25
PART II (CONTINUED)
-------------------
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FURON COMPANY
REGISTRANT
-------------------------------
/s/ MONTY A. HOUDESHELL /s/ DAVID L. MASCARIN
- --------------------------------------- ------------------------------------
Monty A. Houdeshell David L. Mascarin
Vice President, Chief Financial Officer Controller
December 11, 1998
25
<PAGE> 1
EXHIBIT 10.1A
AMENDMENTS TO FURON COMPANY
1982 STOCK INCENTIVE PLAN
EFFECTIVE AUGUST 25, 1998
1. The definition of "Award" in Section 1.1(b) of the 1982 Plan is amended to
read as follows:
"(b) `Award' shall mean an Option, which may be designated as a Nonqualified
Stock Option or an Incentive Stock Option, a Stock Appreciation Right, a
Restricted Stock Award, a Performance Share Award, or Deferred Shares, in
each case granted under this Plan."
2. Section 1.1 of the 1982 Plan is amended by adding the following definition
of "Deferred Share" thereto as a new subsection (ag):
"(ag) `Deferred Share' shall mean a non-voting unit of measurement which is
deemed for bookkeeping purposes to be equivalent to one outstanding share of
Common Stock (subject to adjustment)."
3. Section 2.2 of the 1982 Plan is amended by adding the following
paragraph (d) thereto:
"(d) Notwithstanding the provisions of Section 7.7 and Section 7.10
regarding the term of this Plan, all authority of the Board and the
Committee with respect to Awards hereunder, including (subject to share
limits) the authority to amend outstanding Awards, shall continue after the
term of this Plan, so long as any Award remains outstanding. The Committee
shall have the authority to amend Awards to allow a deferred payment in
respect of such Awards under any deferred compensation plan of the Company,
consistent with Section 2.5(b). Any such settlement or deferral shall not be
deemed a new award hereunder so long as all shares issuable under this Plan
in respect thereof do not exceed the aggregate number of shares subject to
the Awards so paid thereby. The authority of the Committee shall continue in
respect of any deferral so authorized."
4. The existing text at Section 2.5 of the 1982 Plan is redesignated as
Section 2.5(a).
<PAGE> 2
5. Section 2.5 of the 1982 Plan is amended by adding the following paragraph
(b) thereto:
"(b) The Committee may allow the delayed payment or delivery of any cash or
shares of Common Stock which may become due under this Plan. Without
limiting the generality of the foregoing, the deferral of any cash payable
in respect of an Award may be in the form of a credit to the Participant's
deferral account under the Furon Company Deferred Compensation Plan and the
deferral of any shares of Common Stock distributable upon the exercise of a
Nonqualified Stock Option may be in the form of deferred shares under the
Furon Company Option Gain Deferral Program (the `Program'). In the event
that the purchase price of a Nonqualified Stock Option is paid in full in
shares of Common Stock and the delivery of shares of Common Stock in excess
of the option price is deferred under the Program, Deferred Shares may be
credited in respect of such excess shares and earn dividend equivalents or
other compensation in respect thereof, and the number of shares of Common
Stock issued in respect of the Deferred Shares may include the number of
such Deferred Shares and the number of Deferred Shares credited as dividend
equivalents (subject to share limits)."
5. The definition of "Award" in Section 7.1(a) of the 1995 Plan is amended to
read as follows:
"(a) `Award' shall mean any Option, Stock Appreciation Right, Restricted
Stock Award, Performance Share Award, or Deferred Shares granted under this
Plan."
6. Section 7.1 of the 1995 Plan is amended by adding the following definition
of "Deferred Share" thereto as a new subsection (ll):
"(ll) `Deferred Share' shall mean a non-voting unit of measurement which is
deemed for bookkeeping purposes to be equivalent to one outstanding share of
Common Stock (subject to adjustment)."
2
<PAGE> 1
EXHIBIT 10.7
FURON COMPANY
DEFERRED COMPENSATION PLAN
(AS AMENDED AND RESTATED
EFFECTIVE FEBRUARY 1, 1998)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
ARTICLE I.
PURPOSE
<S> <C>
1.1 Establishment of the Plan...........................................................1
1.2 Purpose of the Plan.................................................................1
1.3 Duration of the Plan................................................................1
1.4 Definitions.........................................................................1
ARTICLE II.
ADMINISTRATION
2.1 Committee...........................................................................4
2.2 Committee Action....................................................................4
2.3 Powers and Duties of the Committee..................................................4
2.4 Construction and Interpretation.....................................................5
2.5 Information.........................................................................5
2.6 Compensation, Expenses and Indemnity................................................5
2.7 Quarterly Statements................................................................6
ARTICLE III.
PARTICIPANTS
3.1 Participants........................................................................7
ARTICLE IV.
DEFERRALS
4.1 Deferrals...........................................................................8
4.2 Deferral Procedures.................................................................9
4.3 Deferral Options....................................................................9
4.4 Accounts............................................................................9
4.5 Discretionary Investment by Corporation............................................12
4.6 Change in Control..................................................................12
4.7 Payment of Deferred Amounts........................................................15
4.8 Acceleration of Payment of Deferred Amounts........................................16
</TABLE>
-i-
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
ARTICLE V.
GENERAL PROVISIONS
<S> <C>
5.1 Unfunded Obligation................................................................17
5.2 Beneficiary........................................................................17
5.3 Receipt or Release.................................................................18
5.4 Incapacity of Participant or Beneficiary...........................................18
5.5 Nonassignment......................................................................18
5.6 No Right to Continued Employment...................................................19
5.7 Withholding Taxes..................................................................19
5.8 Claims Procedure and Arbitration...................................................19
5.9 Termination and Amendment..........................................................21
5.10 Applicable Law.....................................................................21
5.11 Compliance with Laws...............................................................21
5.12 Plan Construction..................................................................22
5.13 Headings, etc. Not Part of Plan....................................................22
</TABLE>
-ii-
<PAGE> 4
FURON COMPANY
DEFERRED COMPENSATION PLAN
ARTICLE I.
PURPOSE
1.1 ESTABLISHMENT OF THE PLAN. Effective as of January 1, 1993, Furon
Company, a California corporation, established the Furon Company
Deferred Compensation Plan (the "PLAN"). This amendment and restatement
of the Plan is effective as of February 1, 1998.
1.2 PURPOSE OF THE PLAN. The purpose of the Plan is to permit participating
employees of Furon Company and its Subsidiaries to defer the payment of
all or part of their annual salary and certain bonuses that they may
earn. The opportunity to elect such deferrals is provided in order to
help the Company attract and retain key employees who appreciate the tax
flexibility and other advantages of such a deferral program.
1.3 DURATION OF THE PLAN. Subject to prior termination by law or by the
Board of Directors of Furon Company pursuant to the right of termination
it has reserved under Section 5.9 hereof, the Plan shall continue in
effect indefinitely.
1.4 DEFINITIONS. Whenever the following words and phrases are used in the
Plan, with the first letter capitalized, they shall have the meanings
specified below:
"ACCOUNT" or "ACCOUNTS" shall mean a Participant's Deferral Account
and/or Stock Account.
"BENEFICIARY" or "BENEFICIARIES" shall have the meaning set forth in
Section 5.2.
"BOARD OF DIRECTORS" or "BOARD" shall mean the Board of Directors of the
Corporation.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COMMITTEE" shall mean the committee appointed in accordance with
Section 2.1 which shall administer the Plan.
"COMMON STOCK" shall mean the common stock, without par value, of the
Corporation, subject to adjustment pursuant to Section 4.4(b)(4).
"COMPANY" shall mean the Corporation and its Subsidiaries.
"CORPORATION" shall mean Furon Company, a California corporation, and
any successor corporation.
1
<PAGE> 5
"DEFERRAL ACCOUNT" shall mean the bookkeeping account maintained by the
Committee for each Participant that (1) is credited with (i) deferrals
elected pursuant to Section 4.1(a), (ii) the amounts that the
Participant elects to defer to such account pursuant to Section 4.1(b),
(iii) transfers elected by the Participant from his or her Stock
Account, and (iv) earnings or losses (determined with reference to the
deemed investments selected by the Participant) with respect to amounts
credited to such account; and (2) is debited for (i) payments from such
account, and (ii) transfers to the Participant's Stock Account.
"DEFERRED SHARE" shall mean a non-voting unit of measurement which is
deemed solely for bookkeeping purposes under the Plan to be equivalent
to one outstanding share of Common Stock (subject to Section 4.4(b)(4)).
"DISTRIBUTION SUBACCOUNTS" shall mean the subaccount of a Participant's
Deferral Account and/or Stock Account established separately to account
for deferred compensation which is subject to different distribution
elections.
"DIVIDEND EQUIVALENT" shall mean the amount of cash dividends or other
cash distributions paid by the Corporation on that number of shares of
Common Stock equal to the number of Deferred Shares credited to a
Participant's Stock Account as of the applicable record date for the
dividend or other distribution, which amount shall be credited in the
form of additional Deferred Shares to the Participant's Stock Account,
as provided in Section 4.4(b)(2).
"ELIGIBLE EMPLOYEE" shall mean any officer or employee of the Company.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
"FAIR MARKET VALUE" shall mean on any date the closing price of the
Common Stock on the Composite Tape, as published in the Western Edition
of The Wall Street Journal, of the principal securities exchange or
market on which the Common Stock is so listed, admitted to trade, or
quoted on such date, or, if there is no trading of (or no available
closing price of) the Common Stock on such date, then the closing price
of the Common Stock as quoted on such Composite Tape on the next
preceding date on which there was trading in such shares. If the Common
Stock is not so listed, admitted or quoted, the Committee may designate
such other exchange, market or source of data as it deems appropriate
for determining such value for purposes of the Plan.
"PARTICIPANT" shall mean any Eligible Employee who has been selected by
the Committee in accordance with Section 3.1 to participate in the Plan.
2
<PAGE> 6
"PLAN" shall mean the Furon Company Deferred Compensation Plan set forth
herein, now in effect, or as amended from time to time.
"PLAN YEAR" shall mean the 12 consecutive month period beginning January
1 each year and ending the following December 31.
"STOCK ACCOUNT" shall mean a bookkeeping account maintained by the
Committee for each Participant that (1) is credited with Deferred Shares
with respect to (i) the amounts that the Participant elects to defer to
such account pursuant to Section 4.1(b), (ii) the deferrals elected by
the Participant pursuant to Section 4.1(c), (iii) transfers elected by
the Participant from his or her Deferral Account, and (iv) Dividend
Equivalents (if any); and (2) is debited with Deferred Shares with
respect to (i) payments or distributions from such account, and (ii)
transfers to the Participant's Deferral Account.
"SUBSIDIARY" shall mean any corporation or other entity of which more
than 50% of the outstanding voting stock or voting power is beneficially
owned directly or indirectly by the Corporation.
"TRUST PRICE" shall mean, for any calendar quarter, the average price
paid (or received) by the trustee of the Furon Company Employee Benefits
Trust to acquire (or sell) Common Stock in the 30-day period following
such quarter. If the trustee made no purchases (or sales) during such
period, the Trust Price shall be the volume-weighted average price of
the Common Stock on the New York Stock Exchange for such period.
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ARTICLE II.
ADMINISTRATION
2.1 COMMITTEE. The Committee shall be appointed by, and serve at the
pleasure of, the Board of Directors. Any member of the Board of
Directors and/or officer or employee of the Company may be appointed as
a Committee member. The number of members comprising the Committee shall
be determined by the Board which may from time to time vary the number
of members. A member of the Committee may resign by delivering a written
notice of resignation to the Board. The Board may remove any member by
delivering a certified copy of its resolution of removal to such member.
Vacancies in the membership of the Committee shall be filled promptly by
the Board.
2.2 COMMITTEE ACTION. The Committee shall act at meetings by affirmative
vote of a majority of the members of the Committee. Any action permitted
to be taken at a meeting may be taken without a meeting if, prior to
such action, a written consent to the action is signed by all members of
the Committee and such written consent is filed with the minutes of the
proceedings of the Committee. A member of the Committee shall not vote
or act upon any matter which relates solely to himself or herself as a
Participant. The Chairman or any other member or members of the
Committee designated by the Chairman may execute any certificate or
other written direction on behalf of the Committee.
2.3 POWERS AND DUTIES OF THE COMMITTEE. The Committee, on behalf of the
Participants and their Beneficiaries, shall enforce the Plan in
accordance with its terms, shall be charged with the general
administration of the Plan, and shall have all powers necessary to
accomplish its purposes, including, but not by way of limitation, the
following:
(1) To select the funds or portfolios available for the deemed
investment of Deferral Accounts;
(2) To construe and interpret the terms and provisions of the Plan;
(3) To compute and certify to the Corporation the amount and kind of
benefits payable to Participants and their Beneficiaries, and to
determine the time and manner in which such benefits are paid;
(4) To maintain all records that may be necessary for the
administration of the Plan;
(5) To provide for the disclosure of all information and the filing
or provision of all reports and statements to Participants,
Beneficiaries or governmental agencies as shall be required by
law;
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(6) To make and publish such rules for the regulation of the Plan
and procedures for the administration of the Plan as are not
inconsistent with the terms hereof;
(7) To appoint a plan administrator or any other agent, and to
delegate to them such powers and duties in connection with the
administration of the Plan as the Committee may from time to
time prescribe;
(8) To authorize all disbursement by the Corporation pursuant to the
Plan; and
(9) To direct any Corporation grantor trust established with respect
to the Plan (but the Committee's powers and duties shall not
extend to the Furon Company Employee Benefits Trust) concerning
the performance of various duties and responsibilities under the
related trust agreement.
2.4 CONSTRUCTION AND INTERPRETATION. The Committee shall have full
discretion to construe and interpret the terms and provisions of the
Plan, which interpretation or construction shall be final and binding on
all parties, including but not limited to the Corporation, its
Subsidiaries and any Participant or Beneficiary. The Committee shall
administer such terms and provisions in a uniform and nondiscriminatory
manner and in full accordance with any and all laws applicable to the
Plan.
2.5 INFORMATION. To enable the Committee to perform its functions, the
Corporation shall supply full and timely information to the Committee on
all matters relating to the compensation of all Participants, their
death or other cause of termination, and such other pertinent facts as
the Committee may require.
2.6 COMPENSATION, EXPENSES AND INDEMNITY. The members of the Committee shall
serve without compensation for their services hereunder. The Committee
is authorized at the expense of the Corporation to employ such legal
counsel as it may deem advisable to assist in the performance of its
duties hereunder. Expenses and fees in connection with the
administration of the Plan shall be paid by the Corporation. To the
extent permitted by applicable state law, the Corporation shall
indemnify and save harmless the Committee and each member thereof, the
Board of Directors and any delegate of the Committee who is an employee
of the Corporation against any and all expenses, liabilities and claims,
including legal fees to defend against such liabilities and claims
arising out of their discharge in good faith of responsibilities under
or incident to the Plan, other than expenses and liabilities arising out
of willful misconduct. This indemnity shall not preclude such further
indemnities as may be available under
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insurance purchased by the Corporation or provided by the Corporation
under any bylaw, agreement or otherwise, as such indemnities are
permitted under state law.
2.7 QUARTERLY STATEMENTS. Under procedures established by the Committee, a
Participant shall receive a statement with respect to such Participant's
Accounts as soon as administratively practicable following the end of
each calendar quarter.
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ARTICLE III.
PARTICIPANTS
3.1 PARTICIPANTS. The Committee shall determine and designate from the class
of Eligible Employees those individuals who are eligible to elect
deferrals under the Plan. To be selected for participation by the
Committee, an Eligible Employee must have significant responsibility for
the management, direction and/or success of the Company as a whole or a
particular business unit thereof. The Committee shall limit the class of
Participants to a select group of management or highly compensated
employees, as set forth in Sections 201, 301, and 401 of ERISA.
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ARTICLE IV.
DEFERRALS
4.1 DEFERRALS.
(a) SALARY DEFERRALS. Each Participant may elect to defer any
portion of his regular salary, but only to the extent that his
compensation (including salary, bonus amounts and taxable
payments of deferred compensation) payable during the Plan Year
exceeds the Social Security Wage Base for old age and survivors
benefits for that year. Any such election must be entered into
between the Participant and the Corporation by filing a deferred
compensation agreement form with the Corporation on or before
the December 1 prior to the beginning of the Plan Year for which
the deferral is to be effective. Salary reductions and Company
deferrals shall be made throughout the year based on the amount
by which a Participant's compensation for the year is expected
to exceed such Wage Base. Compensation which a Participant
elects to defer pursuant to this Section 4.1(a) shall be
credited to the Participant's Deferral Account in accordance
with Section 4.4(a).
(b) CASH BONUS DEFERRALS. Each Participant who is eligible for the
Company's Economic Value Added Plan (the "EVA Plan") may elect
to defer the payment of all or a portion of his cash bonus to be
earned during the current fiscal year, but only to the extent
that his compensation projected to be payable for the following
Plan Year (including salary, bonus amounts and taxable payments
of deferred compensation) exceeds the Social Security Wage Base
for old age and survivors benefits for such following year. Any
such election must be entered into between the Participant and
the Corporation by filing a deferred compensation agreement form
with the Corporation prior to October 1 of the fiscal year for
which the bonus is to be earned (December 14, in the case of
bonuses earned for fiscal year that begins in 1992). A
Participant may elect on his or her cash bonus election to have
a specified percentage of the cash bonus that he or she elects
to defer credited to his or her Stock Account in the form of
Deferred Shares in accordance with Section 4.4(b). The remaining
portion of any deferred cash bonus not credited to the
Participant's Stock Account in accordance with the preceding
sentence (or, if no Deferred Share election is made on the
Participant's cash bonus deferral election, the entire amount of
the cash bonus deferred pursuant to such election) will be
credited to the Participant's Deferral Account in accordance
with Section 4.4(a).
(c) STOCK BONUS DEFERRALS. Each Participant who is eligible for the
EVA Plan may elect to defer the delivery of all or a portion of
the Common Stock that he or she would otherwise receive under
such plan, but only to the
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extent that his compensation projected to be payable for the
following Plan Year (including salary, bonus amounts and taxable
payments of deferred compensation) exceeds the Social Security
Wage Base for old age and survivors benefits for such following
year. Any such election must be entered into between the
Participant and the Corporation by filing a deferred
compensation agreement form with the Corporation on or before
the October 1 prior to the beginning of the Plan Year for which
the deferral is to be effective. If a Participant elects to
defer the delivery of Common Stock pursuant to this Section
4.1(c), such Common Stock shall be credited in the form of
Deferred Shares to the Participant's Stock Account in accordance
with Section 4.4(b).
(d) WITHHOLDING LIMITATION. No election shall be effective to reduce
the salary, bonus, or other compensation payable to a
Participant for a calendar year to an amount which is less than
the amount that the Company is required to withhold from such
person's compensation for such calendar year for purposes of
federal, state and local (if any) income tax, employment tax
(including without limitation Federal Insurance Contributions
Act (FICA) tax), and other tax withholdings.
4.2 DEFERRAL PROCEDURES. If a deferral is elected, the election shall be
irrevocable and shall be made on a form and in a manner prescribed by
the Committee. The deferral shall authorize appropriate tax withholding
measures in accordance with Section 5.7. The Committee shall not permit
any deferral to be elected on a date that is after the time that a bonus
or award to which the election relates has become substantially earned
and determinable. If a Participant has not elected a deferral, any
compensation that may become payable to the Participant shall be paid in
accordance with the Company's normal practices. A deferral election
shall be effective only with respect to the Plan Year with respect to
which it is made.
4.3 DEFERRAL OPTIONS. If a deferral is elected, the Participant's period of
deferral shall end with the Participant's termination of employment with
the Company for any reason (including, without limitation, retirement,
death, permanent disability, resignation or termination by the Company).
In addition, the Participant shall have the right to elect on his or her
deferral election that amounts deferred pursuant to such election shall
become payable, in the absence of the occurrence of an event described
in the preceding sentence, upon the expiration of 5, 10, 15 or 20 years
following the original deferral.
4.4 ACCOUNTS. The Corporation shall establish a Deferral Account and a Stock
Account for each Participant. Accounts shall reflect the Corporation's
obligation to pay the deferred amount as provided in Section 4.7. The
Corporation may establish separate Distribution Subaccounts under each
of a Participant's Accounts.
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(a) DEFERRAL ACCOUNT.
(1) Amounts deferred pursuant to Section 4.1 to a
Participant's Deferral Account shall be credited in the form of
cash to such Account as of the end of the month in which such
amounts would have otherwise, in the absence of a deferral
election, been paid to the Participant.
(2) Assumed earnings (or losses) shall be credited to
the Participant's Deferral Account at the end of each calendar
quarter in the form of cash and shall be calculated based on the
Participant's Deferral Account balance as of the first day of
that quarter. The Committee may provide that deemed earnings (or
losses) shall be credited more frequently than quarterly. The
Corporation shall select, from time to time, two or more
investment funds which shall be used for purposes of determining
the amount of assumed earnings (or losses) to be credited to
Participants' Deferral Accounts. Each Participant shall be
notified of the funds available for selection, and then may
designate, on a form and in the manner prescribed by the
Committee, percentages of his or her Deferral Account which
shall be credited with earnings or losses that equal or "mirror"
the appreciation or depreciation in the funds to which such
percentages of his or her Deferral Account have been identified.
Each Participant shall be entitled to change the percentages of
his or her Deferral Account identified, on a form and in the
manner prescribed by the Committee, to any of the investment
funds as of the first day of each calendar quarter, provided
that notice is received by the Committee at least two weeks in
advance of such date. The Committee may, at any time and without
notice, change the number, types and/or particular funds
offered.
(3) As of the end of each fiscal year of the
Corporation, the Deferral Account of any Participant that has
increased in value during such year as a result of the crediting
of deemed earnings or losses shall be decreased, in accordance
with procedures adopted for the purpose by the Committee, by the
incremental marginal tax rate applicable to the Corporation for
such year.
(b) STOCK ACCOUNT.
(1) A Participant's Stock Account shall be credited once
each year. As soon as administratively practicable following the
close of the calendar quarter in which stock bonuses are or
would be paid under the EVA Plan, a Participant's Stock Account
shall be credited with a number of Deferred Shares equal to the
sum of (i) the number of EVA Plan bonus shares that would
otherwise have been paid at the end of such calendar
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quarter to the Participant that the Participant elected to defer
in accordance with Section 4.1(c), and (ii) the portion of the
Participant's cash bonus deferred to such account during the
preceding EVA Plan year in accordance with Section 4.1(b)
divided by the Trust Price for such first calendar quarter.
(2) As soon as administratively practicable following
the close of the first calendar quarter of each year, the
Participant's Stock Account shall be credited with additional
Deferred Shares in an amount equal to the amount of the Dividend
Equivalents representing cash dividends paid during the
preceding four quarters on that number of shares equal to the
aggregate Deferred Shares in the Participant's Stock Account as
of the beginning of the second quarter of the previous year,
divided by the Trust Price for such first calendar quarter.
(3) A Participant's Stock Account shall be a memorandum
account on the books of the Corporation. The Deferred Shares
credited to a Participant's Stock Account shall be used solely
as a device for the determination of the number of shares of
Common Stock to be eventually distributed to such Participant in
accordance with the Plan. The Deferred Shares shall not be
treated as property or as a trust fund of any kind. No
Participant shall be entitled to any voting or other stockholder
rights with respect to Deferred Shares granted or credited under
the Plan. The number of Deferred Shares credited (and the Common
Stock to which the Participant is entitled under the Plan) shall
be subject to adjustment in accordance with Section 4.4(b)(4).
(4) If any stock dividend, stock split,
recapitalization, merger, consolidation, combination or other
reorganization, exchange of shares, sale of all or substantially
all of the assets of the Corporation, split-up, split-off,
extraordinary redemption, liquidation or similar change in
capitalization or any distribution to holders of the
Corporation's Common Stock (other than cash dividends and cash
distributions) shall occur, proportionate and equitable
adjustments consistent with the effect of such event on
stockholders generally (but without duplication of benefits if
Dividend Equivalents are credited) shall be made in the number
and type of shares of Common Stock or other securities, property
and/or rights contemplated hereunder and of rights in respect of
Deferred Shares and Stock Accounts credited under the Plan so as
to preserve the benefits intended.
(c) TRANSFERS. Effective as of the end of the first calendar quarter
in each year, a Participant may elect: (i) to have the Committee
reduce the number of any Deferred Shares allocated to his or her
Stock Account and credit to such Participant's Deferral Account
an amount equal to the Trust
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Price for such quarter of the same number of shares of Common
Stock as the number of Deferred Shares so deducted; or (ii) to
have the Committee reduce the amount of cash credited to his or
her Deferral Account and credit a number of Deferred Shares to
such Participant's Stock Account, which number of Deferred
Shares shall be determined by dividing the cash amount of the
Participant's Deferral Account that he or she has elected to
transfer by the Trust Price for such quarter. Any such election
shall be filed with the Committee at least 20 days prior to the
end of the applicable quarter on a form and in a manner
prescribed by the Committee. A transfer election shall not
affect the crediting of Deferred Shares pursuant to Section
4.4(b)(1) with respect to deferrals during the preceding EVA
Plan year.
The transfers described in the preceding paragraph shall first
be allowed as of the end of the first calendar quarter in 1999.
The Committee may, in its sole discretion, allow Participants a
special opportunity during 1998 to elect a similar transfer
according to procedures established by the Committee. The Trust
Price applicable to such transfers shall be the Trust Price for
the quarter in which such transfer is allowed.
4.5 DISCRETIONARY INVESTMENT BY CORPORATION. The deferred amounts to be paid
to Participants are an unfunded obligation of the Corporation. The
Committee may annually direct that an amount equal to the deferred
amounts for that year shall be invested by the Corporation as the
Committee, in its sole discretion, shall determine. Prior to the
applicability of Section 4.6, the Committee may in its sole discretion
determine that all or some portion of an amount equal to the deferred
amounts shall be paid into one or more grantor trusts that may be
established by the Corporation for the purpose of providing a potential
source of funds to pay Plan benefits. Moreover, such payment of
previously deferred amounts to a grantor trust shall be required in
connection with Change in Control to the extent required by Section
4.6(e). The Committee may designate an investment advisor to direct the
investment of funds that may be used to pay benefits, including the
investment of the assets of any grantor trusts hereunder.
4.6 CHANGE IN CONTROL. In the Event of a Change in Control (as defined
below), the following rules shall apply:
(a) All Participants shall continue to have a fully vested,
nonforfeitable interest in their Account balances.
(b) Deferrals of amounts payable for the current year or a period
ending with the end of the current year shall continue in
accordance with existing elections and shall apply from the
normal payment dates for the amounts deferred.
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(c) The assumed earnings pursuant to Section 4.4(a) following a
Change in Control shall be determined on the basis of the
calculation formula and options in effect just prior to the
Change in Control and shall be compounded at intervals no less
frequent than those being used just prior to the Change in
Control.
(d) All payments of deferred amounts following a Change in Control
shall be made as follows:
(1) Payments that have already commenced shall continue to
be made no less rapidly than under the schedule in
effect just prior to the Change in Control.
(2) Payments that have not yet commenced shall be made in a
cash lump sum at the earliest possible payment date
under the normal rules for benefit commencement pursuant
to Section 4.3 as in effect on the day before the day of
the Change in Control and shall be in an amount equal to
the full Account balance on such date (for purposes of
this paragraph, the value of Deferred Shares shall equal
the Fair Market Value of a share of Common Stock on the
day before the Change in Control).
(e) If the Corporation has established a grantor trust in connection
with the Plan, the Corporation shall continue to make any
required payments to that trust in accordance with its funding
rules as in effect prior to the Change in Control.
(f) A Participant's termination of employment for purposes of the
Plan shall be deemed to include (but shall not be limited to)
any event (such as a constructive discharge) giving the
Participant the right to receive salary continuation or other
severance benefits following a Change in Control, as determined
under any plan, program, or agreement covering the Participant
that is in effect at the time of the Change in Control.
For purposes of the Plan, a "Change in Control" means any of the
following:
(1) The dissolution or liquidation of the Corporation;
(2) The merger, consolidation, or other reorganization of
the Corporation with or into one or more entities which
are not Subsidiaries, as a result of which 50% or less
of the outstanding voting securities of the surviving or
resulting entity are, or are to be, owned by former
shareholders of the Corporation;
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(3) The sale or transfer of substantially all of the
Corporation's business and/or assets to a person or
entity which is not a Subsidiary; or
(4) any "person", alone or together with all "affiliates and
"associates" of such person is or becomes (a) an
"Acquiring Person" as defined in the Rights Agreement,
originally dated as of March 21, 1989, by and between
the Corporation and The Bank of New York, successor
Rights Agent, or (b) the "beneficial owner" of 20% or
more of the outstanding voting securities of the
Corporation (the terms "person", "affiliates",
"associates" and "beneficial owner" are used as such
terms are used in the Exchange Act and the General Rules
and Regulations thereunder); provided, however, that a
"Change in Control" shall not be deemed to have occurred
if such "person" is the Corporation, any Subsidiary or
any employee benefit plan or employee stock plan of the
Corporation or of any Subsidiary, or any trust or other
entity organized, established or holding shares of such
voting securities by, for or pursuant to, the terms of
any such plan; or
(5) individuals who at the beginning of any period of two
consecutive calendar years constitute the Board cease
for any reason, during such period, to constitute at
least a majority thereof, unless the election, or the
nomination for election by the Corporation's
shareholders, of each new Board member was approved by a
vote of at least three-quarters of the Board members
then still in office who were Board members at the
beginning of such period.
If the approval of the shareholders of the Corporation for any
of the occurrences set forth in subsections (1) through (5) is
obtained prior to such occurrence, then such shareholder
approval shall constitute the event.
A Change of Control shall occur on the first day on which any of
the preceding conditions has been satisfied. However,
notwithstanding the foregoing, this Section 4.6 shall not apply
to any Participant who alone or together with one or more other
persons acting as a partnership, limited partnership, syndicate,
or other group for the purpose of acquiring, holding or
disposing of securities of the Corporation, triggers a "Change
in Control" within the meaning of paragraphs (1) and (2) above.
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4.7 PAYMENT OF DEFERRED AMOUNTS. A Participant shall have a fully vested,
nonforfeitable interest in his or her Account balance at all times.
However, vesting does not confer a right to payment. Upon the expiration
of the deferral period selected by the Participant, the Corporation
shall pay to such Participant (or to the Participant's Beneficiary, in
the case of the Participant's death), the Participant's benefits in the
form of:
(a) a single lump sum, or
(b) substantially equal installments payable not less frequently than
annually over a 5, 10, 15 or 20 year period, as selected by the
Participant.
The form of payment (lump sum or number of installments) shall be as
specified by the Participant on his compensation deferral agreement and
shall be irrevocable, with respect to deferrals for that year, once
made. A Participant's Deferral Account shall be paid in the form of
cash, with cash payment equal to the balance of the Participant's
Deferral Account, plus any assumed earnings on his or her Deferral
Account (determined by the Committee pursuant to Section 4.4) on the
outstanding Deferral Account balance to the date of distribution.
Deferred Shares credited to a Participant's Stock Account shall be
distributed in an equivalent number of whole shares of Common Stock;
provided that the Committee may, in its sole discretion, pay Deferred
Shares in the form of cash or may give Participants the ability to elect
shares or cash. The Common Stock to be delivered shall be shares owned
by the Corporation or any Corporation grantor trust which were acquired
through purchase on the open market. Fractional share interests shall be
settled in cash. Unless payment has commenced in accordance with an
election under Section 4.3, payment (or distribution of any shares in
respect of Deferred Shares) shall commence or be made in January of the
year following the Participant's retirement, death, permanent
disability, resignation or other termination of employment, provided
that with respect to a Participant who retires with advance notice in
December or January, the Committee, in its discretion, may direct that
payment shall commence or be made on the December 31 nearest the
retirement date, on the January 31 following the retirement date or in
January of the year following retirement.
The cumulative amount by which the assumed earnings of a participant's
Deferral Account has been reduced to reflect the Corporation's
incremental marginal tax rate in prior years shall represent a bonus
pool that shall be distributed to such participant. Each payment of
deferred compensation to a participant or beneficiary under this plan
shall be accompanied by a payment of a share from this pool that shall
equal the net total amount of such reductions (adjusted by the amount of
any previous bonus payments under this paragraph) times the ratio of
assumed earnings being distributed to total assumed earnings
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that remain to be paid at the time of payment. For this purpose, assumed
earnings will be considered distributed first, before deferral amounts.
4.8 ACCELERATION OF PAYMENT OF DEFERRED AMOUNTS. The Committee, in its
discretion, may accelerate the payment of the unpaid balance of a
Participant's Account in the event of the Participant's retirement,
death, permanent disability, resignation or termination of employment,
or upon its determination that the Participant (or his Beneficiary in
the case of his death) has incurred a severe, unforeseeable financial
hardship creating an immediate and heavy need for cash that cannot
reasonably be satisfied from sources other than an accelerated payment
from the Plan. The Committee in making its determination may consider
such factors and require such information as it deems appropriate.
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ARTICLE V.
GENERAL PROVISIONS
5.1 UNFUNDED OBLIGATION. The deferred amounts to be paid to Participants
pursuant to the Plan are unfunded obligations of the Corporation.
Participants and their beneficiaries, heirs, successors, and assigns
shall have no legal or equitable rights, claims, or interest in any
specific property or assets of the Company or any Company grantor trust.
Except as provided in Section 4.6, the Company is not required to
segregate any monies from its general funds, to create any trusts, or to
make any special deposits with respect to this obligation. Title to and
beneficial ownership of any investments including grantor trust
investments which the Committee has determined and directed the
Corporation to make to fulfill obligations under the Plan shall at all
times remain the general, unpledged, unrestricted assets of the
Corporation. At the time a Participant's period of deferral ends, the
Corporation may direct that the Participant's Plan benefits be paid
directly from a Corporation grantor trust in lieu of payment from other
Corporation assets. Any investments and the creation or maintenance of
any trust or Accounts shall not create or constitute a trust or a
fiduciary relationship between the Committee or the Company and a
Participant, or otherwise create any vested or beneficial interest in
any Participant or his or her Beneficiary or his or her creditors in any
assets of the Company whatsoever. The Participants shall have no claim
for any changes in the value of any assets which may be invested or
reinvested by the Corporation in an effort to match its liabilities
under the Plan. The Corporation's obligation under the Plan shall be
merely that of an unfunded and unsecured promise of the Corporation to
pay money in the future, and the rights of the Participants and
Beneficiaries shall be no greater than those of unsecured general
creditors.
5.2 BENEFICIARY. The term "Beneficiary" shall mean the person or persons to
whom payments are to be paid pursuant to the terms of the Plan in the
event of the Participant's death. A Participant may designate a
Beneficiary on a form provided by the Committee, executed by the
Participant, and delivered to the Committee. The Committee may require
the consent of the Participant's spouse to a designation relating to a
marital property interest of the spouse if the designation specifies a
Beneficiary other than the spouse. A Participant may change a
Beneficiary designation at any time. If no Beneficiary is designated, if
the designation is ineffective, or if the Beneficiary dies before the
balance of the Account is paid, the balance shall be paid to the
Participant's surviving spouse, or if there is no surviving spouse, to
the Participant's estate.
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5.3 RECEIPT OR RELEASE. Any payment to a Participant or the Participant's
Beneficiary in accordance with the provisions of the Plan shall, to the
extent thereof, be in full satisfaction of all claims against the
Committee, the Company, and any trustee of any Company grantor trust.
The Committee may require such Participant or Beneficiary, as a
condition precedent to such payment, to execute a receipt and release to
such effect.
5.4 INCAPACITY OF PARTICIPANT OR BENEFICIARY. Every person receiving or
claiming benefits under the Plan shall be conclusively presumed to be
mentally competent and of age until the date on which the Committee
receives a written notice, in a form and manner acceptable to the
Committee, that such person is incompetent or a minor, for whom a
guardian or other person legally vested with the care of his person or
estate has been appointed; provided, however, that if the Committee
finds that any person to whom a benefit is payable under the Plan is
unable to care for his or her affairs because of incompetency, or
because he or she is a minor, any payment due (unless a prior claim
therefor shall have been made by a duly appointed legal representative)
may be paid to the spouse, a child, a parent, a brother or sister, or to
any person or institution considered by the Committee to have incurred
expense for such person otherwise entitled to payment. To the extent
permitted by law, any such payment so made shall be a complete discharge
of liability therefor under the Plan.
If a guardian of the estate of any person receiving or claiming benefits
under the Plan is appointed by a court of competent jurisdiction,
benefit payments may be made to such guardian provided that proper proof
of appointment and continuing qualification is furnished in a form and
manner acceptable to the Committee. In the event a person claiming or
receiving benefits under the Plan is a minor, payment may be made to the
custodian of an account for such person under the Uniform Gifts to
Minors Act. To the extent permitted by law, any such payment so made
shall be a complete discharge of any liability therefor under the Plan.
5.5 NONASSIGNMENT. The Corporation shall pay all amounts payable hereunder
only to the person or persons designated by the Plan and not to any
other person or corporation. No part of a Participant's Accounts shall
be liable for the debts, contracts, or engagements of any Participant,
his or her Beneficiary, or successors in interest, nor shall a
Participant's Accounts be subject to execution by levy, attachment, or
garnishment or by any other legal or equitable proceeding, nor shall any
such person have any right to alienate, anticipate, commute, pledge,
encumber, or assign any benefits or payments hereunder in any manner
whatsoever. If any Participant, Beneficiary or successor in interest is
adjudicated bankrupt or purports to anticipate, alienate, sell,
transfer, assign, pledge, encumber or charge any distribution or payment
from the Plan, voluntarily or involuntarily, the Committee, in its
discretion, may cancel such distribution or payment (or any part
thereof) to or for the benefit of such
18
<PAGE> 22
Participant, Beneficiary or successor in interest in such manner as the
Committee shall direct.
5.6 NO RIGHT TO CONTINUED EMPLOYMENT. Nothing in the Plan shall be construed
to confer upon any Participant any right to continued employment with
the Company, nor shall the Plan interfere in any way with the right of
the Company to terminate the employment of such Participant at any time
without assigning any reason therefor.
5.7 WITHHOLDING TAXES. The Company may satisfy any state or federal
employment tax withholding obligation with respect to compensation
deferred under the Plan by deducting such amounts from any compensation
payable by the Company to the Participant. There shall be deducted from
each payment made under the Plan or any other compensation payable to
the Participant (or Beneficiary) all taxes which are required to be
withheld by the Company in respect to any payment or distribution of
shares under the Plan. The Company shall have the right to reduce any
payment by the amount of cash sufficient to provide the amount of said
taxes. As a condition precedent to the payment of any benefits under the
Plan, if the Company (for any reason) elects not to (or cannot) satisfy
the withholding obligation from the amounts otherwise payable under the
Plan, the Participant shall pay or provide for payment in cash of the
amount of any taxes which the Company may be required to withhold with
respect to the benefits hereunder.
5.8 CLAIMS PROCEDURE AND ARBITRATION. A person who believes that he or she
is being denied a benefit to which he or she is entitled under the Plan
(hereinafter referred to as "Claimant") may file a written request for
such benefit with the Committee, setting forth his or her claim. The
request must be addressed to the Committee at the Company's then
principal executive offices.
Upon receipt of a claim, the Committee shall advise the Claimant that a
reply will be forthcoming within ninety (90) days and shall, in fact,
deliver such reply within such period. The Committee may, however,
extend the reply period for an additional ninety (90) days for special
circumstances. If the claim is denied in whole or in part, the Committee
shall inform the Claimant in writing, using language calculated to be
understood by the Claimant, setting forth: (i) the specified reason or
reasons for such denial, (ii) the specific reference to pertinent
provisions of the Plan on which such denial is based, (iii) a
description of any additional material or information necessary for the
Claimant to perfect his or her claim and an explanation why such
material or such information is necessary, (iv) appropriate information
as to the steps to be taken if the Claimant wishes to submit the claim
for review, and (v) the time limits for requesting a review set forth
below.
19
<PAGE> 23
Within sixty (60) days after the receipt by the Claimant of the written
opinion described above, the Claimant may request in writing that the
Committee review its determination. Such request must be addressed to
the Committee at the Company's then principal executive offices. The
Claimant or his or her duly authorized representative may, but need not,
review the pertinent documents and submit issues and comments in writing
for consideration by the Committee. If the Claimant does not request a
review within such sixty (60) day period, he or she shall be barred and
estopped from challenging the Company's determination.
Within sixty (60) days after the Committee's receipt of a request for
review, after considering all materials presented by the Claimant, the
Committee will inform the Claimant in writing, in manner calculated to
be understood by the Claimant, of its decision setting forth the
specific reasons for the decision and containing specific references to
the pertinent provisions of the Plan on which the decision is based. If
special circumstances require that the sixty (60) day time period be
extended, the Committee will so notify the Claimant and will render the
decision as soon as possible, but no later than one hundred twenty (120)
days after receipt of the request for review.
Following a Change in Control of the Corporation (as determined under
Section 4.6) the claims procedure shall include the following
arbitration procedure.
Since time will be of the essence in determining whether any payments
are due to the Participant under the Plan following a Change in Control,
a Participant may submit any claim for payment to arbitration as
follows: On or after the second day following the termination of the
Participant's employment or other event triggering a right to payment),
the claim may be filed orally with an arbitrator of the Participant's
choice and thereafter the Corporation shall be notified orally. The
arbitrator must be:
(a) a member of the National Academy of Arbitrators or one who
currently appears on arbitration panels issued by the Federal
Mediation and Conciliation Service or the American Arbitration
Association; or
(b) a retired judge of the State in which the claimant is a resident
who served at the appellate level or higher. The arbitration
hearing shall be held within 10 days (or as soon thereafter as
possible) after filing of the claim unless the Participant and
the Corporation agree to a later date. No continuance of said
hearing shall be allowed without the mutual consent of the
Participant and the Corporation. Absence from or
nonparticipation at the hearing by either party shall not
prevent the issuance of an award. Hearing procedures which will
expedite the hearing may be ordered at the arbitrator's
discretion, and the arbitrator may close the hearing in his or
20
<PAGE> 24
her sole discretion upon deciding he or she has heard sufficient
evidence to satisfy issuance of an award. In reaching a
decision, the arbitrator shall have no authority to ignore,
change, modify, add to or delete from any provision of the Plan,
but instead is limited to interpreting the Plan. The
arbitrator's award shall be rendered as expeditiously as
possible, and in no event, later than seven days after the close
of the hearing. If the arbitrator finds that any payment is due
to the Participant from the Corporation, the arbitrator shall
order the Corporation to pay that amount to the Participant
within 48 hours after the decision is rendered. The award of the
arbitrator shall be final and binding upon the Participant and
the Corporation. Judgment upon the award rendered by the
arbitrator may be entered in any court in any State of the
United States. In the case of any arbitration regarding this
Agreement, the Participant shall be awarded the Participant's
costs, including attorney's fees. Such fee award may not be
offset against the deferred compensation due hereunder. The
Corporation shall pay the arbitrator's fee and all necessary
expenses of the hearing, including stenographic reporter if
employed.
5.9 TERMINATION AND AMENDMENT. The Board may from time to time amend,
suspend or terminate the Plan, in whole or in part, and if the Plan is
suspended or terminated, such board may reinstate any or all of its
provisions. No amendment, suspension or termination may impair the right
of a Participant or a designated Beneficiary to receive the deferred
compensation benefit accrued prior to the effective date of such
amendment, suspension or termination in accordance with the terms of the
Plan at such prior time. The Committee may however, in connection with
the termination of this Plan and in its sole discretion, elect to
accelerate the distribution of benefits and pay benefits in the form of
a lump sum rather than installments. Following a Change in Control, as
defined in Section 4.6, the change in control provisions of such section
and arbitration provisions of Section 5.8 may not be changed.
5.10 APPLICABLE LAW. The Plan shall be construed and governed in accordance
with applicable federal law and, to the extent not preempted by such
federal law, the laws of the State of California. If any provisions of
this instrument shall be held by a court of competent jurisdiction to be
invalid or unenforceable, the remaining provisions hereof shall continue
to be fully effective.
5.11 COMPLIANCE WITH LAWS. The Plan and the offer, issuance and delivery of
shares of Common Stock and/or the payment of money through the deferral
of compensation under the Plan are subject to compliance with all
applicable federal and state laws, rules and regulations (including but
not limited to state and federal securities law) and to such approvals
by any listing, agency or any regulatory or governmental authority as
may, in the opinion of counsel for the Corporation, be necessary or
advisable in connection therewith. Any securities
21
<PAGE> 25
delivered under the Plan shall be subject to such restrictions, and the
person acquiring such securities shall, if requested by the Corporation,
provide such assurances and representations to the Corporation as the
Corporation may deem necessary or desirable to assure compliance with
all applicable legal requirements.
5.12 PLAN CONSTRUCTION. It is the intent of the Corporation that transactions
pursuant to the Plan satisfy and be interpreted in a manner that
satisfies the applicable requirements of Rule 16b-3 promulgated under
the Exchange Act ("Rule 16b-3") so that, to the extent elections are
timely made, the crediting of Deferred Shares, the distribution of
shares of Common Stock and any other event with respect to Deferred
Shares under the Plan will be entitled to the benefits of Rule 16b-3 or
other exemptive rules under Section 16 of the Exchange Act and will not
be subjected to avoidable liability thereunder.
5.13 HEADINGS, ETC. NOT PART OF PLAN. Headings and subheadings in the Plan
are inserted for convenience of reference only and are not to be
considered in the construction of the provisions hereof.
IN WITNESS WHEREOF, the undersigned duly authorized officer of the
Corporation has executed this amendment and restatement of the Plan on this
______ day of ____________, 1998.
FURON COMPANY
By:
---------------------------------
Print Name:
-------------------------
Its:
--------------------------------
22
<PAGE> 1
EXHIBIT 10.9A
AMENDMENTS TO FURON COMPANY
1995 STOCK INCENTIVE PLAN
EFFECTIVE AUGUST 25, 1998
1. Section 1.2 of the 1995 Plan is amended by adding the following paragraph
(f) thereto:
"(f) Notwithstanding the provisions of Section 6.6 regarding the term of
this Plan, all authority of the Board and the Committee with respect to
Awards hereunder, including (subject to share limits) the authority to amend
outstanding Awards, shall continue after the term of this Plan, so long as
any Award remains outstanding. The Committee shall have the authority to
grant Awards which allow, and amend Awards to allow, a deferred payment in
respect of such Awards under any deferred compensation plan of the Company,
consistent with Section 1.5(b). Any such settlement or deferral shall not be
deemed a new award hereunder so long as all shares issuable under this Plan
in respect thereof do not exceed the aggregate number of shares subject to
the Awards so paid thereby. The authority of the Committee shall continue in
respect of any deferral so authorized."
2. The existing text at Section 1.5 of the 1995 Plan is redesignated as Section
1.5(a).
3. Section 1.5 of the 1995 Plan is amended by adding the following paragraph
(b) thereto:
"(b) The Committee may allow the delayed payment or delivery of any cash or
shares of Common Stock which may become due under this Plan. Without
limiting the generality of the foregoing, the deferral of any cash payable
in respect of an Award may be in the form of a credit to the Participant's
deferral account under the Furon Company Deferred Compensation Plan and the
deferral of any shares of Common Stock distributable upon the exercise of a
Nonqualified Stock Option may be in the form of deferred shares under the
Furon Company Option Gain Deferral Program (the 'Program'). In the event
that the purchase price of a Nonqualified Stock Option is paid in full in
shares of Common Stock and the delivery of shares of Common Stock in excess
of the option price is deferred under the Program, Deferred Shares may be
credited in respect of such excess shares and earn dividend equivalents or
other compensation in respect thereof, and the number of shares of Common
Stock issued under this Plan in respect of such Deferred Shares shall be
charged against the share limits hereof. Dividend equivalents may be settled
under this Plan or other authority of the Board and, to the extent settled
under this Plan, shall be charged against the share limits hereof."
<PAGE> 1
EXHIBIT 10.16
FURON COMPANY
OPTION GAIN DEFERRAL PROGRAM
<PAGE> 2
<TABLE>
<CAPTION>
PAGE
----
ARTICLE I
PURPOSE AND AUTHORIZED SHARES
<S> <C>
1.1 PURPOSES ......................................................... 1
1.2 SHARES AVAILABLE ................................................. 1
1.3 RELATIONSHIP TO PLANS ............................................ 1
ARTICLE II
DEFINITIONS
2.1 DEFINITIONS ...................................................... 2
ARTICLE III
PARTICIPATION
3.1 GENERAL PARTICIPATION REQUIREMENTS ............................... 5
3.2 MANNER AND TIMING OF ELECTION .................................... 5
3.3 EXECUTION OF ALTERNATIVE EXERCISE AGREEMENT BY THE COMPANY ....... 5
ARTICLE IV
ALTERNATIVE EXERCISE OF OPTIONS
4.1 FORM OF AGREEMENT ................................................ 6
4.2 LIMITED ABILITY TO EXERCISE OPTION ............................... 6
4.3 TERMINATION OF ALTERNATIVE EXERCISE AGREEMENTS ................... 6
4.4 OTHER TERMS OF ALTERNATIVE EXERCISE AGREEMENTS ................... 6
ARTICLE V
DEFERRED SHARE ACCOUNTS
5.1 CREDITING OF DEFERRED SHARES ..................................... 7
5.2 DIVIDEND EQUIVALENT CREDITS TO DEFERRED SHARE ACCOUNTS ........... 7
5.3 VESTING .......................................................... 7
5.4 DISTRIBUTION OF BENEFITS ......................................... 8
5.5 ADJUSTMENTS IN CASE OF CHANGES IN COMMON STOCK ................... 10
5.6 COMPANY'S RIGHT TO WITHHOLD ...................................... 11
ARTICLE VI
ADMINISTRATION
6.1 THE ADMINISTRATOR ................................................ 12
6.2 COMMITTEE ACTION ................................................. 12
6.3 RIGHTS AND DUTIES ................................................ 12
6.4 INDEMNITY AND LIABILITY .......................................... 13
6.5 CLAIMS PROCEDURE AND ARBITRATION ................................. 13
</TABLE>
ii
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE VII
PROGRAM CHANGES AND TERMINATION
7.1 AMENDMENTS ....................................................... 16
7.2 TERM ............................................................. 16
ARTICLE VIII
MISCELLANEOUS
8.1 LIMITATION ON PARTICIPANT'S RIGHTS ............................... 17
8.2 BENEFICIARY DESIGNATION .......................................... 17
8.3 PAYMENTS TO MINORS OR PERSONS UNDER INCAPACITY ................... 18
8.4 RECEIPT AND RELEASE .............................................. 18
8.5 DEFERRED SHARES AND OTHER BENEFITS NOT ASSIGNABLE; OBLIGATIONS
BINDING UPON SUCCESSORS .......................................... 18
8.6 EMPLOYMENT TAXES ................................................. 19
8.7 GOVERNING LAW; SEVERABILITY ...................................... 19
8.8 COMPLIANCE WITH LAWS ............................................. 19
8.9 PROGRAM CONSTRUCTION ............................................. 19
8.10 HEADINGS NOT PART OF PROGRAM ..................................... 20
EXHIBIT A QUALIFYING STOCK OPTION ALTERNATIVE EXERCISE AGREEMENT ........ A-1
</TABLE>
iii
<PAGE> 4
FURON COMPANY
OPTION GAIN DEFERRAL PROGRAM
ARTICLE I
PURPOSE AND AUTHORIZED SHARES
1.1 PURPOSES
The purpose of this Program is to promote the ownership and retention of
Shares by Eligible Persons and to enable Eligible Persons to defer compensation
that would otherwise be realized upon exercise of a Qualifying Option and
ultimately receive the deferred compensation in the form of Shares.
1.2 SHARES AVAILABLE
The number of Shares that may be issued under each of the 1982 Plan and
the 1995 Plan as part of this Program is limited to the aggregate number of
Shares that were the subject of the Qualifying Options granted under such Plan
that are exercised pursuant to Article IV in exchange for the crediting of
Deferred Shares under this Program. Shares payable under this Program in respect
of Dividend Equivalents shall be delivered under the Deferred Compensation Plan
and charged against any applicable Share limits of such plan; provided that
Shares in respect of Dividend Equivalents may be issued under other authority of
the Board, or, if Shares for any reason can not be delivered under the Deferred
Compensation Plan and in the absence of other Board authority, Dividends
Equivalents may be paid (in the sole discretion of the Committee) in cash.
1.3 RELATIONSHIP TO PLANS
This Program constitutes a deferred compensation plan providing
alternative settlements under and as contemplated by the Stock Plans in respect
of nonqualified stock options granted thereunder. This Program also contemplates
the grant of Deferred Shares under and as contemplated by the Stock Plans. This
Program and all rights under it are provided and shall be subject to and
construed consistently with the other terms of the 1982 Plan or the 1995 Plan,
as the case may be, except as the context otherwise requires.
1
<PAGE> 5
ARTICLE II
DEFINITIONS
2.1 DEFINITIONS
Whenever the following terms are used in this Program they shall have
the meaning specified below unless the context clearly indicates to the
contrary:
"ALREADY-OWNED SHARES" shall mean Shares owned by an Eligible Person;
provided, however, that Shares acquired by an Eligible Person from the Company
under an option or other employee benefit plan maintained by the Company or
otherwise must be held by the Eligible Person for at least six months in order
to qualify as Already-Owned Shares and, if Shares are used to pay the exercise
price of an option or other award, such Shares may not be reused as payment of
the exercise price of another option or award within six months of such prior
use.
"ALTERNATIVE EXERCISE" shall mean the exercise of all or a portion of a
Qualifying Stock Option using Already-Owned Shares in exchange for a combination
of Exercise Shares and Deferred Shares under this Program.
"ALTERNATIVE EXERCISE AGREEMENT" shall mean an agreement entered into
between the Company and an Eligible Person in accordance with Article IV of this
Program pursuant to which the Eligible Person elects to defer that portion of
the proceeds of the exercise of the Qualifying Option equal to the spread in the
form of Deferred Shares.
"BENEFICIARY" or "BENEFICIARIES" shall mean the person, persons, trust
or trusts (or similar entity), personal representative, or other fiduciary, last
designated in writing by a Participant in accordance with the provisions of
Section 8.2 to receive the benefits specified hereunder in the event of the
Participant's death. If there is no valid Beneficiary designation in effect that
complies with the provisions of Section 8.2, or if there is no surviving
designated Beneficiary, then the Participant's surviving spouse shall be the
Beneficiary. If there is no surviving spouse to receive any benefits payable in
accordance with the preceding sentence, the duly appointed and currently acting
personal representative of the Participant's estate (which shall include either
the Participant's probate estate or living trust) shall be the Beneficiary. In
any case where there is no such personal representative of the Participant's
estate duly appointed and acting in that capacity within 90 days after the
Participant's death (or such extended period as the Committee determines is
reasonably necessary to allow such personal representative to be appointed, but
not to exceed 180 days after the Participant's death), then Beneficiary or
Beneficiaries shall mean the person or persons who can verify by affidavit or
court order to the satisfaction of the Committee that they are legally entitled
to receive the benefits specified hereunder.
2
<PAGE> 6
"BOARD" shall mean the Board of Directors of the Corporation.
"CHANGE IN CONTROL" shall mean the occurrence of an "Event" as such term
is defined in the 1995 Plan.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COMMITTEE" shall mean the Board or a committee of the Board (or its
delegate) acting in accordance with Article VI.
"COMMON STOCK" shall mean the common stock, without par value, of the
Corporation, subject to adjustment pursuant to Section 5.5 of this Program.
"COMPANY" shall mean the Corporation and its Subsidiaries.
"CORPORATION" shall mean Furon Company, a California corporation, and
any successor corporation.
"CONVERSION DATE" shall mean the date that the Eligible Person exercises
all or a portion of a Qualifying Option in accordance with the Alternative
Exercise procedures under this Program.
"DEFERRED COMPENSATION PLAN" shall mean the Furon Company Deferred
Compensation Plan, as amended from time to time.
"DEFERRED SHARE" shall mean a non-voting unit of measurement which is
deemed solely for bookkeeping purposes to be equivalent to one outstanding Share
(subject to Section 5.5) solely for purposes of this Program.
"DEFERRED SHARE ACCOUNT" shall mean the bookkeeping account maintained
by the Company on behalf of each Participant which is credited with Deferred
Shares in accordance with Section 5.1(a) and Dividend Equivalents thereon in
accordance with Section 5.2.
"DISTRIBUTION SUBACCOUNT" shall mean any subaccount established and
maintained under a Participant's Deferred Share Account to separately account
for Deferred Shares which are subject to different distribution or manner of
payment elections made by the Participant.
"DIVIDEND EQUIVALENT" shall mean the amount of cash dividends or other
cash distributions paid by the Corporation on that number of Shares equal to the
number of Deferred Shares credited to a Participant's Deferred Share Account as
of the applicable record date for the dividend or other distribution, which
amount shall be credited in the form of additional Deferred Shares to the
Deferred Share Account of the Participant, as provided in Section 5.2.
3
<PAGE> 7
"EFFECTIVE DATE" shall mean September 10, 1998.
"ELIGIBLE PERSON" shall mean any employee of the Company who (i) is a
"Participant" under and as such term is defined in the Furon Company Deferred
Compensation Plan, and (ii) holds a Qualifying Option granted under either of
the Stock Plans.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
"EXERCISE SHARES" shall mean the Shares delivered by the Corporation
upon the Alternative Exercise of a Qualifying Option in accordance with Section
4.1(ii)(A).
"FAIR MARKET VALUE" shall have the meaning given to such term in the
1995 Plan.
"INTEREST RATE" shall mean the rate (quoted as an annual rate) that is
120% of the federal long-term rate for compounding on a quarterly basis,
determined and published by the Secretary of the United States Department of
Treasury under Section 1274(d) of the Code, for the quarter for which the
interest is credited.
"1982 PLAN" shall mean the Furon Company 1982 Stock Incentive Plan, as
amended from time to time.
"1995 PLAN" shall mean the Furon Company 1995 Stock Incentive Plan, as
amended from time to time.
"PARTICIPANT" shall mean any person who has Deferred Shares credited to
a Deferred Share Account under this Program.
"PROGRAM" shall mean this Furon Company Option Gain Deferral Program, as
it may be amended from time to time.
"QUALIFYING OPTION" or "QUALIFYING STOCK OPTION" shall mean any
nonqualified stock option granted under one of the Stock Plans; provided,
however, that an option shall not be a Qualifying Stock Option if it will
expire, by its terms, before the end of the six-month period commencing with the
date that the Alternative Exercise election is received by the Company.
"RULE 16b-3" shall mean Rule 16b-3 promulgated under the Exchange Act.
"SHARE" shall mean a share of Common Stock.
"STOCK PLANS" shall mean the 1982 Plan and the 1995 Plan.
"SUBSIDIARY" shall mean any corporation or other entity of which 50% of
the outstanding voting stock or voting power is beneficially owned directly or
indirectly by the Corporation.
4
<PAGE> 8
ARTICLE III
PARTICIPATION
3.1 GENERAL PARTICIPATION REQUIREMENTS.
An Eligible Person may elect to exercise all or a portion of a
Qualifying Option under and subject to the Alternative Exercise provisions set
forth herein and to receive a credit of Deferred Shares under this Program.
3.2 MANNER AND TIMING OF ELECTION.
An election to Alternatively Exercise a Qualifying Option may only be
made by an Eligible Person by completing and executing a form of Alternative
Exercise Agreement which meets the requirements of Article IV and submitting
such form to the Corporation after the Effective Date.
3.3 EXECUTION OF ALTERNATIVE EXERCISE AGREEMENT BY THE COMPANY.
The Committee, in its sole discretion, may refuse to accept any
Alternative Exercise Agreement within the 30-day period following the date such
Alternative Exercise Agreement is received by the Corporation. Provided that the
Committee does not timely refuse to accept an Eligible Person's Alternative
Exercise Agreement, the Company, acting through any of its officers, shall
execute the Alternative Exercise Agreement form submitted by such Eligible
Person and deliver a copy of such fully executed Alternative Exercise Agreement
to him or her as soon as administratively practicable after the end of the
Committee's 30-day review period.
5
<PAGE> 9
ARTICLE IV
ALTERNATIVE EXERCISE OF OPTIONS
4.1 FORM OF AGREEMENT.
Each Alternative Exercise Agreement with respect to a Qualifying Stock
Option shall be in the form attached hereto as Exhibit A or any other form
approved by the Committee. Each such Alternative Exercise Agreement shall
specify the portion of the Qualifying Stock Option or Qualifying Stock Options
that the Eligible Person elects to exercise under this Program and shall provide
that (i) the Eligible Person will exercise all or the specified portion of such
Qualifying Stock Option(s) by paying the exercise price with Already-Owned
Shares having an aggregate Fair Market Value equal to the exercise price for the
number of Shares with respect to which the Qualifying Stock Option is exercised
and (ii), upon exercise, the Company will (A) deliver to the Eligible Person the
same number of Shares used by the Eligible Employee to pay the exercise price of
the Qualifying Stock Option and (B), in lieu of the remainder of the Shares
which would otherwise be delivered to the Eligible Person (the "Gain Shares"),
credit to a Deferred Share Account established for the Eligible Person Deferred
Shares equal in number to the number of Gain Shares. An Eligible Person shall
also elect on his or her Alternative Exercise Agreement (y) the deferral period
of such Deferred Shares, consistent with Section 5.4(b), and (z) the manner of
eventual payment of such Deferred Shares, consistent with Section 5.4(c).
Subject to applicable law and the intent of this Program, the Committee may
provide for or permit an alternative method of delivering or tendering
Already-Owned Shares to pay the exercise price of a Qualifying Stock Option. An
Alternative Exercise Agreement is irrevocable by the Eligible Person once it is
received by the Corporation.
4.2 LIMITED ABILITY TO EXERCISE OPTION.
Any Qualifying Option (or portion thereof) which is subject to an
Alternative Exercise Agreement may not be exercised at all during the six-month
period following the date the Company receives the Eligible Person's Alternative
Exercise Agreement.
4.3 TERMINATION OF ALTERNATIVE EXERCISE AGREEMENTS.
An Eligible Person's Alternative Exercise Agreement shall terminate and
the related Qualifying Option may be exercised for actual Shares in accordance
with the terms of the Qualifying Option without regard to the Alternative
Exercise Agreement or the restriction set forth in Section 4.2: (i) if an
Eligible Person's Alternative Exercise Agreement is timely refused by the
Committee, or (ii) prior to the end of the six-month period described in Section
4.2, an Eligible Person's employment with the Company (including any Subsidiary)
is terminated, or (iii), unless the Committee otherwise provides, a Change in
Control occurs. If the Company unilaterally refuses to honor an Alternative
Exercise of a Qualifying Option pursuant to Section 8.8, the Alternative
Exercise Agreement with respect to such Qualifying Option shall terminate and
such Qualifying Option shall be exercisable for actual Shares in accordance with
its terms without regard to the Alternative Exercise Agreement or the terms of
the Qualifying Option regarding Alternative Exercise.
4.4 OTHER TERMS OF ALTERNATIVE EXERCISE AGREEMENTS.
No Alternative Exercise Agreement shall have the effect of extending the term or
otherwise changing the terms of any Qualifying Option (except as expressly
contemplated hereby in respect of the consequences of an Alternative Exercise).
No Alternative Exercise Agreement may be amended or terminated except as
specifically provided herein.
6
<PAGE> 10
ARTICLE V
DEFERRED SHARE ACCOUNTS
5.1 CREDITING OF DEFERRED SHARES.
(a) CREDITING OF DEFERRED SHARES. As of the applicable Conversion
Date of a Qualifying Stock Option, an Eligible Person's Deferred
Share Account shall be credited with the number of Deferred
Shares attributable to the Gain Shares, as described in Section
4.1.
(b) DISTRIBUTION SUBACCOUNTS. The Committee shall establish separate
Distribution Subaccounts under a Participant's Deferred Share
Account as necessary to separately account for Deferred Shares
that are subject to different distribution or manner of payment
elections made by the Participant.
(c) LIMITATIONS ON RIGHTS ASSOCIATED WITH DEFERRED SHARES. A
Participant's Deferred Share Account shall be a memorandum
account on the books of the Company. The Deferred Shares
credited to a Participant's Deferred Share Account shall be used
solely as a device for the determination of the number of Shares
to be eventually distributed to such Participant in accordance
with this Program. The Deferred Shares shall not be treated as
property or as a trust fund of any kind. No Participant shall be
entitled to any voting or other shareholder rights with respect
to Deferred Shares granted or credited under this Program. The
number of Deferred Shares credited (and the Shares to which the
Participant is entitled under this Program) shall be subject to
adjustment in accordance with Section 5.5 of this Program.
5.2 DIVIDEND EQUIVALENT CREDITS TO DEFERRED SHARE ACCOUNTS.
As of any applicable dividend or distribution payment date, a
Participant's Deferred Share Account shall be credited with additional Deferred
Shares in an amount equal to the amount of the Dividend Equivalents divided by
the Fair Market Value of a Share as of the applicable dividend payment date. If
the limit on the number of Shares available under this Program in respect of
Dividend Equivalents is reached, the Company may in its discretion credit or
settle such amounts in cash.
5.3 VESTING.
All Deferred Shares (including Deferred Shares credited as Dividend
Equivalents) credited to a Participant's Deferred Share Account shall be at all
times fully vested.
7
<PAGE> 11
5.4 DISTRIBUTION OF BENEFITS.
(a) FORM OF DISTRIBUTION. Deferred Shares credited to a
Participant's Deferred Share Account shall be distributed in an
equivalent whole number of Shares. Fractional share interests
shall be settled in cash. The Committee, in its sole discretion,
may pay Deferred Shares credited as Dividend Equivalents in cash
in lieu of Shares.
(b) DISTRIBUTION OF BENEFITS. Benefits in respect of the Deferred
Shares credited to a Participant's Distribution Subaccount shall
be distributed in the form of Shares in January of the year
following the first to occur of (i) the Participant's
termination of employment with the Company for any reason
(including, without limitation, retirement, death, permanent
disability, resignation or termination by the Company), or (ii)
the expiration of the deferral period elected with respect to
such Deferred Shares (if any). A Participant may elect on his or
her Alternative Exercise Agreement, a deferral period of 5, 10,
15 or 20 years following the date of Alternative Exercise for
the deferral of the Deferred Shares credited with respect to
such Alternative Exercise Agreement (including dividend
equivalents thereon).
(c) MANNER OF DISTRIBUTION. A Participant may elect in his or her
Alternative Exercise Agreement to have the Deferred Shares
credited with respect to such agreement (including dividend
equivalents thereon) distributed in one of the following
manners:
(i) a single lump sum, or
(ii) substantially equal installments payable not less
frequently than annually over a 5, 10, 15, or 20 year
period, as selected by the Participant.
If no valid election is made, the Participant's benefits shall
be distributed in a lump sum. Notwithstanding the foregoing, the
Committee may, in its sole discretion:
(iii) distribute the benefits in a single lump sum if the sum
of Shares to be distributed to the Participant is less
than or equal to 1,000, or
(iv) reduce the number of installments elected by the
Participant to produce an annual distribution of at
least 100 Shares.
(d) SURVIVOR BENEFITS. If the Participant dies while actively
employed by the Company or a Subsidiary, the Committee shall
distribute or
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<PAGE> 12
commence to distribute to the Participant's Beneficiary the
number of Shares equal to the number of Deferred Shares credited
to the Participant's Deferred Share Account in accordance with
the Participant's form of distribution election in the January
of the year following the date of the Participant's death. If
the Participant dies after terminating employment, the Committee
shall distribute to the Participant's Beneficiary the remaining
Shares distributable to the Participant under this Program over
the same period that the Shares would have been distributed to
the Participant.
(e) ACCELERATION OF BENEFITS. The Committee, in its discretion, may
direct that payment of a Participant's Deferred Share Account
shall commence or be made on the December 31 nearest the
Participant's retirement date, on the January 31 following the
retirement date or in January of the year following the
Participant's retirement; provided that the Participant retires
with advance notice given in December or January. The Committee,
in its discretion, may accelerate the payment of the unpaid
balance of a Participant's Deferred Share Account in the event
of the Participant's retirement, death, permanent disability,
resignation or termination of employment, or upon its
determination that the Participant (or his Beneficiary in the
case of his death) has incurred a severe, unforeseeable
financial hardship creating an immediate and heavy need for cash
that cannot reasonably be satisfied from sources other than an
accelerated payment under this Program. The Committee in making
its determination may consider such factors and require such
information as it deems appropriate
(f) EFFECT OF CHANGE IN CONTROL. In the Event of a Change in
Control, the following rules shall apply:
(i) All Participants shall continue to have a fully vested,
nonforfeitable interest in their Deferred Share Account
balances.
(ii) Unless the Committee otherwise provides, Alternative
Exercise Agreements shall terminate in accordance with
Section 4.3.
(iii) All payments in respect of Deferred Share Accounts
following a Change in Control shall be made as follows:
(1) Payments that have already commenced shall
continue to be made no less rapidly than under
the schedule in effect just prior to the Change
in Control.
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<PAGE> 13
(2) Payments that have not yet commenced shall be
made (in the form of Shares unless the Committee
provides otherwise) in a lump sum at the
earliest possible payment date under the normal
rules for benefit commencement pursuant to
Section 5.4(b) as in effect on the day before
the day of the Change in Control.
(iv) If the Corporation has established a grantor trust in
connection with this Program, the Corporation shall
continue to make any required payments to that trust in
accordance with its funding rules as in effect prior to
the Change in Control.
(v) A Participant's termination of employment for purposes
of this Program shall be deemed to include (but shall
not be limited to) any event (such as a constructive
discharge) giving the Participant the right to receive
salary continuation or other severance benefits
following a Change in Control, as determined under any
plan, program, or agreement covering the Participant
that is in effect at the time of the Change in Control.
(g) SECTION 162(m) LIMITATION. Notwithstanding the foregoing, if the
Committee determines in good faith that there is a reasonable
likelihood that any benefits payable to a Participant for a
taxable year of the Company would not be deductible by the
Company solely by reason of the limitation under Code Section
162(m), then to the extent reasonably deemed necessary by the
Committee to ensure that the entire amount of any distribution
to the Participant pursuant to this Program is deductible, the
Committee may defer all or any portion of a distribution under
this Program. The amounts so deferred shall be distributed to
the Participant or his or her Beneficiary (in the event of the
Participant's death) at the earliest possible date, as
determined by the Committee in good faith, on which the
deductibility of compensation paid or payable to the Participant
for the taxable year of the Company during which the
distribution is made will not be limited by Code Section 162(m).
5.5 ADJUSTMENTS IN CASE OF CHANGES IN COMMON STOCK.
(a) If the outstanding Shares are increased, decreased, or exchanged
for a different number or kind of securities, or if additional
shares or new or different shares or other securities are
distributed with respect to such Shares or other securities,
through merger, consolidation, sale of all or substantially all
of the assets of the Company, reorganization,
10
<PAGE> 14
recapitalization, stock dividend, stock split, reverse stock
split or similar change in capitalization or any other
distribution with respect to such Shares or other securities,
proportionate and equitable adjustments consistent with the
effect of such event on stockholders generally (but without
duplication of benefits if Dividend Equivalents are credited)
shall be made in the number and type of Shares or other
securities, property and/or rights contemplated hereunder and of
rights in respect of Deferred Shares and Deferred Share Accounts
credited under this Program so as to preserve the benefits
intended. The provisions of Section 7.2 of the 1982 Plan and
Section 6.2 of the 1995 Plan shall also apply to the related
Deferred Shares granted under the Stock Plans in accordance with
this Program.
(b) If the event results in any rights of shareholders to receive
cash (other than cash dividends and cash distributions), a
corresponding amount of cash shall be credited to each
Participant's Deferred Share Account (or, if applicable, the
appropriate Distribution Subaccount of the Participant's
Deferred Share Account) as of the date that cash is paid in
respect of outstanding Shares. As of the last day of each
calendar quarter, the Participant's Deferred Share Account shall
be credited with earnings on the cash balance credited to such
Deferred Share Account as of the last day of the preceding
calendar quarter or, if later, the date of such event, at a rate
(on an annualized basis) equal to the Interest Rate. The amount
of cash credited to a Participant's Deferred Share Account shall
be distributed in cash at such time (or times) and in such
manner as otherwise provided under this Program and/or the
applicable election made by the Participant in accordance with
the terms of this Program.
5.6 COMPANY'S RIGHT TO WITHHOLD.
The Company (including its Subsidiaries) may satisfy any state or
federal tax withholding obligation arising upon a distribution of Shares and any
cash with respect to a Participant's Deferred Share Account by reducing the
number of Shares or cash otherwise deliverable to the Participant. The
appropriate number of Shares required to satisfy such tax withholding obligation
in the case of Deferred Shares will be based on the Fair Market Value of a Share
on the day prior to the date of distribution. If the Company (including its
Subsidiaries), for any reason, elects not to (or cannot) satisfy the withholding
obligation in accordance with the preceding sentence, the Participant shall pay
or provide for payment in cash of the amount of any taxes which the Company
(including its Subsidiaries) may be required to withhold with respect to the
benefits hereunder, before any such benefits are paid.
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<PAGE> 15
ARTICLE VI
ADMINISTRATION
6.1 THE ADMINISTRATOR.
The Committee hereunder shall consist of (i) the members of the
Compensation Committee of the Board who are Non-Employee Directors within the
meaning of Rule 16b-3 and "outside directors" for purposes of Section 162(m) of
the Code, or (ii) such other committee of the Board, each participating member
of which is a Non-Employee Director (as defined in Rule 16b-3) and each member
of which is an "outside director" for purposes of Section 162(m) of the Code, as
may hereafter be appointed by the Board to serve as administrator of this
Program. Any member of the Committee may resign by delivering a written
resignation to the Board. Members of the Committee shall not receive any
additional compensation for administration of this Program.
6.2 COMMITTEE ACTION.
Action of the Committee with respect to the administration of this
Program shall be taken pursuant to a majority vote or by unanimous written
consent of its members. A member of the Committee shall not vote upon any matter
which relates solely to himself or herself as a Participant in this Program.
6.3 RIGHTS AND DUTIES.
(a) Subject to the limitations of this Program, the Committee shall
be charged with the general administration of this Program and
the responsibility for carrying out its provisions, and shall
have powers necessary to accomplish those purposes, including,
but not by way of limitation, the following:
(i) To construe and interpret this Program;
(ii) To resolve any questions concerning the amount of
benefits payable to a Participant;
(iii) To make all other determinations required by this
Program, including adjustments under Section 5.5;
(iv) To maintain all the necessary records for the
administration of this Program and provide statements of
Deferred Share Accounts to Participants on an annual or
more frequent basis;
(v) To make and publish forms, rules and procedures for the
administration of this Program; and
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<PAGE> 16
(vi) To administer the claims procedures set forth in Section
6.5 for presentation of claims by Participants and
Beneficiaries for benefits under this Program, including
consideration of such claims, review of claim denials
and issuance of a decision on review.
(b) The Committee shall have full discretion to construe and
interpret the terms and provisions of this Program (but not to
increase amounts payable hereunder) and to resolve any disputed
question or controversy, which interpretation or construction or
resolution, including decisions with respect to adjustments
under Section 5.5, shall be final and binding on all parties,
including but not limited to the Company and any Eligible
Person, Participant or Beneficiary, except as otherwise required
by law. The Committee shall administer such terms and provisions
in a nondiscriminatory manner and in full accordance with any
and all laws applicable to this Program. In performing its
duties, the Committee shall be entitled to rely on information,
opinions, reports or statements prepared or presented by: (i)
officers or employees of the Company whom the Committee believes
to be reliable and competent as to such matters; and (ii)
counsel (who may be employees of the Company), independent
accountants and other persons as to matters which the Committee
believes to be within such persons' professional or expert
competence. The Committee shall be fully protected with respect
to any action taken or omitted by it in good faith pursuant to
the advice of such persons. The Committee may appoint a program
administrator or any other agent, and delegate to them such
powers and duties in connection with the administration of this
Program as the Committee may from time to time prescribe.
6.4 INDEMNITY AND LIABILITY.
All expenses of the Committee shall be paid by the Company and the
Company shall furnish the Committee with such clerical and other assistance as
is necessary in the performance of its duties. No member of the Committee shall
be liable for any act or omission of any other member of the Committee nor for
any act or omission on his or her own part. To the extent permitted by law, the
Company shall indemnify and save harmless each member of the Committee against
any and all expenses and liabilities arising out of his or her membership on the
Committee.
6.5 CLAIMS PROCEDURE AND ARBITRATION.
A person who believes that he or she is being denied a benefit to which
he or she is entitled under this Program (hereinafter referred to as "Claimant")
may file a written request for such benefit with the Committee, setting forth
his or her claim. The request must be addressed to the Committee at the
Corporation's then principal executive offices.
13
<PAGE> 17
Upon receipt of a claim, the Committee shall advise the Claimant that a
reply will be forthcoming within ninety (90) days and shall, in fact, deliver
such reply within such period. The Committee may, however, extend the reply
period for an additional ninety (90) days for special circumstances. If the
claim is denied in whole or in part, the Committee shall inform the Claimant in
writing, using language calculated to be understood by the Claimant, setting
forth: (i) the specified reason or reasons for such denial, (ii) the specific
reference to pertinent provisions of this Program on which such denial is based,
(iii) a description of any additional material or information necessary for the
Claimant to perfect his or her claim and an explanation why such material or
such information is necessary, (iv) appropriate information as to the steps to
be taken if the Claimant wishes to submit the claim for review, and (v) the time
limits for requesting a review set forth below.
Within sixty (60) days after the receipt by the Claimant of the written
opinion described above, the Claimant may request in writing that the Committee
review its determination. Such request must be addressed to the Committee at the
Corporation's then principal executive offices. The Claimant or his or her duly
authorized representative may, but need not, review the pertinent documents and
submit issues and comments in writing for consideration by the Committee. If the
Claimant does not request a review within such sixty (60) day period, he or she
shall be barred and estopped from challenging the Company's determination.
Within sixty (60) days after the Committee's receipt of a request for
review, after considering all materials presented by the Claimant, the Committee
will inform the Claimant in writing, in manner calculated to be understood by
the Claimant, of its decision setting forth the specific reasons for the
decision and containing specific references to the pertinent provisions of this
Program on which the decision is based. If special circumstances require that
the sixty (60) day time period be extended, the Committee will so notify the
Claimant and will render the decision as soon as possible, but no later than one
hundred twenty (120) days after receipt of the request for review.
Following a Change in Control, the claims procedure shall include the
following arbitration procedure:
(a) Since time will be of the essence in determining whether any
payments are due to the Participant under this Program following
a Change in Control, a Participant may submit any claim for
payment to arbitration as follows: On or after the second day
following the termination of the Participant's employment or
other event triggering a right to payment), the claim may be
filed orally with an arbitrator of the Participant's choice and
thereafter the Corporation shall be notified orally. The
arbitrator must be:
14
<PAGE> 18
(i) a member of the National Academy of Arbitrators or one
who currently appears on arbitration panels issued by
the Federal Mediation and Conciliation Services or the
American Arbitration Association; or
(ii) a retired judge of the State in which the claimant is a
resident who served at the appellate level or higher.
(b) The arbitration hearing shall be held within 10 days (or as soon
thereafter as possible) after filing of the claim unless the
Participant and the Corporation agree to a later date. No
continuance of said hearing shall be allowed without the mutual
consent of the Participant and the Corporation. Absence from or
nonparticipation at the hearing by either party shall not
prevent the issuance of an award. Hearing procedures which will
expedite the hearing may be ordered at the arbitrator's
discretion, and the arbitrator may close the hearing in his or
her sole discretion upon deciding he or she has heard sufficient
evidence to satisfy issuance of an award. In reaching a
decision, the arbitrator shall have no authority to ignore,
change, modify, add to or delete from any provision of this
Program, but instead is limited to interpreting this Program.
The arbitrator's award shall be rendered as expeditiously as
possible, and in no event, later than seven days after the close
of the hearing. If the arbitrator finds that any payment is due
to the Participant from the Corporation, the arbitrator shall
order the Corporation to pay that amount to the Participant
within 48 hours after the decision is rendered. The award of the
arbitrator shall be final and binding upon the Participant and
the Corporation. Judgment upon the award rendered by the
arbitrator may be entered in any court in any State of the
United States. In the case of any arbitration regarding this
Agreement, the Participant shall be awarded the Participant's
costs, including attorney's fees. Such fee award may not be
offset against the deferred compensation due hereunder. The
Corporation shall pay the arbitrator's fee and all necessary
expenses of the hearing, including stenographic reporter if
employed.
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<PAGE> 19
ARTICLE VII
PROGRAM CHANGES AND TERMINATION
7.1 AMENDMENTS.
The Board shall have the right to amend this Program in whole or in part
from time to time or may at any time suspend or terminate this Program;
provided, however, that no amendment or termination shall cancel or otherwise
adversely affect in any way, without his or her written consent, any
Participant's rights with respect to Deferred Shares and Dividend Equivalents
(and any cash credited pursuant to Section 5.5(b)) credited to his or her
Deferred Share Account. Any amendments authorized hereby shall be stated in an
instrument in writing, and all Eligible Persons shall be bound thereby upon
receipt of notice thereof. Adjustments pursuant to Section 5.5 hereof shall not
be deemed amendments to this Program, the Deferred Share Accounts or the rights
of Participants.
7.2 TERM.
It is the current expectation of the Company that this Program shall be
continued indefinitely, but continuance of this Program is not assumed as a
contractual obligation of the Company. In the event that the Board decides to
discontinue or terminate this Program, it shall notify the Committee and
Participants in this Program of its action in writing, and this Program shall be
terminated at the time therein set forth. All Participants shall be bound
thereby. In connection with the termination of this Program, the Committee may,
in its sole discretion, elect to accelerate the distribution date for all
Deferred Share Accounts (including Deferred Share Accounts being paid in or
otherwise to be paid in the form of installments) and make a lump sum
distribution in respect thereof.
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<PAGE> 20
ARTICLE VIII
MISCELLANEOUS
8.1 LIMITATION ON PARTICIPANT'S RIGHTS.
Participation in this Program shall not give any person the right to
continued employment or service or any rights or interests other than as herein
provided. No Participant shall have any right to any payment or benefit
hereunder except to the extent provided in this Program. This Program creates no
fiduciary duty to Participants and shall create only a contractual obligation on
the part of the Company as to such amounts; this Program shall not be construed
as creating a trust. This Program, in and of itself, has no assets. Participants
shall have rights no greater than the right to receive the Common Stock (and any
cash as expressly provided herein) or the value thereof as a general unsecured
creditor in respect of their Deferred Share Accounts.
8.2 BENEFICIARY DESIGNATION.
Upon forms provided by and subject to conditions imposed by the Company,
each Participant may designate in writing the Beneficiary or Beneficiaries whom
such Participant desires to receive any Shares or amounts payable under this
Program after his or her death. A Participant may from time to time change his
or her designated Beneficiary or Beneficiaries without the consent of such
Beneficiary or Beneficiaries by filing a new designation with the Committee.
However, if a married Participant wishes to designate a person other than his or
her spouse as Beneficiary, such designation shall be consented to in writing by
the spouse, which consent shall acknowledge the effect of the designation. The
Participant may change any election designating a Beneficiary or Beneficiaries
without any requirement of further spousal consent if the spouse's consent so
provides. Notwithstanding the foregoing, spousal consent shall be unnecessary if
it is established (to the satisfaction of the Committee or a Committee
representative) that there is no spouse or that the required consent cannot be
obtained because the spouse cannot be located. The Company and the Committee may
rely on the Participant's designation of a Beneficiary or Beneficiaries last
filed in accordance with the terms of this Program. Upon the dissolution of
marriage of a Participant, any designation of the Participant's former spouse as
a Beneficiary shall be treated as though the Participant's former spouse had
predeceased the Participant, unless (a) the Participant executes another
Beneficiary designation that complies with this Section 8.2 and that clearly
names such former spouse as a Beneficiary, or (b) a court order is presented to
the Company that requires the former spouse be maintained as the Beneficiary. In
any case where the Participant's former spouse is treated under the
Participant's Beneficiary designation as having predeceased the Participant, no
heirs or other beneficiaries of the former spouse shall receive benefits from
the Plan as a Beneficiary of the Participant except as provided otherwise in the
Participant's Beneficiary designation.
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<PAGE> 21
8.3 PAYMENTS TO MINORS OR PERSONS UNDER INCAPACITY.
Every person receiving or claiming benefits under this Program shall be
conclusively presumed to be mentally competent and of age until the date on
which the Committee receives a written notice, in a form and manner acceptable
to the Committee, that such person is incompetent or a minor, for whom a
guardian or other person legally vested with the care of his person or estate
has been appointed; provided, however, that if the Committee finds that any
person to whom a benefit is payable under this Program is unable to care for his
or her affairs because of incompetency, or because he or she is a minor, any
payment due (unless a prior claim therefor shall have been made by a duly
appointed legal representative) may be paid to the spouse, a child, a parent, a
brother or sister, or to any person or institution considered by the Committee
to have incurred expense for such person otherwise entitled to payment. To the
extent permitted by law, any such payment so made shall be a complete discharge
of liability therefor under this Program.
If a guardian of the estate of any person receiving or claiming benefits
under this Program is appointed by a court of competent jurisdiction, benefit
payments may be made to such guardian provided that proper proof of appointment
and continuing qualification is furnished in a form and manner acceptable to the
Committee. In the event a person claiming or receiving benefits under this
Program is a minor, payment may be made to the custodian of an account for such
person under the Uniform Gifts to Minors Act. To the extent permitted by law,
any such payment so made shall be a complete discharge of any liability therefor
under this Program.
8.4 RECEIPT AND RELEASE.
Any payment to a Participant or the Participant's Beneficiary in
accordance with the provisions of this Program shall, to the extent thereof, be
in full satisfaction of all claims against the Board, the Committee, and the
Company. The Committee may require such Participant or Beneficiary, as a
condition precedent to such payment, to execute a receipt and release to such
effect.
8.5 DEFERRED SHARES AND OTHER BENEFITS NOT ASSIGNABLE; OBLIGATIONS BINDING
UPON SUCCESSORS.
Deferred Shares and other benefits of a Participant under this Program
shall not be assignable or transferable and any purported transfer, assignment,
pledge or other encumbrance or attachment of any payments or benefits under this
Program, or any interest therein, other than by operation of law or pursuant to
Section 8.2, shall not be permitted or recognized. Obligations of the Company
under this Program shall be binding upon successors of the Company.
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<PAGE> 22
8.6 EMPLOYMENT TAXES.
The Company (including its Subsidiaries) may satisfy any state or
federal employment tax withholding obligation arising from an Alternative
Exercise of a Qualifying Option under this Program by deducting such amount from
any amount of compensation payable to the Participant. Alternatively, the
Company (including its Subsidiaries) may require the Participant to deliver to
it the amount of any such withholding obligation as a condition to the
Alternative Exercise of the Qualifying Option.
8.7 GOVERNING LAW; SEVERABILITY.
The validity of this Program or any of its provisions shall be
construed, administered and governed in all respects under and by the laws of
the State of California. If any provisions of this instrument shall be held by a
court of competent jurisdiction to be invalid or unenforceable, the remaining
provisions hereof shall continue to be fully effective.
8.8 COMPLIANCE WITH LAWS.
This Program, the Company's acceptance of the exercise price of a
Qualifying Option in the form of Shares, the Company's issuance of Deferred
Shares, and the offer, issuance and delivery of Shares and/or the payment in
Shares through the deferral of compensation under this Program are subject to
compliance with all applicable federal and state laws, rules and regulations
(including but not limited to state and federal securities law) and to such
approvals by any listing, agency or any regulatory or governmental authority as
may, in the opinion of counsel for the Company, be necessary or advisable in
connection therewith. Any securities delivered under this Program shall be
subject to such restrictions, and the person acquiring such securities shall, if
requested by the Company, provide such assurances and representations to the
Company as the Company may deem necessary or desirable to assure compliance with
all applicable legal requirements. If the Company in its sole discretion
determines that an Alternative Exercise of a Qualifying Option would violate any
law, rule or regulation, the Company may refuse to honor such Alternative
Exercise.
8.9 PROGRAM CONSTRUCTION.
It is the intent of the Company that transactions pursuant to this
Program, with respect to Eligible Persons or Participants who are subject to
Section 16 of the Exchange Act, satisfy and be interpreted in a manner that
satisfies the applicable requirements of Rule 16b-3 so that to the extent
elections are timely made, the crediting of Deferred Shares and the distribution
of Shares with respect to Deferred Shares under this Program will be entitled to
the benefits of Rule 16b-3 or other exemptive
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<PAGE> 23
rules under Section 16 of the Exchange Act and will not be subjected to
avoidable liability thereunder.
8.10 HEADINGS NOT PART OF PROGRAM.
Headings and subheadings in this Program are inserted for reference only
and are not to be considered in the construction of the provisions hereof.
IN WITNESS WHEREOF, the Company has caused its duly authorized officer
to execute this Program on this _____ day of _______________, 1998.
FURON COMPANY
By:
------------------------------------
Print Name:
---------------------------
Its:
----------------------------------
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<PAGE> 24
EXHIBIT A
FURON COMPANY
OPTION GAIN DEFERRAL PROGRAM
QUALIFYING STOCK OPTION
ALTERNATIVE EXERCISE AGREEMENT
THIS QUALIFYING STOCK OPTION ALTERNATIVE EXERCISE AGREEMENT (this
"AGREEMENT") is entered into as of this _______ day of _________________, 199__,
by and between FURON COMPANY, a California corporation (the "COMPANY"), and
__________________________ (the "EMPLOYEE").
In consideration of the services rendered and to be rendered by the
Employee, and other valued consideration, the receipt of which is hereby
acknowledged, the Company and the Employee agree as follows:
1. CAPITALIZED TERMS. Capitalized terms not otherwise defined herein
shall have the meaning assigned to such terms in the Company's Option Gain
Deferral Program (the "PROGRAM").
2. ALTERNATIVE EXERCISE OF A QUALIFYING STOCK OPTION. This Agreement
applies to the following nonqualified stock option which was granted under the
1982 Plan or the 1995 Plan and which, by its terms, will expire no sooner than
six months following the date of this Agreement (the "OPTION"):
<TABLE>
<CAPTION>
Number of Shares
Total Number of Subject to this
Shares Originally Number of Shares Alternative Exercise
Grant Date Subject to Option Previously Exercised Agreement
- --------------- ------------------ --------------------- --------------------
<S> <C> <C> <C>
- --------------- ------------------ --------------------- --------------------
</TABLE>
The Employee hereby irrevocably agrees to not exercise the Option or, if
applicable, the portion of the Option subject to this Agreement before the date
which is at least six months after the date of this Agreement; provided,
however, that this Agreement shall terminate (and the Employee may exercise the
Option) in the event that the Committee timely refuses this Agreement or, prior
to the expiration of the six-month period, the Employee's employment with the
Company is terminated or, unless the Committee provides otherwise, a Change in
Control occurs. The Employee further irrevocably agrees that if he/she desires
to exercise the Option or, if applicable, that portion of the Option subject to
this Agreement, on or after the date which is at least six months after the date
of this Agreement, the Employee shall do so on forms authorized by the
A-1
<PAGE> 25
Committee, and shall pay the exercise price of the Option using, through a
method approved by the Committee, Already-Owned Shares to the Company as
provided in Section 4.1 of the Program.
3. AWARD OF DEFERRED SHARES. The Company hereby agrees to award Deferred
Shares in accordance with Article IV and Sections 5.1 and 5.2 of the Program
upon and in respect of the Alternative Exercise of the Option.
4. TIMING AND MANNER OF DISTRIBUTION OF DEFERRED SHARES. Subject to any
changes imposed by or allowed under the provisions of Section 5.4 or 5.5 of the
Program, the Employee hereby further irrevocably elects to receive the
distribution in Shares of his or her Deferred Shares credited under the Program
pursuant to this Agreement in accordance with the Program and the choices
checked and initialed by the Employee below.
DEFERRAL PERIOD. I elect to receive my distribution in January of the
year following (choose one and initial corresponding line):
[ ] ________ My termination of employment with the
Company; or
[ ] ________ The earlier of (i) my termination
of employment with the Company, or (ii) the
date that is ____________ (specify 5, 10,
15, or 20) years after the date of my
Alternative Exercise of the Option.
MANNER OF BENEFIT PAYMENT. I elect to receive my distribution or, in the
case of my death, have my Beneficiary receive a distribution in the
following form (choose one and initial on corresponding line):
[ ] ________ A single lump sum; or
[ ] ________ Installments paid annually over a period
of _____ (specify 5, 10, 15, or 20) years.
THE EMPLOYEE UNDERSTANDS THAT THESE ELECTIONS ARE IRREVOCABLE (EXCEPT AS
EXPRESSLY PROVIDED IN THE PROGRAM) AND THAT THE PROGRAM AND THE STOCK PLANS
PROVIDE FOR ADJUSTMENTS AND/OR ACCELERATION OF THE TIME OF PAYOUT IN CERTAIN
CIRCUMSTANCES. IN THE EVENT THAT THE PROGRAM IS TERMINATED, DISTRIBUTIONS MAY BE
ACCELERATED AND PAID IN THE FORM OF A LUMP SUM.
Delivery of certificates representing the Shares and any cash representing a
fractional Share interest and/or Dividend Equivalents will be made or commence
in January of the year following the Employee's termination of employment (or,
if earlier, in January of the year following the end of the deferral period
elected by the Employee). Delivery of certificates will be made to the
Employee's last known address of record unless
A-2
<PAGE> 26
the Company is otherwise instructed in writing. In the event that less than
1,000 Deferred Shares are credited to the Employee's Deferred Share Account at
such time, the Committee, in its sole discretion, may distribute Shares in
respect of such Deferred Shares (and any other amounts then credited to such
Deferred Share Account) in a single lump sum. If installments are elected, the
Committee, in its sole discretion, may reduce the number of installments to
produce an annual distribution of at least 100 Shares.
5. GENERAL TERMS. The exercise of the Option, the award of Deferred
Shares, and the distribution of benefits under the Stock Plans in accordance
with the Program and this Agreement are subject to, and the Company and the
Employee agree to be bound by, the provisions of the Program and the applicable
provisions of the Stock Plans, incorporated herein by this reference. The
Employee acknowledges receiving a copy of the Program and each applicable Stock
Plan and understanding their applicable provisions. The Employee acknowledges
receiving a copy of the Prospectus Supplement relating to the Program and
understanding its contents. The Employee consents to the effects on the
Employee's rights under the Option that result by reason of the provisions
hereof. Provisions of the Stock Plans or the Program that grant further
discretionary authority to the Company, the Board or the Committee shall not
create any rights in the Employee, unless such rights are expressly set forth
herein or expressly applied to this Agreement by subsequent action of the Board
or the Committee.
6. EFFECT OF AGREEMENT. This Agreement shall only be effective with
respect to the Alternative Exercise of the Option or the portion of the Option
described in Section 2 above. The Employee and the Company must enter into a
separate Alternative Exercise Agreement in order to provide for the Alternative
Exercise of any portion of the Option not subject to this Agreement or other
Qualifying Options held by the Employee.
7. COMPANY REFUSAL TO HONOR ALTERNATIVE EXERCISE. In the event that the
Company unilaterally refuses to honor an Alternative Exercise of the Option or
the portion of the Option subject to this Agreement pursuant to Section 8.5 of
the Program, this Agreement shall terminate and the Option or portion thereof
shall be exercisable for actual Shares in accordance with the terms of the
Option without regard to this Agreement and the Alternative Exercise provisions
of the Option.
A-3
<PAGE> 27
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year written above.
EMPLOYEE
--------------------------------------------
Signature
--------------------------------------------
Print Name
--------------------------------------------
Address
--------------------------------------------
City, State, Zip Code
--------------------------------------------
Social Security Number
FURON COMPANY
"Company"
By:
----------------------------------------
Title:
-------------------------------------
CONSENT OF SPOUSE
-----------------
In consideration of the execution of the foregoing Qualifying Stock
Option Alternative Exercise Agreement, I, _________________, the spouse of the
Employee therein named, do hereby join with my spouse in executing the agreement
and do hereby (i) agree to be bound by all of the terms and provisions thereof,
and of the Furon Company Option Gain Deferral Program and of the applicable
provisions of the Stock Plans (as such terms are defined therein), and (ii)
consent to each change in the Employee's rights under the Option that results by
reason of the provisions hereof.
DATED: _______________, 19____. ____________________________
Signature of Spouse
A-4
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED CONDENSED STATEMENTS OF INCOME, CONDENSED BALANCE SHEETS AND
CONDENSED STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS CONTAINED WITHIN THE COMPANY'S FORM 10-Q FOR THE
THREE AND NINE MONTHS ENDED OCTOBER 31, 1998.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-END> OCT-31-1998
<CASH> 3,804
<SECURITIES> 0
<RECEIVABLES> 76,108
<ALLOWANCES> 1,939
<INVENTORY> 58,641
<CURRENT-ASSETS> 152,866
<PP&E> 209,231
<DEPRECIATION> 100,085
<TOTAL-ASSETS> 362,810
<CURRENT-LIABILITIES> 68,942
<BONDS> 3,600
0
0
<COMMON> 41,100
<OTHER-SE> 55,283
<TOTAL-LIABILITY-AND-EQUITY> 362,810
<SALES> 365,571
<TOTAL-REVENUES> 365,571
<CGS> 253,181
<TOTAL-COSTS> 337,611
<OTHER-EXPENSES> (4,360)
<LOSS-PROVISION> 609
<INTEREST-EXPENSE> 10,176
<INCOME-PRETAX> 22,144
<INCOME-TAX> 6,975
<INCOME-CONTINUING> 15,169
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,169
<EPS-PRIMARY> .84
<EPS-DILUTED> .82
</TABLE>
