<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 MAY 2, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-8088
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 Identification No.)
organization)
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 May 25, 1998: 18,291,753
<PAGE> 2
FURON COMPANY
INDEX
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
May 2, 1998 and January 31, 1998 3
Condensed Consolidated Statements of Income
Three months ended May 2, 1998 and
May 3, 1997 5
Condensed Consolidated Statements of Cash Flows
Three months ended May 2, 1998 and
May 3, 1997 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
PART II - OTHER INFORMATION 17
</TABLE>
2
<PAGE> 3
ITEM 1. FINANCIAL STATEMENTS
FURON COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
May 2, January 31,
In thousands 1998 1998
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,405 $ --
Accounts receivable, less allowance for
doubtful accounts of $1,689 at May 2, 1998
and $1,741 at January 31, 1998 75,086 75,661
Inventories 59,344 54,704
Deferred income taxes 11,356 11,052
Prepaid expenses and other current assets 6,489 4,959
--------- ---------
Total current assets 157,680 146,376
Property, plant & equipment, at cost:
Land 6,999 6,976
Buildings and leasehold improvements 32,736 31,493
Machinery and equipment 163,292 158,999
--------- ---------
203,027 197,468
Less accumulated depreciation and amortization (91,993) (87,832)
--------- ---------
Net property, plant and equipment 111,034 109,636
Intangible assets, at cost less accumulated
amortization of $34,418 at May 2, 1998
and $35,354 at January 31, 1998 96,038 83,129
Other assets 10,661 7,208
--------- ---------
TOTAL ASSETS $ 375,413 $ 346,349
========= =========
</TABLE>
See accompanying notes.
3
<PAGE> 4
FURON COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
May 2, 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 27,045 25,384
Salaries, wages and related benefits payable 11,267 18,203
Income taxes payable 5,415 4,228
Current portion of long-term debt 1,120 966
Facility rationalization and severance 7,801 10,091
Other current liabilities 18,742 14,035
--------- ---------
Total current liabilities 71,390 73,932
Long-term debt 158,788 148,657
Other long-term liabilities 40,842 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, 18,291,753
shares issued and outstanding
at May 2, 1998 and 18,227,898 at January 31, 1998 41,000 40,864
Employee Benefit Trust shares (1,169) --
Accumulated other comprehensive income (3,470) (4,236)
Unearned ESOP shares (3,229) (3,229)
Unearned compensation (193) (232)
Retained earnings 52,711 47,972
--------- ---------
Total shareholders' equity 85,650 81,139
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 375,413 $ 346,349
========= =========
</TABLE>
See accompanying notes.
4
<PAGE> 5
FURON COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
-----------------------------
May 2, May 3,
In thousands, except per share amounts 1998 1997
- -----------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 119,805 $ 119,649
Cost of sales 82,539 81,330
--------- ---------
Gross profit 37,266 38,319
Selling, general and administrative expenses 27,561 28,139
Nonrecurring charges and facilities
rationalization (417) --
Other (income), expense (721) (247)
Interest expense, net 2,932 2,886
--------- ---------
Income before income taxes 7,911 7,541
Provision for income taxes 2,492 2,564
--------- ---------
Net income $ 5,419 $ 4,977
========= =========
Basic income per share $ 0.30 $ 0.28
========= =========
Diluted income per share $ 0.29 $ 0.27
========= =========
Cash dividends per share $ 0.03 $ 0.03
========= =========
</TABLE>
See accompanying notes.
5
<PAGE> 6
FURON COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
-----------------------------
May 2, May 3,
In thousands 1998 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 5,419 $ 4,977
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation 4,273 4,231
Amortization 1,528 1,406
Provision for losses on accounts receivable 70 155
Deferred income taxes (369) (29)
Nonrecurring charges and facilities rationalization (417) --
Loss on sale of assets 62 19
Working capital changes, net of acquisitions and
disposals:
Accounts receivable 1,790 2,063
Inventories (3,064) 640
Accounts payable and accrued liabilities (4,413) (3,910)
Income taxes payable (564) 3,549
Other current assets and liabilities, net (860) (1,741)
Changes in other long-term operating assets and
liabilities 88 769
--------- ---------
Net cash provided by operating activities 3,543 12,129
INVESTING ACTIVITIES
Acquisition of businesses (115) --
Cash acquired in purchase of business 3,037 --
Purchases of property, plant and equipment (5,166) (2,892)
Proceeds from sale of businesses 5 249
Proceeds from sale of equipment 40 57
Increase in notes receivable (606) --
--------- ---------
Net cash used in investing activities (2,805) (2,586)
FINANCING ACTIVITIES
Proceeds from long-term debt 134,194 4,081
Principal payments on long-term debt (124,341) (7,069)
Deferred debt costs (3,918) --
Employee benefit trust funding (1,300) --
Proceeds, net of cancellations, from issuance of common stock 137 (25)
Dividends paid on common stock (549) (540)
--------- ---------
Net cash provided by (used in) financing activities
4,223 (3,553)
EFFECT OF EXCHANGE RATE CHANGES ON CASH 444 (730)
--------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS 5,405 5,260
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD -- --
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,405 $ 5,260
========= =========
</TABLE>
See accompanying notes.
6
<PAGE> 7
FURON COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
May 2, 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 May 2, 1998, and the results of
operations and cash flows for the three months ended May 2, 1998 and May
3, 1997. Results of the Company's operations for the three months ended
May 2, 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>
May 2, January 31,
In thousands 1998 1998
- -------------------------------------------------------------------------
<S> <C> <C>
Raw materials and purchased parts $ 25,029 $ 24,781
Work-in-process 12,620 11,538
Finished goods 21,695 18,385
---------- ----------
$ 59,344 $ 54,704
========== ==========
</TABLE>
3. INTANGIBLES
Intangible assets, primarily acquired in business combinations, net of
accumulated amortization, are summarized as follows:
<TABLE>
<CAPTION>
May 2, January 31,
In thousands 1998 1998
- ---------------------------------------------------------------
<S> <C> <C>
Goodwill $ 67,980 $ 54,476
Other intangible assets 28,058 28,653
---------- ----------
$ 96,038 $ 83,129
========== ==========
</TABLE>
7
<PAGE> 8
FURON COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
May 2, 1998
(Unaudited)
4. LONG-TERM DEBT
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
May 2, January 31,
In thousands 1998 1998
- --------------------------------------------------------------------------
<S> <C> <C>
Senior Subordinated Notes $ 125,000 $ --
Loans under bank credit agreements
due through fiscal year 2002 27,000 142,000
Industrial Revenue Bonds 6,175 6,175
Other 1,733 1,448
---------- ----------
Total long-term debt 159,908 149,623
Less current portion 1,120 966
---------- ----------
Due after one year $ 158,788 $ 148,657
========== ==========
</TABLE>
Effective February 3, 1998, the Company amended and restated its Credit
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 Agreement.
For the three months ended May 2, 1998, the weighted average interest rate
on the loans under the bank credit agreement was 6.3%.
Interest paid for the three months ended May 2, 1998 and May 3, 1997 was
$2.0 million and $2.3 million, respectively.
5. INCOME TAXES
The Company's effective tax rate for the three months ended May 2, 1998
was 31.5% as compared with 34.0% for the same period in the prior year.
The lower effective tax rate was primarily due to increases in research
and experimental credits and foreign tax credits.
Income taxes paid (received) for the three months ended May 2, 1998 and
May 3, 1997 were $2.1 million and $(0.5 million), respectively.
8
<PAGE> 9
FURON COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
May 2, 1998
(Unaudited)
6. CONTINGENCIES
At May 2, 1998, the Company had approximately $2.6 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 May 2, 1998.
At May 2, 1998, the Company is obligated under irrevocable letters of
credit totaling $7.3 million.
The Company is currently involved in various litigation. 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 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.
As of May 2, 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 environmental reserves should be sufficient to cover 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.
9
<PAGE> 10
FURON COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
May 2, 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
---------------------------------
MAY 2, MAY 3,
IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS 1998 1997
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net income $ 5,419 $ 4,977
============ ============
Weighted average shares outstanding for basic income per share 18,032,374 17,779,198
------------ ------------
Effect of dilutive securities:
Employee stock options and awards 669,146 531,816
------------ ------------
Weighted average shares outstanding for diluted income per
share 18,701,520 18,311,014
------------ ------------
Basic income per share $ 0.30 $ 0.28
============ ============
Diluted income per share $ 0.29 $ 0.27
============ ============
</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. On March 26, 1998, the Company
contributed $1.3 million to the Trust to purchase shares of the Company's
common stock on the open market. During the first quarter of fiscal year
1999, the Trust purchased 55,795 shares of common stock at an average cost
of $23.26 per share (55,795 shares held at May 2, 1998).
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 annual incentive plan awards. 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.
10
<PAGE> 11
FURON COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
May 2, 1998
(Unaudited)
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 month period ended
-----------------------------
May 2, 1998 May 3, 1997
------------ ------------
<S> <C> <C>
Net income $ 5,419 $ 4,977
Foreign currency translation adjustments 766 (846)
------------ ------------
Comprehensive income $ 6,185 $ 4,131
============ ============
</TABLE>
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 May 2, 1998:
Sales to unaffiliated customers $ 97,974 $ 21,831 $119,805
Operating profit 10,010 112 10,122
Interest expense, net -- -- $ 2,932 2,932
Identifiable assets 220,117 155,296 375,413
Three months ended May 3, 1997:
Sales to unaffiliated customers $ 92,446 $ 27,203 $119,649
Operating profit 6,503 3,677 10,180
Interest expense, net -- -- $ 2,886 2,886
Identifiable assets 210,592 131,896 342,488
</TABLE>
11
<PAGE> 12
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 first quarter ended May 2,
1998 and fiscal 1998 first quarter ended May 3, 1997. The fiscal 1999 and 1998
quarters each consisted of 13 weeks.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MAY 2, 1998 COMPARED WITH THREE MONTHS ENDED
MAY 3, 1997
Net Sales. Net sales of $119.8 million for the three months ended May 2, 1998
("FY 1999 Period") increased $0.2 million, from $119.6 million for the three
months ended May 3, 1997 ("FY 1998 Period"). The increase in net sales was the
result of increased sales of industrial products, offset by lower volumes in
medical device products. Net of acquisitions and divestitures, sales for the FY
1999 Period increased 1.2% over the same period of the prior year.
Gross Profit. Gross profit of $37.3 million in the FY 1999 Period decreased $1.0
million, or 2.6% from $38.3 million in the FY 1998 Period. The gross profit
margin decreased to 31.1% in the FY 1999 Period from 32.0% in the FY 1998
Period. The decrease was due to lower volume in the medical device segment which
offset the impact of continued productivity improvements and cost containment in
the Industrial Segment.
Selling, General and Administrative Expenses. Selling, general and
administrative ("SG&A") expenses of $27.6 million in the FY 1999 Period
decreased $0.5 million, or 1.8%, from $28.1 million in the FY 1998 Period. SG&A
expenses as a percentage of net sales was 23.0% in the FY 1999 Period, down from
23.5% in the FY 1998 Period. The decline was mainly the result of lower costs
incurred for performance based incentive compensation, group insurance and
outside services, partially offset by increased professional fees.
Research and development expenses of $3.8 million for the FY 1999 Period
increased $0.4 million, or 11.8%, from $3.4 million in the FY 1998 Period. This
increase reflects the continued commitment to new products and materials
development.
Other Income. Other income of $0.7 million in the FY 1999 Period increased $0.5
million, or 250%, from $0.2 million in the FY 1998 Period. The increase
primarily resulted from a reduction in foreign exchange transaction losses.
Nonrecurring Charges and Facilities Rationalization. For the FY 1999 Period, the
Company recorded a $0.4 million net reversal of facilities rationalization
charges as a result of a change in facility relocation plans.
Interest Expense, Net. Interest expense, net of $2.9 million for the FY 1999
Period remained flat compared to $2.9 million in the FY 1998 Period. The savings
in the Company's interest expense as a result of its reduction in overall debt
was offset by an increase in interest rates associated with the Company's
subordinated debt.
Income Before Income Taxes. Income before income taxes of $7.9 million in the FY
1999 Period increased $0.4 million, or 5.3%, from $7.5 million in the FY 1998
Period. Net of acquisitions and divestitures, pretax results of operations were
up 8% from the FY 1998 Period. This improvement was generally the result of
continued productivity improvements and lower operating expenses in the
Industrial Segment, increased other
12
<PAGE> 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
income and a reversal of nonrecurring charges and facilities rationalization,
offset by lower volume and margin in the Medical Segment.
Provision for Income Taxes. The Company's effective tax rate for the FY 1999
Period was 31.5%, compared with 34.0% in the FY 1998 Period. The lower effective
tax rate was primarily the result of increase in research and experimental
credits and foreign tax credits.
SEGMENT RESULTS
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,
infusion systems for medical and surgical applications. For additional financial
information about industry segments and performance in various geographic areas,
see Note 9 of the "Notes to Condensed Consolidated Financial Statements"
contained herein.
INDUSTRIAL PRODUCTS
<TABLE>
<CAPTION>
MAY 2, MAY 3,
IN THOUSANDS 1998 1997
- ---------------------------------------------------------------------------------
<S> <C> <C>
Sales $ 97,974 $ 92,446
Operating profit 10,010 6,503
Operating profit before nonrecurring charges
and facilities rationalization 9,593 6,503
</TABLE>
Net Sales. Industrial net sales for the FY 1999 Period increased $5.5 million,
or 6.0% from the FY 1998 period. Net of acquisitions and divestitures,
Industrial Product net sales for the FY 1999 Period increased 8% over the FY
1998 Period. Domestically, net sales were particularly strong in several of the
markets the Company serves including, commercial aircraft, off-shore
exploration, food & beverage and general industrial markets. Continued softness
in the electronics and semiconductor markets contributed to lower shipments of
products to these markets. Improved demand in Europe across most product lines,
along with the impact of an acquisition, was further assisted by the favorable
effect of foreign currency exchange rates, resulting in increased dollar net
sales of 34% over the FY 1998 Period. (A 14% increase net of acquisitions and a
7% increase after removing the effect of foreign currency exchange rate
changes).
Gross Profit. The gross profit margin for the FY 1999 Period was 29.8%, an
increase from 28.5% in the FY 1998 Period. This was the net result of spending
controls in variable and fixed overhead, and increased sales volume, partially
offset by product mix.
Selling, General and Administrative Expenses. SG&A expenses as a percentage of
net sales decreased 1.5% to 20.0%, for the FY 1999 Period from the FY 1998
Period. General and administrative expenses were lower in several categories,
including lower performance based incentive compensation, group insurance and
outside services, partially offset by increased professional fees. Investments
in research and development were up, as the Company continued to increase its
focus on new product development.
13
<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Operating Profit, before Nonrecurring Charges and Facilities Rationalization.
Operating profit, before nonrecurring charges and facilities rationalization,
increased 48% to $9.6 million for the FY 1999 Period, from $6.5 million in the
FY 1998 Period. The improvement in profitability reflects higher net sales
volumes, margins, and reduced operating expenses.
MEDICAL DEVICE PRODUCTS
<TABLE>
<CAPTION>
MAY 2, MAY 3,
IN THOUSANDS 1998 1997
- ---------------------------------------------------------------------------------
<S> <C> <C>
Sales $ 21,831 $ 27,203
Operating profit 112 3,677
Operating profit before nonrecurring charges
and facilities rationalization 112 3,677
</TABLE>
Net Sales. Net sales for the FY 1999 Period decreased $5.4 million, or 19.8%
over the FY 1998 Period. Domestically, contributing factors included specific
customer inventory build-up in the fourth quarter of the prior year.
Additionally, sales of silicone products decreased due to start-up issues in
connection with relocating the production of these products from the Company's
facility in Fremont, California to Dublin, Ohio. The domestic decrease also
reflects a reclassification of freight costs, lower sales of certain product
particularly in fluid & drug and infusion systems product lines, and a delay in
the introduction of new products. Sales in Europe decreased primarily due to the
loss of a large customer which was acquired by a competitor, and the impact of
unfavorable foreign currency exchange rates, particularly in Germany.
Gross Profit. The gross profit margin for the FY 1999 Period was 37.2% compared
to 44.0% in the FY 1998 Period. The decline in margin was due to reduced volume
and lesser higher margin product sales associated with much of the inventory
build-up referred to above. In addition, cost of sales was further negatively
impacted by start-up costs in connection with the move of two production
facilities from California to Dublin, Ohio.
Selling, General and Administrative Expenses. SG&A expenses as a percentage of
net sales for the FY 1999 and FY 1998 Periods, was 36.7% and 30.5%,
respectively. Actual expenses for the FY 1999 Period were slightly less than the
FY 1998 Period. The decline is the net result of efficiencies that were achieved
in connection with the relocation of the silicone products operations, somewhat
offset by increased product development expenses.
Operating Profit, before Nonrecurring Charges and Facilities Rationalization.
Operating profit, before nonrecurring charges and facilities rationalization,
decreased 97% to $0.1 million for the FY 1999 Period, from $3.7 million in the
FY 1998 Period. This decrease reflects lower net sales volumes and margins in
addition to certain one-time relocation and start-up costs incurred in
connection with the consolidation of two production facilities.
14
<PAGE> 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
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 its bank credit facility
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.
Cash Provided by Operating Activities. Cash provided by operating activities for
the FY 1999 Period decreased to $3.5 million, or $8.6 million from $12.1 million
from the FY 1998 Period. This decrease is primarily due to working capital
changes in inventory and income taxes payable from a $4.2 million source for the
FY 1998 Period, to a $3.6 million use of cash for the FY 1999 Period.
Cash Used in Investing Activities. During the quarter the Company completed the
acquisition of Corotec GmbH, a medical device supplier based in Mainz, Germany.
Cash used in investing activities for the FY 1999 Period included cash balances
of $3.0 million obtained in the acquisition. The actual cash outlay for the
acquisition occurred subsequent to May 2, 1998. During the FY 1999 Period, the
Company invested $5.2 million in renovation of existing facilities, leasehold
improvements and the replacement of existing equipment. Capital expenditures for
the FY 1999 Period increased $2.3 million from $2.9 million in the FY 1998
Period.
The Company believes that it generates sufficient cash flow from its operations
to finance near and long-term internal growth and capital expenditures and to
make 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
Note 6 of the "Notes to Condensed Consolidated Financial Statements" and the
"Risk Factors" section of the Company's 1998 Annual Report on Form 10-K.
While the year 2000 considerations are not expected to materially impact Furon's
internal operations, they may have an effect on some of our customers and
suppliers, and thus indirectly affect Furon. It is not possible to quantify the
aggregate cost to Furon with respect to customers and suppliers with year 2000
problems, although the Company does not anticipate it will have a material
adverse impact on the Company's business, financial condition or results of
operations.
15
<PAGE> 16
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 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 "Risk Factors" section
in the Company's 1998 Annual Report on Form 10-K.
16
<PAGE> 17
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. CHANGES IN SECURITIES.
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.
17
<PAGE> 18
PART II - OTHER INFORMATION (CONTINUED)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
10.7* Deferred Compensation Plan, as amended and restated
effective February 1, 1998.
10.8* Economic Value Added (EVA) Incentive Compensation Plan, as
amended and restated effective February 1, 1998.
27 Financial Data Schedule
(b) Reports on Form 8-K:
None
* A management contract or compensatory plan or arrangement.
18
<PAGE> 19
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
and Treasurer
May 29, 1998
<PAGE> 20
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.7* Deferred Compensation Plan, as amended and restated
effective February 1, 1998.
10.8* Economic Value Added (EVA) Incentive Compensation Plan, as
amended and restated effective February 1, 1998.
27 Financial Data Schedule
- ----------
* A management contract or compensatory plan or arrangement.
<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
----
<S> <C> <C>
ARTICLE I. PURPOSE........................................................................ 1
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................................................................ 4
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................................................................. 7
3.1 Participants.......................................................... 7
ARTICLE IV. DEFERRALS..................................................................... 8
4.1 Deferrals............................................................. 8
4.2 Investments........................................................... 9
4.3 Deferral Procedures................................................... 9
4.4 Deferral Options...................................................... 9
4.5 Accounts.............................................................. 9
4.6 Discretionary Investment by Corporation............................... 11
4.7 Change in Control..................................................... 12
4.8 Payment of Deferred Amounts........................................... 14
4.9 Acceleration of Payment of Deferred Amounts........................... 15
ARTICLE V. GENERAL PROVISIONS............................................................. 16
5.1 Unfunded Obligation................................................... 16
5.2 Beneficiary........................................................... 16
5.3 Receipt or Release.................................................... 16
5.4 Incapacity of Participant or Beneficiary.............................. 17
5.5 Nonassignment......................................................... 17
5.6 No Right to Continued Employment...................................... 17
5.7 Withholding Taxes..................................................... 18
5.8 Claims Procedure and Arbitration...................................... 18
5.9 Termination and Amendment............................................. 19
5.10 Applicable Law........................................................ 19
5.11 Compliance with Laws.................................................. 19
5.12 Plan Construction..................................................... 19
5.13 Headings, etc. Not Part of Plan....................................... 20
</TABLE>
<PAGE> 3
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 4.5(b)(5).
"COMPANY" shall mean the Corporation and its Subsidiaries.
"CORPORATION" shall mean Furon Company, a California corporation, and
any successor corporation.
"DEFERRAL ACCOUNT" shall mean the bookkeeping account maintained by the
Committee for each Participant that (1) is credited with (i) the amounts
that the Participant elects to defer to such account pursuant to Section
4.2, (ii) transfers
1
<PAGE> 4
elected by the Participant from his or her Stock Account, and (iii)
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 4.5(b)(5)).
"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 4.5(b)(3).
"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.
"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.
2
<PAGE> 5
"STOCK ACCOUNT" shall mean a bookkeeping account maintained by the
Committee for each Participant that (1) is credited with (i) Deferred
Shares with respect to the amounts that the Participant elects to defer
to such account pursuant to Section 4.2, (ii) transfers elected by the
Participant from his or her Deferral Account, and (iii) Dividend
Equivalents (if any); and (2) is debited for (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.
3
<PAGE> 6
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;
(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
4
<PAGE> 7
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 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.
5
<PAGE> 8
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.
6
<PAGE> 9
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.
(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).
(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 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 September 1 prior to the
beginning of the Plan Year for which the deferral is to be
effective.
(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.
7
<PAGE> 10
4.2 INVESTMENTS. Compensation which the Participant elects to defer pursuant
to Section 4.1(a) or (b) is to be deferred in the form of cash and
credited to the Participant's Deferral Account in accordance with
Section 4.5(a). If a Participant elects to defer the delivery of Common
Stock pursuant to Section 4.1(c), such Common Stock shall be credited in
a corresponding number of Deferred Shares to the Participant's Stock
Account.
4.3 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.
4.4 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.
4.5 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 4.8. The
Corporation may establish separate Distribution Subaccounts under each
of a Participant's Accounts.
(a) Assumed earnings (or losses) on a Participant's Deferral Account
shall accrue quarterly on the deferred amount to the date of
distribution. 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.
8
<PAGE> 11
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 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
in the form of Deferred Shares with respect to that portion of
the Participant's compensation that he or she elects under
Section 4.1(c) to defer to his or her Stock Account.
(2) A Participant's Stock Account shall be credited
once each year. As soon as administratively practicable
following the close of each calendar quarter in which the Common
Stock would otherwise have been paid under the EVA Plan, a
Participant's Stock Account shall be credited with a number of
Deferred Shares determined by dividing the applicable portion of
the Participant's compensation deferred to such account during
the quarter by the Trust Price for such quarter.
(3) 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.
(4) 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 4.2(b)(5) of
the Plan.
(5) 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
9
<PAGE> 12
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 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.
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.
4.6 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 4.7, 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
4.7(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.
4.7 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
10
<PAGE> 13
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.
(c) The assumed earnings pursuant to section 4.5(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 the Plan 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 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;
11
<PAGE> 14
(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 4.7 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.
4.8 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
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<PAGE> 15
(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
Account, plus any assumed earnings on his or her Deferral Account
(determined by the Committee pursuant to section 4.5) 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. 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 from the under this paragraph) times the
ratio of assumed earnings being distributed to total assumed earnings
that remain to be paid at the time of payment. For this purpose, assumed
earnings will be considered distributed first, before deferral amounts.
4.9 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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<PAGE> 16
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 4.7, 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.
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
14
<PAGE> 17
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 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
15
<PAGE> 18
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. The Committee shall establish a
reasonable claims procedure consistent with the requirements of the
Employee Retirement Income Security Act of 1974, as amended. Following a
Change in Control of the Corporation (as determined under section 4.5)
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'
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 24 hours (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 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
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<PAGE> 19
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. Following a change in control, as defined in
section 4.7, 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 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.
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<PAGE> 20
IN WITNESS WHEREOF, the undersigned duly authorized officer of the
Corporation has executed this amendment and restatement of the Plan on this
______ day of March, 1998.
FURON COMPANY
By: _____________________________________
Print Name: _____________________________
Its: ____________________________________
18
<PAGE> 1
EXHIBIT 10.8
FURON COMPANY
ECONOMIC VALUE ADDED (EVA)
INCENTIVE COMPENSATION PLAN
AS AMENDED AND RESTATED
EFFECTIVE FEBRUARY 1, 1998
1.0 INTRODUCTION
1.1 Overview
Furon Company (the "Company") has established an Economic Value Added
(EVA) Incentive Compensation Plan (the "Plan") in an effort to relate
more directly the Company's incentive compensation to an increase in
the value of the Company to its shareholders. The Plan, which is for
officers, operational vice presidents, general managers of selected
business units and selected other key employees, replaces the
Company's Short-Term Incentive Bonus Plan and Long-Term Performance
Incentive Plan. The Plan provides a direct link between incentive
compensation and the return earned on capital relative to a minimum
required rate of return and historic actual performance. Pursuant to
the Plan, a specific target incentive amount will be established for
each participant based on a percentage of his or her base salary at
the beginning date of the fiscal year for Plan participation
eligibility. Incentive compensation for participants changes as a
result of variation in the return on capital for the Company as a
whole, in the case of the Company's executive officers and certain
other key employees, and the return on capital of a business unit in
the case of other participants. The Plan will be administered by the
Compensation Committee (the "Committee") of
1
<PAGE> 2
the Company's Board of Directors (the "Board") and, to the extent
provided herein, the Company's Chairman of the Board, President and
Chief Financial Officer (collectively, the "Executive Group").
1.2 EVA
The primary financial objective of the Company is to increase
shareholder value. To support that effort the Company has introduced
a new system of financial measurement called "Economic Value Added"
(EVA). Economic Value Added is the internal measure of operating and
financial performance that best reflects the change in shareholder
value. Put simply, EVA is what is left over from operating profits
after deducting the cost of capital.
The Company takes the view that the financial marketplace is a
competition for scarce capital. Management of the Company is charged
with the task of putting that scarce capital to work to earn the best
possible returns. As long as the Company is investing in projects
that earn a rate of return higher than its cost of capital, then
investors will earn a return in excess of their required reward and
the Company's capital or stock will command a premium in the
marketplace.
This approach places less emphasis on the traditional means of
evaluating financial results, such as return on equity or earnings
per share, because these measures do not always correspond to the
creation of economic value. Economic Value Added provides a framework
within which management can make decisions that will build long-term
value for the Company and its
2
<PAGE> 3
shareholders rather than focus on short-term result. Economic Value
Added can be more specifically defined as the economic profit
generated by the business, less a charge for the use of capital.
Economic profit is an after-tax measure of operating results which
differ from normal accounting profit as the consequence of certain
adjustments for non-economic charges.
1.3 Incentive Compensation
The Company recognizes that the performance and contributions of its
key employees will play a pivotal role in maximizing shareholder
value. By measuring not only the Company's overall performance, but
also the performance of each business unit, EVA provides the backbone
of an incentive compensation program that effectively encourages
management decisions that maximize the value of investors' capital.
The objectives underlying the Plan are to more closely link incentive
awards to value added for shareholders, and to provide a culture of
performance and ownership among the Company's key employees. This
requires management to share some of the Company's business risk with
shareholders, but also provides the opportunity for the upside
potential that results from the creation of value. Said another way,
it helps managers think as owners. Accordingly, the Plan rewards
long-term continuous improvements in shareholder value.
3
<PAGE> 4
Incentives are focused on the generation of improved Economic Value
Added, which in turn results from:
1. Enhanced business efficiencies - Improve the rate of
return on the existing capital base by improving operating
profits without tying up any more capital.
2. Profitable growth - Invest more capital as long as the
profits earned are in excess of the charge for additional
capital; and
3. Strategic downsizing - Reduce capital or liquidate capital
where it is employed in products, projects or operations
that are earning less than the cost of capital.
2.0 EVA INCENTIVE COMPENSATION
2.1 General
Participants in the Plan are eligible to earn an EVA Incentive
Compensation Bonus ("Bonus") under the Plan for a fiscal year for
which performance is being measured based upon the actual EVA
performance for the Company as a whole or their business unit, as the
case may be, for the fiscal year, relative to an established EVA
target performance for the fiscal year (the "EVA Target").
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<PAGE> 5
2.2 Eligibility for and Rate of Participation in the Plan
The Company's officers, operational vice presidents, general managers
of selected business units ("General Managers") and selected other
key employees are eligible to participate in the Plan. The rate of
participation under the Plan for Company officers shall be determined
by the Committee.
It is the responsibility of the Group General Manager or appropriate
Company officer to secure the necessary approvals from the Executive
Group each fiscal year before a participant is eligible to
participate in the Plan for that fiscal year. (See Company Human
Resources Policy 2.51). Approval must also be secured from the
Executive Group to remove a participant from the Plan.
The rate of participation under the Plan for operational vice
presidents and General Managers shall be determined by the Executive
Group. Participation and rate of participation under the Plan at the
division level will be recommended by the responsible Vice President
or General Manager and subject to the written approval of the
Executive Group. Participation and rate of participation at the Main
Office for non-officers will be determined by the Executive Group.
The rate of participation shall be a percentage amount of the
participant's actual base salary at the beginning date of the fiscal
year (i.e. Base salary shall not be reduced by (i) 401(k)
contributions or deferred base compensation elections, (ii)
contributions to any Company cafeteria plan intended to qualify under
Section 125 of the Internal Revenue Code, or (iii) contributions to
any Company employee stock purchase plan). For a new hire, percentage
participation rate
5
<PAGE> 6
shall be the base salary on date of hire (see Section 3.2).
The determination of which business units are eligible to participate
in the Plan will be made by the Executive Group. The Executive Group
may elect at any time to terminate such eligibility based on actual
operating performance or business conditions. Unless otherwise
determined by the Executive Group, general managers and other key
employees of discontinued operations or other business units
scheduled to be divested shall not be eligible to participate in the
Plan.
2.3 EVA Target and Actual Performance
In determining the EVA Target for the first and second fiscal years
of the Plan's operation and the actual EVA performance for each
fiscal year, for the Company as a whole an each business unit, the
Company will utilize principles and concepts from the Stern Stewart
EVA Bonus System, as may be modified by the Company from time to
time, and which is incorporated by reference into this Plan. In
future years, the EVA Target for the Company/business unit will be
calculated by the Company as (i) an average from the previous year's
EVA Target and actual EVA performance if such actual EVA performance
is equal to or greater than such EVA Target or (ii) such EVA Target
minus an amount equal to 30% of the difference between such EVA
Target and such actual EVA performance if it is not.
All such determinations, modifications and calculations shall be
subject to
6
<PAGE> 7
approval by the Executive Group. In addition, the EVA Target for the
Company and each business unit for the first fiscal year of the
Plan's operation shall be subject to approval by the Committee.
2.4 Current Bonus and EVA Incentive Compensation Bank
The Company has placed no cap on the Bonus that a participant may
potentially earn for a fiscal year. However, a participant is only
eligible to receive up to 100% of his or her Target Bonus for a given
fiscal year (the "Current"); the balance (if any) will be deferred.
The Plan will use an EVA Incentive Compensation Bank ("Bank") concept
where the deferred amount will be "deposited" in a Bank maintained
for the participant by the Company as an accounting accrual against a
possible future payment by the Company. No interest (subject to
Section 2.6(c)) shall be earned on the deferred amount or credited to
the Bank. The participant has no vested right to receive the deferred
amount; rather, the distribution and unconditional vesting thereof
are subject to the future events described herein. An individual
record of the participant's Bank will be maintained by corporate
accounting at the Company's Main Office.
Each participant's Bank will be composed of a Cash Account and a
Stock Unit Account. Each Stock Unit Account may be composed of one or
more Subaccounts, as necessary, to account for Stock Units credited
pursuant to Section 2.6 with respect to different fiscal years.
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<PAGE> 8
The following table sets forth the effects that the various possible
Total Unit Values will have on a participant's Current Bonus and Bank
for a fiscal year for which performance is being measured:
<TABLE>
<CAPTION>
As a Percentage of Target Bonus
------------------------------------------------------------------
Total Unit Values Current Bonus Bank
----------------- ------------- ----
<S> <C> <C>
Greater than 1.5 (150%) 100% Deposit excess attributable to
Total Unit Value of up to 1.5 to
Stock Unit Account, deposit
excess attributable to Total Unit
Value over 1.5 to Cash Account.
Greater than 1.0 (100%) but no 100% Deposit excess to Stock Unit
more than 1.5 (150%) Account.
0 to 1.0 0 to 100% None.
Less than 0 None Deduct Shortfall From Cash
Account.
</TABLE>
At the end of each fiscal year for which performance is being
measured under the Plan, a participant will be eligible to receive a
payment from his or her Cash Account equal to 33% of: (i) the
participant's beginning Cash Account balance for the fiscal year for
which performance is being measured less (ii) any subtractions from
the Cash Account resulting from a Total Unit Value of less than zero
for the fiscal year for which performance is being measure; where
such amount is a positive number. Negative Cash Account balances are
carried forward in the Bank to be offset by additions to the Cash
Account. However, negative Cash Account balances do not reduce the
Current Bonus. Stock Unit Accounts are paid in accordance with
Section 2.6.
8
<PAGE> 9
Examples are attached to this document to illustrate Bonus payments
and additions to and subtractions from the Bank for a hypothetical
participant receiving an annual 5% base salary increase (see
Attachments A and B). Attachment A illustrates positive performance
except in Years 4 and 5 and shows how negative performance can impact
a participant's Bank in both the current year and in subsequent years
beginning in Year 4. Attachment B, on the other hand, illustrates
solid performance for all ten (10) years where the participant earns
a Bonus each year.
2.5 Acquisitions and Extraordinary Capital Expenditures
Funds expended for capital expenditures and acquisitions will be
added to the capital base and accrue a capital charge for the cost of
capital. In instances where a capital expenditures is for a major
internal expansion project (possibly the construction of a new plant)
or an acquisition is significant relative to the size of the business
unit, the Executive Group may, at their sole discretion, determine
that due to the size and significant nature of the capital
expenditure or acquisition, the funds expended will be amortized into
the capital base over a period of time thereby reducing the capital
charge.
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<PAGE> 10
2.6 Stock Unit Accounts
(a) The Company shall establish and maintain a Stock Unit
Account for each participant. Each participant's Stock
Unit Account shall consist of such Subaccounts as
necessary to account for Stock Units that are credited
with respect to different fiscal years.
(b) At the end of each fiscal year (or as soon as
administratively practicable after the Unit Value for such
year is determined) in which the Unit Value is greater
than 1.0 (each a "Crediting Year"), each participant's
Subaccount for that Crediting Year shall be credited with
Stock Units pursuant to this Section 2.6(b). The number of
Stock Units to be credited for each such Crediting Year
shall equal (i) the excess amount (expressed in dollars)
that is to be credited to such participant's Stock Unit
Account pursuant to Section 2.4, divided by (ii) the
"Trust Price," as defined below. For the Crediting Year
ended January 31, 1998, the Trust Price shall equal the
average price per share paid (or received) by the trustee
of the Furon Company Employee Benefits Trust to acquire
(or sell) Furon Company common stock in the period
commencing March 30, 1998 and ending April 30, 1998. For
the Crediting Year ended January 31, 1999, the Trust Price
shall equal the average price per share paid (or received)
by
10
<PAGE> 11
the trustee of the Furon Company Employee Benefits Trust
to acquire (or sell) Furon Company common stock in the
period commencing April 30, 1998 and ending January 31,
1999. For each subsequent Crediting Year, the Trust Price
shall equal the average price per share paid (or received)
by the trustee of the Furon Company Employee Benefits
Trust to acquire (or sell) Furon Company common stock
during the fiscal year corresponding to the Crediting
Year. If the trustee made no purchases or sales during the
relevant period, the Trust Price shall be the
volume-weighted average price of Furon Company common
stock on the New York Stock Exchange for the 30-day period
following the announcement of Unit Values for the
Crediting Year.
(c) As of the end of each fiscal year (or as soon as
administratively practicable thereafter), each of a
participant's Subaccounts shall be credited with
additional Stock Units in an amount equal to the amount of
the Dividend Equivalents representing cash dividends paid
during such year on that number of shares equal to the
aggregate Stock Units in that Subaccount as of the
beginning of that fiscal year, divided by the Trust Price.
(d) At the end of each fiscal year (or as soon as
administratively practicable thereafter) in which a
participant's Cash Account balance (after any adjustments
pursuant to Section 2.4 with respect to that fiscal year)
is positive (i.e., greater than zero), one-third of the
Stock Units then credited to each of the participant's
Subaccounts (excluding any Stock Units credited to a
Subaccount pursuant to Section 2.6(b) established with
respect to that fiscal year but including any Stock Units
credited to the participant's Subaccounts pursuant to
Section 2.6(c) with respect to that
11
<PAGE> 12
fiscal year) will become payable to the participant.
(e) Any Stock Units remaining credited to a participant's
Subaccount at the end of the tenth fiscal year (or as soon
as administratively practicable thereafter) following the
Crediting Year with respect to such Subaccount was
established shall be distributed in a single lump sum.
(f) Benefit distributions in respect of Stock Units shall be
in the form of an equivalent number of whole shares of
Common Stock. The Committee may settle fractional share
interests in cash, permit the accumulation of fractional
share interests, disregard fractional share interests, or
adopt such other rules as it deems appropriate for the
payment or administration of fractional share interests.
The Common Stock to be delivered shall be shares owned by
the Company or any Company grantor trust which were
acquired through purchase on the open market. In the event
that the Company (or any Company grantor trust) has an
insufficient number of shares of Common Stock (which were
purchased on the open market) available for Plan purposes,
or for any other reason determined by the Committee (in
its sole discretion), amounts payable or distributable in
the form of Common Stock may be settled in cash.
(g) 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 Company, split-up,
split-off,
12
<PAGE> 13
extraordinary redemption, liquidation or similar change in
capitalization or any distribution to holders of the
Company'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 Stock Units and
Stock Unit Accounts credited under this Plan so as to
preserve the benefits intended.
3.0 CHANGES IN EMPLOYMENT STATUS
3.1 Termination or Transfer of Employment
(a) The only time a participant may receive in a fiscal year a
distribution from his or her Cash Account in excess of 33%
of the balance, as provided in Section 2.4 is upon the
Retirement, Death or Disability (as those terms are
defined herein) of the participant while an actual
full-time employee of the Company. In such circumstances,
the participant's entire Cash Account balance (as
determined below in the case of Retirement) shall be paid
to the retiree or disabled participant or his or her
designated Beneficiary or Beneficiaries.
The only time a participant may receive in a fiscal year a
distribution from his or her Stock Unit Account other than
as provided in Section 2.6(d) or
13
<PAGE> 14
2.6(e) is upon the Retirement, Death or Disability (as
those terms are defined herein) of the participant while
an actual full-time employee of the Company. In such
circumstances, the total number of Stock Units then
credited to the participant's Stock Unit Account (as
determined below in the case of Retirement) shall be paid
to the retiree or disabled participant or his or her
designated Beneficiary or Beneficiaries.
For purposes of this Plan, designated Beneficiary or
Beneficiaries shall be the same as the participants
designate(s) in the Company Employees' Profit Sharing
Retirement Plan Summary Plan Description document, as
amended.
(b) A participant whose employment with the Company is
terminated, either voluntary or involuntary, for any
reason other than Retirement, Death or Disability, is not
eligible to receive any amount from his or her Bank;
rather the entire amount in the Bank (including Stock
Units credited pursuant to Section 2.6) is forfeited upon
such termination.
(c) If a participant is transferred into a position not
eligible for participation in the Plan or if he or she is
no longer eligible to participate in the Plan, but the
participant remains employed by the Company, he or she:
(i) is not eligible to receive any amount from his or her
Cash Account, rather, the entire amount in the Cash
Account is forfeited upon such termination; and (ii) he or
she will no longer be eligible for additional Stock Units
pursuant
14
<PAGE> 15
to Section 2.6(b) or Section 2.6(c) and any Stock Units
then credited to his or her Stock Unit Account shall only
be payable pursuant to Section 2.6(e) (notwithstanding
Section 2.6(d)). If the transferred participant later
terminates employment with the Company (for any reason
including Death, Disability, or Retirement), the Stock
Units then credited to his or her Stock Unit Account shall
be forfeited.
(d) If a participant's employment terminates (other than due
to Retirement, death or disability), or Plan participation
terminates pursuant to Section 3.1(c), the participant
shall receive no portion of any Current Bonus.
If a participant Retires or terminates employment due to
death or disability during the fiscal year, the
participant is eligible to receive (i) a prorated amount
of the Current Bonus that he or she would have earned for
the full fiscal year had he or she remained a participant
in the Plan, and (ii) the participant's Bank balance
(including distribution of all Stock Units credited to his
or her Stock Unit Account in the form of Common Stock or
cash) at the end of the fiscal year after giving effect to
his or her prorated share of any additions or deletions
that would have been made to his or her Bank in respect of
the fiscal year if the participant had remained a
participant in the Plan. Each such proration shall be
based upon a fraction the numerator of which is the number
of full months during the fiscal year prior to Retirement
death or disability and the denominator of which is 12. If
the participant's last work day is before the fifteenth of
the month, he or
15
<PAGE> 16
she will receive no credit for the entire month. If the
last work day is after the fifteenth of the month, he or
she will receive full credit for that particular month.
Payment to the participant will be made following the end
of the fiscal year at the time payments are made to
continuing participants in the Plan pursuant to Section 4.
(e) In situations where a participant transfers to a new
Company business unit and remains an eligible participant,
the individual's Bank balance, either positive or
negative, shall transfer with him or her. Current Bonus
payments and additions or subtractions to the Bank for the
fiscal year during which the transfer takes place shall be
determined by a proration of the Total Unit Value achieved
by the participant's previous and new business units based
upon the time during the fiscal year that the participant
was employed at each respective business unit.
16
<PAGE> 17
3.2 Partial EVA Bonus Credit
Unless otherwise determined by the Executive Group, Plan participants
who commence participation after the start of a fiscal year will be
entitled to receive a partial Bonus credit based on months of service
as a Plan participant during the applicable fiscal year. If
participation commences on or before the 15th of a month, the
participant will receive credit for the entire month. If
participation commences after the 15th of a month, the participant
will receive no EVA Bonus credit for that month. For example, if an
eligible employee commenced Plan participation on June 3, he or she
would receive eight (8) months of credit and thus be eligible to earn
two-thirds (2/3) of the full fiscal year Bonus. If the participation
commenced on June 16, the participant would receive seven (7) months
of credit.
4.0 PAYMENT OF BONUS
Any and all payments under the Plan and any payment of Stock Units in
the form of shares of Common Stock or cash are at the discretion of
the Committee and the Executive Group. Payments and the delivery of
any shares will be made at the conclusion of the Company's fiscal
year and after the Company's financial statements have been audited.
All EVA payments will be made less all applicable taxes in accordance
with Section 8.4. In order to receive a payment in respect of a
participant's Cash Account, other than in the case of Retirement,
Death or Disability or the occurrence of an Event (as defined in
Section 8.5), the Plan participant must be a full-time employee of
the Company at both the end of
17
<PAGE> 18
the fiscal year in which the Bonus is earned and at the time the
payment is actually made. Unless otherwise determined by the
Executive Group, if both of the above conditions are not met, there
shall be no payment to the individual. Payment will normally be made
to the participant prior to the end of the first fiscal quarter. This
includes any payments from a participant's Cash Account pursuant to
Section 2.4 and any delivery of shares or payment of cash in respect
of a participant's Stock Unit Account pursuant to Section 2.6.
Pursuant to Section 3.1, in the case of the Death or Disability of a
participant, payment to the participant or to his or her Beneficiary
or Beneficiaries of any funds in the participant's Cash Account or
delivery of shares or payment of cash in respect of any Stock Units
credited to the participant's Stock Unit Account shall be made within
sixty (60) days after the occurrence of any of the aforementioned
events.
5.0 TRAINING
Plan participants will receive a copy of the "EVA Incentive
Compensation" booklet prepared for the Company by Stern Stewart &
Company and a copy of the Plan Prospectus. In addition, the Company
may conduct management training sessions for Plan participants
concerning the Plan's application. Training will be determined by
Company officials to provide participants with the opportunity to
fully understand the Plan and its principles. Responsibility to
educate participants of a business unit in the mechanics of EVA shall
remain with the unit's Vice President or General Manager, controller
and human resources representative.
18
<PAGE> 19
6.0 INTERPRETATION
The terms and conditions of this Plan shall be interpreted by the
Executive Group.
7.0 TERMINATION AND/OR MODIFICATION
The Committee retains the complete authority to make any unilateral
changes to the Plan for any reason and at any time, which includes
the termination of the Plan itself.
8.0 MISCELLANEOUS
8.1 Effective date
This Plan was first effective as of February 2, 1992. This amendment
to and restatement of the Plan is effective as of February 1, 1998.
8.2 Administration
This Plan shall be administered by the Committee and, to the extent
provided herein, the Executive Group. Action of the Committee or the
Executive Group with respect to the administration of this Plan shall
be taken pursuant to a majority vote or written consent of a majority
of its members. The Committee and the Executive Group may delegate
administrative functions to individuals
19
<PAGE> 20
who are officers or employees of the Company. Any action under this
Plan taken by, or inaction under this Plan of, the Company, the
Board, the Committee, the Executive Group, any officer or any
delegate of the Committee or the Executive Group shall be within the
absolute discretion of that person and shall be conclusive and
binding upon all persons.
The Committee may authorize in writing the delayed payment or
delivery of shares of Common Stock which may become due under this
Plan, pursuant to and under the terms of any Board-approved deferred
compensation plan or program.
8.3 No Contract or Other Rights
Nothing contained in this Plan (or in any other documents related to
this Plan or to Bonuses) shall confer upon any key employee or
participant any right to any Bonus or to continue in the employ of
the Company or constitute any contract or agreement of compensation,
employment or otherwise, or interfere in any way with the right of
the Company to reduce such person's Bonus or other compensation or to
terminate the employment of such person with or without cause.
No benefit payable under, or interest in, this Plan or in any Bonus
shall be subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance or charge and any such
attempted action shall be void and no such benefit or interest shall
be, in any manner, liable for, or subject to debts,
20
<PAGE> 21
contracts, liabilities, engagements or torts of any person. The
Committee and the Executive Group shall disregard any attempted
transfer, assignment or other alienation prohibited by the preceding
sentence.
No person shall have any right, title or interest in any fund or in
any specific asset of the Company by reason of any Bonus granted
hereunder. Neither the provisions of this Plan (or of any documents
related hereto, nor the creation or adoption of this Plan, nor any
action taken pursuant to the provisions of this Plan shall create, or
be construed to create, a trust of any kind or a fiduciary
relationship between the Company and any person.
8.4 Tax Withholding
There shall be deducted from each payment or distribution made under
the Plan or any other compensation payable to a participant (or
beneficiary) all taxes which are required to be withheld by the
Company (or a subsidiary) in respect to such payment or distribution
or this Plan. As a condition precedent to any payment of cash or
delivery of shares under this Plan, if the Company (or a subsidiary),
for any reason, elects not to (or cannot) satisfy the withholding
obligation from the amounts otherwise payable under this Plan or
otherwise, the participant (or beneficiary) shall pay or provide for
payment in cash of the amount of any taxes which the Company (or a
subsidiary) may be required to withhold with respect to the benefits
hereunder.
21
<PAGE> 22
8.5 Acceleration of Bank Payments
Notwithstanding the provisions of Section 8.3, upon the occurrence of
an "Event" (as defined below), each participant shall immediately
have a fully vested and unrestricted contract right to receive full
and immediate payment in cash of the participant's then outstanding
Cash Account balance and delivery of shares of Common Stock or
payment of cash in respect of Stock Units credited to his or her
Stock Unit Account. The Committee may accelerate the vesting and
payment of Plan benefits in anticipation of or in connection with the
occurrence of an Event. Notwithstanding the foregoing, this Section
8.5 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 Company, triggers a "Change in
Control" under clause (iv)(A) below which causes the occurrence of
the Event.
"Event" shall mean any of the following:
(i) Approval by the shareholders of the Company of the
dissolution or liquidation of the Company;
(ii) Approval by the shareholders of the Company of an
agreement to merge or consolidate, or otherwise
reorganize, with or into one or more entities which are
not "Subsidiaries" (as defined below), as a result of
which less than 50% of the outstanding voting securities
of the surviving or resulting entity are, or are to be,
owned by former shareholders of the Company;
22
<PAGE> 23
(iii) Approval by the shareholders of the Company of the sale or
transfer of substantially all of the Company's business
and/or assets to a person or entity which is not a
Subsidiary; or
(iv) A Change in Control. A "Change in Control" shall be deemed
to have occurred if:
(A) any "person", alone or together with all
"affiliates" and "associates" of such person,
is or becomes (1) an "Acquiring Person" as
defined in the Rights Agreement, dated as of
March 21, 1989 and as amended, by and between
the Company and The Bank of New York, Rights
Agent or (2) the "beneficial owner" of 30% of
the outstanding voting securities of the
Company (the terms "person", "affiliates",
"associates" and "beneficial owner" are used as
such terms are used in the Securities Exchange
Act of 1934 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
Company, any Subsidiary or any employee benefit
plan or employee stock plan of the Company 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
23
<PAGE> 24
(B) 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 Company's shareholders, of
each new Board member was approved by a vote of
at least three-quarters (3/4) of the Board
members then still in office who were Board
members at the beginning of such period.
"Subsidiary" shall mean any corporation or other entity a
majority or more of whose outstanding voting stock or
voting power is beneficially owned directly or indirectly
by the Company.
8.6 No Shareholder Rights
This Plan creates no fiduciary duty to participants. The Stock Units
credited to a participant's Stock Unit Account shall be used solely
as a device for the determination of the number of shares of Common
Stock (or cash) to be eventually distributed to such Participant in
accordance with this Plan. The Stock Units 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
Stock Units granted or credited under this Plan.
8.7 Compliance with Laws
This Plan and the offer, issuance and delivery of shares of Common
Stock and/or the payment of money under this Plan are subject to
compliance with all
24
<PAGE> 25
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 Plan 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.
25
<PAGE> 26
GLOSSARY OF SELECTED TERMS
<TABLE>
<S> <C>
"Bank." Bank means the EVA Incentive
Compensation Bank described in Section
2.4 of the Plan, which is composed of a
participant's Cash Account and Stock
Unit Account.
"Base Unit Value." An amount equal to 0.5.
"Beneficiary" or "Beneficiaries." See Company Employees Profit Sharing
Retirement Plan Summary Plan
Description document, as amended, for
definition.
"Board." The Company's Board of Directors.
"Bonus." For a fiscal year for which performance
is being measured, the participant's
Target Bonus for the fiscal year
multiplied by the Total Unit Value for
the fiscal year.
"Cash Account." Cash Account means the bookkeeping
account maintained by the Company for
each participant that (i) is credited
with cash amounts pursuant to Section
2.4, and (ii) is debited with respect
to shortfalls pursuant to Section 2.4,
and benefits in respect of such account
that are paid, forfeited, or
terminated.
"Committee." The Compensation Committee of the Board.
"Common Stock." Common Stock means the common stock,
without par value, of Furon Company
(subject to adjustment pursuant to
Section 2.6(g)).
"Company." Furon Company, a California corporation.
"Current Bonus." For a fiscal year for which performance
is being measured, the participant's
Target Bonus for the fiscal year
multiplied by the lesser of (i) the
Total Unit Value for the fiscal year or
(ii) 1.0, where such amount is a
positive number.
"Death." In order to receive payment of funds
from the Bank, a participant must be an
active full-time employee and eligible
to participate in the Plan at the time
of death.
"Disability." Disability shall mean the total and
permanent incapacity, as determined by
the Executive Group based upon
competent
</TABLE>
26
<PAGE> 27
<TABLE>
<S> <C>
medical advice, of a participant to
render substantial service to the
Company by reason of mental or physical
disability.
"Dividend Equivalent." Dividend Equivalent means the amount of
cash dividends or other cash
distributions paid by the Company on
that number of shares of Common Stock
equal to the number of Stock Units
credited to a participant's Stock Unit
Account as of the applicable record
date for the dividend or other
distribution, which amount shall be
credited in the form of additional
Stock Units to the participant's Stock
Unit Account, as provided in Section
2.6(c).
"EVA Target." The EVA target performance for the
Company or a business unit, as the case
may be, that has been established
pursuant to the Plan for the fiscal
year for which performance is being
measured.
"Executive Group." The Company's Chairman of the Board,
President and Chief Financial Officer.
"General Managers" The general managers of the Company's
business units that the Executive Group
from time to time determines are
eligible for participation in the Plan.
"Performance Unit Value" An amount equal to: (i) the actual EVA
performance minus the EVA Target for
the Company/business unit for such
fiscal year; divided by (ii) the
Variation Factor for the
Company/business unit.
"Plan." The Furon Company Economic Value Added
(EVA) Incentive Compensation Plan.
"Retirement." A participant is eligible to retire
under the Plan if at the time of
retirement: (i) The participant is at
least age 60; and (ii) the participant
has had at least ten (10) years of
continuous full-time employment with
the Company.
"Stock Unit." Stock Unit means a non-voting unit of
measurement which is deemed solely for
bookkeeping purposes under this Plan to
be equivalent to one outstanding share
of Common Stock (subject to adjustment
pursuant to Section 2.6(g)).
"Stock Unit Account." Stock Unit Account means a bookkeeping
account maintained by the Company for
each participant that (i) is credited
with Stock Units pursuant to Section
2.6 and (ii) is debited with respect to
Stock Units that are paid, forfeited,
or terminated.
</TABLE>
27
<PAGE> 28
<TABLE>
<S> <C>
"Subaccount." Subaccount means a subaccount of a
participant's Stock Unit Account
established to separately account for
Stock Units that are credited with
respect to different fiscal years.
"Target Bonus." For a fiscal year for which performance
is being measured, the participant's
base salary for the fiscal year
multiplied by the participant's rate of
participation under the Plan.
"Total Unit Value" The Total Unit Value for the Company as
a whole or a business unit, as the case
may be, for a fiscal year shall be
equal to the Base Unit Value plus the
Performance Unit Value.
"Variation Factor" The Variation Factor for the Company as
a whole or a business unit, as the case
may be, shall be equal to the factor
then in effect as determined by (i) the
Compensation Committee, in the case of
the Company's Variation Factor, or (ii)
the Executive Group, in the case of a
business unit's Variation Factor.
</TABLE>
28
<PAGE> 29
FURON COMPANY
EVA Incentive Compensation Plan
<TABLE>
<CAPTION>
ASSUMPTIONS YR1 YR2 YR3 YR4 YR5 YR6 YR7 YR8 YR9 YR10
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock price ($/share) 20.00 24.00 28.80 34.56 41.47 49.77 59.72 71.66 86.00 103.20
Annual growth in stock price 20%
TARGET BONUS % 15% 15% 15% 15% 15% 15% 15% 15% 15% 15%
BASE SALARY $65,000 $68,250 $71,663 $ 75,246 $79,008 $82,958 $87,106 $91,462 $96,035 $100,836
TARGET BONUS $9,750 $10,238 $10,749 $ 11,287 $11,851 $12,444 $13,066 $13,719 $14,405 $15,125
TOTAL UNIT VALUE 3.00 2.50 1.70 -1.00 -0.50 1.80 2.20 3.00 1.75 2.00
TOTAL BONUS $29,250 $25,594 $18,274 ($11,287) ($5,926) $22,399 $28,745 $41,158 $25,209 $30,251
CURRENT BONUS $9,750 $10,238 $10,749 $0 $0 $12,444 $13,066 $13,719 $14,405 $15,125
THE CASH BANK ($)
- -----------------
BEGINNING BANK BALANCE - $14,625 $19,988 $15,475 $2,792 ($3,134) $600 $9,546 $26,943 $21,563
PERFORMANCE SUBTRACTIONS - $0 $0 ($11,287) ($5,926) $0 $0 $0 $0 $0
------- ------- -------- ------- ------- ------- ------- ------- -------
BANK PAYOUT BALANCE - $14,625 $19,988 $4,188 ($3,134) ($3,134) $600 $9,546 $26,943 $21,563
BANK PAYOUT PERCENT 33% 33% 33% 33% 33% 33% 33% 33% 33% 33%
Bank Payout $0 $4,875 $6,662 $1,396 $0 $0 $200 $3,182 $8,981 $7,188
PERFORMANCE ADDITIONS $14,625 $10,238 $2,150 $0 $0 $3,733 $9,146 $20,579 $3,601 $7,563
ENDING BANK BALANCE $14,625 $19,988 $15,475 $2,792 ($3,134) $600 $9,546 $26,943 $21,563 $21,938
THE STOCK BANK (SHARE UNITS)
- ----------------------------
BEGINNING BANK BALANCE - 243.75 375.78 437.14 291.43 291.43 416.45 387.03 353.74 319.58
BANK PAYOUT PERCENT 33% 33% 33% 33% 0% 0% 33% 33% 33% 33%
Bank Payout - 81.25 125.26 145.71 - - 138.82 129.01 117.91 106.53
PERFORMANCE ADDITIONS ($) $ 4,875 $5,119 $5,375 $0 $0 $6,222 $6,533 $6,860 $7,203 $7,563
PERFORMANCE ADDITIONS
(Share units) 243.75 213.28 186.62 - - 125.02 109.39 95.72 83.75 73.29
ENDING BANK BALANCE 243.75 375.78 437.14 291.43 291.43 416.45 387.03 353.74 319.58 286.34
TOTAL BONUS PAYMENT
- -------------------
CURRENT BONUS $ 9,750 $10,238 $10,749 $0 $0 $12,444 $13,066 $13,719 $14,405 $15,125
CASH BANK PAYOUT ($) $0 $4,875 $6,662 $1,396 $0 $0 $200 $3,182 $8,981 $7,188
------- ------- ------- -------- ------- -------- ------- ------- ------- -------
TOTAL CASH $ 9,750 $15,112 $17,412 $1,396 $0 $12,444 $13,266 $16,901 $23,386 $22,313
TOTAL SHARE UNITS - 81.25 125.26 145.71 - - 138.82 129.01 117.91 106.53
Value = Total Share
Units x Share Price $ - $ 1,950 $ 3,607 $ 5,036 $ - $ - $ 8,290 $ 9,245 $10,140 $10,993
- -------------------------------------------------------------------------------------------------------------------------
CASH + VALUE OF
STOCK UNITS $ 9,750 $17,062 $21,019 $6,432 $0 $12,444 $21,556 $26,146 $33,526 $33,306
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
ATTACHMENT A
A-1
<PAGE> 30
FURON COMPANY
EVA Incentive Compensation Plan
<TABLE>
<CAPTION>
Assumptions YR1 YR2 YR3 YR4 YR5 YR6 YR7 YR8 YR9 YR10
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock price ($/share) 20.00 24.00 28.80 34.56 41.47 49.77 59.72 71.66 86.00 103.20
Annual growth in stock price 20%
TARGET BONUS % 15% 15% 15% 15% 15% 15% 15% 15% 15% 15%
BASE SALARY $65,000 $68,250 $71,663 $75,246 $79,008 $82,958 $87,106 $91,462 $96,035 $100,836
TARGET BONUS $9,750 $10,238 $10,749 $11,287 $11,851 $12,444 $13,066 $13,719 $14,405 $15,125
TOTAL UNIT VALUE 3.00 2.50 1.70 1.40 1.60 1.80 2.20 3.00 1.75 2.00
TOTAL BONUS $29,250 $25,594 $18,274 $15,802 $18,962 $22,399 $28,745 $41,158 $25,209 $30,251
CURRENT BONUS $9,750 $10,238 $10,749 $11,287 $11,851 $12,444 $13,066 $13,719 $14,405 $15,125
THE CASH BANK ($)
- -----------------
BEGINNING BANK BALANCE - $14,625 $19,988 $15,475 $10,317 $8,063 $9,108 $15,218 $30,724 $24,084
PERFORMANCE SUBTRACTIONS - $0 $0 $0 $0 $0 $0 $0 $0 $0
------- ------- ------- ------- ------- ------- ------- ------- --------
BANK PAYOUT BALANCE - $14,625 $19,988 $15,475 $10,317 $8,063 $9,108 $15,218 $30,724 $24,084
BANK PAYOUT PERCENT 33% 33% 33% 33% 33% 33% 33% 33% 33% 33%
Bank Payout $0 $4,875 $6,662 $5,158 $3,439 $2,688 $3,036 $5,073 $10,241 $8,028
PERFORMANCE ADDITIONS $14,625 $10,238 $2,150 $0 $1,185 $3,733 $9,146 $20,579 $3,601 $7,563
ENDING BANK BALANCE $14,625 $19,988 $15,475 $10,317 $8,063 $9,108 $15,218 $30,724 $24,084 $23,619
THE STOCK BANK (SHARE UNITS)
- ----------------------------
BEGINNING BANK BALANCE - 243.75 375.78 437.14 422.06 424.26 407.86 381.30 349.92 317.03
BANK PAYOUT PERCENT 33% 33% 33% 33% 33% 33% 33% 33% 33% 33%
Bank Payout - 81.25 125.26 145.71 140.69 141.42 135.95 127.10 116.64 105.68
PERFORMANCE ADDITIONS ($) $4,875 $5,119 $5,375 $4,515 $5,926 $6,222 $6,533 $6,860 $7,203 $7,563
PERFORMANCE ADDITIONS
(Share units) 243.75 213.28 186.62 130.63 142.88 125.02 109.39 95.72 83.75 73.29
ENDING BANK BALANCE 243.75 375.78 437.14 422.06 424.26 407.86 381.30 349.92 317.03 284.64
TOTAL BONUS PAYMENT
- -------------------
CURRENT BONUS $9,750 $10,238 $10,749 $11,287 $11,851 $12,444 $13,066 $13,719 $14,405 $15,125
CASH BANK PAYOUT ($) $0 $4,875 $6,662 $5,158 $3,439 $2,688 $3,036 $5,073 $10,241 $8,028
------- ------- ------- ------- ------- ------- ------- ------- -------- --------
TOTAL CASH $9,750 $15,112 $17,412 $16,445 $15,290 $15,131 $16,102 $18,792 $24,647 $23,154
TOTAL SHARE UNITS - 81.25 125.26 145.71 140.69 141.42 135.95 127.10 116.64 105.68
Value = Total Share
Units x Share Price $ - $ 1,950 $ 3,607 $ 5,036 $ 5,835 $ 7,038 $ 8,119 $ 9,108 $ 10,031 $ 10,906
- -----------------------------------------------------------------------------------------------------------------------
CASH + VALUE OF
STOCK UNITS $9,750 $17,062 $21,019 $21,481 $21,125 $22,169 $24,221 $27,900 $34,677 $34,059
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
ATTACHMENT B
B-1
<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 MONTHS ENDED MAY 2, 1998.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> MAY-02-1998
<EXCHANGE-RATE> 1
<CASH> 5,405
<SECURITIES> 0
<RECEIVABLES> 76,775
<ALLOWANCES> 1,689
<INVENTORY> 59,344
<CURRENT-ASSETS> 157,680
<PP&E> 203,027
<DEPRECIATION> 91,993
<TOTAL-ASSETS> 375,413
<CURRENT-LIABILITIES> 71,390
<BONDS> 6,175
0
0
<COMMON> 41,000
<OTHER-SE> 44,650
<TOTAL-LIABILITY-AND-EQUITY> 375,413
<SALES> 119,805
<TOTAL-REVENUES> 119,805
<CGS> 82,539
<TOTAL-COSTS> 110,100
<OTHER-EXPENSES> (1,333)
<LOSS-PROVISION> 70
<INTEREST-EXPENSE> 3,127
<INCOME-PRETAX> 7,911
<INCOME-TAX> 2,492
<INCOME-CONTINUING> 5,419
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,419
<EPS-PRIMARY> 0.30
<EPS-DILUTED> 0.29
</TABLE>
