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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
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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
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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.
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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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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
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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
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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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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:
As a Percentage of Target Bonus
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Total Unit Values Current Bonus Bank
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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.
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.
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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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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)
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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
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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,
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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
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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
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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
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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.
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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
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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.
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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
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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,
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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.
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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;
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(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
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(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
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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
26
GLOSSARY OF SELECTED TERMS
"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
26
27
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.
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28
"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.
28
29
FURON COMPANY
EVA Incentive Compensation Plan
ASSUMPTIONS YR1 YR2 YR3 YR4 YR5 YR6 YR7 YR8 YR9 YR10
- -------------------------------------------------------------------------------------------------------------------------
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 $33,306
- -------------------------------------------------------------------------------------------------------------------------
ATTACHMENT A
A-1
30
FURON COMPANY
EVA Incentive Compensation Plan
Assumptions YR1 YR2 YR3 YR4 YR5 YR6 YR7 YR8 YR9 YR10
- -----------------------------------------------------------------------------------------------------------------------
Stock price ($/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
- -----------------------------------------------------------------------------------------------------------------------
ATTACHMENT B
B-1