<PAGE>   1

                                                                  EXHIBIT 10.16



                                 FURON COMPANY



                          OPTION GAIN DEFERRAL PROGRAM






<PAGE>   2

<TABLE>
<CAPTION>
                                                                             PAGE
                                                                             ----
                                   ARTICLE I
                         PURPOSE AND AUTHORIZED SHARES
<S>                                                                            <C>
1.1     PURPOSES .........................................................      1
1.2     SHARES AVAILABLE .................................................      1
1.3     RELATIONSHIP TO PLANS ............................................      1

                                   ARTICLE II
                                  DEFINITIONS

2.1     DEFINITIONS ......................................................      2

                                  ARTICLE III
                                 PARTICIPATION

3.1     GENERAL PARTICIPATION REQUIREMENTS ...............................      5
3.2     MANNER AND TIMING OF ELECTION ....................................      5
3.3     EXECUTION OF ALTERNATIVE EXERCISE AGREEMENT BY THE COMPANY .......      5

                                   ARTICLE IV
                        ALTERNATIVE EXERCISE OF OPTIONS

4.1     FORM OF AGREEMENT ................................................      6
4.2     LIMITED ABILITY TO EXERCISE OPTION ...............................      6
4.3     TERMINATION OF ALTERNATIVE EXERCISE AGREEMENTS ...................      6
4.4     OTHER TERMS OF ALTERNATIVE EXERCISE AGREEMENTS ...................      6

                                   ARTICLE V
                            DEFERRED SHARE ACCOUNTS

5.1     CREDITING OF DEFERRED SHARES .....................................      7
5.2     DIVIDEND EQUIVALENT CREDITS TO DEFERRED SHARE ACCOUNTS ...........      7
5.3     VESTING ..........................................................      7
5.4     DISTRIBUTION OF BENEFITS .........................................      8
5.5     ADJUSTMENTS IN CASE OF CHANGES IN COMMON STOCK ...................     10
5.6     COMPANY'S RIGHT TO WITHHOLD ......................................     11

                                   ARTICLE VI
                                 ADMINISTRATION

6.1     THE ADMINISTRATOR ................................................     12
6.2     COMMITTEE ACTION .................................................     12
6.3     RIGHTS AND DUTIES ................................................     12
6.4     INDEMNITY AND LIABILITY ..........................................     13
6.5     CLAIMS PROCEDURE AND ARBITRATION .................................     13
</TABLE>


                                       ii



<PAGE>   3

<TABLE>
<CAPTION>
                                                                             PAGE
                                                                             ----
<S>                                                                        <C>
                                  ARTICLE VII
                        PROGRAM CHANGES AND TERMINATION

7.1     AMENDMENTS .......................................................     16
7.2     TERM .............................................................     16

                                  ARTICLE VIII
                                 MISCELLANEOUS

8.1     LIMITATION ON PARTICIPANT'S RIGHTS ...............................     17
8.2     BENEFICIARY DESIGNATION ..........................................     17
8.3     PAYMENTS TO MINORS OR PERSONS UNDER INCAPACITY ...................     18
8.4     RECEIPT AND RELEASE ..............................................     18
8.5     DEFERRED SHARES AND OTHER BENEFITS NOT ASSIGNABLE; OBLIGATIONS 
        BINDING UPON SUCCESSORS ..........................................     18
8.6     EMPLOYMENT TAXES .................................................     19
8.7     GOVERNING LAW; SEVERABILITY ......................................     19
8.8     COMPLIANCE WITH LAWS .............................................     19
8.9     PROGRAM CONSTRUCTION .............................................     19
8.10    HEADINGS NOT PART OF PROGRAM .....................................     20

EXHIBIT A  QUALIFYING STOCK OPTION ALTERNATIVE EXERCISE AGREEMENT ........    A-1

</TABLE>




                                      iii



<PAGE>   4

                                 FURON COMPANY
                          OPTION GAIN DEFERRAL PROGRAM

                                   ARTICLE I
                         PURPOSE AND AUTHORIZED SHARES

1.1     PURPOSES

        The purpose of this Program is to promote the ownership and retention of
Shares by Eligible Persons and to enable Eligible Persons to defer compensation
that would otherwise be realized upon exercise of a Qualifying Option and
ultimately receive the deferred compensation in the form of Shares.

1.2     SHARES AVAILABLE

        The number of Shares that may be issued under each of the 1982 Plan and
the 1995 Plan as part of this Program is limited to the aggregate number of
Shares that were the subject of the Qualifying Options granted under such Plan
that are exercised pursuant to Article IV in exchange for the crediting of
Deferred Shares under this Program. Shares payable under this Program in respect
of Dividend Equivalents shall be delivered under the Deferred Compensation Plan
and charged against any applicable Share limits of such plan; provided that
Shares in respect of Dividend Equivalents may be issued under other authority of
the Board, or, if Shares for any reason can not be delivered under the Deferred
Compensation Plan and in the absence of other Board authority, Dividends
Equivalents may be paid (in the sole discretion of the Committee) in cash.

1.3     RELATIONSHIP TO PLANS

        This Program constitutes a deferred compensation plan providing
alternative settlements under and as contemplated by the Stock Plans in respect
of nonqualified stock options granted thereunder. This Program also contemplates
the grant of Deferred Shares under and as contemplated by the Stock Plans. This
Program and all rights under it are provided and shall be subject to and
construed consistently with the other terms of the 1982 Plan or the 1995 Plan,
as the case may be, except as the context otherwise requires.



                                       1
<PAGE>   5

                                   ARTICLE II
                                  DEFINITIONS

2.1     DEFINITIONS

        Whenever the following terms are used in this Program they shall have
the meaning specified below unless the context clearly indicates to the
contrary:

        "ALREADY-OWNED SHARES" shall mean Shares owned by an Eligible Person;
provided, however, that Shares acquired by an Eligible Person from the Company
under an option or other employee benefit plan maintained by the Company or
otherwise must be held by the Eligible Person for at least six months in order
to qualify as Already-Owned Shares and, if Shares are used to pay the exercise
price of an option or other award, such Shares may not be reused as payment of
the exercise price of another option or award within six months of such prior
use.

        "ALTERNATIVE EXERCISE" shall mean the exercise of all or a portion of a
Qualifying Stock Option using Already-Owned Shares in exchange for a combination
of Exercise Shares and Deferred Shares under this Program.

        "ALTERNATIVE EXERCISE AGREEMENT" shall mean an agreement entered into
between the Company and an Eligible Person in accordance with Article IV of this
Program pursuant to which the Eligible Person elects to defer that portion of
the proceeds of the exercise of the Qualifying Option equal to the spread in the
form of Deferred Shares.

        "BENEFICIARY" or "BENEFICIARIES" shall mean the person, persons, trust
or trusts (or similar entity), personal representative, or other fiduciary, last
designated in writing by a Participant in accordance with the provisions of
Section 8.2 to receive the benefits specified hereunder in the event of the
Participant's death. If there is no valid Beneficiary designation in effect that
complies with the provisions of Section 8.2, or if there is no surviving
designated Beneficiary, then the Participant's surviving spouse shall be the
Beneficiary. If there is no surviving spouse to receive any benefits payable in
accordance with the preceding sentence, the duly appointed and currently acting
personal representative of the Participant's estate (which shall include either
the Participant's probate estate or living trust) shall be the Beneficiary. In
any case where there is no such personal representative of the Participant's
estate duly appointed and acting in that capacity within 90 days after the
Participant's death (or such extended period as the Committee determines is
reasonably necessary to allow such personal representative to be appointed, but
not to exceed 180 days after the Participant's death), then Beneficiary or
Beneficiaries shall mean the person or persons who can verify by affidavit or
court order to the satisfaction of the Committee that they are legally entitled
to receive the benefits specified hereunder.


                                       2

<PAGE>   6


        "BOARD" shall mean the Board of Directors of the Corporation.

        "CHANGE IN CONTROL" shall mean the occurrence of an "Event" as such term
is defined in the 1995 Plan.

        "CODE" shall mean the Internal Revenue Code of 1986, as amended.

        "COMMITTEE" shall mean the Board or a committee of the Board (or its
delegate) acting in accordance with Article VI.

        "COMMON STOCK" shall mean the common stock, without par value, of the
Corporation, subject to adjustment pursuant to Section 5.5 of this Program.

        "COMPANY" shall mean the Corporation and its Subsidiaries.

        "CORPORATION" shall mean Furon Company, a California corporation, and
any successor corporation.

        "CONVERSION DATE" shall mean the date that the Eligible Person exercises
all or a portion of a Qualifying Option in accordance with the Alternative
Exercise procedures under this Program.

        "DEFERRED COMPENSATION PLAN" shall mean the Furon Company Deferred
Compensation Plan, as amended from time to time.

        "DEFERRED SHARE" shall mean a non-voting unit of measurement which is
deemed solely for bookkeeping purposes to be equivalent to one outstanding Share
(subject to Section 5.5) solely for purposes of this Program.

        "DEFERRED SHARE ACCOUNT" shall mean the bookkeeping account maintained
by the Company on behalf of each Participant which is credited with Deferred
Shares in accordance with Section 5.1(a) and Dividend Equivalents thereon in
accordance with Section 5.2.

        "DISTRIBUTION SUBACCOUNT" shall mean any subaccount established and
maintained under a Participant's Deferred Share Account to separately account
for Deferred Shares which are subject to different distribution or manner of
payment elections made by the Participant.

        "DIVIDEND EQUIVALENT" shall mean the amount of cash dividends or other
cash distributions paid by the Corporation on that number of Shares equal to the
number of Deferred Shares credited to a Participant's Deferred Share Account as
of the applicable record date for the dividend or other distribution, which
amount shall be credited in the form of additional Deferred Shares to the
Deferred Share Account of the Participant, as provided in Section 5.2.



                                       3

<PAGE>   7


        "EFFECTIVE DATE" shall mean September 10, 1998.

        "ELIGIBLE PERSON" shall mean any employee of the Company who (i) is a
"Participant" under and as such term is defined in the Furon Company Deferred
Compensation Plan, and (ii) holds a Qualifying Option granted under either of
the Stock Plans.

        "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended from time to time.

        "EXERCISE SHARES" shall mean the Shares delivered by the Corporation
upon the Alternative Exercise of a Qualifying Option in accordance with Section
4.1(ii)(A).

        "FAIR MARKET VALUE" shall have the meaning given to such term in the
1995 Plan.

        "INTEREST RATE" shall mean the rate (quoted as an annual rate) that is
120% of the federal long-term rate for compounding on a quarterly basis,
determined and published by the Secretary of the United States Department of
Treasury under Section 1274(d) of the Code, for the quarter for which the
interest is credited.

        "1982 PLAN" shall mean the Furon Company 1982 Stock Incentive Plan, as
amended from time to time.

        "1995 PLAN" shall mean the Furon Company 1995 Stock Incentive Plan, as
amended from time to time.

        "PARTICIPANT" shall mean any person who has Deferred Shares credited to
a Deferred Share Account under this Program.

        "PROGRAM" shall mean this Furon Company Option Gain Deferral Program, as
it may be amended from time to time.

        "QUALIFYING OPTION" or "QUALIFYING STOCK OPTION" shall mean any
nonqualified stock option granted under one of the Stock Plans; provided,
however, that an option shall not be a Qualifying Stock Option if it will
expire, by its terms, before the end of the six-month period commencing with the
date that the Alternative Exercise election is received by the Company.

        "RULE 16b-3" shall mean Rule 16b-3 promulgated under the Exchange Act.

        "SHARE" shall mean a share of Common Stock.

        "STOCK PLANS" shall mean the 1982 Plan and the 1995 Plan.

        "SUBSIDIARY" shall mean any corporation or other entity of which 50% of
the outstanding voting stock or voting power is beneficially owned directly or
indirectly by the Corporation.



                                       4

<PAGE>   8

                                  ARTICLE III
                                 PARTICIPATION

3.1     GENERAL PARTICIPATION REQUIREMENTS.

        An Eligible Person may elect to exercise all or a portion of a
Qualifying Option under and subject to the Alternative Exercise provisions set
forth herein and to receive a credit of Deferred Shares under this Program.

3.2     MANNER AND TIMING OF ELECTION.

        An election to Alternatively Exercise a Qualifying Option may only be
made by an Eligible Person by completing and executing a form of Alternative
Exercise Agreement which meets the requirements of Article IV and submitting
such form to the Corporation after the Effective Date.

3.3     EXECUTION OF ALTERNATIVE EXERCISE AGREEMENT BY THE COMPANY.

        The Committee, in its sole discretion, may refuse to accept any
Alternative Exercise Agreement within the 30-day period following the date such
Alternative Exercise Agreement is received by the Corporation. Provided that the
Committee does not timely refuse to accept an Eligible Person's Alternative
Exercise Agreement, the Company, acting through any of its officers, shall
execute the Alternative Exercise Agreement form submitted by such Eligible
Person and deliver a copy of such fully executed Alternative Exercise Agreement
to him or her as soon as administratively practicable after the end of the
Committee's 30-day review period.




                                       5



<PAGE>   9

                                   ARTICLE IV
                        ALTERNATIVE EXERCISE OF OPTIONS

4.1     FORM OF AGREEMENT.

        Each Alternative Exercise Agreement with respect to a Qualifying Stock
Option shall be in the form attached hereto as Exhibit A or any other form
approved by the Committee. Each such Alternative Exercise Agreement shall
specify the portion of the Qualifying Stock Option or Qualifying Stock Options
that the Eligible Person elects to exercise under this Program and shall provide
that (i) the Eligible Person will exercise all or the specified portion of such
Qualifying Stock Option(s) by paying the exercise price with Already-Owned
Shares having an aggregate Fair Market Value equal to the exercise price for the
number of Shares with respect to which the Qualifying Stock Option is exercised
and (ii), upon exercise, the Company will (A) deliver to the Eligible Person the
same number of Shares used by the Eligible Employee to pay the exercise price of
the Qualifying Stock Option and (B), in lieu of the remainder of the Shares
which would otherwise be delivered to the Eligible Person (the "Gain Shares"),
credit to a Deferred Share Account established for the Eligible Person Deferred
Shares equal in number to the number of Gain Shares. An Eligible Person shall
also elect on his or her Alternative Exercise Agreement (y) the deferral period
of such Deferred Shares, consistent with Section 5.4(b), and (z) the manner of
eventual payment of such Deferred Shares, consistent with Section 5.4(c).
Subject to applicable law and the intent of this Program, the Committee may
provide for or permit an alternative method of delivering or tendering
Already-Owned Shares to pay the exercise price of a Qualifying Stock Option. An
Alternative Exercise Agreement is irrevocable by the Eligible Person once it is
received by the Corporation.

4.2     LIMITED ABILITY TO EXERCISE OPTION.

        Any Qualifying Option (or portion thereof) which is subject to an
Alternative Exercise Agreement may not be exercised at all during the six-month
period following the date the Company receives the Eligible Person's Alternative
Exercise Agreement.

4.3     TERMINATION OF ALTERNATIVE EXERCISE AGREEMENTS.

        An Eligible Person's Alternative Exercise Agreement shall terminate and
the related Qualifying Option may be exercised for actual Shares in accordance
with the terms of the Qualifying Option without regard to the Alternative
Exercise Agreement or the restriction set forth in Section 4.2: (i) if an
Eligible Person's Alternative Exercise Agreement is timely refused by the
Committee, or (ii) prior to the end of the six-month period described in Section
4.2, an Eligible Person's employment with the Company (including any Subsidiary)
is terminated, or (iii), unless the Committee otherwise provides, a Change in
Control occurs. If the Company unilaterally refuses to honor an Alternative
Exercise of a Qualifying Option pursuant to Section 8.8, the Alternative
Exercise Agreement with respect to such Qualifying Option shall terminate and
such Qualifying Option shall be exercisable for actual Shares in accordance with
its terms without regard to the Alternative Exercise Agreement or the terms of
the Qualifying Option regarding Alternative Exercise.

4.4     OTHER TERMS OF ALTERNATIVE EXERCISE AGREEMENTS.

No Alternative Exercise Agreement shall have the effect of extending the term or
otherwise changing the terms of any Qualifying Option (except as expressly
contemplated hereby in respect of the consequences of an Alternative Exercise).
No Alternative Exercise Agreement may be amended or terminated except as
specifically provided herein.


                                       6

<PAGE>   10

                                   ARTICLE V
                            DEFERRED SHARE ACCOUNTS

5.1     CREDITING OF DEFERRED SHARES.

        (a)     CREDITING OF DEFERRED SHARES. As of the applicable Conversion
                Date of a Qualifying Stock Option, an Eligible Person's Deferred
                Share Account shall be credited with the number of Deferred
                Shares attributable to the Gain Shares, as described in Section
                4.1.

        (b)     DISTRIBUTION SUBACCOUNTS. The Committee shall establish separate
                Distribution Subaccounts under a Participant's Deferred Share
                Account as necessary to separately account for Deferred Shares
                that are subject to different distribution or manner of payment
                elections made by the Participant.

        (c)     LIMITATIONS ON RIGHTS ASSOCIATED WITH DEFERRED SHARES. A
                Participant's Deferred Share Account shall be a memorandum
                account on the books of the Company. The Deferred Shares
                credited to a Participant's Deferred Share Account shall be used
                solely as a device for the determination of the number of Shares
                to be eventually distributed to such Participant in accordance
                with this Program. The Deferred Shares shall not be treated as
                property or as a trust fund of any kind. No Participant shall be
                entitled to any voting or other shareholder rights with respect
                to Deferred Shares granted or credited under this Program. The
                number of Deferred Shares credited (and the Shares to which the
                Participant is entitled under this Program) shall be subject to
                adjustment in accordance with Section 5.5 of this Program.

5.2     DIVIDEND EQUIVALENT CREDITS TO DEFERRED SHARE ACCOUNTS.

        As of any applicable dividend or distribution payment date, a
Participant's Deferred Share Account shall be credited with additional Deferred
Shares in an amount equal to the amount of the Dividend Equivalents divided by
the Fair Market Value of a Share as of the applicable dividend payment date. If
the limit on the number of Shares available under this Program in respect of
Dividend Equivalents is reached, the Company may in its discretion credit or
settle such amounts in cash.

5.3     VESTING.

        All Deferred Shares (including Deferred Shares credited as Dividend
Equivalents) credited to a Participant's Deferred Share Account shall be at all
times fully vested.



                                       7



<PAGE>   11

5.4     DISTRIBUTION OF BENEFITS.

        (a)     FORM OF DISTRIBUTION. Deferred Shares credited to a
                Participant's Deferred Share Account shall be distributed in an
                equivalent whole number of Shares. Fractional share interests
                shall be settled in cash. The Committee, in its sole discretion,
                may pay Deferred Shares credited as Dividend Equivalents in cash
                in lieu of Shares.

        (b)     DISTRIBUTION OF BENEFITS. Benefits in respect of the Deferred
                Shares credited to a Participant's Distribution Subaccount shall
                be distributed in the form of Shares in January of the year
                following the first to occur of (i) the Participant's
                termination of employment with the Company for any reason
                (including, without limitation, retirement, death, permanent
                disability, resignation or termination by the Company), or (ii)
                the expiration of the deferral period elected with respect to
                such Deferred Shares (if any). A Participant may elect on his or
                her Alternative Exercise Agreement, a deferral period of 5, 10,
                15 or 20 years following the date of Alternative Exercise for
                the deferral of the Deferred Shares credited with respect to
                such Alternative Exercise Agreement (including dividend
                equivalents thereon).

        (c)     MANNER OF DISTRIBUTION. A Participant may elect in his or her
                Alternative Exercise Agreement to have the Deferred Shares
                credited with respect to such agreement (including dividend
                equivalents thereon) distributed in one of the following
                manners:

                (i)     a single lump sum, or

                (ii)    substantially equal installments payable not less
                        frequently than annually over a 5, 10, 15, or 20 year
                        period, as selected by the Participant. 

                If no valid election is made, the Participant's benefits shall
                be distributed in a lump sum. Notwithstanding the foregoing, the
                Committee may, in its sole discretion:

                (iii)   distribute the benefits in a single lump sum if the sum
                        of Shares to be distributed to the Participant is less
                        than or equal to 1,000, or

                (iv)    reduce the number of installments elected by the
                        Participant to produce an annual distribution of at
                        least 100 Shares.

        (d)     SURVIVOR BENEFITS. If the Participant dies while actively
                employed by the Company or a Subsidiary, the Committee shall
                distribute or 


                                       8

<PAGE>   12

                commence to distribute to the Participant's Beneficiary the
                number of Shares equal to the number of Deferred Shares credited
                to the Participant's Deferred Share Account in accordance with
                the Participant's form of distribution election in the January
                of the year following the date of the Participant's death. If
                the Participant dies after terminating employment, the Committee
                shall distribute to the Participant's Beneficiary the remaining
                Shares distributable to the Participant under this Program over
                the same period that the Shares would have been distributed to
                the Participant.

        (e)     ACCELERATION OF BENEFITS. The Committee, in its discretion, may
                direct that payment of a Participant's Deferred Share Account
                shall commence or be made on the December 31 nearest the
                Participant's retirement date, on the January 31 following the
                retirement date or in January of the year following the
                Participant's retirement; provided that the Participant retires
                with advance notice given in December or January. The Committee,
                in its discretion, may accelerate the payment of the unpaid
                balance of a Participant's Deferred Share Account in the event
                of the Participant's retirement, death, permanent disability,
                resignation or termination of employment, or upon its
                determination that the Participant (or his Beneficiary in the
                case of his death) has incurred a severe, unforeseeable
                financial hardship creating an immediate and heavy need for cash
                that cannot reasonably be satisfied from sources other than an
                accelerated payment under this Program. The Committee in making
                its determination may consider such factors and require such
                information as it deems appropriate

        (f)     EFFECT OF CHANGE IN CONTROL. In the Event of a Change in
                Control, the following rules shall apply:

                (i)     All Participants shall continue to have a fully vested,
                        nonforfeitable interest in their Deferred Share Account
                        balances.

                (ii)    Unless the Committee otherwise provides, Alternative
                        Exercise Agreements shall terminate in accordance with
                        Section 4.3.

                (iii)   All payments in respect of Deferred Share Accounts
                        following a Change in Control shall be made as follows:

                        (1)     Payments that have already commenced shall
                                continue to be made no less rapidly than under
                                the schedule in effect just prior to the Change
                                in Control.


                                       9



<PAGE>   13

                        (2)     Payments that have not yet commenced shall be
                                made (in the form of Shares unless the Committee
                                provides otherwise) in a lump sum at the
                                earliest possible payment date under the normal
                                rules for benefit commencement pursuant to
                                Section 5.4(b) as in effect on the day before
                                the day of the Change in Control.

                (iv)    If the Corporation has established a grantor trust in
                        connection with this Program, the Corporation shall
                        continue to make any required payments to that trust in
                        accordance with its funding rules as in effect prior to
                        the Change in Control.

                (v)     A Participant's termination of employment for purposes
                        of this Program shall be deemed to include (but shall
                        not be limited to) any event (such as a constructive
                        discharge) giving the Participant the right to receive
                        salary continuation or other severance benefits
                        following a Change in Control, as determined under any
                        plan, program, or agreement covering the Participant
                        that is in effect at the time of the Change in Control.

        (g)     SECTION 162(m) LIMITATION. Notwithstanding the foregoing, if the
                Committee determines in good faith that there is a reasonable
                likelihood that any benefits payable to a Participant for a
                taxable year of the Company would not be deductible by the
                Company solely by reason of the limitation under Code Section
                162(m), then to the extent reasonably deemed necessary by the
                Committee to ensure that the entire amount of any distribution
                to the Participant pursuant to this Program is deductible, the
                Committee may defer all or any portion of a distribution under
                this Program. The amounts so deferred shall be distributed to
                the Participant or his or her Beneficiary (in the event of the
                Participant's death) at the earliest possible date, as
                determined by the Committee in good faith, on which the
                deductibility of compensation paid or payable to the Participant
                for the taxable year of the Company during which the
                distribution is made will not be limited by Code Section 162(m).

5.5     ADJUSTMENTS IN CASE OF CHANGES IN COMMON STOCK.

        (a)     If the outstanding Shares are increased, decreased, or exchanged
                for a different number or kind of securities, or if additional
                shares or new or different shares or other securities are
                distributed with respect to such Shares or other securities,
                through merger, consolidation, sale of all or substantially all
                of the assets of the Company, reorganization, 


                                       10


<PAGE>   14

                recapitalization, stock dividend, stock split, reverse stock
                split or similar change in capitalization or any other
                distribution with respect to such Shares or other securities,
                proportionate and equitable adjustments consistent with the
                effect of such event on stockholders generally (but without
                duplication of benefits if Dividend Equivalents are credited)
                shall be made in the number and type of Shares or other
                securities, property and/or rights contemplated hereunder and of
                rights in respect of Deferred Shares and Deferred Share Accounts
                credited under this Program so as to preserve the benefits
                intended. The provisions of Section 7.2 of the 1982 Plan and
                Section 6.2 of the 1995 Plan shall also apply to the related
                Deferred Shares granted under the Stock Plans in accordance with
                this Program.

        (b)     If the event results in any rights of shareholders to receive
                cash (other than cash dividends and cash distributions), a
                corresponding amount of cash shall be credited to each
                Participant's Deferred Share Account (or, if applicable, the
                appropriate Distribution Subaccount of the Participant's
                Deferred Share Account) as of the date that cash is paid in
                respect of outstanding Shares. As of the last day of each
                calendar quarter, the Participant's Deferred Share Account shall
                be credited with earnings on the cash balance credited to such
                Deferred Share Account as of the last day of the preceding
                calendar quarter or, if later, the date of such event, at a rate
                (on an annualized basis) equal to the Interest Rate. The amount
                of cash credited to a Participant's Deferred Share Account shall
                be distributed in cash at such time (or times) and in such
                manner as otherwise provided under this Program and/or the
                applicable election made by the Participant in accordance with
                the terms of this Program.

5.6     COMPANY'S RIGHT TO WITHHOLD.

        The Company (including its Subsidiaries) may satisfy any state or
federal tax withholding obligation arising upon a distribution of Shares and any
cash with respect to a Participant's Deferred Share Account by reducing the
number of Shares or cash otherwise deliverable to the Participant. The
appropriate number of Shares required to satisfy such tax withholding obligation
in the case of Deferred Shares will be based on the Fair Market Value of a Share
on the day prior to the date of distribution. If the Company (including its
Subsidiaries), for any reason, elects not to (or cannot) satisfy the withholding
obligation in accordance with the preceding sentence, the Participant shall pay
or provide for payment in cash of the amount of any taxes which the Company
(including its Subsidiaries) may be required to withhold with respect to the
benefits hereunder, before any such benefits are paid.



                                       11



<PAGE>   15

                                   ARTICLE VI
                                 ADMINISTRATION

6.1     THE ADMINISTRATOR.

        The Committee hereunder shall consist of (i) the members of the
Compensation Committee of the Board who are Non-Employee Directors within the
meaning of Rule 16b-3 and "outside directors" for purposes of Section 162(m) of
the Code, or (ii) such other committee of the Board, each participating member
of which is a Non-Employee Director (as defined in Rule 16b-3) and each member
of which is an "outside director" for purposes of Section 162(m) of the Code, as
may hereafter be appointed by the Board to serve as administrator of this
Program. Any member of the Committee may resign by delivering a written
resignation to the Board. Members of the Committee shall not receive any
additional compensation for administration of this Program.

6.2     COMMITTEE ACTION.

        Action of the Committee with respect to the administration of this
Program shall be taken pursuant to a majority vote or by unanimous written
consent of its members. A member of the Committee shall not vote upon any matter
which relates solely to himself or herself as a Participant in this Program.

6.3     RIGHTS AND DUTIES.

        (a)     Subject to the limitations of this Program, the Committee shall
                be charged with the general administration of this Program and
                the responsibility for carrying out its provisions, and shall
                have powers necessary to accomplish those purposes, including,
                but not by way of limitation, the following:

                (i)     To construe and interpret this Program;

                (ii)    To resolve any questions concerning the amount of
                        benefits payable to a Participant;

                (iii)   To make all other determinations required by this
                        Program, including adjustments under Section 5.5;

                (iv)    To maintain all the necessary records for the
                        administration of this Program and provide statements of
                        Deferred Share Accounts to Participants on an annual or
                        more frequent basis;

                (v)     To make and publish forms, rules and procedures for the
                        administration of this Program; and


                                       12


<PAGE>   16

                (vi)    To administer the claims procedures set forth in Section
                        6.5 for presentation of claims by Participants and
                        Beneficiaries for benefits under this Program, including
                        consideration of such claims, review of claim denials
                        and issuance of a decision on review.

        (b)     The Committee shall have full discretion to construe and
                interpret the terms and provisions of this Program (but not to
                increase amounts payable hereunder) and to resolve any disputed
                question or controversy, which interpretation or construction or
                resolution, including decisions with respect to adjustments
                under Section 5.5, shall be final and binding on all parties,
                including but not limited to the Company and any Eligible
                Person, Participant or Beneficiary, except as otherwise required
                by law. The Committee shall administer such terms and provisions
                in a nondiscriminatory manner and in full accordance with any
                and all laws applicable to this Program. In performing its
                duties, the Committee shall be entitled to rely on information,
                opinions, reports or statements prepared or presented by: (i)
                officers or employees of the Company whom the Committee believes
                to be reliable and competent as to such matters; and (ii)
                counsel (who may be employees of the Company), independent
                accountants and other persons as to matters which the Committee
                believes to be within such persons' professional or expert
                competence. The Committee shall be fully protected with respect
                to any action taken or omitted by it in good faith pursuant to
                the advice of such persons. The Committee may appoint a program
                administrator or any other agent, and delegate to them such
                powers and duties in connection with the administration of this
                Program as the Committee may from time to time prescribe.

6.4     INDEMNITY AND LIABILITY.

        All expenses of the Committee shall be paid by the Company and the
Company shall furnish the Committee with such clerical and other assistance as
is necessary in the performance of its duties. No member of the Committee shall
be liable for any act or omission of any other member of the Committee nor for
any act or omission on his or her own part. To the extent permitted by law, the
Company shall indemnify and save harmless each member of the Committee against
any and all expenses and liabilities arising out of his or her membership on the
Committee.

6.5     CLAIMS PROCEDURE AND ARBITRATION.

        A person who believes that he or she is being denied a benefit to which
he or she is entitled under this Program (hereinafter referred to as "Claimant")
may file a written request for such benefit with the Committee, setting forth
his or her claim. The request must be addressed to the Committee at the
Corporation's then principal executive offices.


                                       13



<PAGE>   17

        Upon receipt of a claim, the Committee shall advise the Claimant that a
reply will be forthcoming within ninety (90) days and shall, in fact, deliver
such reply within such period. The Committee may, however, extend the reply
period for an additional ninety (90) days for special circumstances. If the
claim is denied in whole or in part, the Committee shall inform the Claimant in
writing, using language calculated to be understood by the Claimant, setting
forth: (i) the specified reason or reasons for such denial, (ii) the specific
reference to pertinent provisions of this Program on which such denial is based,
(iii) a description of any additional material or information necessary for the
Claimant to perfect his or her claim and an explanation why such material or
such information is necessary, (iv) appropriate information as to the steps to
be taken if the Claimant wishes to submit the claim for review, and (v) the time
limits for requesting a review set forth below.

        Within sixty (60) days after the receipt by the Claimant of the written
opinion described above, the Claimant may request in writing that the Committee
review its determination. Such request must be addressed to the Committee at the
Corporation's then principal executive offices. The Claimant or his or her duly
authorized representative may, but need not, review the pertinent documents and
submit issues and comments in writing for consideration by the Committee. If the
Claimant does not request a review within such sixty (60) day period, he or she
shall be barred and estopped from challenging the Company's determination.

        Within sixty (60) days after the Committee's receipt of a request for
review, after considering all materials presented by the Claimant, the Committee
will inform the Claimant in writing, in manner calculated to be understood by
the Claimant, of its decision setting forth the specific reasons for the
decision and containing specific references to the pertinent provisions of this
Program on which the decision is based. If special circumstances require that
the sixty (60) day time period be extended, the Committee will so notify the
Claimant and will render the decision as soon as possible, but no later than one
hundred twenty (120) days after receipt of the request for review.

        Following a Change in Control, the claims procedure shall include the
following arbitration procedure:

        (a)     Since time will be of the essence in determining whether any
                payments are due to the Participant under this Program following
                a Change in Control, a Participant may submit any claim for
                payment to arbitration as follows: On or after the second day
                following the termination of the Participant's employment or
                other event triggering a right to payment), the claim may be
                filed orally with an arbitrator of the Participant's choice and
                thereafter the Corporation shall be notified orally. The
                arbitrator must be:


                                       14

<PAGE>   18

                (i)     a member of the National Academy of Arbitrators or one
                        who currently appears on arbitration panels issued by
                        the Federal Mediation and Conciliation Services or the
                        American Arbitration Association; or

                (ii)    a retired judge of the State in which the claimant is a
                        resident who served at the appellate level or higher.

        (b)     The arbitration hearing shall be held within 10 days (or as soon
                thereafter as possible) after filing of the claim unless the
                Participant and the Corporation agree to a later date. No
                continuance of said hearing shall be allowed without the mutual
                consent of the Participant and the Corporation. Absence from or
                nonparticipation at the hearing by either party shall not
                prevent the issuance of an award. Hearing procedures which will
                expedite the hearing may be ordered at the arbitrator's
                discretion, and the arbitrator may close the hearing in his or
                her sole discretion upon deciding he or she has heard sufficient
                evidence to satisfy issuance of an award. In reaching a
                decision, the arbitrator shall have no authority to ignore,
                change, modify, add to or delete from any provision of this
                Program, but instead is limited to interpreting this Program.
                The arbitrator's award shall be rendered as expeditiously as
                possible, and in no event, later than seven days after the close
                of the hearing. If the arbitrator finds that any payment is due
                to the Participant from the Corporation, the arbitrator shall
                order the Corporation to pay that amount to the Participant
                within 48 hours after the decision is rendered. The award of the
                arbitrator shall be final and binding upon the Participant and
                the Corporation. Judgment upon the award rendered by the
                arbitrator may be entered in any court in any State of the
                United States. In the case of any arbitration regarding this
                Agreement, the Participant shall be awarded the Participant's
                costs, including attorney's fees. Such fee award may not be
                offset against the deferred compensation due hereunder. The
                Corporation shall pay the arbitrator's fee and all necessary
                expenses of the hearing, including stenographic reporter if
                employed.


                                       15

<PAGE>   19

                                  ARTICLE VII
                        PROGRAM CHANGES AND TERMINATION

7.1     AMENDMENTS.

        The Board shall have the right to amend this Program in whole or in part
from time to time or may at any time suspend or terminate this Program;
provided, however, that no amendment or termination shall cancel or otherwise
adversely affect in any way, without his or her written consent, any
Participant's rights with respect to Deferred Shares and Dividend Equivalents
(and any cash credited pursuant to Section 5.5(b)) credited to his or her
Deferred Share Account. Any amendments authorized hereby shall be stated in an
instrument in writing, and all Eligible Persons shall be bound thereby upon
receipt of notice thereof. Adjustments pursuant to Section 5.5 hereof shall not
be deemed amendments to this Program, the Deferred Share Accounts or the rights
of Participants.

7.2     TERM.

        It is the current expectation of the Company that this Program shall be
continued indefinitely, but continuance of this Program is not assumed as a
contractual obligation of the Company. In the event that the Board decides to
discontinue or terminate this Program, it shall notify the Committee and
Participants in this Program of its action in writing, and this Program shall be
terminated at the time therein set forth. All Participants shall be bound
thereby. In connection with the termination of this Program, the Committee may,
in its sole discretion, elect to accelerate the distribution date for all
Deferred Share Accounts (including Deferred Share Accounts being paid in or
otherwise to be paid in the form of installments) and make a lump sum
distribution in respect thereof.



                                       16
<PAGE>   20

                                  ARTICLE VIII
                                 MISCELLANEOUS

8.1     LIMITATION ON PARTICIPANT'S RIGHTS.

        Participation in this Program shall not give any person the right to
continued employment or service or any rights or interests other than as herein
provided. No Participant shall have any right to any payment or benefit
hereunder except to the extent provided in this Program. This Program creates no
fiduciary duty to Participants and shall create only a contractual obligation on
the part of the Company as to such amounts; this Program shall not be construed
as creating a trust. This Program, in and of itself, has no assets. Participants
shall have rights no greater than the right to receive the Common Stock (and any
cash as expressly provided herein) or the value thereof as a general unsecured
creditor in respect of their Deferred Share Accounts.

8.2     BENEFICIARY DESIGNATION.

        Upon forms provided by and subject to conditions imposed by the Company,
each Participant may designate in writing the Beneficiary or Beneficiaries whom
such Participant desires to receive any Shares or amounts payable under this
Program after his or her death. A Participant may from time to time change his
or her designated Beneficiary or Beneficiaries without the consent of such
Beneficiary or Beneficiaries by filing a new designation with the Committee.
However, if a married Participant wishes to designate a person other than his or
her spouse as Beneficiary, such designation shall be consented to in writing by
the spouse, which consent shall acknowledge the effect of the designation. The
Participant may change any election designating a Beneficiary or Beneficiaries
without any requirement of further spousal consent if the spouse's consent so
provides. Notwithstanding the foregoing, spousal consent shall be unnecessary if
it is established (to the satisfaction of the Committee or a Committee
representative) that there is no spouse or that the required consent cannot be
obtained because the spouse cannot be located. The Company and the Committee may
rely on the Participant's designation of a Beneficiary or Beneficiaries last
filed in accordance with the terms of this Program. Upon the dissolution of
marriage of a Participant, any designation of the Participant's former spouse as
a Beneficiary shall be treated as though the Participant's former spouse had
predeceased the Participant, unless (a) the Participant executes another
Beneficiary designation that complies with this Section 8.2 and that clearly
names such former spouse as a Beneficiary, or (b) a court order is presented to
the Company that requires the former spouse be maintained as the Beneficiary. In
any case where the Participant's former spouse is treated under the
Participant's Beneficiary designation as having predeceased the Participant, no
heirs or other beneficiaries of the former spouse shall receive benefits from
the Plan as a Beneficiary of the Participant except as provided otherwise in the
Participant's Beneficiary designation.




                                       17
<PAGE>   21

8.3     PAYMENTS TO MINORS OR PERSONS UNDER INCAPACITY.

        Every person receiving or claiming benefits under this Program shall be
conclusively presumed to be mentally competent and of age until the date on
which the Committee receives a written notice, in a form and manner acceptable
to the Committee, that such person is incompetent or a minor, for whom a
guardian or other person legally vested with the care of his person or estate
has been appointed; provided, however, that if the Committee finds that any
person to whom a benefit is payable under this Program is unable to care for his
or her affairs because of incompetency, or because he or she is a minor, any
payment due (unless a prior claim therefor shall have been made by a duly
appointed legal representative) may be paid to the spouse, a child, a parent, a
brother or sister, or to any person or institution considered by the Committee
to have incurred expense for such person otherwise entitled to payment. To the
extent permitted by law, any such payment so made shall be a complete discharge
of liability therefor under this Program.

        If a guardian of the estate of any person receiving or claiming benefits
under this Program is appointed by a court of competent jurisdiction, benefit
payments may be made to such guardian provided that proper proof of appointment
and continuing qualification is furnished in a form and manner acceptable to the
Committee. In the event a person claiming or receiving benefits under this
Program is a minor, payment may be made to the custodian of an account for such
person under the Uniform Gifts to Minors Act. To the extent permitted by law,
any such payment so made shall be a complete discharge of any liability therefor
under this Program.

8.4     RECEIPT AND RELEASE.

        Any payment to a Participant or the Participant's Beneficiary in
accordance with the provisions of this Program shall, to the extent thereof, be
in full satisfaction of all claims against the Board, the Committee, and the
Company. The Committee may require such Participant or Beneficiary, as a
condition precedent to such payment, to execute a receipt and release to such
effect.

8.5     DEFERRED SHARES AND OTHER BENEFITS NOT ASSIGNABLE; OBLIGATIONS BINDING 
        UPON SUCCESSORS.

        Deferred Shares and other benefits of a Participant under this Program
shall not be assignable or transferable and any purported transfer, assignment,
pledge or other encumbrance or attachment of any payments or benefits under this
Program, or any interest therein, other than by operation of law or pursuant to
Section 8.2, shall not be permitted or recognized. Obligations of the Company
under this Program shall be binding upon successors of the Company.




                                       18

<PAGE>   22

8.6     EMPLOYMENT TAXES.

        The Company (including its Subsidiaries) may satisfy any state or
federal employment tax withholding obligation arising from an Alternative
Exercise of a Qualifying Option under this Program by deducting such amount from
any amount of compensation payable to the Participant. Alternatively, the
Company (including its Subsidiaries) may require the Participant to deliver to
it the amount of any such withholding obligation as a condition to the
Alternative Exercise of the Qualifying Option.

8.7     GOVERNING LAW; SEVERABILITY.

        The validity of this Program or any of its provisions shall be
construed, administered and governed in all respects under and by the laws of
the State of California. If any provisions of this instrument shall be held by a
court of competent jurisdiction to be invalid or unenforceable, the remaining
provisions hereof shall continue to be fully effective.

8.8     COMPLIANCE WITH LAWS.

        This Program, the Company's acceptance of the exercise price of a
Qualifying Option in the form of Shares, the Company's issuance of Deferred
Shares, and the offer, issuance and delivery of Shares and/or the payment in
Shares through the deferral of compensation under this Program are subject to
compliance with all applicable federal and state laws, rules and regulations
(including but not limited to state and federal securities law) and to such
approvals by any listing, agency or any regulatory or governmental authority as
may, in the opinion of counsel for the Company, be necessary or advisable in
connection therewith. Any securities delivered under this Program shall be
subject to such restrictions, and the person acquiring such securities shall, if
requested by the Company, provide such assurances and representations to the
Company as the Company may deem necessary or desirable to assure compliance with
all applicable legal requirements. If the Company in its sole discretion
determines that an Alternative Exercise of a Qualifying Option would violate any
law, rule or regulation, the Company may refuse to honor such Alternative
Exercise.

8.9     PROGRAM CONSTRUCTION.

        It is the intent of the Company that transactions pursuant to this
Program, with respect to Eligible Persons or Participants who are subject to
Section 16 of the Exchange Act, satisfy and be interpreted in a manner that
satisfies the applicable requirements of Rule 16b-3 so that to the extent
elections are timely made, the crediting of Deferred Shares and the distribution
of Shares with respect to Deferred Shares under this Program will be entitled to
the benefits of Rule 16b-3 or other exemptive 



                                       19

<PAGE>   23

rules under Section 16 of the Exchange Act and will not be subjected to
avoidable liability thereunder.

8.10    HEADINGS NOT PART OF PROGRAM.

        Headings and subheadings in this Program are inserted for reference only
and are not to be considered in the construction of the provisions hereof.

        IN WITNESS WHEREOF, the Company has caused its duly authorized officer
to execute this Program on this _____ day of _______________, 1998.


                                        FURON COMPANY

                                        By:
                                            ------------------------------------
                                        Print Name:
                                                     ---------------------------
                                        Its:
                                              ----------------------------------




                                       20


<PAGE>   24


                                                                      EXHIBIT A

                                  FURON COMPANY
                          OPTION GAIN DEFERRAL PROGRAM

                             QUALIFYING STOCK OPTION
                         ALTERNATIVE EXERCISE AGREEMENT


        THIS QUALIFYING STOCK OPTION ALTERNATIVE EXERCISE AGREEMENT (this
"AGREEMENT") is entered into as of this _______ day of _________________, 199__,
by and between FURON COMPANY, a California corporation (the "COMPANY"), and
__________________________ (the "EMPLOYEE").

        In consideration of the services rendered and to be rendered by the
Employee, and other valued consideration, the receipt of which is hereby
acknowledged, the Company and the Employee agree as follows:

        1. CAPITALIZED TERMS. Capitalized terms not otherwise defined herein
shall have the meaning assigned to such terms in the Company's Option Gain
Deferral Program (the "PROGRAM").

        2. ALTERNATIVE EXERCISE OF A QUALIFYING STOCK OPTION. This Agreement
applies to the following nonqualified stock option which was granted under the
1982 Plan or the 1995 Plan and which, by its terms, will expire no sooner than
six months following the date of this Agreement (the "OPTION"):

<TABLE>
<CAPTION>

                                                                         Number of Shares
                          Total Number of                                Subject to this
                          Shares Originally      Number of Shares        Alternative Exercise
Grant Date                Subject to Option      Previously Exercised    Agreement
---------------           ------------------     ---------------------   --------------------
<S>                      <C>                   <C>                    <C>


---------------           ------------------     ---------------------   --------------------
</TABLE>

The Employee hereby irrevocably agrees to not exercise the Option or, if
applicable, the portion of the Option subject to this Agreement before the date
which is at least six months after the date of this Agreement; provided,
however, that this Agreement shall terminate (and the Employee may exercise the
Option) in the event that the Committee timely refuses this Agreement or, prior
to the expiration of the six-month period, the Employee's employment with the
Company is terminated or, unless the Committee provides otherwise, a Change in
Control occurs. The Employee further irrevocably agrees that if he/she desires
to exercise the Option or, if applicable, that portion of the Option subject to
this Agreement, on or after the date which is at least six months after the date
of this Agreement, the Employee shall do so on forms authorized by the


                                      A-1
<PAGE>   25

Committee, and shall pay the exercise price of the Option using, through a
method approved by the Committee, Already-Owned Shares to the Company as
provided in Section 4.1 of the Program.

        3. AWARD OF DEFERRED SHARES. The Company hereby agrees to award Deferred
Shares in accordance with Article IV and Sections 5.1 and 5.2 of the Program
upon and in respect of the Alternative Exercise of the Option.

        4. TIMING AND MANNER OF DISTRIBUTION OF DEFERRED SHARES. Subject to any
changes imposed by or allowed under the provisions of Section 5.4 or 5.5 of the
Program, the Employee hereby further irrevocably elects to receive the
distribution in Shares of his or her Deferred Shares credited under the Program
pursuant to this Agreement in accordance with the Program and the choices
checked and initialed by the Employee below.

        DEFERRAL PERIOD. I elect to receive my distribution in January of the
        year following (choose one and initial corresponding line):

               [ ]    ________      My termination of employment with the 
                                    Company; or

               [ ]    ________      The earlier of (i) my termination
                                    of employment with the Company, or (ii) the
                                    date that is ____________ (specify 5, 10,
                                    15, or 20) years after the date of my
                                    Alternative Exercise of the Option.

        MANNER OF BENEFIT PAYMENT. I elect to receive my distribution or, in the
        case of my death, have my Beneficiary receive a distribution in the
        following form (choose one and initial on corresponding line):

               [ ]    ________      A single lump sum; or

               [ ]    ________      Installments paid annually over a period 
                                    of  _____ (specify 5, 10, 15, or 20) years.

THE EMPLOYEE UNDERSTANDS THAT THESE ELECTIONS ARE IRREVOCABLE (EXCEPT AS
EXPRESSLY PROVIDED IN THE PROGRAM) AND THAT THE PROGRAM AND THE STOCK PLANS
PROVIDE FOR ADJUSTMENTS AND/OR ACCELERATION OF THE TIME OF PAYOUT IN CERTAIN
CIRCUMSTANCES. IN THE EVENT THAT THE PROGRAM IS TERMINATED, DISTRIBUTIONS MAY BE
ACCELERATED AND PAID IN THE FORM OF A LUMP SUM.

Delivery of certificates representing the Shares and any cash representing a
fractional Share interest and/or Dividend Equivalents will be made or commence
in January of the year following the Employee's termination of employment (or,
if earlier, in January of the year following the end of the deferral period
elected by the Employee). Delivery of certificates will be made to the
Employee's last known address of record unless 


                                      A-2



<PAGE>   26

the Company is otherwise instructed in writing. In the event that less than
1,000 Deferred Shares are credited to the Employee's Deferred Share Account at
such time, the Committee, in its sole discretion, may distribute Shares in
respect of such Deferred Shares (and any other amounts then credited to such
Deferred Share Account) in a single lump sum. If installments are elected, the
Committee, in its sole discretion, may reduce the number of installments to
produce an annual distribution of at least 100 Shares.

        5. GENERAL TERMS. The exercise of the Option, the award of Deferred
Shares, and the distribution of benefits under the Stock Plans in accordance
with the Program and this Agreement are subject to, and the Company and the
Employee agree to be bound by, the provisions of the Program and the applicable
provisions of the Stock Plans, incorporated herein by this reference. The
Employee acknowledges receiving a copy of the Program and each applicable Stock
Plan and understanding their applicable provisions. The Employee acknowledges
receiving a copy of the Prospectus Supplement relating to the Program and
understanding its contents. The Employee consents to the effects on the
Employee's rights under the Option that result by reason of the provisions
hereof. Provisions of the Stock Plans or the Program that grant further
discretionary authority to the Company, the Board or the Committee shall not
create any rights in the Employee, unless such rights are expressly set forth
herein or expressly applied to this Agreement by subsequent action of the Board
or the Committee.

        6. EFFECT OF AGREEMENT. This Agreement shall only be effective with
respect to the Alternative Exercise of the Option or the portion of the Option
described in Section 2 above. The Employee and the Company must enter into a
separate Alternative Exercise Agreement in order to provide for the Alternative
Exercise of any portion of the Option not subject to this Agreement or other
Qualifying Options held by the Employee.

        7. COMPANY REFUSAL TO HONOR ALTERNATIVE EXERCISE. In the event that the
Company unilaterally refuses to honor an Alternative Exercise of the Option or
the portion of the Option subject to this Agreement pursuant to Section 8.5 of
the Program, this Agreement shall terminate and the Option or portion thereof
shall be exercisable for actual Shares in accordance with the terms of the
Option without regard to this Agreement and the Alternative Exercise provisions
of the Option.






                                      A-3

<PAGE>   27

        IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year written above.

                                    EMPLOYEE


                                    --------------------------------------------
                                    Signature


                                    --------------------------------------------
                                    Print Name


                                    --------------------------------------------
                                    Address


                                    --------------------------------------------
                                    City, State, Zip Code


                                    --------------------------------------------
                                    Social Security Number



                                    FURON COMPANY
                                    "Company"


                                    By:
                                        ----------------------------------------
                                    Title:
                                           -------------------------------------


                                CONSENT OF SPOUSE
                                -----------------

        In consideration of the execution of the foregoing Qualifying Stock
Option Alternative Exercise Agreement, I, _________________, the spouse of the
Employee therein named, do hereby join with my spouse in executing the agreement
and do hereby (i) agree to be bound by all of the terms and provisions thereof,
and of the Furon Company Option Gain Deferral Program and of the applicable
provisions of the Stock Plans (as such terms are defined therein), and (ii)
consent to each change in the Employee's rights under the Option that results by
reason of the provisions hereof.


DATED:  _______________, 19____.                   ____________________________
                                                            Signature of Spouse




                                      A-4