Reading for Information Level 7

March 17

We will begin use of the new guidelines on Capital Management this October with the onset of the
new fiscal year (with the exception of the Alpha-Beta Division and our European subsidiaries as
noted below). A Standing Committee on Capital Management has been formed to administer the
policy. Research & Development will pilot the policy starting in May. Feedback from R & D will be
considered by the Standing Committee.

As you know, the primary intention of the Capital Management Policy is to gain some control and
discipline over what has been a somewhat arbitrary process of funding projects and new enterprises.
Whereas in the past, any project could potentially go forward to the Executive Committee for
consideration regardless of merit, we will now have a process of screening and rating based on
funding category, amount, need, return, and volume.

Categories for funding requests will include Savings, Repair & Replacement, New Enterprises,
Acquisitions, and Budget Appropriations. Due to the improved controls, and to streamline the
process, authorization levels have been raised, providing that the funding request is aligned with the
new policy. General managers will now have authority to approve appropriations up to $50,000;
division managers, $50,000 to $100,000. The Capital Management Committee may approve
appropriations up to $500,000 and the Executive Committee will continue to provide approval for
appropriations above that level.

Financial criteria will be the major consideration for Savings, New Enterprise, and Acquisition
requests. Minimum projected rate of return will be 20%. New Enterprise and Acquisition requests
must be projected to build company volume by at least 20,000 units or 10% of that division's current
sales volume. In addition, to achieve funding, New Enterprise projects will be required to meet
established Consumer Research targets for marketplace acceptance and reflect the most recent
federal product safety guidelines. All criteria must be met regardless of amount and approval level.
There may be rare circumstances where it is justified to deviate from these criteria, such as
competitive threat, but any exception must be approved by the Board of Directors.

R & R and Budget Appropriations will be judged on need. A set of detailed scoring criteria has been
created to rank projects on this basis. These criteria will be used for funding anything more than $5
million that does not specifically generate a return, such as equipment replacement or construction of new office space.

Because Alpha-Beta is a recent acquisition, it will maintain its funding processes until its accounting
systems have transitioned to the corporate system. Due to differences in the European business, a
separate task force has been chartered to develop procedures for the European subsidiaries.