Exhibit 10.5
DOW CORNING CORPORATION
PHANTOM STOCK APPRECIATION RIGHTS (StARs) PLAN PARTICIPATION AGREEMENT
THIS AGREEMENT is made and effective as of April 1, 1998 between DOW
CORNING CORPORATION, a Michigan corporation, having its executive office at
Midland, MI ("Dow Corning") and (FIRSTNM) (MI) (LASTNM) of (PO) (STREET),
(CITY), (State_Zip) ("Participant"). Defined terms used herein are specified in
the related document entitled "Definition of Terms" attached as Exhibit A.
IN CONSIDERATION OF SERVICES TO BE RENDERED BY PARTICIPANT, DOW CORNING
HEREBY AGREES TO ENROLL PARTICIPANT IN THE 1998 PHANTOM STOCK APPRECIATION
RIGHTS PLAN ("THE PLAN") ON THE FOLLOWING TERMS AND CONDITIONS:
(1) Participant is granted (StARs_98_Units) Phantom Stock Appreciation
Rights Units ("StARs Units") as of the effective date of this Agreement.
(2) The value of each StARs Unit at any time will be equal to the
hypothetical average market value of a share of Dow Corning common stock at such
time less its price at the time it was granted to Participant. The initial grant
price for the 1998 Phantom Stock Appreciation Rights Plan will be $701.71 per
StARs Unit.
(3) The hypothetical average market value will be determined using the
following formula:
2 Year Average Earnings Per Share x 2 Year Average Return On
Assets
* where 2 year Average Earnings are determined by dividing the sum of the
Adjusted Profit After Tax ("PAT") from the eight most recently completed fiscal
quarters by 2 (to annualize); then 2 year Average Earnings Per Share is
determined by dividing by the number of shares Dow Corning stock outstanding on
the date of this agreement, and
* where Return On Assets is determined by dividing 2 year Average Earnings by 2
year Average Beginning Operating Assets, and
* where 2 year Average Beginning Operating Assets are the total of Inventory +
Trade Accts Receivable - Trade Accts Payable + Original
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Value of Property, Plant & Equipment for the two most recently completed fiscal
years.
(4) Except as provided below in the event of Participant's death (in which
event Section 9(c) or Section 11 hereof shall apply) or retirement (in which
event Section 9 hereof shall apply), no StARs Units will be convertible to cash
until the end of the Vesting Period, March 31, 2001 ("Vesting Date"). So long as
Participant remains employed by Dow Corning, Participant may elect in any one
calendar year after the Vesting Date to convert up to 50% ((UNITS50)) of
Participant's StARs Units granted pursuant hereto to a cash payment by properly
notifying Dow Corning of Participant's intent to convert StARs Units to a cash
payment; provided, however, in the event that Participant elects to convert
StARs Units to a cash payment in any such calendar year, Participant shall
convert at least 20% ((UNITS20)) of Participant's StARs Units granted pursuant
hereto to a cash payment. Only after retirement shall Participant be allowed to
cash out 100% of StARs Units in any single year. Notification of intent can be
given to Dow Corning in writing at any time after the end of the Vesting Period;
payment will then be made within 45 days of notification date. Exercise Price
will be determined at date of notification based on performance of the eight
most recently completed fiscal quarters of Dow Corning. In no case will
Participant be allowed to cash out more StARs Units in any year than would
permit Participant's total cash compensation in that year (including the StARs
Unit cashout payment) to be deducted by Dow Corning in determining its taxable
income (as defined by the Internal Revenue Code for the fiscal year of Dow
Corning in which such payment is made).
(5) Participant may elect, while remaining employed by or while
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retired from Dow Corning, to convert a portion of the StARs Units (in the
proportions described in paragraph (4) above) into a cash payment in any year(s)
after the Vesting Date, and prior to the end of the Exercise Period, March 31,
2008. If no election to exercise a cash payment is received by May 15, 2006, Dow
Corning will convert 50% of the StARs Units to cash and make payment to
Participant within 45 days, subject to the limitations contained in Section 6
below. Remaining StARs Units will be converted to cash and paid within 45 days
after the end of the exercise period, March 31, 2008.
(6) During the Exercise Period, Participant may not exercise Participant's
StARs Units granted hereunder in any Fiscal Year of the Exercise Period
immediately following a calendar year for which Dow Corning did not earn
positive Economic Profit (to be defined by Dow Corning subsequent to the date of
this agreement) (EP). If Dow Corning did not earn positive EP in the calendar
year prior to the end of the last Fiscal Year of the Exercise Period, all rights
of Participant to receive and all obligations of Dow Corning to make payments
under the Plan shall terminate and cease.
(7) If Participant terminates employment with Dow Corning, other than by
retirement, on or prior to the Vesting Date, all rights of Participant to
receive and all obligations of Dow Corning to make payments under the Plan shall
terminate and cease. The Executive Committee of the Board of Directors may,
however, except a Participant from such rule where, in the sole judgment and
discretion of the Committee, the circumstances warrant such an exception on a
non-arbitrary and non-discriminating basis.
(8) If Participant terminates employment with Dow Corning, other than by
retirement or death, after the Vesting Date, any remaining StARs Units standing
to the credit of Participant will be valued as of the Participant's employment
termination date, and an amount equal to the termination date value of
Participant's StARs Units will be paid to
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Participant within 45 days.
(9) (a) If Participant retires on or prior to the Vesting Date, the number
of StARs Units granted pursuant to this Agreement will be prorated.
The Participant will receive StARs Units in accordance with the following
formula based on months of active service during the Vesting Period:
A = B x C
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Where:
A = Prorated StARs Units
B = Number of StARs Units granted on April 1, 1998
C = Months of active service since April 1, 1998
(b) If Participant retires during the Vesting Period or Exercise
Period, Participant shall not be able to exercise Participant's Prorated StARs
units until after the Vesting Date specified in Section 4. Notwithstanding the
preceding sentence, Participant shall have three years and fifteen days from
date of retirement to exercise and receive cash payment of all remaining
Prorated StARs Units (prorated pursuant to section 9(a) above). If no election
to exercise a cash payment is received by such date, Dow Corning will convert
the remaining StARs Units as prorated pursuant to section 9(a) above to cash and
make payment to Participant within 45 days.
(c) If retired Participant dies prior to receiving cash payment of all
remaining StARs Units as prorated pursuant to section 9(a) above, beneficiary
will be paid greater of: (a) target award value of prorated StARs Units less any
previous cash payments made from the plan, or (b) the value of any remaining
StARs Units standing to the credit of the Participant as of the Participant's
date of death. Payment will be made to Participant's Beneficiary within 45 days
of notification date.
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(10) If Participant is discharged from employment with Dow Corning or any
subsidiary after the Vesting Date because of repeated neglect or misconduct in
the performance of the obligations or duties of Participant's employment or has
willfully engaged in an act which in the judgment of the Chairman and Chief
Executive Officer of Dow Corning is materially inimical to the best interests of
Dow Corning, all Participant's rights and all Dow Corning's obligations under
the Plan and the Agreement will terminate and cease immediately upon such
discharge.
(11) If Participant dies prior to March 31, 2008, while in service as a Dow
Corning employee, Participant's Beneficiary will be paid the greater of:
(a)((StARs98Targetv_)) less any previous cash payments made from the plan, or
(b) the value of any remaining StARs Units standing to the credit of Participant
as of the Participant's date of death. Payment will be made to Participant's
Beneficiary within 45 days of notification date.
(12) If after terminating employment with Dow Corning under circumstances
which entitle Participant to receive payments under the Plan, Participant
competes directly or indirectly with Dow Corning or any of its subsidiaries,
Participant's rights and all Dow Corning's obligations under the Plan and the
Agreement will terminate and cease immediately.
(13) The Dow Corning Board of Directors, as represented by the Executive
Committee, will have the exclusive right to call all outstanding StARs Units at
the current value as of the date on which that call decision is effective if it
is deemed in the best interest of Dow Corning to do so. In the event of any
inquiry or dispute concerning the Plan, the decision of the Executive Committee
shall be final.
(14) Nothing in this Agreement will confer or be deemed to confer upon
Participant any right with respect to continuance of employment by Dow
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Corning.
The parties hereby execute this Agreement as of April 1, 1998.
DOW CORNING CORPORATION
By:
__________________________________
Richard A. Hazleton
Chairman & Chief Executive Officer
((FIRSTNM)) ((MI)) ((Lastnm)) - ((Empno))
_________________________________
Participant's Signature
_________________________________
Name of Participant's Beneficiary
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Definition of Terms
Exhibit A
Adjusted PAT Profit After Tax adjusted for significant and material items
consistent with relevant legal & financial accounting reporting requirements,
such as: accounting rule changes, acquisitions and divestitures, and other
significant special charges.
Appreciated Value - Difference between the unit value (exercise price) and
grant price.
Average Earnings Per Share - Sum of 8 most recently completed fiscal
quarters Adjusted PAT divided by 2; then divided by 2.5 million shares of Dow
Corning stock outstanding.
Beginning Operating Assets - Total of: Inventory + Trade Accounts
Receivable - Trade Accounts Payable + Original Value of Property, Plant
and Equipment Beginning Operating Assets are equal to previous calendar year-end
value as published in Dow Corning's annual consolidated financial statements.
Exercise Period Seven-year period beginning at end of vesting period during
which Participant may elect to receive cash payment for the appreciated value of
a percent of granted StARs units.
Exercise Price Unit Value at time Participant notifies Dow Corning of
intent to exercise StARs units.
Economic Profit Sales - Operating expenses (including taxes) - Capital
charge (Cost of Capital X Net Assets Employed)
Fiscal Year of the Exercise Period - Any twelve month period within the
Exercise Period commencing on April 1 of a calendar year and ending on March 31
of the following calendar year.
Grant Price Unit Value at beginning of plan from which appreciated value
will be determined.
Hypothetical Average Market Value - 2 year average Earnings Per Share X 2
year average Return On Assets.
Return on Assets (ROA) 2 year average Adjusted PAT divided by average
Beginning Operating Assets of 2 most recently completed fiscal years.
StARs Unit - Phantom Stock Appreciation Rights unit.
Unit Value - 2 year average Earnings Per Share x 2 year average Return On
Assets. This calculation represents the average hypothetical market value.
Vesting Date - The date at which StARs units have value and the participant
may elect to receive cash payment for a percent of granted StARs units.
Vesting Period - Three year period at beginning of plan during which
participant is not able to exercise cashout rights.
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