Exhibit 10.6
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 of ,
("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) (a) Participant is granted Phantom Stock Appreciation Rights
Units ("Granted StARs Units") as of the effective date of this
Agreement.
(b) In addition to the Granted StARs Units noted above in Section 1(a)
Participant may be granted up to Phantom Stock Appreciation
Rights Units ("Contingent StARs Units") on or prior to December 31,
1998. The number of Contingent StARs Units granted shall be determined
by the Executive Committee of the Board of Directors of Dow Corning
(excluding the Chairman of the Board and the Chief Executive Officer),
based upon certain criteria set by the Executive Committee of the
Board of Directors of Dow Corning (excluding the Chairman of the Board
and the Chief Executive Officer). Said criteria will be communicated
to Participant in January, 1998. On or after December 31, 1998, the
Executive Committee of the Board of Directors of Dow Corning
(excluding the Chairman of the Board and the Chief Executive Officer)
shall, in its sole discretion, determine whether or not the criteria
have been met, and, based on that assessment, the number of Contingent
StARs Units to be granted. Any Contingent StARs Units granted shall
have an effective date of April 1, 1998.
(c) For purposes of this Agreement, Granted StARs Units and Contingent
StARs Units shall sometimes be collectively referred to as "StARs
Units".
(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 of 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
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% ( ) 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% ( ) 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 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 of Dow Corning (excluding the Chairman of the Board
and the Chief Executive Officer) 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
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:
C
A = B x -----
36
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.
(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 Executive Committee of the board of Directors of
Dow Corning (excluding the Chairman of the Board and Chief Executive
Officer) 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) (a) 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) $ 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.
(b) If participant dies prior to December 31, 1998, while in service
as a Dow Corning employee, then the maximum number of Contingent StARs
Units set forth in Section 1(b) shall be deemed granted to
Participant, effective April 1, 1998.
(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 of the Board of Directors of Dow Corning (excluding the
Chairman of the Board and Chief Executive Officer), 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 of the Board of Directors of Dow Corning
(excluding the Chairman of the Board and Chief Executive Officer)
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
Corning.
The parties hereby execute this Agreement as of April 1, 1998.
DOW CORNING CORPORATION
By:
_____________________________________________________
Gifford E. Brown
Vice President & Executive Director of Human Resources
__________________________________________
Participant's Signature
__________________________________________
Name of Participant's Beneficiary
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 Sum of 8 most recently completed fiscal quarters Adjusted
Per Share PAT divided by 2; then divided by 2.5 million shares of
Dow Corning stock outstanding.
Beginning Total of:
Operating Assets 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 Any twelve month period within the Exercise Period
Exercise Period commencing on April 1 of a calendar year and ending on
March 31 of the following calendar year.
Grant Unit Value at beginning of plan from which appreciated
Price value will be determined.
Hypothetical 2 year average Earnings Per Share x 2 year average Return
Average Market On Assets.
Value
Return on Assets 2 year average Adjusted PAT divided by average Beginning
(ROA) 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 The date at which StARs units have value and the
Date 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.