Dow Chemical 2009 Annual Report Download - page 173

Table of Contents
Under the 2003 Non-Employee Directors’ Stock Incentive Plan, a plan approved by stockholders, the Company may grant up to 1.5 million shares
(including options, restricted stock and deferred stock) to non-employee directors over the 10-year duration of the program, subject to an annual aggregate
award limit of 25,000 shares for each individual director. In 2009, 53,600 shares of restricted stock with a weighted-average fair value of $6.47 per share
were issued under this plan. The restricted stock issued under this plan cannot be sold, assigned, pledged or otherwise transferred by the non-employee
director, until the director is no longer a member of the Board.
NOTE T – LIMITED PARTNERSHIP
In early 1998, a subsidiary of the Company purchased the 20 percent limited partner interests of outside investors in a consolidated subsidiary, Chemtech
Royalty Associates L.P., for a fair value of $210 million in accordance with wind-up provisions in the partnership agreement. The limited partnership was
renamed Chemtech II L.P. (“Chemtech II”). In June 1998, the Company contributed assets with an aggregate fair value of $783 million (through a wholly
owned subsidiary) to Chemtech II and an outside investor acquired a limited partner interest in Chemtech II totaling 20 percent in exchange for $200 million. In
September 2000, the Company contributed additional assets with an aggregate fair value of $18 million (through a wholly owned subsidiary) to Chemtech II.
During the second quarter of 2008, the minority outside investor presented the Company with a liquidation notice, resulting in Dow’s election to purchase the
outside investor’s share in the partnership for $200 million. The transaction was completed in the second quarter of 2008.
Prior to the sale of its interest, the outside investor in Chemtech II received a cumulative annual priority return on its investment and participated in
residual earnings. For financial reporting purposes, the assets (other than intercompany loans, which were eliminated), liabilities, results of operations and
cash flows of the partnership and subsidiaries were included in the Company’s consolidated financial statements, and the outside investor’s limited partner
interest was included in “Noncontrolling interests” in the consolidated balance sheets.
NOTE U – PREFERRED SECURITIES OF SUBSIDIARIES
The following transactions were entered into for the purpose of providing diversified sources of funds to the Company.
In July 1999, Tornado Finance V.O.F., a former consolidated foreign subsidiary of the Company, issued $500 million of preferred securities in the form
of preferred partnership units. The units provided a distribution of 7.965 percent, could be redeemed in 2009 or thereafter, and could be called at any time by
the subsidiary. On June 4, 2009, the preferred partner notified Tornado Finance V.O.F. that the preferred partnership units would be redeemed in full on
July 9, 2009, as permitted by the terms of the partnership agreement. On July 9, 2009, the preferred partnership units and accrued dividends were redeemed
for a total of $520 million. Upon redemption, Tornado Finance V.O.F. was dissolved. The preferred partnership units were previously classified as “Preferred
Securities of Subsidiaries” in the consolidated balance sheets. The distributions were included in “Net income attributable to noncontrolling interests” in the
consolidated statements of income.
In September 2001, Hobbes Capital S.A. (“Hobbes”), a former consolidated foreign subsidiary of the Company, issued $500 million of preferred
securities in the form of equity certificates. The certificates provided a floating rate of return (which could be reinvested) based on LIBOR. During the third
quarter of 2008, the other partner of Hobbes redeemed its $674 million ownership in Hobbes. The minority ownership was redeemed in a non-cash transaction
in exchange for a three-year note payable with a floating rate based on LIBOR. Prior to redemption, the equity certificates of $500 million were classified as
“Preferred Securities of Subsidiaries” and the reinvested preferred returns were included in “Noncontrolling interests” in the consolidated balance sheets. The
preferred return was included in “Net income attributable to noncontrolling interests” in the consolidated statements of income.
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