-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, H2OWEP+Bg7sUF6M8pu6U4YTbCJ/nbooNe+WWmPQ+JhqW2qaLUYhex5TsPSE/rwS0 yWJs3f04k0K1uB2UYfg6qA== 0000100790-98-000004.txt : 19980323 0000100790-98-000004.hdr.sgml : 19980323 ACCESSION NUMBER: 0000100790-98-000004 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 25 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980320 SROS: CSX SROS: NYSE SROS: PCX FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNION CARBIDE CORP /NEW/ CENTRAL INDEX KEY: 0000100790 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL ORGANIC CHEMICALS [2860] IRS NUMBER: 131421730 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-01463 FILM NUMBER: 98569894 BUSINESS ADDRESS: STREET 1: 39 OLD RIDGEBURY RD CITY: DANBURY STATE: CT ZIP: 06817-0001 BUSINESS PHONE: 2037942000 MAIL ADDRESS: STREET 1: 39 OLD RIDGEBURY RD CITY: DANBURY STATE: CT ZIP: 06817-0001 FORMER COMPANY: FORMER CONFORMED NAME: UNION CARBIDE CORP DATE OF NAME CHANGE: 19890806 FORMER COMPANY: FORMER CONFORMED NAME: UNION CARBIDE & CARBON CORP DATE OF NAME CHANGE: 19710317 10-K 1 Securities and Exchange Commission, Washington, D.C. 20549 Annual Report on Form 10-K for the year ended December 31, 1997. Filed pursuant to Section 13 of the Securities Exchange Act of 1934. Commission file number 1-1463 Union Carbide Corporation 1997 10-K Union Carbide Corporation Tel. (203) 794-2000 39 Old Ridgebury Road State of incorporation: New York Danbury, Connecticut 06817-0001 IRS identification number: 13-1421730 Securities registered pursuant to Section 12(b) of the Act: Class of security: Registered on: Common Stock ($1 par value) New York Stock Exchange Chicago Stock Exchange, Incorporated The Pacific Stock Exchange Incorporated Share Purchase Rights Plan New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 ("the Act") during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X At February 27, 1998, 136,995,590 shares of common stock were outstanding. Non-affiliates held 133,765,732 of those shares, of which the aggregate market value was $6.212 billion. Documents incorporated by reference: Annual report to stockholders for the year ended December 31, 1997 (Parts I and II) Proxy statement for the annual meeting of stockholders to be held on April 22, 1998 (Part III) Table of Contents Part I Item 1: Business 1 Item 2: Properties 3 Item 3: Legal Proceedings 4 Item 4: Submission of Matters to a Vote of Security Holders 4 Part II Item 5: Market for Registrant's Common Equity and Related Stockholder Matters 5 Item 6: Selected Financial Data 5 Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations 5 Item 7a: Quantitative and Qualitative Disclosures About Market Risk 5 Item 8: Financial Statements and Supplementary Data 5 Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 5 Part III Item 10: Directors and Executive Officers of the Registrant 6 Item 11: Executive Compensation 8 Item 12: Security Ownership of Certain Beneficial Owners and Management 8 Item 13: Certain Relationships and Related Transactions 8 Part IV Item 14: Exhibits, Financial Statement Schedules, and Reports on Form 8-K 9 Signatures 12 Exhibit Index 13 Cautionary statement for the purposes of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995: All statements in this Form 10-K report that do not reflect historical information are forward looking statements. These include statements incorporated herein by reference to the 1997 annual report to stockholders. Important factors that could cause actual results to differ materially from those discussed in such forward looking statements include the supply/demand balance for the corporation's products, customer inventory levels, competitive pricing pressures, feedstock costs, changes in industry production capacities and operating rates, currency exchange rates, global economic conditions, particularly in Southeast Asia, disruption in railroad and other transportation facilities, competitive technology positions, failure to achieve technology objectives and failure to achieve the corporation's cost reduction targets or to complete construction projects on schedule. Some of these factors are discussed further in Part I, Item 1: Business. Definition of Terms: See page 44 of the 1997 annual report to stockholders. Terms defined there are used herein. Printed on Recycled, Recyclable Paper Part I Item 1. Business General-Union Carbide operates in two business segments of the chemicals and plastics industry, Specialties & Intermediates and Basic Chemicals & Polymers. Specialties & Intermediates converts basic and intermediate chemicals into a diverse portfolio of chemicals and polymers serving industrial customers in many markets. This segment also provides technology services, including licensing, to the oil and gas and petrochemicals industries. The Basic Chemicals & Polymers segment converts hydrocarbon feedstocks, principally liquefied petroleum gas and naphtha, into polyethylene, polypropylene, ethylene oxide and ethylene glycol for sale to third-party customers, as well as propylene, ethylene, ethylene oxide and ethylene glycol for consumption by the Specialties & Intermediates segment. The profitability of the Basic Chemicals & Polymers segment of the chemicals and plastics industry is highly cyclical, whereas that of the Specialties & Intermediates segment is less cyclical. Consequently, Union Carbide's results are subject to the swings of the business cycle in both the highly volatile Basic Chemicals & Polymers segment and the less volatile Specialties & Intermediates segment. See page 1, pages 6 through 8, and "Summary and Outlook" on pages 9 through 11 of the 1997 annual report to stockholders for further information about Union Carbide's businesses, and Note Five on pages 28 and 29 of the 1997 annual report to stockholders for financial information about Union Carbide's business segments. Union Carbide does not produce against a backlog of firm orders; production is geared primarily to the level of incoming orders and to projections of future demand. Inventories of finished products, work in process and raw materials are maintained to meet delivery requirements of customers and Union Carbide's production schedules. At year-end 1997, 11,813 people were employed in the manufacturing facilities, laboratories and offices of the corporation and its consolidated subsidiaries around the world. Raw Materials, Products and Markets-See information herein and in the 1997 annual report to stockholders on pages 6 through 8. The products of Union Carbide are principally sold by its own sales force, directly to customers. Union Carbide believes it has contracts or commitments for, or readily available sources of, hydrocarbon feedstocks and fuel supplies to meet its anticipated needs in all major product areas. The corporation's operations are dependent upon the availability of hydrocarbon feedstocks and fuels which are purchased from diverse domestic and international sources, including independent oil and gas producers as well as integrated oil companies. The availability and price of hydrocarbon feedstocks, energy and finished products are subject to plant interruptions and outages and to market and political conditions in the U.S. and elsewhere. Operations and products at times may be adversely affected by legislation, government regulations, shortages, or international or domestic events. The business segments of Union Carbide are not dependent to a significant extent upon a single customer or a few customers. Patents; Trademarks; Research and Development-Union Carbide owns a large number of United States and foreign patents that relate to a wide variety of products and processes, has pending a substantial number of patent applications throughout the world, and is licensed under a number of patents. These patents expire at various times over the next 20 years. Such patents and patent applications in the aggregate are material to Union Carbide's competitive position. No one patent is considered to be material; however, the patent portfolio relating to the UNIPOL process technology is, in the aggregate, considered to be material. Union Carbide also has a large number of trademarks. The UNION CARBIDE, UCAR and UNIPOL trademarks are material; no other single trademark is material. - 1 - Part I (Cont.) Essentially all of Union Carbide's research and development activities are company-sponsored. The principal research and development facilities of Union Carbide are indicated in the discussion of Properties (Item 2) of this Form 10-K report. In addition to the facilities specifically indicated there, product development and process technology laboratories are maintained at some plants. Union Carbide expensed $157 million in 1997, $159 million in 1996, and $144 million in 1995 on company-sponsored research activities to develop new products, processes, or services, or to improve existing ones. Environment-See Costs Relating to Protection of the Environment on pages 12 and 13 of the 1997 annual report to stockholders and Note Seventeen on pages 39 and 40 thereof. Insurance-Union Carbide's policy is to obtain public liability and other insurance coverage at terms and conditions and a cost that management considers fair and reasonable. Union Carbide's management believes it has a prudent risk management policy in effect, and it periodically reviews its insurance coverage as to scope and amount and makes adjustments as deemed necessary. There is no assurance, however, that Union Carbide will not incur losses beyond the limits, or outside the coverage, of its insurance. Such insurance is subject to substantial corporate retentions. Competition-Each of the major product and service areas in which Union Carbide participates is highly competitive. In some instances competition comes from manufacturers of the same products as those produced by Union Carbide and in other cases from manufacturers of different products which may serve the same markets as those served by Union Carbide's products. Some of Union Carbide's competitors, such as companies principally engaged in petroleum operations, have more direct access to hydrocarbon feedstocks, and some have greater financial resources than Union Carbide. The Specialties & Intermediates segment is characterized by differentiated products and is less subject to external changes in supply/demand relationships than the Basic Chemicals & Polymers segment. In this segment, competition is based primarily on product functionality and quality, with the more unique products commanding significant price premiums. The Basic Chemicals & Polymers segment is characterized by large volume commodity products and is subject to external changes in supply/demand relationships, including changes in the strength of the overall economy, customer inventory levels, industry manufacturing capacity and operating rates and raw material feedstock costs. Participants in this segment compete for business primarily on the basis of price and efficient delivery systems. See pages 6 through 8 of the 1997 annual report to stockholders for information about each segment's principal products, competitive position and major competitors. Union Carbide is a major marketer of petrochemical products throughout the world. Products that the corporation markets are largely produced in the United States, while products marketed by the corporation's joint ventures are principally produced outside the United States. Competitive products are produced throughout the world. Union Carbide's international operations face competition from local producers and global competitors and a number of risks inherent in carrying on business outside the United States, including risks of nationalization, expropriation, restrictive action by local governments and changes in currency exchange rates, in addition to the risks stated above. - 2 - Part I (Cont.) Item 2. Properties In management's opinion, current facilities, together with planned expansions, will provide adequate production capacity to meet Union Carbide's planned business activities. Capital expenditures are discussed on pages 16 and 17 of the 1997 annual report to stockholders. Listed below are the principal manufacturing facilities operated by Union Carbide worldwide. Research and engineering facilities are noted. Most of the domestic properties are owned in fee. Union Carbide maintains numerous domestic sales offices and warehouses, substantially all of which are leased premises under relatively short-term leases. All principal international manufacturing properties are owned or held under long-term leases. International administrative offices, technical service laboratories, sales offices and warehouses are owned in some instances and held under relatively short-term leases in other instances. The corporation's headquarters is located in Danbury, Connecticut, and is leased. Principal domestic manufacturing facilities and the principal products manufactured there are as follows: Location City Principal Product(s) Specialties & Intermediates Segment California Torrance Latexes Georgia Tucker Latexes Illinois Alsip Latexes Louisiana Greensburg Hydroxyethyl cellulose derivatives Louisiana Taft Acrolein and derivatives, acrylic monomers, caprolactone, UV-cured coatings, cycloaliphatic epoxides, glycol ethers, ethyleneamines, ethanolamines, oxo alcohols New Jersey Bound Brook Polyols, polyethylene compounding New Jersey Edison Lanolin derivatives New Jersey Somerset Latexes Puerto Rico Bayamon Latexes Texas Garland Latexes Texas Seadrift Ethanolamines, glycol ethers, surfactants, polyethylene Texas Texas City Organic acids and esters, alcohols, surfactants, vinyl acetate, solution vinyl resins, heat transfer fluids Washington Washougal Crystals West Virginia Institute Caprolactone derivatives, polyethylene glycol, hydroxyethyl cellulose, polyethylene oxide, surfactants, ethylidene norbornene, glutaraldehyde, acetone and derivatives West Virginia South Charleston Alkyl alkanolamines, brake fluids, miscellaneous specialty products, polyalkylene glycols, surfactants, specialty ketones, polyvinyl acetate resins, heat transfer fluids Basic Chemicals & Polymers Segment Louisiana Norco (Cypress Plant) Polypropylene Louisiana Taft Ethylene oxide and glycol, olefins Louisiana Taft (Star Plant) Polyethylene Texas Seadrift Ethylene oxide and glycol, olefins, polyethylene, polypropylene Texas Texas City Olefins - 3 - Part I (Cont.) Research and development for the Specialties & Intermediates segment is carried on at technical centers in Bound Brook, Edison and Somerset, New Jersey; Tarrytown, New York; Cary, North Carolina; Houston and Texas City, Texas; and South Charleston, West Virginia. Research and development for the Basic Chemicals & Polymers segment is carried on at technical centers in Bound Brook and Somerset, New Jersey; Houston, Texas; and South Charleston, West Virginia. Process and design engineering for both segments is conducted at a technical center in South Charleston, West Virginia and in Houston, Texas, in support of domestic and foreign projects. Principal international manufacturing facilities and the principal products manufactured there are as follows: Country City Principal Product(s) Specialties & Intermediates Segment Belgium Vilvoorde Lanolin derivatives Belgium Zwijndrecht Hydroxyethyl cellulose Brazil Aratu Hydroxyethyl cellulose Brazil Cabo Vinyl acetate Brazil Cubatao Polyethylene Ecuador Guayaquil Latex Indonesia Jakarta Latex Malaysia Seremban Latex People's Republic of China Guangdong Latex, hydroxyethyl cellulose derivatives People's Republic of China Shanghai Latex Philippines Batangas Latex Sri Lanka Colombo Latex Thailand Nonthaburi Latex United Arab Emirates Dubai Latex United Kingdom Wilton Glycol ethers, ethanolamines Basic Chemicals & Polymers Segment Canada Prentiss Ethylene glycol United Kingdom Wilton Ethylene oxide and glycol Research and development for the Specialties & Intermediates segment is carried on at international facilities in Zwijndrecht, Belgium; Cubatao, Brazil; Montreal East, Canada; Jurong, Singapore and Meyrin (Geneva), Switzerland. Item 3. Legal Proceedings See Note Seventeen of Notes to Financial Statements on pages 39 and 40 of the 1997 annual report to stockholders. Item 4. Submission of Matters to a Vote of Security Holders The corporation did not submit any matters to a stockholder vote during the last quarter of 1997. - 4 - Part II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters Market and dividend information for the corporation's common stock is contained on pages 18 to 20 of the 1997 annual report to stockholders. Information about the stock exchanges where the stock is traded in the United States is listed on page 42 of the 1997 annual report to stockholders. The declaration of dividends is a business decision made from time to time by the Board of Directors based on the corporation's earnings and financial condition and other factors the Board considers relevant. The number of stockholders of record of the corporation's common stock is contained on page 1 of the 1997 annual report to stockholders. Sales of Unregistered Securities - During 1997, put options were sold to institutional investors in a series of private placements exempt from registration under Section 4(2) of the Securities Act of 1933, entitling the holders to sell 2,710,469 shares of Union Carbide Corporation common stock to the corporation, at prices ranging from $44.50 to $50.00 per share. Premiums received for the sales of the options totaled $3,216,022. Item 6. Selected Financial Data Information pertaining to consolidated operations is included under the captions "From the Income Statement," and "From the Balance Sheet", and dividend information is included under the caption "Other Data" in the Selected Financial Data on pages 18 and 19 of the 1997 annual report to stockholders. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations See the information covered in the 1997 annual report to stockholders on pages 9 through 17. Item 7a. Quantitative and Qualitative Disclosures About Market Risk See the information covered in the 1997 annual report to stockholders on page 11. Item 8. Financial Statements and Supplementary Data The consolidated balance sheet of Union Carbide Corporation and subsidiaries at December 31, 1997 and 1996, and the consolidated statements of income, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1997, together with the report thereon of KPMG Peat Marwick LLP dated January 16, 1998, are contained on pages 21 through 41 of the 1997 annual report to stockholders. Quarterly income statement data is contained on page 20 of the 1997 annual report to stockholders. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Union Carbide has not had any disagreements covered by this item with KPMG Peat Marwick LLP, its independent auditors. - 5 - Part III Item 10. Directors and Executive Officers of the Registrant For background information on the Directors of Union Carbide Corporation whose terms are expected to continue after the annual meeting of stockholders and persons nominated to become Directors, see pages 7 through 10 of the proxy statement for the annual meeting of stockholders to be held on April 22, 1998. The principal executive officers of the corporation are as follows. Data is as of March 19, 1998. Name Age Position Year First Elected William H. Joyce 62 Chairman of the Board, President and Chief Executive Officer 1993 Joseph S. Byck 56 Vice-President 1991 James F. Flynn 55 Vice-President 1993 Joseph E. Geoghan 60 Vice-President, General Counsel and Secretary 1987 Malcolm A. Kessinger 54 Vice-President 1991 Lee P. McMaster 55 Vice-President 1993 Joseph C. Soviero 59 Vice-President 1993 Roger B. Staub 63 Vice-President 1993 John K. Wulff 49 Vice-President, Chief Financial Officer and Controller 1988 There are no family relationships between any officers or directors of the corporation. There is no arrangement or understanding between any officer and any other person pursuant to which the officer was elected an officer. An officer is elected by the Board of Directors to serve until the next annual meeting of stockholders and until his successor is elected and qualified. The table on the next page gives a summary of the positions held during at least the past five years by each officer. Each of the officers has been employed by the corporation or a subsidiary of the corporation for the past five years. - 6 - Part III (Cont.) Name Position Years Held William H. Joyce Chairman of the Board, President and Chief Executive Officer 1996 to present President and Chief Executive Officer 1995 to 1995 President and Chief Operating Officer 1993 to 1995 President, Union Carbide Chemicals and Plastics Company Inc. 1993 to 1994 Joseph S. Byck Vice-President 1991 to present Vice-President, Union Carbide Chemicals and Plastics Company Inc. 1991 to 1994 James F. Flynn Vice-President 1993 to present Joseph E. Geoghan Vice-President, General Counsel and Secretary 1990 to present Malcolm A. Kessinger Vice-President 1991 to present Vice-President, Human Resources, Union Carbide Chemicals and Plastics Company Inc. 1990 to 1994 Lee P. McMaster Vice-President 1993 to present Joseph C. Soviero Vice-President 1993 to present Roger B. Staub Vice-President 1993 to present John K. Wulff Vice-President, Chief Financial Officer and Controller 1996 to present Vice-President, Controller and Principal Accounting Officer 1989 to 1996 See "Section 16(a) Beneficial Ownership Reporting Compliance" on page 23 of the proxy statement for the annual meeting of stockholders to be held on April 22, 1998. - 7 - Part III (Cont.) Item 11. Executive Compensation See pages 18 through 21 of the proxy statement for the annual meeting of stockholders to be held on April 22, 1998. Item 12. Security Ownership of Certain Beneficial Owners and Management See pages 22 and 23 of the proxy statement for the annual meeting of stockholders to be held on April 22, 1998. Item 13. Certain Relationships and Related Transactions See pages 10 and 13 of the proxy statement for the annual meeting of stockholders to be held on April 22, 1998. - 8 - Part IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K UNION CARBIDE CORPORATION (a) The following documents are filed as part of this report: 1. The consolidated financial statements set forth on pages 21 through 40 and the Independent Auditors' Report set forth on page 41 of the 1997 annual report to stockholders are incorporated by reference in this Annual Report on Form 10-K. 2. The Report on Schedule of KPMG Peat Marwick LLP appears on page 10 of this Annual Report on Form 10-K. 3. The following schedule should be read in conjunction with the consolidated financial statements incorporated by reference in Item 8 of this Annual Report on Form 10-K. Schedules other than those listed have been omitted because they are not applicable. Page in this Form 10-K Report Valuation and Qualifying Accounts (Schedule II), three years ended December 31, 1997 11 (b) No reports on Form 8-K were filed for the three months ended December 31, 1997. (c) Exhibits-See Exhibit Index on pages 13 through 16 for exhibits filed with this Annual Report on Form 10-K. - 9 - Part IV (Cont.) Report of Independent Auditors The Board of Directors Union Carbide Corporation Under date of January 16, 1998, we reported on the consolidated balance sheets of Union Carbide Corporation and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of income, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1997, as contained on pages 21 through 40 in the 1997 annual report to stockholders. These consolidated financial statements and our report thereon are incorporated by reference in the Annual Report on Form 10-K for the year 1997. In connection with our audits of the aforementioned consolidated financial statements, we also have audited the related financial statement schedule as listed in Item 14(a)3. This financial statement schedule is the responsibility of the corporation's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG Peat Marwick LLP Stamford, Conn. January 16, 1998 - 10 - Part IV (Cont.) Schedule II-Valuation and Qualifying Accounts Union Carbide Corporation and Consolidated Subsidiaries Deductions Items determined to be uncollectible, Additions less recovery Balance at Charged to of amounts Balance at beginning costs and previously end of of period expenses written off period Millions of dollars, year ended December 31, 1997 Allowance for doubtful accounts $10 $3 $2 $11 Millions of dollars, year ended December 31, 1996 Allowance for doubtful accounts $11 $1 $2 $10 Millions of dollars, year ended December 31, 1995 Allowance for doubtful accounts $11 $5 $5 $11 - 11 - Signatures Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the corporation has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Union Carbide Corporation March 19, 1998 /s/ John K. Wulff by: John K. Wulff Vice-President, Chief Financial Officer and Controller Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the corporation and in the capacities indicated on March 19, 1998. /s/ William H. Joyce /s/ John J. Creedon /s/ Robert D. Kennedy William H. Joyce John J. Creedon Robert D. Kennedy Director, Chairman of the Board, Director Director President and Chief Executive Officer /s/ Joseph E. Geoghan /s/ C. Fred Fetterolf /s/ Ronald L. Kuehn, Jr Joseph E. Geoghan C. Fred Fetterolf Ronald L. Kuehn, Jr. Director, Vice-President, Director Director General Counsel and Secretary /s/ John K. Wulff /s/ Rainer E. Gut /s/ Rozanne L. Ridgeway John K. Wulff Rainer E. Gut Rozanne L. Ridgway Vice-President, Chief Financial Director Director Officer and Controller /s/ Vernon E. Jordan, Jr. /s/ James M. Ringler /s/ William S. Sneath Vernon E. Jordan, Jr. James M. Ringler William S. Sneath Director Director Director - 12 - Exhibit Index Exhibit No. 3.1 Restated Certificate of Incorporation as filed May 2, 1994 (See Exhibit 3.1 of the Corporation's 1994 Form 10-K). 3.2 By-Laws of the Corporation, amended as of December 3, 1996 (See Exhibit 3.2.1 of the Corporation's 1996 Form 10-K). 4.1 Indenture dated as of June 1, 1995, between the Corporation and the Chase Manhattan Bank (formerly Chemical Bank), Trustee (See Exhibit 4.1.2 to the Corporation's Form S-3 effective October 13, 1995, Reg. No. 33-60705). 4.2 The Corporation will furnish to the Commission upon request any other debt instrument referred to in item 601(b)(4)(iii) (A) of Regulation S-K. 4.3.1 Rights Agreement, dated as of July 26, 1989, as amended and restated as of May 27, 1992, between the Corporation and Chase Mellon Shareholder Services Inc. (successor to Manufacturers Hanover Trust Company), as Rights Agent (See Exhibit 4(a) to the Corporation's Form 8 filed with the Commission on June 1, 1992, file number: 1-10297). 4.3.2 Amendment to Rights Agreement, dated as of December 3, 1996, between the Corporation and Chase Mellon Shareholder Services Inc. as Successor Rights Agent (See Exhibit 99.1 of the Corporation's Form 8-K dated December 3, 1996). 10.1 Indemnity Agreement dated as of December 8, 1997, between the Corporation and James F. Flynn. The Indemnity Agreement filed with the Commission is substantially identical in all material respects, except as to the parties thereto and dates thereof, with Indemnity Agreements between the Corporation and each other person who is a director or officer of the Corporation. 10.2.1 1988 Union Carbide Long-Term Incentive Plan (See Exhibit 10.14.1 of the Corporation's 1993 Form 10-K). 10.2.2 Amendment to the 1988 Union Carbide Long-Term Incentive Plan effective June 1, 1989 (See Exhibit 10.14.2 of the Corporation's 1994 Form 10-K). 10.2.3 Amendment to the 1988 Union Carbide Long-Term Incentive Plan effective August 1, 1989 (See Exhibit 10.14.3 of the Corporation's 1994 Form 10-K). 10.2.4 Resolutions adopted by the Board of Directors of the Corporation on February 26, 1992, with respect to stock options granted under the 1984 Union Carbide Stock Option Plan and the 1988 Union Carbide Long- Term Incentive Plan. 10.2.5 Resolutions adopted by the Compensation and Management Development Committee of the Board of Directors of the Corporation on June 30, 1992, with respect to stock options granted under the 1984 Union Carbide Stock Option Plan and the 1988 Union Carbide Long-Term Incentive Plan. 10.2.6 Amendment to the 1988 Union Carbide Long-Term Incentive Plan effective October 1, 1997. 10.3.1 1983 Union Carbide Bonus Deferral Program (See Exhibit 10.4.1 of the Corporation's 1996 Form 10-K). - 13 - Exhibit Index (Cont.) Exhibit No. 10.3.2 Amendment to the 1983 Union Carbide Bonus Deferral Program effective January 1, 1992. 10.4.1 1984 Union Carbide Cash Bonus Deferral Program (See Exhibit 10.5.1 of the Corporation's 1996 Form 10-K). 10.4.2 Amendment to the 1984 Union Carbide Cash Bonus Deferral Program effective January 1, 1986 (See Exhibit 10.5.2 of the Corporation's 1996 Form 10-K). 10.4.3 Amendment to the 1984 Union Carbide Cash Bonus Deferral Program effective January 1, 1992. 10.5.1 Equalization Benefit Plan for Participants of the Retirement Program Plan for Employees of Union Carbide Corporation and its Participating Subsidiary Companies (See Exhibit 10.6.1 of the Corporation's 1996 Form 10-K). 10.5.2 Amendment to the Equalization Benefit Plan effective January 1, 1994 (See Exhibit 10.18.2 of the Corporation's 1994 Form 10-K). 10.6.1 Supplemental Retirement Income Plan (See Exhibit 10.7.1 of the Corporation's 1996 Form 10-K). 10.6.2 Amendment to the Supplemental Retirement Income Plan effective January 1, 1994 (See Exhibit 10.19.3 of the Corporation's 1994 Form 10-K). 10.6.3 Amendment to the Supplemental Retirement Income Plan effective January 1, 1995 (See Exhibit 10.18.3 of the Corporation's 1995 Form 10-K). 10.7 Union Carbide Non-Employee Directors' Compensation Deferral Plan effective February 1, 1997. 10.8 Severance Compensation Agreement, dated February 10, 1998, between the Corporation and Ron J. Cottle. The Severance Compensation Agreement filed with the Commission is substantially identical in all material aspects, except as to the parties thereto and dates thereof, with Agreements between the Corporation and other officers and employees of the Corporation. 10.9 Resolution adopted by the Board of Directors of the Corporation on November 30, 1988, with respect to an executive life insurance program for officers and certain other employees (See Exhibit 10.22 of the Corporation's 1993 Form 10-K). 10.10 1997 Union Carbide Variable Compensation Plan effective July 1, 1997. 10.11.1 Union Carbide Corporation Benefits Protection Trust, amended and restated effective August 29, 1997. 10.11.2 Amendment to the Union Carbide Corporation Benefits Protection Trust effective November 1, 1997. 10.12 Resolutions adopted by the Board of Directors of the Corporation on February 24, 1988, with respect to the purchase of annuities to cover liabilities of the Corporation under the Equalization Benefit Plan for Participants of the Retirement Program Plan for Employees of Union Carbide Corporation and its Participating Subsidiary Companies and the Supplemental Retirement Income Plan (See Exhibit 10.25 of the Corporation's 1994 Form 10-K). 10.13 Resolutions adopted by the Board of Directors of the Corporation on June 28, 1989, with respect to the purchase of annuities to cover liabilities of the Corporation under the Supplemental Retirement Income Plan (See Exhibit 10.26 of the Corporation's 1994 Form 10-K). 10.14.1 Union Carbide Corporation Non-Employee Directors' Retirement Plan (See Exhibit 10.27 of the Corporation's 1994 Form 10-K). 10.14.2 Amendment to the Union Carbide Corporation Non-Employee Directors' Retirement Plan effective May 1, 1997. - 14 - Exhibit Index (Cont.) Exhibit No. 10.15.1 1994 Union Carbide Long-Term Incentive Plan (See Exhibit 10.28 of the Corporation's 1994 Form 10-K). 10.15.2 Amendment to the 1994 Union Carbide Long-Term Incentive Plan effective October 1, 1997. 10.16.1 Union Carbide Compensation Deferral Program effective January 1, 1995 (See Exhibit 10.28 of the Corporation's 1995 Form 10-K). 10.16.2 Amendment to Union Carbide Compensation Deferral Program effective January 1, 1995 (See Exhibit 10.17.2 of the Corporation's 1996 Form 10-K). 10.16.3 Amendment to Union Carbide Compensation Deferral Program effective December 31, 1996 (See Exhibit 10.17.3 of the Corporation's 1996 Form 10-K). 10.17 Excess Long-Term Disability Plan effective January 1, 1994 (See Exhibit 10.30 of the Corporation's 1994 Form 10-K). 10.18 1995 Union Carbide Performance Incentive Plan (See Appendix A of the Corporation's proxy statement for the annual meeting of stockholders held on April 26, 1995). 10.19.1 1997 Union Carbide Long-Term Incentive Plan (See Appendix A of the Corporation's proxy statement filed with the Commission March 12, 1997, file number: 001-01463). 10.19.2 Amendment to the 1997 Union Carbide Long-Term Incentive Plan effective April 23, 1997. 10.20 1997 Stock Option Plan for Non-Employee Directors of Union Carbide Corporation (See Appendix B of the Corporation's proxy statement filed with the Commission March 12, 1997, file number: 001-01463). 10.21 1997 Union Carbide Corporation EPS Incentive Plan. 10.22 The Mid-Career Hire Plan for Employees of Union Carbide Corporation and Its Participating Subsidiary Companies, effective December 3, 1996. 10.23.1 Completion Guarantee dated September 15, 1996 by the Corporation and its partner, Petrochemical Industries Company K.S.C., for the benefit of certain banks with respect to construction of a petrochemicals complex in Kuwait (See Exhibit 10.1 of the Corporation's Form 10-Q for the quarter ended September 30, 1996). 10.23.2 Definitions Agreement dated September 15, 1996 among the Corporation and various parties relating to Exhibit 10.23.1 (See Exhibit 10.2 of the Corporation's Form 10-Q for the quarter ended September 30, 1996). 11 Computation of Earnings per Share for the Five Years Ended December 31, 1997. 13 The Corporation's 1997 annual report to stockholders (such report, except for those portions which are expressly referred to in this Form 10-K, is furnished for the information of the Commission and is not deemed "filed" as part of the Form 10-K). 21 Subsidiaries of the Corporation. 23 Consent of KPMG Peat Marwick LLP. 27.1 Financial Data Schedule for the year ended December 31, 1997. 27.2 Restated Financial Data Schedule for the years ended December 31, 1996 and 1995. 27.3 Restated Financial Data Schedule for the nine months ended September 30, 1997, the six months ended June 30, 1997 and the three months ended March 31, 1997. 27.4 Restated Financial Data Schedule for the nine months ended September 30, 1996, the six months ended June 30, 1996 and the three months ended March 31, 1996. - 15 - Exhibit Index (Cont.) Wherever an exhibit listed above refers to another exhibit or document (e.g., "See Exhibit 6 of . . ."), that exhibit or document is incorporated herein by such reference. A copy of any exhibit listed above may be obtained on written request to the Secretary's Department, Union Carbide Corporation, Section E-4, 39 Old Ridgebury Road, Danbury, CT 06817-0001. The charge for furnishing any exhibit is 25 cents per page plus mailing costs. - 16 - EX-10.1 2 INDEMNITY AGREEMENT WITH JAMES F. FLYNN Exhibit 10.1 Indemnity Agreement This Amended and Restated Agreement, dated as of December 8, 1997 between Union Carbide Corporation, a New York corporation (the "Corporation"), and James F. Flynn (the "Officer") amends and restates in its entirety the Indemnity Agreement between the parties hereto, dated as of October 27, 1993. WITNESSETH: In consideration of the mutual agreements herein set forth, the parties hereto agree as follows: 1. As used herein, the following terms shall have the following meanings: (a) "Costs" and "Expenses" means any and all costs, expenses and liabilities incurred by the Officer, including but not limited to (i) attorney's fees, (ii) amounts paid in settlement of any Suit or Claim, (iii) amounts paid in satisfaction of any order or judgment in any Suit or Claim, and (iv) fines, penalties or assessments asserted or adjudged in any Suit or Claim. (b) "Suit" and "Claim" means, as the case may be, any and all suits, claims, actions, investigations or proceedings, and threats thereof, whether civil, criminal or administrative (including but not limited to any Derivative Suit or Claim) arising out of, or alleged to arise out of, the Officer's service (including any act or failure to act in the course of such service) to the Corporation or to another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise at the Corporation's request. (c) "Derivative Suit or Claim" means any and all Suits or Claims brought or alleged to be brought in the right of the Corporation to procure a judgment in its favor. (d) "Board" means the Board of Directors of the Corporation. (e) A "Change in Control" shall be deemed to occur if any of the following circumstances shall occur: (i) any "person" or "group" within the meaning of Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934 ("Act") becomes the "beneficial owner" as defined in Rule 13d-3 under the Act of more than 20% of the then outstanding voting securities of the Corporation; (ii) any "person" or "group" within the meaning of Sections 13(d) and 14(d)(2) of the Act acquires by proxy or otherwise the right to vote for the election of directors, for any merger or consolidation of the Corporation or for any other matter or question with respect to more than 20% of the then outstanding voting securities of the Corporation; (iii) during any period of twenty-four consecutive months, Present Directors and/or New Directors cease for any reason to constitute a majority of the Board. For these purposes, "Present Directors" shall mean individuals who at the beginning of such consecutive twenty-four month period were members of the Board and "New Directors" shall mean any director whose election by the Board or whose nomination for election by the Corporation's stockholders was approved by a vote of at least two-thirds of the directors then still in office who were Present Directors or New Directors; (iv) the stockholders of the Corporation approve a plan of complete liquidation or dissolution of the Corporation; or (v) there shall be consummated: (x) a reorganization, merger or consolidation of all or substantially all of the assets of the Corporation (a "Business Combination"), unless, following such Business Combination, (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the outstanding Common Stock of the Corporation and outstanding voting securities of the Corporation immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Corporation or all or substantially all of the Corporation's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the outstanding Common Stock of the Corporation and outstanding voting securities of the Corporation, as the case may be, (B) no "person" or "group" within the meaning of Sections 13(d) and 14(d)(2) of the Act (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Corporation or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (y) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Corporation, provided, that the divestiture of less than substantially all of the assets of the Corporation in one transaction or a series of related transactions, whether effected by sale, lease, exchange, spin-off, sale of the stock or merger of a subsidiary or otherwise, shall not constitute a Change in Control. Notwithstanding the foregoing, a Change in Control shall not be deemed to occur pursuant to Subparagraphs (i) and (ii) above, solely because twenty percent (20%) or more of the combined voting power of the Corporation's then outstanding securities is acquired by one or more employee benefit plans maintained by the Corporation. (f) A "Potential Change in Control" shall occur if (i) the Corporation enters into or the stockholders of the Corporation approve an agreement, arrangement or plan, the consummation of which would result in the occurrence of a Change in Control; (ii) any "person" or "group" within the meaning of Sections 13(d) and 14(d)(2) of the Act publicly announces a tender offer or comparable action which if consummated would constitute a Change in Control; (iii) any "person" or "group" within the meaning of Sections 13(d) and 14(d)(2) of the Act (other than a trustee or other fiduciary holding securities under an employee benefit plan of the Corporation acting in such capacity or a corporation owned, directly or indirectly, by the stockholders of the Corporation in substantially the same proportions as their ownership of stock of the Corporation), who is or becomes the beneficial owner, directly or indirectly, of securities of the Corporation representing 10% or more of the combined voting stock increases beneficial ownership of such securities by 5% or more over the percentage so owned by such person or group on the date hereof; or (iv) the Board adopts a resolution to the effect that, for the purposes of this Agreement, a Potential Change in Control has occurred. (g) "Independent Counsel" means a law firm, or a member of a law firm, that: (i) is experienced in matters of corporate law; (ii) neither is, at the time of engagement hereunder, nor shall have been, in the five (5) years prior to such engagement, retained to represent the Corporation or the Officer in any matter material to either such party, or any other party to a Suit or Claim giving raise to a claim for indemnification hereunder; and (iii) under the applicable standards of professional conduct then prevailing, would not have a conflict of interest in representing either the Corporation or the Officer in an action to determine the Officer's rights under this Agreement. 2. The Officer shall continue to serve (i), if elected subsequent to the date hereof as a director of the Corporation, for the remainder of the initial term to which he is elected by the stockholders or the Board and for each successive term to which he may thereafter be elected by the stockholders or the Board and/or (ii) as an officer of the Corporation until his retirement at his normal retirement age under the Corporation's retirement program or until he is removed or replaced as an officer of the Corporation without appointment or election to another office of the Corporation. During and after his term or terms as a director or officer of the Corporation, the Officer will, upon the Corporation's request, consult with and assist the Corporation in any Suits or Claims involving the Corporation or any director or officer of the Corporation or another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise with which the Officer served at the Corporation's request, and arising out of any event or matter that occurred while the Officer was a director or officer of the Corporation or was serving with such other entity. 3. The Officer shall have the right to resign from his position as an officer or, if so elected, from his position as a director if the Board consents to such resignation or if, in his reasonable judgment (i) he is or may be unable to fulfill his duties as a director or officer by reason of his health or (ii) he is or may be unable to fulfill his duties as a director by reason of the requirements of his principal occupation or (iii) there is a legal impediment to his continued service on the Board or as an officer or (iv) continued service on the Board or as an officer is not in the best interest of the Corporation or the Officer. The Officer shall not be obligated to render the consultation and assistance specified in Paragraph 2 hereof at any time that, in his reasonable judgment, he is or may be unable to do so by reason of his health, the requirements of his principal occupation or legal impediments thereto. 4. The Corporation shall pay the Officer reasonable compensation for the time he spends in rendering the consultation and assistance set forth in Paragraph 2 hereof (but not for any time so spent while he is an officer of the Corporation) and shall reimburse him for the reasonable expenses he incurs in rendering such consultation and assistance. 5. The Corporation shall indemnify the Officer to the fullest extent permitted by law for any and all Costs and Expenses of the Officer resulting from or relating to any Suit or Claim, whether now pending or hereafter asserted, threatened or filed, other than a Suit or Claim that has been finally adjudicated or settled prior to the date hereof. Without limiting the generality of the foregoing: (a) The Officer shall be indemnified for all Costs and Expenses of all Suits and Claims excepting only those Costs and Expenses that the Corporation is expressly prohibited from indemnifying him by Section 721 of the New York Business Corporation Law. (b) The termination of any Suit or Claim by settlement, judgment, order, conviction or plea of nolo contendere or its equivalent shall not, of itself, create a presumption that the Officer acted or failed to act in a manner that would render him ineligible for indemnification hereunder or reduce the indemnification to which he is entitled hereunder, including but not limited to any presumption that the Officer acted in bad faith, failed to act in good faith, was dishonest, gained any financial or other advantage, failed to act in what he reasonably believed to be in, or not opposed to, the best interests of the Corporation, or had reasonable cause to believe that his conduct was unlawful. (c) The Officer shall be indemnified for all Costs and Expenses incurred in enforcing rights to indemnity or payment or reimbursement of Costs and Expenses under this Agreement or otherwise. 6. (a) The Costs and Expenses of defending any Suit or Claim shall be paid by the Corporation to the Officer in advance of the final disposition of the Suit or Claim upon receipt of an undertaking by or on behalf of the Officer to repay such amount as and to the extent required by paragraph (a) of Section 725 of the New York Business Corporation Law. (b) In the event of a Potential Change in Control or a Change in Control, the Corporation shall, promptly upon written request by the Officer, create a Trust for the benefit of the Officer and, from time to time, upon written request of the Officer to the Corporation, shall fund such Trust in an amount, as set forth in such request, sufficient to satisfy any and all Costs and Expenses incurred or reasonably anticipated at the time of each such request to be incurred in connection with or relating to any Suit or Claim, including, to the extent not anticipated to be covered by D&O Insurance (as provided in Section 6(c)), amounts claimed in such Suit or Claim. The terms of the Trust shall provide that (i) the Trust shall not be revoked or the principal thereof invaded, without the written consent of the Officer; (ii) the Trustee shall advance, within two business days of a request by the Officer, any and all Costs and Expenses to the Officer, not advanced directly by the Corporation to the Officer (and the Officer hereby agrees to reimburse the Trust under the circumstances under which the Officer would be required to reimburse the Corporation under Section 6(a)); (iii) the Trust shall continue to be funded by the Corporation in accordance with the funding obligation set forth above; (iv) the Trustee shall promptly pay to the Officer all amounts for which the Officer shall be entitled to indemnification pursuant to this Agreement or otherwise; and (v) all unexpended funds in such Trust shall revert to the Corporation upon a final determination by the Independent Counsel, chosen in accordance with Section 7(b), that the Officer has been fully indemnified under the terms of this Agreement. The Trustee shall be selected by the Officer and approved by the Corporation (which approval shall not be unreasonably withheld). The Corporation shall pay the reasonable fees of the Trustee and shall fully indemnify the Trustee against any and all expenses (including attorney's fees), claims, liabilities and damages arising out of this Agreement or the Trustee's engagement pursuant hereto. Nothing in this Section 6(b) shall relieve the Corporation of any of its obligations under this Agreement. (c) (i) So long as the Officer shall continue to serve as a director or officer of the Corporation (or shall, at the request of the Corporation, serve another corporation, partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan) and thereafter so long as the Officer shall be subject to any possible Suit or Claim, the Corporation shall purchase and maintain in effect for the benefit of the Officer one or more valid, binding and enforceable policy or policies of directors and officers liability insurance ("D&O Insurance") providing coverage at least comparable to that provided pursuant to the policies of D&O Insurance currently maintained by the Corporation. (ii) The Corporation shall not be required to maintain said policy or policies of D&O Insurance in effect if, in the reasonable business judgment of the then directors of the Corporation (x) the premium cost for such insurance is substantially disproportionate to the amount of coverage, (y) the coverage provided by such insurance is so limited by exclusions that there is insufficient benefit from such insurance or (z) said insurance is not otherwise reasonably available; provided, however, that in the event the then directors make such a judgment, the Corporation shall purchase and maintain in force a policy or policies of D&O Insurance in the amount and with such coverage as the then directors determine to be reasonably available. Notwithstanding the general provisions of this Section 6(c)(ii), following a Change in Control, any decision not to maintain any policy or policies of D&O Insurance or to reduce the amount or coverage under any such policy or policies shall be effective only if there are Disinterested Directors and shall require the concurrence of a majority of the Disinterested Directors. For this purpose "Disinterested Directors" shall mean directors who were members of the Board prior to such Change in Control or whose election by the Board or whose nomination for election by the Corporation's stockholders was approved by a vote of at least two- thirds of the directors then still in office who were Disinterested Directors. (iii) If and to the extent the Corporation, acting under Section 6(c)(ii), does not purchase and maintain in effect the policy or policies of D&O Insurance described in Section 6(c)(i), the Corporation shall indemnify and hold harmless the Indemnitee to the full extent of the coverage which would otherwise have been provided by such policies. The rights of the Officer hereunder shall be in addition to all other rights of the Officer under the remaining provisions of this Agreement. 7. (a) The Costs and Expenses for which the Officer is entitled to indemnification under this Agreement shall be paid by the Corporation in accordance with the provisions of paragraph (b) of Section 723 of the New York Business Corporation Law. All Costs and Expenses for which the Officer is entitled to indemnification, payment or reimbursement hereunder shall be paid by the Corporation within two business days after demand therefor. (b) In the event of a Change in Control of the Corporation, then with respect to all matters thereafter arising concerning the rights of the Officer to indemnity payments and payment or reimbursement of Costs and Expenses under this Agreement or any other agreement, the Certificate of Incorporation or By-Laws of the Corporation now or hereafter in effect or otherwise relating to Suits or Claims for indemnity, the Corporation shall seek legal advice only from Independent Counsel selected by the Officer and approved by the Corporation (which approval shall not be unreasonably withheld). Such counsel, among other things, shall render its written opinion to the Corporation and the Officer as to whether and to what extent the Officer would be permitted to be indemnified under applicable law. The Corporation shall pay the reasonable fees of the Independent Counsel and shall fully indemnify such counsel against any and all expenses (including attorneys' fees), claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto. 8. (a) The Corporation shall not indemnify the Officer or pay any advance to the Officer in connection with any Suit or Claim voluntarily commenced by the Officer against the Corporation or any other director, officer, employee or agent of the Corporation or any affiliate or any employee benefit plan of the Corporation or an affiliate unless the institution of such action, suit or proceeding was authorized prior to its commencement by a majority vote of the Board or the Officer is successful on the merits in such action, suit or proceeding or such action, suit or proceeding was commenced by the Officer to enforce rights to indemnification, payment or reimbursement under this Agreement or otherwise. (b) In the event of any dispute as to the Officer's rights to indemnity or payment or reimbursement hereunder or otherwise, the Officer, at his option may submit such dispute to binding arbitration by a single arbitrator in accordance with the Commercial Arbitration Rules of the American Arbitration Association. (c) In the event that the indemnification provided for in this Agreement is unavailable to the Officer for any reason whatsoever, the Corporation, in lieu of indemnifying the Officer, shall contribute to the amount incurred by the Officer, whether for Costs or Expenses, in connection with any Suit or Claim in such proportion as is deemed fair and reasonable in light of all of the circumstances of such Suit or Claim in order to reflect (i) the relative benefits received by the Corporation and the Officer as a result of the event(s) and/or transaction(s) giving cause to such Suit or Claim; and/or (ii) the relative fault of the Corporation (and its other directors, officers, employees and agents) and the Officer in connection with such event(s) and/or transaction(s). The Officer's right to contribution under this Section 8(c) shall be determined in accordance with, pursuant to and in the same manner as, the provisions in Sections 6, 7, 8(a) and 8(b) hereof relating to the Officer's right to indemnification under this Agreement. 9. The Officer shall provide prompt written notice to the Corporation of any Suit or Claim in connection with which the Officer may assert a right to be indemnified hereunder; however, failure to provide such notice shall not be construed as a waiver of any rights hereunder. 10. The indemnification and advances provided by this Agreement shall not be deemed exclusive of any other rights to which the Officer may be entitled under any law (common or statutory), provision of the Corporation's Certificate of Incorporation or By-Laws, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding office or while employed by or acting as agent for the Corporation. 11. This Agreement may not be amended without the agreement in writing of the Corporation and the Officer. 12. If this Agreement or any portion hereof shall be deemed invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby, and the Corporation shall nevertheless indemnify the Officer for Costs and Expenses to the full extent permitted by any applicable portion of this Agreement that shall not have been invalidated and to the full extent permitted by applicable law. 13. The Corporation acknowledges that the Officer is relying on this Agreement in continuing to provide services to the Corporation and in incurring, or refraining from incurring, Costs and Expenses. Accordingly, the Corporation agrees that its obligations hereunder will survive (a) any actual or purported termination of this Agreement by the Corporation or its successors or assigns whether by operation of law or otherwise, and (b) termination of the Officer's services to the Corporation, whether such services were terminated by the Corporation or the Officer, with respect to any Suit or Claim, whether or not such Claim is made or Suit is threatened or commenced before or after the actual or purported termination of this Agreement or the termination of the Officer's services to the Corporation. 14. This Agreement shall be binding on the Officer and shall inure to the benefit of the Officer (both during and after his service as a director or as an officer) and to his heirs, executors and administrators. This Agreement shall be binding on the successors and assigns of the Corporation whether by operation of law or otherwise. 15. This Agreement shall be governed in all respects, including validity, interpretation and effect, by the laws of the State of New York (without giving effect to the provisions thereof relating to conflicts of law). IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto (in the case of the Corporation, by a duly authorized officer thereof on its behalf). UNION CARBIDE CORPORATION By: Chairman of the Board JAMES F. FLYNN EX-10.2.4 3 BOD RESOLUTIONS FEBRUARY 26, 1992 Exhibit 10.2.4 RESOLUTIONS ADOPTED BY THE BOARD OF DIRECTORS OF UNION CARBIDE CORPORATION ON FEBRUARY 26, 1992, WITH RESPECT TO STOCK OPTIONS GRANTED UNDER THE 1984 UNION CARBIDE STOCK OPTION PLAN AND THE 1988 UNION CARBIDE LONG-TERM INCENTIVE PLAN RESOLVED, that the Board authorizes the adjustment of outstanding stock options to purchase stock in the Corporation by splitting such options into two options, one option to purchase stock in the Corporation and the other option to purchase stock in Union Carbide Industrial Gases Inc. ("UCIG") as follows: 1. The exercise price for outstanding stock options in the Corporation shall be reduced so that the aggregate exercise price of such options and the exercise price of options to purchase stock in UCIG after the spinoff shall equal the exercise price of options to purchase stock in the Corporation prior to the spinoff; 2. UCIG shall issue an equal number of stock options in UCIG on terms similar to the terms of the Corporation's stock options; 3. The exercise prices for options to purchase stock in the Corporation and options to purchase stock in UCIG will be apportioned based upon the exercise price of the stock options to be replaced and the relative market prices of the Corporation's and UCIG's common stock; and 4. If any circumstances hereafter become known or develop which, in the judgment of the Board, cause any adjustment in the option prices to be significantly inequitable, the Board shall have the right to make such further adjustments, as the Board in its judgment determines are necessary to achieve equity; and be it further RESOLVED, that the proper officers of this Corporation be, and they hereby are, authorized to execute or cause to be executed such documents and other writings, and to take or do or cause to be taken or done such other actions or things, as may be necessary or desirable to effectuate the purposes and intent of the foregoing resolution. EX-10.2.5 4 COMP AND MGMT RESOLUTIONS JUNE 30,1992 Exhibit 10.2.5 RESOLUTIONS ADOPTED BY THE COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE OF THE BOARD OF DIRECTORS OF UNION CARBIDE CORPORATION ON JUNE 30, 1992, WITH RESPECT TO STOCK OPTIONS GRANTED UNDER THE 1984 UNION CARBIDE STOCK OPTION PLAN AND THE 1988 UNION CARBIDE LONG-TERM INCENTIVE PLAN RESOLVED, that the Committee authorizes that the exercise price for options to purchase stock in the Corporation be adjusted by multiplying each such exercise price by 0.406, which is a fraction the numerator of which is the closing price (regular way) of the Corporation's common stock on the New York Stock Exchange Composite Transactions ("NYSE") on the date of this meeting less the closing price (on a when-issued basis) of the common stock of Praxair, Inc. on the NYSE on the date of this meeting and the denominator of which is such closing price (regular way) of the Corporation's common stock; and be it further RESOLVED, that the unexercised stock options of employees of Praxair, Inc. shall not terminate upon the distribution by the Corporation of all of the outstanding common stock of Praxair, Inc., provided that such employees shall have the right to exercise such stock options only in accordance with the terms of such stock options, and the Committee hereby finds that such continuation of the stock options is in the best interests of the Corporation; and it is further RESOLVED, that the proper officers of this Corporation be, and they hereby are, authorized to execute or cause to be executed such documents and other writings, and to take or do or cause to be taken or done such other actions or things, as may be necessary or desirable to effectuate the purposes and intent of the foregoing resolutions. EX-10.2.6 5 AMENDMENT TO 1988 LT INCENTIVE PLAN Exhibit 10.2.6 FOURTH AMENDMENT TO THE 1988 UNION CARBIDE LONG-TERM INCENTIVE PLAN The 1988 Union Carbide Long-Term Incentive Plan (the "Plan") is hereby amended as follows: 1. Section 5.4 of the Plan is amended in its entirety to read as follows: " 5.4: An option may be exercised with respect to part or all of the shares subject to the option by giving written notice to the Corporation of the exercise of the option. The option price for the shares for which an option is exercised shall be paid on or within ten business days after the date of exercise. The terms of the stock option may provide that the option price may be paid (i) in cash, (ii) in whole shares of common stock of the Corporation owned by the participant prior to exercising the option, (iii) by having the Corporation withhold a number of shares from the exercise, equal in value to the option price, or (iv) in a combination of cash and delivery of shares, or cash and withholding of shares of common stock. The value of any share of common stock delivered or withheld in payment of the option price shall be its Market Price on the date the option is exercised." 2. Section 5.6 of the Plan is amended in its entirety to read as follows: " 5.6: In order to enable the Corporation to meet any applicable federal, state or local withholding tax requirements arising as a result of the exercise of a stock option, a participant shall pay the Corporation the amount of tax to be withheld or may elect to satisfy such obligation by having the Corporation withhold shares that otherwise would be delivered to the participant pursuant to the exercise of the option for which the tax is being withheld, by delivering to the Corporation other shares of common stock of the Corporation owned by the participant prior to exercising the option, or by making a payment to the Corporation consisting of a combination of cash and such shares of common stock. Such an election shall be subject to the following: (a) the election shall be made in such manner as may be prescribed by the Committee and the Committee shall have the right, in its discretion, to disapprove such election; and (b) the election shall be made prior to the date to be used to determine the tax to be withheld and shall be irrevocable. The value of any share of common stock to be withheld by the Corporation or delivered to the Corporation pursuant to this Section 5.6 shall be the Market Price on the date to be used to determine the amount of tax to be withheld." 3. The amendments set forth herein shall be effective as of October 1, 1997. Signed this first day of October, 1997. UNION CARBIDE CORPORATION By: /s/ M.A. Kessinger EX-10.3.2 6 AMENDMENT TO 1983 BONUS DEFERRAL PROGRAM Exhibit 10.3.2 FIRST AMENDMENT TO THE 1983 UNION CARBIDE BONUS DEFERRAL PROGRAM The 1983 Union Carbide Bonus Deferral Program is hereby amended as follows: 1. Section 2.7 is amended to read as follows: ""Retirement Date" means the earliest date on which a Participant could have retired with the right to receive immediately a pension under the Corporation's Retirement Program." 2. The first sentence of Section 6.1 is amended to read as follows: "A Participant, who remains an Employee at least until (i) the Participant's Retirement Date or (ii) the date of the Participant's termination of employment by the Corporation without cause, shall be entitled to 15 annual Normal Payments, commencing within 120 days following the latest of: (a) the date of actual retirement or termination of employment by the Corporation without cause, (b) the Participant's 65th birthday, or (c) ten years following the Date of Deferral." 3. The first sentence of Section 6.2 is amended to read as follows: "In lieu of the Normal Payments provided by Section 6.1, a Participant, who remains an Employee at least until (i) the Participant's Retirement Date or (ii) the date of the Participant's termination of employment by the Company without cause, and who irrevocably so elects at the time the election to participate is made, shall be entitled to 15 annual Alternate Payments, commencing within 120 days following the latest of: (a) the date of actual retirement or termination of employment by the Corporation without cause, (b) the Participant's 62nd birthday, or (c) seven years following the Date of Deferral." 4. Section 6.7 is amended in its entirety to read as follows: "6.7 Payment upon Termination of Employment. A Participant whose employment by the Corporation terminates, for any reason other than (a) retirement on or after the Participant's Retirement Date, (b) death, (c) Disability, (d) termination by the Corporation without cause, or (e) a reason approved by the Committee, shall receive, within 120 days following the effective date of termination of employment, a lump sum payment, in lieu of any other payment under the Program, equal to the amount of bonus award deferred, plus interest thereon from April 1, 1984 to the date of payment at the rate of six per cent per year, compounded annually. 5. Section 6.9(D)(i) is amended to read as follows: "A Participant has retired on or after the Participant's Retirement Date, or has been terminated from employment by the Corporation without cause, but the annual payments provided for by Section 6.1 or 6.2 have not all been made," The amendments set forth herein shall be effective as of January 1, 1992 and shall apply to those Participants who retire or terminate employment on or after such date. Signed this 6th day of May, 1992. UNION CARBIDE CORPORATION By:/s/ M.A. Kessinger EX-10.4.3 7 AMENDMENT TO 1984 CASH BONUS DEFERRAL PROGRAM Exhibit 10.4.3 FIRST AMENDMENT TO THE 1984 UNION CARBIDE CASH BONUS DEFERRAL PROGRAM The 1984 Union Carbide Cash Bonus Deferral Program is hereby amended as follows: 1. Section 2.8 is amended to read as follows: ""Retirement Date" means the earliest date on which a Participant could have retired with the right to receive immediately a pension under the Corporation's Retirement Program." 2. The first sentence of Section 6.1 is amended to read as follows: "A Participant, who remains an Employee at least until (i) the Participant's Retirement Date, or (ii) the date of the Participant's termination of employment by the Corporation without cause, shall be entitled to 15 annual Normal Payments, commencing within 120 days following the latest of: (a) the date of actual retirement or termination of employment by the Corporation without cause, (b) the Participant's 65th birthday, or (c) ten years following the Date of Deferral." 3. The first sentence of Section 6.2 is amended to read as follows: "In lieu of the Normal Payments provided for by Section 6.1, a Participant, who remains an Employee at least until (i) the Participant's Retirement Date or (ii) the date of the Participant's termination of employment by the Corporation without cause, and who irrevocably so elects at the time the applicable election to participate is made, shall be entitled to 15 annual Alternate Payments, commencing within 120 days following the latest of: (a) the date of actual retirement or termination of employment by the Corporation without cause, (b) the Participant's 62nd birthday, or (c) seven years following the Date of Deferral." 4. Section 6.7 is hereby amended in its entirety to read as follows: "6.7: Payment upon Termination of Employment. A Participant whose employment by the Corporation terminates, for any reason other than (a) retirement on or after the Participant's Retirement Date, (b) death, (c) Disability, (d) termination by the Corporation without cause, (e) the reason set forth in the next sentence, or (f) a reason approved by the Committee, shall receive, within 120 days following the effective date of termination of employment, a lump sum payment, in lieu of any other payment under the Program, equal to the amount of bonus award or awards deferred, plus interest thereon from the April 1 following the applicable Service Year or Service Years to the date of payment at the rate of six per cent per year, compounded annually. A Participant whose employment is terminated by the Corporation for willful failure to perform the normal duties of employment, or for an act of dishonesty in connection with such Participant's employment, shall receive, within 120 days following the effective date of termination of employment, a lump sum payment, in lieu of any other payment under the Program, equal to the amount of bonus award or awards deferred." 5. Section 6.9(i) is hereby amended to read: "A Participant has retired on or after the Participant's Retirement Date, or has been terminated from employment by the Corporation without cause, but the annual payments provided for by Section 6.1 or 6.2 have not all been made," The amendments set forth herein shall be effective as of January 1, 1992 and shall apply to those Participants who retire or terminate employment on or after such date. Signed this 6th day of May, 1992. UNION CARBIDE CORPORATION By: /s/M.A. Kessinger Vice President EX-10.7 8 NON-EMPLOYEE DIRECTORS COMPENSATION DEFERRAL PLAN Exhibit 10.7 UNION CARBIDE NON-EMPLOYEE DIRECTORS' COMPENSATION DEFERRAL PROGRAM (Effective February 1, 1997) UNION CARBIDE NON-EMPLOYEE DIRECTORS' COMPENSATION DEFERRAL PROGRAM ARTICLE I PURPOSE 1.1 The purpose of this Program is to (i) allow Eligible Directors to defer a portion or all of their meeting and retainer fees and (ii) automatically defer all of the lump sum payments from the Non-Employee Directors' Plan otherwise payable to an Eligible Director as a result of such Plan's termination. 1.2 This Program shall be effective for amounts payable on or after February 1, 1997. ARTICLE II DEFINITIONS 2.1 "Applicable Equity Investment Fund Rate" means the difference between the value of each of the applicable investment funds elected by a Participant under Section 8.2 of this Program: Fidelity Asset Manager, Fidelity Equity Income Fund, Fidelity Growth Company Fund, Fidelity Contrafund and Fidelity Overseas Fund, determined on a fund by fund basis, as of (i) the later of the Date of Deferral or the effective date of a Participant's election under Section 8.2(c), and (ii) the relevant valuation date for determining the amount of earnings of such investment fund in accordance with Article VIII. Such value shall include any hypothetical dividends and hypothetical capital gains distributions paid on such investment fund during the period for which the Applicable Equity Investment Fund Rate is being determined, as if such hypothetical dividends or hypothetical capital gains distributions are reinvested when payable in additional shares of such fund. The value of a respective investment fund for purposes of this Section 2.1, shall mean the net asset value of such investment fund as reported by such fund. 2.2 "Administrator" means the Board of Directors of the Corporation or a committee of the Board or subcommittee thereof designated by the Board. 2.3 "Beneficiary" means the person, persons or estate entitled (as determined under Article VII) to receive payment under this Program following a Participant's death. 2.4 "Board" means the Board of Directors of Union Carbide Corporation. 2.5 "Change in Control" means the occurrence of any of the following: (i) any "person" or "group" within the meaning of Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934 ("Act") becomes the "beneficial owner" as defined in Rule 13d-3 under the Act of more than 20% of the then outstanding voting securities of the Corporation; (ii) any "person" or "group" within the meaning of Sections 13(d) and 14(d)(2) of the Act acquires by proxy or otherwise the right to vote for the election of directors, for any merger or consolidation of the Corporation or for any other matter or question with respect to more than 20% of the then outstanding voting securities of the Corporation; (iii) if during any period of twenty-four consecutive months, Present Directors and/or New Directors cease for any reason to constitute a majority of the Board. For these purposes, "Present Directors" shall mean individuals who at the beginning of such consecutive twenty-four month period were members of the Board and "New Directors" shall mean any director whose election by the Board or whose nomination for election by the Corporation's stockholders was approved by a vote of at least two-thirds of the Directors then still in office who were Present Directors or New Directors; (iv) the stockholders of the Corporation approve a plan of complete liquidation or dissolution of the Corporation; or (v) there shall be consummated (x) a reorganization, merger or consolidation of all or substantially all of the assets of the Corporation (a "Business Combination"), unless, following such Business Combination, (a) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the outstanding Common Stock of the Corporation and outstanding voting securities of the Corporation immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Corporation or all or substantially all of the Corporation's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the outstanding Common Stock of the Corporation and outstanding voting securities of the Corporation, as the case may be, (b) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Corporation or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (c) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (y) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Corporation, provided, that the divestiture of less than substantially all of the assets of the Corporation in one transaction or a series of related transactions, whether effected by sale, lease, exchange, spin-off, sale of the stock or merger of a subsidiary or otherwise, shall not constitute a Change in Control. Notwithstanding the foregoing, a Change in Control shall not be deemed to occur pursuant to Subparagraphs (i) and (ii) above, solely because twenty percent (20%) or more of the combined voting power of the Corporation's then outstanding securities is acquired by one or more employee benefit plans maintained by the Corporation." 2.6 "Code" means the Internal Revenue Code of 1986, as amended from time to time. 2.7 "Compensation" means, solely for purposes of this Program, the retainer fees and the meeting fees paid to an Eligible Director in connection with his or her service as a member of the Board. 2.8 "Corporation" means Union Carbide Corporation, a New York Corporation, any predecessor thereof and any successor thereof by merger, consolidation or otherwise. 2.9 "Date of Deferral" means (i) with respect to director fees deferral, the date on which the relevant fees would be paid, and (ii) with respect to amounts which are paid from the Non-Employee Directors' Plan, the date on which lump sum payments under such Plan would otherwise be paid. 2.10 "Deferred Compensation" means the amount of Compensation deferred by a Participant under this Program pursuant to Section 5.3(a) of this Program. 2.11 "Disability" means a Participant's total physical or mental inability to perform any work for compensation or profit in any occupation for which the Participant is reasonably qualified by reason of training, education or ability, and which inability is adjudged to be permanent, as determined by the Administrator. 2.12 "Eligible Director" means a non-employee director who receives Compensation from the Corporation. 2.13 "Fixed Income Rate" means the rate of interest for the Fixed Income Fund under the Savings Program, in effect from time to time. 2.14 "Non-Employee Directors' Plan" means The Union Carbide Corporation Non-Employee Directors' Retirement Plan. 2.15 "Participant" means an Eligible Director who (i) elects in advance to defer all or a portion of his or her director fees in accordance with Section 5.2(a) of this Program and/or (ii) receives an automatic deferral to this Program of his or her lump sum distribution from the Non-Employee Directors' Plan in accordance with Section 5.2(b) of this Program. 2.16 "Program" means this Union Carbide Non-Employee Directors' Compensation Deferral Program. 2.17 "Savings Program" means The Savings and Investment Program for Employees of Union Carbide Corporation and Participating Subsidiary Companies. 2.18 "Service Year" means one of the calendar years on and after 1997, as to which an election may be made in accordance with Article V. 2.19 "UCC Discounted Stock Value Rate" means the UCC Stock Value Rate except that the value of the Corporation's common stock as of the Date of Deferral, pursuant to which earnings shall accrue at the UCC Stock Value Rate, shall be determined as if purchased at a ten percent (10%) discount. 2.20 "UCC Stock Value Rate" means the difference between the value of the Corporation's common stock as of the later of (i) the Date of Deferral or the effective date of a Participant's election under Section 8.2 pursuant to which earnings shall accrue at the UCC Stock Value Rate and (ii) the relevant date of determination of the amount of earnings in accordance with Section 8.2(c) of this Program. Such value shall include the value of any hypothetical dividends paid on the common stock during the period for which the UCC Stock Value Rate is being determined, as if such hypothetical dividends were reinvested when payable (at a five percent (5%) discount) in additional shares of the Corporation's common stock as determined on the later of the Date of Deferral or the effective date of a Participant's election under Section 8.2(c) pursuant to which earnings shall accrue at the UCC Stock Value Rate. The value of the Corporation's common stock for purposes of this Section 2.20, shall mean the closing price of the stock on the New York Stock Exchange - Composite Transaction on the relevant date of determination. 2.21 "Unforeseen Emergency" means an event beyond the control of the Participant that would result in severe financial hardship to the Participant if early withdrawal of the Participant's director fees deferral or lump sum payment from the Non-Employee Directors Plan were not permitted. Whether a Participant has an Unforeseen Emergency shall be determined by the Administrator. ARTICLE III ADMINISTRATION 3.1 Except as otherwise indicated, the Administrator or its designee shall supervise the administration and interpretation of this Program, may establish administrative regulations to further the purpose of this Program and shall take any other action necessary to ensure the proper operation of this Program. All decisions and acts of the Administrator shall be final and binding upon all Participants, their Beneficiaries and all other persons. The Corporation's Human Resources Department shall be the Administrator's designee with respect to all non- discretionary administrative and ministerial functions under this Program. ARTICLE IV ELIGIBILITY 4.1 To be eligible to participate in this Program for a given year, a person must have become an Eligible Director not later than the day on or before the date which an Eligible Director must make the election provided for in Article V of this Program for that year and be a member of the Board on the Date of Deferral for that year. ARTICLE V DEFERRALS 5.1 During each of the years this Program is in effect, Eligible Directors shall be informed of the opportunity to participate in this Program. An Eligible Director choosing to participate in this Program must make an election to do so on or before the date designated by the Administrator and otherwise in accordance with such procedures as may be established by the Administrator. 5.2 (a) An Eligible Director must elect to defer his or her Compensation which has not yet been paid to him for services performed in calendar year 1997 during the period which immediately follows the date this Program is approved by the Board. Participation in this Program shall become effective only on the Date of Deferral and only if, on such date, the Eligible Director remains a member of the Board. Compensation for services performed in calendar years 1998, and beyond, must be deferred during the annual election period immediately preceding the calendar year in which such services will be performed. A Participant may suspend his or her election to defer his or her Compensation (but may not otherwise reduce or change an election mid-year) at any time; provided, however, that such Eligible Director may not resume deferrals of Compensation until the following calendar year. Notwithstanding the foregoing, an Eligible Director who becomes eligible to participate in this Program after the date this Program is approved by the Board, may elect to defer a portion of his or her Compensation during the calendar year in which services will be performed; provided he or she makes an election to defer within 31 days after becoming eligible to participate in this Program. (b) If an Eligible Director is entitled to receive a lump sum payment from the Non-Employee Director's Plan as a result of that Plan's termination, such payment shall be deferred to this Program. 5.3 On or before the date designated by the Administrator, and otherwise in accordance with such procedures as may be established, an Eligible Director may elect voluntarily to defer up to 100% of his or her Compensation (in 10% increments). ARTICLE VI PAYMENTS TO PARTICIPANTS AND BENEFICIARIES 6.1 Time of Payment. (a) Subject to subsections (b), (c) and (d) of this Section 6.1, a Participant shall begin to receive payment of his or her deferrals, and any earnings accruals credited under Article VIII, during the January next following the date he or she ceases to be a member of the Board. (b) (i) Notwithstanding any provision in this Program to the contrary, a Participant may elect to commence receipt of payments of any amounts deferred upon a specific future payment date which is at least five years after the Date of Deferral or such shorter schedule as the Administrator may determine. Such payments must begin no later than the calendar year after which the Participant attains age 72. A Participant making such an election shall receive his or her lump sum payment in the January next following his or her future payment date or, if applicable, such Participant shall receive installment payments in accordance with Section 6.2. (ii) With respect to a Participant who has attained age 55 at the time of the election of his or her deferral, the five year period described in subsection (i) shall instead be one year. (iii) A Participant is limited to four future fixed year payments. (c) A Participant who has not yet ceased to be a member of the Board, but has an Unforeseen Emergency, may receive any or all of his or her director fee deferrals, excluding any earning accruals credited to him or her pursuant to Article VIII of this Program; provided that the Participant may not receive an amount greater than the amount necessary to meet the Unforeseen Emergency and any amounts necessary to pay federal, state and local income taxes or penalties reasonably anticipated to result from a withdrawal under this Section 6.1. Earning accruals will remain in the Program and continue to accrue earnings under Article VIII until the payment date or dates described in Article VI. (d) Notwithstanding any provision in this Program to the contrary, a Participant may, on the applicable Date of Deferral or at any time thereafter prior to a Change in Control, elect to receive payment of his or her entire account balance under this Program at such time as the Board determines that a Change in Control has occurred. Such payment shall be made in a lump sum within 45 days after the Change in Control. 6.2 Form of Payments. (a) A Participant may elect to receive payments under this Program in annual or quarterly installments. Such installments must commence as described in Section 6.1, and must be completed by the calendar year in which the Participant attains age 85. (b) A Participant may elect to receive installment payments either (i) annually during each January or (ii) quarterly, commencing in the January that payment was otherwise due in accordance with Section 6.1. If a Participant does not elect the form of his or her installment payments, such installment payments shall be made annually during each January. (c) If a Participant does not elect the form of his or her payments, such payments shall be made in a lump sum payment. (d) A Participant may change the form and timing of payment previously elected only one time and subject to the following restrictions: (i) such election is made in the calendar year that the Participant ceases to be a member of the Board, to be effective no earlier than the following calendar year; and (ii) the election is subject to the consent of the Administrator. (e) 1. If a Participant dies at any time prior to receiving any portion of his or her account balance under this Program, payment shall be made to the Participant's Beneficiary as follows: (A) If the Participant's Beneficiary is his or her surviving spouse, such Participant's entire account balance under this Program shall be paid as follows: (i) ten annual installments or a shorter schedule, if so elected by the surviving spouse, or (ii) a lump sum payment payable on or about the January 1st following the Participant's death. (B) If the Participant's Beneficiary is someone other than his or her surviving spouse, such Participant's entire account balance under this Program shall be paid in a lump sum payment as soon as practical following the Participant's death. 2. If a Participant dies at any time after payment of his or her account balance under this Program has begun, such Participant's Beneficiary shall continue to receive payment of the Participant's account in the same manner as the Participant elected, or such shorter payment schedule as elected by the Beneficiary. 6.3 Payment Medium. All payments under this Program with respect to amounts which at the time of such payment were accruing at the Fixed Income Rate, or an Applicable Equity Investment Fund Rate, shall be made in U.S. dollars. Any payments made to a Participant with respect to amounts which were accruing under either the UCC Stock Value Rate or the UCC Discounted Stock Value Rate shall be made in shares of common stock of the Corporation. 6.4 Reduction of Payments; Share Withholding. (a) All payments under this Program shall be reduced by any and all amounts that the Corporation is required to withhold pursuant to applicable law. (b) In order to enable the Corporation to meet any applicable federal, state or local tax withholding requirements, a Participant (or Beneficiary) who is receiving payment in shares of common stock of the Corporation, may elect to have the Corporation withhold shares that would otherwise be delivered to such Participant, or by delivering to the Corporation other shares of common stock of the Corporation owned by the Participant. The value of any such shares of common stock to be withheld by the Corporation, or so delivered to the Corporation, shall be the mean of the high and low prices of the common stock of the Corporation as reported in the New York Stock Exchange - Composite Transactions on the date of payment. ARTICLE VII BENEFICIARIES 7.1 A Participant may at any time, and from time to time, prior to his or her death designate one or more Beneficiaries to receive any payments to be made following the Participant's death. If a Participant has not effectively designated a beneficiary, or if no designated beneficiary has survived the Participant, the Participant's Beneficiary shall be the Participant's surviving spouse, or, if no spouse has survived the Participant, the estate of the deceased Participant. If an individual Beneficiary cannot be located for a period of one year following the Participant's death, despite mail notification to the Beneficiary's last known address, and if the Beneficiary has not made a written claim for benefits within such period, the Beneficiary shall be treated as having predeceased the Participant. The Administrator may require such proof of death and such evidence of the right of any person to receive all or part of a deceased Participant account balance, as the Administrator may consider appropriate. The Administrator may rely upon any direction by the legal representatives of the estate of a deceased Participant, without liability to any other person. ARTICLE VIII EARNINGS ACCRUALS 8.1 Each Participant's account balance under this Program shall be credited with earnings from the Date of Deferral through the date such deferral is paid out or withdrawn pursuant to Article VI. Earnings under this Section 8.1 shall accrue at the rate elected in accordance with Section 8.2. 8.2 (a) Earnings accruing in accordance with Section 8.1 shall accrue at (i) the Fixed Income Rate, (ii) the UCC Stock Value Rate, (iii) the UCC Discounted Stock Value Rate, (iv) the Applicable Equity Investment Fund Rate or (v) a combination of the four rates. An election to use the UCC Discounted Stock Value Rate shall be effective for not less than one (1) year. Amounts deferred pursuant to Section 5.2(b) cannot accrue at the UCC Discounted Stock Rate. Notwithstanding the foregoing, if a Participant has elected under Section 6.1 to receive payment of his or her account balance upon ceasing to be a member of the Board, such Participant may then receive a distribution based on the UCC Discounted Stock Value Rate even if one (1) year has not yet passed since the relevant Date of Deferral. (b) Subject to subparagraph (c), a Participant shall designate at the time of his or her election to defer any amounts under this Program which accrual rate or rates shall apply to his or her deferrals; provided such elections must be in whole percentage points. Such elections shall be effective as of the Date of Deferral through the date such deferral is paid out or withdrawn pursuant to Article VI. (c) A Participant may, one time each calendar month, elect to change the accrual rate under this Section 8.2 with respect to any or all previous deferrals under this Program; provided, however, that Participants may elect to utilize the UCC Discounted Stock Value Rate with respect to future deferrals only, and not for the reallocation of any prior deferrals. Participants may utilize the UCC Stock Value Rate only for reallocation of previous deferrals. (d) Any amounts initially deferred into either the UCC Stock Value Rate or the UCC Discounted Stock Value Rate may not be reallocated or withdrawn from the Program for at least six months from the Date of Deferral, even where such reallocation or withdrawal would otherwise be permitted under the terms of the Program. ARTICLE IX GENERAL PROVISIONS 9.1 Prohibition of Assignment of Transfer. Any assignment, hypothecation, pledge or transfer of a Participant's or Beneficiary's right to receive payments under this Program shall be null and void and shall be disregarded, except to the extent required by law. 9.2 Program Not to Be Funded. The Corporation is not required, for the purpose of funding this Program, to segregate any monies from its general funds, create any trusts, or make any special deposits, and the right of a Participant or Beneficiary to receive a payment under this Program shall be no greater than the right of an unsecured general creditor of the Corporation. 9.3 Communications To Be in Writing. All elections, requests and communications to the Corporation or its designated agent from Participants and Beneficiaries, and all communications to such persons from the Corporation, shall be in writing, and in such form and manner, and within such time, as the Corporation shall determine. In lieu of the foregoing, the Corporation may install a telephonic voice response system for such elections, requests and communications. 9.4 Absence of Liability. No officer, director or employee of the Corporation shall be personally liable for any acts or omission to act under this Program or, except in circumstances involving bad faith, for such officer's, director's or employee's own act or omission to act. 9.5 Titles for Reference Only. The titles given herein to sections and subsections are for reference only and are not to be used to interpret the provisions of this Program. 9.6 New York Law To Govern. All questions pertaining to the construction, regulation, validity and effect of the provisions of this Program shall be determined in accordance with New York law. 9.7 Amendment. The Administrator may amend this Program at any time, but no amendment may be adopted which alters the payments due Participants or Beneficiaries, as of the date of the amendment, or the times at which payments are due, without the consent of each Participant affected by the amendment and of each Beneficiary (of a then deceased Participant) affected by the amendment. 9.8 Program Termination. The Board may terminate this Program for any reason and at any time. In the event of such termination, the accounts of each Participant or Beneficiary under this Program shall become immediately payable in accordance with Section 6.1; provided that the Administrator, in its sole discretion, upon Program termination or at any time thereafter, may decide to make lump sum payments in lieu of annual payments. UNION CARBIDE CORPORATION EX-10.8 9 SEVERANCE AGREEMENT WITH RON J. COTTLE Exhibit 10.8 UNION CARBIDE CORPORATION 39 OLD RIDGEBURY ROAD, DANBURY, CT 06817-001 February 10, 1998 R.J. Cottle K3-462 Dear Ron: At its meeting on January 27, 1998, the Board of Directors (the "Board") of Union Carbide Corporation (the "Corporation") authorized your participation in the arrangements set forth in this Severance Compensation Agreement. The Board recognizes that the possibility of a Change in Control of the Corporation exists, as is the case with many publicly held corporations, and the uncertainty and questions which it may raise among management may result in the departure or distraction of management personnel to the detriment of the Corporation and its stockholders. The Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Corporation's management, including yourself, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from a possible Change in Control of the Corporation. The Board has also determined that it is in the best interests of the Corporation and its stockholders to ensure your continued availability to the Corporation in the event of a potential Change in Control of the Corporation. In order to induce you to remain in the employ of the Corporation and in consideration of your continued service to the Corporation, the Corporation agrees that you shall receive the severance benefits set forth in this Severance Compensation Agreement ("Agreement") in the event your employment with the Corporation is terminated subsequent to a Change in Control of the Corporation under the circumstances described below. 1. Definitions. a. "Change in Control of the Corporation" shall be deemed to occur if any of the following circumstances shall occur: (i) any "person" or "group" within the meaning of Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934 ("Act") becomes the "beneficial owner" as defined in Rule 13d-3 under the Act of more than 20% of the then outstanding voting securities of the Corporation; (ii) any "person" or "group" within the meaning of Sections 13(d) and 14(d)(2) of the Act acquires by proxy or otherwise the right to vote for the election of directors, for any merger or consolidation of the Corporation or for any other matter or question with respect to more than 20% of the then outstanding voting securities of the Corporation; (iii) if during any period of twenty-four consecutive months, Present Directors and/or New Directors cease for any reason to constitute a majority of the Board. For these purposes, "Present Directors" shall mean individuals who at the beginning of such consecutive twenty-four month period were members of the Board and "New Directors" shall mean any director whose election by the Board or whose nomination for election by the Corporation's stockholders was approved by a vote of at least two-thirds of the Directors then still in office who were Present Directors or New Directors; (iv) the stockholders of the Corporation approve a plan of complete liquidation or dissolution of the Corporation; or (v) there shall be consummated (x) a reorganization, merger or consolidation of all or substantially all of the assets of the Corporation (a "Business Combination"), unless, following such Business Combination, (a) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the outstanding Common Stock of the Corporation and outstanding voting securities of the Corporation immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Corporation or all or substantially all of the Corporation's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the outstanding Common Stock of the Corporation and outstanding voting securities of the Corporation, as the case may be, (b) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Corporation or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination, and (c) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (y) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Corporation, provided, that the divestiture of less than substantially all of the assets of the Corporation in one transaction or a series of related transactions, whether effected by sale, lease, exchange, spin-off, sale of the stock or merger of a subsidiary or otherwise, shall not constitute a Change in Control of the Corporation. Notwithstanding the foregoing, a Change in Control of the Corporation shall not be deemed to occur: (A) pursuant to Subparagraphs (i) and (ii) above, solely because twenty percent (20%) or more of the combined voting power of the Corporation's then outstanding securities is acquired by one or more employee benefit plans maintained by the Corporation; or (B) pursuant to Subparagraph (v)(y) above, if the Board determines that any sale, lease, exchange or transfer does not involve substantially all of the assets of the Corporation. b. "Code" shall mean the Internal Revenue Code of 1986, as amended. c. "Date of Termination" shall mean: (i) in case employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that you shall not have returned to the full-time performance of your duties during such thirty (30) day period), and (ii) in all other cases, the date specified in the Notice of Termination (which shall not be less than thirty (30) nor more than sixty (60) days, respectively, from the date such Notice of Termination is given). d. "Disability" shall mean total physical or mental disability rendering you unable to perform the duties of your employment for a continuous period of six (6) months. Any question as to the existence of your Disability upon which you and the Corporation cannot agree shall be determined by a qualified physician not employed by the Corporation and selected by you (or, if you are unable to make such selection, it shall be made by any adult member of your immediate family), and approved by the Corporation. The determination of such physician made in writing to the Corporation and to you shall be final and conclusive for all purposes of this Agreement. e. "Good Reason for Resignation" shall mean, without your express written consent, any of the following: (i) (A) a change in your status or position with the Corporation, which in your reasonable judgment does not represent a promotion from your status or position, immediately prior to a Change in Control of the Corporation; or (B) a reduction in the level of your reporting responsibility as it existed immediately prior to a Change in Control of the Corporation; or (C) the assignment to you of any duties or responsibilities or diminution of duties or responsibilities which in your reasonable judgment are inconsistent with your status or position with the Corporation in effect immediately prior to a Change in Control of the Corporation; it being understood that any of the foregoing in connection with a termination of your employment for Retirement, Disability or Termination for Cause shall not constitute Good Reason for Resignation; (ii) a reduction by the Corporation in the annual rate of your base salary as in effect immediately prior to the date of a Change in Control of the Corporation or as the same may be increased from time to time thereafter, or the Corporation's failure to increase the annual rate of your base salary for a calendar year in an amount at least equal to the average percentage increase in base salary for all employees of the Corporation with Severance Compensation Agreements in the preceding calendar year. Within three (3) days after your request, the Corporation shall notify you of the average percentage increase in base salary for all such employees of the Corporation in the calendar year preceding your request; (iii) the Corporation requiring you to be based outside of a fifteen (15) mile radius from where your office is located immediately prior to a Change in Control of the Corporation except for required travel on the Corporation's business to an extent substantially consistent with your business travel obligations immediately prior to a Change in Control of the Corporation; (iv) the failure by the Corporation to continue in effect any compensation plan in which you participate as in effect immediately prior to a Change in Control of the Corporation, including but not limited to the Retirement Program, the Savings Program, the Profit Sharing Plan, any of the Incentive Compensation Plans, compensation deferral plans, or any substitute plans adopted prior to a Change in Control of the Corporation, unless an arrangement satisfactory to you (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Corporation to continue your participation therein on at least as favorable a basis, both in terms of the amount of benefits provided and the level of your participation relative to other participants, as existed immediately prior to a Change in Control of the Corporation; (v) the failure by the Corporation to continue to provide you with benefits at least as favorable as those enjoyed by you (and your dependents, if applicable) under any of the Corporation's pre- retirement and post-retirement life insurance, medical, health and accident, and disability plans or any other plan, program or policy of the Corporation intended to benefit employees in which you were participating immediately prior to a Change in Control of the Corporation, the taking of any action by the Corporation which would directly or indirectly materially reduce any of such benefits or deprive you of any material fringe benefit enjoyed by you immediately prior to a Change in Control of the Corporation, or the failure by the Corporation to provide you with the number of annual paid vacation days to which you were annually entitled immediately prior to a Change in Control of the Corporation; (vi) the failure of the Corporation to obtain a satisfactory agreement from any Successor (as defined in Paragraph 4a hereof) to assume and agree to perform this Agreement, as contemplated in Paragraph 4a hereof; or (vii) the failure of the Corporation to pay to you an Incentive Compensation Award, a Profit Sharing Award, deferred compensation or other compensation award earned, but not paid, prior to a Change in Control of the Corporation. f. "Incentive Compensation" means any compensation, variable compensation, bonus, benefit or award paid or payable in cash under an Incentive Compensation Plan. g. "Incentive Compensation Award" shall mean (i) a cash payment or payments awarded to you under any Incentive Compensation Plan and (ii) the amount by which your variable compensation is reduced in accordance with the 1997 Union Carbide Corporation EPS Incentive Plan. h. "Incentive Compensation Plan(s)" shall mean any variable compensation or incentive compensation plan maintained by the Corporation in which you were a participant immediately prior to a Change in Control of the Corporation including, but not limited to: (i) 1997 Union Carbide Long Term Incentive Plan; (ii) 1997 Union Carbide Variable Compensation Plan; (iii) 1995 Union Carbide Performance Incentive Plan; and (iv) Benefit Capital Management Corporation Annual Incentive Plan. Notwithstanding the forgoing, Incentive Compensation Plan shall not include the 1997 Union Carbide Corporation EPS Incentive Plan i. "Notice of Termination" shall mean a written notice as provided in Paragraph 8 hereof. j. "Profit Sharing Award" shall mean a cash payment or payments under the Profit Sharing Plan, plus any profit sharing allocation under the Employee Stock Ownership Plan part of the Savings Program. k. "Profit Sharing Plan" shall mean the Union Carbide Corporation Profit Sharing Plan. l. "Retirement" shall mean (1) termination in accordance with any retirement arrangement other than under the Corporation's Retirement Program, which is established with your consent with respect to you, or (2) mandatory retirement as set forth under the policy of the Corporation as it existed prior to a Change in Control of the Corporation or as agreed to by you following a Change in Control of the Corporation. m. "Retirement Program" shall mean the Retirement Program Plan for Employees of Union Carbide Corporation and Its Participating Subsidiary Companies and any excess or supplemental pension plans maintained by the Corporation. n. "Savings Program" shall mean the Savings and Investment Program for Employees of Union Carbide Corporation and Participating Subsidiary Companies. o. "Termination for Cause" shall mean termination of your employment upon your willfully engaging in conduct demonstrably and materially injurious to the Corporation, monetarily or otherwise, provided that there shall have been delivered to you a copy of a resolution duly adopted by the unanimous affirmative vote of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice to you and an opportunity for you, together with your counsel, to be heard before the Board), finding that in the good faith opinion of the Board you were guilty of the conduct set forth and specifying the particulars thereof in detail. For purposes of this clause o, no act, or failure to act, on your part shall be deemed "willful" unless done, or omitted to be done, by you in bad faith and without reasonable belief that your action or omission was in the best interest of the Corporation. Any act or failure to act based upon authority given pursuant to a resolution duly adopted by the Board or based upon the advice of counsel for the Corporation shall be conclusively presumed to be done or omitted to be done by you in good faith and in the best interests of the Corporation. p. "Variable Compensation Year" means a calendar year of an Incentive Compensation Plan. 2. Compensation Upon Termination or While Disabled. Following a Change in Control of the Corporation, you shall be entitled to the following benefits: a. Termination Other Than for Retirement, Death, Disability or Termination for Cause; Termination By Your Resignation with Good Reason for Resignation. If your employment by the Corporation shall be terminated subsequent to a Change in Control of the Corporation and during the term of this Agreement (a) by the Corporation other than for Retirement, Death, Disability or Termination for Cause, or (b) by you for Good Reason for Resignation, then you shall be entitled to the benefits provided below, without regard to any contrary provision of any plan: (i) Accrued Salary. The Corporation shall pay you, not later than the fifth day following the Date of Termination, your base salary and vacation pay accrued through the Date of Termination (including any banked vacation, vested vacation for the calendar year in which the Date of Termination occurs and pro-rated, vested vacation for the calendar year following the year in which the Date of Termination occurs) at the rate in effect at the time the Notice of Termination is given (or at the rate in effect immediately prior to a Change in Control of the Corporation, if such rate was higher). (ii) Accrued Incentive Compensation. The Corporation shall pay you, not later than thirty (30) days following your Date of Termination, the amount of your accrued Incentive Compensation which shall be the sum of the amounts set forth in the following paragraphs (A) and (B). (A) If the Date of Termination is after the end of a Variable Compensation Year, but before Incentive Compensation for said Variable Compensation Year has been paid, the Corporation shall pay to you under this Agreement for your service during such Variable Compensation Year the greatest of the amounts set forth in the following paragraphs (I), (II), (III) and (IV): (I) an amount that bears the same ratio to your base salary in said Variable Compensation Year as the Incentive Compensation paid to you with respect to the immediately prior Variable Compensation Year bears to your base salary for said prior Variable Compensation Year; (II) an amount that bears the same ratio to your base salary for such Variable Compensation Year as the average Incentive Compensation paid to you during the three (3) immediately prior Variable Compensation Years bears to your average base salary for said three (3) prior years; (III) the amount of your target variable compensation payment (i.e., the percent of your salary grade midpoint at risk) for such Variable Compensation Year; or (IV) the average amount of Incentive Compensation, as a percentage of base salary, paid to other executives of the Corporation at the same (or equivalent) grade level as yourself. (B) In addition, if the Date of Termination is other than the first day of a Variable Compensation Year, the Corporation shall pay to you under this Agreement for your service during such Variable Compensation Year up to the Date of Termination, the greatest of the amounts set forth in the following paragraphs (I), (II) and (III): (I) an amount that bears the same ratio to your base salary (earned up to the Date of Termination) in said Variable Compensation Year as the Incentive Compensation paid to you with respect to the immediately prior Variable Compensation Year under the Incentive Compensation Plan or pursuant to clause (A) above bears to your base salary for said prior Variable Compensation Year; (II) an amount that bears the same ratio to your base salary earned (up to the Date of Termination) for such Variable Compensation Year as the average Incentive Compensation paid to you with respect to the three (3) Variable Compensation Years immediately prior to such Variable Compensation Year under the Incentive Compensation Plan or pursuant to clause (A) above bears to your average base salary for said three (3) prior years; or (III) the amount of your target variable compensation payment (i.e., the percent of your salary grade midpoint at risk) for such Variable Compensation Year multiplied by a fraction, the numerator of which is the total number of days which have elapsed in the current Variable Compensation Year to the Date of Termination, and the denominator of which is three hundred sixty-five (365). If there is more than one Incentive Compensation Plan, your accrued Incentive Compensation under each Incentive Compensation Plan shall be determined separately for each such Plan. For the purpose of determining the amount of your accrued Incentive Compensation under this Paragraph 2a(ii), you will be deemed to have been paid the full amount of all prior Incentive Compensation, whether or not such Incentive Compensation was includible in your gross income for Federal income tax purposes. (iii) Insurance Coverage. The Corporation shall arrange to provide you (and your dependents, if applicable) with life, disability, accident, dental and medical benefits substantially equivalent to those which you are receiving, or were entitled to receive, from the Corporation or a subsidiary of the Corporation immediately prior to a Change in Control of the Corporation. Such benefits shall be provided to you for the longer of (x) thirty-six (36) months after such Date of Termination or (y) the period during which such benefits would have been provided to you, as a terminated employee, under the applicable life, disability, accident, dental and medical plans in effect immediately prior to a Change in Control of the Corporation (except that after a period of thirty-six (36) months such benefits shall be provided to you on the same financial terms and conditions as provided for under the respective plans). If you are a participant in the Corporation's Executive Life Insurance Plan, you shall have the same rights thereunder as a person who retires with a non-actuarially reduced pension (whether or not you are eligible for such a pension). Should it be determined that any of the medical benefits to be provided to you (and your dependents, if applicable) under this subparagraph (iii) could be included in your gross income for federal, state or local tax purposes, then the following shall apply: (A) If you have a right to receive an immediate pension on your Date of Termination, then you shall participate in the Corporation's medical benefit plans as if you retired from the Corporation on your Date of Termination, except that the Corporation shall provide such medical coverage at no cost to you for three (3) years following your Date of Termination and thereafter, you shall participate therein on the same terms as other retired employees; (B) If you do not have a right to receive an immediate pension on your Date of Termination, you will no longer continue to participate in the Corporation's medical benefit plans and (i) the Corporation shall provide you with a cash payment in an amount equal to the amount required by you to pay for coverage under COBRA for the first eighteen (18) months following your loss of medical coverage, and thereafter, (ii) the Corporation shall, for the subsequent eighteen (18) months, purchase for you at its cost, a policy of medical insurance providing benefits substantially similar to the benefits you would have received under the Corporation's medical benefit plans. (iv) Retirement Benefits. The Corporation shall pay you, as hereafter provided in this subparagraph (iv), at the time you are entitled to be paid a retirement pension under the Retirement Program, a retirement pension equal to the greater of: (A) an amount computed in accordance with the terms of the Retirement Program in effect immediately prior to a Change in Control of the Corporation and as if those terms were in effect on the Date of Termination, or (B) an amount computed in accordance with the terms of the Retirement Program in effect on the Date of Termination; in either case less the amount of retirement pension actually to be paid to you under the Retirement Program in the absence of this subparagraph (iv). In computing the amounts of your retirement pension under clauses (A) and (B) above, three years shall be added to your actual age and to your actual Company Service Credit under the Retirement Program so that your retirement pension under clauses (A) and (B) above will be the amount it would have been if you had been three years older than you actually were, and you had three years more Company Service Credit than you actually had, on the Date of Termination. If for any reason, the benefits under this subparagraph (iv) cannot be paid under the tax-qualified portion of the Retirement Program, the Corporation shall, at its option, provide such benefits to you through the purchase, and delivery to you, of a non-qualified annuity from an insurance company, or pay you a lump sum payment for the benefits under this subparagraph (iv) calculated under such one of the following options as would produce the highest lump sum payment: (I) calculated under the same factors (interest rate and mortality) as lump sum payments are made under the Corporation's Supplemental Retirement Income Plan and Equalization Benefit Plan as in effect immediately prior to a Change in Control of the Corporation; (II) calculated under the same factors (interest rate and mortality) as lump sum payments are made under the Corporation's Supplemental Retirement Income Plan and Equalization Benefit Plan, or other similar plans, as in effect on the Date of Termination; or (III) calculated under the same factors (interest rate and mortality) as lump sum payments would have been calculated under the Corporation's Supplemental Retirement Income Plan and Equalization Benefit Plan on the Date of Termination, if such factors were determined using the same methodology as such plans used prior to a Change in Control of the Corporation. (v) Outplacement Counseling. The Corporation shall make available to you, at the Corporation's expense, outplacement counseling for a period of up to one year. You may select the organization that will provide the outplacement counseling, however, the Corporation's obligation to provide you benefits under this subparagraph (v) shall be limited to $35,000. (vi) Financial Counseling. The Corporation shall, within 60 days of the Date of Termination, make available to you financial counseling, tax counseling and tax preparation services. You may select the organization that will provide such services. However, the Corporation's obligation to provide you benefits under this subparagraph (vi) shall be limited to $10,000. The Corporation shall provide to you any information you request regarding your personal and financial situation that you wish to provide to the financial counseling firm in order for the firm to provide the counseling services required by this subparagraph (vi). (vii) Severance Payment. The Corporation shall pay as a severance payment to you, not later than the fifth day following the Date of Termination, a lump sum severance payment (the "Severance Payment") equal to three (3) times the sum of the amounts set forth in the following paragraphs (A), (B), (C), (D) and (E): (A) the greater of your annual base salary which was payable to you by the Corporation immediately prior to the Date of Termination or your annual base salary which was payable to you by the Corporation immediately prior to a Change in Control of the Corporation; plus (B) the greater of: (I) the amount of your most recent Profit Sharing Award received prior to the Date of Termination; or (II) the amount of your most recent Profit Sharing Award received prior to a Change in Control of the Corporation; or (III) an amount that bears the same ratio to your annual base salary in effect immediately prior to the Date of Termination, or, if higher, your annual base salary in effect immediately prior to a Change in Control of the Corporation, as the average Profit Sharing Award paid or payable to you during the three (3) immediately full calendar years prior to the Date of Termination bears to your average base salary for said three (3) prior years; plus (C) the greater of: (I) the amount of your most recent Incentive Compensation Award received prior to the Date of Termination; or (II) the amount of your most recent Incentive Compensation Award received prior to a Change in Control of the Corporation; or (III) an amount that bears the same ratio to your annual base salary in effect immediately prior to the Date of Termination, or, if higher, your annual base salary in effect immediately prior to a Change in Control of the Corporation, as the average Incentive Compensation Award paid to you with respect to the three (3) immediately prior Incentive Compensation Years bears to your average base salary for said three (3) prior years; plus (D) the greater of: (I) the value, as determined by the Corporation at the time of the grant, attributable to any stock options awarded to you by the Corporation at the most recent date of grant of stock options prior to the Date of Termination; or (II) the value, as determined by the Corporation at the time of grant, attributable to any stock options awarded to you by the Corporation at the most recent date of grant of stock options prior to a Change in Control of the Corporation. In determining such value, the number of stock options awarded to you shall be multiplied by the value ascribed to a stock option by the Corporation using the Black- Scholes method or other similar methodology. If at the time of either of such grants it is specified in writing that the grant covers a period of more than one year, then the value of such grant as determined above shall be annualized by dividing such value by the number of years (or part thereof) the grant is specified to cover; plus (E) the greater of: (I) the value, as determined by the Corporation at the time of the grant, attributable to the grant to you by the Corporation of performance or restricted stock of the Corporation at the most recent date of grant prior to the Date of Termination; or (II) the value, as determined by the Corporation at the time of grant, attributable to the grant to you by the Corporation of performance or restricted stock of the Corporation at the most recent date of grant prior to a Change in Control of the Corporation. If at the time of either of such grants it is specified in writing that the grant covers a period of more than one year, then the value of such grant as determined above shall be annualized by dividing such value by the number of years (or part thereof) the grant is specified to cover. In determining such annualized value, the number of shares of performance or restricted stock awarded to you shall be multiplied by the closing price of the common stock of the Corporation on the New York Stock Exchange-Composite Transactions on the date of grant. For purposes of calculations under this subparagraph (vii), the amounts of base salary, Profit Sharing Awards and Incentive Compensation Awards shall be the amounts calculated without regard to whether or not such amounts were includible in your gross income for Federal income tax purposes. The Severance Payment shall not be reduced to the extent the Corporation could not properly deduct amounts paid pursuant to Paragraph 2a(i) through 2a(vii) hereof or otherwise pursuant to Section 280G of the Code. (viii) Reduction in Severance Payment. The Severance Payment shall be reduced only in the event specified in this subparagraph (viii). If the aggregate present value, as determined for purposes of Code Section 280G, of all amounts that are parachute payments for purposes of such Section exceeds the limitation set forth in Code Section 280G(b)(2)(A)(ii) by an amount not exceeding $50,000, then there shall be a reduction in the amount of your Severance Payment so that such limit is not exceeded. (ix) Payment of Taxes. (A) For purposes of this subparagraph (ix), the following terms shall have the following meanings: (I) Payment shall mean any payment or distribution (or acceleration of benefits) by the Corporation to or for your benefit (whether paid or payable or distributed or distributable (or accelerated) pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this subparagraph (ix)). In addition, Payment shall also include the amount of income deemed to be received by you as a result of the acceleration of the exercisability of any of your options to purchase stock of the Corporation, the acceleration of the lapse of any restrictions on performance stock or restricted stock of the Corporation held by you or the acceleration of payment from any deferral plan. (II) Excise Tax shall mean the excise tax imposed by Section 4999 of the Code, or any interest or penalties incurred by you with respect to such excise tax. (III) Income Tax shall mean all taxes other than the Excise Tax (including any interest or penalties imposed with respect to such taxes) including, without limitation, any income and employment taxes imposed by any federal (including (i) FICA and Medicare taxes, and (ii) the tax resulting from the loss of any federal deductions or exemptions which would have been available to you but for receipt of the Payment), state, local, commonwealth or foreign government. (B) In the event it shall be determined that a Payment would be subject to an Excise Tax, then you shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by you of Income Tax and Excise Tax imposed upon the Gross-Up Payment, you retain an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payment. (C) All determinations required to be made under this subparagraph (ix), including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by the public accounting firm that is retained by the Corporation as of the date immediately prior to a Change in Control of the Corporation (the "Accounting Firm") which shall provide detailed supporting calculations both to the Corporation and to you within fifteen (15) business days of the receipt of notice from you that there has been a Payment, or such earlier time as is requested by the Corporation (collectively, the "Determination"). In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting a Change in Control of the Corporation, you may appoint another nationally recognized public accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Corporation. Any Gross-Up Payment, as determined pursuant to this subparagraph (ix), shall be paid by the Corporation to you within ten (10) days of the Determination. If the Accounting Firm determines that no Excise Tax is payable by you, you may request the Accounting Firm to furnish you with a written opinion that failure to report the Excise Tax on your applicable federal income tax return would not result in the imposition of a negligence or similar penalty. The Determination by the Accounting Firm shall be binding upon the Corporation and you. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the Determination, it is possible that Gross-Up Payments which will not have been made by the Corporation should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Corporation exhausts its remedies pursuant to subparagraph (ix)(D) below and you thereafter are required to make payment of any Excise Tax or income Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Corporation to or for your benefit. (D) You shall notify the Corporation in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Corporation of the Gross-Up Payment or the Underpayment. Such notification shall be given as soon as practicable but no later than ten (10) business days after you are informed in writing of such claim and shall apprise the Corporation of the nature of such claim and the date on which such claim is requested to be paid. You shall not pay such claim prior to the expiration of the 30-day period following the date on which you give such notice to the Corporation (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Corporation notifies you in writing prior to the expiration of such period that it desires to contest such claim, you shall: (1) give the Corporation any information reasonably requested by the Corporation relating to such claim, (2) take such action in connection with contesting such claim as the Corporation shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Corporation, (3) cooperate with the Corporation in good faith in order effectively to contest such claim, and (4) permit the Corporation to participate in any proceeding relating to such claim; provided, however, that the Corporation shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold you harmless, on an after-tax basis, for any Excise Tax or Income Tax imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this subparagraph (ix)(D), the Corporation shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct you to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and you agree to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Corporation shall determine; provided further, that if the Corporation directs you to pay such claim and sue for a refund, the Corporation shall advance the amount of such payment to you on an interest-free basis and shall indemnify and hold you harmless, on an after-tax basis, from any Excise Tax or Income Tax imposed with respect to such advance or with respect to any imputed income with respect to such advance; and provided further, that any extension of the statute of limitations relating to payment of taxes for your taxable year with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Corporation's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and you shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (E) If, after the receipt by you of an amount advanced by the Corporation pursuant to subparagraph (ix)(D) above, you become entitled to receive, and receive, any refund with respect to such claim, you shall (subject to the Corporation's complying with the requirements of subparagraph (ix)(D)) promptly pay to the Corporation the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by you of an amount advanced by the Corporation pursuant to subparagraph (ix)(D), a determination is made that you shall not be entitled to any refund with respect to such claims and the Corporation does not notify you in writing of its intent to contest such denial of refund prior to the expiration of thirty (30) days after such determination, then such advance shall be forgiven and shall not be required to be repaid. (x) No Duty to Mitigate. You shall not be required to mitigate the amount of any payment provided for in this Paragraph 2 by seeking other employment or otherwise, nor shall the amount of any payment or benefit hereunder be reduced by any compensation earned by you as the result of employment by another employer or by retirement benefits after the Date of Termination, or otherwise; provided, however, should you become reemployed in a job which (a) offers medical plan benefits which are equal to or greater than the medical plan benefits provided to you under subparagraph 2(a)(iii), and (b) such medical plan benefits are offered to you at no cost, you shall no longer be eligible to receive medical plan benefits under this Agreement. b. Payments While Disabled. During any period prior to the Date of Termination and during the term of this Agreement that you are unable to perform your full-time duties with the Corporation, whether as a result of your Disability or as a result of a physical or mental disability that is not total and therefore is not a Disability, you shall continue to receive your base salary at the rate in effect at the commencement of any such period, together with all other compensation and benefits that are payable or provided under the Corporation's benefit plans, including its disability plans. After the Date of Termination for Disability, your benefits shall be determined in accordance with the Retirement Program, insurance and other applicable programs of the Corporation. The compensation and benefits, other than salary, payable or provided pursuant to this subparagraph b shall be the greater of (x) the amounts computed under the Retirement Program, disability benefit plans, insurance and other applicable programs in effect immediately prior to a Change in Control of the Corporation, and (y) the amounts computed under the Retirement Program disability benefit plans, insurance and other applicable programs in effect at the time the compensation and benefits are paid. c. Payments if Terminated for Cause, or Termination by You Other Than With Good Reason for Resignation. If your employment shall be terminated by the Corporation as a Termination for Cause or by you other than with Good Reason for Resignation, the Corporation shall pay you your full base salary and accrued vacation pay (including any banked vacation, vested vacation for the calendar year in which the Date of Termination occurs, and prorated, vested vacation for the calendar year following the year in which the Date of Termination occurs) through the Date of Termination, at the rate in effect at the time Notice of Termination is given, plus any benefits or awards which have been earned or become payable but which have not yet been paid to you. You shall receive any payment due under this subparagraph c on your Date of Termination. Thereafter, the Corporation shall have no further obligation to you under this Agreement. d. After Retirement or Death. If your employment shall be terminated by your Retirement, or by reason of your death, your benefits shall be determined in accordance with the Corporation's retirement and insurance programs then in effect. 3. Term of Agreement. This Agreement shall commence on the date hereof and shall continue in effect through December 31 1998; provided, however, that commencing on January 1, 1999 and each January 1 thereafter, the term of this Agreement shall automatically be extended for one additional year unless, not later than September 30 of the preceding year, the Corporation or you shall have given notice that it or you does not wish to extend this Agreement. Notwithstanding any such notice by the Corporation not to extend, if a Change in Control of the Corporation shall have occurred during the original or any extended term of this Agreement, or within three months thereafter, this Agreement shall continue in effect. In any event, the term of this Agreement shall expire on the third (3rd) anniversary of the date of a Change in Control of the Corporation. This Agreement shall terminate if your employment is terminated by you or the Corporation prior to a Change in Control of the Corporation. 4. Successors; Binding Agreement. a. Successors of the Corporation. The Corporation will require any Successor to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Corporation would be required to perform it if no such succession had taken place. Failure of the Corporation to obtain such assent at least five business days prior to the time a person becomes a Successor (or where the Corporation does not have at least five business days advance notice that a person may become a Successor, within three business days after having notice that such person may become or has become a Successor) shall constitute Good Reason for Resignation by you and, if a Change in Control of the Corporation has occurred or thereafter occurs, shall entitle you immediately to the benefits provided in Paragraph 2a hereof upon delivery by you of a Notice of Termination. For purposes of this Agreement, "Successor" shall mean any person that obtains or succeeds to, or has the practical ability to control (either immediately or with the passage of time), the Corporation's business directly, by merger or consolidation, or indirectly, by purchase of voting securities of the Corporation by acquisition of rights to vote voting securities of the Corporation or otherwise, including but not limited to any person or group that acquires the beneficial ownership or voting rights described in Paragraph 1a(i) or (ii). b. Your Successor. This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If you should die following your Date of Termination while any amount would still be payable to you hereunder if you had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your devisee, legatee or other designee or, if there is no such designee, to your estate. 5. Nature of Payments. All payments to you under this Agreement shall be considered either payments in consideration of your continued service to the Corporation or severance payments in consideration of your past service to the Corporation. 6. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 7. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 8. Notice. Any purported termination of your employment by the Corporation or by you following a Change in Control of the Corporation shall be communicated to the other party by a written Notice of Termination. A Notice of Termination by you shall indicate in reasonable detail the facts and circumstances claimed to provide a basis for a Good Reason for Resignation. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement, provided that all notices to the Corporation shall be directed to the attention of the Board with a copy to the Secretary of the Corporation or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 9. Fees and Expenses. The Corporation shall pay all legal fees and related expenses incurred by you as a result of your termination following a Change in Control of the Corporation or by you in seeking to obtain or enforce any right or benefit provided by this Agreement (including all fees and expenses, if any, incurred in contesting or disputing any such termination or incurred by you in seeking advice in connection therewith). 10. Miscellaneous. No provision of this Agreement may be amended, modified, waived or discharged unless such amendment, modification, waiver or discharge is agreed to in writing and signed by you and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. 11. Governing Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of New York (without regard to the choice of laws provisions thereof). If this letter sets forth our agreement on the subject matter hereof, kindly sign and return to the Corporation the enclosed copy of this letter which will then constitute our agreement on this subject. Sincerely, UNION CARBIDE CORPORATION By: /s/ M.A. Kessinger M.A. Kessinger Title: Vice President-Human Resources Agreed to this 20th day of February, 1998 /s/ Cottle Employee EX-10.10 10 1997 VARIABLE COMPENSATION PLAN Exhibit 10.10 1997 UNION CARBIDE VARIABLE COMPENSATION PLAN TABLE OF CONTENTS Section Title Page 1 Purpose 1 2 Definitions 1 3 Administration 3 4 Participation Data 4 5 Variable Compensation Payments 4 6 Payment of Variable Compensation Payments 7 7 Termination of Employment 7 8 Change of Position During a Plan Year 7 9 Beneficiary Designation 8 10 General Provisions 10 11 Amendment, Suspension, or Termination 10 12 Effective Date and Duration of Plan 11 1997 UNION CARBIDE VARIABLE COMPENSATION PLAN Section 1: Purpose The purpose of the Plan is to (a) provide incentives and rewards to certain employees who are Eligible Officers of the Corporation or who are in a managerial, administrative, professional or policy-making capacity for the Corporation; (b) assist the Corporation in attracting, retaining, and motivating employees of high caliber and experience; and (c) make the Corporation's compensation program competitive with those of other major employers. Section 2: Definitions 2.1 "Beneficiary" shall mean a Participant's deemed beneficiary pursuant to Section 9 hereof. 2.2 "Board" shall mean the Board of Directors of Union Carbide Corporation. 2.3 "Chief Executive Officer" or "CEO" shall mean the chief executive officer of Union Carbide Corporation. 2.4 "Committee" shall mean the Compensation and Management Development Committee of the Board. 2.5 "Corporation" shall mean Union Carbide Corporation and such of its subsidiary companies as shall be designated by the Board to participate in the Plan. 2.6 "Department" shall mean the Corporate Human Resources Department of Union Carbide Corporation. 2.7 "Disability" or "Disabled" shall mean a Participant's inability to engage in any substantial gainful activity because of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted, or can be expected to last, for a continuous period of six (6) months or longer. 2.8 "Eligible Officer" shall mean an officer of Union Carbide Corporation who is elected, and each of the Vice Presidents of the Corporation who are appointed by the Board. 2.9 "Eligible Position" shall mean (i) a position as an Eligible Officer or (ii) another position in the Corporation in which an employee acts in a managerial, administrative, professional or policy-making capacity and which the Committee designates as an Eligible Position pursuant to Section 4.2. 2.10 "Organizational Unit" shall mean each division or component of Union Carbide Corporation or any of its subsidiary companies as shall be designated by the Board to participate in the Plan. 2.11 "Participant" shall mean an employee of the Corporation who occupies an Eligible Position, except that an Eligible Officer who is a director of the Corporation and a member of the Committee shall not be eligible to participate in the Plan. 2.12 "Plan" shall mean this 1997 Union Carbide Variable Compensation Plan. 2.13 "Plan Year" shall mean the calendar year, or part thereof in the event the Plan is in effect only for part of a calendar year. 2.14 "Savings Program" shall mean The Savings and Investment Program for Employees of Union Carbide Corporation and Participating Subsidiary Companies. 2.15 "Variable Compensation Payment" shall mean the amount of the annual payment under the Plan determined in accordance with procedures authorized by the Committee to be payable to a Participant for a Plan Year. Section 3: Administration 3.1 The Plan shall be administered by the Committee, who shall have full power and authority to construe and interpret the Plan, establish and amend administrative regulations to further the purpose of the Plan, select or authorize the selection criteria of Participants, authorize Variable Compensation Payments, and take any other action necessary to administer the Plan. The Committee's decisions, actions, and interpretations regarding the Plan shall be final and binding upon all Participants and Beneficiaries. 3.2 The Department shall: (i) formulate and recommend to the Committee such changes in the Plan as may facilitate the administration of the Plan; (ii) maintain records of Variable Compensation Payments; (iii) prepare communications to Participants; (iv) prepare reports and data required by the Corporation and government agencies; (v) obtain necessary consents and approvals by government agencies; (vi) obtain any data requested by the Committee; and (vii) take such other actions requested by the Committee as are necessary for effective implementation of the Plan. Section 4: Participation Data 4.1 On or before March 1 of a Plan Year the Department shall prepare and submit to the Committee (i) "List A", which shall set forth the name, job title, and grade level of each Eligible Officer and each person occupying any other position designated by the Committee; (ii) a summary of the Variable Compensation Payments for other Eligible Positions; and (iii) such other information as the Committee shall request. 4.2 All Eligible Positions included in the material prepared pursuant to Section 4.1(ii) must be approved, and the grade level agreed to, by the corporate officer having responsibility for that Organizational Unit in consultation with the Department. If the recommendation is not supported by the Department and by the corporate officer then the matter will be resolved by the CEO. With the appropriate approval of the Committee, Eligible Positions may be added throughout the calendar year. 4.3 If after March 1 of a Plan Year, a position is made an Eligible Position, an employee occupying such a position shall immediately become a Participant and the Department shall prepare and submit to the Committee upon request any required information. Section 5: Variable Compensation Payments 5.1 The Committee shall determine for each Plan Year the amount of the Variable Compensation Payment for each Participant included in List A. The Committee shall make this determination with reasonable promptness following the end of a Plan Year. In determining the amount of the Variable Compensation Payment granted to each "List A" Participant, there shall be considered the extent to which a Participant and such Participant's Organizational Unit achieves, during a Plan Year, specific internal and external measures of performance established from time to time during the Plan Year for the Participant and the Participant's Organizational Unit. Other factors to be considered in determining the amount of the Variable Compensation Payments granted to Participants are set forth in Sections 5.2, 5.3 and 5.4 below. 5.2 The Committee may consider the following factors in determining the amount of the Variable Compensation Payment granted to the Participant who occupies the position of CEO: (i) the Committee's evaluation of the Corporation's overall financial performance during the Plan Year; (ii) the Corporation's and the CEO's achievement of such specific critical internal and external measures of performance as were established for the Corporation or the CEO, as the case may be, prior to the end of the Plan Year, and (iii) the compensation levels of Chief Executive Officers, or their equivalent, in companies with whom the Corporation compares itself for compensation purposes. 5.3 The Committee, in consultation with the CEO, may consider the following factors in determining the amount of the Variable Compensation Payments granted to Participants, other than the CEO, who are Eligible Officers: (i) the Committee's evaluation of the overall performance of the Corporation and the Eligible Officer during the Plan Year; (ii) the achievement by the Eligible Officers or Organizational Units for which the respective Eligible Officers are responsible of such specific critical measures of performance as were established for such Eligible Officers or Organizational Units, as the case may be, before the end of the Plan Year, and (iii) the compensation levels of officers with comparable responsibility in companies with whom the Corporation compares itself for compensation purposes. 5.4 The Variable Compensation Payments for Participants other than Eligible Officers shall be determined as follows: (i) the CEO shall determine the aggregate amount to be awarded to each Organizational Unit. That determination shall be based upon an evaluation of the performance of the Corporation and those Organizational Units during the Plan Year against such specific critical measures of performance as were established for such Organizational Units before the end of the Plan Year; (ii) the Department shall advise the Organizational Units of the total Variable Compensation Payments available; (iii) the individual Variable Compensation Payments within each Organizational Unit (other than for Eligible Officers) shall be determined by Organizational Unit management for the approved Participants based on the Participant's performance and salary grade level. Organizational Unit Variable Compensation Payment totals must be within the amounts provided the Organizational Unit by the Department. 5.5 Variable Compensation Payments shall be payable, at the discretion of the Committee, in cash, in Union Carbide common stock, Union Carbide restricted stock or a combination thereof. The value of the stock used to satisfy a Variable Compensation Payment shall be the average of the high and low prices of Union Carbide common stock as reported on the New York Stock Exchange - Composite Transactions on the date which is five business days before the Variable Compensation Payment is made or on the next preceding day such stock was traded on a stock exchange included in the New York Stock Exchange - Composite Transactions, if it was not traded on any such exchange on the date the Variable Compensation Payment is made. Section 6: Payment of Variable Compensation Payments 6.1 The Committee shall normally authorize Variable Compensation Payments for a Plan Year to be made on or about March 31 following the end of such Plan Year. 6.2 The Committee reserves the right to delay payment of some or all Variable Compensation Payments, in whole or in part, upon such terms and conditions as the Committee in its discretion may determine. The Committee's decision regarding the delay in a Variable Compensation Payment shall be final and binding on all Participants and Beneficiaries. Section 7: Termination of Employment 7.1 If a Participant's employment with the Corporation is terminated during a Plan Year, the Committee (with respect to any officers of the Corporation), and the Department (with regard to all other Participants) shall determine whether the Participant shall be entitled to a Variable Compensation Payment for such Plan Year and the amount of any such Variable Compensation Payment. 7.2 A Participant whose employment with the Corporation is terminated for any reason shall be deemed to have terminated employment with the Corporation on the last day of the month in which the termination occurs. Section 8: Change of Position During a Plan Year 8.1 If a Participant is reassigned to a different Eligible Position during a Plan Year, then the Variable Compensation Payment to such Participant shall be prorated based on the number of months and the performance of the Participant in each Position. 8.2 A Participant who is assigned to an Eligible Position during a Plan Year, and continues to be a Plan Participant until the end of the calendar year, shall receive a Variable Compensation Payment based on the number of months and Participant's performance in the Position. 8.3 If a Participant ceases to occupy an Eligible Position during a Plan Year and remains employed by the Corporation, then the Variable Compensation Payment to such Participant shall equal the amount which would have been granted to such Participant had such Participant not ceased to occupy an Eligible Position, multiplied by a fraction the numerator of which is the number of months that such Participant occupied an Eligible Position, and the denominator of which is 12. 8.4 A Participant whose position changes during the Plan Year for any reason shall be deemed to have changed position on the last day of the month in which such change of position occurs. Section 9: Beneficiary Designation 9.1 The beneficiary or beneficiaries designated by the Participant or deemed to have been designated by the Participant under the Savings Program shall be deemed to be the Participant's Beneficiary. If a Participant does not participate in the Savings Program or if a Participant does participate in the Savings Program and has not designated or been deemed to have designated a beneficiary thereunder, and such Participant dies without designating a Beneficiary, then the Variable Compensation Payment shall be distributed to the Participant's estate. If a Beneficiary does not survive the Participant, then the Participant's Variable Compensation Payment shall be distributed to the Participant's estate. If the Beneficiary of a deceased Participant survives the Participant, and dies before such Participant's Variable Compensation Payment is distributed, then such Variable Compensation Payment shall be distributed to the Beneficiary's estate. Section 10: General Provisions 10.1 A Participant may not assign a Variable Compensation Payment without the Department's prior written consent. Any attempted assignment without such consent shall be null and void. For purposes of this paragraph, any designation of, or payment to, a Beneficiary shall not be deemed an assignment. 10.2 The Plan is intended to constitute an unfunded incentive compensation arrangement for a select group of key management. Nothing contained in the Plan, and no action taken pursuant to the Plan, shall create or be construed to create a trust of any kind. A Participant's right to receive a Variable Compensation Payment shall be no greater than the right of an unsecured general creditor of the Corporation. All Variable Compensation Payments shall be paid from the general funds of the Corporation, and no special or separate fund shall be established and no segregation of assets shall be made to assure payment of such Variable Compensation Payments. 10.3 Nothing contained in the Plan shall give any Participant the right to continue in the employment of the Corporation, or affect the right of the Corporation to discharge a Participant. 10.4 The Plan shall be construed and governed in accordance with the laws of the State of New York. Section 11: Amendment, Suspension, or Termination 11.1 The Board reserves the right to amend, suspend, or terminate the Plan at any time; provided, however, that any amendment, suspension or termination shall not adversely affect the rights of Participants or Beneficiaries to receive Variable Compensation Payments granted prior to such action. Section 12: Effective Date and Duration of Plan The Plan shall be effective beginning as of July 1, 1997 until and including the date of the annual meeting of shareholders of the Corporation in 2002. UNION CARBIDE CORPORATION By: /s/ M.A. Kessinger EX-10.11.1 11 AMENDED AND RESTATED BENEFITS PROTECTION TRUST Exhibit 10.11.1 UNION CARBIDE CORPORATION BENEFITS PROTECTION TRUST (Amended and Restated Effective August 29, 1997) TABLE OF CONTENTS ARTICLE PAGE FIRST: Definitions - 3 - SECOND: Creation of Trust - 8 - THIRD: Payments from the Trust - 15 - FOURTH: Management of Trust Assets - 19 - FIFTH: Administrative Powers - 29 - SIXTH: Insurance and Annuity Contracts - 30 - SEVENTH: Taxes, Expenses and Compensation of Trustee and the Committee - 33 - EIGHTH: General Duties of Trustee and Investment Director - 34 - NINTH: General Duties of the Committee - 39 - TENTH: Indemnification - 43 - ELEVENTH: No Duty To Advance Funds - 44 - TWELFTH: Accounts - 44 - THIRTEENTH: Administration of the Plans; Communications - 45 - FOURTEENTH: Resignation or Removal of Trustee - 47 - FIFTEENTH: Amendment of Agreement; Termination of Trust - 49 - SIXTEENTH: Prohibition of Diversion - 51 - SEVENTEENTH: Prohibition of Assignment of Interest - 53 - EIGHTEENTH: Affiliates - 53 - NINETEENTH: Miscellaneous - 53 - BENEFITS PROTECTION TRUST AGREEMENT (Amended and Restated Effective August 29, 1997) THIS AGREEMENT, made as of the 29th day of August, 1997, by and between UNION CARBIDE CORPORATION, a corporation organized and existing under the laws of the State of New York (hereinafter referred to as the "Company"), and STATE STREET BANK AND TRUST COMPANY, a trust company organized and existing under the laws of the State of Massachusetts (hereinafter referred to as the "Trustee"), W I T N E S S E T H : WHEREAS, the Company has adopted the plans, programs and policies listed on Schedule 1 (hereinafter referred to as defined in Schedule 1 or collectively as the "Plans") and may adopt or enter into other such Plans as will be listed from time to time on Schedule 1 and may, from time to time, amend, modify or terminate any such Plan in accordance with its terms; and WHEREAS, the Company has adopted the plans, programs, and policies listed on Schedule 2 (hereinafter referred to collectively as the "Protected Plans") and may adopt or enter into other such Protected Plans as will be listed from time to time on Schedule 2 and may, from time to time, amend, modify, or terminate any such Protected Plan in accordance with its terms; and WHEREAS, the Company has previously established the Benefits Protection Trust (hereinafter referred to as the "Trust"), effective August 1, 1989, in order to ensure that its employees, the employees of its Participating Subsidiaries, and their beneficiaries will receive the benefits which the Company is obligated to provide for them or which they reasonably anticipate receiving pursuant to the Protected Plans; and WHEREAS, The Chase Manhattan Bank, as successor to Manufacturer Hanover Trust Company, was the original Trustee of the Trust; and WHEREAS, the Company has removed The Chase Manhattan Bank as Trustee of the Trust and the Company has appointed State Street Bank and Trust Company as the successor Trustee of the Trust; and WHEREAS, the Company desires to amend and restate the Trust effective August 29, 1997; and WHEREAS, the Trust is intended to be a "grantor trust" with the corpus and income of the Trust treated as assets and income of the Company for federal income tax purposes pursuant to Sections 671 through 678 of the Internal Revenue Code of 1986 (the "Code"), as amended; and WHEREAS, the Company intends that the assets of the Trust will be subject to the claims of creditors of the Company as provided in Article SIXTEENTH; and WHEREAS, the Company intends that the existence of the Trust will not alter the characterization of the Plans as "unfunded" and will not be construed to provide taxable income to any participant under the Plans prior to actual payment of benefits thereunder; and WHEREAS, the Board of Directors of the Company shall appoint an Administrative Committee (the "Committee") as provided in Article NINTH; WHEREAS, the Trustee is not a party to the Plans and makes no representations with respect thereto, and all representations and recitals with respect to the Plans shall be deemed to be those of the Company; NOW, THEREFORE, the Company and the Trustee agree as follows: FIRST: Definitions: (a) Any term that is referenced in the Plans shall have in this Agreement the same meaning ascribed to it in the Plans, unless the context clearly indicates a different meaning. (b) For purposes of this Agreement, a Change In Control shall be deemed to occur if: (i) any "person" or "group" within the meaning of Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934 ("Act") becomes the "beneficial owner" as defined in Rule 13d-3 under the Act of more than 20% of the then outstanding voting securities of the Company; (ii) any "person" or "group" within the meaning of Sections 13(d) and 14(d)(2) of the Act acquires by proxy or otherwise the right to vote for the election of directors, for any merger or consolidation of the Company or for any other matter or question with respect to more than 20% of the then outstanding voting securities of the Company; (iii) if during any period of twenty-four consecutive months, Present Directors and/or New Directors cease for any reason to constitute a majority of the Board. For these purposes, "Present Directors" shall mean individuals who at the beginning of such consecutive twenty-four month period were members of the Board and "New Directors" shall mean any director whose election by the Board or whose nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the Directors then still in office who were Present Directors or New Directors; (iv) the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company; or (v) there shall be consummated (x) a reorganization, merger or consolidation of all or substantially all of the assets of the Company (a "Business Combination"), unless, following such Business Combination, (a) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the outstanding Common Stock of the Company and outstanding voting securities of the Company immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the outstanding common stock of the Company and outstanding voting securities of the Company, as the case may be, (b) no person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (c) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (y) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company, provided, that the divestiture of less than substantially all of the assets of the Company in one transaction or a series of related transactions, whether effected by sale, lease, exchange, spin-off, sale of the stock or merger of a subsidiary or otherwise, shall not constitute a Change In Control. Notwithstanding the foregoing, a Change In Control shall not be deemed to occur: (A) pursuant to subparagraphs (i) and (ii) above, solely because twenty percent (20%) or more of the combined voting power of the Company's then outstanding securities is acquired by one or more employee benefit plans maintained by the Company; or (B) pursuant to subparagraph (v)(y) above, if the Board determines that any sale, lease, exchange or transfer does not involve substantially all of the assets of the Corporation. The Company shall notify the Committee and the Trustee in writing of the occurrence of any event described in subparagraphs (b)(i) through (b)(v) above, as soon as practicable after the Company first learns of such event. The Committee and the Trustee may rely upon such notice from the Company in performing any of their obligations or taking any discretionary action under this Agreement which is dependent upon a Change In Control having occurred; provided, however, that in the absence of such notice, the Committee and the Trustee may rely on their own determination, including opinion of counsel (who may be counsel to the Company, the Committee or the Trustee), that a Change In Control has occurred, unless such a determination arises out of the Committee's or the Trustee's gross negligence or willful misconduct. The Trustee and the Committee may also request that the Company furnish evidence to determine or to enable the Trustee and the Committee to determine, whether a Change In Control has occurred. The Trustee's or the Committee's determination whether a Change In Control has occurred shall be binding and conclusive on all Participants. (c) "Threatened Change In Control" shall mean each of the following events, except as otherwise provided below: (1) any person or group as defined in Paragraph (b)(i) above, without the prior approval of a majority of the Present Directors, becomes the "beneficial owner" of more than fifteen percent (15%) of the then outstanding voting securities of the Company; (2) any person or group as defined in Paragraph (b)(ii) above, acquires by proxy or otherwise the right to vote for the election of directors, for any merger or consolidation of the Company or for any other matter or question with respect to more than fifteen percent (15%) of the then outstanding voting securities of the Company; (3) any person or group as defined in Paragraph (b)(i) or (ii) above, initiates a tender offer to acquire more than twenty percent (20%) of the then outstanding voting securities of the Company; or (4) the Board of Directors of the Company notifies the Trustee and the Committee in writing that a Threatened Change In Control exists. Notwithstanding the foregoing, a Threatened Change In Control shall not be deemed to occur pursuant to Paragraphs (c)(1) and (2) above solely because fifteen percent (15%) or more of the then outstanding voting securities of the Company is acquired by one or more employee benefit plans maintained by the Company. The Company shall notify the Trustee and the Committee in writing of the occurrence of any event described in Paragraphs (c)(1), (2), (3) or (4) above as soon as practicable after the Company first learns of such event. The Committee and the Trustee may rely upon such notice from the Company in performing any of their obligations or taking any discretionary action under this Agreement which is dependent upon a Threatened Change In Control having occurred; provided, however, that in the absence of such notice, the Trustee and the Committee may rely on their own determinations, including opinion of counsel (who may be counsel to the Company, the Committee or the Trustee), that a Threatened Change In Control has occurred, unless such a determination arises out of the Trustee's or the Committee's gross negligence or willful misconduct. The Trustee or the Committee may also request that the Company furnish evidence to determine or to enable the Trustee or the Committee to determine, whether a Threatened Change In Control has occurred. The Trustee's or the Committee's determination whether a Threatened Change In Control has occurred shall be binding and conclusive on all Participants. (d) "Threatened Change In Control Period" shall mean the period beginning on the date a Threatened Change of Control occurs and ending on the earliest of: (1) If the Threatened Change In Control was caused by an event described in Paragraph (c)(1) above, on the date first subsequent to the date on which the person or group referred to therein does not beneficially own more than fifteen percent (15%) of the then outstanding voting securities of the Company; or (2) If the Threatened Change In Control was caused by an event described in Paragraph (c)(2) above, on the date first subsequent to the date on which the person or group referred to therein does not acquire by proxy or otherwise the right to vote for the election of directors, for any merger or consolidation of the Company or for any other matter or question with respect to more than fifteen percent (15%) of the then outstanding voting securities of the Company; or (3) If the Threatened Change In Control was caused by an event described in Paragraph (c)(3) above, on the date first subsequent to the date on which the person or group referred to therein terminates any tender offer to acquire more than twenty percent (20%) of the then outstanding voting securities of the Company; or (4) If the Threatened Change In Control shall be deemed to have occurred by reason of the notice described in Paragraph (c)(4) above, on the date that a majority of the Present Directors and New Directors of the Board of Directors of the Company shall have notified the Trustee or the Committee in writing that the Threatened Change In Control has terminated; or (5) The date a Change In Control occurs. SECOND: Creation of Trust. (a) The Company hereby establishes with the Trustee and the Trustee hereby accepts a trust consisting of the following property (subject to the rights of the Company to withdraw such property pursuant to Paragraph (f) of this Article SECOND): (1) such cash or other property acceptable to the Trustee as shall be paid or delivered to the Trustee from time to time as contributions under the Equalization Plan, together with the earnings, income, additions and appreciation thereon and thereto (all of which is hereinafter called the "Equalization Account"); (2) such cash and other property acceptable to the Trustee as shall be paid or delivered to the Trustee from time to time as contributions under the Supplemental Retirement Income Plan, together with the earnings, income, additions and appreciation thereon and thereto (all of which is hereinafter referred to as the "SRIP Account"); (3) such cash or other property acceptable to the Trustee as shall be paid or delivered to the Trustee from time to time as contributions under the 1983 Cash Bonus Deferral Plan, together with the earnings, income, additions and appreciation thereon and thereto (all of which is hereinafter called the "1983 Bonus Deferral Account"); (4) such cash or other property acceptable to the Trustee as shall be paid or delivered to the Trustee from time to time as contributions under the 1984 Cash Bonus Deferral Plan, together with the earnings, income, additions and appreciation thereon and thereto (all of which is hereinafter called the "1984 Bonus Deferral Account"); (5) such cash or other property acceptable to the Trustee as shall be paid or delivered to the Trustee from time to time as contributions under the Key International Management Plan, together with the earnings, income, additions and appreciation thereon and thereto (all of which is hereinafter called the "KIMP Account"); (6) such cash or other property acceptable to the Trustee as shall be paid or delivered to the Trustee from time to time to be used to satisfy future liabilities of the Company with regard to the Severance Compensation Agreements of the Company, together with the earnings, income, additions and appreciation thereon and thereto (all of which is hereinafter called the "Severance Compensation Agreement Account"); (7) such cash or other property acceptable to the Trustee as shall be paid or delivered to the Trustee from time to time as contributions under the Compensation Deferral Program, together with the earnings, income, additions and appreciation thereon and thereto (all of which is hereinafter called the "Compensation Deferral Program Account"); (8) such cash or other property acceptable to the Trustee as shall be paid or delivered to the Trustee from time to time as contributions under the Non-Employee Directors' Compensation Deferral Program, together with the earnings, income, additions and appreciation thereon and thereto (all of which is hereinafter called the "Directors' Compensation Deferral Program Account"); (9) such cash or other property acceptable to the Trustee as shall be paid or delivered to the Trustee from time to time as contributions under the Mid-Career Hire Plan, together with the earnings, income, additions and appreciation thereon and thereto (all of which is hereinafter called the "Mid-Career Hire Account"); (10) such cash or other property acceptable to the Trustee as shall be paid or delivered to the Trustee from time to time to be used to satisfy future liabilities of the Company with regard to the Excess Long-Term Disability Plan, together with the earnings, income, additions and appreciation thereon and thereto (all of which is hereinafter called the "Excess LTD Account"); (11) such cash or other property acceptable to the Trustee as shall be paid or delivered to the Trustee from time to time to be used to satisfy future liabilities of the Company with regard to the Enhanced Retirement Income Plan, together with the earnings, income, additions and appreciation thereon and thereto (all of which is hereinafter called the "ERIP Account"); and (12) such cash or other property acceptable to the Trustee as shall be paid or delivered to the Trustee from time to time as contributions under the Special Severance Protection Program, together with the earnings, income, additions and appreciation thereon and thereto (all of which is hereinafter called the "Special Severance Program Account"); (13) such cash or other property acceptable to the Trustee as shall be paid or delivered to the Trustee from time to time as contributions under the Retiree Medical Program, together with the earnings, income, additions and appreciation thereon and thereto (all of which is hereinafter called the " Retiree Medical Program Account"); (14) such cash or other property acceptable to the Trustee as shall be designated for inclusion by the Company, together with the earnings, income, additions and appreciation thereon and thereto (all of which is hereinafter called the "General Account"); and (15) cash in the amount of five hundred thousand dollars ($500,000), together with the earnings thereon, and realized and unrealized gains (net of any losses) attributable thereto, (all of which is hereinafter called the "Benefits Protection Account"). Neither the cash nor any other property held in the Benefits Protection Account shall be available for payment of benefits to participants and beneficiaries under the Plans. (b) The Company may contribute to the Trust on behalf of any Account an irrevocable letter of credit (hereinafter referred to as a "L/C"). The following provisions shall be applicable to any such L/C: (1) the L/C shall expire no sooner than one (1) year from the date of issuance, (2) the Company shall continue to maintain such L/C in effect until it is replaced by cash or another irrevocable L/C or the Company withdraws such L/C pursuant to Paragraph (f) of this Article SECOND or this Agreement terminates, whichever occurs first, (3) the Company shall renew or replace such L/C at least thirty (30) days before its expiration for an additional period of one (1) year, (4) if, prior to a Change In Control, such L/C, or any renewal thereof, is not renewed or replaced by a L/C delivered to the Trustee at least thirty (30) days before the expiration of the predecessor L/C, the Trustee may draw down the full amount of such L/C and hold the proceeds pursuant to the terms of this Agreement, (5) prior to a Change In Control, the Trustee may also draw down on such L/C at any time the Trustee determines the proceeds of such L/C are necessary to allow the Trustee to fulfill its obligations under this Agreement, (6) if, after a Change In Control, such L/C, or any renewal thereof, is not renewed or replaced by a L/C delivered to the Trustee at least thirty (30) days before the expiration of the predecessor L/C, the Trustee may draw down the full amount of such L/C and hold the proceeds pursuant to the terms of this Agreement. (7) after a Change In Control, the Committee may also direct the Trustee to draw down on such L/C at any time the Committee determines the proceeds of such L/C are necessary to allow the Committee to fulfill its obligations under this Agreement. (8) the proceeds of such L/C shall be available to the Trustee or the Committee, if applicable, upon the Trustee's presentation of its sight draft, (9) the Company may, at any time, replace such L/C with another irrevocable L/C having substantially similar terms, or with an equal amount of cash, or any combination thereof, (10) any L/C shall be issued by a bank (including the Trustee) with assets in excess of $2 billion and net worth in excess of $100 million, shall be reasonably acceptable to the Trustee and the Committee and shall be in a form as shall be reasonably acceptable to the Trustee and the Committee. (c) The Trustee or the Investment Director, if applicable, for investment purposes only, may commingle all Trust assets and treat them as a single fund, but the records of the Trustee or the Investment Director, if applicable, at all times shall show the percentages of the Trust allocable to the Equalization Account, the SRIP Account, the ERIP Account, the Directors' Compensation Deferral Account, the Compensation Deferral Account, the Mid-Career Hire Account, the Excess LTD Account, the 1983 Bonus Deferral Account, the 1984 Bonus Deferral Account, the KIMP Account, the Severance Compensation Agreement Account, the Benefits Protection Account, the Special Severance Protection Program Account, the Retiree Medical Program Account and such other Account(s) as may subsequently be established under this Trust (herein referred to collectively as the "Accounts"). (d) The assets of the Accounts shall be used to discharge the obligations of the Company as follows: (1) The assets of the Equalization Account shall be used to discharge the obligations of the Equalization Plan. (2) The assets of the SRIP Account shall be used to discharge the obligations of the Supplemental Retirement Income Plan. (3) The assets of the 1983 Bonus Deferral Account shall be used to discharge the obligations of the 1983 Bonus Deferral Plan. (4) The assets of the 1984 Bonus Deferral Account shall be used to discharge the obligations of the 1984 Bonus Deferral Plan. (5) The assets of the KIMP Account shall be used to discharge the obligations of the Key International Management Plan. (6) The assets of the Severance Compensation Agreement Account shall be used to discharge the obligations of the Company under the Severance Compensation Agreements. (7) The assets of the Compensation Deferral Program Account may be used to discharge the obligations of the Compensation Deferral Program. (8) The assets of the Directors' Compensation Deferral Account may be used to discharge the obligations of the Directors' Compensation Deferral Program. (9) The assets of the Mid-Career Hire Account shall be used to discharge the obligations of the Mid-Career Hire Plan. (10) The assets of the Excess LTD Account shall be used to discharge the obligations of the Company under the Excess Long-Term Disability Plan. (11) The assets of the ERIP Account shall be used to discharge the obligations of the Enhanced Retirement Income Plan. (12) The assets of the Special Severance Protection Program Account shall be used to discharge the obligations of the Special Severance Protection Program. (13) The assets of the Retiree Medical Program Account shall be used to discharge the obligation of the Retiree Medical Program. (13) The assets of the Benefits Protection Account may be used as set forth in Paragraph (c) of Article SEVENTH, and Article EIGHTH. (14) Prior to a Change In Control, the Company may direct the Trustee to reallocate the assets of an Account to one or more other Accounts. (15) After a Change In Control, the Committee may direct the Trustee to transfer the assets of an Account to one or more other Accounts if either (i) the Plan for which such Account was established has expired or terminated, and all liabilities with regard to such expired or terminated Plan have been satisfied pursuant to Paragraph (d) of Article FIFTEENTH, or (ii) the Committee, in its sole discretion, determines that the remaining assets of such Account, after such transfer, are reasonably sufficient to cover the liabilities of the Plan for which such Account was established. (e) The Company and the Trustee agree that the Trust created herein shall not be revocable by the Company or by any successor thereto during a Threatened Change In Control Period or after a Change In Control, and is intended to be a grantor trust under the provisions of Sections 671 through 678 of the Internal Revenue Code of 1986, as amended. (f) The Company may, from time to time, add to or withdraw from the assets of the Trust, but subject to the termination provisions of Article FIFTEENTH hereof, such withdrawal may not reduce the property in the Benefits Protection Account, including any L/C, below five hundred thousand dollars ($500,000). The Company may add funds to the Trust at any time and shall designate the Account to which such funds shall be credited. Any such additional funds shall also be available to pay the fees and expenses of the Trustee and/or the Committee if the amounts transferred pursuant to the Benefits Protection Account are exhausted. Notwithstanding the foregoing, the Company shall not make any withdrawal from the Trust during a Threatened Change In Control Period or after a Change In Control until all liabilities of the Company under the Plans are satisfied and all of the purposes of this Agreement are fulfilled. THIRD: Payments from the Trust. (a) Subject to Paragraph (f) of Article SECOND hereof, Paragraph (b) of this Article THIRD and Paragraph (b) of Article SIXTEENTH hereof, the Trustee, from time to time upon receipt of direction from the Company prior to a Change In Control (other than during a Threatened Change In Control Period), and from the Committee after a Change In Control, shall make payments from the Trust, as specified in such direction to such persons, in such manner and in such amounts as the Company or the Committee, as the case may be, shall direct, and amounts paid pursuant to such direction (or in accordance with Article SEVENTH hereof) thereafter no longer shall constitute a part of the Trust. (b) The Company may, from time to time prior to a Change In Control, furnish the Trustee with certain information regarding the participants and beneficiaries under the Plans and the determination of the benefits under the Plans (hereinafter referred to as "Participants Data"). The Trustee shall be entitled to rely on the accuracy of the Participant Data provided by the Company prior to a Change In Control, and shall have no duty to verify the accuracy thereof. The Company shall, during a Threatened Change In Control Period, and, after a Change In Control, furnish the Committee with Participant Data at least once each Plan Year. Such Participant Data shall include (1) names, addresses, dates of birth, and social security numbers of each participant and beneficiary in the Plans; (2) the amount and form of benefits under each of the Plans of each participant and beneficiary if such participant would retire or die as of either the last day of such Plan Year or the last day of the Plan Year in which such Participant attained age 62; (3) earnings history, compensation (cash and deferred) and bonus history of each participant; (4) amounts payable from the Retirement Program Plan for Employees of Union Carbide Corporation and its Participating Subsidiary Companies on behalf of each participant; (5) a schedule of the estimated yearly cash payments under the Plans; and (6) any other information regarding the Plan which the Committee may reasonably request or which the Committee may deem necessary to administer this Trust. During a Threatened Change In Control Period or after a Change In Control and notwithstanding any other provisions of this Agreement, the Trustee shall, without direction from the Company, to the extent funds are available in the Trust for such purpose, make payments to participants and beneficiaries in such manner and in such amounts as the Committee shall determine they are entitled to be paid under the Plans based on the most recent Participant Data furnished to the Committee by the Company prior to a Change In Control and any supplemental information furnished to the Committee by a participant or beneficiary upon which the Committee may reasonably rely in making such determination. The Committee may make such reasonable inquiry of the Company as is necessary to determine whether any amounts that would otherwise be payable under this Agreement have previously been paid by the Company, and may reasonably rely on any information provided by the Company with regard to such payment. A determination by the Committee with regard to a participant's entitlement to payments under the terms of this Agreement shall be binding as to all participants and the Company. (c) In the event it shall be determined prior to a Change In Control that the participants and/or beneficiaries of the Plans are subject to any tax under the terms of the Trust created hereunder, then the Trustee, upon receipt of direction from the Company, shall make payments from the Trust to such persons, in such manner and in such amounts as the Company shall direct, for purposes of (1) paying the amount of Federal, State and Local tax and interest and any penalties thereon which such participants and/or beneficiaries may incur arising out of such determination or (2) distributing the interests of participants and beneficiaries in the Trust. In the event such a determination is made after a Change In Control occurs, then each participant or beneficiary who is subject to such tax, may notify the Committee, in writing, to direct the Trustee to make payments from the Trust for either of the purposes set forth in section (1) or (2) of the preceding sentence. The Trustee shall not make the payments for the purposes set forth in the first sentence of this Paragraph (c) without such written direction. (d) Payments to participants and beneficiaries pursuant to Paragraphs (b) and (c) of this Article THIRD shall be made by the Trustee to the extent that Trust funds for such purposes are sufficient to allow such payments. Subject to Paragraph (d) of Article SECOND, in any month in which the Committee directs the Trustee to make payments from the Trust and the Committee determines that a particular Account in the Trust does not have sufficient funds to provide for the payment of all amounts otherwise payable to participants and beneficiaries in such month under a particular Plan, the amount otherwise payable to each such participant or beneficiary under such Plan during such month shall be multiplied by a fraction, the numerator of which is the amount of funds then available for the payment of benefits under such Plan and the denominator of which is the total of the benefits payable prior to such reduction during such month to all participants and beneficiaries under such Plan. (e) After a Change In Control occurs the Company shall make such contributions to the Trust created hereunder as shall be necessary to ensure the assets of the Trust shall at all times be sufficient to discharge the Company's obligations under the Plans. FOURTH: Management of Trust Assets. (a) Subject to Paragraph (b) of this Article FOURTH, the Company, prior to a Change In Control, shall have exclusive authority and discretion to manage and control the Trust assets, and pursuant to such authority and discretion, may direct the Trustee, to the extent permitted by law, to exercise, from time to time and at any time, the power: (1) To invest and reinvest the Trust, without distinction between principal and income, in shares of stock (whether common or preferred) or other evidences of ownership, bonds, debentures, notes or other evidences of indebtedness, unsecured or secured by mortgages on real or personal property wherever situated (including any part interest in a bond and mortgage or note and mortgage whether insured or uninsured) and other property, or part interest in property, real or personal, foreign or domestic, whether or not productive of income or consisting of wasting assets, and in order to reduce the rate of interest rate fluctuations, contracts, as either buyer or seller, for the future delivery of United States Treasury securities and comparable Federal-Government-backed securities; provided, however, that the Trustee, upon specific directions in writing from the Company, shall invest and reinvest some or all of the assets of the Trust in qualifying securities issued by the Company or by an affiliate of the Company, to the extent permitted by the Employee Retirement Income Security Act of 1974, unless the Trustee shall deem such directed investment or reinvestment to be inconsistent with the provisions of Paragraph (a) of Article EIGHTH and that the Trustee may retain any such securities acquired for the Trust at the direction of the Company until the Company directs the Trustee to dispose of them; but no direction of the Company to sell any securities issued by the Company or by an affiliate of the Company shall be binding if it would require the Trustee to violate any law respecting the public distribution of securities, and, in any event, without limiting the generality of the provisions of Article TENTH, the Company agrees, to the extent permitted by law, to indemnify the Trustee and hold it harmless from and against any claim or liability that may be asserted against it, otherwise than on account of the Trustee's breach of his own duties, by reason of the Trustee's investing in, or reinvesting in or selling such securities in accordance with any direction from the Company or by reason of the Trustee's failure to sell any such securities in the absence of any direction from the Company to sell them; and (2) To sell, convey, redeem, exchange, grant options for the purchase or exchange of, or otherwise dispose of, any real or personal property, at public or private sale, for cash or upon credit, with or without security, without obligation on the part of any person dealing with the Trustee to see to the application of the proceeds of or to inquire into the validity, expediency or propriety of any such disposition; (3) To manage, operate, repair and improve, and mortgage or lease for any length of time any real property held in the Trust; to renew or extend any mortgage, to agree to reduction of the rate of interest or any other modification in the terms of any mortgage or of any guarantee pertaining to it; to enforce any covenant or condition of any mortgage or guarantee or to waive any default in the performance thereof; to exercise and enforce any right of foreclosure; to bid in property on foreclosure; to take a deed in lieu of foreclosure with or without paying consideration therefor and in connection therewith to release the obligation on the bond secured by the mortgage; and to exercise and enforce in any action, suit or proceeding at law or in equity any rights or remedies in respect of any mortgage or guarantee; (4) To exercise, personally or by general or limited proxy, the right to vote any shares of stock, bonds or other securities held in the Trust; to delegate discretionary voting power to trustees of a voting trust for any period of time; and to exercise, personally or by power of attorney, any other right appurtenant to any securities or other property of the Trust; (5) To join in or oppose any reorganization, recapitalization, consolidation, merger or liquidation, or any plan therefor, or any lease, mortgage or sale of the property of any organization the securities of which are held in the Trust; to pay from the Trust any assessments, charges or compensation specified in any plan of reorganization, recapitalization, consolidation, merger or liquidation; to deposit any property with any committee or depositary; and to retain any property allotted to the Trust in any reorganization, recapitalization, consolidation, merger or liquidation; (6) To exercise or sell any conversion or subscription or other rights appurtenant to any stock, security or other property held in the Trust; (7) To borrow from any lender (including the Trustee in its individual capacity) money, in any amount and upon any reasonable terms and conditions, for purposes of this Agreement, and to pledge or mortgage any property held in the Trust to secure the repayment of any such loan; (8) To compromise, settle or arbitrate any claim, debt, or obligation of or against the Trust; to enforce or abstain from enforcing any right, claim, debt or obligation; and to abandon any property determined by it to be worthless; (9) To make loans of securities held in the Trust to registered brokers and dealers upon such terms and conditions as are permitted by applicable law and regulations, and in each instance to permit the securities so lent to be registered in the name of the borrower or a nominee of the borrower, provided that in each instance the loan is adequately secured and neither the borrower nor any affiliate of the borrower has discretionary authority or control with respect to the assets of the Trust involved in the transaction or renders investment advice with respect to those assets; and (10) To invest and reinvest any property in the Trust in any other form or type of investment not specifically mentioned in this Paragraph (a) of Article FOURTH, so long as such form or type of investment is a form or type of investment approved by the Chief Financial Officer of the Company, or such other officer designated by the Company, for the investment of assets of the Trust. (b)(1) (A) Prior to a Change In Control, the Chief Financial Officer of the Company, or such other officer designated by the Company, at any time and from time to time may direct the Trustee to segregate one or more specified portions of the Trust into a separate investment account or accounts (each hereinafter called a "Segregated Investment Account"), and may appoint and designate an Investment Director to direct the Trustee in the management of the assets of each such Segregated Investment Account (hereinafter called "that Investment Director's Segregated Investment Account"). (B) Any Investment Director appointed by the Chief Financial Officer of the Company may be either an officer or employee of the Company, a subsidiary or affiliate of the Company, or an Investment Manager who is not an officer, employee, subsidiary or affiliate of the Company. Any Investment Manager so appointed must be either (i) an investment adviser registered as such under the Investment Advisers Act; or (ii) a bank, as defined in that Act; or (iii) an insurance company qualified to perform services in the management, acquisition or disposition of the assets of the Trust under the laws of more than one State. The Trustee until notified in writing to the contrary shall be fully protected in relying upon any written notice of the appointment of an Investment Director furnished to it by the Company. In the event of any vacancy in the office of Investment Director, the Company shall be deemed to be the Investment Director of that Investment Director's Segregated Investment Account until an Investment Director shall have been duly appointed to direct the Trustee in the management of the assets of that Investment Director's Segregated Investment Account; and in such event until an Investment Director shall have been so appointed and qualified, references herein to the Company's acting in respect of that Investment Director's Segregated Investment Account pursuant to direction from the Investment Director shall be deemed to authorize the Company to direct the Trustee on the investment or the assets of that Investment Director's Segregated Investment Account, and subparagraphs (4) and (5) of this Paragraph (b) shall have no effect and shall be disregarded. (2) Any Investment Director appointed pursuant to Paragraph (b) (1) of this Article FOURTH shall have exclusive authority and discretion to manage and control the assets of that Investment Director's Segregated Investment Account, and pursuant to such authority and discretion may direct the Trustee from time to time and at any time: (A) To invest and reinvest that Investment Director's Segregated Investment Account, without distinction between principal and income, in shares of stock (whether common or preferred) or other evidences of ownership, bonds, debentures, notes or other evidences of indebtedness, unsecured or secured by mortgages on real or personal property wherever situated (including any part interest in a bond and mortgage or note and mortgage whether insured or uninsured) and other property, or part interest in property, real or personal, foreign or domestic, whether or not productive of income or consisting of wasting assets, and in order to reduce the risk of interest rate fluctuations, contracts, as either buyer or seller, for the future delivery of United States Treasury securities and comparable Federal Government- backed securities; provided, however, that the Trustee, upon specific directions in writing from that Investment Director, shall invest and reinvest some or all of the assets of that Investment Director's Segregated Investment Account in qualifying securities issued by the Company or by an affiliate of the Company, to the extent permitted by the Employee Retirement Income Security Act of 1974, unless the Trustee shall deem such directed investment or reinvestment to be inconsistent with the provisions of Paragraph (a) of Article EIGHTH and that the Trustee may retain any such securities acquired for that Investment Director's Segregated Investment Account at the direction of that Investment Director until that Investment Director directs the Trustee to dispose of them; but no direction of any Investment Director to sell any securities issued by the Company or by an affiliate of the Company shall be binding if it would require the Trustee to violate any law respecting the public distribution of securities, and, in any event, without limiting the generality of the provisions of Article TENTH, the Company agrees, to the extent permitted by law, to indemnify the Trustee and hold it harmless from and against any claim or liability that may be asserted against it, otherwise than on account of the Trustee's breach of his own duties, by reason of the Trustee's investing in, or reinvesting in or selling such securities in accordance with any direction from any Investment Director or by reason of the Trustee's failure to sell any such securities in the absence of any direction from that Investment Director to sell them; and (B) To perform acts similar to those authorized to the Trustee in subparagraphs (2) through (10) of Paragraph (a) of this Article FOURTH. (3) In addition, each Investment Director, from time to time and at any time may delegate to the Trustee discretionary authority to invest and reinvest funds of that Investment Director's Segregated Investment Account in debt securities (including obligations of the Government of the United States) payable on demand or having maturities not exceeding one year or in interests in any trust fund that has been or shall be created and maintained by the Trustee as trustee for the collective short-term investment of funds, the instrument creating such trust fund, together with any amendments, modifications or supplements thereof, being hereby effective when and as such investments are made, incorporated in and made a part of this Agreement as fully and to all intents and purposes as if set forth herein at length. (4) The Trustee shall exercise in respect of each Investment Director's Segregated Investment Account the powers set forth in Paragraph (b) (2) of this Article FOURTH only when and to the extent directed in writing by that Investment Director. Each Investment Director, from time to time and at any time, may issue orders for the purchase or sale of securities directly to a broker or dealer, and for such purpose the Trustee will upon request execute and deliver to that Investment Director one or more trading authorizations. Written notification of the issuance of each such order shall be given promptly to the Trustee by that Investment Director, and the execution of each such order shall be confirmed by the broker to that Investment Director and to the Trustee. Such notification shall be authority to the Trustee to receive securities purchased against payment therefor and to deliver securities sold against receipt of the proceeds therefrom, as the case may be. (5) Unless the Trustee participates knowingly in, or knowingly undertakes to conceal, an act or omission of any Investment Director, knowing such act or omission to be a breach of the fiduciary responsibility of that Investment Director with respect to the Trust, or enables such a breach to occur through the Trustee's failure to comply with the Trustee's own duties, the Trustee shall not be liable for any act or omission of any Investment Director, and shall not be under any obligation to invest or otherwise manage the assets of the Trust which are subject to the management of any Investment Director. Without limiting the generality of the foregoing, the Trustee shall not be liable by reason of its taking or refraining from taking at the direction of any Investment Director any action in respect of that Investment Director's Segregated Investment Account, pursuant to this Paragraph (b), or pursuant to a notification of an order to purchase or sell securities by the Committee or for the account of any Investment Director's Segregated Investment Account issued by that Investment Director nor shall the Trustee be liable by reason of its refraining from taking any action with respect to any Investment Director's Segregated Investment Account because of the failure of such Investment Director to give such direction or order; the Trustee shall be under no duty to question or to make inquiries as to any direction or order or failure to give direction or order by any Investment Director; and the Trustee shall be under no duty to make any review of investments acquired for any Investment Manager's Segregated Investment Account at the direction or order of that Investment Manager and shall be under no duty at any time to make any recommendation with respect to disposing of or continuing to retain any such investment. (6) Without limiting the generality of the provisions of Article TENTH, the Company agrees, to the extent permitted by law, to indemnify the Trustee and hold it harmless from and against any claim or liability that may be asserted against it, otherwise than on account of the Trustee's breach of his own duties, by reason of the Trustee's taking or refraining from taking any action in accordance with this Paragraph (b), including, without limiting the generality of the foregoing, any claim or liability that may be asserted against the Trustee on account of failure to receive securities purchased, or failure to deliver securities sold, pursuant to orders issued by an Investment Director directly to a broker or dealer. (c) After a Change In Control occurs and subject to Article SIXTH hereof, the Committee shall have the exclusive authority and discretion to manage and control the Trust assets, and may appoint an Investment Director or an Investment Manager (as defined in Paragraph (b) (1) (A) of this Article FOURTH) including an affiliate of the Company or the Trustee to manage the investment of the Trust assets. Pursuant to such authority and discretion, the Committee, or any investment manager appointed pursuant to this Paragraph (c), may exercise, from time to time and at any time, the power to hold or dispose of any assets held by the Trust on the date a Change In Control occurs, and shall invest and reinvest the Trust, without distinction between principal and income, in accordance with the provisions described in Paragraph (a) of this Article FOURTH FIFTH: Administrative Powers. The Trustee shall have and in its sole and absolute discretion may exercise from time to time and at any time the following administrative powers and authority with respect to the Trust: (a) To hold property of the Trust in its own name or in the name of a nominee or nominees, without disclosure of the Trust, or in bearer form so that it will pass by delivery, but no such holding shall relieve the Trustee of its responsibility for the safe custody and disposition of the Trust in accordance with the provisions of this Agreement; the Trustee's books and records shall at all times show that such property is part of the Trust; and the Trustee shall be absolutely liable for any loss occasioned by the acts of its nominee or nominees with respect to securities registered in the name of the nominee or nominees; (b) To continue to hold any property of the Trust whether or not productive of income; to reserve from investment and keep unproductive of income, without liability for interest, cash temporarily awaiting investment and such cash as it deems advisable or as the Company from time to time may specify prior to a Change In Control in order to meet the administrative expenses of the Trust or anticipated distributions therefrom; (c) To organize and incorporate under the laws of any state it may deem advisable one or more corporations (and to acquire an interest in any such corporation that it may have organized and incorporated) for the purpose of acquiring and holding title to any property, interests or rights that the Trustee is authorized to acquire under Article FOURTH hereof; (d) To employ in the management of the Trust suitable agents, without liability for any loss occasioned by any such agents selected by the Trustee with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims; (e) To make, execute and deliver, as Trustee, any deeds, conveyances, leases, mortgages, contracts, waivers or other instruments in writing that the Trustee may deem necessary or desirable in the exercise of its powers under this Agreement; and (f) To do all other acts that the Trustee may deem necessary or proper to carry out any of the powers set forth in Articles FOURTH, FIFTH, and SIXTH hereof or otherwise in the best interests of the Trust. SIXTH: Insurance and Annuity Contracts. (a) The Trustee, upon written direction of the Company prior to a Change In Control, or from the Committee after a Change In Control, shall pay from the Trust such sums to such insurance company or companies as the Company may direct for the purpose of procuring participating or nonparticipating insurance and/or annuity contracts for the Trust (hereinafter in Article SIXTH referred to as "Contracts"). The Company shall prepare, or cause to be prepared in such form as it shall prescribe, the application for any Contract to be applied for. The Trustee shall receive and hold in the Trust, subject to the provisions hereinafter set forth in this Article SIXTH, all Contracts so obtained. (b) The Trustee shall be the complete and absolute owner of Contracts held in the Trust and, upon written direction of the Company prior to a Change In Control, shall have the power, without the consent of any other person, to exercise any and all of the rights, options or privileges that belong to the absolute owner of any Contract held in the Trust or that are granted by the terms of any such Contract or by the terms of this Agreement. Prior to a Change In Control, the Trustee shall have no discretion with respect to the exercise of any of the foregoing powers or to take any other action permitted by any Contract held in the Trust, but shall exercise such powers or take such action only upon the written direction of the Company and the Trustee shall have no duty to exercise any of such powers or to take any such action unless and until it shall have received such direction. The Trustee, upon the written direction of the Company prior to a Change In Control, shall deliver any Contract held in the Trust to such person or persons as may be specified in the direction. (c) The Trustee shall hold in the Trust the proceeds of any sale, assignment or surrender of any Contract held in the Trust and any and all dividends and other payments of any kind received in respect of any Contract held in the Trust. (d) Upon the written direction of the Company prior to a Change In Control, the Trustee shall pay from the Trust premiums, assessments, dues, charges and interest, if any, upon any Contract held in the Trust. The Trustee shall have no duty to make any such payment unless and until it shall have received such direction. After a Change In Control, the Trustee shall pay from the Trust premiums, assessments, dues, charges and interest, if any, upon any Contract held in the Trust, only upon direction from the Committee. (e) No insurance company that may issue any Contract or Contracts held in the Trust shall be deemed to be a party to this Agreement for any purpose, or to be responsible in any way for the validity of this Agreement or to have any liability under this Agreement other than as stated in each Contract that it may issue. Any insurance company may deal with the Trustee as sole owner of any Contract issued by it and held in the Trust, without inquiry as to the authority of the Trustee to act, and may accept and rely upon any written notice, instruction, direction, certificate or other communication from the Trustee believed by it to be genuine and to be signed by an officer of the Trustee and shall incur no liability or responsibility for so doing. Any sums paid out by any insurance company under any of the terms of a Contract issued by it and held in the Trust either to the Trustee, or, in accordance with its direction, to any other person or persons designated as payees in such Contract shall be a full and complete discharge of the liability to pay such sums, and the insurance company shall have no obligation to look to the disposition of any sums so paid. No insurance company shall be required to look into the terms of this Agreement, to question any action of the Trustee or to see that any action of the Trustee is authorized by the terms of this Agreement. (f) Anything contained herein to the contrary notwithstanding, neither the Company, the Committee nor the Trustee shall be liable for the refusal of any insurance company to issue or change any Contract or Contracts or to take any other action requested by the Trustee; nor for the form, genuineness, validity, sufficiency or effect of any Contract or Contracts held in the Trust; nor for the act of any person or persons that may render any such Contract or Contracts null and void; nor for the failure of any insurance company to pay the proceeds and avails of any such Contract or Contracts as and when the same shall become due and payable; nor for any delay in payment resulting from any provision contained in any such Contract or Contracts; nor for the fact that for any reason whatsoever (other than their own negligence or willful misconduct) any Contract or Contracts shall lapse or otherwise become uncollectible. (g) After a Change In Control, the Committee shall exercise any of the powers set forth in this Article SIXTH, including the power to negotiate for and purchase Contracts the rates of return and maturity dates of which may reasonably be expected to yield assets of the Trust sufficient to discharge any or all of the obligations of the Company under the Plans. SEVENTH: Taxes, Expenses and Compensation of Trustee and the Committee. (a) The Company shall pay any Federal, State, Local or other taxes imposed or levied with respect to the corpus and/or income of the Trust or any part thereof under existing or future laws, and the Company, or the Committee, if applicable, in their discretion, or the Trustee, in its discretion, may contest the validity or amount of any tax, assessment, claim or demand respecting the Trust or any part thereof. Upon direction from the Committee, the Trustee shall deduct any payroll taxes required to be withheld with respect to any payments made pursuant to the Trust. (b) The Trustee, without direction from the Company, or the Committee, if applicable, shall pay from the Trust the reasonable and necessary expenses and compensation of counsel and all other reasonable and necessary expenses of managing and administering the Trust that are not paid by the Company including, but not limited to, Participant record keeping expenses, investment management fees, computer time charges, data retrieval and input costs, charges for time expended by personnel of the Trustee in fulfilling the Trustee's duties, expenses incurred by the members of the Committee in performance of their duties and reasonable compensation (as specified in Schedule 4) of each member of the Committee. (c)(i) The Company shall pay to the Trustee from time to time such reasonable compensation for its services as trustee as is specified in Schedule 3 or as subsequently agreed to by the Company and the Trustee, but until paid, such compensation and reimbursement for expenses incurred by the Trustee pursuant to this Article SEVENTH shall constitute a charge upon the Trust, such charge to have priority over any payments due participants under the Plans. (d) After a Change In Control, the Trustee shall bill the Company directly, on a monthly basis, for all expenses described in Paragraph (b) of this Article SEVENTH and all fees described in Paragraph (c) thereof which amounts shall be immediately due and payable except as otherwise provided in Paragraph (c). If such amounts are not paid by the Company within thirty (30) days of the billing date, the Trustee may pay such amounts from the Benefits Protection Account. The Trustee may commence legal action to recover any amount not paid within thirty (30) days of the billing date. EIGHTH: General Duties of Trustee and Investment Director. (a) Subject to Article FIFTEENTH hereof, the Trustee, any Investment Director appointed pursuant to Paragraph (b) of Article FOURTH, and any Investment Manager appointed pursuant to Paragraph (c) of Article FOURTH, shall discharge their duties under this Agreement solely in the interest of the participants in the Plans and their beneficiaries and (1) for the exclusive purpose of providing benefits to such participants and their beneficiaries and defraying reasonable expenses of administering the Plans; and (2) with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims; and (3), where applicable, by diversifying the investments of the Trust so as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so; but the duties and obligations of the Trustee and any Investment Director shall be limited to those expressly imposed upon them by this Agreement notwithstanding any reference herein to the Plans or the Protected Plans. (b) The Trustee may consult with counsel, who may be counsel for the Company or for the Trustee in its individual capacity. (c) (1) Within thirty (30) days after a Change In Control, the Company shall notify participants and beneficiaries of the Protected Plans in writing of the Committee's availability to aid them in pursuing any claims they may have against the Company under the terms of those of the Protected Plans under which they are covered. The Company shall provide such notice by using the same method used by Department of Labor 29 C.F.R. Section 2520.104b- 1(b)(1) as now in effect without regard to subsequent amendments. If the Company fails to do so, the Committee shall provide such notification by placing an advertisement in one newspaper of general circulation in each of the ten locations in which the largest number of employees are located as communicated by the Company to the Trustee prior to a Change In Control or as determined by the Committee. (2) If, after a Change of Control, a participant or beneficiary of a Protected Plan notifies the Committee that the Company (or insurance company, contract administrator or any other party, if applicable) has refused to pay a claim asserted by the participant or beneficiary under any of the Protected Plans, and the Committee determines that the assets held in the Accounts are not available to pay such claim, then, unless the Committee shall determine that the claim has no basis in law and fact (in which case the Committee shall notify the participant or beneficiary of such determination and shall take no further action with respect to the claim), the Committee: (A) will promptly attempt to negotiate with the Company (or insurance company, contract administrator or other party, if applicable) to obtain payment, settlement, or other disposition of the claim, subject to the consent of the participant or beneficiary; (B) will if (i) negotiations fail after sixty (60) days of their commencement to result in a payment, settlement or other disposition agreeable to the participant or beneficiary (hereafter referred to in this Paragraph (c) of Article EIGHTH as the "Plaintiff"), (ii) the Committee at any time reasonably believes further negotiations not to be in the Plaintiff's best interest, or (iii) any applicable statute of limitations would otherwise expire within sixty (60) days, upon the receipt of written authorization from the Plaintiff in substantially the form attached as Exhibit A hereto, institute and maintain legal proceedings (the "Litigation") against the Company or other appropriate person or entity to recover on the claim on behalf of the Plaintiff; and (C) may, subject to the written consent of the Plaintiff, settle or discontinue the Litigation. The Committee shall direct the course of the Litigation and shall keep the Plaintiff informed of the progress of the Litigation as the Committee deems appropriate, but no less frequently than quarterly. If, during the Litigation, (i) the Plaintiff directs in writing that the Litigation on behalf of the Plaintiff be settled or discontinued, the Committee shall take all appropriate action to follow such direction, provided that the written direction specifies the terms and conditions of the settlement or discontinuance, and further provided that the Plaintiff, if requested by the Committee, shall execute and deliver to the Committee a document in a form acceptable to the Committee releasing and holding harmless the Committee from any liability resulting from the Committee following such direction; or (ii) the Plaintiff refuses to consent to the settlement or other disposition of the Litigation on terms recommended in writing by the Committee, the Committee may proceed, in its sole and absolute discretion, to take such action as it deems appropriate in the Litigation, including settlement or discontinuance of the Litigation, provided that the Committee shall afford the Plaintiff at least fourteen (14) days' advance notice of any decision to settle or otherwise discontinue the Litigation, subject to the provisions of the following sentence. If, at any time, the Plaintiff (x) revokes in writing (in substantially the form attached as Exhibit B hereto) the authorization of the Committee to proceed on his behalf and delivers such writing to the Committee and (y) appoints his own counsel and so notifies the Committee in writing, whose fees and expenses are not to be paid by the Trust and who shall appear in the Litigation on behalf of the Plaintiff in lieu of counsel retained by the Committee, then the Committee shall not be authorized to proceed in the Litigation on behalf of the Plaintiff. Thereafter, the Committee shall have no obligation to proceed further on behalf of such Plaintiff or to pay any costs or expenses incurred in the Litigation after the date of the delivery of such writing. The Committee is empowered to retain, at the expense of the Trust, counsel and other appropriate experts, including actuaries and accountants, to aid it in making any determination under this Paragraph (c) of Article EIGHTH and in determining whether to pursue or settle any Litigation. The Committee shall have the discretion to determine the form and nature that any Litigation against the Company or other appropriate person or entity shall take, and the procedural rules and laws applicable to such Litigation shall supersede any inconsistent provision of this Agreement. (3) Subparagraph (c)(2) shall be inapplicable in respect of any Litigation involving the payment of benefits under any Plan in which the Committee is named a defendant. Any Plaintiff in an action in which the Committee or the Trustee is named a defendant shall engage his own counsel, whose fees and expenses shall be paid by the Plaintiff, provided, however, that the Committee shall pay out of the assets of the Benefits Protection Account of the Trust any legal fees and costs awarded to the Plaintiff by a court in such Litigation pursuant to Section 502 (g) (1) of ERISA. (4) In the event the Committee determines that the claim of a participant or beneficiary has no basis in law or fact and such participant or beneficiary pursues such claim against the Company, then the Committee shall reimburse the participant or beneficiary out of the assets of the Benefits Protection Account for any reasonable legal fees and other reasonable costs incurred in pursuing such claim if such participant or beneficiary obtains a settlement or final judgment of a court of competent jurisdiction under which the participant or beneficiary is to receive not less than 50% of the amount originally claimed to the Committee as the amount owed by the Company. (5) With respect to claims by holders of Severance Compensation Agreements, such holders may elect to pursue their own claim (with counsel of their choice) or to have the Committee pursue such claim. In the event such holders elect to pursue their own claims, the Committee shall promptly reimburse such holders for all attorneys fees and other expenses incurred to the extent the Company does not pay such amounts as provided in the Severance Compensation Agreements. (d) The Company will, prior to a Change In Control, designate Kelley Drye & Warren LLP to act as counsel to the Committee at the expense of the Trust after a Change In Control, to enforce the rights of participants and beneficiaries to benefits under the Protected Plans, as described above. If the designated counsel declines to provide representation because of an ethical or legal conflict of interest, or the Committee is not satisfied with the quality of representation provided, the Committee, may, from time to time, dismiss the designated firm or any successor and engage another qualified law firm for this purpose including the same law firm which represents the Committee with respect to its responsibilities as Committee under this Agreement. The Company may not dismiss or engage such counsel or cause the Committee to engage or dismiss such counsel after a Change In Control. NINTH: General Duties of the Committee. (a) Subject to Article FIFTEENTH hereof, the Committee shall discharge their duties under this Agreement solely in the interest of the participants in the Plans and their beneficiaries and (1) for the exclusive purpose of providing benefits to such participants and their beneficiaries and defraying reasonable expenses of administering the Plans; and (2) with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims; and (3), after a Change In Control, by diversifying the investments of the Trust so as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so; but the duties and obligations of the Committee shall be limited to those expressly imposed upon them by this Agreement notwithstanding any reference herein to the Plans or the Protected Plans. (b) The Committee shall consist of not less than five (5) members to be appointed by and serve at the pleasure of the Board of Directors of the Company. The Board may, at any time prior to a Change In Control, fill vacancies or require the resignation of one or more of the members of the Committee with or without cause. In the event that a vacancy or vacancies shall occur on the Committee prior to a Change In Control, the remaining member or members shall act as the Committee until the Board fills such vacancy or vacancies. However, upon a Change In Control, no member may be removed, for any reason, by the Board. In the event that a vacancy occurs after a Change In Control, the Board shall have no authority to fill such vacancy and the remaining members of the Committee shall select a replacement to serve on the Committee. No person shall be ineligible to be a member of a Committee because he is, was or may become entitled to benefits under any plan in the Trust, or because he is a director and/or officer of the Company, Affiliate or a Trustee; provided, that no Participant who is a member of the Committee shall participate in any determination by the Committee specifically relating to the calculation or disposition of his benefits under any plan in the Trust. (c) Except as otherwise expressly provided in this Agreement or by the Board of Directors prior to a Change In Control: 1. After a Change In Control, the Committee shall have the authority to invest and manage the assets of the Trust pursuant to Article FOURTH. 2. The Committee shall have all powers necessary or helpful for the carrying out of its responsibilities, and the decisions or actions of the Committee in good faith in respect of any matter hereunder shall be conclusive and binding upon all parties concerned. 3. The Committee may delegate to one or more of its members or any other person the right to act on its behalf with respect to the implementation of a decision of the Committee. 4. After a Change In Control, subject to Paragraph (b) of Article FIFTEENTH, the Committee shall have the authority to amend this Agreement. No amendment shall be made without the Trustee's consent thereto in writing if, and to the extent that, the effect of such amendment is to increase the Trustee's responsibilities hereunder. Such proposed amendment shall be delivered to the Trustee as a written instrument of amendment, duly executed and acknowledged by the Committee. The Trustee's consent shall not be required for the termination of the Trust or its removal as Trustee. 5. Without limiting the generality of the foregoing, the Committee shall have full discretionary authority to: (i) Determine all questions arising out of or in connection with the terms and provisions of this Agreement except as otherwise expressly provided herein; (ii) Make rules and regulations for the administration of the Trust which are not inconsistent with the terms and provisions of this Agreement, and fix the annual accounting period of the Trust as required for tax purposes; (iii) Construe all terms, provisions, conditions and limitations to the Trust; (iv) Determine all questions relating to the administration the Trust (i) when disputes arise between the Company and a Participant or his/her Beneficiary, spouse or legal representatives and (ii) whenever the Committee deems it advisable to determine such questions in order to promote the uniform administration of the Trust; and (v) Monitor the performance of the Trustee or any Investment Director for the Trust. In order to accomplish this, the Committee shall meet with the Trustee or any Investment Director, at such time as the Committee shall determine, and the Committee shall request the Trustee or any Investment Director to present a full report on the financial position of the Trust under the control of any Investment Director. The foregoing list of powers is not intended to be either complete or exclusive, and the Committee shall, in addition, have such powers as may be necessary for the performance of its duties under the Trust. (d) The Committee shall advise the Trustee in writing with respect to all benefits which become payable under the terms of the Trust and shall direct the Trustee to pay such benefits to or on order of the Committee. (e) The Committee may employ such counsel, including legal counsel, actuaries, accountants, investment advisors, physicians, agents and such clerical and other services as it may require in carrying out the provisions of the Trust. Unless paid by the Company, the Committee shall charge the fees, charges and costs resulting from such employment as an expense of a trust established relating to the Trust. Unless otherwise provided by law, any person so employed by a Committee may be legal or other counsel to the Company, an affiliate, a member of a Committee or an officer or member of the Board of Directors or an affiliate. (f) Each member of the Committee shall receive compensation, as specified in Schedule 4, for their services in connection with the Trust. (g) The Committee may purchase such fiduciary liability insurance or such other insurance as it deems necessary relating to the performance of its obligations hereunder. Unless paid by the Company, the Committee shall charge the premiums and charges resulting from such insurance as an expense of the Trust. TENTH: Indemnification. The Company agrees, to the extent permitted by law, to indemnify and hold the Trustee and the Committee harmless from and against any liability that they may incur in the administration of the Trust, unless arising from the Trustee's or the Committee's own gross negligence or willful breach of the provisions of its obligations under this Agreement. If the Company fails to indemnify and hold the Trustee and the Committee harmless from and against any liability that they may incur in the administration of this Trust pursuant to this Article TENTH, the Trust shall indemnify the Trustee and the Committee to the extent permitted by law. The Trustee and the Committee shall not be required to give any bond or any other security for the faithful performance of its duties under this Agreement, except as required by law. ELEVENTH: No Duty To Advance Funds. The Trustee shall have no obligation to advance its own funds for the purposes of fulfilling its responsibilities under this Agreement, and its obligation to incur expenses shall at all times be limited to amounts in the Trust available to be applied toward such expenses. TWELFTH: Accounts. (a) (1) The Trustee shall keep accurate and detailed accounts of all its receipts, investments and disbursements under this Agreement on a calendar year basis, accounting for each Account on a separate basis. Such person or persons as the Company shall designate shall be allowed to inspect the books of account relating to the Trust upon request at any reasonable time during the regular business hours of the Trustee. (2) Within 120 days after the close of each calendar year, the Trustee shall transmit to the Company, and certify the accuracy of, a written statement of the assets and liabilities of the Trust, showing the current value of each asset at that date, and a written account of all the Trustee's transactions relating to the Trust during the period from the last previous accounting to the close of that year. The report of any such valuation shall not constitute a representation by the Trustee that the amounts reported as fair market values would actually be realized upon the liquidation of the Trust. For the purposes of this Subparagraph, the date of the Trustee's resignation or removal as provided in Article FOURTEENTH hereof or the date of termination of the Trust as provided in Article FIFTEENTH hereof shall be deemed to be the close of a year. (3) Unless the Company shall have filed with the Trustee written exceptions or objections to any such statement and account within 90 days after receipt thereof, the Company shall be deemed to have approved such statement and account; and in such case or upon the written approval by the Company of any such statement and account, the Trustee shall be forever released and discharged with respect to all matters and things contained in such statement and account as though it had been settled by decree of a court of competent jurisdiction in an action or proceeding to which the Company and all persons having any beneficial interest in the Trust were parties. (b) Nothing contained in this Agreement or in the Plans shall deprive the Trustee of the right to have a judicial settlement of its accounts. In any proceeding for a judicial settlement of the Trustee's accounts or for instructions in connection with the Trust, the only other necessary party thereto in addition to the Trustee shall be the Company. If the Trustee so elects, it may bring in as a party or parties defendant any other person or persons. No person interested in the Trust, other than the Company, shall have a right to compel an accounting, judicial or otherwise, by the Trustee, and each such person shall be bound by all accountings by the Trustee to the Company, as herein provided, as if the account had been settled by decree of a court of competent jurisdiction in an action or proceeding to which such person was a party. THIRTEENTH: Administration of the Plans; Communications. (a) The Company and/or the Committee shall administer the Plans as provided therein and subject to Paragraph (b) of Article THIRD and Paragraph (c) of Article EIGHTH hereof, or subject to any other delegation by the Company and/or the Committee and assumption by the Trustee of the duties of administering the Plans, the Trustee shall not be responsible in any respect for administering the Plans nor shall the Trustee be responsible for the adequacy of the Trust to meet and discharge all payments and liabilities under the Plans. The Trustee shall be fully protected in relying upon any written notice, instruction, direction or other communication signed by an officer of the Company or a member of the Committee who is authorized to execute and deliver, in the name and on behalf of the Company or the Committee, documents or instruments relating to the Trust (hereinafter an "Authorized Officer"). The Company and the Committee, from time to time, shall furnish the Trustee with the names and specimen signatures of the Authorized Officers and shall promptly notify the Trustee of the termination of office of any Authorized Officer and the appointment of a successor thereto. Until notified to the contrary, the Trustee shall be fully protected in relying upon the most recent list of Authorized Officers furnished to it by the Company and the Committee. (b) Any action required by any provision of this Agreement to be taken by the Board of Directors of the Company shall be evidenced by a resolution of such Board of Directors certified to the Trustee by the Secretary or an Assistant Secretary of the Company under its corporate seal, and the Trustee shall be fully protected in relying upon any resolution so certified to it. Unless other evidence with respect thereto has been specifically prescribed in this Agreement, any other action of the Company under any provision of this Agreement, including any approval of or exceptions to the Trustee's accounts, shall be evidenced by a certificate signed by an authorized officer, and the Trustee shall be fully protected in relying upon such certificate. The Trustee may accept a certificate signed by an Authorized Officer as proof of any fact or matter that it deems necessary or desirable to have established in the administration of the Trust (unless other evidence of such fact or matter is expressly prescribed herein), and the Trustee shall be fully protected in relying upon the statements in the certificate. (c) The Trustee shall be entitled conclusively to rely upon any written notice, instruction, direction, certificate or other communication believed by it to be genuine and to be signed by an Authorized Officer, and the Trustee shall be under no duty to make investigation or inquiry as to the truth or accuracy of any statement contained therein. (d) Until written notice is given to the contrary, communications to the Trustee shall be sent to it at its office at 3 Pine Hill Drive, Quincy, MA 02169, Attention: Legal Division; communications to the Company shall be sent to it at its office at 39 Old Ridgebury Road, Danbury, Connecticut 06817, Attention: General Counsel and communications to the Committee shall be sent to it at 39 Old Ridgebury Road, Danbury, Connecticut 06817, Attention: [ ]. FOURTEENTH: Resignation or Removal of Trustee. (a) The Trustee may resign at any time upon 120 days' written notice to the Company or such shorter period as is acceptable to the Company. However, such resignation shall not become effective unless and until a successor trustee is appointed. If such resignation occurs before a Change In Control and not during a Threatened Change In Control Period, the Company shall appoint a successor trustee. If such resignation occurs during a Threatened Change In Control Period or after a Change In Control, the Committee shall have the right to appoint a successor trustee. In either case, the Company or the Committee, as the case may be, shall diligently seek to obtain a successor trustee. Until the appointment of a successor trustee, the Trustee shall continue to perform its duties hereunder until the successor trustee is in place, and the Trustee shall be entitled to expenses and fees through the effective date of its resignation as Trustee. (b) The Company, by action of its Board of Directors, may, other than during a Threatened Change In Control Period, remove the Trustee before a Change In Control, upon 60 days' written notice to the Trustee, or upon shorter notice if acceptable to the Trustee but in either event, if the removal occurs during the first three years of this Agreement, the Company shall pay to the Trustee all fees (but not expenses) which would have been due the Trustee for the remainder of such initial three-year period. If the removal occurs after the first three years of this Agreement, the Company shall pay to the Trustee all fees (but not expenses) which would have been due the Trustee through the next one-year anniversary of the effective date of this Agreement. The Company may not remove the Trustee during a Threatened Change In Control Period or after a Change In Control. In the event it resigns or is removed, the Trustee shall have a right to have its accounts settled as provided in Article TWELFTH hereof. (c) Each successor trustee shall have the powers and duties conferred upon the Trustee in this Agreement, and the term "Trustee" as used in this Agreement shall be deemed to include any successor trustee. Upon designation or appointment of a successor trustee, the Trustee shall transfer and deliver the Trust to the successor trustee, reserving such sums as the Trustee shall deem necessary to defray its expenses in settling its accounts, to pay any of its compensation due and unpaid and to discharge any obligation of the Trust for which the Trustee may be liable. If the sums so reserved are not sufficient for these purposes, the Trustee shall be entitled to recover the amount of any deficiency from either the Company or the successor trustee, or both. When the Trust shall have been transferred and delivered to the successor trustee and the accounts of the Trustee have been settled as provided in Article TWELFTH hereof, the Trustee shall be released and discharged from all further accountability or liability for the Trust and shall not be responsible in any way for the further disposition of the Trust or any part thereof. FIFTEENTH: Amendment of Agreement; Termination of Trust. (a) Subject to Paragraph (b) of this Article FIFTEENTH and Article NINTH, the Company expressly reserves the right at any time to amend or terminate this Agreement and the Trust created thereby to any extent that it may deem advisable. No amendment shall be made without the Trustee's consent thereto in writing if, and to the extent that, the effect of such amendment is to increase the Trustee's responsibilities hereunder. Such proposed amendment shall be delivered to the Trustee as a written instrument of amendment, duly executed and acknowledged by the Company and accompanied by a certified copy of a resolution of the Board of Directors of the Company authorizing such amendment. The Company also shall deliver to the Trustee a copy of any modifications or amendments to the Plans. The Trustee's consent shall not be required for the termination of the Trust or its removal as Trustee. (b) Notwithstanding any other provisions of this Agreement, the provisions of this Agreement and the Trust created thereby may not be amended after the date a Change In Control occurs without the written consent of a majority in number of participants and beneficiaries. The Trustee may request that the Company furnish evidence to establish that such a majority in number of participants and beneficiaries have granted written consent to such an amendment. The Trustee, after a Change In Control, upon written advice of counsel, may amend the provisions of this Agreement to the extent required by applicable law. The Company reserves the right to amend or eliminate this Paragraph (b) of Article FIFTEENTH prior to the date of a Change In Control. (c) In the event the Company terminates the Trust prior to the occurrence of a Change In Control, other than during a Threatened Change In Control Period, the Trustee (subject to the provisions of Paragraph (d) of Article THIRD and Article SIXTEENTH hereof and reserving such sums as the Trustee shall deem necessary in settling its accounts and to discharge any obligation of the Trust for which the Trustee may be liable) shall distribute all remaining assets of the Trust in accordance with the written directions of the Company. (d) In case any one or all of the Equalization Plan, the Supplemental Retirement Income Plan, the ERIP, the 1983 Bonus Deferral Plan, the 1984 Bonus Deferral Plan, the Compensation Deferral Program, the Directors' Compensation Deferral Program, the Excess LTD Plan, the Mid-Career Hire Plan, the Special Severance Protection Program, the Retiree Medical Program and the Key International Management Plan is terminated in whole or in part after a Change In Control occurs, then the Trustee, subject to the provisions of Paragraph (d) of Article THIRD, and Article SIXTEENTH hereof, and reserving such sums as the Trustee shall deem necessary in settling its accounts and to discharge any obligation of the Trust for which the Trustee may be liable) shall apply or distribute the Account established with regard to such Plan pursuant to Paragraph (a) of Article SECOND, in such manner and in such amounts as the Committee shall determine based upon the most recent Participant Data (as defined in Paragraph (b) of Article THIRD hereof) forwarded by the Company to the Trustee prior to such a Change In Control and any supplemental information furnished to the Trustee or the Committee after a Change In Control by a participant or beneficiary upon which the Committee may reasonably rely in making such a determination. After satisfying all liabilities with regard to such terminated Plan, from the Account established with regard to such Plan, the Committee shall direct the Trustee to distribute the remaining assets in such Account in accordance with Paragraph (c)(15) of Article SECOND. Subject to Paragraph (b) of Article SIXTEENTH, in the event of a Change In Control, the Trust shall continue in effect until the later of the fifth one year anniversary of the date on which a Change In Control occurs or the date upon which all of the participants' and beneficiaries' benefits under all of the Plans have been paid or otherwise provided for. Upon termination of the Trust, the Trustee shall have a right to have its account settled as provided in Article TWELFTH hereof. Any assets remaining in the Trust after payment or provision for all benefits payable under the Plans, and after the Trustee has reserved such sums as it deems necessary for the payment of its expenses and fees hereunder shall be paid in accordance with the written directions of the Committee. When the Trust assets shall have been so applied or distributed and the accounts of the Trustee shall have been so settled, the Trustee shall be released and discharged from all further accountability or liability respecting the Trust. SIXTEENTH: Prohibition of Diversion. (a) Except as provided in Paragraph (b) below, at no time prior to the satisfaction of all liabilities with respect to the beneficiaries under this Trust shall any part of the corpus and/or income of the Trust be used for, or diverted to, purposes other than for the exclusive benefit of such beneficiaries and the assets of the Trust shall never inure to the benefit of the Company and shall be held for the exclusive purposes of providing benefits to participants in the Plans and their beneficiaries and defraying reasonable expenses of administering the Plans or performing any of the Trustee's duties under this Agreement. (b) Notwithstanding any provision of this Agreement to the contrary, the assets of the Trust shall at all times be subject to claims of the creditors of the Company. In the event that (1) a final judicial determination is entered that the Company is unable to pay its debts as such debts mature or (2) there shall have been filed by or against the Company in any court or other tribunal either of the United States or of any State or of any other authority now or hereafter exercising jurisdiction, a petition in bankruptcy or insolvency proceedings or for reorganization or for the appointment of a receiver or trustee of all or substantially all of the Company's property under the present or any future Federal bankruptcy code or any other present or future applicable Federal, State or other bankruptcy or insolvency statute or law, then the Trustee shall not make payments from the Trust to any participant or beneficiary, but under either of such circumstances, the Trustee shall deliver any property held in the Trust only as a court or other tribunal of competent jurisdiction may direct to satisfy the claims of the Company's creditors. The Trustee shall resume payments under the terms of the Trust only after determining that the Company is not insolvent or after receiving a judicial decision to that effect. The Chief Financial Officer of the Company, or an officer of the Company with duties similar to those of a Chief Financial Officer, and the Board of Directors of the Company shall have the duty to inform the Trustee of the insolvency of the Company. The Trustee is empowered to retain, at the expense of the Trust, counsel and other appropriate experts, including accountants, to aid it in making any determination with regard to the Company's insolvency under this Paragraph (b) of Article SIXTEENTH. SEVENTEENTH: Prohibition of Assignment of Interest. No interest, right or claim in or to any part of the Trust or any payment therefrom shall be assignable, transferable or subject to sale, mortgage, pledge, hypothecation, commutation, anticipation, garnishment, attachment, execution or levy of any kind, and the Trustee shall not recognize any attempt to assign, transfer, sell, mortgage, pledge, hypothecate, commute or anticipate the same, except to the extent required by law. EIGHTEENTH: Affiliates. Any corporation that, directly or through one or more intermediaries, controls, is controlled by or is under common control with the Company may adopt and become a party to this Agreement by delivering to the Trustee an instrument in writing, duly executed and acknowledged, adopting and assuming jointly and severally the obligations of the Company under this Agreement and constituting and appointing the Company to be the agent and attorney in fact of such corporation for the purposes of giving or receiving notices, instructions, directions and other communications to or from the Trustee and approving the accounts of the Trustee, accompanied by duly certified copies of resolutions of the Board of Directors of such corporation adopting the Plans and approving and authorizing execution, acknowledgment and delivery of such instrument and a duly certified copy of a resolution of the Board of Directors of the Company approving and consenting to the same. Notwithstanding the foregoing, no Affiliate may become a party to this Agreement after a Change in Control or a Threatened Change In Control. NINETEENTH: Miscellaneous. (a) This Agreement shall be interpreted, construed and enforced, and the trust hereby created shall be administered, in accordance with the laws of the United States and of the State of New York. Nothing in this Agreement shall be construed to subject either the Trust created hereunder or the Plans to the Employee Retirement Income Security Act of 1974, as amended. (b) The titles to Articles of this Agreement are placed herein for convenience of reference only, and the Agreement is not to be construed by reference thereto. (c) This Agreement shall bind and inure to the benefit of the successors and assigns of the Company and the Trustee, respectively and the Plans. (d) This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original but all of which together shall constitute but one instrument, which may be sufficiently evidenced by any counterpart. (e) If any provision of this Agreement is determined to be invalid or unenforceable the remaining provisions shall not for that reason alone also be determined to be invalid or unenforceable. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in their respective names by their duly authorized officers under their corporate seals as of the day and year first above written. UNION CARBIDE CORPORATION By /s/ M.A. Kessinger ATTEST: /s/ J. Macdonald Assistant Secretary STATE STREET BANK AND TRUST COMPANY By /s/ K. Driscoll ATTEST: /s/ D. Sisk Trust Officer EXHIBIT A Authorization Pursuant to Paragraph (c) of Article EIGHTH of Union Carbide Corporation Benefits Protection Trust TO: State Street Bank and Trust Company This is to authorize the State Street Bank and Trust Company, as Trustee of the Union Carbide Corporation Benefits Protection Trust (the "Trust"), to institute and maintain legal proceedings against the Company (as defined in the Trust) or other appropriate person or entity to assert the following claim on my behalf: [nature of claim]. The Trustee shall have the powers and be subject to the procedures set forth in Paragraph (c) of Article EIGHTH of the Trust. Any proceedings by the Trustee under this authorization may be initiated in my name as a plaintiff (or as a member of a class) or in the name of the Trustee, or both, as the Trustee determines is necessary or appropriate at the time proceedings are commenced. ____________________________ Participant EXHIBIT B Revocation of Authorization Pursuant to Paragraph (c) of Article EIGHTH of Union Carbide Corporation Benefits Protection Trust To: State Street Bank and Trust Company This is to notify you that I revoke any prior authorization I have given to you as Trustee of the Union Carbide Corporation Benefits Protection Trust (the "Trust") to maintain legal proceedings against the Company (as defined in the Trust) or other appropriate person or entity to assert the following claim on my behalf: [nature of claim]. I understand that this Revocation of Authorization is conditioned upon, and shall not be effective until, the appointment by me of my own counsel and the appearance of that counsel in any legal proceeding on my behalf in lieu of counsel retained by the Trustee. I understand further that, upon the occurrence of these conditions, the Trustee shall have no obligation to proceed further on my behalf, or to pay any costs or expenses incurred after the delivery of this Revocation of Authorization. __________________________ Participant STATE OF CONNECTICUT ) : SS. : COUNTY OF ) On this _____ day of ____________, 1997, before me personally came ________________, to me known, who, being by me duly sworn, did depose and say that he/she resides at ___________________, and that he/she is _________________ of UNION CARBIDE CORPORATION, one of the corporations described in and which executed the foregoing instrument; that he/she knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by order of the Board of Directors of said corporation; and that he/she signed his/her name thereto by like order. __________________________ STATE OF MASSACHUSETTS ) : SS.: COUNTY OF ) On this ____ day of______________, 1997, before me personally came _________________, to me known, who, being by me duly sworn, did depose and say that he/she resides at ________________, and that he/she is a Vice President of STATE STREET BANK AND TRUST COMPANY, one of the corporations described in and which executed the foregoing instrument; that he/she knows the seal of said corporation; that the seal affixed to said instruments is such corporate seal; that it was so affixed by order of the Board of Directors of said corporation; and that he/she signed his/her name thereto by like order. __________________________ SCHEDULE 1 1. The Equalization Benefit Plan for Participants of the Retirement Program Plan for Employees of Union Carbide Corporation and Its Participating Subsidiary Companies (hereinafter, together with all amendments thereto from time to time in effect, referred to as the "Equalization Plan"). 2. The Supplemental Retirement Income Plan (hereinafter, together with all amendments thereto from time to time in effect, referred to as the "Supplemental Retirement Income Plan"). 3. The 1983 Union Carbide Cash Bonus Deferral Program (hereinafter, together with all amendments thereto from time to time in effect, referred to as the "1983 Bonus Deferral Plan"). 4. The 1984 Union Carbide Cash Bonus Deferral Program (hereinafter, together with all amendments thereto from time to time in effect, referred to as the "1984 Bonus Deferral Plan"). 5. The Benefit Plan for Designated Key International Management Employees (hereinafter, together with all amendments thereto from time to time in effect, referred to as the "Key International Management Plan"). 6. All outstanding severance compensation agreements of the Company as approved by the Board of Directors of the Company (hereinafter, together with all amendments thereto from time to time in effect, referred to as "Severance Compensation Agreements"). 7. The Union Carbide Corporation Compensation Deferral Program (hereinafter, together with all amendments thereto from time to time in effect, referred to as the "Compensation Deferral Program"). 8. The Union Carbide Corporation Non-Employee Directors' Compensation Deferral Program (hereinafter, together with all amendments thereto from time to time in effect, referred to as the Directors' Compensation Deferral Program"). 9. The Union Carbide Mid-Career Hire Plan (hereinafter, together with all amendments thereto from time to time in effect, referred to as the "Mid-Career Hire Plan"). 10. The Union Carbide Corporation Excess Long Term Disability Plan (hereinafter, together with all amendments thereto from time to time in effect, referred to as the "Excess LTD Plan"). 11. The Union Carbide Enhanced Retirement Income Plan (hereinafter, together with all amendments thereto from time to time in effect, referred to as the "Enhanced Retirement Income Plan"). 12. The Special Severance Protection Program. 13. The Retiree Medical Program. SCHEDULE 2 1. The Equalization Benefit Plan for Participants of the Retirement Program Plan for Employees of Union Carbide Corporation and It's Participating Subsidiary Companies. 2. The Supplemental Retirement Income Plan. 3. The 1983 Union Carbide Cash Bonus Deferral Program. 4. The 1984 Union Carbide Cash Bonus Deferral Program. 5. The Benefit Plan for Designated Key International Management Employees. 6. All outstanding severance compensation agreements of the Company as approved by the Board of Directors of the Company. 7. The Union Carbide Compensation Deferral Program. 8. The Union Carbide Non-Employee Directors' Compensation Deferral Program. 9. The Union Carbide Mid-Career Hire Plan. 10. The Excess LTD Plan. 11. The Enhanced Retirement Income Plan. 12. The Special Severance Protection Program. 13. The Retiree Medical Program. SCHEDULE 3 TRUSTEE'S FEES SCHEDULE 4 COMMITTEE FEES EX-10.11.2 12 AMENDMENT TO BENEFITS PROTECTION TRUST Exhibit 10.11.2 FIRST AMENDMENT TO THE UNION CARBIDE CORPORATION BENEFITS PROTECTION TRUST AGREEMENT The Union Carbide Corporation Benefits Protection Trust (Amended and Restated Effective August 29, 1997) (the "Trust") between Union Carbide Corporation and State Street Bank and Trust Company, as Trustee, is hereby amended as follows: 1. Paragraphs (a)(14) and (a)(15) of Article SECOND are hereby renumbered to be paragraphs (a)(15) and (a)(16) of Article SECOND. 2. A new paragraph (a)(14) of Article SECOND is created to read as follows: "(14) such cash or other property acceptable to the Trustee as shall be paid or delivered to the Trustee from time to time as contributions under the 1997 Union Carbide Corporation EPS Incentive Plan, together with the earnings, income, additions and appreciation thereon and thereto (all of which is hereinafter called the "EPS Plan Account");" 3. Paragraph (c) of Article SECOND is amended by inserting the words, "EPS Plan Account" after "Retiree Medical Program Account" and before "and such other Account(s)...." 4. Paragraphs (d)(13) (which should have been numbered (d)(14) in the original Trust), (d)(14) and (d)(15) of Article SECOND are hereby renumbered to be paragraphs (d)(15), (d)(16) and (d)(17) of Article SECOND. 5. A new paragraph (d)(14) of Article SECOND is created to read as follows: "The assets of the EPS Plan Account shall be used to discharge the obligation of the 1997 Union Carbide Corporation EPS Incentive Plan." 6. Paragraph 15(d) of Article FIFTEENTH is amended by inserting the words, "1997 Union Carbide Corporation EPS Incentive Plan" after "Retiree Medical Program" and before "the Key International Management Plan...." 7. Schedule 1 to the Trust is hereby amended by inserting the following at the end thereof: "14. 1997 Union Carbide Corporation EPS Incentive Plan (hereinafter, together with all amendments thereto from time to time in effect, referred to as the "EPS Plan')." 8. Schedule 2 to the Trust is hereby amended by inserting the following at the end thereof: "14. The EPS Plan." 9. The provisions of this First Amendment shall be effective as of November 1, 1997 UNION CARBIDE CORPORATION By: /s/ M.A. Kessinger Title: Vice President, Human Resources Date: December 31, 1997 STATE STREET BANK AND TRUST COMPANY, AS TRUSTEE By: /s/ K. Driscoll Title: Vice President Date: February 2, 1998 EX-10.14.2 13 AMENDMENT NON-EMPLOYEE DIRECTORS RETIREMENT PLAN Exhibit 10.14.2 FIRST AMENDMENT TO THE UNION CARBIDE CORPORATION NON-EMPLOYEE DIRECTORS' RETIREMENT PLAN The Union Carbide Corporation Non-Employee Directors' Retirement Plan (the "Plan") is hereby amended as follows: 1. Section 4 of the Plan is hereby amended by adding the following sentence at the end thereof: "Effective February 1, 1997, each individual who thereafter becomes a Non-Employee Director of the Corporation shall no longer be eligible to be a Participant in this Plan." 2. Section 5.2 of the Plan is hereby amended by adding the following sentence at the end thereof: "Notwithstanding the foregoing, effective February 1, 1997, a Participant shall no longer accrue any additional benefits under this Plan." 3. Section 5.5 of the Plan is hereby amended by adding the following sentence at the end thereof: "Notwithstanding the foregoing, effective May 1, 1997, the net present value of the Annual Basic Benefit of each Participant which would otherwise be payable under the terms of the Plan will be automatically rolled over to the Union Carbide Corporation Non Employee Directors' Compensation Deferral Plan." 4. Section 7 of the Plan is hereby amended by adding the following sentence at the end thereof: "Effective February 1, 1997, the Plan is terminated." 5. The amendments set forth in paragraphs 1, 2 and 4 of this First Amendment shall be effective as of February 1, 1997. 6. The amendment set forth in paragraph 3 of this First Amendment shall be effective as of May 1, 1997. UNION CARBIDE CORPORATION By: /s/ M.A. Kessinger EX-10.15.2 14 AMENDMENT 1994 LT INCENTIVE PLAN Exhibit 10.15.2 SECOND AMENDMENT TO THE 1994 UNION CARBIDE LONG-TERM INCENTIVE PLAN The 1994 Union Carbide Long-Term Incentive Plan (the "Plan") is hereby amended as follows: 1. Section 6.4 of the Plan is amended in its entirety to read as follows: " 6.4: An option may be exercised with respect to part or all of the shares subject to the option by giving written notice to the Corporation of the exercise of the option. The option price for the shares for which an option is exercised shall be paid on or within ten business days after the date of exercise. The terms of the stock option may provide that the option price may be paid (i) in cash, (ii) in whole shares of common stock of the Corporation owned by the Participant prior to exercising the option, (iii) by having the Corporation withhold a number of shares from the exercise, equal in value to the option price, or (iv) in a combination of cash and delivery of shares, or cash and withholding of shares of common stock. The value of any share of common stock delivered or withheld in payment of the option price shall be its Market Price on the date the option is exercised." 2. A new Section 6.7 is added to the Plan to read as follows: " 6.7: In order to enable the Corporation to meet any applicable federal, state or local withholding tax requirements arising as a result of the exercise of a stock option, a Participant shall pay the Corporation the amount of tax to be withheld or may elect to satisfy such obligation by having the Corporation withhold shares that otherwise would be delivered to the Participant pursuant to the exercise of the option for which the tax is being withheld, by delivering to the Corporation other shares of common stock of the Corporation owned by the Participant prior to exercising the option, or by making a payment to the Corporation consisting of a combination of cash and such shares of common stock. Such an election shall be subject to the following: (a) the election shall be made in such manner as may be prescribed by the Committee and the Committee shall have the right, in its discretion, to disapprove such election; and (b) the election shall be made prior to the date to be used to determine the tax to be withheld and shall be irrevocable. The value of any share of common stock to be withheld by the Corporation or delivered to the Corporation pursuant to this Section 6.7 shall be the Market Price on the date to be used to determine the amount of tax to be withheld." 3. Section 9.1 of the Plan is amended to add the following paragraph at the end thereof: " Alternatively, the terms of the stock or Restricted Stock grant may allow for the Participant to satisfy tax withholding obligations by delivering whole shares of common stock of the Corporation to the Corporation or; the value of any shares of common stock delivered in payment of tax withholding obligations shall be its Market Price on the date to be used to determine the amount of income tax to be paid." 4. The amendments set forth herein shall be effective as of October 1, 1997. Signed this 1st day of October, 1997. UNION CARBIDE CORPORATION By: /s/ M.A. Kessinger EX-10.19.2 15 AMENDMENT 1997 LT INCENTIVE PLAN Exhibit 10.19.2 FIRST AMENDMENT TO THE 1997 UNION CARBIDE LONG-TERM INCENTIVE PLAN The 1997 Union Carbide Long-Term Incentive Plan (the "Plan") is hereby amended as follows: 1. A new Section 8.3 is added to the Plan to read as follows: "8.3: A grant of Restricted Stock pursuant to this Section 8 shall be subject to a minimum vesting period of at least three (3) years, or such longer period as the Committee may, in its sole discretion, determine; provided, however, that the Committee may grant up to three hundred thousand (300,000) shares of Restricted Stock with a vesting period of less than three (3) years. In the event that a Participant terminates employment with the Corporation prior to the date that the Restricted Stock satisfies a vesting period, such Restricted Stock shall be forfeited except (i) in the case of the Participant's death, disability or Retirement, (ii) in the case of a Participant's termination of employment by the Corporation other than for cause, (iii) in the case of a Change in Control of the Corporation, or (iv) if the Committee determines it is in the best interests of the Corporation to permit individual exceptions." 2. The amendment set forth herein shall be effective as of April 23, 1997. UNION CARBIDE CORPORATION By: /s/ M.A. Kessinger EX-10.21 16 1997 EPS INCENTIVE PLAN Exhibit 10.21 1997 UNION CARBIDE CORPORATION EPS INCENTIVE PLAN TABLE OF CONTENTS Section Title Page Section 1: Purpose . . . . . . . . . . . . . . . . . . . . . . . 1 Section 2: Definitions . . . . . . . . . . . . . . . . . . . . . 1 Section 3: Administration . . . . . . . . . . . . . . . . . . . 6 Section 4: Participation . . . . . . . . . . . . . . . . . . . . 7 Section 5: Pay-At-Risk . . . . . . . . . . . . . . . . . . . . . 7 Section 6: Awards . . . . . . . . . . . . . . . . . . . . . . . 9 Section 7: Payments . . . . . . . . . . . . . . . . . . . . . . 10 Section 8: Termination of Employment . . . . . . . . . . . . . 12 Section 9: Beneficiary Designation . . . . . . . . . . . . . . 14 Section 10: General Provisions . . . . . . . . . . . . . . . . . 15 Section 11: Amendment, Suspension, or Termination . . . . . . . 16 Section 12: Effective Date . . . . . . . . . . . . . . . . . . . 16 1997 UNION CARBIDE EPS INCENTIVE PLAN Section 1: Purpose The purpose of the Plan is to incent designated employees of the Corporation to achieve certain earnings per share goals in calendar years 1999 and 2000. These employees will forfeit a portion of their compensation if the earnings per share goals are not achieved and will receive an incentive payment if the earnings per share goals are achieved. Section 2: Definitions 2.1 "Award" shall mean a cash amount payable to a Participant pursuant to Section 7.2. 2.2 "Award Shares" shall mean the Phantom Shares credited to a Participant pursuant to Section 6.3. 2.3 "Beneficiary" shall mean a Participant's beneficiary pursuant to Section 9. 2.4 "Board" shall mean the Board of Directors of the Corporation. 2.5 "CEO" shall mean the Chief Executive Officer of the Corporation. 2.6 "Change in Control of the Corporation" shall be deemed to occur if any of the following circumstances shall occur: (i) any "person" or "group" within the meaning of Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934 ("Act") becomes the "beneficial owner" as defined in Rule 13d-3 under the Act of more than 20% of the then outstanding voting securities of the Corporation; (ii) any "person" or "group" within the meaning of Sections 13(d) and 14(d)(2) of the Act acquires by proxy or otherwise the right to vote for the election of directors, for any merger or consolidation of the Corporation or for any other matter or question with respect to more than 20% of the then outstanding voting securities of the Corporation; (iii) if during any period of twenty-four consecutive months, Present Directors and/or New Directors cease for any reason to constitute a majority of the Board. For these purposes, "Present Directors" shall mean individuals who at the beginning of such consecutive twenty-four month period were members of the Board and "New Directors" shall mean any director whose election by the Board or whose nomination for election by the Corporation's stockholders was approved by a vote of at least two-thirds of the Directors then still in office who were Present Directors or New Directors; (iv) the stockholders of the Corporation approve a plan of complete liquidation or dissolution of the Corporation; or (v) there shall be consummated (x) a reorganization, merger or consolidation of all or substantially all of the assets of the Corporation (a "Business Combination"), unless, following such Business Combination, (a) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the outstanding common stock of the Corporation and outstanding voting securities of the Corporation immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Corporation or all or substantially all of the Corporation's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the outstanding common stock of the Corporation and outstanding voting securities of the Corporation, as the case may be, (b) no "person" or "group" within the meaning of Sections 13(d) and 14(d)(2) of the Act (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Corporation or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (c) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (y) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Corporation, provided, that the divestiture of less than substantially all of the assets of the Corporation in one transaction or a series of related transactions, whether effected by sale, lease, exchange, spin-off, sale of the stock or merger of a subsidiary or otherwise, shall not constitute a Change in Control of the Corporation. Notwithstanding the foregoing, a Change in Control of the Corporation shall not be deemed to occur: (A) pursuant to clauses (i) and (ii) above, solely because twenty percent (20%) or more of the combined voting power of the Corporation's then outstanding securities is acquired by one or more employee benefit plans maintained by the Corporation; or (B) pursuant to clause (v)(y) above, if the Board determines that any sale, lease, exchange or transfer does not involve substantially all of the assets of the Corporation. 2.7 "Closing Price" shall mean the closing price of the Corporation's common stock on the New York Stock Exchange - Composite Transactions. 2.8 "Committee" shall mean the Compensation and Management Development Committee of the Board. 2.9 "Compensation Deferral Plan" shall mean the 1995 Union Carbide Compensation Deferral Plan, or any successor plan. 2.10 "Corporation" shall mean Union Carbide Corporation and its consolidated subsidiaries. 2.11 "Dividend Shares" shall mean the Phantom Shares credited to a Participant pursuant to Sections 5.5 and 7.7. 2.12 "EPS" shall mean the diluted earnings per share of the Corporation's common stock as reported in the audited financial statements of the Corporation. 2.13 "Participant" shall mean an employee of Union Carbide Corporation and such of its subsidiaries as shall be designated by the Committee to participate in this Plan. 2.14 "Pay-At-Risk" shall mean the aggregate amount of each Participant's annual Variable Compensation placed at risk pursuant to Sections 5.2 and 5.3. 2.15 "Pay-At-Risk Shares" shall mean the Phantom Shares determined pursuant to Section 5.4. 2.16 "Performance Period" shall mean calendar years 1999 and 2000. 2.17 "Phantom Shares" shall mean units equal to the market value of the Corporation's common stock on the New York Stock Exchange - Composite Transactions. 2.18 "Plan" shall mean this 1997 Union Carbide Corporation EPS Incentive Plan. 2.19 "Recalculated EPS" shall mean EPS as recalculated pursuant to Section 6.5. 2.20 "Reduced Pay-At-Risk Shares" shall have the meaning set forth in Section 8.3. 2.21 "Retirement" shall mean termination of employment with the Corporation with the right to receive immediately a non-actuarially reduced pension under the Corporation's Retirement Program. 2.22 "Retirement Program" shall mean the Retirement Program Plan for Employees of Union Carbide Corporation and Its Participating Subsidiary Companies. 2.23 "Variable Compensation" shall mean variable compensation under the 1997 Union Carbide Variable Compensation Plan and/or the 1995 Union Carbide Performance Incentive Plan, as the same may be amended, or any successor plan. Section 3: Administration 3.1 The Plan shall be administered by the Committee, which shall have full power and authority to construe and interpret the Plan, establish and amend administrative regulations to further the purpose of the Plan and take any other action necessary to administer the Plan. 3.2 In the event of a Change in Control of the Corporation or other unusual and/or unplanned actions or events that significantly affect the attainment of the EPS goals of the Plan during the Performance Period, the Committee is authorized: (i) to increase or decrease the Awards under the Plan, (ii) accelerate the payments under the Plan, (iii) change the performance goals, (iv) determine that the performance goals of the Plan have been met even though the Performance Period has not been completed, or (v) otherwise alter the terms of the Plan or make such equitable adjustments, as the Committee shall, in its sole discretion, determine. 3.3 The Committee's decisions, actions and interpretations shall be final and binding upon all Participants, Beneficiaries, shareholders of the Corporation and any other person. Section 4: Participation 4.1 The CEO, those Corporate Vice-Presidents and Vice- President/General Managers reporting to the CEO, and certain other senior managers with major functional responsibilities to achieve the Corporation's profit growth/cost reduction objectives, as approved by the CEO and authorized by the Committee, shall be the Participants in the Plan. In addition, any Participants added to the Plan after March 1, 1998 shall be subject to such terms and conditions for participation as the Committee shall determine. Section 5: Pay-At-Risk 5.1 Overview: The Corporation will reduce each Participant's Variable Compensation by the amount of the Pay-At-Risk, as provided in Sections 5.2 and 5.3. The Pay-At-Risk will be converted to Pay-At-Risk Shares as provided in Section 5.4. If the 1999 and 2000 performance goals established pursuant to this Plan are not met, the Pay-At-Risk Shares will be forfeited. If the goals are met, a Participant will receive the value of the Pay-At-Risk Shares and the Award Shares as provided in Sections 6 and 7. 5.2 Determination of Pay-at-Risk: The Pay-At-Risk for each Participant will equal a percentage of such Participant's annual base salary, in effect as of September 30, 1997, as follows: CEO = 100% Corporate Vice Presidents and Vice President/General Managers = 65% Other Selected Participants = 40% 5.3 Reduction of Variable Compensation: Variable Compensation, if any, which would otherwise be paid to the Participant in each of the three years, 1998, 1999 and 2000 will be reduced by one-third of the Pay-At-Risk. The reduction shall be made after the Variable Compensation is determined in accordance with the terms of the plans under which the Variable Compensation is paid and before any deduction for deferral of Variable Compensation pursuant to the Compensation Deferral Plan. If for any reason, the Variable Compensation in any year is less than the required reduction, any deficit would be carried over and a subsequent year's Variable Compensation shall be reduced as approved by the CEO. Based on individual circumstances, the CEO may allow Participants, other than the CEO, to have the Participant's Variable Compensation reduced over a period longer than three years. Upon the request of a Participant, the CEO may allow Participants (including himself) to elect to have the Participant's Variable Compensation reduced over a period shorter than three years. 5.4 Phantom Shares: The Pay-At-Risk will be converted to the number of Phantom Shares determined by dividing the Pay-At-Risk by the Closing Price on September 24, 1997, which price was $47.75 (the "Pay- At-Risk Shares"). In the event such conversion results in a fractional Pay-At-Risk Share, the Pay-At-Risk Shares shall be rounded to the next highest whole number. 5.5 Dividends: The Pay-At-Risk Shares, the Reduced Pay-At-Risk Shares and any Dividend Shares thereon will be credited with amounts equal to dividends paid on the Corporation's common stock and deemed reinvested in additional Phantom Shares (or fractions thereof) based upon the Closing Price on the date such dividends are paid by the Corporation. Whenever the Pay-At-Risk Shares or the Reduced Pay-At-Risk Shares are forfeited under the terms of the Plan, the Dividend Shares thereon shall also be forfeited. Whenever the value of the Pay-At-Risk Shares or Reduced Pay-At-Risk Shares is to be paid to a Participant under the terms of the Plan, the value of the Dividend Shares thereon shall also be paid to the Participant. Section 6: Awards 6.1 Overview: The objective performance goals for the Performance Period are based on EPS and Recalculated EPS as set forth in Section 6.2. The Award Schedule set forth in Section 6.3 and the terms and conditions relating to the achievement of Awards set forth in Section 6.4 are based upon achievement during the Performance Period of such performance goals. 6.2 Performance Goals: The performance goals are the achievement of EPS and Recalculated EPS of $4.00 or more during 1999 and 2000. 6.3 Award Schedule: Subject to the provisions of Section 6.4, if the performance goals are achieved, a Participant will be granted additional Phantom Shares (the "Award Shares") according to the following Award Schedule: If EPS in 1999 Then the Award Shares shall be a Multiple or 2000 is: of Pay-At-Risk Shares or Reduced Pay-At-Risk Shares as follows: 1999 2000 Less than $4.00 0 0 $4.00 to $4.24 1X 1X $4.25 to $4.49 2X 2X $4.50 to $4.74 3X 3X $4.75 or more 4X 4X Participants shall be granted the Award Shares, if any, as of the first quarter of 2001, by multiplying a Participant's Pay-At-Risk Shares, or Reduced Pay-At-Risk Shares, by the multiple set forth in the Award Schedule. The grant of Award Shares under the Award Schedule shall be based upon EPS and not Recalculated EPS. 6.4 Eligibility For Award Shares; Forfeiture of Pay-At-Risk Shares or Reduced Pay-At-Risk Shares: Participants shall be eligible for Award Shares subject to the following conditions: (a) If EPS is less than $4.00 for 2000, there will be no grant of Award Shares for 1999 or 2000 and the Pay-At-Risk Shares or the Reduced Pay- At-Risk Shares shall be forfeited. (b) If EPS is $4.00 or more for 2000, but Recalculated EPS is less than $4.00 in 2000, then there will be no grant of Award Shares for 1999 or 2000 and the value of the Pay-At-Risk Shares or the Reduced Pay-At-Risk Shares shall be paid to the Participant pursuant to Section 7.1. (c) If EPS and Recalculated EPS are each $4.00 or more in 2000, a Participant will be granted Award Shares in accordance with the Award Schedule for the year 2000. (d) If EPS and Recalculated EPS are each $4.00 or more in both 1999 and 2000, a Participant will be granted Award Shares in accordance with the Award Schedule for both the years 1999 and 2000. 6.5 Recalculated EPS: For each of 1999 and 2000, EPS shall be recalculated using the spreads between customer prices and the cost of feedstocks for Unipol Polymers, Ethylene Glycol and Polypropylene in 1993. The Committee shall adopt procedures for determining Recalculated EPS. Section 7: Payments 7.1 Pay-At-Risk Shares: If a Participant does not forfeit the Pay-At-Risk Shares or the Reduced Pay-At-Risk Shares pursuant to Section 6.4 or Section 8, then the value of the Pay-At-Risk Shares or the Reduced Pay-At-Risk Shares shall be paid to the Participant in the first quarter of 2002, on a date determined by the Corporation. 7.2 Awards: The value of one-third of the Award Shares shall be paid to the Participant in the first quarter of each of 2002, 2003 and 2004, on a date determined by the Corporation. 7.3 Value: The value of the Pay-At-Risk Shares, the Reduced Pay-At-Risk Shares and the Award Shares to be paid to the Participant pursuant to Sections 7.1 and 7.2 shall be determined by using the average of the Closing Prices on each trading day in January of the year of payment. 7.4 Deferral: Participants can elect to defer any or all of the payments under Sections 7.1 and 7.2 in accordance with the terms of the Compensation Deferral Plan. 7.5 Stock Ownership: If a Participant becomes entitled to receive the value of the Pay-At-Risk Shares, the Reduced Pay-At-Risk Shares or Award Shares, and is employed by the Corporation on January 31, 2002 but does not meet by January 31, 2002 the stock ownership guidelines as heretofore or hereafter established by the Corporation, the Participant shall forfeit on such date 50% of each of (i) the Pay- At-Risk Shares or Reduced Pay-At-Risk Shares, (ii) the Award Shares and (iii) any Dividend Shares credited by January 31, 2002 on such Pay-At- Risk Shares or Reduced Pay-At-Risk Shares and the Award Shares. 7.6 Pensionable Earnings: The amounts by which a Participant's Variable Compensation is reduced for Pay-At-Risk will continue to be counted as part of the Participant's pensionable earnings under the Corporation's Retirement Program for the year earned in accordance with the terms of the Retirement Program. Any payment of the Pay-At-Risk Shares, Reduced Pay-At-Risk Shares or Award Shares under Section 7.1 and 7.2 of this Plan will not be considered pensionable earnings under the Corporation's Retirement Program or for any other benefit plan purpose. 7.7 Dividends: The Award Shares and any Dividend Shares thereon will be credited with amounts equal to dividends paid on the Corporation's common stock and deemed reinvested in additional Phantom Shares (or fractions thereof) based upon the Closing Price on the date such dividends are paid by the Corporation. Whenever the Award Shares are forfeited under the terms of the Plan, the dividends thereon shall also be forfeited. Whenever the value of the Award Shares is to be paid to a Participant under the terms of the Plan, the value of the Dividend Shares thereon shall also be paid to the Participant. 7.8 Corporate Changes: In the event of any change in the number of outstanding shares of common stock of the Corporation by reason of any stock split, stock dividend, recapitalization, merger, consolidation, combination or exchange of shares or other similar corporate change or in the event of any special distribution to the stockholders, the Committee shall make such equitable adjustments in the number of Pay-At-Risk Shares, Reduced Pay-At-Risk Shares and Award Shares, both under the Plan as a whole and with respect to individuals, as the Committee determines are necessary and appropriate. Any such adjustment shall be final and binding upon all Participants, Beneficiaries, shareholders of the Corporation and any other person. Section 8: Termination of Employment 8.1 If a Participant terminates employment before 2001, no Award shall be paid and the Pay-At-Risk Shares shall be forfeited except as set forth in Sections 8.2 and 8.3, unless the Committee determines it is in the best interests of the Corporation to permit individual exceptions. 8.2 In the case of a Participant's death, disability or termination of employment by the Corporation other than for cause prior to 1999, the Participant shall not be entitled to any Award Shares and the then value of the portion of Pay-At-Risk Shares which represents the Pay-At-Risk for which the Participant's Variable Compensation has actually been reduced, shall be paid to the Participant within sixty days after the date of such death, disability or termination of employment. Such value shall be determined using the average Closing Price on the first ten days of trading following the date of such death, disability or termination of employment. In the case of a Participant's Retirement prior to 1999, the Participant shall not be entitled to any Award Shares and the value of the portion of the Pay-At-Risk Shares which represents Pay-At-Risk for which the Participant's Variable Compensation has actually been reduced, shall be paid to the Participant as provided in Section 7.1. Such value shall be determined pursuant to Section 7.3. 8.3 In the case of a Participant's death, disability, Retirement or termination of employment by the Corporation other than for cause during 1999 or 2000, the Pay-At-Risk Shares shall be reduced to equal the Pay-At-Risk Shares multiplied by a fraction, the numerator of which is the number of days from January 1, 1999 to, and including, the date of death, disability, Retirement or such termination of employment, and the denominator of which is 731, and further reduced, if necessary, to represent only Pay-At-Risk for which the Participant's Variable Compensation has actually been reduced ("Reduced Pay-At-Risk Shares"). A grant of Award Shares, if any, to any such Participant shall be based only upon the Reduced Pay-At-Risk Shares. The value of the excess of the Pay-At-Risk Shares less the Reduced Pay-At-Risk Shares (plus dividends on such excess), to the extent such excess represents Pay-At-Risk for which the Participant's Variable Compensation has actually been reduced, shall be paid to the Participant as follows: (i) in the case of the Participant's death, disability or termination of employment by the Corporation other than for cause, within sixty days after the date of such death, disability or termination of employment; and (ii) in the case of Retirement at the time provided for in Section 7.1. For the events described in clause (i) above, such value shall be determined using the average Closing Price on the first ten days of trading following the date of such death, disability or termination of employment. For the event described in clause (ii) above, such value shall be determined pursuant to Section 7.3. The value of the reduced Pay-At-Risk Shares and the Award Shares, if any, shall be paid to the Participant as provided in Section 7.1 and 7.2 and such value shall be determined as provided in Section 7.3. 8.4 If a Participant terminates employment for any reason other than termination of employment by the Corporation for cause after 2000, a Participant shall be entitled to receive payments under this Plan in accordance with the provisions of Section 7. If a Participant is terminated for cause after 2000, the Participant shall forfeit any amount scheduled to be paid under Sections 7.1 and 7.2 after the date of termination of employment. Section 9: Beneficiary Designation 9.1 A Participant's Beneficiary under the Plan, who shall be entitled to receive the amount, if any, payable under the Plan upon the Participant's death, shall be the Beneficiary designated, or deemed to be designated, by the Participant under the Compensation Deferral Plan. If a Participant does not participate in the Compensation Deferral Plan or if a Participant does participate in the Compensation Deferral Plan and has not designated or been deemed to have designated a Beneficiary thereunder, then any payments payable to the Participant under this Plan shall be distributed to the Participant's estate. If the Corporation is in doubt as to the right of any person to receive such amount, the Corporation may retain such amount, without liability for any interest thereon, until the rights thereto are determined, or the Corporation may pay such amount into any court of appropriate jurisdiction and such payment shall be a complete discharge of the liability of the Plan and the Corporation therefor. Section 10: General Provisions 10.1 A Participant may not assign any payment under this Plan. Any attempted assignment shall be null and void. For purposes of this paragraph, any designation of, or payment to, a Beneficiary shall not be deemed an assignment. 10.2 The Plan is intended to constitute an unfunded incentive compensation arrangement for a select group of key personnel. Nothing contained in the Plan, and no action taken pursuant to the Plan, shall create or be construed to create a trust of any kind. A Participant's right to receive any payments under this Plan shall be no greater than the right of an unsecured general creditor of the Corporation. There shall not vest in any Participant or Beneficiary any right, title, or interest in and to any specific assets of the Corporation. All payments under this Plan shall be paid from the general funds of the Corporation, and no special or separate fund shall be established and no segregation of assets shall be made to assure payment of such amount except to the extent this Plan is covered by the Benefits Protection Trust between the Corporation and State Street Bank and Trust Company, or any successor trust. 10.3 Nothing contained in this Plan shall give any Participant the right to continue in the employment of the Corporation, or affect the right of the Corporation to discharge a Participant. 10.4 The Plan shall be construed and governed in accordance with the laws of the State of New York. 10.5 The Corporation shall deduct from all amounts paid under the Plan all federal, state, local and other taxes required by law to be withheld with respect to such payments. Section 11: Amendment, Suspension, or Termination 11.1 The Board reserves the right to amend, suspend or terminate the Plan at any time; provided however, that any amendment, suspension or termination shall not adversely affect the rights of Participants or Beneficiaries to receive amounts they became entitled to receive prior to such amendment, suspension or termination. Section 12: Effective Date 12.1 The Plan shall be effective as of September 24, 1997. UNION CARBIDE CORPORATION By: /s/ M.A. Kessinger EX-10.22 17 MID-CAREER HIRE PLAN Exhibit 10.22 The Mid-Career Hire Plan for Employees of Union Carbide Corporation and Its Participating Subsidiary Companies General This Mid-Career Hire Plan for Employees of Union Carbide Corporation and Its Participating Subsidiary Companies (the "Plan") has been established primarily for the purpose of providing additional retirement benefits for a select group of management or highly compensated employees who were employed by the Corporation or participating subsidiaries in mid-career. Specifically, the purpose of this Plan is to provide for increased retirement benefits to eligible employees in the event of a Change in Control of the Corporation. This Plan is completely separate from the Retirement Program, is unfunded for purposes of Title I of the Employee Retirement Income Security Act of 1974, and is not qualified for special tax treatment under the Internal Revenue Code of 1986, as amended. ARTICLE I ELIGIBILITY Employees eligible for participation in the Plan are those individuals selected for inclusion in the Plan by the Vice President- Human Resources of the Corporation and approved for inclusion in the Plan by the Chief Executive Officer of the Corporation. To be designated for inclusion in the Plan, any such individual must have at such time (i) attained at least salary grade 19 (or its equivalent), (ii) be a party to a Severance Compensation Agreement with the Corporation, and (iii) have less than 85 Points under the Retirement Program. ARTICLE II BENEFITS In the event of a Change in Control of the Corporation, a Participant, or a Participant's survivor, as the case may be, shall be entitled to a benefit payable hereunder in accordance with Article III of this Plan equal to the excess of: (a) the amount of such Participant's or survivor's annual benefit, as the case may be, under the Retirement Program computed under the provisions of the Retirement Program (without regard to the vesting provisions) by adding to a Participant's actual Company Service Credit under the Retirement Program the years of service of the Participant with the Participant's Prior Employer, but not in excess of the years of service with a Prior Employer necessary for the Participant to attain 85 Points under the Retirement Program; over the sum of: (b) the amount of such Participant's or survivor's annual benefit, as the case may be, under the provisions of the Retirement Program; and (c) any pension benefit paid, or payable, to a Participant by the Participant's Prior Employer (whether under a tax-qualified retirement plan or otherwise as shall be determined by the Vice-President Human Resources of the Corporation prior to a Change in Control of the Corporation). The amounts set forth in clauses (a) and (b) above shall be calculated before any addition to a Participant's age and Company Service Credit pursuant to a Severance Compensation Agreement between the Participant and the Corporation. ARTICLE III PAYMENT OF BENEFITS The benefits described in Article II shall be calculated and become payable only when a Participant retires and begins to receive payments under the Retirement Program and shall be paid in the same form and manner as the Participant's benefit under the Retirement Program. Notwithstanding the foregoing, a Participant may elect in the calendar year in which the Participant retires that payments under the Plan shall be made either: (i) in a lump sum as of January 1 of the calendar year following such election, or (ii) in substantially equal installments over a period of at least 2 but not more than 10 years commencing as of that date. The lump sum payment or installment payments described in the preceding sentence shall be calculated using (a) a discount rate equal to the average of 10 and 20 year Aaa municipal bonds as published by Moody's or a similar rating service for the third month prior to the month payments commence, and (b) a mortality table determined by the administrator for the Plan. The administrator of the Plan shall determine the procedures for such elections and the time and method of payments in accordance with this Article III. ARTICLE IV DEFINITIONS A. "Change in Control of the Corporation" shall be deemed to occur if any of the following circumstances shall occur: (i) any "person" or "group" within the meaning of Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934 ("Act") becomes the "beneficial owner" as defined in Rule 13d-3 under the Act of more than 20% of the then outstanding voting securities of the Corporation; (ii) any "person" or "group" within the meaning of Sections 13(d) and 14(d)(2) of the Act acquires by proxy or otherwise the right to vote for the election of directors, for any merger or consolidation of the Corporation or for any other matter or question with respect to more than 20% of the then outstanding voting securities of the Corporation; (iii) if during any period of twenty-four consecutive months, Present Directors and/or New Directors cease for any reason to constitute a majority of the Board. For these purposes, "Present Directors" shall mean individuals who at the beginning of such consecutive twenty-four month period were members of the Board and "New Directors" shall mean any director whose election by the Board or whose nomination for election by the Corporation's stockholders was approved by a vote of at least two-thirds of the Directors then still in office who were Present Directors or New Directors; (iv) the stockholders of the Corporation approve a plan of complete liquidation or dissolution of the Corporation; or (v) there shall be consummated (x) a reorganization, merger or consolidation of all or substantially all of the assets of the Corporation (a "Business Combination"), unless, following such Business Combination, (a) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the outstanding Common Stock of the Corporation and outstanding voting securities of the Corporation immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Corporation or all or substantially all of the Corporation's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the outstanding Common Stock of the Corporation and outstanding voting securities of the Corporation, as the case may be, (b) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Corporation or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (c) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (y) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Corporation, provided, that the divestiture of less than substantially all of the assets of the Corporation in one transaction or a series of related transactions, whether effected by sale, lease, exchange, spin-off, sale of the stock or merger of a subsidiary or otherwise, shall not constitute a Change in Control. Notwithstanding the foregoing, a Change in Control of the Corporation shall not be deemed to occur: (A) pursuant to subparagraphs (i) and (ii) above, solely because twenty percent (20%) or more of the combined voting power of the Corporation's then outstanding securities is acquired by one or more employee benefit plans maintained by the Corporation; or (B) pursuant to subparagraph (v)(y) above, if the Board determines that any sale, lease, exchange or transfer does not involve substantially all of the assets of the Corporation. B. "Company Service Credit" shall have the same meaning as set forth in the Retirement Program. C. "Corporation" shall mean Union Carbide Corporation and its successors. D. "Participant" shall mean an individual selected and approved for inclusion in this Plan under Article I. E. "Points" shall mean the sum of an individual's age and actual or deemed years of Company Service Credit with the Corporation as provided in the Retirement Program or under this Plan. F. "Prior Employer" shall mean the Participant's employer immediately prior to the Participant's employment by the Corporation, regardless of length of employment of the Participant by such Prior Employer. If a Participant was self-employed immediately prior to the Participant's employment by the Corporation, then such Participant's Prior Employer shall mean the Participant's employer immediately prior to such self-employment. G. "Retirement Program" shall mean the Retirement Program Plan For Employees of Union Carbide Corporation and Its Participating Subsidiary Companies and any excess or supplemental pension plans maintained by the Corporation. ARTICLE V MISCELLANEOUS A. The Vice President-Human Resources of the Corporation, or his designee, shall administer this Plan. The Vice President-Human Resources, or his designee, may adopt such rules as such person may deem necessary for the proper administration of this Plan and such person's decision in all matters involving the interpretation and application of the Plan shall be final, conclusive, and binding. B. The Corporation may amend or terminate this Plan at any time prior to a Change in Control of the Corporation. After a Change in Control of the Corporation, no amendment or termination of this Plan shall be effective with respect to any Participant (or a survivor of such Participant) unless such Participant, or survivor, consents in writing thereto. C. Except to the extent required by law, no assignment of the rights and interests of a Participant or a survivor of a Participant under this Plan will be permitted nor shall such rights be subject to attachment or other legal processes for debts of the Participant or the Participant's survivor. At all times the Participant's or survivor's relationship to the Plan is that of an unsecured general creditor. D. The validity, interpretation, construction and performance of this Plan shall be governed by the laws of the State New York (without regard to the choice of laws provisions thereof). EX-11 18 COMPUTATION OF EARNINGS PER SHARE Exhibit 11 UNION CARBIDE CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE FOR THE FIVE YEARS ENDED DECEMBER 31, 1997 (In millions of dollars except per share amounts)
Year Ended December 31, 1997 1996 Basic - Income before cumulative effect of change in accounting principle $ 676 $ 593 Less: Dividends on ESOP shares, pre-tax (9) (13) Appreciation on ESOP shares redeemed for cash (23) - Income before cumulative effect of change in accounting principle adjusted for basic calculation 644 580 Cumulative effect of change in accounting principle (17) - Net income - common stockholders, adjusted for basic calculation $ 627 $ 580 Weighted average number of shares outstanding for basic calculation 128,185,093 131,029,621 Earnings per share - Income before cumulative effect of change in accounting principle $ 5.02 $ 4.43 Cumulative effect of change in accounting principle (0.13) - Net income - common stockholders $ 4.89 $ 4.43 Diluted - Income before cumulative effect of change in accounting principle, adjusted for basic calculation $ 644 $ 580 Plus: Dividends on ESOP shares, pre-tax 9 13 Interest on convertible debentures, net of tax - - Less: Additional ESOP contribution resulting from assumed conversion of ESOP shares (1) (1) Income before cumulative effect of change in accounting principle, adjusted for diluted calculation 652 592 Cumulative effect of change in accounting principle (17) - Net income - common stockholders, adjusted for diluted calculation $ 635 $ 592 Weighted average number of shares outstanding for basic calculation 128,185,093 131,029,621 Add: Effect of stock options 4,034,969 4,495,656 Effect of equity put options - 403 Shares issuable upon conversion of UCC's convertible debentures - - Shares issuable upon conversion of UCC's convertible ESOP shares 11,739,036 16,120,754 Weighted average shares outstanding, adjusted for diluted calculation 143,959,098 151,646,434 Earnings Per Share - Income before cumulative effect of change in accounting principle, adjusted for diluted calculation $ 4.53 $ 3.90 Cumulative effect of change in accounting principle (0.12) - Net income - common stockholders, adjusted for diluted calculation $ 4.41 $ 3.90 Year Ended December 31, 1995 1994 Basic - Income before cumulative effect of change in accounting principle $ 925 $ 389 Less: Dividends on ESOP shares, pre-tax (13) (13) Appreciation on ESOP shares redeemed for cash - - Income before cumulative effect of change in accounting principle adjusted for basic calculation 912 376 Cumulative effect of change in accounting principle - - Net income - common stockholders, adjusted for basic calculation $ 912 $ 376 Weighted average number of shares outstanding for basic calculation 137,219,676 149,904,755 Earnings per share - Income before cumulative effect of change in accounting principle $ 6.65 $ 2.51 Cumulative effect of change in accounting principle - - Net income - common stockholders $ 6.65 $ 2.51 Diluted - Income before cumulative effect of change in accounting principle, adjusted for basic calculation $ 912 $ 376 Plus: Dividends on ESOP shares, pre-tax 13 13 Interest on convertible debentures, net of tax - - Less: Additional ESOP contribution resulting from assumed conversion of ESOP shares (1) (1) Income before cumulative effect of change in accounting principle, adjusted for diluted calculation 924 388 Cumulative effect of change in accounting principle - - Net income - common stockholders, adjusted for diluted calculation $ 924 $ 388 Weighted average number of shares outstanding for basic calculation 137,219,676 149,904,755 Add: Effect of stock options 4,367,153 4,208,776 Effect of equity put options - 495 Shares issuable upon conversion of UCC's convertible debentures - - Shares issuable upon conversion of UCC's convertible ESOP shares 16,341,367 16,542,644 Weighted average shares outstanding, adjusted for diluted calculation 157,928,196 170,656,670 Earnings Per Share - Income before cumulative effect of change in accounting principle, adjusted for diluted calculation $ 5.85 $ 2.27 Cumulative effect of change in accounting principle - - Net income - common stockholders, adjusted for diluted calculation $ 5.85 $ 2.27 Year Ended December 31, 1993 Basic - Income before cumulative effect of change in accounting principle $ 165 Less: Dividends on ESOP shares, pre-tax (13) Appreciation on ESOP shares redeemed for cash - Income before cumulative effect of change in accounting principle adjusted for basic calculation 152 Cumulative effect of change in accounting principle (97) Net income - common stockholders, adjusted for basic calculation $ 55 Weighted average number of shares outstanding for basic calculation 147,821,255 Earnings per share - Income before cumulative effect of change in accounting principle $ 1.03 Cumulative effect of change in accounting principle (0.66) Net income - common stockholders $ 0.37 Diluted - Income before cumulative effect of change in accounting principle, adjusted for basic calculation $ 152 Plus: Dividends on ESOP shares, pre-tax 13 Interest on convertible debentures, net of tax 4 Less: Additional ESOP contribution resulting from assumed conversion of ESOP shares (1) Income before cumulative effect of change in accounting principle, adjusted for diluted calculation 168 Cumulative effect of change in accounting principle (97) Net income - common stockholders, adjusted for diluted calculation $ 71 Weighted average number of shares outstanding for basic calculation 147,821,255 Add: Effect of stock options 3,483,252 Effect of equity put options - Shares issuable upon conversion of UCC's convertible debentures 4,545,194 Shares issuable upon conversion of UCC's convertible ESOP shares 16,796,109 Weighted average shares outstanding, adjusted for diluted calculation 172,645,810 Earnings Per Share - Income before cumulative effect of change in accounting principle, adjusted for diluted calculation $ 0.97 Cumulative effect of change in accounting principle (0.56) Net income - common stockholders, adjusted for diluted calculation $ 0.41
EX-13 19 1997 ANNUAL REPORT TO STOCKHOLDERS Exhibit 13 Union Carbide Corporation 1997 Annual Report (The cover) "Now, more than ever, our customers know they can count on Carbide people to deliver products, services and chemical expertise that add up to more value." (Inside Front Cover) Contents Financial Highlights Summary comparison of 1997 and 1996 results 1 Chairman's Letter Bill Joyce on performance in 1997, strategic objectives and long-term outlook 2 Chemical Glossary Chemicals and polymers central to Carbide's businesses 5 Principal Products & Services Description of Specialties & Intermediates and Basic Chemicals & Polymers segments, including major competitors and manufacturing locations 6 Partnerships & Joint Ventures 8 Management's Discussion & Analysis Results of Operations 9 Liquidity, Capital Resources and Other Financial Data 16 Selected Financial Data 18 Quarterly Data 20 Financial Statements Consolidated Balance Sheet 21 Consolidated Statement of Income 22 Consolidated Statement of Cash Flows 23 Consolidated Statement of Stockholders' Equity 24 Notes to Financial Statements 25 Management's Statement of Responsibility for Financial Statements 41 Independent Auditors' Report 41 Corporate Information Important dates, names, addresses, telephone numbers and other information 42 Directors and Corporate Officers List of directors, corporate officers and other senior management 43 Union Carbide Around the World List of worldwide locations 44 Definition of Terms Definition of nonchemical terms 44 Cautionary statement for the purposes of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995: All statements in this annual report that do not reflect historical information are forward looking statements. These include statements about the chemical markets in 1998; cost reduction targets; the corporation's share price; earnings and profitability targets; development, production and acceptance of new products and process technologies; ongoing and planned capacity additions and expansions; joint ventures, and Management's Discussion & Analysis. Important factors that could cause actual results to differ materially from those discussed in such forward looking statements include the supply/demand balance for the corporation's products; customer inventory levels; competitive pricing pressures; feedstock costs; changes in industry production capacities and operating rates; currency exchange rates; global economic conditions, particularly in Southeast Asia; disruption in railroad and other transportation facilities; competitive technology positions; failure to achieve technology objectives; and failure to achieve the corporation's cost reduction targets or to complete construction projects on schedule. Financial Highlights Dollar amounts in millions (except per share figures) 1997 1996 % Change For the Year Net sales $ 6,502 $ 6,106 6 Operating profit 1,045 921 13 Income before cumulative effect of change in accounting principle 676 593 14 Per common share - basic 5.02 4.43 13 Per common share - diluted 4.53 3.90 16 Cumulative effect of change in accounting principle (17) - - Per common share - basic (0.13) - - Per common share - diluted (0.12) - - Net income - common stockholders 652 583 12 Per common share - basic 4.89 4.43 10 Per common share - diluted 4.41 3.90 13 Cash dividends on common stock 100 99 1 Per common share 0.7875 0.75 5 Capital expenditures 755 721 5 At Year-End Total assets $ 6,964 $ 6,546 6 Total debt 1,887 1,599 18 Stockholders' equity 2,348 2,114 11 Per common share 17.15 16.72 3 Common shares outstanding (thousands) 136,944 126,440 8 Common stockholders of record 47,713 51,023 (6) Employees 11,813 11,745 1 At a Glance Union Carbide Corporation is a worldwide chemicals and polymers company. The company possesses many of the industry's most advanced process and catalyst technologies and some of the most cost efficient, large-scale production facilities in the world. In addition to its consolidated operations, the corporation participates in partnerships and joint ventures whose combined net sales totaled more than $4.3 billion in 1997. Union Carbide operates two business segments: Specialties & Intermediates, which accounted for 68 percent of customer revenues and 64 percent of operating profit in 1997, produces a broad range of products, including specialty polyolefins used in wire and cable insulation; surfactants for industrial cleaners; catalysts for the manufacture of polymers; acrolein and derivatives; water-soluble polymers; cellulose-, glucose- and lanolin-based materials for personal care products; specialty coatings; acrylic and vinyl acrylic latex used in paints and adhesives; solvents; vinyl acetate monomer, and ethylene oxide derivatives. This segment also licenses olefins-based technologies and offers other specialized technology licensing and services. Basic Chemicals & Polymers converts various hydrocarbon feedstocks, principally liquefied petroleum gases and naphtha, into the basic building- block chemicals ethylene and propylene (also known as olefins), which are in turn converted to polyethylene (the world's most widely used plastic), polypropylene (one of the world's fastest-growing plastics), and ethylene oxide and ethylene glycol (used to make polyester fiber, film and resin, and automotive antifreeze). This segment provides ethylene, propylene, ethylene oxide and ethylene glycol to the Specialties & Intermediates segment. Union Carbide's leading end markets as a percentage of sales are: Packaging and consumer plastics 24 Paints, coatings and adhesives 21 Wire and cable 11 Textile 9 Household and personal care 6 Automotive, including antifreeze 5 Agriculture and food 4 Oil and gas 3 Industrial cleaners 3 - 1 - Chairman's Letter (Contained in the left hand margin is a picture of William H. Joyce, Chairman, President and Chief Executive Officer.) I am pleased to report that Carbide had another good year in 1997, surpassing the prior year and posting the third highest net income available to common stockholders of the past 10 years. Worldwide sales rose 6.5 percent, to $6.5 billion. Income available to common stockholders from continuing operations (before the effect of a change in accounting principle) rose 14.8 percent from the prior year, to $669 million, and diluted per-share income increased 16.2 percent, to $4.53, before the change in accounting principle. Despite improved earnings, our 1997 common stock performance was disappointing. We increased the quarterly dividend 20 percent, to 22.5 cents, and repurchased 7 million shares during the year, but our share price increased only 5 percent by year-end. It seems clear that investors were looking past improved earnings in 1997 and focusing instead on the 1999/2000 cyclical trough anticipated by most experts, and on the widely held expectation that overcapacity in the chemical industry will depress the earnings of companies like Carbide until the cycle turns up. Adding to investor concerns was the inability of our Specialties & Intermediates (S&I) segment, for the second year in a row, to deliver the strong double-digit earnings growth of prior years, causing investors to doubt that its recovery could occur in time to meet our earnings target in the trough. And as the year ended, the Asian economic crisis appeared to make the next few years even more difficult for companies such as Carbide with significant sales in the region. Since the Far East region accounts for 14 percent of our sales, mainly exports, we are also concerned. Yet we're confident that Carbide can cope and that our company will be well positioned to participate when the region's growth resumes. As for 1997 performance, although we posted significant earnings growth, we should have done much better in light of our improvements over the past several years. Increases of 5.1 percent in volume and 3.7 percent in productivity for the corporation (based on actual fixed cost per pound of product sold, adjusted for inflation) were good, but below target. And some of our product lines, notably our solvents, monomers and industrial performance chemicals, were unable to deliver targeted results. Why did we not do better in 1997? And what are we doing to improve and to accelerate profitable growth over the longer term as well? Management's Discussion & Analysis, beginning on page 9, covers operations in detail. To summarize: The performance of solvents, monomers and industrial performance chemicals products suffered from price declines; abnormally low margins, particularly for solvents and monomers, and the impact of a strong dollar on exports. Although the strong dollar affected our Basic Chemicals & Polymers (BC&P) segment, as did problems with certain production units, segment earnings were much improved compared to 1996. - 2 - Startup costs for our huge new petrochemical joint venture in Kuwait also reduced earnings, as did costs associated with the delayed startup of a new facility for producing ethylene/propylene rubber (EPR). The Kuwait plant is in the final stage of startup at this writing, with both ethylene glycol and polyethylene already shipped to customers in Europe and Asia. And the EPR plant, which uses proprietary new technology to achieve vastly lower production costs, is scheduled for restarting in the fourth quarter of 1998, although further modification is required before that can happen. On the plus side, the drain on 1997 earnings was partly offset by improved pricing for ethylene glycol, and for polyethylene early in the year, and by the continuing, substantial benefit derived from our work process improvement and cost reduction programs over the past several years. To say that Carbide has few peers when it comes to improving work processes and reducing costs is only repeating what's often been said by others who follow our progress. Since 1992, total fixed costs have dropped by nearly $8 million, notwithstanding a $1.6 billion increase in revenues and a 27 percent increase in volume. Fixed cost per pound of product sold has dropped by 4.7 cents since the beginning of the decade, a 30 percent decrease. In 1997, costs associated with the Kuwait and EPR startups and other unusual growth expenses reduced earnings by $0.72 per diluted share. Those expenses aside, the fixed cost improvements mean that, given margin conditions no better than the ones faced by BC&P in 1993, Carbide could have earned about three times as much per diluted share in 1997 as we earned in the 1993 trough. Over the past seven years, we have learned that productivity improvement requires relentless focus on cost reduction throughout the entire enterprise. During this period, virtually every unit within Carbide has established savings initiatives with specific, quantifiable targets. More often than not, as Carbiders have progressed with these efforts, new opportunities have been identified. In 1990 we embarked on a $200 million savings program. Less than three years into that effort, it was clear that far more significant savings were possible, and a $575 million target was established. That program, dubbed EQAI, was largely completed by the end of 1994, after we had achieved substantially all of the targeted savings. In 1995 we unveiled a new series of initiatives with targeted savings of $637 million, compared to 1993, to be achieved by the year 2000. Last October, after having attained a substantial portion of these targets, we increased the savings goal to $1.1 billion by the year 2000. Carbiders have time and again shown themselves dedicated to creating value by reducing costs. I am confident that over the next three years they will extend the progress they've made since early in the decade. They have become as skilled as any workforce anywhere at finding ways to improve work processes and reduce costs while delivering the service that our customers expect. On that score: We track customer evaluations of Carbide very closely, and it's clear that now, more than ever, our customers know they can count on Carbide people to deliver products, services and chemical expertise that add up to more value. Carbiders take a great deal of pride in those evaluations and in our profit improvement work. And, not incidentally, they also benefit financially as shareholders and profit sharing participants when our company does well. Beyond participation in the profit sharing program, most of our managers, including all senior managers, receive variable compensation based in large part upon our ability to realize returns on capital in excess of our competitors'. While there can be no assurances, if we are successful in achieving our savings targets, we believe that it will be possible also to earn at least $4.00 per diluted share in both 1999 and 2000, the anticipated trough years of the current commodity chemical cycle. To leave no doubt about management's own commitment to doing what it takes to reach these earnings levels, we have bet a large part of our pay on reaching them. If we fail in 2000, I will forfeit the equivalent of a year's salary, and 16 members of our senior management team each will forfeit the equivalent of 65 percent of a year's base pay. If we succeed, the plan, which investors have encouraged us to implement, has a substantial upside opportunity to go along with the risk. In other words, Carbide management has real incentive to reach the target. Although we are committed to our volume growth and savings targets, reaching them will not be easy or assured. But work is under way across our worldwide locations to improve operations, further streamline work processes and make the most of our strong market and technology positions. And much has already been accomplished. To cite just a few examples: 1997 cost savings in our S&I segment of $336 million, and savings of $302 million for BC&P, kept - 3 - us ahead of schedule toward our year-2000 cost reduction target. Regarding programs designed to promote growth, we launched Univation Technologies, our joint venture with Exxon Chemical Company, to develop and license leading-edge polyethylene process and catalyst technologies. Companies in South America and Europe recently selected its technology to build 1.8 billion pounds of capacity. A major modernization of our UCON fluids manufacturing unit in 1997 increased capacity while cutting operating costs, and the fluids business was named a "supplier of the year" by General Motors, whose cars use our UCON brake fluids and UCON refrigeration lubricants. At our Taft, La., plant, we completed a 200-million-pound-capacity ethanolamines unit, strengthening our leading position as a supplier to the gas treating and personal care markets. Also at Taft, we are scheduled to complete by mid-1998 a new CARBOWAX polyethylene glycols (PEGs) facility to support sales flowing from new PEG applications in pharmaceuticals and wood treating. Our polypropylene units ran at high rates during the year, with added capacity, achieved through de-bottlenecking, that will help the business meet its year-2000 growth targets. Construction began at Taft on a new butanol facility, planned for startup in mid-1999, that will bring Carbide's total butanol capacity to 1.2 billion pounds, the world's largest. Butanol is a key raw material in the manufacture of solvents and monomers used by the paints and coatings industries. Employing our proprietary LP OXO Process technology, the 300-million-pounds-per-year facility is designed to be among the world's most cost effective. Dr. David Bryant, the Carbide scientist who played a key role in developing OXO technology, has been named 1998 winner of the Perkin Medal - one of the chemical industry's most prestigious honors - for his achievement. In 1997 we expanded capacity for producing propionic acid, a key ingredient in the production of feed and food additives, herbicides and chemical intermediates. We are completing modernization of our ethylene oxide and derivatives units at Wilton in the United Kingdom, and a new glycol unit is on schedule for second-quarter 1998 startup. And we are concluding new long-term glycol supply agreements to support the added capacity represented by Wilton and our EQUATE joint venture in Kuwait. Work is also under way to expand capacity at Seadrift, Tex., and at Wilton, for butyl glycol ethers, widely used in industrial coatings and as industrial cleaners. In addition, we have just announced plans to build a world-scale methylmercapto propionaldehyde (MMP) unit at Seadrift. This unit will supply MMP, an amino acid precursor, to Novus International for the manufacture of a feed supplement. We are confident that these and many other projects undertaken in 1997 will help to keep us on course toward our near-term growth and profitability targets. Our parallel agenda as a RESPONSIBLE CARE company is to keep improving Carbide's environmental and safety performance. The year just ended marked six years in a row without a major process incident. But there were disappointments as well, chiefly a death that occurred in a forklift accident - - at a latex plant of a Union Carbide affiliate company in China - after five consecutive years without a fatality in any of our operations. (For more information about our 1997 environmental and safety performance, write to Carbide's Public Affairs Department for our RESPONSIBLE CARE progress report.) All of us were pleased and proud to have our TRITON surfactants business receive two environmental awards in 1997. One, from the Environmental Protection Agency (EPA), recognized Carbide's TRITON splittable surfactants as an innovation in surfactant chemistry that greatly reduces risk to the aquatic environment. The other, from the Office of the Vice President of the U.S., recognized the TRITON surfactant-based partnership we entered into with the EPA to control environmental risk so that more regulation and its cost to business and the public would become unnecessary. Finally, I wish to applaud two of our directors - John Creedon and Bill Sneath - who, in accordance with the board's retirement policy, will not stand for reelection. Both have given outstanding service to the corporation, with Bill's tenure including 31 years of service as an employee, five of those as Chairman and CEO. We will miss their support and wise counsel. William H. Joyce Feb. 25, 1998 (Within the preceding section, the following three phrases are set in larger type: - - Despite improved earnings, our 1997 common stock performance was disappointing. - - Carbiders have time and again shown themselves dedicated to creating value by reducing costs. - - Our parallel agenda is to keep improving Carbide's environmental and safety performance. ) - 4 - Chemical Glossary Alcohols Chemicals, such as butanol, ethanol and isopropanol, that serve as solvents and intermediates for the manufacture of personal care products, pharmaceuticals, esters, ketones, monomers for latexes, herbicides, petroleum additives and synthetic lubricants. Biocides Chemicals used to control or inhibit the growth of bacteria, algae, fungi and mold. Chemical intermediates Chemicals formed or introduced as an intermediate step between the starting material and the final product in chemical processing. Examples include: o Acrolein, used to make glutaraldehyde, animal feed supplements and coatings resins. o Esters, such as ethyl acetate and butyl acrylate, made by reacting alcohols and acids and used primarily as paints and coatings solvents. o Ethanolamines, reaction products of ethylene oxide and ammonia, used in detergents and other cleaning materials, in personal care products and for removal of sulfur and other impurities from natural gases for consumer use. o Ethyleneamines, made from ethylene oxide or ethylene dichloride and used in a wide range of industrial products, including fuel, lubricant and motor oil additives, adhesives, wet-strength paper resins and paints. Ethylene glycol Chemical made from ethylene oxide and water. It is used in the manufacture of polyester resins, film and fiber, automotive antifreeze and engine coolants and aircraft deicing/anti-icing fluids. Ethylene oxide Chemical made from ethylene and oxygen. It combines with other chemicals to produce a wide range of products, such as ethylene glycol, water-soluble polymers for personal care products and surfactants for detergents and cleaning products. Glutaraldehyde An acrolein derivative predominantly used as a biocide for industrial water treatment and in oil field applications, animal housing sanitizers, surgical instrument sterilants and paper manufacturing. Glycol ethers Solvents used in higher-technology coating applications, such as waterborne industrial finishes for the automotive market, and noncoating applications, such as in hard surface cleaners, military jet fuels and brake fluids. Ketones Chemicals, such as acetone, used as solvents for vinyl resins, industrial lacquers and pharmaceuticals, and as an intermediate for resins, dyes and rubber chemicals. Monomer Reactive chemical that can be converted into a polymer. For example, ethylene is a monomer that is made into polyethylene. Olefins Generic name for ethylene, propylene and other unsaturated hydrocarbons (carbon atoms joined by double bonds) made from components of petroleum or natural gas. Examples include: o Ethylene and propylene, chemicals derived from natural gases or petroleum components, and the starting materials from which most of Union Carbide's chemicals and polymers are made. Oxo alcohols, aldehydes and acids Chemicals Carbide manufactures via its LP OXO Process, such as butanol and propionic acid, which are used as chemical intermediates and industrial solvents. Polymers Chains or networks of linked monomers. All plastics are polymers. Examples include: o Polyethylene, the world's most widely used plastic, made by the reaction of ethylene and other olefins. It is used in hundreds of consumer and industrial products, including grocery and trash bags, waste containers, housewares, bottles, drums, food packaging and wire and cable insulation and jacketing. Union Carbide produces most of its polyethylene via UNIPOL Process technology developed by the company in the early 1970's, which is licensed to polyethylene makers around the world. o Polypropylene, a fast-growing, high-volume plastic made from the reaction of propylene and other olefins. The broad range of applications includes lawn furniture, carpet fiber and backing, food containers, toys, appliance housings and binding materials. Much of Union Carbide's production is via the UNIPOL PP Process, also licensed around the world. Solvents Chemicals used to dissolve or absorb other chemicals. For example, ketones, esters, alcohols and glycol ethers are effective solvents commonly used in paints and coatings. Surfactants Chemicals that increase the cleaning and wetting properties of household and industrial cleaners and detergents. They are used also in textile and paper processing, paints and agricultural products. Surfactants also are used in cosmetics, shampoos and other personal care products. Carbide makes its surfactants primarily from ethylene oxide and alcohols. - 5 - Principal Products & Services Major Competitors Specialties & Intermediates Air Products, AT Plastics, BASF, Borealis AS, British Petroleum, Clariant , DeGussa, Dow Chemical, Eastman Chemical, Equistar Chemicals, Hercules, Hoechst Celanese, Huntsman, Mitsui Petrochemical, Montell Polyolefins, National Starch & Chemical, Phillips Chemicals, Reichhold Chemicals, Rhone-Poulenc, Rohm & Haas, Shell Chemical, Solvay, Ube Industries, Wacker Basic Chemicals & Polymers Amoco, Dow Chemical, Equistar Chemicals, Exxon Chemical, Fina, Huntsman, Mobil Chemical, Montell Polyolefins, NOVA Chemicals, Occidental Chemical, Phillips Chemicals, Saudi Basic Industries, Shell Chemical Specialties & Intermediates Segment Union Carbide's Specialty Polymers and Products group manufactures and markets numerous specialty products. Many of its technologies are targeted for sharply defined market segments. o Specialty Industrial Products produces acrolein and derivatives, such as methylmercapto propionaldehyde (MMP), for the manufacture of an amino acid used in animal feed supplements; glutaraldehyde, a biocide; ethylidene norbornene (ENB), used in the production of ethylene propylene rubber, and specialty ketones. o Performance Polymers produces POLYOX water-soluble resins, used in personal care products, pharmaceuticals, inks and thermoplastics. It also produces polyvinyl acetate resins, used in chewing-gum resins, low-profile additives, NEULON polyester modifiers, fast-cure additives and pigmentable systems, and UCURE reactive modifiers. o Coating Materials reaches markets for paints, coatings, inks, substrates and other materials for magnetic tape, food and beverage packaging, plastics and orthopedic materials. Its products include CELLOSIZE hydroxyethyl cellulose (HEC); UCAR solution vinyl resins; TONE caprolactone-based materials; cycloaliphatic epoxides, including CYRACURE ultraviolet-curing products, and FLEXOL plasticizers. o Amerchol Corporation, a Union Carbide subsidiary, manufactures and sells a wide variety of cellulose-, glucose-and lanolin-based materials for personal care products. Ucar Emulsion Systems makes products used in interior and exterior house paints, adhesives and sealants. They include UCAR POLYPHOBE rheology modifiers, used to thicken coatings, and UCAR latex products, used as binders and to impart exterior durability, scrub and stain resistance, and adhesion. Specialty Polyolefins manufactures and markets worldwide a variety of performance polyolefin products. Chief among these are polyolefin-based compounds for sophisticated insulation, semiconductives and jacketing systems for power distribution, telecommunications and flame-retardant wire and cable. Other Specialty Polyolefins products are used in adhesives, laminating film and flexible tubing. UNIPOL Systems owns and develops UNIPOL Process technology, the most versatile method of manufacturing polyethylene and polypropylene, for producers of these products worldwide. It also develops new process technology for the manufacture of other olefins-based polymers, such as ethylene propylene rubber, and sells catalysts to UNIPOL Process licensees worldwide. Licensing of UNIPOL PE and PP Processes, as well as the development of new PE technologies, such as metallocene catalysis and Super Condensed Mode Technology, is handled through Univation Technologies, LLC, a Union Carbide/Exxon Chemical Company joint venture. Industrial Performance Chemicals manufactures and sells a broad range of ethylene oxide derivatives and formulated glycol products for specialty applications. These include CARBOWAX polyethylene glycols, - 6 - with a wide range of applications in pharmaceutical, personal care, household and industrial markets; ethanolamines, for detergents, personal care products and natural gas conditioning and refining; ethyleneamines, for many industrial uses; TERGITOL and TRITON specialty and commodity surfactants, for institutional and household cleaning products and other industrial applications; UCON fluids and lubricants, and alkyl alkanolamines for water- treating chemicals. Formulated glycol products include UCAR and UCAR ULTRA+ deicing and anti-icing fluids for the aviation industry, UCARTHERM and NORKOOL heat-transfer fluids, and gas-treating products, including UCARSOL and SELEXOL solvents. Solvents, Intermediates and Monomers (SIM) supplies one of the industry's broadest product lines of solvents, intermediates and monomers. Its products include aldehydes, acids and alcohols, including high-quality industrial-grade synthetic and fermentation ethanol; esters; glycol ethers (brake fluids and CARBITOL and CELLOSOLVE solvents); ketones, and monomers (vinyl acetate and acrylics for waterborne coatings). Its principal customers are the paints and coatings industries. Many of SIM's products are also used widely in cosmetics and personal care preparations, adhesives, household and institutional products, drugs and pharmaceuticals; as fuel and lube oil additives, and in agricultural products. The UNICARB System is a pollution-reducing, supercritical fluid technology that can cut costs and reduce volatile organic compounds (VOCs) in spray-applied coatings by up to 80 percent. Basic Chemicals & Polymers Segment Union Carbide's Hydrocarbons group manufactures about two thirds of the company's ethylene requirements and almost one third of its propylene requirements. Ethylene and propylene are the key raw materials for many of Union Carbide's businesses. Union Carbide is the world's leading producer of ethylene oxide and ethylene glycol, supplied by the Ethylene Oxide/Glycol group. Ethylene oxide is a chemical intermediate primarily used in the manufacture of ethylene glycol, polyethylene glycol, glycol ethers, ethanolamines, surfactants and other performance chemicals and polymers. Ethylene glycol is used extensively in the production of polyester fiber, resin and film, automotive antifreeze and engine coolants, and aircraft anti-icing and deicing fluids. Other ethylene oxide-based glycol products include di-, tri-, and tetraethylene glycols, used as chemical intermediates and in dehydrating natural gas. Union Carbide is a leading manufacturer of polyethylene, the world's most widely used plastic. UNIPOL Polymers produces and markets linear low-, medium- and high-density polyethylenes, used in high-volume applications such as housewares, milk and water bottles, grocery sacks, trash bags, packaging, water and gas pipe, and FLEXOMER very low-density resins, used as a polymer modifier in other polyolefins and to produce flexible hose and tubing, frozen- food bags and stretch wrap. Carbide's Polypropylene Resins operations manufacture and sell polypropylene, one of the world's largest-volume, fastest-growing plastics. End-use applications include carpeting and upholstery, apparel, packaging films, food containers, housewares and appliances, and automobile interior trim and panels. For a summary of business and geographic segment data, see note five to the financial statements. Manufacturing Locations United States Torrance, Calif., Tucker, Ga., Alsip, Ill., Greensburg, La., Norco, La., Taft, La., Bound Brook, N.J.. Edison, N.J., Somerset, N.J., Bayamon, P.R., Garland, Tex., Seadrift, Tex., Texas City, Tex., Washougal, Wash., Institute, W.Va., South, Charleston, W.Va. Canada Prentiss, Alberta Europe Vilvoorde, Belgium, Zwijndrecht, Belgium, Wilton, U.K. Latin America Aratu, Brazil, Cabo, Brazil, Cubatao, Brazil,, Guayaquil, Equador Far East & Other Guangdong, China, Shanghai, China, Jakarta, Indonesia, Seremban, Malaysia, Batangas, Philippines, Colombo, Sri Lanka, Nonthaburi, Thailand, Dubai, United Arab Emirates - 7 - Partnerships & Joint Ventures The corporation has for many years participated in a number of businesses through partnerships and joint ventures. These affiliations have enabled Union Carbide to combine its competitive strengths in technology, project engineering and operational know-how with the complementary strengths of its partners. The most significant partnerships and joint ventures of the Specialties & Intermediates segment include: UOP LLC o a leading worldwide supplier of process technology, catalysts, molecular sieves and adsorbents to the petrochemical and gas-processing industries, owned jointly with AlliedSignal Inc. UOP LLC has facilities in Mobile, Ala.; Anaheim and Eldorado Hills, Calif.; Des Plaines and McCook, Ill.; Shreveport, La.; Tonawanda, N.Y.; Shanghai, China; Reggio di Calabria, Italy, and Brimsdown, U.K. Nippon Unicar Company Limited o a Japan-based producer of commodity and specialty polyethylene resins and specialty silicone products. This joint venture with Tonen Corporation has a facility in Kawasaki, Japan. Aspell Polymeres SNC o a France-based producer of specialty polyethylenes. This partnership with Elf Atochem has a facility in Gonfreville, France. World Ethanol Company o a U.S.-based partnership with Archer Daniels Midland Company that supplies ethanol worldwide. World Ethanol has facilities in Texas City, Tex. and Peoria, Ill. Univation Technologies, LLC o a U.S.-based joint venture with Exxon Chemical Company for the research, development, marketing and licensing of polyethylene technology and metallocene catalysts. Univation has a facility in Mont Belvieu, Tex. Asian Acetyls Co., Ltd. o a South Korea-based producer of vinyl acetate monomers used in the production of emulsion resins by customers in the coatings and adhesives industries. This joint venture with BP Chemicals and Samsung Fine Chemicals Company has a facility in Ulsan, South Korea. The most significant partnerships and joint ventures of the Basic Chemicals & Polymers segment include: Polimeri Europa S.r.l. o a Europe-based producer of ethylene and polyethylene resins. This joint venture with EniChem S.p.A. of Italy has facilities at Dunkirk, France; Oberhausen, Germany; and Brindisi, Ferrara, Gela, Priolo and Ragusa, Italy. EQUATE Petrochemical Company K.S.C. o a joint venture with Petrochemical Industries Company and Boubyan Petrochemical Company that manufactures polyethylene and ethylene glycol at its world-scale petrochemicals complex in Shuaiba, Kuwait. Petromont and Company, Limited Partnership o a Canada-based olefins and polyethylene resins producer owned jointly with Ethylec Inc. This partnership has facilities at Montreal and Varennes, Quebec, Canada. Alberta & Orient Glycol Company Limited o a joint venture with Mitsui & Co., Ltd., Japan, and Far Eastern Textile Ltd., Taiwan. This Canada-based producer of ethylene glycol has a facility in Prentiss, Alberta, Canada. For a summary of partnership and joint venture results for the past three years, see pages 14, 15 and note eight to the financial statements. (At the bottom of this section there is a picture of the world shown flat with square boxes shown for all locations described above.) - 8 - Management's Discussion & Analysis Results of Operations Millions of dollars (except per share figures) for the year ended December 31, 1997 1996 1995 Net sales $ 6,502 $6,106 $5,888 Operating profit(a) 1,045 921 1,348 Interest expense 79 76 89 Income before provision for income taxes 966 845 1,259 Income before cumulative effect of change in accounting principle 676 593 925 Net income 659 593 925 Net income - common stockholders 652 583 915 Per share - basic - income before cumulative effect of change in accounting principle $ 5.02 $ 4.43 $ 6.65 Net income - common stockholders 4.89 4.43 6.65 Per share - diluted - income before cumulative effect of change in accounting principle 4.53 3.90 5.85 Net income - common stockholders 4.41 3.90 5.85 a) See note five to the financial statements for a discussion of the special items included in operating profit. Summary and Outlook Union Carbide operates two business segments. Specialties & Intermediates converts basic and intermediate chemicals into a diverse portfolio of chemicals and polymers serving industrial customers in many markets. This segment also provides technology services, including licensing, to the oil and petrochemicals industries. Basic Chemicals & Polymers converts hydrocarbon feedstocks, principally liquefied petroleum gas and naphtha, into ethylene or propylene and then into polyethylene, polypropylene, ethylene oxide and ethylene glycol for sale to third-party customers, as well as ethylene, propylene, ethylene oxide and ethylene glycol for consumption by the Specialties & Intermediates segment. In contrast to those of Specialties & Intermediates, the revenues and operating profit of Basic Chemicals & Polymers tend to be more cyclical and very sensitive to a number of external variables, including overall economic demand, hydrocarbon feedstock costs, industry capacity increases and plant operating rates. Segment results were mixed in 1997 with Basic Chemicals & Polymers reporting substantially improved operating profit as compared with 1996 while Specialties & Intermediates operating profit decreased 10.1 percent. The Basic Chemicals & Polymers business benefited from increased ethylene glycol prices throughout the first three quarters of 1997 and improved polyethylene pricing through the first half of the year. In addition, the segment experienced reduced average feedstock costs versus 1996. Specialties & Intermediates operating profit was adversely impacted by increased raw material costs, most significantly ethylene oxide transferred from the Basic Chemicals & Polymers segment at approximate market value, higher energy costs and shipment disruptions associated with railroad problems in the U.S. Gulf Coast region. Average selling prices for the Specialties & Intermediates segment were negatively impacted by a much stronger U.S. dollar as well as by increased competition, principally in the segment's solvents, intermediates and monomers product lines. On a consolidated basis, sales volumes increased by 5.1 percent, while fixed cost per pound sold declined to 10.8 cents, the lowest of this decade. Partnership income remained strong, excluding certain costs, principally research and development, assumed by our new technology venture, Univation Technologies, LLC. Additionally, the improved earnings from our equity companies represented increases in earnings of Polimeri Europa partially offset by increased preoperating expenses associated with EQUATE Petrochemical Company. In 1996 the corporation's earnings were adversely impacted by declines in selling prices, particularly for ethylene glycol, polyethylene and vinyl acetate monomer, and by high raw material and energy costs. These factors significantly impacted Basic Chemicals & Polymers operating profit and limited Specialties & Intermediates operating profit growth. Sales volumes experienced their largest increase in the past decade, while productivity, as measured by fixed cost per pound of product sold, also improved. Partnerships continued to report strong profits, while equity company results declined due to the preoperating costs of EQUATE and increased raw material costs for Polimeri Europa. - 9 - (Included within this section are three bar charts which provide the following data: (1) Volume - millions of pounds S&I BC&P Total 1991 6,144 4,958 11,102 1992 6,458 5,510 11,968 1993 6,454 5,502 11,956 1994 7,093 5,680 12,773 1995 7,112 5,878 12,990 1996 7,743 6,706 14,449 1997 8,264 6,923 15,187 (2) Fixed Costs Per Pound - cents/pound S&I BC&P 1991 20.6 9.2 1992 19.0 7.7 1993 17.5 7.5 1994 15.0 7.0 1995 15.8 7.2 1996 14.7 6.7 1997 14.2 6.8 (3) Employee Productivity Number of 1,000s of pounds Employees /employee 1991 16,705 665 1992 15,075 794 1993 13,051 916 1994 12,004 1,064 1995 11,521 1,128 1996 11,745 1,230 1997 11,813 1,286 ) In 1995 the corporation's profitability benefited from improved pricing in virtually all product groups, with particular strength in polyethylene through midyear and ethylene oxide and ethylene glycol throughout the year, modest volume increases, lower average feedstock costs, continued benefits from ongoing productivity improvement programs and strong partnership earnings. In addition, 1995 net income was enhanced by a nonrecurring after-tax gain associated with the sales of the corporation's investment in UCAR International Inc., partially offset by a number of nonrecurring after-tax losses. Highlights of 1997 included: o Completion of an ethanolamines unit at Taft, La. o Startup of the EQUATE facility in Shuaiba, Kuwait o Formation of Univation Technologies, LLC, a 50-50 joint venture with Exxon Chemical Company to research, develop, market and license leading-edge technologies and metallocene catalysts for the production of polyethylene o Signing of a joint undertaking with NOVA Chemicals, Ltd., to construct, own and operate a new 2.8-billion-pounds-per-year ethylene production facility in Joffre, Alberta, Canada o Increase in the quarterly dividend per common share from $0.1875 to $0.225 o Repurchase of 7.0 million common shares, bringing the total number of shares repurchased since the beginning of 1993 to 49.3 million o Conversion of preferred shares held by the Employee Stock Ownership Plan (ESOP) into the corporation's common shares o Announcement of a new plan to increase the target for annual net savings to $1.1 billion by year-end 2000, as compared with 1993, and better-than-planned progress toward achievement of this target As 1998 progresses, pricing for Basic Chemicals & Polymers products is expected to continue to decline. The pace and extent of the drop cannot be predicted with any accuracy and is dependent in part on developments in Asian Pacific economies, which are major markets for these products. Feedstock costs are expected to decline at least modestly from fourth quarter 1997 levels. Specialties & Intermediates operating profit in 1998 should benefit somewhat from a decline in raw material and energy prices. Moreover, the corporation expects continued strong performance from the Specialties & Intermediates partnerships as a group, and from licensing activities. However, as is the case with Basic Chemicals & Polymers, the ability to anticipate future results with any accuracy is dependent on the resolution and stabilization of Asian Pacific market conditions. - 10 - The corporation regularly reviews its assets with the objective of maximizing the deployment of resources in core operations. In this regard, UCC continues to consider strategies and/or transactions with respect to certain noncore assets and other assets not essential to the operation of the business that, if implemented, could result in material nonrecurring gains or losses. Quantitative and Qualitative Disclosures About Market Risk The corporation selectively uses derivative financial instruments to manage its exposure to market risk related to changes in foreign currency exchange rates and interest rates. The corporation does not hold derivatives for trading purposes. The value of market sensitive derivative instruments is subject to change as a result of movements in market rates and prices. Sensitivity analysis is one technique used to evaluate these impacts. Based on a hypothetical 10 percent weakening in the U.S. dollar across all currencies or a 10 percent increase in interest rates, the potential losses in future earnings, fair values and cash flows would not be material. This methodology has limitations; for example, a weakening U.S. dollar would benefit future earnings through favorable translation of non-U.S. operating results. Foreign Operations A portion of the financial results of each of the corporation's segments is derived from activities conducted outside the U.S. and denominated in currencies other than the U.S. dollar. Because the financial results of the corporation are reported in U.S. dollars, they are affected by changes in the value of the various foreign currencies in relation to the U.S. dollar. Exchange rate risks are lessened, however, by the diversity of the corporation's foreign operations and the fact that international activities are not concentrated in any single non-U.S. currency. In addition, the effects of a strengthening U.S. dollar could cause pricing pressures on worldwide chemical markets which could result in declines in the corporation's sales volumes. The corporation is subject to other risks customarily associated with doing business in foreign countries, including local labor and economic conditions, unfavorable changes in foreign tax laws, and possible controls on repatriation of earnings and capital. Future losses associated with such risks, if any, cannot be predicted. Specialties & Intermediates Millions of dollars 1997 1996 1995 Sales $4,453 $4,286 $4,123 Depreciation and amortization 214 188 194 Operating profit 667 742 709 Capital expenditures 458 522 392 Identifiable assets 4,146 3,892 3,527 1997 Compared with 1996 Sales of the Specialties & Intermediates segment increased 3.9 percent, as a result of a 6.7 percent increase in volume offset by lower average selling prices. Average selling price reductions were due in part to a strengthening of the U.S. dollar against currencies such as the German Deutschemark and Japanese Yen, as well as by increased competition in solvents, intermediates and monomers product lines. Additionally, shipments for this segment's products were affected by rail problems in the U.S. Gulf Coast region. Variable margin (revenues less variable manufacturing and distribution costs) as a percentage of sales declined 2.2 percentage points, from 44.6 percent in 1996 to 42.4 percent in 1997, while gross margin (variable margin less fixed manufacturing and distribution costs) as a percentage of sales declined 2.4 percentage points to 24.6 percent in 1997. Increases in the market-related transfer cost of raw materials produced by the Basic Chemicals & Polymers segment, as well as the increasing cost of natural gas, significantly affected these margins. Fixed manufacturing and distribution costs for this segment increased 5.3 percent, or $40 million, from the previous year's levels. Selling, administration and other expenses (SA&O) for this segment decreased $5 million, or 2.0 percent. Research and development expenditures decreased $2 million, to $126 million, mainly attributable to costs assumed by the corporation's new technology venture, Univation Technologies. Operating profit decreased $75 million, or 10.1 percent, to $667 million from $742 million in 1996. The current year operating profit includes a charge of $12 million for the write-off of certain equipment associated with the corporation's ethylene propylene rubber project. 1996 Compared with 1995 Revenues of the Specialties & Intermediates segment increased 4.0 percent, the result of an 8.9 percent increase in volume partially offset by a 4.7 percent decline in average selling prices. The reduction in average selling prices reflected the combined effect of increases in - 11 - sales of lower priced products and declines in prices of certain products from the unusually high levels experienced in 1995. Variable margin as a percentage of sales dropped by 1.6 percentage points, from 46.2 percent in 1995 to 44.6 percent in 1996, while gross margin as a percentage of sales declined by 0.8 percentage points, to 27.0 percent in 1996 from 27.8 percent in 1995. Fixed manufacturing and distribution costs were held at 1995 levels. The segment's 1996 SA&O decreased $45 million, or 15.1 percent, because of the inclusion in 1995 SA&O of a nonrecurring $48 million charge for postemployment benefits. Excluding this charge, SA&O increased $3 million, or 1.2 percent. Research and development expenditures increased $14 million, to $128 million. Operating profit increased in 1996 to $742 million from $709 million in 1995. Basic Chemicals & Polymers Millions of dollars 1997 1996 1995 Sales $2,420 $2,125 $2,080 Depreciation and amortization 126 124 112 Operating profit 386 162 444 Capital expenditures 297 199 150 Identifiable assets 2,540 2,328 2,095 1997 Compared with 1996 Sales of the Basic Chemicals & Polymers segment increased 13.9 percent, largely as a result of a 9.2 percent increase in average customer selling price coupled with a 3.2 percent increase in customer volume. The increase in average customer selling price reflects the strong increase in ethylene glycol pricing during the first three quarters of 1997 and improved polyethylene pricing throughout the first half of the year. Variable margin as a percentage of sales increased to 39.9 percent from 34.6 percent in 1996. Overall, this segment benefited from an increase in gross margin as a percentage of sales to 25.0 percent, compared with only 18.2 percent in 1996. Fixed manufacturing and distribution costs increased by 3.7 percent. The segment's SA&O increased $8 million, or 11.9 percent, over the 1996 amount. Research and development expenditures were unchanged from the prior year. Operating profit of $386 million in 1997 represented an increase of over 100 percent from the prior year. 1996 Compared with 1995 Revenues of the Basic Chemicals & Polymers segment increased 2.2 percent, due to a 14.1 percent increase in customer volume, 11.5 percent of which was due to the January 1996 acquisition of the polypropylene business of Shell Oil Company, offset by a 9.7 percent decrease in selling prices. Variable margin as a percentage of sales declined from 46.4 percent in 1995 to 34.6 percent in 1996. Ethylene glycol selling prices declined throughout the first three quarters of 1996. While polyethylene prices improved beginning in the second quarter of 1996, they nonetheless averaged below 1995 levels for the full year. Raw material and energy costs rose during 1996, especially in the fourth quarter. Gross margin as a percentage of sales declined to 18.2 percent in 1996 as compared with 30.8 percent in 1995. Fixed manufacturing and distribution costs increased $24 million, or 7.4 percent, from 1995 to 1996, principally due to the acquisition of Shell's polypropylene assets and business. SA&O decreased $20 million, or 23.0 percent, versus 1995. Prior year SA&O included a nonrecurring $20 million charge for postemployment benefits. Research and development expenditures increased $1 million, to $31 million. Operating profit declined to $162 million in 1996 from $444 million in 1995. Other Millions of dollars for the year ended December 31, 1997 1996 1995 Operating profit (loss) $(8) $17 $195 The Other segment includes the operating profit (loss) of noncore activities and financial transactions. The 1995 operating profit included a nonrecurring pre-tax gain of $381 million from the sales of the corporation's remaining interest in UCAR International Inc., partially offset by a $191 million charge for unused office space, principally at the corporation's headquarters. Costs Relating to Protection of the Environment Worldwide costs relating to environmental protection continue to be significant, due primarily to stringent laws and regulations and to the corporation's commitment to industry initiatives such as RESPONSIBLE CARE, as well as to its own internal standards. In 1997, worldwide expenses related to environmental protection for compliance with Federal, state and local laws regulating solid and hazardous wastes and discharge of materials to air and water, as well as for waste site remedial activities, totaled $100 million. Expenses in 1996 and 1995 were $110 million and $138 million, respectively. Such expenses were material to operating results in 1997, 1996 and 1995, and will be material to operating results in future years. In recent years, such environmental expenses have decreased as the corporation has made progress toward completing major remediation projects. In addition, worldwide capital expenditures relating to -12 - environmental protection, including those for new capacity and cost reduction and replacement, in 1997 totaled $68 million, compared with $43 million and $49 million in 1996 and 1995, respectively. The corporation, like other companies in the U.S., periodically receives notices from the U.S. Environmental Protection Agency and from state environmental agencies, as well as claims from other companies, alleging that the corporation is a potentially responsible party (PRP) under the Comprehensive Environmental Response, Compensation and Liability Act and equivalent state laws (hereafter referred to collectively as Superfund) for past and future cleanup costs at hazardous waste sites at which the corporation is alleged to have disposed of, or arranged for treatment or disposal of, hazardous substances. The corporation is also undertaking environmental investigation and remediation projects at hazardous waste sites located on property currently and formerly owned by the corporation pursuant to Superfund, as well as to the Resource Conservation and Recovery Act and equivalent state laws. There are approximately 117 hazardous waste sites at which management believes it is probable or reasonably possible that the corporation will incur liability for investigation and/or remediation costs. The corporation has established accruals for those hazardous waste sites where it is probable that a loss has been incurred and the amount of the loss can reasonably be estimated. The reliability and precision of the loss estimates are affected by numerous factors, such as the stage of site evaluation, the allocation of responsibility among PRPs and the assertion of additional claims. The corporation adjusts its accruals as new remediation requirements are defined, as information becomes available permitting reasonable estimates to be made, and to reflect new and changing facts. At Dec. 31, 1997, the corporation's accruals for environmental remediation totaled $264 million ($310 million in 1996). Approximately 55 percent of the accrual (58 percent in 1996) pertains to estimated future expenditures for site investigation and cleanup, and approximately 45 percent (42 percent in 1996) pertains to estimated expenditures for closure and postclosure activities. See note seventeen to the financial statements for a discussion of the environmental sites for which the corporation has remediation responsibility. In addition, the corporation had environmental loss contingencies of $159 million at Dec. 31, 1997. Estimates of future costs of environmental protection are necessarily imprecise, due to numerous uncertainties. These include the impact of new laws and regulations, the availability and application of new and diverse technologies, the identification of new hazardous waste sites at which the corporation may be a PRP and, in the case of Superfund sites, the ultimate allocation of costs among PRPs and the final determination of the remedial requirements. While estimating such future costs is inherently imprecise, taking into consideration the corporation's experience to date regarding environmental matters of a similar nature and facts currently known, the corporation estimates that worldwide expenses related to environmental protection, expressed in 1997 dollars, should average about $110 million annually over the next five years. Worldwide capital expenditures for environmental protection, also expressed in 1997 dollars, are expected to average about $50 million annually over the same period. Management anticipates that future annual costs for environmental protection after 2002 will continue at levels comparable to the five-year average estimates. Subject to the inherent imprecision and uncertainties in estimating and predicting future costs of environmental protection, it is management's opinion that any future annual costs for environmental protection in excess of the five-year average estimates stated here, plus those costs anticipated to continue thereafter, would not have a material adverse effect on the corporation's consolidated financial position. Litigation The corporation and its consolidated subsidiaries are involved in a number of legal proceedings and claims with both private and governmental parties. These cover a wide range of matters, including, but not limited to, product liability; governmental regulatory proceedings; health, safety and environmental matters; employment; patents; contracts, and taxes. In addition, the corporation continues to be named as one of a number of defendants in lawsuits involving silicone breast implants. The corporation supplied bulk silicone materials to certain companies that at various times were involved in the manufacture of breast implants. These cases are discussed in more detail in note seventeen to the financial statements. In some of these legal proceedings and claims, the cost of remedies that may be sought or damages claimed is substantial. While it is impossible at this time to determine with certainty the ultimate outcome of any such legal proceedings and claims, management believes that adequate provisions have been made for probable losses with respect thereto and that such ultimate outcome, after provisions therefor, will not have a material adverse effect on the consolidated financial position of the corporation but could have a material effect on consolidated results of operations in a given quarter or year. Should any losses be sustained in connection with any of such legal proceedings and claims in excess of provisions therefor, they will be charged to income in the future. - 13 - Partnerships and Joint Ventures As described on page 8, the corporation's most significant partnerships and joint ventures are UOP, Nippon Unicar, Aspell Polymeres, World Ethanol, Univation Technologies and Asian Acetyls within the Specialties & Intermediates segment, and Polimeri Europa, EQUATE Petrochemical Company, Petromont and Alberta & Orient Glycol within the Basic Chemicals & Polymers segment. The combined financial information of the partnerships and joint ventures in each segment, and the corporation's proportionate share thereof, are presented in the following tables. Specialties & Intermediates Combined UCC's Proportionate Share(a) Millions of dollars 1997 1996 1995 1997 1996 1995 Net sales $2,246 $2,238 $2,311 $1,109 $1,082 $1,114 Cost of sales 1,395 1,456 1,486 567 680 720 Depreciation 90 86 67 51 39 35 Income from operations 340 322 338 175 187 175 Interest expense 42 31 32 15 12 15 Provision for income taxes 76 63 54 38 32 27 Net Income $ 224 $ 227 $ 257 $ 122 $ 143 $ 137 UCC share of dividends and distributions $ 107 $ 101 $ 92 Total assets $1,837 $1,769 $ 820 $ 757 Total third party debt 588 577 249 212 Net Assets $ 451 $ 561 $ 277 $ 263 Basic Chemicals & Polymers Combined UCC's Proportionate Share(a) Millions of dollars 1997 1996 1995 1997 1996 1995 Net sales $2,078 $1,930 $1,512 $1,038 $ 965 $ 756 Cost of sales 1,661 1,575 1,014 855 798 507 Depreciation 102 126 115 46 51 58 Income from operations 219 96 209 68 30 105 Interest expense 70 67 61 35 34 30 Provision for income taxes 49 20 36 18 11 17 Net Income (Loss) $ 100 $ 9 $ 114 $ 14 $ (15) $ 58 UCC share of dividends and distributions $ 19 $ 40 $ 0 Total assets $3,980 $3,536 $1,797 $1,650 Total third party debt 1,595 1,197 744 561 Net Assets $ 985 $ 972 $ 413 $ 432 a) Includes U.S. GAAP adjustments made by the corporation, such as goodwill and related amortization, and adjustments needed to conform the accounting policies of the partnerships and joint ventures to those of UCC. - 14 - Specialties & Intermediates The corporation's share of the net income of Specialties & Intermediates partnerships and joint ventures decreased $21 million in 1997. This decline resulted from the assumption of certain costs, principally research and development, by the corporation's new technology venture, Univation Technologies, and decreased earnings of World Ethanol, mainly attributable to lower prices and volumes caused by a different mix of ethanol sales in 1997. Increased earnings in 1996, as compared with 1995, resulted from increased earnings from UOP being partially offset by the elimination of earnings of the polypropylene partnership with Shell Oil Company. The 1996 and 1997 earnings from the polypropylene business were included in the consolidated results. Basic Chemicals & Polymers The corporation's share of the net income of Basic Chemicals & Polymers partnerships and joint ventures increased $29 million from 1996 to 1997, due to significant improvement in Polimeri Europa and Petromont earnings, offset by increased preoperating expenses EQUATE. Strong results of our polyolefins partnerships in 1997 were the result of increases in worldwide polymer pricing over the prior year. The decrease from 1995 to 1996 reflected losses from Polimeri Europa and decreased earnings from Petromont, caused by lower polyethylene prices and higher raw material costs, and the recognition of preoperating expenses of EQUATE. EQUATE Petrochemical Company commenced operations in the fourth quarter of 1997. Losses of $43 million for development of this world-scale petrochemical complex were recognized by the corporation in 1997 ($23 million and $3 million in 1996 and 1995, respectively). The corporation has severally guaranteed 45 percent (approximately $606 million at Dec. 31, 1997) of EQUATE's debt and working capital financing needs until certain completion and financial tests are achieved. If these tests are met, a $54 million several guarantee will provide ongoing support thereafter. The corporation also severally guaranteed certain sales volume targets until EQUATE's sales capabilities are proved. In addition, the corporation has pledged its shares in EQUATE as security for EQUATE's debt. The corporation has political risk insurance coverage for its equity investment and, through Sept. 30, 1998, substantially all of its several guarantee of EQUATE's debt. Other The corporation's remaining interest in UCAR International Inc., a manufacturer of carbon and graphite products, was sold in 1995. Income (loss) from corporate investments carried at equity included $4 million in 1995, representing the corporation's share of UCAR's earnings in that year. Additionally, the corporation's share of dividends and distributions from UCAR was $5 million in 1995. Interest Expense Interest expense increased $3 million, from $76 million in 1996 to $79 million in 1997. This increase reflects the effect of a full year's interest expense associated with the 7.75 percent debentures due in 2096 and an increase in short-term debt, partially offset by an increase in capitalized interest associated with the corporation's capital program. Interest expense decreased $13 million from 1995 to 1996 as a result of increased capitalized interest. Provision for Income Taxes The effective tax rate was 28.9 percent in 1997 compared with 27.9 percent and 30.2 percent in 1996 and 1995, respectively. The corporation's effective tax rate was reduced in each of these years as a result of foreign sales corporation income taxed at a preferential rate and research and experimentation tax credits. The 1995 effective tax rate was increased as a result of taxes provided on the sale of UCAR International Inc. Accounting Changes 1995 through 1997 In November 1997, the Emerging Issues Task Force reached consensus on Issue 97-13, "Accounting for Costs Incurred in Connection with a Consulting Contract or an Internal Project That Combines Business Process Reengineering and Information Technology Transformation," requiring companies to expense as incurred costs associated with business process reengineering activities. Effective Oct. 1, 1997, the corporation adopted the provisions of Issue 97-13 as a cumulative effect of a change in accounting principle, reversing $28 million ($17 million, after-tax) of costs previously capitalized from 1995 through the third quarter of 1997. Additionally in 1997, the corporation adopted Statement of Financial Accounting Standards (SFAS) 128, "Earnings Per Share", and SFAS 129, "Disclosure of Information About Capital Structure." In 1996, the corporation adopted SFAS 123, "Accounting for Stock-Based Compensation," under which the corporation elected to continue following Accounting Principles Board Opinion 25. In 1995, the corporation adopted SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," the effect of which was not material. - 15 - 1998 In June 1997, the Financial Accounting Standards Board issued SFAS 130, "Reporting Comprehensive Income," and SFAS 131, "Disclosures About Segments of an Enterprise and Related Information," for fiscal years beginning after Dec. 15, 1997. These statements address presentation and disclosure matters and will have no impact on the corporation's financial position or results of operations. The corporation does not anticipate a change in the identification of its business segments. Effective Jan. 1, 1998, Brazil was no longer considered to be a highly inflationary economy. Had this change occurred effective Jan. 1, 1997, the effect on results of operations and financial position would not have been material. Year 2000 Issue Most of the corporation's computer and process control systems were designed to use only two digits to represent years. Thus they may not recognize "00" as representing the year 2000, but rather 1900, which could result in errors or system failures. These systems must be corrected in a timely manner to remain functional. The corporation is addressing the year 2000 issue in several ways. Since 1995, the corporation has expended significant funds to upgrade the bulk of its commercial computer systems to enhance the information available to the corporation. This upgrade will correct the year 2000 issue for the computer systems it replaces. The upgrade will be implemented in three parts, the first of which commenced operation in 1998. The remaining parts are scheduled for operation by year-end. The corporation is reviewing the balance of its domestic and international internal processes, including hardware, software and control systems, and is assessing its external relationships to address potential impacts arising from interfaces with customers, suppliers and service providers. Priorities are being set and required system modifications are progressing. The corporation estimates its worldwide expenses related to the year 2000 project could range between $20 and $50 million over the next two years. The corporation believes the year 2000 project will be completed prior to the year 2000. However, considerable work remains to be accomplished in a limited period of time and unforeseen difficulties may arise which could adversely affect the corporation's ability to complete its systems modifications correctly, completely, on time and/or within its cost estimate. In addition, there can be no assurance that customers, suppliers and service providers on which the corporation relies will resolve their year 2000 issues accurately, thoroughly and on time. Failure to complete the year 2000 project by the year 2000 could have a material adverse effect on future operating results or financial condition. Liquidity, Capital Resources and Other Financial Data Cash Flow From Operations Cash flow from operations increased by $55 million to $917 million in 1997, as compared with $862 million in 1996. Increased earnings for the year were offset by increases in working capital, principally the result of an increase in inventory partially offset by a decrease in notes and accounts receivable. Cash Flow Used for Investing Cash flow used for investing includes capital expenditures, investments, advances and acquisitions, and proceeds from the sale of investments and assets. Capital expenditures increased to $755 million in 1997, from $721 million in 1996 and $542 million in 1995. Major capital projects funded during 1997 included a new CARBOWAX polyethylene glycol and TERGITOL surfactants facility, an ethanolamines unit and olefins expansion, all at Taft, La., as well as a continuing upgrade of the information technology infrastructure. Major capital projects funded during 1996 included an ethylene propylene rubber facility at Seadrift, Tex., expansion of ethylene production units at Taft, La., as well as new cogeneration facilities at Texas City, Tex. and Taft, La., and new information technology infrastructure. Major capital projects funded during 1995 included a new butanol unit at Taft, La., an energy systems upgrade at Texas City, Tex., new TRITON surfactants production facilities at South Charleston, W.Va. and a new UNIPOL II polyethylene production facility at Taft, La. Over the past three years 52 percent of capital expenditures was directed to new capacity, 44 percent to cost reduction and replacement, and 4 percent to environmental, safety and health facilities. Of these expenditures, 92 percent was in the U.S. and Puerto Rico. Investments and acquisitions in 1996 included the purchases of Shell's polypropylene assets and business and of 95 percent of the outstanding shares of Companhia Alcoolquimica Nacional, a Brazilian producer of vinyl acetate monomer. Investments and acquisitions during 1995 included the $216 million acquisition of a 50 percent interest in Polimeri Europa, a $134 million investment in the EQUATE joint venture, and the $71 million purchase of certain ethylene oxide derivative businesses in the U.K. Net proceeds from the sale of investments in 1995 included $542 million from the sales of the corporation's remaining interest in UCAR International Inc. - 16 - At Dec. 31, 1997, the cost of completing authorized construction projects was estimated to be $1.375 billion, of which $50 million is covered by firm commitments. Future construction expenditures are anticipated to be sourced through operating cash flows and borrowings. Cash Flow Used for Financing Cash flow used for financing includes stockholder and minority interest dividends and funds used to buy back common stock, offset in part by net proceeds from short- and long-term debt and sales of common stock pursuant to the corporation's dividend reinvestment plan and its employee savings and investment programs. Cash flow used for financing in 1997 totaled $132 million, compared with $254 million in 1996 and $57 million in 1995. Net borrowings totaled $306 million, while cash dividends totaled $134 million. In January 1997, a newly formed real estate investment trust (REIT) subsidiary issued $250 million of preferred stock bearing a current dividend yield of 14 percent for 10 years and 1 percent thereafter. In October 1997, the corporation paid $240 million in cash to redeem the preferred stock shares. Cash dividends paid to preferred shareholders of the REIT during 1997 totaled $25 million. In September 1997, the board of directors declared an increase in the quarterly common stock dividend to $0.225 per share. In October 1997, the trustee of the Employee Stock Ownership Plan (ESOP) exercised its right to convert all shares of the corporation's preferred stock held by the ESOP into the corporation's common stock. This noncash conversion increased the corporation's common stock outstanding at that time by 15.4 million shares. In 1996, the corporation issued $200 million of 7.75 percent debentures maturing in 2096, the proceeds of which were used to finance ongoing share repurchases and to pay down existing short-term debt. In 1995 the corporation completed a $400 million, two-part public offering of debt securities. On July 23, 1997, the corporation's board of directors authorized an increase in the number of shares that may be repurchased under the existing common stock repurchase program by 10 million shares, to an aggregate of 60 million shares since inception of the program. During 1997, pursuant to the share repurchase program, the corporation repurchased 7.0 million shares of its common stock for $337 million, at an average effective price of $47.62 per share, bringing the total amount repurchased since the beginning of 1993 to 49.3 million shares for $1.713 billion, at an average effective price of $34.69 per share. The corporation intends to acquire additional shares from time to time at prevailing market prices, at a rate consistent with the combination of corporate cash flow and market conditions. At Dec. 31, 1997, there were no outstanding borrowings under either the corporation's existing $1 billion bank credit agreement or its $500 million medium-term note program. Debt Ratios Total debt outstanding at year-end for the past three years was: Millions of dollars 1997 1996 1995 Domestic $1,719 $1,492 $1,254 International 168 107 69 Total $1,887 $1,599 $1,323 Year-end ratios of total debt to total capital were: 1997 1996 1995 Debt ratio 44.2% 42.7% 39.0% Total debt consists of short-term debt, long-term debt and the current portion of long-term debt. Total capital consists of total debt plus minority stockholders' equity in consolidated subsidiaries and stockholders' equity. (Included within this section is one bar chart which provides the following data: (1) Shares Repurchased - millions Net of Reissuances Total 1993 1.4 3.8 1994 6.1 11.6 1995 9.3 14.1 1996 8.7 12.8 1997 4.9(a) 7.0 (a) Does not include 15.4 million shares issued in connection with the ESOP preferred share conversion. ) - 17 - Page 18 and 19 Selected Financial Data Union Carbide Corporation and Subsidiaries
Millions of dollars (except per share figures) 1997 1996 1995 1994 From the Income Statement Net sales $ 6,502 $ 6,106 $ 5,888 $ 4,865 Cost of sales, exclusive of depreciation and amortization 4,806 4,568 4,100 3,673 Research and development 157 159 144 136 Selling, administration and other expenses 324 321 387(a) 290 Depreciation and amortization 340 312 306 274 Partnership income (loss) 133 144 152 98 Other income (expense) - net 37 31 245 (39) Income before interest expense and provision for income taxes 1,045 921 1,348 551 Interest expense 79 76 89 80 Income (loss) before provision for income taxes - continuing operations 966 845 1,259 471 Provision (credit) for income taxes 279 236 380 137 Income (loss) from corporate investments carried at equity 3 (16) 47 55 Income (loss) from continuing operations 676 593 925 389 Cumulative effect of change in accounting principle (17) - - - Net income (loss) - common stockholders 652 583 915 379 Per common share Basic - Income (loss) from continuing operations $ 5.02 $ 4.43 $ 6.65 $ 2.51 - Net income (loss) 4.89 4.43 6.65 2.51 Diluted - Income (loss) from continuing operations 4.53 3.90 5.85 2.27 - Net income (loss) 4.41 3.90 5.85 2.27 From the Balance Sheet Net current assets of continuing operations $ 362 $ 595 $ 858 $ 329 Total assets 6,964 6,546 6,256 5,028 Long-term debt 1,458 1,487 1,285 899 Other long-term obligations 738 811 834 537 Total capital(b) 4,268 3,742 3,392 2,479 Stockholders' equity 2,348 2,114 2,045 1,509 Stockholders' equity per common share 17.15 16.72 15.14 10.45 Other Data Cash dividends on common stock $ 100 $ 99 $ 103 $ 113 Cash dividends per common share 0.7875 0.75 0.75 0.75 Special distribution per common share - - - - Market price per common share - high(c) 56.81 49.88 42.75 35.88 Market price per common share - low(c) 40.50 36.38 25.50 21.50 Common shares outstanding (thousands) 136,944 126,440 135,108 144,412 Capital expenditures 755 721 542 409 Employees - continuing operations 11,813 11,745 11,521 12,004 Selected Financial Ratios Total debt/total capital 44.2% 42.7% 39.0% 38.2% Return on capital(b) 19.6% 18.6% 39.2% 18.0% Return on equity(e) 30.8% 28.5% 60.6% 26.5% Income from continuing operations/average stockholders' equity 30.3% 28.5% 52.1% 26.5% Cash dividends on common stock/income from continuing operations 14.8% 16.7% 11.1% 29.0% Millions of dollars (except per share figures) 1993 1992 1991 From the Income Statement Net sales $ 4,640 $ 4,872 $ 4,877 Cost of sales, exclusive of depreciation and amortization 3,589 3,764 3,787 Research and development 139 155 157 Selling, administration and other expenses 340 383 408 Depreciation and amortization 276 293 287 Partnership income (loss) 67 60 (22) Other income (expense) - net (66) (13) (135) Income before interest expense and provision for income taxes 297 324 81 Interest expense 70 146 228 Income (loss) before provision for income taxes - continuing operations 227 178 (147) Provision (credit) for income taxes 78 45 (50) Income (loss) from corporate investments carried at equity 16 (14) (21) Income (loss) from continuing operations 165 119 (116) Cumulative effect of change in accounting principle (97) (361) - Net income (loss) - common stockholders 58 (187) (28) Per common share Basic - Income (loss) from continuing operations $ 1.03 $ 0.79 $ (1.07) - Net income (loss) 0.37 (1.48) (0.22) Diluted - Income (loss) from continuing operations 0.97 0.76 (1.07) - Net income (loss) 0.41 (1.24) (0.22) From the Balance Sheet Net current assets of continuing operations $ 233 $ 66 $ 209 Total assets 4,689 4,941 6,826 Long-term debt 931 1,113 1,160 Other long-term obligations 378 277 428 Total capital(b) 2,395 2,710 4,694 Stockholders' equity 1,428 1,238 2,239 Stockholders' equity per common share 9.49 9.32 17.55 Other Data Cash dividends on common stock $ 110 $ 114 $ 126 Cash dividends per common share 0.75 0.875 1.00 Special distribution per common share - 15.875 - Market price per common share - high(c) 23.13 17.13(d) 22.63 Market price per common share - low(c) 16.00 10.88(d) 15.13 Common shares outstanding (thousands) 150,548 132,865 127,607 Capital expenditures 395 359 400 Employees - continuing operations 13,051 15,075 16,705 Selected Financial Ratios Total debt/total capital 40.3% 54.3% 52.0% Return on capital(b) 7.7% 6.9% - Return on equity(e) 4.7% (8.4)% (1.2)% Income from continuing operations/average stockholders' equity 12.4% 6.8% - Cash dividends on common stock/income from continuing operations 66.7% 95.8% - Millions of dollars (except per share figures) 1990 1989 1988 From the Income Statement Net sales $ 5,238 $ 5,613 $ 5,525 Cost of sales, exclusive of depreciation and amortization 3,876 3,909 3,696 Research and development 157 143 124 Selling, administration and other expenses 466 442 394 Depreciation and amortization 278 261 255 Partnership income (loss) 70 82 95 Other income (expense) - net 103 108 (1) Income before interest expense and provision for income taxes 634 1,048 1,150 Interest expense 269 268 172 Income (loss) before provision for income taxes - continuing operations 365 780 978 Provision (credit) for income taxes 130 257 381 Income (loss) from corporate investments carried at equity (42) 27 33 Income (loss) from continuing operations 188 530 608 Cumulative effect of change in accounting principle - - - Net income (loss) - common stockholders 308 573 662 Per common share Basic - Income (loss) from continuing operations $ 1.34 $ 3.79 $ 4.52 - Net income (loss) 2.19 4.10 4.92 Diluted - Income (loss) from continuing operations 1.32 3.63 4.30 - Net income (loss) 2.16 3.92 4.67 From the Balance Sheet Net current assets of continuing operations $ 7 $ 22 $ 14 Total assets 7,389 7,355 7,327 Long-term debt 2,058 2,060 2,271 Other long-term obligations 357 572 594 Total capital(b) 5,338 5,319 4,805 Stockholders' equity 2,373 2,383 1,836 Stockholders' equity per common share 18.88 16.83 13.34 Other Data Cash dividends on common stock $ 138 $ 140 $ 155 Cash dividends per common share 1.00 1.00 1.15 Special distribution per common share - - - Market price per common share - high(c) 24.88 33.25 28.38 Market price per common share - low(c) 14.13 22.75 17.00 Common shares outstanding (thousands) 125,674 141,578 137,602 Capital expenditures 381 483 380 Employees - continuing operations 17,722 18,032 17,258 Selected Financial Ratios Total debt/total capital 54.0% 49.9% 56.1% Return on capital(b) 8.4% 21.2% 24.5% Return on equity(e) 12.9% 31.2% 53.1% Income from continuing operations/average stockholders' equity 7.9% 25.1% 39.4% Cash dividends on common stock/income from continuing operations 73.4% 26.4% 25.5% a) Selling, administration and other expenses in 1995 include a charge of $68 million for postemployment benefits. b) Return on capital is computed by dividing income by beginning-of-year capital. Income consists of income from continuing operations, less preferred dividends, plus after-tax interest cost (net of interest income received from Praxair), plus income attributable to minority interests. Capital consists of total debt plus minority stockholders' equity in consolidated subsidiaries and stockholders' equity, adjusted for the corporation's Praxair-related assets and the cumulative effect of changes in accounting principles. Total debt consists of short-term debt, long-term debt and the current portion of long-term debt. c) Prices are based on New York Stock Exchange Composite Transactions. d) In 1992 the corporation spun off Praxair, Inc. The high and low presented in the table for 1992 represent the value of the common stock after the spin-off. The high and low for 1992 before the spin-off were $29.63 and $20.13, respectively. e) Return on equity is computed by dividing net income (loss)-common stockholders by beginning-of-year stockholders' equity.
- 18 - and - 19 - Quarterly Data Union Carbide Corporation and Subsidiaries
Millions of dollars 1Q 2Q 3Q 4Q Year 1997 Net sales $1,638 $1,666 $1,659 $1,539 $6,502 Cost of sales 1,231 1,220 1,199 1,156 4,806 Gross profit 407 446 460 383 1,696 Depreciation and amortization 82 87 87 84 340 Operating profit 247 291 291 216 1,045 Income before cumulative effect of change in accounting principle 157 191 181 147 676 Cumulative effect of change in accounting principle - - - (17) (17) Net income 157 191 181 130 659 Net income - common stockholders 155 188 179 130 652 1996 Net sales $1,501 $1,559 $1,538 $1,508 $6,106 Cost of sales 1,099 1,150 1,145 1,174 4,568 Gross profit 402 409 393 334 1,538 Depreciation and amortization 75 79 81 77 312 Operating profit 259 245 242 175 921 Net income 157 173 161 102 593 Net income - common stockholders 155 170 159 99 583 Dollars per common share 1Q 2Q 3Q 4Q Year 1997 Basic - Income before cumulative effect of change in accounting principle $ 1.17 $ 1.46 $ 1.34 $ 1.07 $ 5.02 Cumulative effect of change in accounting principle - - - (0.13) (0.13) Net income - common stockholders 1.17 1.46 1.34 0.94 4.89 Diluted - Income before cumulative effect of change in accounting principle 1.03 1.28 1.18 1.04 4.53 Cumulative effect of change in accounting principle - - - (0.12) (0.12) Net income - common stockholders 1.03 1.28 1.18 0.92 4.41 Cash dividends declared 0.1875 0.1875 0.4125 - 0.7875 Market price - high(a) 49.38 50.63 56.81 50.13 56.81 Market price - low(a) 40.50 42.50 46.69 41.44 40.50 1996 Basic - Net income - common stockholders $ 1.15 $ 1.27 $ 1.22 $ 0.77 $ 4.43 Diluted - Net income - common stockholders 1.01 1.12 1.08 0.68 3.90 Cash dividends declared 0.1875 0.1875 0.1875 0.1875 0.75 Market price - high(a) 49.88 49.63 46.25 47.00 49.88 Market price - low(a) 36.63 39.00 36.38 39.00 36.38 a) Prices are based on New York Stock Exchange Composite Transactions.
- 20 - Consolidated Balance Sheet Union Carbide Corporation and Subsidiaries
Millions of dollars at December 31, 1997 1996 Assets Cash and cash equivalents $ 68 $ 94 Notes and accounts receivable 993 1,047 Inventories 604 541 Other current assets 201 191 Total Current Assets 1,866 1,873 Property, plant and equipment 7,707 7,159 Less: Accumulated depreciation 3,927 3,750 Net Fixed Assets 3,780 3,409 Companies carried at equity 690 695 Other investments and advances 73 77 Total Investments and Advances 763 772 Other assets 555 492 Total Assets $6,964 $6,546 Liabilities and Stockholders' Equity Accounts payable $ 273 $ 268 Short-term debt and current portion of long-term debt 429 112 Accrued income and other taxes 75 133 Other accrued liabilities 727 765 Total Current Liabilities 1,504 1,278 Long-term debt 1,458 1,487 Postretirement benefit obligation 464 473 Other long-term obligations 738 811 Deferred credits 419 301 Minority stockholders' equity in consolidated subsidiaries 33 29 Convertible preferred stock - ESOP - 144 Unearned employee compensation - ESOP - (91) Stockholders' equity Common stock Authorized - 500,000,000 shares Issued - 154,609,669 shares 155 155 Additional paid-in capital 47 370 Translation and other equity adjustments (104) (33) Retained earnings 3,074 2,629 Unearned employee compensation - ESOP (80) - Less: Treasury stock, at cost - 17,666,164 shares (28,169,324 in 1996) 744 1,007 Total Stockholders' Equity 2,348 2,114 Total Liabilities and Stockholders' Equity $6,964 $6,546 The Notes to Financial Statements on pages 25 through 40 should be read in conjunction with this statement.
- 21 - Consolidated Statement of Income Union Carbide Corporation and Subsidiaries
Millions of dollars (except per share figures), year ended December 31, 1997 1996 1995 Net Sales $6,502 $6,106 $5,888 Cost of sales, exclusive of depreciation and amortization 4,806 4,568 4,100 Research and development 157 159 144 Selling, administration and other expenses 324 321 387 Depreciation and amortization 340 312 306 Partnership income 133 144 152 Other income - net 37 31 245 Income Before Interest Expense and Provision for Income Taxes 1,045 921 1,348 Interest expense 79 76 89 Income Before Provision for Income Taxes 966 845 1,259 Provision for income taxes 279 236 380 Income of Consolidated Companies and Partnerships 687 609 879 Minority interest 14 - 1 Income (loss) from corporate investments carried at equity 3 (16) 47 Income Before Cumulative Effect of Change in Accounting Principle 676 593 925 Cumulative effect of change in accounting principle (17) - - Net Income 659 593 925 Preferred stock dividends, net of income taxes 7 10 10 Net Income - Common Stockholders $ 652 $ 583 $ 915 Earnings per Common Share Basic - Income before cumulative effect of change in accounting principle $ 5.02 $ 4.43 $ 6.65 Cumulative effect of change in accounting principle (0.13) - - Net income - common stockholders $ 4.89 $ 4.43 $ 6.65 Diluted - Income before cumulative effect of change in accounting principle 4.53 3.90 5.85 Cumulative effect of change in accounting principle (0.12) - - Net income - common stockholders $ 4.41 $ 3.90 $ 5.85 Cash Dividends Declared per Common Share $ 0.7875 $ 0.75 $ 0.75 The Notes to Financial Statements on pages 25 through 40 should be read in conjunction with this statement.
- 22 - Consolidated Statement of Cash Flows Union Carbide Corporation and Subsidiaries
Increase (decrease) in cash and cash equivalents Millions of dollars, year ended December 31, 1997 1996 1995 Operations Income before cumulative effect of change in accounting principle $ 676 $ 593 $ 925 Noncash charges (credits) to net income Depreciation and amortization 340 312 306 Deferred income taxes 86 82 (29) Net gains on investing transactions - (3) (379) Other 6 16 186 Increase in working capital(a) (144) (92) (242) Long-term assets and liabilities (47) (46) (4) Cash Flow From Operations 917 862 763 Investing Capital expenditures (755) (721) (542) Investments, advances and acquisitions (excluding cash acquired) (68) (263) (431) Sale of investments - - 552 Sale of fixed and other assets 13 22 54 Cash Flow Used for Investing (810) (962) (367) Financing Change in short-term debt (3 months or less) 271 96 (11) Proceeds from short-term debt 51 21 6 Repayment of short-term debt - (37) - Proceeds from long-term debt 14 203 402 Repayment of long-term debt (30) (10) (22) Issuance of common stock 44 129 116 Purchase of common stock (337) (544) (425) Proceeds from subsidiary preferred stock 250 - - Purchase of subsidiary preferred stock (240) - - Payment of dividends (134) (111) (116) Other (21) (1) (7) Cash Flow Used for Financing (132) (254) (57) Effect of exchange rate changes on cash and cash equivalents (1) (1) 1 Change in cash and cash equivalents (26) (355) 340 Cash and cash equivalents beginning-of-year 94 449 109 Cash and Cash Equivalents End-of-Year $ 68 $ 94 $ 449 Cash paid for interest and income taxes Interest (net of amount capitalized) $ 77 $ 66 $ 68 Income Taxes 121 169 329 a) Net change in certain components of working capital (excluding noncash transactions): (Increase) decrease in current assets Notes and accounts receivable $ 53 $ (26) $ (111) Inventories (63) 43 (144) Other current assets - 25 8 Increase (decrease) in payables and accruals (134) (134) 5 (Increase) in working capital $(144) $ (92) $(242) The Notes to Financial Statements on pages 25 through 40 should be read in conjunction with this statement.
- 23 - Consolidated Statement of Stockholders' Equity Union Carbide Corporation and Subsidiaries
1997 Shares Millions (in thousands) of dollars Common Stock Balance at December 31 154,610 $ 155 Additional Paid-In Capital Balance at January 1 $ 370 Put options, net 26 Issued: For the Dividend Reinvestment and Stock Purchase Plan 2 For employee savings and incentive plans (66) Effect of conversion of preferred shares held by the ESOP (285) Balance at December 31 $ 47 Translation and Other Equity Adjustments Balance at January 1 $ (33) Translation and other adjustments (71) Sale of businesses - Balance at December 31 $ (104) Retained Earnings Balance at January 1 $ 2,629 Net income - common stockholders 652 Effect of conversion of preferred shares held by the ESOP (107) Cash dividends on common stock (100) Balance at December 31 $ 3,074 Unearned Employee Compensation - ESOP Balance at January 1 $ - Reclassification due to conversion of preferred shares held by the ESOP (81) Shares allocated to ESOP participants 1 Balance at December 31 $ (80) Treasury Stock Balance at January 1 28,169 $ 1,007 Common stock repurchase program 7,071 340 Issued: For the Dividend Reinvestment and Stock Purchase Plan (189) (7) Effect of conversion of preferred shares held by the ESOP (15,406) (530) For employee savings and incentive plans (1,979) (66) Balance at December 31 17,666 $ 744 Total Stockholders' Equity $ 2,348 1996 Shares Millions (in thousands) of dollars Common Stock Balance at December 31 154,610 $ 155 Additional Paid-In Capital Balance at January 1 $ 343 Put options, net 8 Issued: For the Dividend Reinvestment and Stock Purchase Plan 2 For employee savings and incentive plans 17 Effect of conversion of preferred shares held by the ESOP - Balance at December 31 $ 370 Translation and Other Equity Adjustments Balance at January 1 $ (15) Translation and other adjustments (18) Sale of businesses - Balance at December 31 $ (33) Retained Earnings Balance at January 1 $ 2,145 Net income - common stockholders 583 Effect of conversion of preferred shares held by the ESOP - Cash dividends on common stock (99) Balance at December 31 $ 2,629 Unearned Employee Compensation - ESOP Balance at January 1 $ - Reclassification due to conversion of preferred shares held by the ESOP - Shares allocated to ESOP participants - Balance at December 31 $ - Treasury Stock Balance at January 1 19,502 $ 583 Common stock repurchase program 12,821 550 Issued: For the Dividend Reinvestment and Stock Purchase Plan (212) (7) Effect of conversion of preferred shares held by the ESOP - - For employee savings and incentive plans (3,942) (119) Balance at December 31 28,169 $ 1,007 Total Stockholders' Equity $ 2,114 1995 Shares Millions (in thousands) of dollars Common Stock Balance at December 31 154,610 $ 155 Additional Paid-In Capital Balance at January 1 $ 369 Put options, net (19) Issued: For the Dividend Reinvestment and Stock Purchase Plan 1 For employee savings and incentive plans (8) Effect of conversion of preferred shares held by the ESOP - Balance at December 31 $ 343 Translation and Other Equity Adjustments Balance at January 1 $ (59) Translation and other adjustments (11) Sale of businesses 55 Balance at December 31 $ (15) Retained Earnings Balance at January 1 $ 1,333 Net income - common stockholders 915 Effect of conversion of preferred shares held by the ESOP - Cash dividends on common stock (103) Balance at December 31 $ 2,145 Unearned Employee Compensation - ESOP Balance at January 1 $ - Reclassification due to conversion of preferred shares held by the ESOP - Shares allocated to ESOP participants - Balance at December 31 $ - Treasury Stock Balance at January 1 10,197 $ 289 Common stock repurchase program 14,127 426 Issued: For the Dividend Reinvestment and Stock Purchase Plan (322) (9) Effect of conversion of preferred shares held by the ESOP - - For employee savings and incentive plans (4,500) (123) Balance at December 31 19,502 $ 583 Total Stockholders' Equity $ 2,045 The Notes to Financial Statements on pages 25 through 40 should be read in conjunction with this statement.
- 24 - Notes to Financial Statements Index PAGE ONE Summary of Significant Accounting Policies 25 TWO Financial Instruments 26 THREE Supplementary Balance Sheet Detail 27 FOUR Supplementary Income Statement Detail 28 FIVE Business and Geographic Segment Information 28 SIX Acquisitions and Divestitures 29 SEVEN Income Taxes 30 EIGHT Partnerships and Joint Ventures 31 NINE Long-Term Debt 32 TEN Minority Interest 32 ELEVEN Earnings per Share 33 TWELVE Retirement Programs 34 THIRTEEN Employee Stock Ownership Plan 36 FOURTEEN Incentive Plans 36 FIFTEEN Stockholders' Equity 38 SIXTEEN Leases 38 SEVENTEEN Commitments and Contingencies 39 ONE Summary of Significant Accounting Policies Nature of Operations o Union Carbide Corporation is engaged in two segments of the chemicals and plastics industry, Specialties & Intermediates and Basic Chemicals & Polymers. See note five. Principles of Consolidation o The consolidated financial statements include the accounts of all significant subsidiaries. All significant intercompany transactions have been eliminated in consolidation. Investments in 20 percent- to 50 percent-owned companies and partnerships are carried at equity in net assets. Other investments are carried generally at cost. The consolidated financial statements have been prepared in conformity with generally accepted accounting principles, which require the corporation to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Accounting Changes o In November 1997, the Emerging Issues Task Force reached consensus on Issue 97-13, "Accounting for Costs Incurred in Connection with a Consulting Contract or an Internal Project That Combines Business Process Reengineering and Information Technology Transformation," requiring companies to expense as incurred costs associated with business process reengineering activities. Effective Oct. 1, 1997, the corporation adopted the provisions of Issue 97-13 as a cumulative effect of a change in accounting principle, reversing $28 million ($17 million, after tax) of costs previously capitalized from 1995 through the third quarter of 1997. Additionally in 1997, the corporation adopted Statement of Financial Accounting Standards (SFAS) 128, "Earnings Per Share," and SFAS 129, "Disclosure of Information About Capital Structure." In 1996, the corporation adopted SFAS 123, "Accounting for Stock-Based Compensation," under which the corporation elected to continue following Accounting Principles Board (APB) Opinion 25. In 1995, the corporation adopted SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," the effect of which was not material. Foreign Currency Translation o Unrealized gains and losses resulting from translating foreign subsidiaries' assets and liabilities into U.S. dollars generally are accumulated in an equity account on the balance sheet until such time as the subsidiary is sold or substantially or completely liquidated. Translation gains and losses relating to operations located in Latin American countries, where hyperinflation exists, and to international operations using the U.S. dollar as their functional currency are included in the income statement. - 25 - Financial Instruments o Financial instruments are used to hedge financial risk caused by fluctuating interest and currency rates. The amounts to be paid or received on interest rate risk instruments that hedge debt, accrue and are recognized over the lives of the instruments. Gains and losses on foreign currency risk instruments used to hedge firm commitments are deferred and recognized as part of the related foreign currency transactions. Foreign currency instruments that are designated to offset fluctuations in the dollar value of foreign currency accounts receivable and payable and from earnings fluctuations in anticipated foreign currency cash flows are marked to market and the results recognized immediately as other income or other expense. Cash Equivalents o The corporation considers as cash equivalents all highly liquid investments that are readily convertible to known amounts of cash and are so near their maturity that they present insignificant risk of changes in value because of changes in interest rates. Inventories o Inventories are stated at cost or market, whichever is lower. These amounts do not include depreciation and amortization, the impact of which is not significant to the financial statements. Approximately 67 percent of inventory amounts before application of the LIFO method at Dec. 31, 1997 (66 percent at Dec. 31, 1996) have been valued on the LIFO basis; the "average cost" method is used for the balance. It is estimated that if inventories had been valued at current costs, they would have been approximately $348 million and $329 million higher than reported at Dec. 31, 1997 and 1996, respectively. Fixed Assets o Fixed assets are carried at cost. Expenditures for replacements are capitalized, and the replaced items are retired. Gains and losses from the sale of property are included in income. Depreciation is calculated on a straight-line basis. The corporation and its subsidiaries generally use accelerated depreciation methods for tax purposes where appropriate. Patents, Trademarks and Goodwill o Amounts paid for purchased patents and newly acquired businesses in excess of the fair value of the net assets of such businesses have been charged to patents, trademarks and goodwill. The portion of such amounts determined to be attributable to patents is amortized over their remaining lives, while trademarks and goodwill are amortized over the estimated period of benefit, generally 5 to 20 years. Research and Development o Research and development costs are charged to expense as incurred. Depreciation expense applicable to research and development facilities and equipment is included in Depreciation and amortization in the Consolidated Statement of Income ($12 million in 1997, $11 million in 1996 and $14 million in 1995). Income Taxes o Provisions have been made for deferred income taxes based on differences between financial statement and tax bases of assets and liabilities using currently enacted tax rates and regulations. Environmental Costs o Environmental expenditures are expensed or capitalized as appropriate, depending on their future economic benefit. Expenditures relating to an existing condition caused by past operations and having no future economic benefits are expensed. Environmental expenditures include site investigation, physical remediation, operation and maintenance, and legal and administrative costs. Environmental accruals are established for sites where it is probable that a loss has been incurred and the amount of the loss can reasonably be estimated. Where the estimate is a range and no amount within the range is a better estimate than any other amount, the corporation accrues the minimum amount in the range and includes the balance of the range in its reported contingencies. Retirement Programs o The cost of pension benefits under the U.S. Retirement Program is determined by an independent actuarial firm using the projected unit credit actuarial cost method, with an unrecognized net asset at Jan. 1, 1986, amortized over 15 years. Contributions to this program are made in accordance with the regulations of the Employee Retirement Income Security Act of 1974. The cost of postretirement benefits is recognized on the accrual basis over the period in which employees become eligible for benefits. Incentive Plans o The corporation applies APB Opinion 25 in accounting for the stock purchase plan and the stock option portion of its employee compensation plan. Compensation expense is recognized for other stock-based incentives issued under the long-term incentive plan. Reclassifications o Certain prior year amounts have been reclassified to conform with the current year's presentation. TWO Financial Instruments Fair values of financial instruments are estimated by using a method that indicates the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The fair values of the financial instruments included on the Consolidated Balance Sheet were estimated as follows: Cash, Short-Term Receivables and Accounts Payable o At Dec. 31, 1997 and 1996, the carrying amounts approximate fair values because of the short maturity of these instruments. The corporation did not - 26 - have any foreign currency forward contracts outstanding at Dec. 31, 1997 ($38 million at Dec. 31, 1996) to hedge fluctuations in the dollar value of short- term foreign currency receivables and payables. Outstanding foreign currency forward contracts and options used as a means of offsetting fluctuations in the dollar value of other foreign currency accounts receivable and payable and earnings fluctuations from anticipated foreign currency cash flows totaled $185 million at Dec. 31, 1997 ($188 million at Dec. 31, 1996). During 1997 and 1996, the average fair values of, and the resultant gains and losses associated with, these contracts were not material. Investments o The corporation's investments in equity companies, partnerships and other businesses generally involve joint ventures for which it is not practicable to determine fair values. Long-Term Receivables o The fair values of long-term receivables are calculated using current interest rates and consideration of underlying collateral where appropriate. The fair value, which approximate the carrying values of $85 million and $51 million, are included in Other assets in the Consolidated Balance Sheet at Dec. 31, 1997 and 1996, respectively. Debt o The corporation uses various types of financial instruments, including interest rate swaps and forward rate agreements, to manage exposure to financial market risk caused by interest rate fluctuations. An interest rate swap held at Dec. 31, 1997 and 1996, had a nominal carrying amount and fair value. Carrying and Fair Values o The carrying values and fair values of the corporation's investments, long-term receivables and debt financial instruments at Dec. 31, 1997 and 1996, are summarized in the table below. Fair values are based on quoted market values, where available, or discounted cash flows (principally long-term debt). Millions of dollars at December 31, 1997 1996 Carrying Fair Carrying Fair Assets (Liabilities) Amount Value Amount Value Investments and receivables $ 158 $ 158 $ 128 $ 128 Short- and long-term debt (1,887) (1,956) (1,599) (1,619) THREE Supplementary Balance Sheet Detail Millions of dollars at December 31, 1997 1996 Notes and Accounts Receivable Trade $ 826 $ 846 Other 178 211 1,004 1,057 Less: Allowance for doubtful accounts 11 10 $ 993 $1,047 Inventories Raw materials and supplies $ 135 $ 114 Work in process 62 54 Finished goods 407 373 $ 604 $ 541 Property, Plant and Equipment Land and improvements $ 328 $ 326 Buildings 407 393 Machinery and equipment 6,230 5,795 Construction in progress and other 742 645 $7,707 $7,159 Other Assets Deferred charges $ 227 $ 193 Insurance recovery receivables 147 135 Long-term receivables 85 51 Patents, trademarks and goodwill 96 113 $ 555 $ 492 Other Accrued liabilities Accrued accounts payable $ 301 $ 335 Payrolls 55 56 Environmental remediation costs 68 58 Postretirement benefit obligation 34 33 Employee profit sharing 55 51 Other 214 232 $ 727 $ 765 Other Long-Term Obligations Environmental remediation costs $ 196 $ 252 Product liability costs 174 170 Impairment of unused office space 136 151 Postemployment benefits 72 83 Other 160 155 $ 738 $ 811 Translation and Other Equity Adjustments Canada $ (54) $ (44) Europe (7) 18 Far East & Other (43) (7) $ (104) $ (33) - 27 - FOUR Supplementary Income Statement Detail Millions of dollars for the year ended December 31, 1997 1996 1995 Selling, Administration and Other Expenses Selling $124 $130 $128 Administration(a) 126 121 186 Other expenses 74 70 73 $324 $321 $387 Other Income (Expense) - Net Gains on sales and disposals of business and other assets(b) $ - $ - $387 Investment and interest income 27 32 19 Foreign currency adjustments (8) (7) (6) Unused space charge(c) - - (191) Other 18 6 36 $ 37 $ 31 $245 Interest Expense Interest incurred(d) $ 130 $121 $119 Less: interest capitalized and other adjustments 51 45 30 $ 79 $ 76 $ 89 a) Includes a charge of $68 million for postemployment benefits in 1995. b) Includes for 1995 a $381 million gain from the sales of the corporation's remaining interest in UCAR International Inc. c) See note sixteen. d) Includes $12 million in 1997, 1996 and 1995, representing the interest component of certain leases. FIVE Business and Geographic Segment Information The company's operations are classified into two business segments. The Specialties & Intermediates segment includes the corporation's specialty chemicals and polymers product lines, licensing, and solvents and chemical intermediates. The Basic Chemicals & Polymers segment includes the corporation's ethylene and propylene manufacturing operations as well as the production of first-level ethylene and propylene derivatives - polyethylene, polypropylene, ethylene oxide and ethylene glycol. The corporation's noncore operations and financial transactions are included in the Other segment. Millions of dollars 1997 1996 1995 Net Sales Specialties & Intermediates $ 4,453 $4,286 $4,123 Basic Chemicals & Polymers 2,420 2,125 2,080 Intersegment eliminations (371) (305) (315) $6,502 $6,106 $5,888 Partnership Income Specialties & Intermediates $ 116 $ 134 $ 130 Basic Chemicals & Polymers 17 10 22 $ 133 $ 144 $ 152 Depreciation and Amortization Specialties & Intermediates $ 214 $ 188 $ 194 Basic Chemicals & Polymers 126 124 112 $ 340 $ 312 $ 306 Operating Profit (Loss) Specialties & Intermediates $ 667 $ 742 $ 709 Basic Chemicals & Polymers 386 162 444 Other (8) 17 195 $1,045 $ 921 $1,348 Capital Expenditures Specialties & Intermediates $ 458 $ 522 $ 392 Basic Chemicals & Polymers 297 199 150 $ 755 $ 721 $ 542 Identifiable Assets Specialties & Intermediates $4,146 $3,892 $3,527 Basic Chemicals & Polymers 2,540 2,328 2,095 Other 278 326 634 $6,964 $6,546 $6,256 Sales of the Basic Chemicals & Polymers segment include intersegment sales, principally ethylene oxide, which are made at the estimated market value of the products transferred. Operating profit is Income Before Interest Expense and Provision for Income Taxes. The operating profit of the Specialties & Intermediates segment for 1997 includes a $12 million charge for the write-off certain equipment associated with the corporation's ethylene propylene rubber project. - 28 - The operating profit of the Specialties & Intermediates segment for 1995 includes a $48 million charge for postemployment benefits and an increase of $12 million in depreciation expense related to a reduction in the depreciable lives of certain computer equipment. The operating profit of the Basic Chemicals & Polymers segment for 1995 includes a $20 million charge for postemployment benefits. Other operating profit for 1995 includes a gain of $381 million on the sales of the corporation's interest in UCAR International Inc. and a charge of $191 million for future lease costs on unused office space, primarily at the corporation's headquarters. Net sales, operating profit (loss) and identifiable assets by geographic area were as follows: Millions of dollars 1997 1996 1995 Net Sales United States & Puerto Rico(a) $4,634 $4,336 $4,071 Canada 172 147 142 Europe 685 664 719 Latin America 255 228 227 Far East & Other 756 731 729 International operations 1,868 1,770 1,817 $6,502 $6,106 $5,888 Operating Profit (Loss) United States & Puerto Rico $ 957 $ 820 $1,228 Canada 29 28 36 Europe(b) 7 41 50 Latin America 12 (11) 12 Far East & Other 41 37 29 International operations 89 95 127 Intersegment eliminations (1) 6 (7) $1,045 $ 921 $1,348 Identifiable Assets United States & Puerto Rico $5,501 $4,977 $4,433 Canada 302 305 277 Europe 378 408 404 Latin America 232 224 191 Far East & Other 279 312 322 International operations 1,191 1,249 1,194 Intersegment eliminations (6) (6) (5) Other 278 326 634 $6,964 $6,546 $6,256 a) Includes export sales of $894 million in 1997 ($743 million in 1996 and $732 million in 1995). b) Included in 1997 are higher costs associated with expansion and maintenance of the corporation's Wilton, U.K. facility. SIX Acquisitions and Divestitures In April 1997, the corporation and Exxon Chemical Company formed Univation Technologies, LLC, a 50-50 joint venture for the research, development, marketing and licensing of polyethylene technology and metallocene catalysts. In January 1996, the corporation purchased the polypropylene assets and business of Shell Oil Company. The purchased assets, located in the U.S., consist of Shell's polypropylene technology and manufacturing facilities and polypropylene assets previously held jointly by both companies. In February 1996, the corporation purchased 95 percent of the outstanding shares of Companhia Alcoolquimica Nacional, a Brazilian producer of vinyl acetate monomer. In July 1995, the corporation and two Kuwaiti corporations, Petrochemical Industries Company and Boubyan Petrochemical Company, formed EQUATE Petrochemical Company, a joint venture for development of a world-scale petrochemical complex in Kuwait. EQUATE commenced operations in 1997. In March 1995, the corporation acquired 50 percent of the equity of Polimeri Europa S.r.l., a producer of ethylene and polyethylene resins, from EniChem S.p.A. for $216 million. EniChem retained the other 50 percent. In February 1995, the corporation purchased certain ethylene oxide derivative businesses from Imperial Chemical Industries of London for $71 million. In January 1995, the corporation and Mitsubishi Corporation concluded the sale of newly issued common stock of UCAR International Inc. to a new company formed by Blackstone Capital Partners II Merchant Banking Fund L.P. and a repurchase of certain shares by UCAR that resulted in Blackstone acquiring a 75 percent interest in UCAR. The corporation received $343 million in net cash proceeds and retained a 25 percent equity interest in UCAR. This transaction resulted in a gain of $220 million ($154 million after-tax). In August 1995, the corporation joined in UCAR's initial public offering to sell its remaining equity interest in UCAR for net cash proceeds of $199 million. This sale resulted in a gain of $161 million ($99 million after-tax). - 29 - SEVEN Income Taxes The following is a summary of the U.S. and non-U.S. components of Income Before Provision for Income Taxes: Millions of dollars for the year ended December 31, 1997 1996 1995 U.S. $897 $766 $1,137 Non-U.S. 69 79 122 $966 $845 $1,259 The following is an analysis of income tax expense:
1997 1996 Millions of dollars for the year ended December 31, Current Deferred Current Deferred U.S. Federal income taxes $154 $80 $107 $79 U.S. business and research and experimentation tax credits (14) - (8) - U.S. state and local taxes based on income 1 4 1 2 Non-U.S. income taxes 52 2 54 1 193 86 154 82 Provision for Income Taxes $279 $236 1995 Millions of dollars for the year ended December 31, Current Deferred U.S. Federal income taxes $332 $(24) U.S. business and research and experimentation tax credits (17) - U.S. state and local taxes based on income 47 (7) Non-U.S. income taxes 47 2 409 (29) Provision for Income Taxes $380
The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows: 1997 1996 Millions of dollars Deferred Deferred Deferred Deferred at December 31, Assets Liabilities Assets Liabilities Depreciation and amortization $ - $495 $ - $435 Postretirement and postemployment benefits 226 - 229 - Environmental and litigation costs 113 - 133 - Sale/leaseback and related deferrals 101 - 103 - Other 174 242 199 246 Gross deferred tax assets and liabilities 614 737 664 681 Net Deferred Tax Liability $123 $17 Net noncurrent deferred tax liabilities of $263 million ($142 million in 1996) are included in Deferred credits in the Consolidated Balance Sheet. Net current deferred tax assets of $135 million ($118 million in 1996) are included in Other current assets. Net noncurrent deferred tax assets of $5 million ($7 million in 1996) are included in Other assets. In 1997 and 1996 there were $2 million in non-U.S. net operating loss carryforwards included in the deferred tax assets above. Undistributed earnings of affiliates intended to be reinvested indefinitely amounted to approximately $469 million at Dec. 31, 1997 ($403 million at Dec. 31, 1996). Determination of deferred taxes related to these earnings is not practicable. - 30 - An analysis of the difference between Provision for income taxes and the amount computed by applying the statutory Federal income tax rate to Income Before Provision for Income Taxes is as follows: Percentage of Pre-Tax Income Year ended December 31, 1997 1996 1995 Tax at statutory Federal rate 35.0% 35.0% 35.0% Taxes related to operations outside the U.S. (0.7) (1.0) 0.1 U.S. state and local taxes based on income 0.3 0.3 1.0 Foreign sales corporation (2.9) (3.0) (1.4) Business credits (1.5) (0.9) (1.4) Other, net (1.3) (2.5) (3.1) Consolidated effective income tax rate 28.9% 27.9% 30.2% EIGHT Partnerships and Joint Ventures The following are financial summaries of 33 percent- to 50 percent-owned Companies carried at equity. The corporation's most significant companies carried at equity, classified as partnerships, include UOP LLC, Petromont and Company, Limited Partnership, Aspell Polymeres SNC, World Ethanol Company and Univation Technologies, LLC. The corporation purchased the balance of the Union Carbide/Shell polypropylene partnership in January 1996 (see note six). Partnerships Millions of dollars 1997 1996 1995 Net Sales(a) $2,076 $2,109 $2,146 Cost of sales 1,242 1,338 1,312 Depreciation 83 83 66 Partnership income 249 242 283 UCC Share of Partnership Income $ 133 $ 144 $ 152 Current assets $ 746 $ 704 Noncurrent assets 886 806 Total assets 1,632 1,510 Current liabilities 451 608 Noncurrent liabilities 711 385 Total liabilities 1,162 993 Net assets 470 517 UCC Equity $ 278 $ 251 a) Includes $208 million net sales to the corporation in 1997 ($159 million in 1996 and $177 million in 1995). The corporation's companies earned at equity, classified as corporate investments, include Polimeri Europa S.r.l., EQUATE Petrochemical Company K.S.C., Nippon Unicar Company Limited, Alberta & Orient Glycol Company Limited, Asian Acetyls Co., Ltd., several smaller entities and, in 1995, UCAR International Inc. Corporate Investments Millions of dollars 1997 1996 1995 Net Sales(a) $2,248 $2,059 $1,731 Cost of sales 1,814 1,693 1,221 Depreciation 109 129 119 Net income (loss) 75 (6) 96 UCC Share of Net Income (Loss) $ 3 $ (16) $ 47 Current assets $ 933 $ 877 Noncurrent assets 3,252 2,918 Total assets 4,185 3,795 Current liabilities 872 888 Noncurrent liabilities 2,347 1,891 Total liabilities 3,219 2,779 Net assets 966 1,016 UCC Equity $ 412 $ 444 a) Includes $156 million net sales to the corporation in 1997 ($153 million in 1996 and $167 million in 1995). Dividends and distributions received from joint ventures and partnerships aggregated $126 million in 1997 ($141 million in 1996 and $97 million in 1995). - 31 - NINE Long-Term Debt Millions of dollars at December 31, 1997 1996 6.75% Notes due 2003 $ 125 $ 125 6.79% Debentures due 2025(a) 250 250 7.00% Notes due 1999 175 175 7.50% Debentures due 2025 150 150 7.75% Debentures due 2096 200 200 7.875% Debentures due 2023 175 175 8.75% Debentures due 2022(b) 117 125 Pollution control and other facility obligations 242 243 Other debt - various maturities and interest rates 29 54 1,463 1,497 Less: payments to be made within 1 year 5 10 $1,458 $1,487 a) Holders may request redemption of these debentures from the corporation on June 1, 2005. b) Redeemable at the option of the corporation on or after Aug. 1, 2002. The corporation has a credit agreement with a group of banks providing the corporation with $1 billion in credit through January 2002, but with the option, subject to certain conditions, to increase the available credit by $250 million and to extend the maturity date of the agreement by one year on a rolling basis. Several options are available to borrow at floating interest rates based on LIBOR (London Interbank Offered Rate) or Certificate of Deposit Rate on a revolving basis. In 1997, the corporation established a medium-term note program that allows for borrowings of up to $500 million. Notes issued under the program will have a maturity of nine months or longer and will bear interest at either a fixed or floating rate determined by reference to interest rate formulas. At Dec. 31, 1997, there were no outstanding borrowings under either the corporation's credit agreement or its medium-term note program. In 1996, the corporation issued $200 million of 7.75 percent debentures maturing in 2096. The maturity of the debentures may be shortened under certain circumstances to preserve the deductibility of interest payments for Federal income tax purposes. The corporation's credit agreement and the indentures under which notes and debentures are issued contain covenants normal for these types of instruments. These covenants place certain limits on the corporation's ability to merge with another entity, sell assets, engage in sale-leaseback transactions, incur debt or create liens on assets. In addition, the credit agreement requires the corporation to meet leverage and interest coverage tests. Pollution control and other facility obligations represent state, commonwealth and local governmental bond financing of pollution control and other facilities, and are treated for accounting and tax purposes as debt of the corporation. These tax-exempt obligations mature at various dates from 1998 through 2023 and had an average annual effective interest rate of 7.2 percent in 1997. The weighted average and effective interest rates in 1997 on the corporation's fixed-rate debt, other than pollution control and other facility obligations, were 7.7 percent. The corporation's weighted average interest rate on short-term borrowings outstanding as of Dec. 31, 1997 was 6.4 percent (6.3 percent at Dec. 31, 1996). Payments due on long-term debt in the four years following 1998 are: 1999, $182 million; 2000, $21 million; 2001, $23 million, and 2002, $16 million. TEN Minority Interest In January 1997, a newly formed real estate investment trust subsidiary issued $250 million of preferred stock bearing a current dividend yield of 14 percent for 10 years and 1 percent thereafter. In October 1997, the preferred shares were redeemed for $240 million. - 32 - ELEVEN Earnings Per Share Basic and diluted earnings per share (EPS) are calculated based upon the provisions of SFAS 128, adopted in 1997: In millions (except share and per share amounts) 1997 1996 1995 Basic - Income before cumulative effect of change in accounting principle $ 676 $ 593 $ 925 Less: Dividends on ESOP shares, pre-tax (9) (13) (13) Appreciation on ESOP shares redeemed for cash (23) - - Income before cumulative effect of change in accounting principle adjusted for basic calculation 644 580 912 Cumulative effect of change in accounting principle (17) - - Net income-common stockholders, adjusted for basic calculation $ 627 $ 580 $ 912 Weighted average shares outstanding for basic calculation 128,185,093 131,029,621 137,219,676 Earnings per share - Income before cumulative effect of change in accounting principle $ 5.02 $4.43 $6.65 Cumulative effect of change in accounting principle (0.13) - - Net income-common stockholders $ 4.89 $ 4.43 $ 6.65 Diluted - Income before cumulative effect of change in accounting principle, adjusted for basic calculation $ 644 $ 580 $ 912 Plus: Dividends on ESOP shares, pre-tax 9 13 13 Less: Additional ESOP contribution resulting from assumed conversion of ESOP shares (1) (1) (1) Income before cumulative effect of change in accounting principle, adjusted for diluted calculation 652 592 924 Cumulative effect of change in accounting principle (17) - - Net income-common stockholders, adjusted for diluted calculation $ 635 $ 592 $ 924 Weighted average shares outstanding for basic calculation 128,185,093 131,029,621 137,219,676 Add: Effect of stock options 4,034,969 4,495,656 4,367,153 Effect of equity put options - 403 - Shares issuable upon conversion of the corporation's convertible ESOP shares 11,739,036 16,120,754 16,341,367 Weighted average shares outstanding, adjusted for diluted calculation 143,959,098 151,646,434 157,928,196 Earnings per share - Income before cumulative effect of change in accounting principle, adjusted for diluted calculation $ 4.53 $ 3.90 $ 5.85 Cumulative effect of change in accounting principle (0.12) - - Net income-common stockholders, adjusted for diluted calculation $ 4.41 $ 3.90 $ 5.85 - 33 - TWELVE Retirement Programs Pension Benefits o The noncontributory defined benefit retirement program of Union Carbide Corporation ("U.S. Retirement Program") covers substantially all U.S. employees and certain employees in other countries. Pension benefits are based primarily on years of service and compensation levels prior to retirement. Pension coverage for employees of the corporation's non-U.S. consolidated subsidiaries is provided through separate plans, to the extent deemed appropriate. Obligations under such plans are principally provided for by depositing funds with trustees. The components of net periodic pension cost for the plans combined are as follows: Millions of dollars for the year ended December 31, 1997 1996 1995 (Gain) loss on plan assets Actual $(827) $(190) $(904) Deferred 588 (31) 692 (239) (221) (212) Service cost - benefits earned during the period 56 54 44 Interest cost on projected benefit obligation 208 196 197 Amortization (8) (3) (6) Net Periodic Pension Cost $ 17 $ 26 $ 23 The funded status of the plans combined is as follows: Millions of dollars at December 31, 1997 1996 Actuarial present value of plan benefits Accumulated benefit obligation Vested $2,905 $2,599 Nonvested 138 132 3,043 2,731 Projected benefit obligation 3,324 3,001 Fair value of plan assets, primarily invested in common stocks and fixed-income securities 3,820 3,180 Plan assets in excess of projected benefit obligation 496 179 Unamortized net asset at transition (49) (64) Unamortized prior service cost 15 19 Unrecognized gains - net (457) (127) Prepaid Pension Cost $ 5 $ 7 Pension obligations are valued using the 1994 Uninsured Pensioner Mortality Table. Prior to 1997, these obligations were valued using the 1983 Group Annuity Mortality Table. The actuarial assumptions used were as follows: At December 31, 1997 1996 Discount rate for determining projected benefit obligation 6.50% 7.25% Rate of increase in compensation levels 3.75% 4.50% Expected long-term rate of return on plan assets 8.00% 8.50% - 34 - Postretirement Benefits Other Than Pensions o The corporation provides health care and life insurance benefits for eligible retired employees and their eligible dependents. These benefits are provided through various insurance companies and health care providers. The obligation is determined by application of the terms of health and life insurance plans, together with relevant actuarial assumptions and health care cost trends projected to increase annually at rates of 8.0 percent in 1998 and 7.5 percent in 1999, falling incrementally to a 5.0 percent annual increase in 2004 and thereafter. The effect of a 1 percent annual increase in the assumed health care cost trend rates would increase the accumulated postretirement benefit obligation at Dec. 31, 1997 by $33 million, and the aggregate of service and interest cost components of net periodic postretirement benefit costs by $4 million. Measurement of the accumulated postretirement benefit obligation was based on the same actuarial assumptions used in the pension calculations. The corporation has funded postretirement benefits for certain retirees who retired prior to Dec. 31, 1988. The funds are invested primarily in common stocks. The components of net periodic postretirement benefit cost are as follows: Millions of dollars for the year ended December 31, 1997 1996 1995 (Gain) loss on plan assets Actual $ (9) $ (4) $ (8) Deferred 7 2 6 (2) (2) (2) Service cost - benefits earned during the period 14 13 11 Interest cost 33 31 35 Amortization (21) (21) (21) Net Periodic Postretirement Benefit Cost $ 24 $ 21 $ 23 The funded status of the postretirement benefit obligation is as follows: Millions of dollars at December 31, 1997 1996 Accumulated postretirement benefit obligations Retirees $382 $366 Fully eligible active plan participants 90 79 Other active plan participants 31 27 503 472 Fair value of plan assets 17 17 Accumulated postretirement benefits in excess of plan assets 486 455 Unrecognized gains - net 12 51 Accrued Unfunded Postretirement Benefit Obligations $498 $506 The accumulated postretirement benefit obligation for retirees is net of $131 million at Dec. 31, 1997 ($130 million at Dec. 31, 1996), which is reimbursed to the corporation in part by previously owned businesses under ongoing benefit-sharing agreements. Deferred Compensation Plan o Since Jan. 1, 1995, the corporation has provided an unfunded, nonqualified deferred compensation plan to certain key employees, offering them an election to defer a portion of their gross pay. The corporation's obligation to employees is adjusted to reflect changes in the market values of employees' investment choices. With limited exceptions, participants' deferred account balances are scheduled for payment at or after full retirement. Postemployment Benefits o During 1995 the corporation recorded a charge of $68 million ($49 million after-tax) for postemployment benefits. The charge included severance costs relating to future staff reductions associated with work process simplification efforts and changes in the corporation's severance benefits. - 35 - THIRTEEN Employee Stock Ownership Plan The Union Carbide Corporation Employee Stock Ownership Plan (ESOP) is an integral part of the Savings and Investment Program (the Program) for employees. Prior to October 1997, each share of the corporation's preferred stock held by the ESOP (ESOP shares) was convertible into and had the same voting rights as one share of the corporation's common stock. The annual preferred dividend was $0.794 per share. In October 1997 the trustee of the ESOP exercised its right to convert all outstanding ESOP shares into the corporation's common stock. As a result of the conversion, the corporation's common stock outstanding at that date was increased by 15.4 million shares. Substantially all full-time employees in the U.S. are eligible to participate in the ESOP through the allocation of ESOP shares equivalent to the corporation's matching contribution of 75 percent of eligible employee contributions to the Program. In addition, in 1997, eligible employees received the equivalent of up to twenty days pay in ESOP shares through the corporation's ESOP profit sharing plan. Common shares held by the ESOP generally are sold in the open market when employees make withdrawals or sell ESOP shares within their account. The cost of the ESOP is recognized as incurred and was $7 million in 1997 ($2 million and $4 million in 1996 and 1995, respectively). The increase in 1997 costs was principally due to the allocation of more shares to participants through the corporation's ESOP profit sharing plan. Continued reductions in ESOP costs are due primarily to appreciation in the corporation's common stock. At Dec. 31, 1997, 15.4 million common shares held by the ESOP were outstanding, 6.5 million of which were allocated to employees' accounts. During 1997, 1.3 million ESOP shares were allocated to employees' accounts. FOURTEEN Incentive Plans On April 27, 1997, stockholders approved the 1997 Union Carbide Long-Term Incentive Plan for key employees. The Plan provides for granting incentive and nonqualified stock options; exercise payment rights; grants of stock, including restricted stock, and performance awards. Holders of options may be granted the right to receive payments of amounts equal to the regular cash dividends paid to holders of the corporation's common stock during the period an option is outstanding. The number of shares granted or subject to options generally cannot exceed 2 million under the Plan. However, up to 4 million additional shares may be granted or subject to options to the extent the corporation acquires shares after April 27, 1997. Option prices are equal to the closing price of the corporation's common stock on the date of the grant, as listed on the New York Stock Exchange Composite Transactions. Options generally become exercisable two years after such date. Options may not have a duration of more than ten years. The option price may be settled in cash, common shares of the corporation currently owned by a participant, withholding stock shares from the exercise or a combination of these alternatives. Restricted stock award shares are entitled to vote and dividends are credited to the holder's account, but these shares are generally nontransferable for varying periods after the grant date. Once the vesting conditions are met, the shares become fully transferable. Performance awards may be paid in common stock, cash or other forms of property. No dividend-equivalent payment rights or performance awards were granted in 1997. No awards were made in 1997, and no further awards can be made, under previous plans. Prior plans still have options outstanding and restricted stock not yet vested, whose terms are generally similar to nonqualified stock options and restricted stock grants under the 1997 plan. - 36 - Changes in outstanding fixed price options were as follows:
1997 1996 Weighted Weighted Average Average Shares in thousands Shares Exercise Price Shares Exercise Price Outstanding at January 1 12,782 $21.45 13,350 $18.54 Granted 1,508 46.31 1,166 45.55 Exercised (1,717) 13.45 (1,569) 13.05 Canceled or expired (40) 38.47 (165) 36.00 Outstanding at December 31 12,533 25.48 12,782 21.45 Options exercisable at December 31 9,889 10,460 1995 Weighted Average Shares in thousands Shares Exercise Price Outstanding at January 1 13,807 $15.70 Granted 1,270 40.38 Exercised (1,667) 11.37 Canceled or expired (60) 27.25 Outstanding at December 31 13,350 $18.54 Options exercisable at December 31 10,200
Options were exercised during 1997 at prices ranging from $6.70 to $45.63 per share ($6.70 to $28.63 per share during 1996 and $1.00 to $21.63 per share during 1995). The following table summarizes information about fixed price option shares outstanding at Dec. 31, 1997: Weighted Average Shares Remaining Weighted Average Shares in thousands Outstanding Contractual life Exercise Price Range of Exercise Prices $ 6.70 to $ 9.69 2,635 3.3 years $ 8.40 $11.37 to $16.75 2,439 4.3 years $15.76 $21.63 to $28.63 3,666 6.4 years $24.78 $39.88 to $46.31 3,793(a) 9.0 years $44.28 12,533 a) At Dec. 31, 1997, 1.149 million options were exercisable at a price of $40.38. Had compensation cost related to the fixed price options been recorded at fair value on the dates of grant in accordance with SFAS 123, the effect on the corporation's net income and EPS amounts would have been as follows: Millions of dollars (except per share figures), for the year ended December 31, 1997 1996 1995 Net income- common stockholders As reported $ 652 $ 583 $ 915 Pro forma $ 639 $ 576 $ 913 Basic EPS As reported $4.89 $4.43 $6.65 Pro forma $4.79 $4.37 $6.63 Diluted EPS As reported $4.41 $3.90 $5.85 Pro forma $4.32 $3.86 $5.84 The Black-Scholes Option Pricing Model was used to estimate the fair values of options granted during 1997, 1996 and 1995. The assumptions used for these grants included a 6-year average expected life for all years, and zero-coupon U.S. government risk free interest rates of 5.92%, 5.95%, and 5.70%, current dividend yields of 1.73%, 1.78%, and 1.75%, and volatility of 28.77%, 28.00%, and 28.78% for the years ended 1997, 1996 and 1995, respectively. The weighted average fair values of options granted during the years 1997, 1996, and 1995 were $15.54, $15.31 and $13.43, respectively. On Sept. 24, 1997, the board approved the 1997 Union Carbide Corporation EPS Incentive Plan for a limited number of senior managers. It is designed to grant awards if the corporation achieves $4.00 or more diluted earnings per share performance during 1999 and 2000. The plan requires these senior managers to put an amount equivalent to a portion of their annual base pay at risk, up to 100 percent, should diluted earnings per share not equal or exceed $4.00 in the year 2000. The amount at risk will be deducted from compensation over three years and is converted to units equivalent to common stock using a $47.75 share price, the closing price of the corporation's common stock on the date the plan was approved by the board of directors. Participants could be awarded up to four times the number of units at risk for each of the years 1999 and 2000, depending on the extent to which the goals of the plan are exceeded. Participants will also be credited with dividend-equivalents in the form of additional units. Payments under the plan will be in cash and are scheduled for 2002, 2003 and 2004. Failure to meet the requirements of the plan will result in forfeiture of the amounts at risk. - 37 - FIFTEEN Stockholders' Equity Subject to the following discussion, each outstanding share of common stock has identical rights in voting on corporate matters, dividends when declared, liquidation and other corporate matters. Each outstanding share of common stock bears one Right entitling its holder, under certain circumstances, to buy a share of common stock at a purchase price of $37.67 (subject to adjustment). The Rights may not be exercised until 10 days after a person or group acquires 20 percent or more of UCC's common stock, or until a date determined by the board of directors following announcement of a tender offer that, if consummated, would result in 20 percent or more ownership of the common stock. Until then, separate Rights certificates will not be issued, nor will the Rights be traded separately from the stock. Should an acquirer become the beneficial owner of 20 percent of the common stock, and under certain additional circumstances, the corporation's stockholders (other than the acquirer) would have the right to buy common stock in Union Carbide Corporation, or in the surviving enterprise if the corporation is acquired, having a value equal to two times the purchase price of the Right then in effect. The Rights will expire on Aug. 31, 1999, unless redeemed prior to that date. The redemption price is $0.01 per Right. On July 23, 1997, the board of directors of the corporation increased the number of shares that may be repurchased under the existing common stock repurchase program to 60 million shares. Through Dec. 31, 1997, the corporation had repurchased 49.3 million shares since inception of the program in 1993 (7.0 million during 1997) at an average effective price of $34.69 per share. The corporation will continue to acquire additional shares from time to time at prevailing market prices, at a rate consistent with the combination of corporate cash flow and market conditions. In conjunction with the corporation's common stock buyback program, put options were sold in a series of private placements entitling the holders to sell 12.9 million shares of common stock to UCC at specified prices upon exercise of the options. Since inception of this program through Dec. 31, 1997, options representing 9.8 million common shares have expired unexercised, while options representing 3.1 million shares were exercised for $129 million, or an average price of $40.94 per share. No options were outstanding at Dec. 31, 1997. Premiums received since inception of the program, which are recorded as Additional paid-in capital, have reduced the average price of repurchased shares to $34.69 per share from $34.97. SIXTEEN Leases Leases that meet the criteria for capitalization have been classified and accounted for as capital leases. For operating leases, primarily involving facilities and distribution equipment, the future minimum rental payments under leases with remaining noncancelable terms in excess of one year are: Millions of dollars, year ending December 31, 1998 $ 62 1999 58 2000 53 2001 50 2002 58 Subsequent to 2002 186 Total minimum payments 467 Future sublease rentals 81 Net Minimum Rental Commitments $386 The present value of the net minimum rental payments amounts to $303 million, of which $214 million pertains to the corporation's headquarters lease. Total lease and rental payments (net of sublease rental of $21 million in 1997 and $20 million in 1996 and 1995) were $54 million, $53 million and $67 million for 1997, 1996 and 1995, respectively. During 1995 the corporation recognized a nonrecurring, noncash charge of $191 million ($134 million after-tax) for future minimum lease payments on unused office space, primarily at the corporation's headquarters. The headquarters charge reflects the pro rata costs of unused office space over the remaining term of the lease, which runs to 2006, less anticipated net sublease income. Neither the expected future costs nor expected net sublease revenues were discounted. - 38 - SEVENTEEN Commitments and Contingencies Purchase Agreements o The corporation has three major agreements for the purchase of ethylene-related products and two other purchase agreements in the U.S. and Canada. Total purchases under these agreements were $245 million, $233 million and $251 million in 1997, 1996 and 1995, respectively. The net present value of the fixed and determinable portion of obligations under these purchase commitments at Dec. 31, 1997 (at current exchange rates, where applicable) is presented in the following table. Millions of dollars, year ending December 31, 1998 $ 69 1999 60 2000 31 2001 23 2002 20 2003 to expiration of contracts 88 Total $291 Environmental o The corporation is subject to loss contingencies resulting from environmental laws and regulations, which include obligations to remove or remediate the effects on the environment of the disposal or release of certain wastes and substances at various sites. The corporation has established accruals in current dollars for those hazardous waste sites where it is probable that a loss has been incurred and the amount of the loss can reasonably be estimated. The reliability and precision of the loss estimates are affected by numerous factors, such as different stages of site evaluation, the allocation of responsibility among potentially responsible parties and the assertion of additional claims. The corporation adjusts its accruals as new remediation requirements are defined, as information becomes available permitting reasonable estimates to be made, and to reflect new and changing facts. At Dec. 31, 1997, the corporation had established environmental remediation accruals in the amount of $264 million ($310 million in 1996). These accruals have two components, estimated future expenditures for site investigation and cleanup and estimated future expenditures for closure and postclosure activities. In addition, the corporation had environmental loss contingencies of $159 million at Dec. 31, 1997. The corporation has sole responsibility for the remediation of approximately 36 percent of its environmental sites for which accruals have been established. These sites are well advanced in the investigation and cleanup stage. The corporation's environmental accruals at Dec. 31, 1997, included $197 million for these sites ($222 million at Dec. 31, 1996), of which $79 million ($92 million at Dec. 31, 1996) was for estimated future expenditures for site investigation and cleanup and $118 million ($130 million at Dec. 31, 1996) was for estimated future expenditures for closure and postclosure activities. In addition, $87 million of the corporation's environmental loss contingencies at Dec. 31, 1997, related to these sites. The site with the largest total potential cost to the corporation is a nonoperating site. Of the above accruals, this site accounted for $31 million ($32 million at Dec. 31, 1996), of which $17 million ($18 million at Dec. 31, 1996) was for estimated future expenditures for site investigation and cleanup and $14 million ($14 million at Dec. 31, 1996) was for estimated future expenditures for closure and postclosure activities. In addition, $20 million of the above environmental loss contingencies related to this site. The corporation does not have sole responsibility at the remainder of its environmental sites for which accruals have been established. All of these sites are in the investigation and cleanup stage. The corporation's environmental accruals at Dec. 31, 1997, included $67 million for estimated future expenditures for site investigation and cleanup at these sites ($88 million at Dec. 31, 1996). In addition, $72 million of the corporation's environmental loss contingencies related to these sites. The largest two of these sites are also nonoperating sites. Of the above accruals, these sites accounted for $29 million ($37 million at Dec. 31, 1996) for estimated future expenditures for site investigation and cleanup. In addition, $20 million of the above environmental loss contingencies related to these sites. Worldwide expenses related to environmental protection for compliance with Federal, state and local laws regulating solid and hazardous wastes and discharge of materials to air and water, as well as for waste site remedial activities, totaled $100 million in 1997, $110 million in 1996 and $138 million in 1995. - 39 - Other o The corporation has severally guaranteed 45 percent (approximately $606 million at Dec. 31, 1997) of EQUATE Petrochemical Company's debt and working capital financing needs until certain completion and financial tests are achieved. If these tests are met, a $54 million several guarantee will provide ongoing support thereafter. The corporation also severally guaranteed certain sales volume targets until EQUATE's sales capabilities are proved. In addition, the corporation has pledged its shares in EQUATE as security for EQUATE's debt. The corporation has political risk insurance coverage for its equity investment and, through Sept. 30, 1998, substantially all of its several guarantee of EQUATE's debt. The corporation and its consolidated subsidiaries had additional contingent obligations at Dec. 31, 1997, totaling $63 million, of which $31 million related to guarantees of debt. Litigation o The corporation is one of a number of defendants named in approximately 4,900 lawsuits in both Federal and state courts, some of which have more than one plaintiff, involving silicone breast implants. The corporation was not a manufacturer of breast implants but did supply generic bulk silicone materials to certain manufacturers. Also, the corporation in 1990 acquired and in 1992 divested the stock of a small specialty silicones company that, among other things, supplied silicone gel intermediates and silicone dispersions for breast implants. In 1993 most of the suits that were brought in Federal courts were consolidated for pretrial purposes in the United States District Court, Northern District of Alabama. In 1995, the District Court approved a settlement program proposed by certain defendants, including the corporation. In August 1997, the court ruled that all claims based solely on the supply of generic bulk silicone materials should be dismissed against the corporation. That decision is final with respect to cases in Federal courts, but does not affect the corporation's participation in the settlement program. Based on the corporation's understanding of the number of claims that were properly filed under the settlement, the corporation estimates that its maximum expenditures under the program should not exceed $100 million prior to insurance recovery. Although insurance coverage is subject to issues as to scope and application of policies, retention limits, exclusions and policy limits, and the insurers have reserved their right to deny coverage, the corporation believes that after probable insurance recoveries neither the settlement nor litigation outside the settlement will have a material adverse effect on the consolidated financial position of the corporation. In addition to the above, the corporation and its consolidated subsidiaries are involved in a number of legal proceedings and claims with both private and governmental parties. These cover a wide range of matters, including, but not limited to, product liability; trade regulation; governmental regulatory proceedings; health, safety and environmental matters; employment; patents; contracts, and taxes. In some of these legal proceedings and claims, the cost of remedies that may be sought or damages claimed is substantial. The corporation has recorded nonenvironmental litigation accruals of $184 million, and related insurance recovery receivables of $147 million. At Dec. 31, 1997, the corporation had nonenvironmental litigation loss contingencies of $57 million. While it is impossible at this time to determine with certainty the ultimate outcome of any legal proceedings and claims referred to in this note, management believes that adequate provisions have been made for probable losses with respect thereto and that such ultimate outcome, after provisions therefor, will not have a material adverse effect on the consolidated financial position of the corporation, but could have a material effect on consolidated results of operations in a given quarter or year. Should any losses be sustained in connection with any of such legal proceedings and claims in excess of provisions therefor, they will be charged to income in the future. - 40 - Management's Statement of Responsibility for Financial Statements Union Carbide Corporation's financial statements are prepared by management, which is responsible for their fairness, integrity and objectivity. The accompanying financial statements have been prepared in conformity with generally accepted accounting principles and, accordingly, include amounts that are estimates and judgments. All historical financial information in this annual report is consistent with the accompanying financial statements. The corporation maintains accounting systems, including internal accounting controls monitored by a staff of internal auditors, that are designed to provide reasonable assurance of the reliability of financial records and the protection of assets. The concept of reasonable assurance is based on recognition that the cost of a system must not exceed the related benefits. The effectiveness of those systems depends primarily upon the careful selection of financial and other managers, clear delegation of authority and assignment of accountability, inculcation of high business ethics and conflict-of-interest standards, policies and procedures for coordinating the management of corporate resources and the leadership and commitment of top management. The corporation's financial statements are audited by KPMG Peat Marwick LLP, independent certified public accountants, in accordance with generally accepted auditing standards. These standards provide for the auditors to consider the corporation's internal control structure to the extent they deem necessary in order to issue their opinion on the financial statements. The Audit Committee of the board of directors, which consists solely of nonemployee directors, is responsible for overseeing the functioning of the accounting system and related controls and the preparation of annual financial statements. The Audit Committee recommends to the board of directors the selection of the independent auditors, which is submitted to the stockholders for ratification. The Audit Committee periodically meets with the independent auditors, management and internal auditors to review and evaluate their accounting, auditing and financial reporting activities and responsibilities. The independent and internal auditors have full and free access to the Audit Committee and meet with the committee, with and without management present. William H. Joyce John K. Wulff Chairman, President and Vice-President, Chief Financial Chief Executive Officer Officer and Controller Danbury, Conn. Jan. 16, 1998 Independent Auditors' Report To the Stockholders and Board of Directors of Union Carbide Corporation: We have audited the accompanying consolidated balance sheet of Union Carbide Corporation and subsidiaries as of Dec. 31, 1997 and 1996, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the years in the three-year period ended Dec. 31, 1997. These consolidated financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Union Carbide Corporation and subsidiaries at Dec. 31, 1997 and 1996, and the results of their operations and their cash flows for each of the years in the three-year period ended Dec. 31, 1997, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Stamford, Conn. Jan. 16, 1998 - 41 - Corporate Information 1998 Annual Meeting The 1998 annual meeting of stockholders will be held on Wednesday, April 22, at the John C. Creasy Health Education Center, 24 Hospital Ave., Danbury, CT 06810, beginning at 10 A.M. A notice of the annual meeting, a proxy statement and a proxy voting card will be mailed to each stockholder in March, together with a copy of the current annual report. General Offices The general offices of Union Carbide Corporation are located at 39 Old Ridgebury Road, Danbury, CT 06817-0001 (Telephone: 203-794-2000). Stock Exchanges Union Carbide stock is traded primarily on the New York Stock Exchange (ticker symbol: UK). The stock is also listed on the Chicago and Pacific Stock Exchanges in the U.S. Stock Records and Transfer The corporation acts as its own stock transfer agent through its Shareholder Services Department, which maintains stockholder records, transfers stock and answers questions regarding stockholders' accounts, including dividend reinvestment accounts. Stockholders wishing to transfer stock to someone else or to change the name on a stock certificate should contact Shareholder Services for assistance. The Registrar is Chase Mellon Shareholder Services. Dividend Reinvestment Stockholders of record may purchase shares directly through Union Carbide's Dividend Reinvestment and Stock Purchase Plan. Under the plan, shares may be purchased from Union Carbide free of commissions and service charges. Requests for a prospectus that explains the plan in detail should be directed to the Shareholder Services Department (Telephone: 800-934-3350). Form 10-K A Form 10-K report for the year ended Dec. 31, 1997, will be available in April 1998. A copy without exhibits may be obtained without charge by writing to Union Carbide Corporation, Joseph E. Geoghan, secretary, 39 Old Ridgebury Road, Danbury, CT 06817-0001. Charitable Contributions Booklet Union Carbide annually publishes a booklet that lists organizations receiving charitable, educational, cultural or similar grants of $250 or more from the corporation. The booklet is available on written request to the secretary. RESPONSIBLE CARE Progress Report This report covers health, safety and environmental progress at Union Carbide. Information includes performance data for U.S. and other worldwide locations, RESPONSIBLE CARE goals, and progress Carbide made in 1997 as it completed implementation of RESPONSIBLE CARE management practices. To obtain a copy, write to Union Carbide Corporation, Public Affairs Department, Section L-4505, 39 Old Ridgebury Road, Danbury, CT 06817-0001 (Telephone: 800-552- 5272). Inquiries o Inquiries from the public about Union Carbide and its products and services should be directed to the Corporate Information Center, Union Carbide Corporation, Section N-0, 39 Old Ridgebury Road, Danbury, CT 06817-0001 (Telephone: 203-794-5300). o Inquiries about stockholder accounts and dividend reinvestment should be directed to Union Carbide Corporation, William H. Smith, manager, Shareholder Services Department, Section G-1328, 39 Old Ridgebury Road, Danbury, CT 06817- 0001 (Telephone: 203-794-3350). o Institutional investors, financial analysts and portfolio managers should direct questions about Union Carbide to Union Carbide Corporation, D. Nicholas Thold, director of investor relations, Investor Relations Department, Section E-4286, 39 Old Ridgebury Road, Danbury, CT 06817-0001 (Telephone: 203-794- 6440). o Financial journalists should direct questions to Union Carbide Corporation, David N. Kernis, assistant director, communications, Public Affairs Department, Section L-4502, 39 Old Ridgebury Road, Danbury, CT 06817-0001 (Telephone: 203-794-6929). o Information about Union Carbide also may be found on the company's home page on the Internet at www.unioncarbide.com. Union Carbide's site provides information in five categories: general, financial, business, RESPONSIBLE CARE and recruitment. - 42 - Directors and Corporate Officers Directors John J. Creedon is retired president and chief executive officer of Metropolitan Life Insurance Company. A Carbide director since 1984, he chairs the Audit Committee and serves on the Compensation & Management Development, Executive and Health, Safety and Environmental Affairs (HS&EA) Committees. C. Fred Fetterolf is a retired director, president and chief operating officer of Aluminum Company of America. A UCC director since 1987, he chairs the HS&EA Committee and serves on the Audit, Compensation & Management Development and Nominating Committees. Joseph E. Geoghan is vice-president, general counsel and secretary of Union Carbide Corporation and has been a director since 1990. He serves on the Executive and Public Policy Committees. Rainer E. Gut is chairman of Credit Suisse Group, Zurich, Switzerland, Credit Suisse First Boston and Credit Suisse. A UCC board member since 1994, he is a member of the Compensation & Management Development, Finance & Pension and Nominating Committees. Vernon E. Jordan, Jr. is a senior partner of Akin, Gump, Strauss, Hauer & Feld LLP. He is chairman of the Nominating Committee and a member of the Executive, Finance & Pension and Public Policy Committees. He has been a board member since 1987. William H. Joyce is chairman, president and chief executive officer of Union Carbide Corporation. A director since 1992, he is chairman of the Executive Committee. Robert D. Kennedy is retired chairman and chief executive officer of Union Carbide Corporation and has been a director since 1985. He serves on the Audit, Executive, Nominating and Public Policy Committees. Ronald L. Kuehn, Jr. is a director and chairman, president and chief executive officer of Sonat, Inc. A UCC board member since 1984, he chairs the Compensation & Management Development Committee and serves on the Finance & Pension and HS&EA Committees. Rozanne L. Ridgway is former assistant secretary of state for Europe and Canada. A director since 1990, she chairs the Public Policy Committee and is a member of the Audit, HS&EA and Nominating Committees. James M. Ringler is a director and chairman, president and chief executive officer of Premark International, Inc. Elected a director in 1996, he is a member of the Compensation & Management Development and the Finance & Pension Committees. William S. Sneath is a director of various corporations and retired chairman and chief executive officer of Union Carbide Corporation. He chairs the Finance & Pension Committee and serves on the Executive, HS&EA and Nominating Committees. He has been a director since 1969. Corporate Officers William H. Joyce Chairman of the Board, President and Chief Executive Officer Joseph S. Byck Vice-President, Strategic Planning, Investor Relations and Public Affairs James F. Flynn Vice-President, General Manager, Solvents, Intermediates and Monomers Joseph E. Geoghan Vice-President, General Counsel and Secretary Malcolm A. Kessinger Vice-President, Human Resources Lee P. McMaster Vice-President, General Manager, Ethylene Oxide/Glycol Joseph C. Soviero Vice-President, Corporate Ventures Roger B. Staub Vice-President, General Manager, UNIPOL Systems John K. Wulff Vice-President, Chief Financial Officer and Controller Other Senior Management Eugene J. Boros Vice-President, General Manager, Specialty Polymers and Products, UCAR Emulsion Systems David L. Brucker Vice-President, Engineering and Operations Ron J. Cottle Vice-President, Health, Safety and Environment John L. Gigerich Vice-President, Information Systems Kevin P. Lynch Vice-President, General Manager, UNIPOL Polymers Philip F. McGovern Vice-President, Tax Gordon D. Mounts Vice-President, General Manager, Industrial Performance Chemicals F. Don Ryan Vice-President, General Manager, Specialty Polyolefins and Vice-President, Purchasing Lee C. Stewart Vice-President and Treasurer Vince F. Villani Vice-President, General Manager, Olefins Donald R. Wood Vice-President, Polypropylene Resins John P. Yimoyines Vice-President, Venture Management - 43 - Union Carbide Around the World (Excluding partnership or corporate joint venture locations) United States & Puerto Rico California Colorado Connecticut District of Columbia Georgia Illinois Louisiana New Jersey New York North Carolina Texas Vermont Washington West Virginia Puerto Rico Canada Alberta Ontario Quebec Europe Austria Belgium France Germany Italy Russia Spain Sweden Switzerland Turkey United Kingdom Latin America Argentina Brazil Chile Colombia Costa Rica Ecuador Guatemala Mexico Peru Venezuela Far East & Other Australia China Egypt Hong Kong Indonesia Japan Jordan Malaysia Morocco Philippines Singapore South Africa South Korea Sri Lanka Taiwan Thailand United Arab Emirates Definition of Terms Unless the context otherwise requires, the terms below refer to the following: Union Carbide Corporation, Union Carbide Corporation, Union Carbide, Carbide, the parent company, and its the corporation, we, our, consolidated subsidiaries the company, UCC Domestic United States and Puerto Rico Domestic operations Operations of Union Carbide in this area, including exports International operations Operations of Union Carbide in areas of the world other than the United States and Puerto Rico The use of these terms is for convenience of reference only. The consolidated subsidiaries are separate legal entities that are managed by, and accountable to, their respective boards of directors. CARBITOL, CARBOWAX, CELLOSIZE, CELLOSOLVE, CYRACURE, FLEXOL, FLEXOMER, NEULON, NORKOOL, LP OXO, POLYOX, POLYPHOBE, SELEXOL, TERGITOL, TONE, TRITON, TUFLIN, UCAR, UCARSOL, UCARTHERM, UCON, UCURE, UNICARB, UNIPOL, and UNION CARBIDE are registered trademarks of Union Carbide Corporation. RESPONSIBLE CARE is a registered service mark of the Canadian Chemical Producers Association and the Chemical Manufacturers Association. EQUATE is a trademark of EQUATE Petrochemical Company K.S.C. of Kuwait. (Inside back cover) Printed on Recycled, Recyclable Paper. Printed in U.S.A. (Back cover) (The back cover depicts a hexagon containing the words "Union Carbide".) Union Carbide Corporation 39 Old Ridgebury Road Danbury, Connecticut 06817-0001 UC-1389 EX-21 20 SUBSIDIARIES OF THE CORPORATION Exhibit 21 Percentage of Voting State or Securities Sovereign Owned By Power of Immediate Name of Company Incorporation Parent Union Carbide Corporation (the "Corporation") New York - % Subsidiaries included in the Consolidated Financial Statements except where noted otherwise: Amerchol Corporation Delaware 100.00 Benefit Capital Management Corporation Delaware 100.00 Calidria Corporation Delaware 100.00 Catalysts, Adsorbents & Process Systems, Inc. Maryland 100.00 Dexter Realty Corporation Ohio 100.00 JWS Hampshire, Inc. Delaware 99.95 KTI Chemicals, Inc. Delaware 100.00 P.T. Union Carbide Indonesia Indonesia 100.00 Prentiss Glycol Company Delaware 100.00 Seadrift Pipeline Corporation Delaware 100.00 South Charleston Sewage Treatment Co. West Virginia 100.00 UCAR Emulsion Systems International, Inc. Delaware 100.00 UCAR Interam, Inc. Delaware 100.00 UCAR Louisiana Pipeline Company Delaware 100.00 UCAR Pipeline Incorporated Delaware 100.00 UCAR, Polimeros y Quimicos C.A. Ecuador 100.00 UCAR Resinas Caribe Inc. Delaware 100.00 UCAR Vanor (Proprietary) Limited South Africa 100.00 UCEX (U.K.) Limited England 100.00 Umetco Minerals Corporation Delaware 100.00 Union Carbide Argentina S.A.I.C.S. Argentina 100.00 Union Carbide Asia Limited Hong Kong 100.00 Union Carbide Asia Pacific, Inc. Delaware 100.00 Union Carbide Benelux N.V. Belgium (1) Union Carbide do Brasil S/A Brazil 100.00 Union Carbide Caribe LLC Delaware 100.00 Union Carbide Canada Inc. Canada 100.00 Union Carbide Chemicals and Plastics Technology Corporation Delaware 100.00 Union Carbide Chemicals (Australia) Pty. Ltd. Australia 100.00 Union Carbide Chemicals Korea Limited Korea 100.00 Union Carbide Chemicals (Malaysia) Sdn. Bhd. Malaysia 100.00 Union Carbide Comercial, C.A. Venezuela 100.00 Union Carbide Customer Services Pte. Ltd. Singapore 100.00 Union Carbide Engineering and Hydrocarbons Service Company, Inc. Delaware 100.00 Union Carbide Ethylene Oxide/Glycol Company Delaware 100.00 Union Carbide Eurofinance B.V. Netherlands 100.00 Union Carbide (Europe) S.A. Switzerland 100.00 Union Carbide Foreign Sales Corporation US Virgin Is. 100.00 (1) 99.83% of the voting securities of Union Carbide Benelux N.V. is owned by Union Carbide Corporation; and 00.17% by Union Carbide (Europe) S.A. Percentage of Voting State or Securities Sovereign Owned By Power of Immediate Name of Company Incorporation Parent Union Carbide Corporation. (Continued) Union Carbide Formosa Co., Ltd. Taiwan 100.00 Union Carbide (Guangdong Zhongshan) Company Limited P. Rep. China 75.00 Union Carbide Imaging Systems, Inc. Delaware 100.00 Union Carbide Inter-America Inc. Delaware 100.00 Union Carbide Inter-America Inc. New Jersey 100.00 Union Carbide Investimentos e Participacoes S/C Ltda. Brazil 100.00 Union Carbide Japan K.K. Japan 100.00 Union Carbide Limited England 100.00 Union Carbide Pan America, Inc. Delaware 100.00 Union Carbide Philippines (Far East) Inc. Philippines 100.00 Union Carbide Quimicos y Plasticos, S.A. de C.V. Mexico 100.00 Union Carbide South Africa (Proprietary) Limited South Africa 100.00 Union Carbide Subsidiary C, Inc. Delaware 100.00 Union Carbide Subsidiary L, Inc. Delaware 100.00 Union Carbide Thailand Limited Thailand 100.00 Union Carbide Wire & Cable Company, Inc. Delaware 100.00 Union Polymers Sdn. Bhd. Malaysia 60.00 Westbridge Insurance Ltd. Bermuda 100.00 Companies reported in the Consolidated Financial Statements on an Equity in Net Assets Basis included: Alberta & Orient Glycol Company Limited Canada 50.00 Asian Acetyls Rep. of Korea 33.00 ASPELL Polymeres SNC France 50.00 Commercial Alcohols Limited Canada 50.00 Equate Petrochemical Company K.S.C. Kuwait 45.00 Nippon Unicar Company Limited Japan 50.00 Petromont and Company, Limited Partnership Canada 49.95 Petromont Inc. Canada 50.00 Polimeri Europa S.r.l. Italy 50.00 Seadrift Polypropylene Company Texas 50.00 Shawinigan Pipeline Reg'd. Canada 50.00 Union Carbide Lanka Limited Sri Lanka 49.00 UOP LLC New York 50.00 Union Showa K.K. Japan 50.00 Univation Technologies, LLC Delaware 50.00 World Ethanol Company Illinois 50.00 * * * * * * * * * * * * The names of the Corporation's other consolidated subsidiaries and companies carried on an equity in net assets basis are not listed. These subsidiaries and companies, if considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary. In addition, the Corporation has investments in other subsidiaries and 20-to-50%-owned companies for which financial statements are not submitted because all such subsidiaries and companies, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary. EX-23 21 CONSENT OF KPMG PEAT MARWICK LLP EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS The Board of Directors Union Carbide Corporation We consent to the incorporation by reference in each of the Registration Statements of Union Carbide Corporation on Form S-3 (Nos. 33-26185, 33-60705 and 333-17309), and on Form S-8 (Nos. 2- 90419, 33-22125, 33-38714, 33-53573, 33-58931, 333-02829, 333- 38493 and 333-38495) of our reports dated January 16, 1998, relating to the consolidated balance sheets of Union Carbide Corporation and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of income, stockholders' equity and cash flows and related schedule for each of the years in the three-year period ended December 31, 1997, appearing and incorporated by reference in the Annual Report on Form 10-K of Union Carbide Corporation for the year ended December 31, 1997. KPMG PEAT MARWICK LLP Stamford, Connecticut March 19, 1998 EX-27.1 22 FINANCIAL DATA SCHEDULE FOR THE YEAR ENDED 1997
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNION CARBIDE CORPORATION'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000100790 UNION CARBIDE CORPORATION 1,000,000 YEAR DEC-31-1997 DEC-31-1997 68 0 993 0 604 1866 7707 3927 6964 1504 1458 0 0 155 2193 6964 6502 6502 4806 4806 497 0 79 966 279 676 0 0 17 659 4.89 4.41 OTHER EXPENSES ARE EQUAL TO RESEARCH AND DEVELOPMENT OF 157 AND DEPRECIATION AND AMORTIZATION OF 340. THE EPS-PRIMARY AMOUNT REPRESENTS BASIC EARNINGS PER SHARE AND THE EPS-DILUTED AMOUNT REPRESENTS DILUTED EARNINGS PER SHARE, COMPUTED IN ACCORDANCE WITH STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 128, "EARNINGS PER SHARE".
EX-27.2 23 RESTATED FINANCIAL DATA SCHEDULE FYE 1996 AND 1995
5 THIS SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNION CARBIDE CORPORATION'S ANNUAL REPORTS ON FORM 10-K FOR THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000100790 UNION CARBIDE CORPORATION 1,000,000 YEAR YEAR DEC-31-1996 DEC-31-1995 JAN-01-1996 JAN-01-1995 DEC-31-1996 DEC-31-1995 94 449 0 0 1047 996 0 00 541 544 1873 2196 7159 6357 3750 3549 6546 6256 1278 1338 1487 1285 144 146 0 0 155 155 1959 1890 6546 6256 6106 5888 6106 5888 4568 4100 4568 4100 471 450 0 0 76 89 845 1259 236 380 593 925 0 0 0 0 0 0 593 925 4.43 6.65 3.90 5.85 OTHER EXPENSES IN 1996 ARE EQUAL TO RESEARCH AND DEVELOPMENT OF 159 AND DEPRECIATION AND AMORTIZATION OF 312. THE EPS-PRIMARY AMOUNT REPRESENTS BASIC EARNINGS PER SHARE AND THE EPS-DILUTED AMOUNT REPRESENTS DILUTED EARNINGS PER SHARE, COMPUTED IN ACCORDANCE WITH STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 128, "EARNINGS PER SHARE". OTHER EXPENSES IN 1995 ARE EQUAL TO RESEARCH AND DEVELOPMENT OF 144 AND DEPRECIATION AND AMORTIZATION OF 306.
EX-27.3 24 RESTATED FINANCIAL DATA SCHEDULE 1997 QUARTERS
5 THIS SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNION CARBIDE CORPORATION'S FORMS 10-Q FOR THE QUARTERS ENDED MARCH 31, 1997, JUNE 30, 1997 AND SEPTEMBER 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000100790 UNION CARBIDE CORPORATION 1,000,000 9-MOS 6-MOS 3-MOS DEC-31-1997 DEC-31-1997 DEC-31-1997 JAN-01-1997 JAN-01-1997 JAN-01-1997 SEP-30-1997 JUN-30-1997 MAR-31-1997 132 115 214 0 0 0 1064 1079 1082 0 0 0 556 544 553 1954 1923 2028 7577 7424 7274 3886 3855 3809 6975 6770 6795 1306 1131 1221 1459 1467 1494 138 140 140 0 0 0 155 155 155 2063 2053 1972 6975 6770 6795 4963 3304 1638 4963 3304 1638 3650 2451 1231 3650 2451 1231 374 250 122 0 0 0 57 38 19 772 500 228 228 145 66 529 348 157 0 0 0 0 0 0 0 0 0 529 348 157 3.97 2.63 1.17 3.49 2.31 1.03 OTHER EXPENSES FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 ARE EQUAL TO RESEARCH AND DEVELOPMENT OF 118 AND DEPRECIATION AND AMORTIZATION OF 256. THE EPS-PRIMARY AMOUNT REPRESENTS BASIC EARNINGS PER SHARE AND THE EPS-DILUTED AMOUNT REPRESENTS DILUTED EARNINGS PER SHARE, COMPUTED IN ACCORDANCE WITH STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 128, "EARNINGS PER SHARE". OTHER EXPENSES FOR THE SIX MONTHS ENDED JUNE 30, 1997 ARE EQUAL TO RESEARCH AND DEVELOPMENT OF 81 AND DEPRECIATION AND AMORTIZATION OF 169. OTHER EXPENSES FOR THE THREE MONTHS ENDED MARCH 31, 1997 ARE EQUAL TO RESEARCH AND DEVELOPMENT OF 40 AND DEPRECIATION AND AMORTIZATION OF 82.
EX-27.4 25 RESTATED FINANCIAL DATA SCHEDULE 1996 QUARTERS
5 THIS SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNION CARBIDE CORPORATION'S FORMS 10-Q FOR THE QUARTERS ENDED MARCH 31, 1997 AND 1996, JUNE 30, 1997 AND 1996, AND SEPTEMBER 30, 1997 AND 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000100790 UNION CARBIDE CORPORATION 1,000,000 9-MOS 6-MOS 3-MOS DEC-31-1996 DEC-31-1996 DEC-31-1996 JAN-01-1996 JAN-01-1996 JAN-01-1996 SEP-30-1996 JUN-30-1996 MAR-31-1996 111 78 144 0 0 0 1058 1079 1061 0 0 0 528 515 546 1910 1856 1893 6993 6875 6758 3698 3673 3632 6518 6334 6314 1441 1290 1237 1295 1288 1289 144 145 145 0 0 0 155 155 155 1929 1910 1968 6518 6334 6314 4598 3060 1501 4598 3060 1501 3394 2249 1099 3394 2249 1099 350 230 111 0 0 0 55 37 23 691 467 236 194 131 66 491 330 157 0 0 0 0 0 0 0 0 0 491 330 157 3.64 2.42 1.15 3.21 2.13 1.01 OTHER EXPENSES FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 ARE EQUAL TO RESEARCH AND DEVELOPMENT OF 115 AND DEPRECIATION AND AMORTIZATION OF 235. THE EPS-PRIMARY AMOUNT REPRESENTS BASIC EARNINGS PER SHARE AND THE EPS-DILUTED AMOUNT REPRESENTS DILUTED EARNINGS PER SHARE, COMPUTED IN ACCORDANCE WITH STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 128, "EARNINGS PER SHARE". OTHER EXPENSES FOR THE SIX MONTHS ENDED JUNE 30, 1996 ARE EQUAL TO RESEARCH AND DEVELOPMENT OF 76 AND DEPRECIATION AND AMORTIZATION OF 154. OTHER EXPENSES FOR THE THREE MONTHS ENDED MARCH 31, 1996 ARE EQUAL TO RESEARCH AND DEVELOPMENT OF 36 AND DEPRECIATION AND AMORTIZATION OF 75.
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