-----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, KRxGyOWZsTVTSkm1luNN58ybYvg5wTcQXnsXUpr7BoLJjbO6xIUOAL9Si4h2Pa9e EsxnJVM+G7Eerp6qEnqb6Q== 0001047469-03-026242.txt : 20030805 0001047469-03-026242.hdr.sgml : 20030805 20030805113254 ACCESSION NUMBER: 0001047469-03-026242 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20030630 FILED AS OF DATE: 20030805 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-01463 FILM NUMBER: 03822708 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 CHEMICALS & PLASTICS CO INC DATE OF NAME CHANGE: 19940502 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-Q 1 a2115943z10-q.htm 10-Q
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

FOR THE QUARTER ENDED June 30, 2003

Commission file number 1-1463

UNION CARBIDE CORPORATION
(Exact name of registrant as specified in its charter)

New York (State or other jurisdiction of incorporation or organization)		13-1421730 (I.R.S. Employer Identification No.)
39 Old Ridgebury Road, Danbury, Connecticut 06817-0001 (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 203-794-2000
Not applicable (Former name, former address and former fiscal year, if changed since last report)

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 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes o No ý.

At June 30, 2003, 1,000 shares of common stock were outstanding, all of which were held by the registrant's parent, The Dow Chemical Company.

The registrant meets the conditions set forth in General Instructions H(1)(a) and (b) for Form 10-Q and is therefore filing this form with a reduced disclosure format.

Union Carbide Corporation
Table of Contents

			PAGE
PART I—FINANCIAL INFORMATION
	Item 1. Financial Statements		3
		Consolidated Statements of Operations	3
		Consolidated Balance Sheets	4
		Consolidated Statements of Cash Flows	6
		Consolidated Statements of Comprehensive Income	7
		Notes to the Consolidated Financial Statements	8
	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		15
		Disclosure Regarding Forward-Looking Information	15
		Results of Operations	15
		Other Matters	18
	Item 3. Quantitative and Qualitative Disclosures About Market Risk		20
	Item 4. Controls and Procedures		20
PART II—OTHER INFORMATION
	Item 1. Legal Proceedings		21
	Item 6. Exhibits and Reports on Form 8-K		21
SIGNATURES			22
EXHIBIT INDEX			23

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Union Carbide Corporation and Subsidiaries
Consolidated Statements of Operations

		Three Months Ended						Six Months Ended
In millions (Unaudited)		June 30, 2003			June 30, 2002			June 30, 2003			June 30, 2002
	Net trade sales	$	98		$	91		$	191		$	233
	Net sales to related companies		1,175			1,056			2,371			2,033

Total Net Sales			1,273			1,147			2,562			2,266

	Cost of sales		1,181			1,017			2,489			2,024
	Research and development expenses		23			30			48			62
	Selling, general and administrative expenses		10			13			20			27
	Amortization of intangibles		1			—			2			2
	Equity in earnings (losses) of nonconsolidated affiliates		61			(1	)		71			2
	Sundry income (expense)—net		(9	)		33			(24	)		30
	Interest income		3			12			5			27
	Interest expense and amortization of debt discount		28			33			62			66

Income (Loss) before Income Taxes and Minority Interests			85			98			(7	)		144

	Provision (Credit) for income taxes		31			40			(2	)		49
	Minority interests' share in income		—			1			—			1

Net Income (Loss) Available for Common Stockholder		$	54		$	57		$	(5	)	$	94

Depreciation		$	77		$	77		$	156		$	153

Capital Expenditures		$	25		$	20		$	44		$	29

See Notes to the Consolidated Financial Statements.

Union Carbide Corporation and Subsidiaries
Consolidated Balance Sheets

In millions (Unaudited)			June 30, 2003		Dec. 31, 2002
Assets
Current Assets
	Cash and cash equivalents		$	22	$	25
	Accounts and notes receivable:
		Trade (net of allowance for doubtful receivables—2003: $4; 2002: $7)		62		72
		Related companies		360		756
		Other		103		134
	Inventories			206		219
	Deferred income tax assets—current			130		134
	Asbestos-related insurance receivables—current			125		80

	Total current assets			1,008		1,420

Investments
	Investments in related companies			461		461
	Investments in nonconsolidated affiliates			575		539
	Other investments			42		39
	Noncurrent receivables			27		28
	Noncurrent receivables from related companies			—		17

	Total investments			1,105		1,084

Property
	Property			7,482		7,567
	Less accumulated depreciation			5,099		5,022

	Net property			2,383		2,545

Other Assets
	Goodwill			26		26
	Other intangible assets (net of accumulated amortization—2003: $116; 2002: $114)			22		23
	Deferred income tax assets—noncurrent			787		756
	Asbestos-related insurance receivables—noncurrent			1,350		1,489
	Deferred charges and other assets			128		71

	Total other assets			2,313		2,365

Total Assets			$	6,809	$	7,414

See Notes to the Consolidated Financial Statements.

Union Carbide Corporation and Subsidiaries
Consolidated Balance Sheets

In millions (Unaudited)			June 30, 2003			Dec. 31, 2002
Liabilities and Stockholder's Equity
Current Liabilities
	Notes payable:
		Related companies	$	344		$	310
		Other		12			6
	Long-term debt due within one year			—			380
	Accounts payable:
		Trade		264			285
		Related companies		271			297
		Other		27			33
	Income taxes payable			60			67
	Asbestos-related liabilities—current			167			124
	Accrued and other current liabilities			228			226

	Total current liabilities			1,373			1,728

Long-Term Debt				1,288			1,288

Other Noncurrent Liabilities
	Pension and other postretirement benefits—noncurrent			630			636
	Asbestos-related liabilities—noncurrent			1,913			2,072
	Other noncurrent obligations			509			597

	Total other noncurrent liabilities			3,052			3,305

Minority Interest in Subsidiaries				3			4

Stockholder's Equity
	Common stock (1,000 shares authorized and issued)			—			—
	Additional paid-in capital			—			—
	Retained earnings			1,428			1,433
	Accumulated other comprehensive loss			(335	)		(344	)

	Net stockholder's equity			1,093			1,089

Total Liabilities and Stockholder's Equity			$	6,809		$	7,414

See Notes to the Consolidated Financial Statements.

Union Carbide Corporation and Subsidiaries
Consolidated Statements of Cash Flows

			Six Months Ended
In millions (Unaudited)			June 30, 2003			June 30, 2002
Operating Activities
	Net Income (Loss) Available for Common Stockholder		$	(5	)	$	94
	Adjustments to reconcile net income (loss) to net cash provided by operating activities:
		Depreciation and amortization		167			162
		Provision (Credit) for deferred income tax		(27	)		39
		Earnings/losses of nonconsolidated affiliates less than (in excess of) dividends received		(17	)		43
		Minority interests' share in income		—			1
		Net loss on sales of consolidated companies		—			2
		Net loss (gain) on sales of property		16			(17	)
		Other net gain		(1	)		(32	)
	Changes in assets and liabilities that provided (used) cash:
		Accounts and notes receivable		(24	)		251
		Related company receivables		396			3
		Inventories		13			12
		Accounts payable		(15	)		(129	)
		Related company payables		(26	)		(112	)
		Other assets and liabilities		(125	)		(291	)

	Cash provided by operating activities			352			26

Investing Activities
	Capital expenditures			(44	)		(29	)
	Proceeds from sales of property			5			28
	Proceeds from sales of consolidated companies			1			20
	Investments in nonconsolidated affiliates			(9	)		(16	)
	Advances to nonconsolidated affiliates			—			(11	)
	Collection of noncurrent notes receivable from related companies			17			483
	Purchases of investments			(1	)		(24	)
	Proceeds from sales of investments			17			24

	Cash provided by (used in) investing activities			(14	)		475

Financing Activities
	Changes in short-term notes payable			6			(3	)
	Changes in notes payable to related companies			34			(173	)
	Payments on long-term debt			(380	)		(76	)
	Distributions to minority interests			(1	)		(1	)
	Dividends paid to stockholder			—			(257	)

	Cash used in financing activities			(341	)		(510	)

Effect of Exchange Rate Changes on Cash				—			—

Summary
	Decrease in cash and cash equivalents			(3	)		(9	)
	Cash and cash equivalents at beginning of year			25			35

	Cash and cash equivalents at end of period		$	22		$	26

See Notes to the Consolidated Financial Statements.

Union Carbide Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income

		Three Months Ended					Six Months Ended
In millions (Unaudited)		June 30, 2003		June 30, 2002			June 30, 2003			June 30, 2002
Net Income (Loss) Available for Common Stockholder		$	54	$	57		$	(5	)	$	94

Other Comprehensive Income, Net of Tax
	Unrealized gains (losses) on investments		1		(5	)		3			(5	)
	Translation adjustments		4		14			6			10

	Total other comprehensive income		5		9			9			5

Comprehensive Income		$	59	$	66		$	4		$	99

See Notes to the Consolidated Financial Statements.

Union Carbide Corporation and Subsidiaries
Notes to the Consolidated Financial Statements

(Unaudited)

NOTE A CONSOLIDATED FINANCIAL STATEMENTS

Except as otherwise indicated by the context, the terms "Corporation" and "UCC" as used herein mean Union Carbide Corporation and its consolidated subsidiaries. The accompanying consolidated financial statements of the Corporation include the assets, liabilities, revenues and expenses of all majority-owned subsidiaries over which the Corporation exercises control. Intercompany transactions and balances are eliminated in consolidation. Investments in nonconsolidated affiliates (20—50 percent owned companies) are accounted for on the equity basis.

Since February 6, 2001, the Corporation has been a wholly owned subsidiary of The Dow Chemical Company ("Dow") as a consequence of the Corporation merging with a wholly owned subsidiary of Dow effective that date (the "merger" or "Dow merger"). Transactions with the Corporation's parent company, Dow, or other Dow subsidiaries have been reflected as related company transactions in the consolidated financial statements. See Note G for further discussion. In accordance with Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share," the presentation of earnings per share is not required in financial statements of wholly owned subsidiaries.

The Corporation's business activities comprise components of Dow's global operations rather than stand-alone operations. The Corporation sells its products to Dow at market-based prices, in accordance with Dow's longstanding intercompany pricing policy, in order to simplify the customer interface process. Dow conducts its worldwide operations through global businesses. Because there are no separable reportable business segments for UCC under SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," and no detailed business information is provided to a chief operating decision maker regarding the Corporation's stand-alone operations, the Corporation's results are reported as a single operating segment.

Certain reclassifications of prior year's amounts have been made to conform to the presentation adopted for 2003. These statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2002.

NOTE B ACCOUNTING CHANGES

In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 142, "Goodwill and Other Intangible Assets," which replaced Accounting Principles Board ("APB") Opinion No. 17, "Intangible Assets," and established new accounting and reporting requirements for goodwill and other intangible assets, effective for fiscal years beginning after December 15, 2001. Under this statement, goodwill and intangible assets deemed to have indefinite useful lives are not amortized, but are subject to impairment testing. Impairment testing was required at adoption and at least annually thereafter. On an ongoing basis (absent any impairment indicators), the annual impairment test is performed during the fourth quarter of each year, in conjunction with the annual budgeting process. Effective January 1, 2002 UCC ceased all amortization of goodwill, which is its only intangible asset with an indefinite useful life, and tested recorded goodwill for impairment by comparing the fair value of each reporting unit, determined using a discounted cash flow method, with its carrying value. The results of the Corporation's goodwill impairment test indicated no impairment. As required by SFAS No. 142, the Corporation also reassessed the useful lives and the classification of its identifiable intangible assets and determined them to be appropriate. See Note E for disclosures related to other intangible assets.

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations," which requires an entity to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred and a corresponding increase in the related long-lived asset. The liability is adjusted to its present value each period and the asset is depreciated over its useful life. A gain or loss may be incurred upon settlement of the liability. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. The adoption of SFAS No. 143 did not have a material impact on the Corporation's consolidated financial statements.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," which nullifies Emerging Issues Task Force Issue 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity." This statement, which was effective for exit or disposal activities initiated after December 31, 2002, will change the measurement and timing of costs associated with exit and disposal activities undertaken by the Corporation in the future.

In the first quarter of 2003, Dow adopted the fair value provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," for new grants of equity instruments to employees. The Corporation is allocated the portion of expense relating to its employees who receive stock-based compensation. This allocation was not material to the consolidated financial statements for the second quarter or first half of 2003.

In November 2002, the FASB issued FASB Interpretation ("FIN") No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." FIN No. 45 clarifies the requirements of SFAS No. 5, "Accounting for Contingencies," relating to the guarantor's accounting for and disclosures of certain guarantees issued. The initial recognition and measurement provisions of the interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor's fiscal year-end. The disclosure requirements of the interpretation are effective for financial statements of interim or annual periods ending after December 15, 2002. The Corporation's disclosures related to guarantees can be found in Note F.

In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest Entities." FIN No. 46 clarifies the application of Accounting Research Bulletin No. 51, "Consolidated Financial Statements," to certain entities in which equity investors do not have the characteristics of a controlling financial interest or in which equity investors do not bear the residual economic risks. The interpretation was immediately applicable to variable interest entities ("VIEs") created after January 31, 2003, and to VIEs in which an enterprise obtains an interest after that date. It applies in the fiscal year or interim period beginning after June 15, 2003, to VIEs in which an enterprise holds a variable interest that was acquired before February 1, 2003. During the second quarter of 2003, the Corporation's VIE was eliminated when the related operating lease agreement was assigned to Dow; therefore, adoption of FIN No. 46 in the third quarter of 2003 will not impact the consolidated financial statements. See Note G for additional information regarding assignment of the lease agreement.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." This statement requires the classification of certain financial instruments that embody obligations for the issuer as liabilities (or assets in some circumstances). This statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Corporation does not have financial instruments within the scope of SFAS No. 150; therefore, adoption of this statement on July 1, 2003 will not impact the consolidated financial statements.

NOTE C MERGER-RELATED EXPENSES AND RESTRUCTURING

Merger-related Expenses and Restructuring

Following the completion of the Dow merger in February 2001, management made certain decisions relative to employment levels, duplicate assets and facilities and excess capacity resulting from the merger. These decisions resulted in a pretax special charge in the first quarter of 2001 of $1,275 million. The planned merger-related program for workforce reductions was substantially completed in the third quarter of 2002. Complete disclosures related to the program and the activity in the merger-related special charge reserve can be found in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2002.

During the fourth quarter of 2002, an additional charge of $34 million was recorded for merger-related severance. Under this revised severance program, $55 million was paid to 668 former employees in the first quarter of 2003.

Other Restructuring

In the first quarter of 2003, certain studies regarding non-strategic or under-performing assets (initiated following the appointment of a new CEO at Dow in late 2002) were completed and management made decisions relative to certain assets. These decisions resulted in the write-down of the net book value of three manufacturing facilities totaling $24 million (the largest of which was $16 million associated with the impairment and shutdown of the ethylene production facilities in Seadrift, Texas, in the third quarter of 2003) and the impairment of a chemical transport vessel (sold in the second quarter of 2003) of $11 million.

NOTE D INVENTORIES

The following table provides a breakdown of inventories at June 30, 2003 and December 31, 2002:

Inventories (in millions)	June 30, 2003		Dec. 31, 2002
Finished goods	$	75	$	96
Work in process		30		28
Raw materials		28		24
Supplies		73		71

Total inventories	$	206	$	219

The reserves reducing inventories from the first-in, first-out ("FIFO") basis to the last-in, first-out ("LIFO") basis amounted to $112 million at June 30, 2003 and $81 million at December 31, 2002.

NOTE E OTHER INTANGIBLE ASSETS

The following table provides information regarding the Corporation's other intangible assets:

		At June 30, 2003							At December 31, 2002
(in millions)		Gross Carrying Amount		Accumulated Amortization			Net		Gross Carrying Amount		Accumulated Amortization			Net
Intangible assets with finite lives:
	Licenses and intellectual property	$	36	$	(30	)	$	6	$	36	$	(28	)	$	8
	Patents		5		(3	)		2		5		(3	)		2
	Software		95		(82	)		13		95		(82	)		13
	Other		2		(1	)		1		1		(1	)		—

	Total	$	138	$	(116	)	$	22	$	137	$	(114	)	$	23

Amortization expense for other intangible assets (not including software) was $1 million in the second quarter of 2003, compared with $0.6 million for the same period last year. Year to date, amortization expense for other intangible assets (not including software) was $2 million, compared with $2 million for the six months ended June 30, 2002. Amortization expense for software, which is included in cost of sales, totaled $0.4 million in the second quarter of 2003, compared with $1 million last year. For the first six months of this year, amortization expense for software was $0.8 million, down from $2 million for the same period last year. Total estimated amortization expense for the next five fiscal years is as follows:

(in millions)	Estimated Amortization Expense
2003	$	5.6
2004		5.5
2005		2.3
2006		2.0
2007		1.8
2008		1.8

NOTE F COMMITMENTS AND CONTINGENT LIABILITIES

Environmental

Accruals for environmental matters are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated, based on current law and existing technologies. The Corporation had accrued obligations of $130 million at December 31, 2002 for environmental remediation and restoration costs, including $35 million for the remediation of Superfund sites. At June 30, 2003, the Corporation had accrued obligations of $120 million for environmental remediation and restoration costs, including $32 million for the remediation of Superfund sites. This is management's best estimate of the costs for remediation and restoration with respect to environmental matters for which the Corporation has accrued liabilities, although the ultimate cost with respect to these particular matters could range up to twice that amount. Inherent uncertainties exist in these estimates primarily due to unknown conditions, changing governmental regulations and legal standards regarding liability, and evolving technologies for handling site remediation and restoration. It is the opinion of the Corporation's management that the possibility is remote that costs in excess of those accrued or disclosed will have a material adverse impact on the Corporation's consolidated financial statements.

Litigation

The Corporation and its 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; taxes; and commercial disputes. In some of these legal proceedings and claims, the cost of remedies that may be sought or damages claimed is substantial.

Separately, the Corporation is and has been involved in a large number of asbestos-related suits filed primarily in state courts during the past three decades. These suits principally allege personal injury resulting from exposure to asbestos-containing products and frequently seek both actual and punitive damages, often in very large amounts. The alleged claims primarily relate to products that UCC sold in the past, alleged exposure to asbestos-containing products located on UCC's premises, and UCC's responsibility for asbestos suits filed against a former subsidiary, Amchem Products, Inc. ("Amchem"). In many cases, plaintiffs are unable to demonstrate that they have suffered any compensable loss as a result of such exposure, or that injuries incurred in fact resulted from exposure to the Corporation's products.

The rate at which plaintiffs filed asbestos-related suits against various companies, including the Corporation and Amchem, increased in both 2001 and 2002, influenced by the bankruptcy filings of numerous defendants in asbestos-related litigation. The Corporation expects more asbestos-related suits to be filed against it and Amchem in the future. The Corporation will aggressively defend or reasonably resolve, as appropriate, both pending and future claims.

Typically, the Corporation is only one of many named defendants, many of which, including UCC and Amchem, were members of the Center for Claims Resolution ("CCR"), an entity that defended and resolved asbestos cases on behalf of its members. As members of the CCR, the Corporation's and Amchem's strategy was to resolve the claims against them at the relatively small percentage allocated to them pursuant to the CCR's collective defense. The CCR ceased operating in February 2001, except to administer certain settlements. The Corporation then began using Peterson Asbestos Claims Enterprise, but only for claims processing and insurance invoicing.

The Corporation is a wholly owned subsidiary of Dow, and certain members of Dow's legal department and certain Dow management personnel have been retained to provide their experience in mass tort litigation to assist the Corporation in responding to asbestos-related matters. In early 2002, the Corporation hired new outside counsel to serve as national trial counsel. In connection with these actions, aggressive defense strategies were designed to reduce the cost of resolving all asbestos-related claims, including the elimination of claims that lack demonstrated illness or causality.

At the end of 2001 through the third quarter of 2002, the Corporation had concluded it was not possible to estimate its cost of disposing of asbestos-related claims that might be filed against it and Amchem in the future due to a number of reasons, including its lack of sufficient comparable loss history from which to assess either the number or value of future asbestos-related claims. During the third and fourth quarters of 2002, the Corporation worked with Analysis, Research & Planning Corporation ("ARPC"), a consulting firm with broad experience in estimating resolution costs associated with mass tort litigation, including asbestos, to explore whether it would be possible to estimate the cost of disposing of pending and future asbestos-related claims that have been, and could reasonably be expected to be, filed against the Corporation and Amchem.

litigation of those claims. These uncertainties, which hindered the Corporation's ability to project future claim volumes and resolution costs, included the following:

•: Until a series of bankruptcies led to the CCR ceasing operations in early 2001, UCC and Amchem generally settled claims filed against CCR members according to a sharing formula that would not necessarily reflect the cost of resolving those claims had they been separately litigated against UCC or Amchem.
•: The bankruptcies in the years 2000 to 2002 of other companies facing large asbestos liability were a likely contributing cause of a sharp increase in filings against many defendants, including UCC and Amchem.
•: It was not until the CCR ceased operating in early 2001 that UCC took direct responsibility for the defense of claims against itself and Amchem.
•: New defense counsel for UCC and Amchem implemented more aggressive defense strategies in mid-2002.

Despite its inability to estimate the full range of the cost of resolving future asbestos-related claims, ARPC advised the Corporation that it would be possible to determine an estimate of a reasonable forecast of the cost of resolving pending and future asbestos-related claims likely to face the Corporation and Amchem, if certain assumptions were made. Specifically, ARPC advised the Corporation that for purposes of determining an estimate it is reasonable to assume that in the near term asbestos-related claims filed against UCC and Amchem are unlikely to return to levels below those experienced prior to 2001—when the recent spike in filings commenced—and that average claim values are unlikely to return to levels below those experienced in 2001-2002, the years immediately following CCR's cessation of operations. ARPC advised the Corporation that, by assuming that future filings were unlikely to exceed the levels experienced prior to 2001 and extrapolating from 2001 and 2002 average claim values, ARPC could make a reasonable forecast of the cost of resolving asbestos-related claims facing UCC and Amchem. ARPC also advised that forecasts of resolution costs for a 10 to 15 year period from the date of the forecast are likely to be more accurate than forecasts for longer periods of time.

In projecting the resolution costs for future asbestos-related claims, ARPC applied two methodologies that have been widely used for forecasting purposes. Applying these methodologies, ARPC forecast the number and allocation by disease category of those potential future claims on a year-by-year basis through 2049. ARPC then calculated the percentage of claims in each disease category that had been closed with payments in 2001 and 2002. Using those percentages, ARPC calculated the number of future claims by disease category that would likely require payment by UCC and Amchem and multiplied the number of such claims by the mean values paid by UCC and Amchem, respectively, to dispose of such claims in 2001 and 2002. In estimating the cost of resolving pending claims, ARPC used a process similar to that used for calculating the cost of resolving future claims.

As of December 31, 2002, ARPC estimated the undiscounted cost of resolving pending and future asbestos-related claims against UCC and Amchem, excluding future defense and processing costs, for the 15-year period from the present through 2017 to be between approximately $2.2 billion and $2.4 billion, depending on which of the two accepted methodologies was used.

Although ARPC provided estimates for a longer period of time, based on ARPC's advice that forecasts for shorter periods of time are more accurate and in light of the uncertainties inherent in making long-term projections, the Corporation determined that the 15-year period through 2017 is the reasonable time period for projecting the cost of disposing of its future asbestos-related claims. The Corporation concluded that it is probable that the undiscounted cost of disposing of its asbestos-related pending and future claims ranges from $2.2 billion to $2.4 billion, which is the range for the 15-year period ending in 2017 as estimated by ARPC using both methodologies. Accordingly, the Corporation increased its asbestos-related liability for pending and future claims at December 31, 2002 to $2.2 billion, excluding future defense and processing costs. At June 30, 2003, the asbestos-related liability for pending and future claims was $2.1 billion.

The Corporation also increased the receivable for insurance recoveries related to its asbestos liability to $1.35 billion at December 31, 2002, substantially exhausting its asbestos product liability coverage. This resulted in a net income statement impact of $828 million, $522 million on an after-tax basis, in the fourth quarter of 2002. At June 30, 2003, the receivable for insurance recoveries related to the Corporation's asbestos liability was $1.2 billion. The insurance receivable related to the asbestos liability was determined after a thorough review of applicable insurance policies and the 1985 Wellington Agreement, to which the Corporation and many of its liability insurers are signatory parties, as well as other insurance settlements, with due consideration given to applicable deductibles, retentions and policy limits, and taking into account the solvency and historical payment experience of various insurance carriers. In addition, the Corporation had receivables for defense and resolution costs submitted to insurance carriers for reimbursement of $219 million at December 31, 2002 and $254 million at June 30, 2003.

the actual costs and insurance recoveries to be higher or lower than those projected or those recorded. The Corporation expenses defense and processing costs as incurred. Accordingly, defense and processing costs incurred in the future for asbestos-related litigation, net of insurance, will impact results of operations in future periods.

Because of the uncertainties described above, management cannot estimate the full range of the cost of resolving pending and future asbestos-related claims facing the Corporation and Amchem. Management believes that it is reasonably possible that the cost of disposing of the Corporation's asbestos-related claims, including future defense and processing costs, could have a material adverse impact on the results of operations and cash flows for a particular period and on the consolidated financial position of the Corporation.

While it is not possible at this time to determine with certainty the ultimate outcome of any of the legal proceedings and claims referred to in this filing, management believes that adequate provisions have been made for probable losses with respect to pending claims and proceedings, and that, except for the asbestos-related matters described above, the ultimate outcome of all known and future claims, after provisions for insurance, will not have a material adverse impact on the results of operations, cash flows and consolidated financial position of the Corporation. Should any losses be sustained in connection with any of such legal proceedings and claims in excess of provisions provided and available insurance, they will be charged to income when determinable.

Purchase Commitments

The Corporation has purchase agreements, including one major agreement in 2002 and 2001 (two in 2000), for the purchase of ethylene-related products in the United States. Total purchases under these agreements were $62 million in 2002, $63 million in 2001 and $171 million in 2000. The fixed and determinable portion of obligations under these purchase commitments at December 31, 2002 are presented in the following table:

Fixed and Determinable Portion of Take or Pay and Throughput Obligations at December 31, 2002 (in millions)
2003	$	14.9
2004		5.3
2005		0.3
2006 through expiration of contracts		0.3

Total	$	20.8

Guarantees

The Corporation provides a variety of guarantees, which are described more fully below.

Guarantees

The Corporation has undertaken obligations to guarantee the performance of a nonconsolidated affiliate and a former subsidiary of the Corporation (via delivery of cash or other assets) if specified triggering events occur. Non-performance under a contract for commercial obligations by the guaranteed party triggers the obligation of the Corporation.

Residual Value Guarantee

The Corporation provided a guarantee related to leased assets specifying the residual value that will be available to the lessor at lease termination through sale of the assets to the lessee or third parties. During the second quarter of 2003, this lease agreement was assigned to Dow; therefore the Corporation no longer has a residual value guarantee to the lessor. See Note G for additional information regarding assignment of the lease agreement.

The following tables provide a summary of the aggregate terms, maximum future payments, and associated liability reflected in the consolidated balance sheet for each type of guarantee.

Guarantees at June 30, 2003 (in millions)		Final Expiration		Maximum Future Payments			Recorded Liability
Guarantees		2007		$	12		—

Guarantees at December 31, 2002 (in millions)	Final Expiration	Maximum Future Payments		Recorded Liability
Guarantees	2007	$	17	—
Residual Value Guarantee	2005		82	—

Total		$	99	—

NOTE G RELATED PARTY TRANSACTIONS

The Corporation sells products to Dow to simplify the customer interface process. Products are sold to and purchased from Dow in accordance with the terms of Dow's longstanding intercompany pricing policies. The application of these policies results in products being sold to and purchased from Dow at market-based prices. The Corporation also procures certain commodities and raw materials through a Dow subsidiary and pays a commission to that Dow subsidiary based on the volume and type of commodities and raw materials purchased. The commission expense is included in "Sundry income (expense)—net" in the consolidated statements of operations. Purchases from that Dow subsidiary were approximately $394 million during the second quarter of 2003 ($276 million during the second quarter of 2002) and $883 million during the first half of 2003 ($512 million during the first half of 2002).

The Corporation has a master services agreement with Dow whereby Dow provides services, including, but not limited to, accounting, legal, treasury (investments, cash management, risk management, insurance), procurement, human resources, environmental, health and safety, and business management for UCC. Under the master services agreement with Dow, for general administrative and overhead type services that Dow routinely allocates to various businesses, UCC is charged the cost of those services based on the Corporation's and Dow's relative manufacturing conversion costs. This arrangement results in a quarterly charge of approximately $5 million (included in "Sundry income (expense)—net").

For services that Dow routinely charges based on effort, UCC is charged the cost of such services on a fully absorbed basis, which includes direct and indirect costs. Additionally, certain Dow employees are contracted to UCC and Dow is reimbursed for all direct employment costs of such employees. Management believes the method used for determining expenses charged by Dow is reasonable. Dow provides these services by leveraging its centralized functional service centers to provide services at a cost that management believes provides an advantage to the Corporation.

The monitoring and execution of risk management policies related to interest rate, foreign currency and equity price risks, which are based on Dow's risk management philosophy, are provided as a service to UCC.

As part of Dow's cash management process, UCC is a party to revolving loans with Dow that have LIBOR-based interest rates with varying maturities. On March 24, 2003, the revolving loan agreement with Dow that allowed the Corporation to borrow up to $1.5 billion was terminated and replaced on March 25, 2003 with a one-year note payable of approximately $65 million for the outstanding balance on the terminated revolving loan agreement, and a new revolving loan agreement with Dow that allows the Corporation to borrow up to $1.0 billion. The new revolving loan agreement is secured, pursuant to a collateral agreement, by various assets, including UCC's deposit accounts, intercompany obligations, and equity interests in various subsidiaries and joint ventures. The maturity date of the new revolving loan agreement is March 25, 2004; however, Dow may demand repayment with 30 days written notice to the Corporation. The outstanding balance of the one-year note payable dated March 25, 2003 was repaid on June 30, 2003.

In April 2002, the Corporation sold its ownership interest in a subsidiary in China to a Dow subsidiary also located in China for approximately $20 million. Accordingly, the consolidated balance sheet at December 31, 2002 does not include the assets and liabilities of the subsidiary, and the consolidated statements of operations include the subsidiary's results of operations from January 1, 2002 through March 31, 2002.

UCC entered into a lease agreement for railcars in April 2000. After the Dow merger, UCC entered into various agreements with Dow regarding the purchase of UCC products and the distribution of products manufactured by Dow resulting, in part, with UCC no longer needing the railcars subject to this lease agreement. As a result, UCC assigned all of its rights and obligations under the lease agreement to Dow, as provided for in the agreement, in June 2003.

On June 30, 2003, UCC and Dow entered into an Amended and Restated Tax Sharing Agreement effective as of February 7, 2001. This revised tax sharing agreement allows UCC and its subsidiaries to consolidate their various tax obligations rather than being required to make separate payments to Dow and requires any payments to be made to or from Dow at the time that estimated tax payments are due. Accordingly, on June 30, 2003, Dow refunded to UCC certain payments made under the original Tax Sharing Agreement.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Pursuant to General Instruction H of Form 10-Q "Omission of Information by Certain Wholly-Owned Subsidiaries," this section includes only management's narrative analysis of the results of operations for the three and six month periods ended June 30, 2003, the most recent periods, compared with the three and six month periods ended June 30, 2002, the corresponding periods in the preceding fiscal year.

References below to "Dow" refer to The Dow Chemical Company and its consolidated subsidiaries.

DISCLOSURE REGARDING FORWARD-LOOKING INFORMATION

The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements made by or on behalf of Union Carbide Corporation (the "Corporation" or "UCC"). This section covers the current performance and outlook of the Corporation. The forward-looking statements contained in this section and in other parts of this document involve risks and uncertainties that may affect the Corporation's operations, markets, products, services, prices and other factors as more fully discussed elsewhere and in filings with the U.S. Securities and Exchange Commission (SEC). These risks and uncertainties include, but are not limited to, economic, competitive, legal, governmental and technological factors. Accordingly, there is no assurance that the Corporation's expectations will be realized. The Corporation assumes no obligation to provide revisions to any forward-looking statements should circumstances change, except as otherwise required by securities and other applicable laws.

RESULTS OF OPERATIONS

The Corporation reported net income of $54 million for the second quarter of 2003 compared with $57 million for the second quarter of 2002. Net loss for the first half of 2003 was $5 million, compared with net income of $94 million for the first half of 2002. The results for the second quarter of 2003 were favorably impacted by substantially higher equity company earnings, higher selling prices and lower operating expenses, which helped offset the increase in hydrocarbon feedstocks and energy costs. Compared with last year, the decline in year-to-date net income was attributable to significantly higher hydrocarbon feedstocks and energy costs in the first half of 2003, in addition to asset write-downs and impairments of $35 million related to restructuring activities in the first quarter 2003, which were only partially offset by improved earnings at the Corporation's joint ventures.

Total net sales for the second quarter of 2003 were $1,273 million compared with $1,147 million for the second quarter of 2002, an increase of 11 percent. Year to date, total net sales increased 13 percent to $2,562 million from $2,266 million for the first half of 2002. Selling prices to Dow are based on market prices for the related products. Increases in average selling prices occurred for most products in the second quarter and first half of 2003 compared with the second quarter and first half of 2002, led by polyethylene and ethylene glycol ("EG"), the Corporation's principal products.

Cost of sales increased $164 million (16 percent) in the second quarter of 2003 compared with the second quarter of 2002, due primarily to higher overall costs for raw materials and energy of approximately $250 million, offset by reduced spending due to cost containment efforts. For the first half of 2003, cost of sales increased $465 million compared with the first half of 2002, due to approximately $550 million in higher overall costs for raw materials and energy which were only partially offset by reduced spending due to cost containment efforts. Gross margin declined in the second quarter and first half of 2003, as the substantial increase in raw material costs was not entirely recovered by the higher selling prices.

Operating expenses (research and development, and selling, general and administrative expenses) were $33 million in the second quarter of 2003, down $10 million, or 23 percent, from $43 million in the second quarter of last year. For the first half of the year, operating expenses totaled $68 million, down 24 percent from $89 million for the same period last year. These declines are attributable to the continued focus on cost containment efforts begun in late 2002, as well as the impact of workforce reductions.

Equity in earnings (losses) of nonconsolidated affiliates increased to $61 million in the second quarter of 2003 from a loss of $1 million in the second quarter of 2002. Year to date, equity earnings increased $69 million compared with the first half of 2002. The increase in second quarter and year-to-date results was due to improved earnings reported by UOP LLC; Univation Technologies, LLC; the OPTIMAL Group; and EQUATE Petrochemical Company K.S.C.

Sundry income (expense)—net includes a variety of income and expense items such as the gain or loss on foreign currency exchange, dividends from investments, commissions, charges for management services provided by Dow, and gains and losses on sales of investments and assets. Sundry income (expense) for the second quarter of 2003 was expense of

$9 million, compared with income of $33 million for the second quarter last year. Sundry income in the second quarter of 2002 included a foreign currency exchange gain of $34 million. Year to date, sundry income (expense) was expense of $24 million in 2003 compared with income of $30 million last year. Results for the first half of 2003 included expense of $11 million associated with the impairment and subsequent sale of a chemical transport vessel.

Interest income for the second quarter of 2003 declined to $3 million from $12 million in the second quarter of last year. Interest income for the first half of 2003 decreased to $5 million from $27 million in the first half of last year. Interest income in the first half of 2002 included $18 million related to a $483 million related company note receivable that was repaid in the second quarter of 2002.

Interest expense and amortization of debt discount for the second quarter of 2003 was $28 million compared with $33 million in the second quarter of last year. Year to date, interest expense and amortization of debt discount decreased slightly to $62 million from $66 million in 2002, reflecting a continuing decline in average interest rates.

The effective tax rate for the second quarter of 2003 was 36.5 percent compared with 40.8 percent for the same quarter last year. Year to date, the effective tax rate was 28.6 percent versus 34.0 percent last year. The effective tax rate fluctuates based on, among other factors, where income is earned and the level of income relative to tax credits available.

Asbestos-Related Matters

The Corporation is and has been involved in a large number of asbestos-related suits filed primarily in state courts during the past three decades. These suits principally allege personal injury resulting from exposure to asbestos-containing products and frequently seek both actual and punitive damages, often in very large amounts. The alleged claims primarily relate to products that UCC sold in the past, alleged exposure to asbestos-containing products located on UCC's premises, and UCC's responsibility for asbestos suits filed against a former subsidiary, Amchem Products, Inc. ("Amchem"). In many cases, plaintiffs are unable to demonstrate that they have suffered any compensable loss as a result of such exposure, or that injuries incurred in fact resulted from exposure to the Corporation's products.

The Corporation provided ARPC with all relevant data regarding asbestos-related claims filed against UCC and Amchem through November 6, 2002. ARPC concluded that it was not possible to estimate the full range of the cost of resolving future asbestos-related claims against UCC and Amchem, because of various uncertainties associated with the litigation of those claims. These uncertainties, which hindered the Corporation's ability to project future claim volumes and resolution costs, included the following:

•: Until a series of bankruptcies led to the CCR ceasing operations in early 2001, UCC and Amchem generally settled claims filed against CCR members according to a sharing formula that would not necessarily reflect the cost of resolving those claims had they been separately litigated against UCC or Amchem.
•: The bankruptcies in the years 2000 to 2002 of other companies facing large asbestos liability were a likely contributing cause of a sharp increase in filings against many defendants, including UCC and Amchem.

•: It was not until the CCR ceased operating in early 2001 that UCC took direct responsibility for the defense of claims against itself and Amchem.
•: New defense counsel for UCC and Amchem implemented more aggressive defense strategies in mid-2002.

The amounts recorded for the asbestos-related liability and related insurance receivable described above were based upon currently known facts. However, projecting future events, such as the number of new claims to be filed each year, the average cost of disposing of each such claim, coverage issues among insurers, and the continuing solvency of various insurance companies, as well as the numerous uncertainties surrounding asbestos litigation in the United States, could cause the actual costs and insurance recoveries to be higher or lower than those projected or those recorded. The Corporation expenses defense and processing costs as incurred. Accordingly, defense and processing costs incurred in the future for asbestos-related litigation, net of insurance, will impact results of operations in future periods.

have a material adverse impact on the results of operations and cash flows for a particular period and on the consolidated financial position of the Corporation.

OTHER MATTERS

Accounting Changes

See Note B to the Consolidated Financial Statements for a discussion of accounting changes and recently issued accounting pronouncements.

Critical Accounting Policies

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management to make judgments, assumptions and estimates that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Note A to the Consolidated Financial Statements in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2002, describes the significant accounting policies and methods used in the preparation of the Consolidated Financial Statements. Following are the Corporation's critical accounting policies impacted by judgments, assumptions and estimates:

Litigation

The Corporation is subject to legal proceedings and claims arising out of the normal course of business. The Corporation routinely assesses the likelihood of any adverse judgments or outcomes to these matters, as well as ranges of probable losses. A determination of the amount of the reserves required, if any, for these contingencies is made after thoughtful analysis of each known issue and an analysis of historical claims experience for incurred but not reported matters. The Corporation has an active risk management program consisting of numerous insurance policies secured from many carriers. These policies provide coverage that is utilized to minimize the impact, if any, of the legal proceedings. The required reserves may change in the future due to new developments in each matter. For further discussion, see Note F to the Consolidated Financial Statements.

Asbestos-Related Matters

The Corporation is and has been involved in a large number of asbestos-related suits filed primarily in state courts during the past three decades. At the end of 2001 and through the third quarter of 2002, the Corporation had concluded it was not possible to estimate its cost of disposing of asbestos-related claims that might be filed against it and Amchem in the future due to a number of reasons, including its lack of sufficient comparable loss history from which to assess either the number or value of future asbestos-related claims. During the third and fourth quarters of 2002, the Corporation worked with Analysis, Research & Planning Corporation ("ARPC"), a consulting firm with broad experience in estimating resolution costs associated with mass tort litigation, including asbestos, to explore whether it would be possible to estimate the cost of disposing of pending and future asbestos-related claims that have been, and could reasonably be expected to be, filed against UCC and Amchem.

In projecting the Corporation's resolution costs for future asbestos-related claims, ARPC applied two methodologies that have been widely used for forecasting purposes. As of December 31, 2002, ARPC estimated the undiscounted cost of resolving pending and future asbestos-related claims against UCC and Amchem, excluding future defense and processing costs, for the 15-year period from the present through 2017 to be between approximately $2.2 billion and $2.4 billion, depending on which of the two accepted methodologies was used.

The Corporation also increased the receivable for insurance recoveries related to its asbestos liability to $1.35 billion at December 31, 2002. At June 30, 2003, the receivable for insurance recoveries related to the Corporation's asbestos liability was $1.2 billion. In addition, the Corporation had receivables for defense and resolution costs submitted to insurance carriers for reimbursement of $219 million at December 31, 2002 and $254 million at June 30, 2003. The amounts recorded for the asbestos-related liability and related insurance receivable described above were based upon

currently known facts. However, projecting future events, such as the number of new claims to be filed each year, the average cost of disposing of each such claim, coverage issues among insurers, and the continuing solvency of various insurance companies, as well as the numerous uncertainties surrounding asbestos litigation in the United States, could cause the actual costs and insurance recoveries to be higher or lower than those projected or those recorded. The Corporation expenses defense and processing costs as incurred. Accordingly, defense and processing costs incurred in the future for asbestos-related litigation, net of insurance, will impact results of operations in future periods. For additional information, see Asbestos-Related Matters in Management's Discussion and Analysis of Financial Condition and Results of Operations and Note F to the Consolidated Financial Statements.

Environmental Matters

The Corporation determines the costs of environmental remediation of its facilities and formerly owned facilities based on evaluations of current law and existing technologies. Inherent uncertainties exist in such evaluations primarily due to unknown conditions, changing governmental regulations and legal standards regarding liability, and evolving technologies. The recorded liabilities are adjusted periodically as remediation efforts progress or as additional technical or legal information becomes available. The Corporation had accrued obligations of $130 million at December 31, 2002, for environmental remediation and restoration costs, including $35 million for the remediation of Superfund sites. At June 30, 2003, the Corporation had accrued obligations of $120 million for environmental remediation and restoration costs, including $32 million for the remediation of Superfund sites. This is management's best estimate of the costs for remediation and restoration with respect to environmental matters for which the Corporation has accrued liabilities, although the ultimate cost with respect to these particular matters could range up to twice that amount. For further discussion, see Note F to the Consolidated Financial Statements in this filing and Environmental Matters in Management's Discussion and Analysis of Financial Condition and Results of Operations in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2002.

Pension and Other Postretirement Benefits

The amounts recognized in the consolidated financial statements related to pension and other postretirement benefits are determined from actuarial valuations. Inherent in these valuations are assumptions including expected return on plan assets, discount rates at which the liabilities could be settled at December 31, 2002, rate of increase in future compensation levels, mortality rates and health care cost trend rates. These assumptions are updated annually and are disclosed in Note L to the Consolidated Financial Statements in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2002. In accordance with GAAP, actual results that differ from the assumptions are accumulated and amortized over future periods and, therefore, affect expense recognized and obligations recorded in future periods.

The expected long-term rate of return on assets is developed with input from the Corporation's actuarial firm, which includes the actuary's review of the asset class return expectations of several respected consultants and economists, based on broad equity and bond indices. The Corporation's historical experience with the pension fund asset performance and comparisons to expected returns of peer companies with similar fund assets is also considered. The long-term rate of return assumption used for determining net periodic pension expense for 2002 was 9.25 percent. This assumption was reduced to 9 percent for determining 2003 net periodic pension expense. Lowering the expected long-term rate of return of the U.S. qualified plan assets by 0.25 percent (from 9.25 percent to 9 percent) would have reduced the pension income of the U.S. qualified plans for 2002 by approximately $10 million. Future actual pension income will depend on future investment performance, changes in future discount rates and various other factors related to the population of participants in the Corporation's pension plans.

The Corporation bases the determination of pension expense or income on a market-related valuation of plan assets, which reduces year-to-year volatility. This market-related valuation recognizes investment gains or losses over a five-year period from the year in which they occur. Investment gains or losses for this purpose represent the difference between the expected return calculated using the market-related value of plan assets and the actual return based on the market value of plan assets. Since the market-related value of plan assets recognizes gains or losses over a five-year period, the future value of plan assets will be impacted when previously deferred gains or losses are recorded. Over the life of the plan, both gains and losses have been recognized and amortized. For the year ending December 31, 2002, $460 million of losses remain to be recognized in the calculation of the market-related value of plan assets. These losses will result in decreases in future pension income as they are recognized.

The discount rate utilized for determining future pension obligations is based on long-term bonds receiving an AA- or better rating by a recognized rating agency. The resulting discount rate decreased from 7 percent at December 31, 2001, to 6.75 percent at December 31, 2002.

For 2003, the Corporation left its assumption for the long-term rate of increase in compensation levels unchanged at 5 percent.

Based on the revised pension assumptions and the actual investment performance of the plan assets in 2002, the Corporation expects to record approximately $40 million less in income for pension and other postretirement benefits in 2003 than it did in 2002.

The value of the U.S. qualified plan assets decreased from $3.8 billion at December 31, 2001, to $3.4 billion at December 31, 2002. The investment performance and declining discount rates reduced the funded status of the U.S. qualified plans, net of benefit obligations, by $690 million from December 31, 2001 to December 31, 2002. The Corporation does not expect significant cash contributions to be required for the U.S. qualified plans in 2003.

Income Taxes

Deferred tax assets and liabilities are determined using enacted tax rates for the effects of net operating losses and temporary differences between the book and tax bases of assets and liabilities. The Corporation records a valuation allowance on deferred tax assets when appropriate to reflect the expected future tax benefits to be realized. In determining the appropriate valuation allowance, certain judgments are made relating to recoverability of deferred tax assets, use of tax loss carryforwards, level of expected future taxable income and available tax planning strategies. These judgments are routinely reviewed by management. At June 30, 2003, the Corporation had deferred tax assets, net of deferred tax liabilities, of $917 million, net of valuation allowances of $59 million. For further discussion, see Note R to the Consolidated Financial Statements in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2002.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Omitted pursuant to General Instruction H of Form 10-Q.

ITEM 4. CONTROLS AND PROCEDURES

As of the end of the period covered by this Quarterly Report on Form 10-Q, the Corporation carried out an evaluation, under the supervision and with the participation of the Corporation's Disclosure Committee and the Corporation's management, including the President (Chief Executive Officer) and the Treasurer (Chief Financial Officer), of the effectiveness of the design and operation of the Corporation's disclosure controls and procedures pursuant to Exchange Act Rule 15d-15(e). Based upon that evaluation, the President (Chief Executive Officer) and the Treasurer (Chief Financial Officer) concluded that the Corporation's disclosure controls and procedures are effective in timely alerting them to material information relating to the Corporation (including its consolidated subsidiaries) required to be included in the Corporation's periodic SEC filings. No change in the Corporation's internal control over financial reporting occurred during the Corporation's most recent fiscal quarter that materially affected, or is reasonably likely to materially affect, the Corporation's internal control over financial reporting.

PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

No material developments in any legal proceedings, including asbestos-related matters, occurred during the second quarter of 2003. For a summary of the history and current status of legal proceedings, including asbestos-related matters, see Management's Discussion and Analysis of Financial Condition and Results of Operations, Asbestos-Related Matters; and Note F to the Consolidated Financial Statements.

Environmental Matters

On September 27, 2002, the United States Environmental Protection Agency, Region 6, filed an administrative complaint against the Corporation charging civil fines of $185,458 for certain alleged violations of the Clean Air Act and the Resource Conservation and Recovery Act at its Texas City Operations. A Consent Agreement and Final Order was entered into, effective April 15, 2003, resolving those issues as well as certain other alleged Clean Air Act violations at Texas City Operations that were voluntarily disclosed by the Corporation. Pursuant to the Consent Agreement and Final Order, the Corporation paid a civil penalty of $133,508 on May 15, 2003, and agreed to perform a supplemental environmental project valued at $127,063.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a): Exhibits.

Exhibit No.		Exhibit Description
10.27		Amended and Restated Tax Sharing Agreement, effective as of February 7, 2001, between the Corporation and The Dow Chemical Company.
10.28.1		Exhibit C-1 to the Revolving Credit Agreement, dated as of March 25, 2003, between the Corporation and the Dow Chemical Company.
10.29.1		First Amendment to Pledge and Security Agreement, effective as of March 25, 2003, between the Corporation and the Dow Chemical Company.
23		Analysis, Research & Planning Corporation's Consent.
31.1		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b): Reports on Form 8-K.

No Current Reports on Form 8-K were filed by the Corporation during the second quarter of 2003.

Union Carbide Corporation and Subsidiaries
Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		UNION CARBIDE CORPORATION Registrant
Date: August 5, 2003
	By:	/s/ FRANK H. BROD Frank H. Brod, Vice President and Controller The Dow Chemical Company Authorized Representative of Union Carbide Corporation
	By:	/s/ EDWARD W. RICH Edward W. Rich, Vice President, Treasurer and Chief Financial Officer

Union Carbide Corporation and Subsidiaries
Exhibit Index

EXHIBIT NO.		DESCRIPTION
10.27		Amended and Restated Tax Sharing Agreement, effective as of February 7, 2001, between the Corporation and The Dow Chemical Company.
10.28.1		Exhibit C-1 to the Revolving Credit Agreement, dated as of March 25, 2003, between the Corporation and the Dow Chemical Company.
10.29.1		First Amendment to Pledge and Security Agreement, effective as of March 25, 2003, between the Corporation and the Dow Chemical Company.
23		Analysis, Research & Planning Corporation's Consent.
31.1		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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Table of Contents
PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Consolidated Statements of Operations
Consolidated Balance Sheets
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Comprehensive Income
Notes to the Consolidated Financial Statements

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 4. CONTROLS AND PROCEDURES

ITEM 1. LEGAL PROCEEDINGS

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

Signatures
Exhibit Index
EX-10.27 3 a2115943zex-10_27.htm EX-10.27
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EXHIBIT 10.27

Amended and Restated Tax Sharing Agreement

This Amended and Restated Tax Sharing Agreement is made and entered into as of February 7, 2001 by and among The Dow Chemical Company, a Delaware corporation ("Dow"), as Common Parent, on behalf of itself and the other members of the Dow Group (other than any member of the UCC Group), and Union Carbide Corporation, a Delaware corporation ("UCC"), on behalf of itself and the other members of the UCC Group.

WHEREAS, Dow is the Common Parent of the Dow Group, and files a Consolidated Return for the Dow Group, which prior to February 7, 2001, did not include the UCC Group;

WHEREAS, UCC is the Common Parent of an Affiliated Group comprised of UCC and its Subsidiaries, and prior to February 7, 2001, filed a Consolidated Return for the UCC Group;

WHEREAS, certain state and local consolidated, combined or unitary income or franchise tax returns are filed for various Members or for the Dow Group;

WHEREAS, the UCC Group became part of the Dow Group on February 7, 2001, as a result of a triangular merger transaction;

NOW THEREFORE, in consideration of the premises and of the mutual covenants and agreements contained herein, the parties hereto agree as follows:

1. Definitions

The following terms as used in this Agreement, shall have the meanings set forth below:

(a): Affiliated Group shall have the meaning attributed to that term in Section 1504(a) of the Code.
(b): Agreement shall mean this Tax Sharing Agreement, as amended from time to time.
(c): Allowable Tax Attributes are defined in Section 7(b).
(d): Business Day shall mean a day in the City of New York, N.Y., that is not a legal holiday or a day on which banking institutions are authorized or obligated by law to close.
(e): Code shall mean the Internal Revenue Code of 1986, as amended, and shall include corresponding provisions of any subsequently enacted federal tax laws.
(f): Combined Return shall mean any non-federal tax return that (a) is filed on a combined, consolidated or unitary basis between or among (i) the Dow Group, or any Member thereof, and (ii) the UCC Group, or any Member thereof, and (b) where any Member of the Dow Group (other than the UCC Group) makes any payment to the appropriate state or local tax authority on behalf of all Members of the Dow Group and the UCC Group included in such return.
(g): Common Parent shall have the meaning of that term as it is used in the Consolidated Return Regulations.
(h): Completion means for any Taxable Year of the Dow Group, shall mean the date on which the final Consolidated Return is filed.
(i): Consolidated Return, for any Taxable Year of the Dow Group, shall mean a consolidated federal income tax return filed pursuant to section 1501 of the Code by the Common Parent for such Taxable Year.
(j): Consolidated Return Regulations shall mean Income Tax Regulations Sections 1.1502-1 through 1.1502-100 (26 C.F.R.), as amended from time to time.
(k): Dow Group, as of any particular date, shall mean the Affiliated Group of which Dow (or any successor thereto) is the Common Parent as of such date.

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Amended and Restated Tax Sharing Agreement

(l): Dow Group Consolidated Tax Liability shall mean the consolidated U.S. federal income tax liability of the Dow Group for any Taxable Year for which the Dow Group files a Consolidated Return.
(m): Effective Date shall mean February 7, 2001.
(n): Final Determination shall mean with respect to any issue or item (i) the execution of a final irrevocable closing agreement or other settlement agreement with the Service or the relevant state or local taxing authorities, (ii) the expiration of the time for filing a claim for refund or, if a refund claim has been timely filed, the expiration of the time for instigating suit in respect of such refund claim, (iii) the expiration of the time for filing a petition with the Tax Court or the relevant state or local tribunal if no such petition has been filed and no suit has been investigated in respect of the subject matter of such petition, or (iv) a final unappealable decision of any court of competent jurisdiction.
(o): Includible Corporation shall have the meaning attributed to that term in section 1504(b) of the Code.
(p): Income Tax Regulations shall mean the regulations (26 C.F.R.), as amended from time to time, promulgated to the Code.
(q): Member, for any Taxable Year of the Dow Group, shall mean any corporation (or any predecessor in interest to such corporation under section 381 of the Code or otherwise which was or is an Includible Corporation) which at any time during such Taxable Year is an Includible Corporation that is included in the Dow Group and shall include such corporation which at any time during such Taxable Year is the Common Parent.
(r): Separate Taxable Income means for any non-federal jurisdiction, with respect to any UCC Member, the taxable income allocated to such jurisdiction for any taxable year (but in no case less than zero), determined without reference to any carrybacks or carryforwards of any net operating loss, net capital loss, charitable contribution or other item attributable to any other taxable period, as determined on a basis consistent with the manner in which the members of the Dow Group's Separate Taxable Income has been determined.
(s): Service shall mean the Internal Revenue Service.
(t): Subsidiary shall mean as to any entity (including the parent corporation) a corporation that would be an Includible Corporation in an Affiliated Group of which the parent corporation would be the Common Parent.
(u): Tax Attributes are defined in Section 7(b).
(v): Taxable Year shall mean any taxable year or portion thereof beginning on or after January 1, 2001 with respect to which a Consolidated Return is filed on behalf of the Dow Group which includes any UCC Member (or any successor corporation) provided, however, that if any UCC Member is included in the Dow Group for only a portion of a Taxable Year of the Dow Group, the "Taxable Year" with respect to such UCC Member shall include only that portion of the Taxable Year in which such UCC Member is included in the Dow Group.
(w): UCC Group, as of any particular date, shall mean the Affiliated Group of which UCC (or any successor thereto) is the Common Parent as of such date.
(x): UCC Member shall mean UCC and those present and future corporations that would be considered Includible Corporations of an Affiliated Group of which UCC would be the Common Parent if it were not includible in the Dow Group.
(y): UCC Member's State and Local Tax Liability shall equal for each Combined Return, (i) the Separate Taxable Income of each UCC Member that is included in a Combined Return and has nexus in the jurisdiction for which the Combined Return is filed, divided by (ii) the sum of the Separate Taxable Incomes for all members of the Dow Group that are included in the Combined Return and have nexus in such jurisdiction, multiplied by (iii) the total tax liability, net of any tax credits (including net operating losses), reflected on such Combined Return.

EXHIBIT 10.27

Amended and Restated Tax Sharing Agreement

(z)

UCC Member's Federal Tax Liability shall, for any Taxable Year, mean the UCC Member's United States federal income tax liability determined by Dow pursuant to this Agreement. In making such computation for any such Taxable Year, such liability shall be determined using any simplifying assumptions and convention Dow, in its sole discretion, deems necessary to minimize the administrative burden of making such calculations, including:

(i): Utilizing the highest rate of U.S. federal corporate tax in effect for such taxable year under section 11 of the Code, as though such rate were the only income tax rate in effect for such Taxable Year, and
(ii): Assuming that the alternative minimum tax imposed by Section 55 of the Code is inapplicable.

2. Scope and Cooperation

(a) Scope. This Agreement relates solely to (i) U.S. federal income tax liabilities and (ii) income tax liabilities with respect to certain state and local jurisdictions in which any UCC Member participates with Dow or any Subsidiary of Dow (other than UCC or any of its subsidiaries) in the filing of a Combined Return.

(b) Cooperation. Dow and UCC shall cooperate, and each shall cause its respective Subsidiaries to cooperate fully in the implementation of this Agreement on a consolidated basis, including but not limited to, providing promptly to the requesting party such assistance and documentation (at the expense of the providing party) as may be requested by such party in connection with the preparation or filing of the Consolidated Return (and any Combined Return), and the conduct of any audit or other examination, or judicial or administrative proceeding or determination relating thereto.

3. Filing of Returns

(a) Appointment of Dow as Agent For Consolidated Return. UCC and each of its Subsidiaries hereby appoint Dow as their agent, with respect to all periods during which UCC or such Subsidiary, as the case may be, is a Member of the Dow Group, for the purpose of filing the Consolidated Return and for making any election or application or taking any action in connection therewith on behalf of UCC and such Subsidiary. Nothing herein shall be construed as requiring Dow to file a Consolidated Return for any Taxable Year; provided, however, that if Dow decides not to file a Consolidated Return it shall notify UCC in writing within a period reasonably sufficient to permit UCC to file timely returns for the UCC Members.

(b) Dow Control Over Consolidated Return. Dow shall prepare and file, or cause to be prepared and filed, the Consolidated Return and any other documents or statements required to be filed with the Service that pertain to the determination of the Dow Group Consolidated Tax Liability for each Taxable Year of the Dow Group. In its sole and absolute discretion, but after prior good faith consultation with UCC on issues which impact any UCC Member's Tax Liability (if requested by such UCC Member), Dow shall have the right with respect to any Consolidated Return that it has filed or will file to determine:

(i) the manner in which such Consolidated Return, as well as any other documents or statements incidental or related thereto shall be prepared and filed, including without limitation, the manner in which any item of income, gain, loss, deduction, expense or credit of any UCC Member shall be reported therein or thereon;

(ii) whether any extensions (including extensions of the date for filing or any statue of limitations) with respect to any Consolidated Return will be requested;

(iii) the elections that will be made in any such Consolidated Return by any Member, including without limitation, elections by any UCC Member;

(iv) whether to file an amended Consolidated Return and to prosecute, compromise or settle any claim for refund set forth therein; and

(v) whether any refunds to which the Dow Group may be entitled shall be passed by way of cash refund or credited against the Dow Group Consolidated Tax Liability for any Taxable Year or Taxable Years of the Dow Group.

EXHIBIT 10.27

Amended and Restated Tax Sharing Agreement

UCC and each Subsidiary of UCC hereby irrevocably appoints Dow as its agents and attorney-in-fact to take any action (including the execution of documents) as Dow may deem appropriate to effect the foregoing. Nothing contained in this Agreement shall limit Dow's discretion to determine the manner in which any item shall be reported on the Consolidated Return.

(c) Appointment of Dow as Agent for Certain Combined Returns. UCC and each Subsidiary of UCC hereby appoint Dow as their agent with respect to all periods during which UCC or such Subsidiary, as the case may be, is a Member of the Dow Group, for the purpose of filing any Combined Return that Dow (or any Subsidiary of Dow, other than UCC or any of its Subsidiaries) may elect to file, and making any election or application or taking any action (including any extension of statues of limitation) in connection therewith on behalf of UCC and such Subsidiary. UCC and each of its Subsidiaries hereby consent to the filing of such returns, and to the making of such elections and applications. Nothing contained in this Agreement shall be construed as requiring Dow or any Subsidiary of Dow to file a Combined Return on behalf of UCC or any Subsidiary of UCC for any Taxable Year. Dow shall in its sole and absolute discretion determine whether and with respect to which jurisdictions UCC or any of its Subsidiaries shall participate in the filing of any Combined Return.

(d) Other Returns. UCC and its Subsidiaries shall be solely responsible for filing all tax returns not described in subsections (b) and (c) of this Section 3 and that relate solely to UCC and/or its Subsidiaries.

(e) Assistance and Responsibility For Support of Returns; Provisions of Financial Data. UCC and its Subsidiaries shall assist Dow in the filing, to the extent permitted by law, of a Consolidated Return and such Combined Returns as Dow elects to file or cause to be filed, by maintaining such books and records and providing such information as may be necessary or useful in the filing of such returns and executing any documents and taking any actions which Dow may reasonably request in connection therewith including without limitation designing and implementing systems, processes and programs for the compilation and review of financial data; the review of transactions and accounting methods; and the preparation of returns and of supporting documentation to assure that such returns and all related reports and schedules are complete and accurate. UCC shall, at its own expense, provide Dow with all information required by Dow to reflect completely and accurately the financial results of the UCC Members in the Dow Group's Consolidated Return (or a Combined Return). Such information shall be in such form as determined by Dow from time to time and shall be delivered to Dow on a mutually agreed upon date, but in no event later than the first business day in June of the year following such Taxable Year. UCC shall, at its own expense, maintain sufficient books, records and expertise to support all returns, positions taken thereon and methods used to prepare such returns until there has been a Final Determination with respect to all issues included on such returns. Dow and UCC shall provide one another with such other information concerning such returns and the application of payments made under this Agreement as Dow or UCC may reasonably request of one another.

4. Union Carbide Tax Calculations

For each Taxable Year for which a Consolidated Return or Combined Return is filed and UCC or any Subsidiary of UCC is a Member of the Dow Group, Dow shall calculate each UCC Member's tax liability for that portion of the Taxable Year in which the UCC Member is included in the Dow Group. Dow shall determine the impact to the separate UCC Members of the Code provisions that require consolidated calculations but with any simplifying conventions and assumptions approved or suggested by the Tax Director of Dow. The calculation shall include gains and losses with respect to deferred intercompany transactions if, and only if, and to the extent that, such gains or losses are actually restored and reflected on the Dow Group's Consolidated Return.

5. Payments by UCC Members

(a) UCC Member's Federal Tax Liability. For each Taxable Year of the Dow Group, UCC Members shall pay to Dow the amount of the UCC Member's Federal Tax Liability in the manner provided in Section 9(a) hereof in the amounts and at the time or times herein provided.

(i) In the event that the estimated UCC Member's Federal Tax Liability for such Taxable Year that will be owed to Dow is greater than zero (after taking into account the expected use of such UCC Member's Allowable Tax Attributes and the expected use of other UCC Members' Allowable Tax Attributes), such UCC Member shall make quarterly payments of its estimated UCC Member's Federal Tax Liability owed to Dow for such Taxable Year. The amount of each such quarterly payment shall be determined by Dow and shall equal the amount which such UCC

EXHIBIT 10.27

Amended and Restated Tax Sharing Agreement

Member would be required under Section 6655(d) of the Code (or under any successor section of the Code) to pay to the Service for such quarter were such UCC Member to make installment payments of its UCC Member's Federal Tax Liability owed to Dow for such Taxable Year (after taking into account the expected use of Allowable Tax Attributes) in accordance with the provisions of such section. In estimating each UCC Member's Federal Tax Liability to be owed to Dow, such liability shall be determined using any simplifying assumptions and conventions that Dow, in its sole discretion, deems necessary to minimize the administrative burden of such estimation.

(ii) If the actual UCC Member's Federal Tax Liability owed to Dow for such Taxable Year exceeds the total estimated payments, if any, which such UCC Member made pursuant to Section 5(a)(i) hereof for such Taxable Year, such UCC Member shall pay an amount equal to such excess to Dow by October 31 of the year following such Taxable Year.

(iii) If the total estimated payments which any UCC Member made pursuant to Section 5(a)(i) hereof for such Taxable Year exceeds the actual UCC Member's Federal Tax Liability owed to Dow, Dow shall pay an amount equal to such excess to such UCC Member by October 31 of the year following such Taxable Year.

(iv) Each of the quarterly payments required to be made pursuant to Section 5(a)(i) hereof shall be made in the manner provided in Section 9(a) hereof on or before the due date for the payment of the respective quarterly estimate of the Dow Group Consolidated Tax Liability for such Taxable Year.

(b) UCC Member's State and Local Tax Liability. For each Taxable Year with respect to which UCC or any of its Subsidiaries Participates in the filing of a Combined Return such UCC Member shall pay to Dow, within 30 days of receipt of a bill from Dow, the UCC Member's State and Local Tax Liability for such Taxable Year.

(c) Other Taxes. UCC shall be solely responsible for paying tax with respect to all tax returns that UCC or any of its Subsidiaries have responsibility for filing pursuant to this Agreement.

6. Payments to UCC Members

Any payment that UCC Members may be entitled to receive with respect to their last Taxable Year pursuant to Section 7(c) hereof shall be paid to such UCC Member in the manner provided in Section 9(a) hereof on or before December 31 of the calendar year following the end of the applicable Taxable Year.

7. Use of Attributes; Additional Rights and Obligations Upon Deconsolidation

(a) In determining the Dow Group's Consolidated Tax Liability and in preparing the Consolidated Return for each taxable year, Dow may utilize on behalf of the Dow Group all the tax attributes and other items of income, gain, loss, deduction, expense, credit, etc. of UCC and its Subsidiaries arising in such taxable year or which arose in another taxable year or taxable years and which properly may be carried back or carried forward to such taxable year, without regard to whether such attributes and items are concurrently being, have previously been or may subsequently be utilized in determining for any Taxable Year or Taxable Years, any UCC Member's Tax Liability. Except as expressly provided in Section 7(b) and Section 8 of this Agreement, no UCC Member shall in any manner be entitled to any compensation for the use of any attributes and other items of income, gain, loss, deduction, expense, credit, etc. of any UCC Member. Moreover, in the event any UCC Member ceases for any reason to be a Member of the Dow Group either (A) after any of its tax attributes or items of income, gain, loss, deduction, expense, credit, etc. has been utilized by Dow on behalf of the Dow Group in determining the Dow Group's Consolidated Tax Liability for any Taxable Year or Taxable Years of the Dow Group, but before any UCC Member has utilized such attribute or item (in whole or in part) in reducing its payment obligation under Section 5(a) of this Agreement for any Taxable Year or Taxable Years, or (B) after any of its tax attributes or items of income, gain, loss, deduction, expense, credit, etc. has been utilized by any UCC Member in reducing its payment obligation under Section 5(a) of this Agreement for any Taxable Year or Taxable Years, but before the Dow Group has utilized such attribute or item (in whole or in part) in determining for any Taxable Year or Taxable Years, the Dow Group Consolidated Tax Liability, neither the Dow Group nor the UCC Member, as the case may be, shall be obligated or required to compensate such other party in any manner for any amount as a result to the occurrence of such event, except as expressly provided in Sections 7 and 8 below.

EXHIBIT 10.27

Amended and Restated Tax Sharing Agreement

(b) Dow shall determine tax attributes, including but not limited to, foreign tax credits, net operating losses and general business credits (collectively "Tax Attributes"), for each UCC Member on a separate Member basis. For example, the net operating loss of a UCC Member shall equal the separate net operating loss of such member and not its share of any consolidated net operating loss of the Dow Group. The foreign tax credits of a UCC Member shall equal the foreign taxes paid or deemed paid by such UCC Member. The research and experimentation credits of a UCC Member shall equal such Member's share of the consolidated research and experimentation credit as determined pursuant to Income Tax Regulation Sections 1.41-6. Dow will use reasonable simplifying assumptions and conventions, including assumptions relating to the order Tax Attributes are utilized, and the manner in which expiration of Tax Attributes are shared among Dow Group Members, including UCC Members.

(c) Dow shall annually determine the amount of Tax Attributes allowed to be used to reduce any UCC Member's payment obligation to Dow hereunder. Dow shall determine the cumulative Tax Attributes of each UCC Member during taxable periods when it is a member of the Dow Group or carried to such a period from a separate return period by category for each UCC Member which shall be reduced by sum of the following:

(i) The amount of any Tax Attributes by category that the UCC Member would carry to a separate return year if it ceased to be a member of the Dow Group; and

(ii) The UCC Member's allocable share of any Tax Attributes that expired at the Dow Group level;

(iii) The amount of any Tax Attributes used by the UCC Member to reduce the UCC Member's payment obligation to Dow for previous Taxable Years in accordance with this Agreement; and

(iv) The amount of any Tax Attributes used by any other UCC Member to reduce such other UCC Member's payment obligation to Dow for previous Taxable Years in accordance with this Agreement.

The amount of Tax Attributes by category remaining after the above described calculation is hereinafter referred to as "Allowable Tax Attributes". A UCC Member may reduce its payment obligation to Dow under Section 5(a) of this Agreement by the value (as defined below) of its own Allowable Tax Attributes and the Allowable Tax Attributes of any other UCC Member. If a UCC Member uses the Allowable Tax Attributes of another UCC Member to reduce its obligation to Dow, then such UCC Member shall pay the other UCC Member the value (as defined below) of the Allowable Tax Attributes so used by October 31 of the year following the applicable Taxable Year. Dow shall determine which other UCC Member's Allowable Tax Attributes are used. Allowable Tax Attributes may not be used more than once to reduce a payment obligation to Dow. A UCC Member may not carry back Allowable Tax Attributes to reduce its payment obligations to Dow for previous Taxable Years.

(d) In the event UCC or any of its Subsidiaries ceases for any reason to be a Member of the Dow group, then within 60 days after the filing of the Consolidated Return for the last Taxable Year that UCC or such Subsidiary was included therein, Dow shall inform UCC or such subsidiary, as the case may be, of the amount of Allowable Tax Attributes as of the end of the UCC Member's last Taxable Year. Dow shall pay the UCC Member the value (as defined below) of such Allowable Tax Attributes that are not used by any UCC Member to reduce its payment obligation to Dow pursuant to this Agreement. Dow's determinations pursuant to this Section 7(d) shall be presumptively correct and shall be binding on the parties hereto.

(e) For purposes of this Section 7, tax credits shall be valued on a dollar-for-dollar basis and losses or deductions shall be valued at the highest marginal federal tax rate applicable to corporations (i) for purposes of Section 7(c) hereof, for the Taxable Year for which the Allowable Tax Attributes are used to reduce a UCC Member's oligation to Dow, and (ii) for purposes of Section 7(d) hereof, for the UCC Member's last Taxable Year.

(f) If a UCC Member at any time acquires the assets and properties of another UCC Member pursuant to a transaction to which Section 381 of the Code applies or otherwise, the acquiring UCC Member shall, from and after the date of such acquisition, be responsible for all of the undertakings and obligations of such other UCC Member hereunder and shall, from after such date, be entitled to receive any and all payments that such other UCC Member would be entitled to receive hereunder. Provided such other UCC Member ceases to exist solely as a result of such transaction, such event shall not, except as expressly provided herein, in any way result in any acceleration of the time at which any payments hereunder are due to or from such other UCC Member, and except as expressly provided herein to the contrary, all such payments shall be

EXHIBIT 10.27

Amended and Restated Tax Sharing Agreement

made to or by the acquiring UCC Member at the same time or times that such payments would be payable to or by such other UCC Member had such other UCC Member continued to exist as a UCC Member hereunder.

8. Adjustments

(a) If any adjustment is made with respect to a Taxable Year during which UCC or any of its Subsidiaries is a member of the Dow Group to any item of income, gain, loss, deduction, expense or credit of UCC or any Subsidiary of UCC by reason of the filing of an amended Consolidated Return (or an amended Combined Return), a claim for refund with respect to such Taxable Year or an audit with respect to such Taxable Year by the Service (or the applicable State and Local taxing authority), the amounts, if any, due to or from UCC or a UCC Subsidiary under this Agreement shall be redetermined by taking into account any such adjustment and applying the procedures set forth in this Agreement. Dow shall have sole and absolute discretion, but after prior good faith consultation with the Tax Director of UCC, to determine whether and in what amount an adjustment applies to UCC or any of its Subsidiaries. If, as a result of such redetermination, any amounts due to or from UCC under this Agreement differ from the amounts previously paid, then except as herein provided, payments of such difference together with any interest, penalty or addition to tax properly allocated to UCC shall be made as an adjustment to the UCC Member's Tax Liability for the current Taxable Year. If such UCC Member is no longer a Member of the Dow Group, then instead of making an adjustment to the UCC Member's Tax Liability, the same amount shall be paid to UCC or by UCC in the manner provided in Section 9(a) as follows: (a) in the case of an adjustment resulting in a credit or refund of tax, within 10 calendar days of the date on which such refund or notice of such credit is received by Dow or the UCC Member with respect to such adjustment, or (b) in the case of an adjustment resulting in a payment of additional tax, within 10 calendar days of the date on which such additional tax is paid. Any interest, penalty or addition to tax will be allocated as Dow, in its discretion, deems just and proper in view of all applicable circumstances (to the extent practicable, however, such allocations shall reflect the amount of interest that the UCC Member would have paid on a stand alone basis). Nothing in this Section 8 shall be construed to entitle UCC or any Subsidiary of UCC to receive a double benefit or compensation with respect to any attribute.

9. Remittance by and to UCC

(a) Until such time as Dow notifies UCC in writing to the contrary, any and all payments that UCC and its Subsidiaries are required to make to Dow hereunder shall be made and remitted by UCC and its Subsidiaries directly to Dow. Dow shall be responsible for making all payments required to be made by Dow hereunder to UCC and its Subsidiaries.

(b) Any payments required to be made hereunder that are not made on or before such date on which such payment is due under the terms of this Agreement shall bear interest at the rate specified from time to time pursuant to section 6621(a)(2) of the Code, and the party to whom such payment is due shall be entitled to receive interest computed at such rate upon the late payment of any such amount which is required at any time to be paid hereunder.

10. Carrybacks

If part or all of an unused consolidated net operating loss or tax credit of UCC or one of its Subsidiaries arises in a year in which UCC or such Subsidiary is not a Member of the Dow Group and is carried back to a year in which UCC or such Subsidiary is a Member of the Dow Group, any refund or reduction in tax liability arising from the carryback will be retained by or allocated to Dow. Dow shall have no obligation to pay to UCC or its Subsidiaries the amount of any refund or credit of federal income tax that Dow may receive as a result of such carryback (nor will such occurrence affect the calculation of Allowable Tax Attributes).

11. Allocation of Dow Group Consolidated Tax Liability For Purposes of Determining Earnings and Profits

The Dow Group Consolidated Tax Liability for each Taxable Year of the Dow Group shall, for purposes of determining the earnings and profits of each Member, be allocated among the Members in accordance with the methods prescribed in Section 1.1552-1(a)(2) of the Income Tax Regulations. Notwithstanding the foregoing, Dow may, in its sole and absolute discretion, change the method set forth above to the extent that is it permitted to do so by applicable law; provided further that such change in method is consistently applied to all Members of the Dow Group.

EXHIBIT 10.27

Amended and Restated Tax Sharing Agreement

12. Dow Control of Conduct of Audits, Litigation, Expenses

(a) In any audit, conference or other proceeding with the Service or the relevant state or local authorities, or in any judicial proceedings concerning the determination of the Dow Group Consolidated Return Liability or the state or local income tax liability of any consolidated, combined or unitary group including Dow or any of it Subsidiaries (other than UCC or a Subsidiary of UCC) and UCC (or any of the Subsidiaries of UCC), Dow shall have the exclusive right to contest (with the participation of the Tax Director of UCC) in (a) any examination by the Service at the district level or by any state or local authority, or (b) the preparation and submission of any protest brief or other submission to the Service's appellate division (or in any similar administrative proceeding before any state or local authority), compromise or settle any adjustment or deficiency proposed, asserted or assessed as a result of such proceeding and to extend or refuse to extend the applicable time period for making assessments or adjustments. UCC and each subsidiary of UCC hereby appoints Dow as its agent for the purpose of conducting such contest or proposing and concluding any such compromise and settlement. Dow shall have control over the proceedings, but shall confer in good faith with UCC regarding any proposed adjustment bearing on any material liability of UCC pursuant to this Agreement. UCC shall support any audit or other examination or judicial or administrative proceeding with respect to any Taxable Year, at its own expense, in any reasonable way requested by Dow. Nothing herein shall limit Dow's discretion to determine whether and in what amount an item arising from UCC or any UCC Subsidiary shall be conceded or otherwise compromised and whether and in what amount an item results in an adjustment to UCC or any UCC Subsidiary described in Section 8(a); provided, however, that such decision shall be made only after full and complete good faith consultation with the Tax Director of UCC.

(b) Expenses. UCC shall reimburse Dow for all expenses (including, without limitation, legal and accounting fees) incurred by Dow in the course of proceedings described in this Section 12 to the extent such expenses are allocable, in Dow's sole and absolute discretion, but after prior good faith consultation with UCC (if requested by the Tax Director of UCC), to UCC Member items.

13. Partnership Interests

In connection with any partnership interest for which UCC or a UCC Subsidiary is the Tax Matters Partner, UCC shall to the maximum extent feasible make elections, use accounting methods, and report positions with respect to such partnership interest that are consistent with positions reported on the Dow Group's Consolidated Return and report positions on any other tax returns that consistent with those reported for such partnership interest on the Dow Group's Consolidated Return. UCC shall confer in good faith with Dow in advance regarding any such item which may be or could be inconsistent with items on the Dow Group's Consolidated Return.

14. Administration; Resolution of Disputes

The provisions of this Agreement will be administered by Dow. Except as otherwise expressly governed by the terms of this Agreement, Dow may use any reasonable method in making any computations or allocations hereunder, and Dow's calculations will be conclusive.

15. Indemnification Against Joint and Several Liability

Except as may be expressly provided otherwise in this Agreement, Dow shall be liable for, and agrees to defend, hold harmless and indemnify the UCC Members from and against, any and all taxes (and any interest, penalties and similar amounts relating thereto of the Dow Group (other than the UCC Members), including, but not limited to, any such taxes (and any interest, penalties and similar amounts relating thereto) for which any UCC Member is or may be or become liable for under any successor or transferee liability law or other similar law under Section 1.1502-6 or 1.1502-78(b) of the Income Tax Regulations or any similar provision under any applicable foreign, state, or local law.

16. Interpretation

This Agreement is intended to provide for the calculation and allocation of certain federal and state and local income tax liabilities between the Dow Group (other than UCC and its Subsidiaries) and the UCC Member, and any situation or circumstances concerning such calculation and allocation that is not specifically contemplated hereby or provided for herein shall be dealt with in a manner consistent with the underlying principles of calculation and allocation in this Agreement.

EXHIBIT 10.27

Amended and Restated Tax Sharing Agreement

17. Effect of Agreement

This Agreement shall determine the liability of Dow and the UCC Members as to the matters provided for herein, whether or not such determination is effective for purposes of the Code or of state or local revenue laws, for financial reporting purposes or any other purpose.

18. Term

This Agreement will apply to Taxable Years ending after the Effective Date and all subsequent Taxable Years, unless Dow and any UCC Member agree in writing to terminate this Agreement. Notwithstanding such termination, this Agreement will continue in effect with respect to any payment or refunds due for all Taxable Years prior to termination. Any UCC Member that leaves the Dow Group will be bound this Agreement. The failure of one or more parties hereto to qualify for inclusion in the Consolidated Return filed by Dow will not operate to terminate this Agreement with respect to the other parties as long as two or more parties hereto continue to so qualify.

19. Assignment

Rights and obligations under this Agreement will not be assignable by any party without the prior written consent of the other parties.

20. Confidentiality

Dow and the UCC Members agree that any information furnished among one another pursuant to this Agreement is confidential and, except as and to the extent required during the course of the preparation or returns or the conduct of an audit or litigation, shall not be disclosed to other persons.

21. Documentation

All material, including but not limited to, returns, supporting schedules, work papers, correspondence, and other documents relating to the Consolidated Return and any Combined Returns filed for a Taxable Year subject to this Agreement will be made available to any party to the Agreement during regular business hours for a minimum period equal to applicable federal and state record retention requirements (or the applicable statue or limitations period).

22. Additional Members

The parties hereto specifically recognize that from time to time other Subsidiaries of Dow and UCC may become or become or become again Members of the Dow Group and hereby agree that this Agreement shall be deemed to have been adopted and affirmed, or readopted and reaffirmed, by such Subsidiary. Dow and UCC shall, upon the written request of the other, cause any of their respective Subsidiaries formally to ratify and execute this Agreement.

23. Tax Law Changes

Any alteration, modification, addition, deletion, or other change in the Code or the Income Tax Regulations (or the applicable state and local tax provisions) will automatically be applicable to this Agreement when changed.

24. Successors and Assigns

This Agreement will bind and inure to the benefit of the respective successors and assigns of the parties hereto; but no assignment will relieve any party of its obligations hereunder without the written consent of the other parties.

25. Counterparts

This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument.

EXHIBIT 10.27

Amended and Restated Tax Sharing Agreement

26. Headings

The headings in this Agreement are inserted for convenience only and shall not constitute a part hereof or affect the interpretation of this Agreement.

27. Severability.

If any provision of this Agreement is held to be unenforceable for any reason, it shall be adjusted rather than voided, if possible, in order to achieve the intent of the parties to the maximum extent practicable. In any event, all other provisions of this Agreement shall be deemed valid, binding and enforceable to their full extent.

28. Entire Agreement

This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof and, except as expressly contained herein there are no written or oral promises, covenants, undertakings, representations or warranties of the parties with respect to the subject matter hereof.

29. Notices

Any notices or other communications required or permitted by this Agreement shall be effective upon the receipt, shall be in writing personally delivered or mailed by registered or certified mail, return receipt requested, or sent by facsimile to the persons and addresses shown below:

(a): With respect to Dow:
The Dow Chemical Company
2030 Dow Center
Midland, Michigan 48674
Attention: Mr. Chuck Hahn, Director of Taxes
(b): With Respect to UCC:
Union Carbide Corporation
39 Old Ridgebury Rd.
Danbury, CT 06817-0001
Attention: Mr. John Dearborn, President

30. Governing Law

This Agreement shall be construed and interpreted, and all rights and liabilities of the parties hereto, with respect to this Agreement shall be governed by the laws of the State of Delaware, U.S.A.

EXHIBIT 10.27

Amended and Restated Tax Sharing Agreement

IN WITNESS WHEREOF, the parties respective authorized representatives executed this Agreement on the dates below their respective signatures, but effective as of February 7, 2001.

THE DOW CHEMICAL COMPANY
	BY	/s/ CHARLES J. HAHN
	Name:	Charles J. Hahn
	Title:	Director of Tax and Assistant Secretary
	Date	June 30, 2003
UNION CARBIDE CORPORATION ON BEHALF OF THE UCC MEMBERS
	BY	/s/ EDWARD W. RICH
	Name:	Edward W. Rich
	Title:	Vice President and Treasurer
	Date	June 30, 2003

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EXHIBIT 10.28.1

Revolving Credit Agreement

EXHIBIT C-1

FORM OF SUBSIDIARY PLEDGE AGREEMENT

This SUBSIDIARY PLEDGE AGREEMENT (as amended, modified or supplemented from time to time as provided herein, this "Agreement") is dated as of March 25, 2003, and made by each of UNION CARBIDE SUBSIDIARY C, INC., a Delaware corporation, UCMG LLC, a Delaware limited liability company, and CATALYSTS, ADSORBENTS AND PROCESS SYSTEMS, INC., a Maryland corporation (collectively, "Grantors" and each individually, a "Grantor"), in favor of THE DOW CHEMICAL COMPANY, a Delaware corporation ("TDCC" or "Lender").

W I T N E S S E T H:

WHEREAS, Union Carbide Corporation, a New York corporation ("Borrower") and Lender are parties to that certain Revolving Credit Agreement dated as of the date hereof (as such agreement may be amended, modified or supplemented from time to time, the "Credit Agreement");

WHEREAS, pursuant to the terms of the Credit Agreement, Lender has agreed to make Loans and Credit Enhancements (as defined in the Credit Agreement) available to Borrower;

WHEREAS, as a subsidiary of Borrower, each of the Guarantors will derive substantial direct and indirect benefits from such Loans and Credit Enhancements;

WHEREAS, it is a condition precedent to the effectiveness of the Credit Agreement that each of the Guarantors shall have executed and delivered the Subsidiary Guarantee (as defined below) to Lender;

WHEREAS, it is a condition precedent to the effectiveness of the Credit Agreement that each of the Guarantors shall have executed and delivered this Subsidiary Pledge Agreement;

WHEREAS, to secure the due and punctual payment and performance of, among other things, the Guaranteed Obligations (as defined below), each Grantor wishes to grant to TDCC a security interest in the Collateral (as defined below) owned by such Grantor, subject to the limitations set forth herein;

NOW, THEREFORE, in consideration of the premises and to induce TDCC to enter into the Credit Agreement and to induce TDCC to make and/or continue extensions of credit to Borrower thereunder, each of the Grantors hereby agrees with TDCC as follows:

ARTICLE I

DEFINED TERMS

Section 1.1 Definitions.

(a) Unless otherwise defined herein, terms defined in the Credit Agreement and used herein have the meanings given to them in the Credit Agreement.

(b) Terms used herein that are defined in the UCC have the meanings given to them in the UCC, including the following which are capitalized herein:

"Cash proceeds"
"Instruments"
"Investment Property"
"Proceeds"
"Security"
"Security Entitlement"

EXHIBIT 10.28.1

Revolving Credit Agreement

"Agreement" means this Subsidiary Pledge Agreement.

"Collateral" has the meaning specified in Section 2.1.

"Debt Obligations" means any Guaranteed Obligation that would constitute "Debt" as defined in Section 5.1 of the Participation Agreement.

"Designated Joint Ventures" means any of the Pledged Collateral identified as a "Designated Joint Venture" on Schedule 2.

"LLC" means each limited liability company identified on Schedule 2.

"LLC Agreement" means each operating agreement with respect to an LLC, as each agreement has heretofore been and may hereafter be amended, restated, supplemented or otherwise modified from time to time.

"Guaranteed Obligations" has the meaning specified in the Subsidiary Guarantee.

"Participation Agreement" means the Participation Agreement dated as of April 1, 2000, with respect to Union Carbide Trust No. 2000-A, as amended from time to time.

"Partnership" means each partnership identified on Schedule 2.

"Partnership Agreement" means each partnership agreement governing a Partnership, as each such agreement has heretofore been and may hereafter be amended, restated, supplemented or otherwise modified.

"Pledged Collateral" means, collectively, the Pledged Notes, the Pledged Stock, and the Pledged Partnership Interests, the Pledged LLC Interests, all certificates or other instruments representing any of the foregoing, all Security Entitlements of Grantor in respect of any of the foregoing, all dividends, interest distributions, cash, warrants, rights, instruments and other property or Proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the foregoing.

"Pledged LLC Interests" means all of Grantor's right, title and interest as a member of the LLCs set forth on Schedule 2 and all of Grantor's right, title and interest in, to and under any LLC Agreement with respect thereto to which it is a party.

"Pledged Notes" means all right, title and interest of Grantor in the Instruments evidencing Intercompany Indebtedness (including any Intercompany Notes) owed to Grantor, including all Indebtedness described on Schedule 2, issued by the obligors named therein, and all interest, cash, Instruments and other property or Proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such Indebtedness.

"Pledged Partnership Interests" means all of Grantor's right, title and interest as a limited and/or general partner in the Partnerships set forth on Schedule 2 and all of Grantor's right, title and interest in, to and under any Partnership Agreements with respect thereto to which it is a party.

"Pledged Stock" means the shares of capital stock identified on Schedule 2; provided, however, that so long as doing otherwise would result in adverse tax consequences to Grantor, the amount of outstanding capital stock of any first tier Subsidiary that is not a Domestic Subsidiary that is pledged or deemed to be pledged hereunder shall not exceed the amount of shares of capital stock possessing up to but not exceeding 65% of the voting power of all classes of capital stock of such Subsidiary entitled to vote.

"Securities Act" means the Securities Act of 1933, as amended.

EXHIBIT 10.28.1

Revolving Credit Agreement

"UCC" means the Uniform Commercial Code as in effect in the State of New York on the date hereof; provided, however, that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection or priority of Lender's security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of New York, the term "UCC" shall mean the Uniform Commercial Code as in effect on the date hereof in such other jurisdiction for purposes of the provisions hereof relating to such attachment, perfection or priority and for purposes of definitions related to such provisions.

Section 1.2 Certain Other Terms.

(a) The words "herein", "hereof", "hereto" and "hereunder" and similar words refer to this Agreement as a whole and not to any particular Article, Section, subsection or clause in this Agreement.

(b) References herein to a Schedule, Article, Section, subsection or clause refer to the appropriate Schedule to, or Article, Section, subsection or clause in this Agreement.

(c) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms.

(d) Any reference in this Agreement to a Loan Document shall include all appendices, exhibits and schedules thereto, and, unless specifically stated otherwise, all amendments, restatements, supplements or other modifications thereto, and as the same may be in effect at any and all times such reference becomes operative.

(e) The term "including" means "including without limitation" except when used in the computation of time periods.

(f) The terms "Lender" and "Grantor" include their respective successors.

(g) References in this Agreement to any statute shall be to such statute as amended or modified and in effect from time to time.

ARTICLE II

GRANT OF SECURITY INTEREST

Section 2.1 Collateral. For the purposes of this Agreement, all of the following property now owned by any Grantor or in which such Grantor now has any right, title or interests is collectively referred to as the "Collateral":

(a) all Pledged Collateral;

(b) all books and records pertaining to the property described in clause (a) of this Section 2.1; and

(c) to the extent not otherwise included, all Proceeds and products of each of the foregoing and all accessions to, substitutions and replacements for, and any and all proceeds of any insurance, indemnity, warranty or guaranty payable to such Grantor from time to time with respect to any of the foregoing.

Notwithstanding anything to the contrary contained above, (1) so long as Borrower is bound by Section 5.5 of the Participation Agreement, the maximum principal amount of Debt Obligations secured hereunder shall not exceed at any time outstanding the sum of (x) $800,000,000 plus (y) the amount of Debt Obligations to the extent secured by Designated Joint Ventures; and (2) any Pledged Collateral if the grant of a security interest therein would constitute a violation or breach of any other agreement to which Grantor is bound. The parties hereto agree that the amount of Debt Obligations that may be secured under this Agreement is limited pursuant to the immediately preceding sentence, as required under the Participation Agreement, to only a portion of the aggregate Debt Obligations owing or which may become owing to Lender and that any payments or repayments of such Debt Obligations shall be and be deemed to be applied first to the portion of such Debt

EXHIBIT 10.28.1

Revolving Credit Agreement

Obligations that is not secured hereby, it being the parties' intent that the portion of such Debt Obligations last remaining unpaid shall be secured hereby.

Section 2.2 Grant of Security Interest in Collateral. Subject to the limitation expressly set forth in Section 2.1, each Grantor, as security for the full, prompt and complete payment and performance when due (whether at stated maturity, by acceleration or otherwise) of the Guaranteed Obligations, hereby collaterally pledges to Lender and grants to Lender a Lien on and security interest in, all of its right, title and interest in, to and under the Collateral.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

To induce Lender to enter into the Credit Agreement, each Grantor hereby represents and warrants, as to itself and the Collateral it owns, to Lender that:

Section 3.1 Title; No Other Liens. Except for the Lien granted to Lender pursuant to this Agreement and the other Liens permitted to exist on the Collateral under the Credit Agreement or the Subsidiary Guarantee, (a) Grantor is the record and beneficial owner of the Pledged Collateral pledged by it hereunder constituting Instruments or certificated securities and owns each other item of Collateral in which a Lien is granted by it hereunder and (b) all such Collateral is owned free and clear of any and all Liens.

Section 3.2 Perfection and Priority. The security interest granted pursuant to this Agreement will constitute a valid and continuing perfected security interest in favor of Lender in the Collateral for which perfection is governed by the UCC upon (i) the completion of the filings and other actions specified on Schedule 3 (which, in the case of all filings and other documents referred to on such schedule, have been delivered to Lender in completed and duly executed form), and (ii) the delivery to Lender of all Collateral consisting of Instruments and certificated securities, in each case properly endorsed for transfer to Lender or in blank. Such security interest will be prior to all other Liens on the Collateral except for Customary Permitted Liens which have priority over Lender's Lien by operation of law or otherwise as permitted under the Credit Agreement or the Subsidiary Guarantee.

Section 3.3 State of Incorporation; Chief Executive Office. On the date hereof Grantor's jurisdiction of organization, organizational identification number, if any, and the location of Grantor's chief executive office or sole place of business is specified on Schedule 1.

Section 3.4 Pledged Collateral.

(a) The Pledged Stock, Pledged Partnership Interests and Pledged LLC Interests pledged hereunder by Grantor constitutes that percentage of the issued and outstanding equity of all classes of each issuer thereof as set forth on Schedule 2.

(b) All of the Pledged Stock, and (to the extent relevant) all Pledged Partnership Interests and Pledged LLC Interests have been duly and validly issued and are fully paid and nonassessable.

(c) All Pledged Collateral consisting of certificated securities or Instruments has been delivered to Lender in accordance with Section 4.4(a).

ARTICLE IV

COVENANTS

As long as any of the Guaranteed Obligations (other than contingent indemnification Guaranteed Obligations not yet due and payable) remain outstanding, unless the Lender otherwise consents in writing, each Grantor agrees with Lender that:

EXHIBIT 10.28.1

Revolving Credit Agreement

Section 4.1 Maintenance of Perfected Security Interest; Further Documentation.

(a) Following the perfection of any security interest created by this Agreement with respect to any item of Collateral, such Grantor will maintain such as a perfected security interest having at least the priority described in Section 3.2 and shall defend such security interest against the claims and demands of all Persons.

(b) Such Grantor will furnish to Lender from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as Lender may reasonably request, all in reasonable detail.

(c) At any time and from time to time, upon the written request of Lender, and at the sole expense of such Grantor, such Grantor will promptly and duly execute and deliver, and have recorded, such further instruments and documents and take such further action as Lender may reasonably request for the purpose of obtaining or preserving the full benefits of this Agreement and of the rights and powers herein granted, including the filing of any financing or continuation statement under the UCC (or other similar laws) in effect in any jurisdiction with respect to the security interest created hereby.

Section 4.2 Pledged Collateral.

(a) Such Grantor will deliver to Lender, all certificates or Instruments representing or evidencing any Pledged Collateral, in suitable form for transfer by delivery or, as applicable, accompanied by such Grantor's endorsement, where necessary, or duly executed instruments of transfer or assignment in blank, all in form and substance reasonably satisfactory to Lender. Lender shall have the right, upon the occurrence and during the continuance of an Event of Default, in its discretion and without notice to Grantor, to transfer to or to register in its name or in the name of its nominees any or all of the Pledged Collateral. Lender shall have the right to, upon the occurrence and during the continuance of an Event of Default, exchange certificates or instruments representing or evidencing any of the Pledged Collateral for certificates or instruments of smaller or larger denominations.

(b) Except as provided in Article V, such Grantor shall be entitled to receive all cash dividends paid in respect of the Pledged Collateral (other than liquidating dividends constituting a distribution of capital) with respect to the Pledged Collateral. Any sums paid upon or in respect of any of the Pledged Collateral upon the liquidation or dissolution of any issuer of any of the Pledged Collateral, any distribution of capital made on or in respect of any of the Pledged Collateral or any property distributed upon or with respect to any of the Pledged Collateral pursuant to the recapitalization or reclassification of the capital of any issuer of Pledged Collateral or pursuant to the reorganization thereof shall, unless otherwise subject to a perfected security interest in favor of Lender, be delivered to Lender to be held by it hereunder as additional collateral security for the Guaranteed Obligations or be deposited into an Approved Deposit Account. If any sums of money or property so paid or distributed in respect of any of the Pledged Collateral shall be received by such Grantor, such Grantor shall, to the extent such money is not otherwise deposited into an Approved Deposit Account until such money or property is paid or delivered to Lender, hold such money or property in trust for Lender, segregated from other funds of such Grantor, as additional security for the Guaranteed Obligations.

(c) Except as provided in Article V, such Grantor will be entitled to exercise all voting, consent and corporate rights with respect to the Pledged Collateral and to give consents, waivers or ratifications in respect thereof; provided, however, that no vote shall be cast, consent given or right exercised or other action taken by Grantor which would have a Material Adverse Effect or which would be inconsistent with or breach the terms of the Credit Agreement, this Agreement or any other Loan Document.

(d) Such Grantor will not agree to any amendment of an LLC Agreement or Partnership Agreement that in any way adversely affects the perfection of the security interest of Lender in the Pledged Partnership Interests or Pledged LLC Interests pledged by Grantor hereunder, including electing to treat the membership interest or partnership interest of Grantor as a security under Section 8-103 of the UCC.

EXHIBIT 10.28.1

Revolving Credit Agreement

ARTICLE V

REMEDIAL PROVISIONS

Section 5.1 Code and Other Remedies. During the continuance of an Event of Default, Lender may exercise, in addition to all other rights and remedies granted to it in this Agreement and in any other instrument or agreement securing, evidencing or relating to the Guaranteed Obligations, all rights and remedies of a secured party under the UCC or any other applicable law. Without limiting the generality of the foregoing, Lender, without demand of performance or other demand, presentment, protest, advertisement or notice of any kind (in each case except any required by law referred to below) to or upon any Grantor or any other Person (all and each of which demands, defenses, advertisements and notices are hereby waived), may in such circumstances forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give option or options to purchase, or otherwise dispose of and deliver the Collateral or any part thereof (or contract to do any of the foregoing), in one or more parcels at public or private sale or sales, at any exchange, broker's board or office of Lender or elsewhere upon such terms and conditions as it may deem advisable and at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk. Lender shall have the right upon any such public sale or sales, and, to the extent permitted by law, to purchase the whole or any part of the Collateral so sold, free of any right or equity of redemption in any Grantor, which right or equity is hereby waived and released. Lender shall apply the net proceeds of any action taken by it pursuant to this Section 5.1, after deducting all reasonable costs and expenses of every kind incurred in connection therewith or incidental to the care or safekeeping of any of the Collateral or in any way relating to the Collateral or the rights of Lender hereunder, including reasonable attorneys' fees and disbursements, to the payment in whole or in part of the Guaranteed Obligations, in such order as the Credit Agreement or Subsidiary Guarantee shall proscribe, and only after such application and after the payment by Lender of any other amount required by any provision of law, need Lender account for the surplus, if any, to the applicable Grantor. To the extent permitted by applicable law, each Grantor waives all claims, damages and demands it may acquire against Lender arising out of the exercise by it of any rights hereunder. If any notice of a proposed sale or other disposition of Collateral shall be required by law, such notice shall be deemed reasonable and proper if given at least 10 days before such sale or other disposition.

Section 5.2 Pledged Collateral.

(a) During the continuance of an Event of Default, upon notice by Lender to Borrower or Grantors, (i) Lender shall have the right to receive any and all cash dividends, payments or other Proceeds paid in respect of the Pledged Collateral and make application thereof to the Obligations in the order set forth in the Credit Agreement, and (ii) Lender or its nominee may exercise (A) all voting, consent, corporate and other rights pertaining to the Pledged Collateral at any meeting of shareholders, partners or members, as the case may be, of the relevant issuer or issuers of Pledged Collateral or otherwise and (B) any and all rights of conversion, exchange and subscription and any other rights, privileges or options pertaining to the Pledged Collateral as if it were the absolute owner thereof (including the right to exchange at its discretion any and all of the Pledged Collateral upon the merger, consolidation, reorganization, recapitalization or other fundamental change in the corporate structure of any issuer of Pledged Securities, the right to deposit and deliver any and all of the Pledged Collateral with any committee, depositary, transfer agent, registrar or other designated agency upon such terms and conditions as Lender may determine), all without liability except to account for property actually received by it, but Lender shall have no duty to Grantors to exercise any such right, privilege or option and shall not be responsible for any failure to do so or delay in so doing.

(b) In order to permit Lender to exercise the voting and other consensual rights which it may be entitled to exercise pursuant hereto and to receive all dividends and other distributions which it may be entitled to receive hereunder, (i) upon the occurrence and during the continuance of an Event of Default, each Grantor shall promptly execute and deliver (or cause to be executed and delivered) to Lender all such proxies, dividend payment orders and other instruments as Lender may from time to time reasonably request and (ii) without limiting the effect of clause (i) above, each Grantor hereby grants to Lender an irrevocable proxy to vote all or any part of the Pledged Collateral owned by such Grantor and to exercise all other rights, powers, privileges and remedies to which a holder of the Pledged Collateral would be entitled (including giving or withholding written consents of shareholders, partners or members, as the case may be, calling special meetings of shareholders, partners or members, as the case may be, and voting at such meetings), which proxy shall be effective, automatically and without the necessity of any action (including any transfer of any Pledged Collateral on the

EXHIBIT 10.28.1

Revolving Credit Agreement

record books of the issuer thereof) by any other person (including the issuer of such Pledged Collateral or any officer or agent thereof) during the continuance of an Event of Default and which proxy shall only terminate upon the payment in full of the Guaranteed Obligations (in respect of Loans and Reimbursement Obligations and interest and fees thereon and expenses related thereto) and the termination of the Commitment.

(c) Each Grantor hereby expressly authorizes and instructs each issuer of any Pledged Collateral pledged hereunder by such Grantor to (i) comply with any instruction received by it from Lender in writing that (A) states that an Event of Default has occurred and is continuing and (B) is otherwise in accordance with the terms of this Agreement, without any other or further instructions from such Grantor, and such Grantor agrees that such issuer shall be fully protected in so complying and (ii) unless otherwise expressly permitted hereby, pay any dividends or other payments with respect to the Pledged Collateral directly to an Approved Deposit Account approved for such purpose by Lender.

Section 5.3 Sale of Pledged Collateral.

(a) Each Grantor recognizes that Lender may be unable to effect a sale of any or all the Pledged Collateral by reason of certain prohibitions contained in the Securities Act and applicable state securities laws or otherwise or may determine that a public sale is impracticable or not commercially reasonable and, accordingly, may resort to one or more private sales thereof to a restricted group of purchasers which will be obliged to agree, among other things, to acquire such securities for their own account for investment and not with a view to the distribution or resale thereof. Each Grantor acknowledges and agrees that any such private sale may result in prices and other terms less favorable than if such sale were a public sale and, notwithstanding such circumstances, agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner. Lender shall be under no obligation to delay a sale of any of the Pledged Collateral for the period of time necessary to permit the issuer thereof to register such securities for public sale under the Securities Act, or under applicable state securities laws, even if such issuer would agree to do so.

(b) Each Grantor agrees to use its commercially reasonable efforts to do or cause to be done all such acts as may be necessary to make such sale or sales of all or any portion of the Pledged Collateral owned by it pursuant to this Section 5.3 valid and binding and in compliance with any and all applicable Requirements of Law; provided, however, that such Grantor shall not be obligated to register any portion of the Pledged Collateral under the provisions of the Securities Act. Each Grantor further agrees that a breach of any of the covenants contained in this Section 5.3 will cause irreparable injury to Lender, that Lender has no adequate remedy at law in respect of such breach and, as a consequence, that each and every covenant contained in this Section 5.3 shall be specifically enforceable against such Grantor, and such Grantor hereby waives and agrees not to assert any defenses against an action for specific performance of such covenants except for a defense that no Event of Default has occurred and is continuing.

Section 5.4 Deficiency. Each Grantor shall remain liable for any deficiency if the proceeds of any sale or other disposition of the Collateral are insufficient to pay the Guaranteed Obligations and the fees and disbursements of any attorneys employed by Lender to collect such deficiency.

ARTICLE VI

POWER OF ATTORNEY

Section 6.1 Lender's Appointment as Attorney-in-Fact.

(a) Each Grantor hereby irrevocably constitutes and appoints Lender and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of such Grantor and in the name of such Grantor or in its own name, for the purpose of carrying out the terms of this Agreement, to take any and all appropriate action and to execute any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this Agreement, and, without limiting the generality of the foregoing, such Grantor hereby gives Lender the power and right, on behalf of such Grantor, without notice to or assent by such Grantor, to do any or all of the following:

EXHIBIT 10.28.1

Revolving Credit Agreement

(i) pay or discharge taxes and Liens levied or placed on the Collateral, effect any repairs or any insurance called for by the terms of this Agreement and pay all or any part of the premiums therefor and the costs thereof;

(ii) execute, in connection with any sale provided for in Section 5.1 or 5.3, any endorsements, assignments or other instruments of conveyance or transfer with respect to the Collateral; and

(iii) (A) direct any party liable for any payment under any of the Collateral to make payment of any and all moneys due or to become due thereunder directly to Lender or as Lender shall direct; (B) ask or demand for, collect, and receive payment of and receipt for, any and all moneys, claims and other amounts due or to become due at any time in respect of or arising out of any Collateral; (C) commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to enforce any other right in respect of any Collateral; (D) defend any suit, action or proceeding brought against such Grantor with respect to any Collateral; (E) settle, compromise or adjust any such suit, action or proceeding and, in connection therewith, give such discharges or releases as Lender may deem appropriate; and (F) generally, sell, transfer, pledge and make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though Lender were the absolute owner thereof for all purposes, and do, at Lender's option and such Grantor's expense, at any time, or from time to time, all acts and things which Lender deems necessary to protect, preserve or realize upon the Collateral and Lender's security interests therein and to effect the intent of this Agreement, all as fully and effectively as such Grantor might do.

Anything in this Section 6.1(a) to the contrary notwithstanding, Lender agrees that it will not exercise any rights under the power of attorney provided for in this Section 6.1(a) unless an Event of Default shall have occurred and be continuing.

(b) If any Grantor fails to perform or comply with any of its agreements contained herein, and such failure constitutes an Event of Default, Lender (so long as such Event of Default is continuing), at its option, but without any obligation so to do, may perform or comply, or otherwise cause performance or compliance, with such agreement.

(c) The expenses of Lender incurred in connection with actions undertaken as provided in this Section 6.1, together with interest thereon at a rate per annum equal to the Applicable Rate at which interest would then be payable on past due Loans under the Credit Agreement, from the date of payment by Lender to the date reimbursed by Grantors, shall be payable by Grantors to Lender on demand.

(d) Each Grantor hereby ratifies all that said attorneys shall lawfully do or cause to be done by virtue hereof. All powers, authorizations and agencies contained in this Agreement are coupled with an interest and are irrevocable until this Agreement is terminated and the security interests created hereby are released.

Section 6.2 Duty of Lender. Lender's sole duty with respect to the custody, safekeeping and physical preservation of the Collateral in its possession shall be to deal with it in the same manner as Lender deals with similar property for its own account. Subject to applicable law, neither Lender nor any of its officers, directors, employees or agents shall be liable for failure to demand, collect or realize upon any of the Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Collateral upon the request of any Grantor or any other Person or to take any other action whatsoever with regard to the Collateral or any part thereof. The powers conferred on Lender hereunder are solely to protect Lender's interest in the Collateral and shall not impose any duty upon Lender to exercise any such powers. Lender shall be accountable only for amounts that Lender actually receives as a result of the exercise of such powers, and neither Lender nor any of its officers, directors, employees or agents shall be responsible to Grantors for any act or failure to act hereunder.

Section 6.3 Execution of Financing Statements. Each Grantor authorizes Lender to file or record financing statements and other filing or recording documents or instruments with respect to the Collateral in such form and in such offices as Lender reasonably determines appropriate to perfect the security interests of Lender under this Agreement. A photographic or other reproduction of this Agreement shall be sufficient as a financing statement or other filing or recording document or instrument for filing or recording in any jurisdiction.

EXHIBIT 10.28.1

Revolving Credit Agreement

ARTICLE VII

MISCELLANEOUS

Section 7.1 Amendments in Writing. None of the terms or provisions of this Agreement may be waived, amended, supplemented or otherwise modified except in accordance with Section 10.1 of the Credit Agreement.

Section 7.2 Notices. All notices, requests and demands to or upon Lender or Grantors hereunder shall be effected in the manner provided for in Section 10.6 of the Credit Agreement.

Section 7.3 No Waiver by Course of Conduct; Cumulative Remedies. Lender shall not by any act (except by a written instrument pursuant to Section 7.1), delay, indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any Default or Event of Default. No failure to exercise, nor any delay in exercising, on the part of Lender any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by Lender of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which Lender would otherwise have on any future occasion. The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law.

Section 7.4 Successors and Assigns. This Agreement shall be binding upon the successors and assigns of Grantors and shall inure to the benefit of Lender and its successors and assigns; provided, however, that no Grantor may assign, transfer or delegate any of its rights or obligations under this Agreement without the prior written consent of Lender.

Section 7.5 Counterparts. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts (including by telecopy), and all of said counterparts taken together shall be deemed to constitute one and the same agreement.

Section 7.6 Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

Section 7.7 Section Headings. The Article and Section titles contained in this Agreement are and shall be without substantive meaning or content of any kind whatsoever and are not part of the agreement of the parties hereto.

Section 7.8 Entire Agreement. This Agreement together with the other Loan Documents represents the entire agreement of the parties and supersedes all prior agreements and understandings relating to the subject matter hereof.

Section 7.9 Governing Law. This agreement and the rights and obligations of the parties hereto shall be governed by, and construed and interpreted in accordance with, the law of the state of New York.

Section 7.10 Release of Collateral; Termination.

(a) Upon termination of the Commitment and payment and satisfaction in full of all Loans, Reimbursement Obligations and all other Guaranteed Obligations which have matured and which are then due and payable, the Collateral shall automatically be released from the Lien created hereby and this Agreement and all obligations (other than those expressly stated to survive such termination) of Lender and Grantors hereunder shall immediately terminate, all without delivery of any instrument or performance of any act by any party, and all rights to the Collateral shall revert to Grantors. At the request and sole expense of any Grantor following any such termination, Lender shall deliver to such Grantor any Collateral of such Grantor held by Lender hereunder and execute and deliver to such Grantor such documents as such Grantor shall reasonably request to evidence such termination.

EXHIBIT 10.28.1

Revolving Credit Agreement

(b) If any of the Collateral shall be sold or disposed of by any Grantor in a transaction permitted by the Credit Agreement or the Subsidiary Guarantee (including by operation of Lender's written consent or waiver), the Collateral so sold or disposed of shall be automatically released from the Lien created hereby and, in connection therewith, Lender, at the request and sole expense of such Grantor, shall execute and deliver to such Grantor all releases or other documents reasonably necessary or desirable for the release of the Lien created hereby on such Collateral.

Section 7.11 Reinstatement. Each Grantor further agrees that, if any payment made by such Grantor or any other Person and applied to the Guaranteed Obligations is at any time annulled, avoided, set aside, rescinded, invalidated, declared to be fraudulent or preferential or otherwise required to be refunded or repaid, or the proceeds of Collateral are required to be returned by Lender to such person, its estate, trustee, receiver or any other party, including such Grantor, under any bankruptcy law, state or federal law, common law or equitable cause, then, to the extent of such payment or repayment, any Lien or other Collateral securing such liability shall be and remain in full force and effect, as fully as if such payment had never been made or, if prior thereto the Lien granted hereby or other Collateral securing such liability hereunder shall have been released or terminated), such Lien or other Collateral shall be reinstated in full force and effect, and such prior release or termination shall not diminish, release, discharge, impair or otherwise affect any Lien or other Collateral securing the obligations of such Grantor in respect of the amount of such payment.

[SIGNATURE PAGES FOLLOW]

EXHIBIT 10.28.1

Revolving Credit Agreement

IN WITNESS WHEREOF, each of the undersigned has caused this Subsidiary Pledge Agreement to be duly executed and delivered as of the date first above written.

			UNION CARBIDE SUBSIDIARY C, INC.
			By:	/s/ JOHN R. DEARBORN
			Name:	John R. Dearborn
			Title:	President
			UCMG LLC
			By:	/s/ DANIEL C. SCHEID
			Name:	Daniel C. Scheid
			Title:	President
			CATALYSTS, ADSORBENTS AND PROCESS SYSTEMS, INC.
			By:	/s/ LEE P. MCMASTER
			Name:	Lee P. McMaster
			Title:	President
ACCEPTED AND AGREED: THE DOW CHEMICAL COMPANY
By:	/s/ J. P. REINHARD
	Name:	J. P. Reinhard
	Title:	Executive Vice President and Chief Financial Officer

EXHIBIT 10.28.1

Revolving Credit Agreement

Schedule 1
State of Organization; Principal Place of Business

1.	Union Carbide Subsidiary C, Inc.
	Jurisdiction of organization:	Delaware
	I.R.S. Employer Identification Number:	06-1084227
	Principal place of business:	39 Old Ridgebury Road Danbury, Connecticut 06817-0001
2.	UCMG LLC
	Jurisdiction of organization:	Delaware
	I.R.S. Employer Identification Number:	06-1557912
	Principal place of business:	39 Old Ridgebury Road Danbury, Connecticut 06817-0001
3.	Catalysts, Adsorbents and Process Systems, Inc.
	Jurisdiction of organization:	Maryland
	I.R.S. Employer Identification Number:	512-1238162
	Principal place of business:	39 Old Ridgebury Road Danbury, Connecticut 06817-0001

EXHIBIT 10.28.1

Revolving Credit Agreement

Schedule 2
Pledged Collateral¹

1.: Pledged Stock

Issuer		Holder		Shares		Class (if known)		% Ownership
Optimal Glycols (Malaysia) Sdn. Bhd.*		UCMG LLC		128,518		Ordinary		50

2.: Pledged Partnership Interests

None.

3.: Pledged LLC Interests

Issuer		Holder		Shares		Class (if known)		% Ownership
Univation Technologies, LLC*		Union Carbide Subsidiary C, Inc.						50
UOP LLC		Catalysts, Adsorbents and Process Systems, Inc.						50

4.: Pledged Notes

None.

¹: The security interests granted with respect to some of the Pledged Collateral identified on this Schedule 2 are limited by Section 2.1 of the Agreement.
*: These entities constitute Designated Joint Ventures, pursuant to Exhibit J of the Participation Agreement, dated April 1, 2000, by and among UCC, First Security Bank, National Association, First Security Trust Company of Nevada, the Certificate Purchasers, the Liquidity Banks, Hatteras Funding Corporation and Bank of America National Association (the "Participation Agreement").

EXHIBIT 10.28.1

Revolving Credit Agreement

Schedule 3
Required Action for Perfection

1. Union Carbide Subsidiary C, Inc. must obtain the consent of Exxon Chemical Licensing Company in order to pledge its interest in Univation Technologies, LLC ("Univation") to TDCC.

2. UCMG LLC must obtain the consent of Petroliam Nasional Berhad (Petronas) in order pledge its shares of Optimal Glycols (Malaysia) Sdn. Bhd. ("Optimal Glycols") to TDCC.

3. Catalysts, Adsorbents and Process Systems, Inc. must obtain the consent of EM Sector Holdings Inc. in order to pledge its interest in UOP LLC ("UOP") to TDCC.

4. Once each of the above consents has been obtained, the pledge must be made and TDCC must maintain possession of the certificated interests.

5. UCC-1's must be filed for non-certificated interests.

6. Any consent required in the financing documents related to (i) EQUATE Petrochemical Company K.S.C., (ii) Asian Acetyls Co., Ltd., (iii) UOP, (iv) Nippon Unicar Co., Ltd. (v) Univation and (vi) Optimal Glycols, Optimal Chemicals (Malaysia) Sdn. Bhd. and Optimal Olefins (Malaysia) Sdn. Bhd.

7. Such actions as foreign counsel advises are necessary for the perfection of interests in non-U.S. entities.

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Schedule 1 State of Organization; Principal Place of Business
EX-10.29-1 5 a2115943zex-10_291.htm EX-10.29.1
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EXHIBIT 10.29.1

First Amendment to Pledge and Security Agreement

This First Amendment to the Pledge and Security Agreement (this "Amendment") is effective as of March 25, 2003, by UNION CARBIDE CORPORATION, a New York corporation ("Grantor"), in favor of THE DOW CHEMICAL COMPANY, a Delaware corporation ("Lender"), and is made with reference to that certain Pledge and Security Agreement dated March 25, 2003 (the "Pledge and Security Agreement") between Grantor and Lender. Capitalized terms used in this Amendment, but not defined in this Amendment, are as defined in the Pledge and Security Agreement.

BACKGROUND

Grantor and Lender desire to amend Section 2.1 of the Pledge and Security Agreement.

AGREEMENT

In consideration of the premises, agreements, provisions, and covenants contained in this Amendment and the Pledge and Security Agreement, the parties now agree as follows:

1.: Amendment to Section 2.1. Section 2.1 of the Pledge and Security Agreement is amended by replacing, in its entirety, the notwithstanding clause immediately following Subsection 2.1(d) with the following notwithstanding clause:
: "Notwithstanding anything to the contrary contained above: (1) to the extent the security interest created by this Agreement is securing indebtedness for borrowed money or guarantees of indebtedness for borrowed money (collectively "Funded Debt"), such security interest shall not extend to, and the term "Collateral" shall not include, any Restricted Property (except to the extent the aggregate Funded Debt secured by Restricted Property hereunder does not exceed at any time outstanding 10% of Consolidated Net Tangible Assets); (2) so long as Grantor is bound by Section 5.5 of the Participation Agreement, the maximum principal amount of Debt Obligations secured hereunder shall not exceed at any time outstanding the sum of (x) $800,000,000 plus (y) the amount of Debt Obligations to the extent secured by Designated Joint Ventures; (3) to the extent a grant of a security interest in any Pledged Collateral would constitute a violation or breach of any other agreement by which Grantor is bound and acceptable arrangements, such as consents or amendments, cannot be made to avoid a violation or breach of such other agreement by which Grantor is bound, such Pledged Collateral will be excluded from "Collateral;" and (4) to the extent a grant of a security interest in any Deposit Account for which the relevant depository bank's jurisdiction is not in the United States and acceptable arrangements cannot be made in the United States, such Deposit Account will be excluded from "Collateral." The parties hereto agree that the amount of Debt Obligations that may be secured under this Agreement is limited under clauses (1) and (2) above, as required under the Indenture and the Participation Agreement, to only a portion of the aggregate Debt Obligations owing or which may become owing by Grantor to Lender and that any payments or repayments of such Debt Obligations shall be and be deemed to be applied first to the portion of such Debt Obligations that is not secured hereby, it being the parties' intent that the portion of such Debt Obligations last remaining unpaid shall be secured hereby."
2.: No Other Amendment or Waiver. Notwithstanding the agreement of Lender to the terms and provisions of this Amendment, Grantor acknowledges and expressly agrees that this Amendment is limited to the extent expressly set forth in this Amendment and will not constitute a modification of the Pledge and Security Agreement or any other Loan Document or a course of dealing at variance with the terms of the Pledge and Security Agreement or any other Loan Document (other than as expressly set forth above) so as to require further notice by Lender of its intent to require strict adherence to the terms of the Pledge and Security Agreement and the other Loan Documents in the future. All of the terms, conditions, provisions, and covenants of the Pledge and Security Agreement and the other Loan Documents will remain unaltered and in full force and effect except as expressly modified by this Amendment. The Pledge and Security Agreement and each other Loan Document will be deemed modified by this Amendment solely to the extent necessary to effect the waivers and amendments contemplated by this Amendment.
3.: Execution in Counterparts. This Amendment may be executed in any number of counterparts and by different parties in separate counterparts, each of which when so executed will be deemed to be an original and all of which taken together will constitute one and the same agreement. Signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are attached to the same document.

EXHIBIT 10.29.1

First Amendment to Pledge and Security Agreement

4.: Governing Law. This Amendment and the rights and obligations of the parties to this Amendment will be governed by, and construed and interpreted in accordance with, the law of the State of New York.

The parties agree that this Amendment is effective as of March 25, 2003, and they have caused their authorized representatives to execute this Amendment as dated below.

GRANTOR:		LENDER:
UNION CARBIDE CORPORATION		THE DOW CHEMICAL COMPANY
By:	/s/ EDWARD W. RICH	By:	/s/ J.P. REINHARD
Name:	Edward W. Rich	Name:	J.P. Reinhard
Title:	Chief Financial Officer, Vice President, and Treasurer	Title:	Executive Vice President and Chief Financial Officer
Date:	June 16, 2003	Date:	June 16, 2003

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EX-23 6 a2115943zex-23.htm EX-23
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EXHIBIT 23

Analysis, Research & Planning Corporation's Consent

Union Carbide Corporation:

Analysis, Research & Planning Corporation ("ARPC") hereby consents to the use of ARPC's name and the reference to ARPC's report dated January 9, 2003, appearing in this Quarterly Report on Form 10-Q of Union Carbide Corporation for the quarter ended June 30, 2003.

/s/ B. THOMAS FLORENCE

B. Thomas Florence
President
Analysis, Research & Planning Corporation
July 25, 2003

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Analysis, Research & Planning Corporation's Consent
EX-31.1 7 a2115943zex-31_1.htm EX-31.1
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EXHIBIT 31.1

Union Carbide Corporation and Subsidiaries

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, John R. Dearborn, President and Chief Executive Officer of Union Carbide Corporation, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of Union Carbide Corporation;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a): designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b): evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c): disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a): all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b): any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: August 5, 2003
		/s/ JOHN R. DEARBORN John R. Dearborn President and Chief Executive Officer

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EX-31.2 8 a2115943zex-31_2.htm EX-31.2
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EXHIBIT 31.2

Union Carbide Corporation and Subsidiaries

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Edward W. Rich, Vice President, Treasurer and Chief Financial Officer of Union Carbide Corporation, certify that:

1.

I have reviewed this report on Form 10-Q of Union Carbide Corporation;

2.

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

a): designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b): evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c): disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

a): all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b): any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: August 5, 2003
		/s/ EDWARD W. RICH Edward W. Rich Vice President, Treasurer and Chief Financial Officer

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Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
EX-32.1 9 a2115943zex-32_1.htm EX-32.1
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EXHIBIT 32.1

Union Carbide Corporation and Subsidiaries

Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

I, John R. Dearborn, President and Chief Executive Officer of Union Carbide Corporation (the "Corporation"), certify that:

1.: the Quarterly Report on Form 10-Q of the Corporation for the quarterly period ended June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.: the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.

A signed original of this written statement required by Section 906 has been provided to Union Carbide Corporation and will be retained by Union Carbide Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

/s/ JOHN R. DEARBORN

John R. Dearborn
President and Chief Executive Officer
August 5, 2003

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Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
EX-32.2 10 a2115943zex-32_2.htm EX-32.2
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EXHIBIT 32.2

Union Carbide Corporation and Subsidiaries

Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

I, Edward W. Rich, Vice President, Treasurer and Chief Financial Officer of Union Carbide Corporation (the "Corporation"), certify that:

1.: the Quarterly Report on Form 10-Q of the Corporation for the quarterly period ended June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.: the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.

/s/ EDWARD W. RICH

Edward W. Rich
Vice President, Treasurer and
Chief Financial Officer
August 5, 2003

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Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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