-----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, NbtvlwlA/rqkj5itdHiCyimtSSvGJX0Sp4rAy4p9eqGBsk2fCzA8YhELJ6YZWIu9 kLjIQ9YByKMExNGIuAJArg== 0001104659-05-051422.txt : 20051101 0001104659-05-051422.hdr.sgml : 20051101 20051101104724 ACCESSION NUMBER: 0001104659-05-051422 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20050930 FILED AS OF DATE: 20051101 DATE AS OF CHANGE: 20051101 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: 051168424 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 a05-19247_110q.htm QUARTERLY REPORT PURSUANT TO SECTIONS 13 OR 15(D)

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 QUARTERLY PERIOD ENDED September 30, 2005

Commission file number 1-1463

UNION CARBIDE CORPORATION

(Exact name of registrant as specified in its charter)

New York		13-1421730
(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)

400 West Sam Houston Parkway South, Houston, Texas 77042

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: 713-978-2016

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 Exchange Act). Yes o No ý.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No ý.

At September 30, 2005, 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 Income		3

Consolidated Balance Sheets		4

Consolidated Statements of Cash Flows		5

Consolidated Statements of Comprehensive Income		5

Notes to the Consolidated Financial Statements		6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.		14

Disclosure Regarding Forward-Looking Information		14

Results of Operations		14

Other Matters		15

Item 3. Quantitative and Qualitative Disclosures About Market Risk.		18

Item 4. Controls and Procedures.		18

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.		18

Item 6. Exhibits.		18

SIGNATURES		19

EXHIBIT INDEX		20

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

Union Carbide Corporation and Subsidiaries
Consolidated Statements of Income

	Three Months Ended						Nine Months Ended
	Sept. 30,			Sept. 30,			Sept. 30,		Sept. 30,
In millions (Unaudited)	2005			2004			2005		2004
Net trade sales	$	73		$	75		$	218	$	238
Net sales to related companies	1,392			1,427			4,515		3,934
Total Net Sales	1,465			1,502			4,733		4,172
Cost of sales	1,321			1,331			4,145		3,732
Research and development expenses	19			21			58		68
Selling, general and administrative expenses	4			5			14		15
Amortization of intangibles	—			1			—		3
Restructuring charges	—			—			—		48
Equity in earnings of nonconsolidated affiliates	105			133			356		427
Sundry income (expense) - net	(2		)	(23		)	51		(78		)
Interest income	6			2			16		5
Interest expense and amortization of debt discount	15			24			57		70
Income before Income Taxes	215			232			882		590
Provision for income taxes	31			64			228		193
Net Income Available for Common Stockholder	$	184		$	168		$	654	$	397
Depreciation	$	66		$	81		$	201	$	241
Capital Expenditures	$	45		$	32		$	139	$	91

See Notes to the Consolidated Financial Statements.

Union Carbide Corporation and Subsidiaries

Consolidated Balance Sheets

	Sept. 30,			Dec. 31,
In millions (Unaudited)	2005			2004
Assets
Current Assets
Cash and cash equivalents	$	44		$	22
Accounts receivable:
Trade (net of allowance for doubtful receivables - 2005: $3; 2004: $4)	43			58
Related companies	286			504
Other	176			191
Notes receivable from related companies	505			53
Inventories	207			186
Deferred income tax assets - current	80			71
Asbestos-related insurance receivables - current	115			175
Total current assets	1,456			1,260
Investments
Investments in related companies	462			462
Investments in nonconsolidated affiliates	962			1,041
Other investments	24			23
Noncurrent receivables	10			13
Noncurrent receivable from related company	209			222
Total investments	1,667			1,761
Property
Property	7,331			7,304
Less accumulated depreciation	5,311			5,227
Net property	2,020			2,077
Other Assets
Goodwill	26			26
Other intangible assets (net of accumulated amortization - 2005: $119; 2004: $124)	21			20
Deferred income tax assets - noncurrent	224			452
Asbestos-related insurance receivables - noncurrent	854			1,028
Prepaid pension expense	732			655
Deferred charges and other assets	45			52
Total other assets	1,902			2,233
Total Assets	$	7,045		$	7,331

Liabilities and Stockholder’s Equity
Current Liabilities
Notes payable:
Related companies	$	7		$	139
Other	3			4
Long-term debt due within one year	3			266
Accounts payable:
Trade	204			260
Related companies	197			270
Other	57			40
Income taxes payable	125			116
Asbestos-related liabilities - current	94			92
Accrued and other current liabilities	250			360
Total current liabilities	940			1,547
Long-Term Debt	834			1,006
Other Noncurrent Liabilities
Pension and other postretirement benefits - noncurrent	464			470
Asbestos-related liabilities - noncurrent	1,426			1,549
Other noncurrent obligations	406			433
Total other noncurrent liabilities	2,296			2,452
Minority Interest in Subsidiaries	4			4
Stockholder’s Equity
Common stock (1,000 shares authorized and issued)	—			—
Additional paid-in capital	—			—
Retained earnings	3,087			2,433
Accumulated other comprehensive loss	(116		)	(111		)
Net stockholder’s equity	2,971			2,322
Total Liabilities and Stockholder’s Equity	$	7,045		$	7,331

See Notes to the Consolidated Financial Statements.

Union Carbide Corporation and Subsidiaries
Consolidated Statements of Cash Flows

		Nine Months Ended
		Sept. 30,			Sept. 30,
In millions (Unaudited)		2005			2004
Operating Activities
	Net Income Available for Common Stockholder	$	654		$	397
	Adjustments to reconcile net income to net cash provided by
	operating activities:
	Depreciation and amortization	222			258
	Provision for deferred income tax	208			177
	Earnings/losses of nonconsolidated affiliates less than (in excess of) dividends received	1			(285		)
	Gain on sales of investments, net	(9		)	(1		)
	Gain on sales of property, net	(3		)	(7		)
	Other (gain) loss, net	(1		)	1
	Gain on sale of ownership interest in nonconsolidated affiliates	(70		)	(1		)
	Restructuring charges	—			37
	Changes in assets and liabilities that provided (used) cash:
	Accounts and notes receivable	29			5
	Related company receivables	(234		)	16
	Inventories	(21		)	(8		)
	Accounts payable	(9		)	4
	Related company payables	(205		)	9
	Other assets and liabilities	(24		)	(319		)
	Cash provided by operating activities	538			283
Investing Activities
	Capital expenditures	(139		)	(91		)
	Proceeds from sales of property	7			10
	Investments in nonconsolidated affiliates	—			(1		)
	Distributions from nonconsolidated affiliates	41			—
	Changes in noncurrent receivable from related company	13			(195		)
	Purchases of investments	(1		)	—
	Proceeds from sales of nonconsolidated affiliates	—			1
	Proceeds from sales of investments	—			9
	Cash used in investing activities	(79		)	(267		)
Financing Activities
	Changes in short-term notes payable	(1		)	2
	Payments on long-term debt	(436		)	(16		)
	Cash used in financing activities	(437		)	(14		)
Summary
	Increase in cash and cash equivalents	22			2
	Cash and cash equivalents at beginning of year	22			21
	Cash and cash equivalents at end of period	$	44		$	23

See Notes to the Consolidated Financial Statements.

Union Carbide Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income

	Three Months Ended						Nine Months Ended
	Sept. 30,			Sept. 30,			Sept. 30,			Sept. 30,
In millions (Unaudited)	2005			2004			2005			2004
Net Income Available for Common Stockholder	$	184		$	168		$	654		$	397
Other Comprehensive Income (Loss), Net of Tax
Translation adjustments	(2		)	(7		)	(12		)	(8		)
Minimum pension liability adjustment	—			—			6			—
Net gain on cash flow hedging derivative instruments	1			1			1			2
Total other comprehensive loss	(1		)	(6		)	(5		)	(6		)
Comprehensive Income	$	183		$	162		$	649		$	391

See Notes to the Consolidated Financial Statements.

Union Carbide Corporation and Subsidiaries

Notes to the Consolidated Financial Statements

(Unaudited)

NOTE A CONSOLIDATED FINANCIAL STATEMENTS

The unaudited interim consolidated financial statements of Union Carbide Corporation and its subsidiaries (the “Corporation” or “UCC”) were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and reflect all adjustments (including normal recurring accruals) which, in the opinion of management, are considered necessary for the fair presentation of the results for the periods presented.

The Corporation is a wholly owned subsidiary of The Dow Chemical Company (“Dow”). 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. 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.

Intercompany transactions and balances are eliminated in consolidation. 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 H for further discussion.

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, 2004.

NOTE B ACCOUNTING CHANGES

In November 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 151, “Inventory Costs – an amendment of ARB No. 43, Chapter 4,” which clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage) and also requires that the allocation of fixed production overhead be based on the normal capacity of the production facilities. SFAS No. 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. Because the Corporation uses nameplate capacity to calculate product costs, UCC expects to record an immaterial favorable impact on the Corporation’s consolidated financial statements in the period of adoption.

In December 2004, the FASB issued revised SFAS No. 123 (“SFAS No. 123R”), “Share-Based Payment” which replaces SFAS No. 123, “Accounting for Stock-Based Compensation” and supersedes Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees.” This statement, which requires that the cost of all share-based payment transactions be recognized in the financial statements, establishes fair value as the measurement objective and requires entities to apply a fair-value-based measurement method in accounting for share-based payment transactions. As issued, the statement applies to all awards granted, modified, repurchased or cancelled after July 1, 2005. In March 2005, the U.S. Securities and Exchange Commission (the “SEC”) issued Staff Accounting Bulletin (“SAB”) No. 107, which expresses views of the SEC staff regarding the interaction between SFAS No. 123R and certain SEC rules and regulations, and provides the staff’s views regarding the valuation of share-based payment arrangements for public companies. Dow will consider the guidance of this SAB as it adopts SFAS No. 123R. On April 14, 2005, the SEC announced the adoption of a new rule that amends the compliance date for SFAS No. 123R, allowing companies to implement the statement at the beginning of their next fiscal year that begins after June 15, 2005, which is January 1, 2006 for Dow. The Corporation will continue to be allocated the portion of expense relating to its employees who receive stock-based compensation.

In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets – an amendment of APB Opinion No. 29.” The statement addresses the measurement of exchanges of nonmonetary assets and eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets and replaces it with an exception for exchanges that do not have commercial substance. SFAS No. 153 is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The Corporation has determined that its practices are consistent with the guidance of this statement; therefore, the adoption of SFAS No. 153 on July 1, 2005, had no impact on the Corporation’s consolidated financial statements.

In December 2004, the FASB issued FASB Staff Position (“FSP”) No. FAS 109-1, “Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004,” indicating that this deduction should be accounted for as a special deduction in accordance with the provisions of SFAS No. 109. Beginning in 2005, the Corporation recognizes the allowable deductions as qualifying activity occurs.

In December 2004, the FASB issued FSP No. FAS 109-2, “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004,” which provides a practical exception to the SFAS No. 109 requirement to reflect the effect of a new tax law in the period of enactment by allowing additional time beyond the financial reporting period to evaluate the effects on plans for reinvestment or repatriation of unremitted foreign earnings. The American Jobs Creation Act of 2004 (the “Act”) introduced a special one-time dividends received deduction on the repatriation of certain foreign earnings to a U.S. taxpayer, provided certain criteria are met. In May 2005, tax authorities released the clarifying language necessary to enable Dow to complete its determination regarding the repatriation and reinvestment of foreign earnings. Dow intends to repatriate funds from a foreign entity that is partially owned by the Corporation. Since the Corporation is included in Dow’s consolidated federal income tax group and consolidated tax return, as the foreign entity repatriates its earnings, the Corporation will recognize dividend income and its share of the related tax impact of the repatriation provision of the Act, in accordance with the terms of the Dow-UCC Tax Sharing Agreement.

In March 2005, the FASB issued FASB Interpretation (“FIN”) No. 47, “Accounting for Conditional Asset Retirement Obligations,” which clarifies the term conditional asset retirement obligation as used in SFAS No. 143, “Accounting for Asset Retirement Obligations,” as a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the Corporation. FIN No. 47 is effective no later than the end of fiscal years ending after December 15, 2005..The Corporation expects the adoption of FIN No. 47 on December 31, 2005 to have an immaterial impact on the Corporation’s consolidated financial statements.

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections,” which replaces APB Opinion No. 20, “Accounting Changes,” and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements,” and provides guidance on the accounting for and reporting of accounting changes and error corrections. SFAS No. 154 applies to all voluntary changes in accounting principle and requires retrospective application (a term defined by the statement) to prior periods’ financial statements, unless it is impracticable to determine the effect of a change. It also applies to changes required by an accounting pronouncement that does not include specific transition provisions. In addition, SFAS No. 154 redefines restatement as the revising of previously issued financial statements to reflect the correction of an error. The statement is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Corporation will adopt SFAS No. 154 beginning January 1, 2006.

NOTE C RESTRUCTURING

2004 Restructuring

In the second quarter of 2004, the Corporation recorded restructuring charges totaling $48 million resulting from decisions made by management in the second quarter relative to employment levels as Dow restructured its business organization and as the Corporation finalized plans for additional plant shutdowns and divestitures. The charges included severance of $21 million for a workforce reduction of approximately 360 people, most of whom ended their employment with UCC by the end of the third quarter of 2004, and curtailment costs of $9 million associated with UCC’s defined benefit plans.

In the second quarter of 2005, the estimated workforce reduction was revised to reflect employee redeployment and the severance accrual was reduced by $2 million (reflected in “Cost of sales”), bringing the 2004 employee-related restructuring program to a close. As of September 30, 2005, the Corporation’s workforce had been reduced by 348 people due to this restructuring and severance of $19 million had been paid.

NOTE D INVENTORIES

The following table provides a breakdown of inventories at September 30, 2005 and December 31, 2004:

Inventories In millions	Sept. 30, 2005		Dec. 31, 2004
Finished goods	$	65	$	60
Work in process	22		25
Raw materials	40		32
Supplies	80		69
Total inventories	$	207	$	186

The reserves reducing inventories from the first-in, first-out (“FIFO”) basis to the last-in, first-out (“LIFO”) basis amounted to $174 million at September 30, 2005 and $139 million at December 31, 2004.

NOTE E OTHER INTANGIBLE ASSETS

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

Other Intangible Assets	At September 30, 2005							At December 31, 2004
In millions	Gross Carrying Amount		Accumulated Amortization			Net		Gross Carrying Amount		Accumulated Amortization			Net
Intangible assets with finite lives:
Licenses and intellectual property	$	33	$	(32	)	$	1	$	36	$	(35	)	$	1
Patents	4		(2		)	2		4		(2		)	2
Software	102		(84		)	18		103		(86		)	17
Other	1		(1		)	—		1		(1		)	—
Total	$	140	$	(119	)	$	21	$	144	$	(124	)	$	20

Total estimated amortization expense for 2005 and the next five fiscal years is as follows:

Estimated Amortization Expense for Next Five Years In millions
2005	$	4
2006	4
2007	4
2008	4
2009	4
2010	4

NOTE F COMMITMENTS AND CONTINGENT LIABILITIES

Environmental Matters

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 $104 million at December 31, 2004 for environmental remediation and restoration costs, including $39 million for the remediation of Superfund sites. At September 30, 2005, the Corporation had accrued obligations of $94 million for environmental remediation and restoration costs, including $35 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 disclosed will have a material adverse impact on the Corporation’s consolidated financial statements.

Litigation

The following disclosure should be read in conjunction with the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2004.

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.

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. 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.

Influenced by the bankruptcy filings of numerous defendants in asbestos-related litigation and the prospects of various forms of state and national legislative reform, the rate at which plaintiffs filed asbestos-related suits against various companies, including the Corporation and Amchem, increased in 2001, 2002 and the first half of 2003. Since then, the rate of filing has significantly abated. The Corporation expects more asbestos-related suits to be filed against it and Amchem in the future, and will aggressively defend or reasonably resolve, as appropriate, both pending and future claims.

In November 2004, the Corporation requested ARPC to review the Corporation’s historical asbestos claim and resolution activity and determine the appropriateness of updating its January 2003 study. In response to this request, ARPC reviewed and analyzed data through November 14, 2004, and again 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. ARPC did advise, however, that it was reasonable and feasible to construct a new estimate of the cost of resolving current and future asbestos-related claims using the same two widely used forecasting methodologies used by ARPC in its January 2003 study, if certain assumptions were made. As a result, the following assumptions were made and then used by ARPC:

• The number of future claims to be filed annually against UCC and Amchem is unlikely to exceed the level of claims experienced during 2004.

• The number of claims filed against UCC and Amchem annually from 2001 to 2003 is considered anomalous for the purpose of estimating future filings.

• The number of future claims to be filed against UCC and Amchem will decline at a fairly constant rate each year from 2005.

• The average resolution value for pending and future claims will be equivalent to those experienced during 2003 and 2004 (excluding settlements from closed claims filed in Madison County, Illinois with respect to future claims, as changes in the judicial environment in Madison County caused the historical experience of claims in that jurisdiction to not be predictive of results for future claims).

The resulting study completed by ARPC in January 2005 stated that the undiscounted cost of resolving pending and future asbestos-related claims against UCC and Amchem, excluding future defense and processing costs, through 2017 was estimated to be between approximately $1.5 billion and $2.0 billion, depending on which of two accepted methodologies was used. At December 31, 2004, the recorded asbestos-related liability for pending and future claims was $1.6 billion. Based on the low end of the range in the January 2005 study, the recorded asbestos-related liability for pending and future claims at December 31, 2004 would be sufficient to resolve asbestos-related claims against UCC and Amchem into 2019. As in its January 2003 study, ARPC did provide estimates for a longer period of time in its January 2005 study, but also reaffirmed its prior advice that forecasts for shorter periods of time are more accurate than those for longer periods of time. Based on

ARPC’s studies, the Corporation’s recent asbestos litigation experience, and the uncertainties surrounding asbestos litigation and legislative reform efforts, management determined that no change to the accrual was required at December 31, 2004.

Based on the Corporation’s review of 2005 activity, the Corporation determined that no change to the accrual was required at September 30, 2005.

The asbestos-related liability for pending and future claims was $1.5 billion at September 30, 2005 and $1.6 billion at December 31, 2004. At September 30, 2005, approximately 36 percent of the recorded liability related to pending claims and approximately 64 percent related to future claims. At December 31, 2004, approximately 37 percent of the recorded liability related to pending claims and approximately 63 percent related to future claims.

At December 31, 2002, the Corporation increased the receivable for insurance recoveries related to its asbestos liability to $1.35 billion, substantially exhausting its asbestos product liability coverage. 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. The Wellington Agreement and other agreements with insurers are designed to facilitate an orderly resolution and collection of the Corporation’s insurance policies and to resolve issues that the insurance carriers may raise.

The Corporation’s receivable for insurance recoveries related to its asbestos liability was $550 million at September 30, 2005 and $712 million at December 31, 2004. At September 30, 2005, $443 million ($543 million at December 31, 2004) of the receivable for insurance recoveries was related to insurers that are not signatories to the Wellington Agreement and/or do not otherwise have agreements in place regarding their asbestos-related insurance coverage.

In addition, the Corporation had receivables for defense and resolution costs submitted to insurance carriers for reimbursement as follows:

Receivables for Costs Submitted to Insurance Carriers

In millions	September 30, 2005		December 31, 2004
Receivables for defense costs	$	86	$	85
Receivables for resolution costs	333		406
Total	$	419	$	491

The Corporation expenses defense costs as incurred. The pretax impact for defense and resolution costs, net of insurance, was $24 million in the third quarter of 2005 ($19 million in the third quarter of 2004) and $56 million in the first nine months of 2005 ($92 million in the first nine months of 2004), and was reflected in “Cost of sales.”

In September 2003, the Corporation filed a comprehensive insurance coverage case in the Circuit Court for Kanawha County in Charleston, West Virginia, seeking to confirm its rights to insurance for various asbestos claims (the “West Virginia action”) and to facilitate an orderly and timely collection of insurance proceeds. Although the Corporation already has settlements in place concerning coverage for asbestos claims with many of its insurers, including those covered by the 1985 Wellington Agreement, this lawsuit was filed against insurers that are not signatories to the Wellington Agreement and/or do not otherwise have agreements in place with the Corporation regarding their asbestos-related insurance coverage, in order to facilitate an orderly resolution and collection of such insurance policies and to resolve issues that the insurance carriers may raise. In early 2004, several of the defendant insurers in the West Virginia action filed a competing action in the Supreme Court of the State of New York, County of New York. As a result of motion practice, the West Virginia action was dismissed in August 2004 on the basis of forum non conveniens (i.e., West Virginia is an inconvenient location for the parties). The comprehensive insurance coverage litigation is now proceeding in the New York courts (the “New York action”). Through the third quarter of 2005, the Corporation reached settlements with several of the carriers involved in the New York action. After a further review of its insurance policies, with due consideration given to applicable deductibles, retentions and policy limits, after taking into account the solvency and historical payment experience of various insurance carriers; existing insurance settlements; and the advice of outside counsel with respect to the applicable insurance coverage law relating to the terms and conditions of its insurance policies, the Corporation continues to believe that its recorded receivable for insurance recoveries from all insurance carriers is probable of collection.

The amounts recorded for the asbestos-related liability and related insurance receivable described above were based upon current, known facts. However, projecting future events, such as the number of new claims to be filed and/or received 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.

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 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

At December 31, 2004, the Corporation had various outstanding commitments for take or pay agreements, with terms extending from one to six years. Such commitments were not in excess of current market prices. The fixed and determinable portion of obligations under purchase commitments at December 31, 2004 is presented in the following table:

Fixed and Determinable Portion of Take or Pay Obligations at December 31, 2004 In millions
2005	$	10
2006	10
2007	10
2008	8
2009	5
2010 through expiration of contracts	5
Total	$	48

Guarantees

The Corporation has undertaken obligations to guarantee the performance of certain nonconsolidated affiliates (including the OPTIMAL Group and Nippon Unicar Company Limited) 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 and/or financial obligations by the guaranteed party would trigger the obligation of the Corporation to make payments to the beneficiary of the guarantees. Financial obligations include debt and lease arrangements.

The following table provides a summary of the final expiration, maximum future payments, and recorded liability reflected in the consolidated balance sheet for these guarantees.

Guarantees

In millions

Final
Expiration

Maximum Future
Payments

Recorded
Liability

Guarantees at September 30, 2005

2014

Guarantees at December 31, 2004

2014

114

NOTE G PENSION AND OTHER POSTRETIREMENT BENEFITS

Net Periodic Benefit Cost (Credit) for All Significant Plans

	Three Months Ended						Nine Months Ended
In millions	September 30, 2005			September 30, 2004			September 30, 2005			September 30, 2004
Defined Benefit Pension Plans:
Service cost	$	7		$	6		$	20		$	20
Interest cost	54			56			163			168
Expected return on plan assets	(85		)	(89		)	(256		)	(265		)
Amortization of prior service cost	—			1			1			3
Amortization of net loss	1			—			2			—
Special termination/curtailment cost (1)	—			—			—			2
Net periodic benefit credit	$	(23	)	$	(26	)	$	(70	)	$	(72	)

Other Postretirement Benefits:
Service cost	$	1		$	1		$	3		$	3
Interest cost	9			9			26			29
Amortization of prior service credit	—			(1		)	(1		)	(5		)
Amortization of net loss	1			1			4			3
Special termination/curtailment cost (1)	—			—			—			7
Net periodic benefit cost	$	11		$	10		$	32		$	37

(1) See Note C for information regarding curtailment costs recorded in the second quarter of 2004.

Employer Contributions

Pension Plans

The Corporation has a defined benefit pension plan that covers substantially all employees in the United States. Benefits are based on length of service and the employee’s three highest consecutive years of compensation.

The Corporation’s funding policy is to contribute to the plan when pension laws and economics either require or encourage funding. As previously disclosed in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2004, UCC does not expect to contribute assets to its qualified pension plan trust in 2005. Consistent with that expectation, no contributions were made in the first nine months of 2005. The Corporation also has a non-qualified supplemental pension plan. Benefit payments to retirees under this plan are expected to be $6 million in 2005. In the first nine months of 2005, benefit payments of $3 million were made.

Other Postretirement Benefits

The Corporation provides certain health care and life insurance benefits to retired U.S. employees. The plan provides health care benefits, including hospital, physicians’ services, drug and major medical expense coverage, and life insurance benefits. The Corporation and the retiree share the cost of these benefits, with the Corporation portion increasing as the retiree has increased years of credited service. There is a cap on the Corporation portion. These benefits are subject to change at any time.

The Corporation funds most of the cost of these health care and life insurance benefits as incurred. As previously disclosed in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2004, UCC does not expect to contribute assets to its other postretirement benefit plans in 2005. Consistent with that expectation, no contributions were made in the first nine months of 2005. Benefit payments to retirees under these plans are expected to be $63 million in 2005. In the first nine months of 2005, benefit payments of $36 million were made.

NOTE H 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 long-standing 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 income. Purchases from that Dow subsidiary were approximately $550 million in the third quarter of 2005 ($570 million in the third quarter of 2004) and $1,725 million in the first nine months of 2005 ($1,459 million in the first nine months of 2004).

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 $4 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 and foreign currency 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. At September 30, 2005, the Corporation had a note receivable of $472 million from Dow under a revolving loan agreement. The Corporation also has a separate revolving credit agreement with Dow that allows the Corporation to borrow or obtain credit enhancements up to an aggregate of $1 billion that matures December 30, 2006, however, Dow may demand repayment with a 30-day written notice to the Corporation, subject to certain restrictions. In the third quarter of 2005, the revolving credit agreement was amended to extend the maturity date from December 30, 2005 to December 30, 2006. A related collateral agreement provides for the replacement of certain existing pledged assets, primarily equity interests in various subsidiaries and joint ventures, with cash collateral. At September 30, 2005, $805 million was available under the revolving credit agreement. The cash collateral was reported as “Noncurrent receivable from related company” in the consolidated balance sheets.

In June 2005, the Corporation received a cash dividend of approximately $29 million from Dow Chemical Canada Inc. (“Dow Canada”) which was included in “Sundry income (expense) – net.” The Corporation accounts for its 11.2 percent ownership interest in Dow Canada using the cost method.

NOTE I SUBSEQUENT EVENT

On October 3, 2005, the Corporation filed a Form 8-K disclosing its wholly owned subsidiary, Catalysts, Adsorbents and Process Systems Inc., had signed a definitive agreement on September 30, 2005, to sell its 50 percent interest in UOP LLC (“UOP”) to Honeywell Specialty Materials LLC (which currently owns the remaining 50 percent interest in UOP) for a purchase price of $825 million plus or minus 50 percent of UOP’s net cash at closing. The transaction, which is subject to regulatory review, is expected to be completed in the fourth quarter of 2005 and result in the recording of a gain.

Union Carbide Corporation and Subsidiaries

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 nine-month periods ended September 30, 2005, the most recent periods, compared with the three- and nine-month periods ended September 30, 2004, the corresponding periods in the preceding fiscal year.

References below to “Dow” refer to The Dow Chemical Company and its consolidated subsidiaries, except as the context otherwise requires.

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 $184 million for the third quarter of 2005, compared with $168 million for the third quarter of 2004. Net income for the first nine months of 2005 was $654 million, compared with $397 million for the first nine months of 2004. The significant improvement in year-to-date net income was due to higher selling prices, improved operating margins, and a gain on the sale of a portion of the Corporation’s ownership interest in EQUATE Petrochemical Company K.S.C (“EQUATE”) which more than offset a decline in volume.

Total net sales for the third quarter of 2005 were $1,465 million compared with $1,502 million for the third quarter of 2004, a decrease of 2 percent. Selling prices to Dow are based on market prices for the related products. Increases in average selling prices for most products in the third quarter of 2005, compared with the same period of last year, were more than offset by lower sales volume for all products. The decline in sales volume was primarily due to disruptions in production and distribution caused by two hurricanes affecting the U.S. Gulf Coast late in the third quarter. Year to date, total net sales were $4,733 million, an increase of 13 percent from $4,172 million for the first nine months of 2004. Significant increases in average selling prices, led by polyethylene, polypropylene, glycol ethers and UCAR^TM Emulsion Systems, more than offset an overall decline in volume. Price and volume for ethylene glycol were somewhat lower than the very high levels of 2004. On a year-to-date basis, volume was also impacted by a decline in ethylene glycol volume due to scheduled plant turnarounds in the first quarter of 2005 and lower ethanol sales volume resulting from the Corporation’s exit of the industrial ethanol business in the second quarter of 2004.

Gross margin for the third quarter of 2005 was $144 million compared with $171 million for the third quarter of 2004. The decline in gross margin was principally due to higher feedstock and energy costs and the negative impact of lower operating rates resulting from plant outages caused by the hurricanes. The Corporation’s two ethylene crackers at its St. Charles facility in Hahnville, Louisiana were not restarted following the shutdown for Hurricane Katrina in late August because of plant turnarounds already scheduled for late in the third quarter of 2005. The scheduled turnarounds are expected to extend through much of the fourth quarter of 2005. Year to date, gross margin was $588 million compared with $440 million for the first nine months of 2004. Year-to-date gross margin improved as increases in selling prices more than offset higher feedstock and energy costs and lower volumes.

Equity in earnings of nonconsolidated affiliates decreased to $105 million in the third quarter of 2005 from $133 million in the third quarter of 2004. Equity earnings were impacted by an unplanned outage at EQUATE early in the third quarter of 2005. Despite strong results reported by EQUATE and UOP LLC for the first nine months of 2005, equity earnings were

$71 million lower than in the first nine months of 2004 due principally to the benefit of investment tax allowances at one of the Corporation’s joint ventures in the second quarter of 2004.

The Corporation recorded a restructuring charge totaling $48 million in the second quarter of 2004. The charge included severance of $21 million for a workforce reduction of 360 people, curtailment costs of $9 million associated with UCC’s defined benefit plans, an asset write off of $8 million associated with the shutdown of a latex manufacturing facility and a write down of the net book value of a marine terminal (sold in the third quarter of 2004) of $10 million.

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) – net for the third quarter of 2005 was net expense of $2 million compared with net expense of $23 million for the third quarter last year. Net sundry expense for the third quarter of 2005 included a gain of $9 million associated with the sale of investments, and reflected lower commission expense on feedstock purchases due to commission rate changes implemented in the second quarter of 2005. Year to date, sundry income (expense) was net income of $51 million compared with net expense of $78 million last year. Net sundry income for the first nine months of this year included dividend income of $29 million from Dow Chemical Canada Inc. (“Dow Canada”), a loss of $9 million associated with the early extinguishment of $423 million of debt, and a $70 million pretax gain on the sale of a portion of the Corporation’s interest in EQUATE in the first quarter of 2005. In November 2004, the Corporation sold a 2.5 percent interest in EQUATE to National Bank of Kuwait for $104 million. In March 2005, these shares were sold to private Kuwaiti investors thereby completing the restricted transfer, which resulted in the first quarter gain and reduced the Corporation’s ownership interest from 45 percent to 42.5 percent.

The effective tax rate fluctuates based on, among other factors, where income is earned, the level of after-tax income from joint ventures, and the level of income relative to tax credits available. The effective tax rate for the third quarter of 2005 was 14.4 percent compared with 27.6 percent for the same quarter last year. The effective tax rate for the third quarter of 2005 reflects the favorable impact of $21 million for adjustments resulting from the finalization of calculations following the closure of prior tax years. Management evaluated the significance of these adjustments to the third quarter and determined to record them in the current period. Year to date, the effective tax rate was 25.9 percent versus 32.7 percent last year. The effective tax rate for 2005 also reflects the favorable impact of $29 million of dividend income from Dow Canada, which was based on previously taxed income.

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 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, 2004 (“2004 10-K”) describes the significant accounting policies and methods used in the preparation of the Consolidated Financial Statements. The Corporation’s critical accounting policies that are impacted by judgments, assumptions and estimates are described in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Corporation’s 2004 10-K. Since December 31, 2004, there have been no material changes in the Corporation’s critical accounting policies.

Asbestos-Related Matters

The following disclosure should be read in conjunction with the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2004.

Introduction

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. 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 table below provides information regarding asbestos-related claims filed against the Corporation and Amchem for the nine months ended September 30, 2005 and 2004:

	2005		2004
Claims unresolved at January 1	203,416		193,891
Claims filed	27,715		45,324
Claims settled, dismissed or otherwise resolved	(51,928	)	(37,110	)
Claims unresolved at September 30	179,203		202,105
Claimants with claims against both UCC and Amchem	61,524		72,302
Individual claimants at September 30	117,679		129,803

Plaintiffs’ lawyers often sue dozens or even hundreds of defendants in individual lawsuits on behalf of hundreds or even thousands of claimants. As a result, those damages are not expressly identified as to UCC, Amchem or any other particular defendant, even when specific damages are alleged with respect to a specific disease or injury. In fact, there are no personal injury cases in which only the Corporation and/or Amchem are the sole named defendants. For these reasons and based upon the Corporation’s litigation and settlement experience, the Corporation does not consider the damages alleged against it and Amchem to be a meaningful factor in its determination of any potential asbestos liability.

Estimating the Liability

Based on a study completed by Analysis, Research & Planning Corporation (“ARPC”) in January 2003, the Corporation increased its December 31, 2002 asbestos-related liability for pending and future claims for the 15-year period ending in 2017 to $2.2 billion, excluding future defense and processing costs. At each balance sheet date, the Corporation compares current asbestos claim and resolution activity to the assumptions in the most recent ARPC study to determine whether the accrual continues to be appropriate. In November 2004, the Corporation requested ARPC to review the Corporation’s historical asbestos claim and resolution activity and determine the appropriateness of updating its January 2003 study. In January 2005, ARPC provided the Corporation with a report summarizing the results of its study. Based on ARPC’s studies, the Corporation’s recent asbestos litigation experience, and the uncertainties surrounding asbestos litigation and legislative reform efforts, management determined that no change to the accrual was required at December 31, 2004.

Based on the Corporation’s review of 2005 activity, the Corporation determined that no change to the accrual was required at September 30, 2005.

Defense and Resolution Costs

The following table provides information regarding defense and resolution costs related to asbestos-related claims filed against the Corporation and Amchem:

Defense and Resolution Costs	Nine Months Ended				Aggregate Costs
In millions	Sept. 30, 2005		Sept. 30, 2004		to Date as of Sept. 30, 2005
Defense costs	$	55	$	66	$	399
Resolution costs	$	122	$	250	$	1,048

The average resolution payment per asbestos claimant and the rate of new claim filings has fluctuated both up and down since the beginning of 2001. Union Carbide’s management expects such fluctuations to continue in the future based upon the

number and type of claims settled in a particular period, the jurisdictions in which such claims arose, and the extent to which any proposed legislative reform related to asbestos litigation is being considered.

Insurance Receivables

In addition, the Corporation had receivables for defense and resolution costs submitted to insurance carriers for reimbursement as follows:

Receivables for Costs Submitted to Insurance Carriers

In millions	September 30, 2005		December 31, 2004
Receivables for defense costs	$	86	$	85
Receivables for resolution costs	333		406
Total	$	419	$	491

Summary

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 Chief Executive Officer and the 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(b); and whether any change has occurred in the Corporation’s internal control over financial reporting pursuant to Exchange Act Rule 15d-15(d). Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Corporation’s disclosure controls and procedures are effective and that 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 third quarter of 2005. 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.

ITEM 6. EXHIBITS.

See the Exhibit Index on page 20 of this Quarterly Report on Form 10-Q for exhibits filed with this report.

TRADEMARKS

The following trademark of Union Carbide Corporation appears in this report: UCAR

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: November 1, 2005

	By:	/s/ FRANK H. BROD
		Frank H. Brod
		Corporate 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

10.5.3		Third Amendment to the Amended and Restated Revolving Credit Agreement, dated as of September 30, 2005, among the Corporation, The Dow Chemical Company and certain Subsidary Guarantors.

10.8		Purchase and Sale Agreement dated as of September 30, 2005, between Catalysts, Adsorbents and Process Systems, Inc. and Honeywell Specialty Materials LLC.

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.

EX-10.5.3 2 a05-19247_1ex10d5d3.htm EX-10.5.3

EXHIBIT 10.5.3

Third Amendment to the

Amended and Restated Revolving Credit Agreement

This Third Amendment to the Amended and Restated Revolving Credit Agreement (this “Amendment”) is made effective as of September 30, 2005 and is entered into between Union Carbide Corporation, as Borrower (“Borrower”), The Dow Chemical Company, as Lender (“Lender”), and Union Carbide Subsidiary C, Inc. and Union Carbide Chemicals & Plastics Technology Corporation as the Subsidiary Guarantors (the “Subsidiary Guarantors”) (together, the “Parties”).

BACKGROUND

The Parties have entered into the Amended and Restated Revolving Credit Agreement dated as of May 28, 2004, as amended by the First Amendment to the Amended and Restated Revolving Credit Agreement dated October 29, 2004 and the Second Amendment to the Amended and Restated Revolving Credit Agreement dated December 30, 2004 (the “Credit Agreement”).

The Parties desire to amend the Credit Agreement according to the terms in this Amendment. Any capitalized terms used in this Amendment, but not otherwise defined in this Amendment, are as defined in the Credit Agreement.

THE AGREEMENT

1. Amendment to Section 1.1. The Parties agree to amend Section 1.1 of the Credit Agreement by replacing the definitions of “LIBOR” and “Scheduled Termination Date” in their entirety with the following definitions:

“‘LIBOR’ means the rate of interest announced publicly by the British Bankers Association as its one (1) month LIBOR rate for U.S. Dollars on the date that is two Business Days prior to the first day of the applicable period for which such interest is payable.

‘Scheduled Termination Date’ means December 30, 2006.”

2. No Other Amendment or Waiver. Except as expressly amended by this Amendment, the Credit Agreement and all other Loan Documents remain in full force and effect in accordance with their terms, and the Parties ratify and confirm the Credit Agreement and all other Loan Documents in all respects.

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.

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.

[Signature pages follow.]

The Parties agree that this Amendment is effective as of September 30, 2005, and they have caused their authorized representatives to execute this Amendment below.

LENDER:		SUBSIDIARY GUARANTORS:

THE DOW CHEMICAL COMPANY		UNION CARBIDE SUBSIDIARY C, INC.


By:	/s/ J. P. REINHARD	By:	/s/ JOHN P. YIMOYINES
Name:	J. P. Reinhard	Name:	John P. Yimoyines
Title:	Executive Vice President and Chief Financial Officer	Title:	President

BORROWER:		UNION CARBIDE CHEMICALS & PLASTICS TECHNOLOGY CORPORATION

UNION CARBIDE CORPORATION
		By:	/s/ ALEXANDER J. MAKAI
		Name:	Alexander J. Makai
By:	/s/ EDWARD W. RICH	Title:	President
Name:	Edward W. Rich
Title:	Chief Financial Officer, Vice President and Treasurer

EX-10.8 3 a05-19247_1ex10d8.htm MATERIAL CONTRACTS

EXHIBIT 10.8

Purchase and Sale Agreement

THIS PURCHASE AND SALE AGREEMENT is made as of September 30, 2005 by and between Catalysts, Adsorbents and Process Systems, Inc., a corporation organized under the laws of the State of Maryland (“Seller”), and Honeywell Specialty Materials, LLC, a limited liability company organized under the laws of the State of Delaware (“Purchaser”) and an assignee of EMS (as defined below).

WHEREAS, each of Seller and Purchaser is a holder of a fifty percent (50%) membership interest (each, a “Membership Interest” and collectively, the “Membership Interests”) in UOP LLC, a Delaware limited liability company (the “Company”);

WHEREAS, the transfer of a Membership Interest is governed by the Limited Liability Company Agreement, dated as of November 3, 1997, between Seller and EM Sector Holdings Inc., a Delaware corporation (“EMS”), as amended by the Letter Agreement, dated as of October 6, 1998 and the Amendment of Limited Liability Company Agreement, dated as of March 12, 2004 (the “LLC Agreement”);

WHEREAS, pursuant to Section 8.5(a) of the LLC Agreement, Seller delivered to Purchaser an Offer Notice (as defined in the LLC Agreement) dated August 18, 2005, and Purchaser delivered to Seller an Acceptance Notice (as defined in the LLC Agreement) dated September 8, 2005 notifying Seller of Purchaser’s desire to purchase Seller’s Membership Interest from Seller on the terms and subject to the conditions set forth in the Offer Notice and the LLC Agreement; and

WHEREAS, the parties desire to set forth certain actions to be completed in connection with such purchase and sale and provide for certain other agreements between the parties.

NOW, THEREFORE, the parties agree as follows:

ARTICLE I

DEFINITIONS

Section 1.01 Definitions. The following terms shall have the following meanings for the purposes of this Agreement:

“Accounting Firm” shall have the meaning set forth in Section 2.04(b).

“Affiliate” shall mean, with respect to any specified Person, any other Person which, directly or indirectly, controls, is under common control with, or is controlled by, such specified Person. The term “control” as used in the preceding sentence means, with respect to a corporation, the right to exercise, directly or indirectly, more than 50% of the voting rights attributable to the shares of the controlled corporation, or with respect to any Person other than a corporation, the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person.

“Agreement” shall mean this Purchase and Sale Agreement, including the Exhibits hereto, as it may be amended, modified or supplemented from time to time in accordance with its terms.

“Board of Managers” shall mean the board of managers of the Company created pursuant to Section 5.1 of the LLC Agreement.

“Business Day” shall mean any day of the year other than (i) any Saturday or Sunday or (ii) any other day on which banks located in the United States generally are closed for business.

“CAPS Transfer Agreement” shall mean the CAPS Transfer Agreement, dated August 22, 1988, by and among Union Carbide Corporation, Katalistiks International, Inc., UOP, Allied-Signal Inc. and UOP Inc.

“Closing” shall mean the consummation of the transactions contemplated hereby in accordance with Article VI.

“Closing Date” shall mean the date on which the Closing occurs or is to occur.

“Closing Net Cash” shall have the meaning set forth in Section 2.04(a).

“Code” shall mean the Internal Revenue Code of 1986, as amended, including the regulations promulgated thereunder.

“Company” shall have the meaning set forth in the recitals to this Agreement.

“Confidentiality Agreement” shall have the meaning set forth in Section 5.03.

“Dollars” or numbers preceded by the symbol “$” shall mean amounts in United States Dollars.

“EMS” shall have the meaning set forth in the recitals to this Agreement.

“Estimated Closing Net Cash” shall have the meaning set forth in Section 2.03.

“Governmental Authority” shall mean any federal, state, local or foreign government or subdivision thereof, court of competent jurisdiction, governmental agency, authority, instrumentality or regulatory body.

“Initial Purchase Price” shall have the meaning set forth in Section 2.02.

“Law” shall mean any law, statute, regulation, ordinance, rule, order, decree or governmental requirement enacted, promulgated or imposed by any Governmental Authority.

“LIBOR Rate” shall mean the rate of interest announced publicly by the British Bankers Association as its three (3) month LIBOR rate for Dollars on the Business Day immediately following the day the Statement becomes final and binding as provided in Section 2.04(b).

“LLC Agreement” shall have the meaning set forth in the recitals to this Agreement.

“Mayer Brown” shall have the meaning set forth in Section 5.03.

“Membership Interest” or “Membership Interests” shall have the meaning set forth in the recitals to this Agreement.

“Net Cash” shall have the meaning set forth in Section 2.03.

“Person” shall mean an individual, partnership, corporation, limited liability company, trust, unincorporated association or other entity or association.

“Purchaser” shall have the meaning set forth in the preamble to this Agreement.

“Seller” shall have the meaning set forth in the preamble to this Agreement.

“Seller’s Membership Interest” shall mean the Membership Interest held by Seller.

“Statement” shall have the meaning set forth in Section 2.04(a).

“Statement of Objections” shall have the meaning set forth in Section 2.04(b).

“Taxes” shall mean all taxes, charges, fees, duties, levies or other assessments (including income, gross receipts, net proceeds, ad valorem, turnover, real and personal property (tangible and intangible), sales, use, franchise, excise, goods and services, value added, stamp, user, transfer, fuel, excess profits, occupational, interest equalization, windfall profits, severance, payroll, unemployment and Social Security taxes) that are imposed by any Governmental Authority, and such term shall include any interest, penalties or additions to tax attributable thereto.

“Tax Matters Agreement” shall mean the Tax Matters Agreement, dated November 3, 1997, by and between EMS and Seller.

Section 1.02 Interpretation. The headings preceding the text of Articles and Sections included in this Agreement and the headings to the Exhibits attached to this Agreement are for convenience only and shall not be deemed part of this Agreement or be given any effect in interpreting this Agreement. The use of the masculine, feminine or neuter gender or the singular or plural form of words herein shall not limit any provision of this Agreement. The use of the terms “including” or “include” shall in all cases herein mean “including, without limitation” or “include, without limitation,” respectively. Reference to any Person includes such Person’s successors and assigns to the extent such successors and assigns are permitted by the terms of the applicable agreement, and reference to a Person in a particular capacity excludes such Person in any other capacity or individually. Reference to any agreement (including this Agreement), document or instrument means such agreement, document or instrument as amended or modified and in effect from time to time in accordance with the terms thereof and, if applicable, the terms hereof. Underscored references to Articles, Sections, clauses, or the Exhibits shall refer to those portions of this Agreement. The use of the terms “hereunder,” “hereof,” “hereto,” “hereby” and words of similar import shall refer to this Agreement as a whole and not to any particular Article, Section or clause of, or Exhibit to, this Agreement.

ARTICLE II

PURCHASE AND SALE OF MEMBERSHIP INTEREST

Section 2.01 Purchase and Sale. On the terms and subject to the conditions hereof, at the Closing, Seller shall sell, transfer, convey and assign to Purchaser, free and clear of all liens, claims and encumbrances, and Purchaser shall purchase, acquire and accept, all right, title and interest in and to Seller’s Membership Interest.

Section 2.02 Payment of Initial Purchase Price. In consideration of and in exchange for the sale of Seller’s Membership Interest to Purchaser, at the Closing, Purchaser shall pay to Seller an aggregate sum of (a) eight hundred twenty-five million Dollars ($825,000,000) and (b) an amount equal to fifty percent (50%) of the Estimated Closing Net Cash (collectively, the “Initial Purchase Price”), subject to adjustment as set forth in Section 2.04. The Initial Purchase Price shall be paid in accordance with Section 9.04 at the Closing to the account designated by Seller not later than three (3) Business Days prior to the Closing Date.

Section 2.03 Calculation of Estimated Closing Net Cash. Seller and Purchaser shall cause the Company to deliver to Seller and Purchaser not later than seven (7) days prior to the Closing Date a written statement setting forth the Company’s good faith estimate of the Net Cash of the Company as of the Closing Date (the “Estimated Closing Net Cash”), together with any supporting information that Seller or Purchaser may reasonably request; provided, that each party will receive a copy of any information delivered by the Company with respect to any such request. Seller and Purchaser shall in good faith work together in the seven (7) days prior to Closing to agree on the amount of the Estimated Closing Net Cash; provided, however, that in the absence of agreement by the parties with respect to the Estimated Closing Net Cash, the Closing shall occur in accordance with Article VI based on the Company’s good faith estimate of the Net Cash of the Company delivered to Seller and Purchaser in accordance with this Section 2.03. “Net Cash” means, as of any specified date, an amount determined by subtracting (a) the aggregate amount of the Company’s consolidated indebtedness as of such date from (b) the aggregate amount of the Company’s consolidated cash and cash equivalents as of such date. For purposes of calculating Net Cash, the Company’s cash and cash equivalents and indebtedness will be determined in accordance with the accounting principles and consistent with the accounting practices used by the Company to prepare its audited consolidated balance sheet for the year ended December 31, 2004. For illustrative purposes only, Exhibit A sets forth the calculation of Net Cash of the Company as of December 31, 2004.

Section 2.04 Purchase Price Adjustment.

(a) Within ninety (90) days after the Closing Date, Seller shall prepare and deliver to Purchaser a statement (the “Statement”), setting forth the Net Cash as of the close of business on the Closing Date (the “Closing Net Cash”) determined in accordance with Section 2.03, together with any supporting information that Purchaser may reasonably request. In connection with preparing the Statement, Seller shall have the right, but not the obligation, to conduct, at

Seller’s expense, an audit of the balance sheet of the Company as of the Closing Date in accordance with generally accepted auditing standards; provided, however, that nothing in this sentence shall either change the definition of Net Cash from that set forth in Section 2.03 or extend the time frame in which Seller must deliver the Statement to Purchaser. After the Closing Date, at Seller’s request, Purchaser shall, and shall cause the Company to, assist Seller and its representatives in the preparation of the Statement and the conduct of the audit and shall provide Seller and its representatives any information reasonably requested and shall provide them access at all reasonable times to the personnel, properties and books and records of the Company for such purposes.

(b) Within thirty (30) days after receipt of the Statement, Purchaser shall deliver to Seller a written statement describing its objections, if any, to the Statement (the “Statement of Objections”). If Purchaser does not deliver a Statement of Objections to Seller within such thirty-day period, the Statement shall become final and binding upon the parties. If Purchaser delivers a Statement of Objections to Seller within such thirty-day period, and the parties cannot resolve any such objection within ten (10) Business Days after the receipt by Seller of such Statement of Objections, any remaining disputes shall be resolved by Ernst & Young LLP (the “Accounting Firm”). The Accounting Firm shall be instructed to resolve such disputes within thirty (30) days after receipt by the Accounting Firm of the materials delivered by Seller to Purchaser pursuant to Section 2.04(a) and by Purchaser to Seller pursuant to this Section 2.04(b), which materials shall be delivered by Seller and Purchaser to the Accounting Firm within five (5) Business Days following the expiration of the ten (10) Business Day period referenced in the preceding sentence. The resolution of disputes by the Accounting Firm shall be set forth in writing and shall be conclusive and binding upon the parties, and the Statement, as modified by such resolution, shall become final and binding upon the date of such resolution. The determination of the Accounting Firm for any item in dispute cannot be in excess of, nor less than, the greatest or lowest value, respectively, claimed for that particular item in the Statement, in the case of Seller, or in the Statement of Objections, in the case of Purchaser. The Accounting Firm shall have no right to make any determination with respect to the undisputed portions of the Statement, and no such determination with respect to the undisputed portions of the Statement shall be binding on Seller or Purchaser. The Accounting Firm shall be instructed to calculate Net Cash in accordance with Section 2.03. The fees and expenses of the Accounting Firm shall be apportioned between Seller and Purchaser by the Accounting Firm based on the degree to which Seller’s and Purchaser’s claims were unsuccessful and shall be paid by Seller and Purchaser in accordance with such determination.

(c) Upon the Statement becoming final and binding in accordance with Section 2.04(b), the Initial Purchase Price shall be increased by fifty percent (50%) of the amount by which the Closing Net Cash exceeds the Estimated Closing Net Cash or decreased by fifty percent (50%) of the amount by which the Closing Net Cash is less than the Estimated Closing Net Cash. If the Closing Net Cash exceeds the Estimated Closing Net Cash, Purchaser shall pay to Seller fifty percent (50%) of the amount of such excess, together with a sum equivalent to interest thereon at a rate equal to the LIBOR Rate from the Closing Date to the date of payment. If the Estimated Closing Net Cash exceeds the Closing Net Cash, Seller shall pay to Purchaser fifty percent (50%) of the amount of such excess, together with a sum equivalent to interest thereon at a rate equal to the LIBOR Rate from the Closing Date to the date of payment. Any such payment hereunder shall be made in accordance with Section 9.04 within five (5) Business Days after final determination of the Statement to an account designated in writing by Purchaser or Seller, as the case may be.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF SELLER

Seller represents and warrants to Purchaser as follows:

Section 3.01 Ownership of Seller’s Membership Interest. Seller has good and marketable title to Seller’s Membership Interest, free and clear of all liens, claims and encumbrances (other than any restrictions or obligations pursuant to the LLC Agreement). Other than as set forth in the LLC Agreement, there are no (a) options, warrants, convertible securities or other rights, agreements, arrangements or commitments of any character relating to Seller’s Membership Interest or obligating Seller to issue or sell any membership interest in the Company or (b) voting trusts, stockholder or membership agreements, proxies or other agreements or understandings in effect with respect to the voting or transfer of any of Seller’s Membership Interest. At the Closing, pursuant to Section 2.01, Seller shall sell, transfer,

convey and assign to Purchaser, free and clear of all liens, claims and encumbrances, all right, title and interest in and to Seller’s fifty percent (50%) membership interest in the Company.

Section 3.02 Authority. Seller is duly organized, validly existing and in good standing under the laws of the jurisdiction of its formation and Seller has full right, power and authority to enter into this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution of this Agreement by Seller, the performance by Seller of its obligations hereunder and the consummation by Seller of the transactions contemplated hereby have been duly authorized by all requisite action on the part of Seller. This Agreement has been duly executed and delivered by Seller and, assuming due authorization, execution and delivery by Purchaser, this Agreement constitutes legal, valid and binding obligations of Seller enforceable against Seller in accordance with its terms, except to the extent that enforcement may be affected by Laws relating to bankruptcy, reorganization, insolvency, fraudulent conveyance, moratorium and other Laws affecting creditors’ rights, and by the availability of injunctive relief, specific performance and other equitable remedies.

Section 3.03 No Conflict. Assuming that all filings and notifications contemplated by Section 5.02 have been made and any applicable waiting periods have expired or been terminated, the execution, delivery and performance of this Agreement by Seller does not and will not (a) violate, conflict with or result in the breach of any provision of the organizational documents of Seller, (b) conflict with or violate any Law applicable to Seller, where such conflict or violation would adversely affect the ability of Seller to carry out its obligations under, and to consummate the transaction contemplated by, this Agreement, or (c) conflict with, result in any breach of, constitute a default (or event which with the giving of notice or lapse of time, or both, would become a default) under, require any consent under, or give to others any right of termination, amendment, acceleration, suspension, revocation or cancellation of, or result in the creation of any lien or encumbrance on Seller’s Membership Interest pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, sublease, license, permit or other instrument or arrangement to which Seller is a party or by which any of Seller’s Membership Interest is bound or affected. The execution, delivery and performance of this Agreement by Seller does not and will not require (i) any consent, approval, authorization or other order of, action by, filing with, or notification to any Governmental Authority, except as contemplated by Section 5.02 or (ii) any other third party consents, approvals or authorizations.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF PURCHASER

Section 4.01 Authority. Purchaser is duly organized, validly existing and in good standing under the laws of the jurisdiction of its formation and Purchaser has full right, power and authority to enter into this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution of this Agreement by Purchaser, the performance by Purchaser of its obligations hereunder and the consummation by Purchaser of the transactions contemplated hereby have been duly authorized by all requisite action on the part of Purchaser. This Agreement has been duly executed and delivered by Purchaser and, assuming due authorization, execution and delivery by Seller, this Agreement constitutes legal, valid and binding obligations of Purchaser enforceable against Purchaser in accordance with its terms, except to the extent that enforcement may be affected by Laws relating to bankruptcy, reorganization, insolvency, fraudulent conveyance, moratorium and other Laws affecting creditors’ rights, and by the availability of injunctive relief, specific performance and other equitable remedies.

Section 4.02 No Conflict. Assuming that all filings and notifications contemplated by Section 5.02 have been made and any applicable waiting periods have expired or been terminated, the execution, delivery and performance of this Agreement by Purchaser does not and will not (a) violate, conflict with or result in the breach of any provision of the organizational documents of Purchaser, (b) conflict with or violate any Law applicable to Purchaser, where such conflict or violation would adversely affect the ability of Purchaser to carry out its obligations under, and to consummate the transaction contemplated by, this Agreement, or (c) conflict with, result in any breach of, constitute a default (or event which with the giving of notice or lapse of time, or both, would become a default) under, require any consent under, or give to others any right of termination, amendment, acceleration, suspension, revocation or cancellation of any note, bond, mortgage, indenture, contract, agreement, lease, sublease, license, permit or other instrument or arrangement to which Purchaser is a party. The execution, delivery and performance of this Agreement by Purchaser does not and will not require

(i) any consent, approval, authorization or other order of, action by, filing with, or notification to any Governmental Authority, except as contemplated by Section 5.02 or (ii) any other third party consents, approvals or authorizations.

ARTICLE V

CONDITIONS TO CLOSING; PRE-CLOSING COVENANTS

Section 5.01 Closing Conditions.

(a) Subject to Section 6.01, the obligations of Seller and Purchaser under Article VI are subject to the conditions set forth in Section 8.5(f)(i)-(iv) of the LLC Agreement; provided, however, that Purchaser may waive the conditions set forth in Section 8.5(f)(iii) and/or (iv) of the LLC Agreement, in which case (assuming the satisfaction of all other conditions contemplated by this Section 5.01) Seller and Purchaser would be obligated to complete the transactions contemplated hereby.

(b) Unless waived by Purchaser in its sole discretion, the obligations of Purchaser to be performed by Purchaser at Closing are also subject to and conditioned upon each representation and warranty of Seller set forth in Article III being true and correct as of the Closing as though such representation and warranty were made on and as of such time.

(c) Unless waived by Seller in its sole discretion, the obligations of Seller to be performed by Seller at Closing are also subject to and conditioned upon each representation and warranty of Purchaser set forth in Article IV being true and correct as of the Closing as though such representation and warranty were made on and as of such time.

Section 5.02 Governmental Approvals. Purchaser shall, as promptly as practicable following the date hereof, make all necessary filings, applications, statements and reports to all Governmental Authorities in order to obtain any approval or clearance from any Governmental Authority required to consummate the transactions contemplated hereby. Purchaser shall respond promptly to inquiries from any Governmental Authority in connection with such filings, applications, statements and reports, including providing any supplemental information that may be requested. Purchaser shall provide to Seller copies of all filings made with any Governmental Authority at the time they are filed or delivered and shall keep Seller informed of any discussions with, or further requests by, any Governmental Authority. Seller shall provide to Purchaser such reasonable assistance as is necessary to make any such filing, application, statement or report or obtain any such approval or clearance.

Section 5.03 Termination of the Confidentiality Agreement. On or before the Closing Date, (a) Seller and Purchaser shall, and to the extent applicable shall cause their Affiliates to, terminate the Agreement, dated November 8, 2004, between Purchaser, Honeywell International Inc., Seller, Union Carbide Corporation and The Dow Chemical Company (the “Confidentiality Agreement”), and (b) Seller shall return the data room materials located at the offices of Mayer, Brown, Rowe & Maw LLP, at 71 South Wacker Drive, Chicago, Illinois, 60606 (“Mayer Brown”) to the Company and shall request the return or destruction of any Evaluation Information (as defined in the Confidentiality Agreement) that was received by any third party in connection with a proposed transfer of Seller’s Membership Interest subsequent to the termination of the Discussions (as defined in the Confidentiality Agreement).

ARTICLE VI

CLOSING

Section 6.01 Closing.

(a) The Closing shall take place at Mayer Brown, at 9:00 a.m., Central Time, on November 30, 2005, provided all conditions to the obligations of Purchaser and Seller set forth in Section 5.01 shall have been satisfied or waived, other than those conditions to be satisfied at the Closing. In the event that the Closing does not occur on November 30, 2005 because the conditions to the obligations of Purchaser and Seller set forth in Section 5.01 have not been satisfied or waived, then the Closing shall take place at Mayer Brown, at 9:00 a.m., Central Time, on the tenth (10^th) day after all

conditions to the obligations of Purchaser and Seller set forth in Section 5.01 shall have been satisfied or waived, other than those conditions to be satisfied at the Closing, or at such other place and on such other date as the parties agree.

(b) If the Closing does not occur by July 1, 2006, Seller shall have the right, but not the obligation, to terminate this Agreement and to abandon the transactions contemplated herein. If this Agreement is terminated pursuant to this Section 6.01(b), this Agreement shall become null and void and of no further force and effect.

Section 6.02 Deliveries by Seller. At the Closing, Seller shall deliver to Purchaser the following:

(a) a signed copy of the assignment agreement in the form set forth in Exhibit B (the “Assignment Agreement”);

(b) the resignations of each member of the Board of Managers who was appointed by Seller;

(c) a certificate to the effect that Seller is not a “foreign person” within the meaning of Section 1445(f)(3) of the Code; and

(d) a certificate, dated as of the date of the Closing and duly executed by an authorized representative of Seller, to the effect that the conditions set forth in Section 5.01(b) have been satisfied.

Section 6.03 Deliveries by Purchaser. At the Closing, Purchaser shall deliver to Seller the following:

(a) the Initial Purchase Price;

(b) a signed copy of the Assignment Agreement;

(c) a written acceptance of the resignations of each of the members of the Board of Managers who were appointed by Seller delivered pursuant to Section 6.02(b); and

(d) a certificate, dated as of the date of the Closing and duly executed by an authorized representative of Purchaser, to the effect that the conditions set forth in Section 5.01(c) have been satisfied.

ARTICLE VII

INDEMNIFICATION

Section 7.01 Indemnification by Purchaser. Following the Closing, Purchaser agrees to indemnify Seller for (a) any breach of any representation or warranty of Purchaser set forth in Article IV and (b) all Company liabilities; provided, however, that such agreement to indemnify shall have no effect on and shall not limit the rights of any party to indemnification, or the obligation of Seller or its Affiliates to indemnify any party, pursuant to Article 13 of the CAPS Transfer Agreement. Notwithstanding the foregoing, and for the avoidance of doubt, Purchaser and Seller agree that Purchaser’s indemnification of Seller shall not include any U.S. federal, state or local or foreign income Taxes imposed on Seller with respect to the income of the Company for any Tax period or portion thereof ending on or prior to the Closing Date, or imposed on Seller’s sale of Seller’s Membership Interest hereunder.

Section 7.02 Indemnification by Seller. Following the Closing, Seller agrees to indemnify Purchaser for any breach of any representation or warranty of Seller set forth in Article III.

ARTICLE VIII

COVENANTS

Section 8.01 Continuation of Certain Provisions of the LLC Agreement.

(a) Following the Closing, Purchaser shall cause the Company to continue to provide the indemnity under Section 5.9 of the LLC Agreement (subject to the limitations set forth in Section 5.9 of the LLC Agreement) to any individual employed or appointed by Seller serving in any of the capacities set forth in Section 5.9 of the LLC Agreement.

(b) The provisions of Sections 6.3 and 6.4 of the LLC Agreement and the provisions of the Tax Matters Agreement shall continue in effect with respect to all taxable years (or portions thereof) ending on or before the Closing Date, including the Company’s short taxable year ending on the Closing Date.

(c) Purchaser shall cooperate with Seller with respect to the preparation of all tax returns for the Company for all taxable periods beginning before the Closing Date and to the extent necessary to permit Seller to perform its obligations pursuant to the Tax Matters Agreement for such periods. Pursuant to the Tax Matters Agreement, Purchaser shall take no action inconsistent with past practices with respect to any taxable period or portion thereof of the Company ending on or prior to the Closing Date that would give rise to a materially detrimental income Tax consequence to Seller or any of its Affiliates.

(d) Following the Closing, Seller shall continue to comply with the provisions of Section 6.7 of the LLC Agreement for the period of ten (10) years from the Closing Date.

(e) For the avoidance of doubt, Seller acknowledges that, following the Closing, Seller shall remain bound by the provisions of Section 11.2 of the LLC Agreement in accordance with the terms and conditions thereof.

(f) While the parties have specifically identified certain sections of the LLC Agreement for clarification in this Agreement, inclusion of such sections in this Agreement shall have no precedential impact or create any inferences on the interpretation or applicability of any other section of the LLC Agreement.

ARTICLE IX

MISCELLANEOUS

Section 9.01 Expenses. Each party hereto shall bear its own expenses incurred in connection with the negotiation, preparation, execution, delivery and performance of this Agreement. Purchaser and Seller shall each be responsible for any transfer taxes imposed on it, and Purchaser and Seller shall each be responsible for fifty percent (50%) of any transfer taxes imposed on the Company, by any Governmental Authority as a result of the transactions contemplated by this agreement.

Section 9.02 Amendment. This Agreement may be amended, modified or supplemented but only in writing signed by Purchaser and Seller.

Section 9.03 Notices. Any notice, request, instruction or other document to be given hereunder by a party hereto shall be in writing and shall be deemed to have been given, (a) when received if given in person or by courier or a courier service or (b) on the date of transmission if sent by telex, facsimile or other wire transmission (receipt confirmed) on a Business Day during or before the normal business hours of the intended recipient, and if not so sent on such a day and at such a time, on the following Business Day:

(i)	If to Purchaser, addressed as follows:

	Honeywell Specialty Materials LLC
	c/o Honeywell International Inc.
	Columbia Road and Park Avenue
	P.O. Box 4000
	Morristown, NJ 07962
	Attention:	Senior Vice President and General Counsel
	Facsimile:	973.455.4217

	Attention:	Vice President and General Counsel –
		Specialty Materials
	Facsimile:	973.455.6840

(ii)	If to Seller, addressed as follows:

	Catalysts, Adsorbents and Process Systems, Inc.
	400 West Sam Houston Parkway South
	Houston, TX 77042
	Attention:	President
	Facsimile:	713.978.2394

	with a copy to:

	Union Carbide Corporation
	400 West Sam Houston Parkway South
	Houston, TX 77042
	Attention:	General Counsel
	Facsimile:	713.978.2394

	The Dow Chemical Company
	2030 Dow Center
	Midland, MI 48674
	Attention:	General Counsel
	Facsimile:	989.636.7711

or to such other individual or address as a party hereto may designate for itself by notice given as herein provided.

Section 9.04 Payments in Dollars. All payments pursuant hereto shall be made by wire transfer in Dollars in immediately available funds without any set-off, deduction or counterclaim whatsoever.

Section 9.05 Allocation of Tax Items.

(a) For purposes of Section 706(c)(2) and 706(d) of the Code, the Company’s taxable year with respect to Seller shall end as of the close of business on the Closing Date, and Seller’s distributive share of the Company’s income, gain, loss, deduction and credit and items thereof as determined for federal income Tax purposes with respect to its interest in the Company shall be allocated between Seller and Purchaser based on a closing of the books of the Company as of the close of business on the Closing Date; provided, however, that any event not in the ordinary course of business occurring on the Closing Date but after the Closing shall, for purposes of this Section 9.05(a) be treated as occurring after the close of business on the Closing Date. Without limiting the generality of the foregoing, the parties acknowledge that Purchaser intends, as soon as possible after the Closing, to cause the Company to transfer its interest in its foreign subsidiaries to various foreign subsidiaries of Honeywell International Inc., the sole member of Purchaser. Any such

transfer occurring on the Closing Date, but after the Closing, shall, for purposes of this Section 9.05(a), be treated as occurring after the close of business on the Closing Date.

(b) Notwithstanding anything to the contrary contained herein or in the LLC Agreement, (i) following the Closing, Purchaser agrees to indemnify Seller for any foreign income Taxes imposed on the Company (but not any foreign income Taxes imposed on Seller with respect to income of the Company) for any Tax period or portion thereof ending on or prior to the Closing Date and (ii) the foreign Tax credits with respect to any such foreign income Taxes shall be specially allocated to Purchaser.

Section 9.06 Publicity. Neither party shall issue any publicity, release or announcement concerning the execution of this Agreement, any of the provisions of this Agreement or the transactions contemplated hereby without the advance written approval of the form and content thereof by the other party, which approval shall not be unreasonably withheld; provided, however, that no such consent shall be required when such disclosure is required by applicable Law or the rules or regulations of a national or foreign securities exchange.

Section 9.07 Severability. If any provision of this Agreement shall be held invalid, illegal or unenforceable, the validity, legality or enforceability of the other provisions hereof shall not be affected thereby, and there shall be deemed substituted for the provision at issue a valid, legal and enforceable provision as similar as possible to the provision at issue.

Section 9.08 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, including any successor of Purchaser to the Membership Interests (in whole or in part) or any interest in the Company; provided, that no assignment of any rights or obligations hereunder, by operation of law or otherwise, shall be made by either party without the prior written consent of the other party.

Section 9.09 Applicable Law. This Agreement shall be construed and enforced in accordance with and governed by the laws of the State of New York, without reference to its conflict of laws rules or principles.

Section 9.10 Jurisdiction of Disputes. In the event either party to this Agreement commences any litigation, proceeding or other legal action in connection with or relating to this Agreement or any matters contemplated hereby, each party to this Agreement hereby (a) agrees that any such litigation, proceeding or other legal action may be brought in a court of competent jurisdiction of the State of New York and the federal courts of the United States, located in the City of New York; (b) agrees that in connection with any such litigation, proceeding or action, such party will consent and submit to personal jurisdiction in any such court described in clause (a) of this Section 9.10 and to service of process upon it in accordance with the rules and statutes governing service of process; (c) agrees to waive to the full extent permitted by law any objection that it may now or hereafter have to the venue of any such litigation, proceeding or action in any such court or that any such litigation, proceeding or action was brought in an inconvenient forum; and (d) designates, appoints and directs either CT Corporation System or Corporation Service Company as its authorized agent to receive on its behalf service of any and all process and documents in any such litigation, proceeding or action in the State of New York.

Section 9.11 Counterparts. This Agreement may be executed in counterparts, including by facsimile, each of which shall be deemed an original, but both of which together shall constitute one and the same instrument.

Section 9.12 Entire Agreement. This Agreement in combination, where appropriate, with the LLC Agreement and other written agreements between Seller and Purchaser constitute the entire agreement and understanding between the parties with respect to the transfer of Seller’s Membership Interest to Purchaser, and this Agreement supercedes the various drafts and discussions leading hereto. The parties agree that no inferences may be based on prior verbal discussions or the deletion or revision of any language to this Agreement proposed by either party, including with respect to the interpretation of the LLC Agreement or any other written agreement between the parties.

Section 9.13 Waiver. Any waiver of rights hereunder must be set forth in a writing signed by the party against whom the waiver is to be effective. A waiver of any breach or failure to enforce any of the terms or conditions of this Agreement shall not in any way affect, limit or waive any party’s rights at any time to enforce strict compliance thereafter with every term or condition of this Agreement for any other breach or failure to comply with the terms of this Agreement.

Section 9.14 Further Assurances. From time to time after the Closing, without further consideration, Seller and Purchaser shall cooperate with each other and shall execute and deliver instruments of transfer or assignment or assumption or such other documents to the other as the other reasonably may request to evidence or perfect Purchaser’s right, title and interest to Seller’s Membership Interest and to otherwise carry out the transactions contemplated hereby.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered as of the date first above written.

	CATALYSTS, ADSORBENTS AND PROCESS SYSTEMS, INC.


	By:		/s/ JOHN P. YIMOYINES
	Name:		John P. Yimoyines
	Title:		President


	HONEYWELL SPECIALTY MATERIALS, LLC


	By:		/s/ NANCE K. DICCIANI
	Name:		Nance K. Dicciani
	Title:		Authorized Person

Exhibit A

Net Cash

(as of December 31, 2004)

	(U.S. dollars in thousands)

Cash & cash equivalents	72,006

Total cash & cash equivalents	72,006

Short-term debt	15,995
[Current portion of long-term debt]	—
Long-term debt	114,655

Total indebtedness	130,650

Closing Net Cash	[58,644	]*

* If, on the actual Closing Date, the total cash and cash equivalents exceeded total indebtedness, the Closing Net Cash would be a positive number.

Exhibit B

ASSIGNMENT AGREEMENT

THIS ASSIGNMENT AGREEMENT (this “Agreement”), dated as of [November 30, 2005], is by and between Catalysts, Adsorbents and Process Systems, Inc., a corporation organized under the laws of the State of Maryland (“Seller”), and Honeywell Specialty Materials LLC, a limited liability company organized under the laws of Delaware (“Purchaser”). Capitalized terms used herein that are not otherwise defined shall have the meaning assigned to such terms in the Purchase and Sale Agreement, dated as of September , 2005 (as it may be amended or otherwise modified from time to time in accordance with its terms, the “Purchase and Sale Agreement”), by and between Seller and Purchaser.

1. On the terms and subject to the conditions of the Purchase and Sale Agreement, Seller hereby sells, transfers, conveys and assigns to Purchaser free and clear of all liens, claims and encumbrances, and Purchaser hereby accepts, all right, title and interest in and to Seller’s Membership Interest.

2. Seller hereby acknowledges receipt from Purchaser of ___________________ Dollars ($____________), which amount shall be subject to adjustment as provided in Section 2.04 of the Purchase and Sale Agreement.

3. This Agreement shall be construed and enforced in accordance with and governed by the laws of the State of Delaware, without reference to its conflict of laws rules or principles.

4. This Agreement may be executed in counterparts, including by facsimile, each of which shall be deemed an original, but both of which together shall constitute one and the same instrument.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered as of the date first above written.

	CATALYSTS, ADSORBENTS AND PROCESS SYSTEMS, INC.


	By:
	Name:
	Title:


	HONEYWELL SPECIALTY MATERIALS, LLC


	By:
	Name:
	Title:

EX-23 4 a05-19247_1ex23.htm CONSENTS OF EXPERTS AND COUNSEL

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 reports appearing in this Quarterly Report on Form 10-Q of Union Carbide Corporation for the quarter ended September 30, 2005.

/s/ B. THOMAS FLORENCE
B. Thomas Florence
President
Analysis, Research & Planning Corporation
October 28, 2005

EX-31.1 5 a05-19247_1ex31d1.htm 302 CERTIFICATION

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 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: November 1, 2005


		/s/ JOHN R. DEARBORN
		John R. Dearborn
		President and Chief Executive Officer

EX-31.2 6 a05-19247_1ex31d2.htm 302 CERTIFICATION

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 quarterly report on Form 10-Q of Union Carbide Corporation;

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: November 1, 2005


	/s/ EDWARD W. RICH
	Edward W. Rich
	Vice President, Treasurer and
	Chief Financial Officer

EX-32.1 7 a05-19247_1ex32d1.htm 906 CERTIFICATION

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 quarter ended September 30, 2005 as filed with the Securities and Exchange Commission (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/ JOHN R. DEARBORN
John R. Dearborn
President and Chief Executive Officer
November 1, 2005

EX-32.2 8 a05-19247_1ex32d2.htm 906 CERTIFICATION

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:

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
November 1, 2005

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