-----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, NvgjbIapzwyVAafiX/cN4AHam2PT7SSlnEIHUk5Yszy/FS7XEaCbLl9zEzINCgdK 9xqUQDgzz62LB9bpCbK87A== 0001104659-08-027724.txt : 20080429 0001104659-08-027724.hdr.sgml : 20080429 20080429103937 ACCESSION NUMBER: 0001104659-08-027724 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20080331 FILED AS OF DATE: 20080429 DATE AS OF CHANGE: 20080429 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: 08783495 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 a08-12670_110q.htm 10-Q

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 MARCH 31, 2008

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

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. x Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer o
Non-accelerated filer x		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o Yes x No

At March 31, 2008, 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	6

Consolidated Statements of Comprehensive Income	6

Notes to the Consolidated Financial Statements	7

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 4T. Controls and Procedures.	18

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.	18

Item 1A. Risk Factors.	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
	March 31,		March 31,
In millions (Unaudited)	2008		2007
Net trade sales	$	46	$	53
Net sales to related companies	1,989		1,673
Total Net Sales	2,035		1,726
Cost of sales	1,961		1,598
Research and development expenses	19		20
Selling, general and administrative expenses	3		7
Equity in earnings of nonconsolidated affiliates	54		124
Sundry income (expense) - net	70		(10		)
Interest income	32		37
Interest expense and amortization of debt discount	12		15
Income before Income Taxes	196		237
Provision for income taxes	41		51
Net Income Available for Common Stockholder	$	155	$	186
Depreciation	$	65	$	68
Capital Expenditures	$	40	$	46

See Notes to the Consolidated Financial Statements.

Union Carbide Corporation and Subsidiaries

Consolidated Balance Sheets

	March 31,		Dec. 31,
In millions (Unaudited)	2008		2007
Assets
Current Assets
Cash and cash equivalents	$	24	$	22
Accounts receivable:
Trade (net of allowance for doubtful receivables - 2008: $2; 2007: $2)	26		26
Related companies	582		487
Other	117		129
Notes receivable from related companies	3,567		3,227
Inventories	191		178
Deferred income tax assets - current	33		60
Total current assets	4,540		4,129
Investments
Investments in related companies	972		972
Investments in nonconsolidated affiliates	432		385
Other investments	22		22
Noncurrent receivables	46		46
Noncurrent receivable from related company	299		306
Total investments	1,771		1,731
Property
Property	7,544		7,509
Less accumulated depreciation	5,607		5,547
Net property	1,937		1,962
Other Assets
Goodwill	26		26
Other intangible assets (net of accumulated amortization - 2008: $129; 2007: $128)	21		22
Deferred income tax assets - noncurrent	123		112
Asbestos-related insurance receivables - noncurrent	695		696
Pension assets	716		699
Deferred charges and other assets	86		88
Total other assets	1,667		1,643
Total Assets	$	9,915	$	9,465

See Notes to the Consolidated Financial Statements.

Union Carbide Corporation and Subsidiaries

Consolidated Balance Sheets

	March 31,			Dec. 31,
In millions (Unaudited)	2008			2007
Liabilities and Stockholder’s Equity
Current Liabilities
Notes payable - related companies	$	6		$	5
Accounts payable:
Trade	255			239
Related companies	521			391
Other	40			29
Income taxes payable	183			185
Asbestos-related liabilities - current	123			141
Accrued and other current liabilities	181			180
Total current liabilities	1,309			1,170
Long-Term Debt	820			820
Other Noncurrent Liabilities
Pension and other postretirement benefits - noncurrent	456			461
Asbestos-related liabilities - noncurrent	959			1,001
Other noncurrent obligations	362			356
Total other noncurrent liabilities	1,777			1,818
Minority Interest in Subsidiaries	2			2
Stockholder’s Equity
Common stock (authorized and issued: 1,000 shares of $0.01 par value each)	—			—
Additional paid-in capital	312			121
Retained earnings	5,922			5,767
Accumulated other comprehensive loss	(227		)	(233		)
Net stockholder’s equity	6,007			5,655
Total Liabilities and Stockholder’s Equity	$	9,915		$	9,465

See Notes to the Consolidated Financial Statements.

Union Carbide Corporation and Subsidiaries

Consolidated Statements of Cash Flows

	Three Months Ended
	March 31,			March 31,
In millions (Unaudited)	2008			2007
Operating Activities
Net Income Available for Common Stockholder	$	155		$	186
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	81			78
Provision (credit) for deferred income tax	60			(37		)
Earnings of nonconsolidated affiliates in excess of (less than) dividends received	(42		)	96
Net gain on sales of property	(7		)	(1		)
Other gain, net	(1		)	—
Pension contributions	(1		)	—
Changes in assets and liabilities:
Accounts and notes receivable	11			8
Related company receivables	(436		)	(244		)
Inventories	(13		)	(7		)
Accounts payable	47			(51		)
Related company payables	131			(42		)
Other assets and liabilities	44			85
Cash provided by operating activities	29			71
Investing Activities
Capital expenditures	(40		)	(46		)
Change in noncurrent receivable from related company	7			(20		)
Proceeds from sales of property	6			3
Purchases of investments	(2		)	(1		)
Proceeds from sales of investments	2			—
Cash used in investing activities	(27		)	(64		)
Financing Activities
Changes in short-term notes payable	—			(1		)
Cash used in financing activities	—			(1		)
Summary
Increase in cash and cash equivalents	2			6
Cash and cash equivalents at beginning of year	22			71
Cash and cash equivalents at end of period	$	24		$	77

See Notes to the Consolidated Financial Statements.

Union Carbide Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income

	Three Months Ended
	March 31,			March 31,
In millions (Unaudited)	2008			2007
Net Income Available for Common Stockholder	$	155		$	186
Other Comprehensive Income (Loss), Net of Tax
Cumulative translation adjustment	6			—
Pension and other postretirement benefit plans adjustment	1			4
Net loss on cash flow hedging derivative instruments	(1		)	—
Total other comprehensive income	6			4
Comprehensive Income	$	161		$	190

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 I 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, 2007.

NOTE B RECENT ACCOUNTING PRONOUNCEMENTS

In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, “Fair Value Measurements,” which defines fair value, establishes a framework for measuring fair value in U.S. GAAP, and expands disclosures about fair value measurements. The Statement applies under other accounting pronouncements that require or permit fair value measurements and was effective for fiscal years beginning after November 15, 2007. In February 2008, the FASB issued FASB Staff Position (“FSP”) FAS 157-2 which delayed the effective date of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statement on a recurring basis, to fiscal years beginning after November 15, 2008. On January 1, 2008, the Corporation adopted the portion of SFAS No. 157 that was not delayed, and since the Corporation’s existing fair value measurements are consistent with the guidance of the Statement, the partial adoption of the Statement did not have a material impact on the Corporation’s consolidated financial statements. The Corporation uses a December 31 measurement date for its pension and other postretirement plans; therefore, the Corporation is still evaluating the impact of adopting the Statement for its plan assets. The adoption of the deferred portion of the Statement on January 1, 2009 is not expected to have a material impact on the Corporation’s consolidated financial statements. See Note F for expanded disclosures about fair value measurements.

SAB No. 74 Disclosures for Accounting Standards Issued But Not Yet Adopted

In December 2007, the FASB revised SFAS No. 141, “Business Combinations,” to establish revised principles and requirements for how entities will recognize and measure assets and liabilities acquired in a business combination. The Statement is effective for business combinations completed on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Corporation will apply the guidance of the Statement to business combinations completed on or after January 1, 2009.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51.” The Statement establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. The Statement is effective on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Corporation is currently evaluating the impact of adopting the Statement on January 1, 2009.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of SFAS No. 133.” The Statement requires enhanced disclosures about an entity’s derivative and hedging activities. The Statement is effective for fiscal years and interim periods beginning after November 15, 2008. The Corporation is evaluating the additional disclosures required by the Statement beginning January 1, 2009.

NOTE C RESTRUCTURING

In the fourth quarter of 2007, the Corporation recorded restructuring charges totaling $55 million resulting from decisions made by management to make organizational changes within targeted support functions in West Virginia and to shut down certain assets in Louisiana to enhance the efficiency and cost effectiveness of the Corporation’s operations. The charges included severance of $17 million for a workforce reduction of approximately 225 people; curtailment costs of $12 million associated with the Corporation’s defined benefit plans; and the $26 million write-off of the net book value and associated exit costs of the polypropylene manufacturing facility at St. Charles Operations in Hahnville, Louisiana, which was shut down at the end of 2007. As of March 31, 2008, severance of $1 million had been paid to 28 employees, and a liability of $16 million remained for approximately 200 employees.

The following table summarizes 2008 activities related to the Corporation’s restructuring reserve:

2008 Activities Related to 2007 Restructuring

In millions	Costs associated with Exit or Disposal Activities		Severance Costs			Total
Reserve balance at December 31, 2007	$	12	$	17		$	29
Cash payments	—		(1		)	(1		)
Reserve balance at March 31, 2008	$	12	$	16		$	28

NOTE D INVENTORIES

The following table provides a breakdown of inventories:

Inventories

In millions	March 31, 2008		Dec. 31, 2007
Finished goods	$	49	$	17
Work in process	9		40
Raw materials	55		47
Supplies	78		74
Total inventories	$	191	$	178

The reserves reducing inventories from the first-in, first-out (“FIFO”) basis to the last-in, first-out (“LIFO”) basis amounted to $206 million at March 31, 2008 and $183 million at December 31, 2007.

NOTE E OTHER INTANGIBLE ASSETS

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

Other Intangible Assets

	At March 31, 2008							At December 31, 2007
In millions	Gross Carrying Amount		Accumulated Amortization			Net		Gross Carrying Amount		Accumulated Amortization			Net
Intangible assets with finite lives:
Licenses and intellectual property	$	33	$	(33	)	—		$	33	$	(32	)	$	1
Patents	2		(1		)	$	1	3		(2		)	1
Software	115		(95		)	20		114		(94		)	20
Total other intangible assets	$	150	$	(129	)	$	21	$	150	$	(128	)	$	22

Amortization expense for software, which is included in “Cost of sales,” was $2 million in the first quarter of 2008 and $1 million in the first quarter of 2007. Amortization expense for other intangible assets (not including software) was immaterial in the first quarter of 2008 and the first quarter of 2007. Total estimated amortization expense for 2008 and the five succeeding fiscal years is as follows:

Estimated Amortization Expense In millions
2008	$	7
2009	$	7
2010	$	6
2011	$	1
2012	—
2013	—

NOTE F FAIR VALUE MEASUREMENTS

The following table summarizes the bases used to measure certain assets and liabilities at fair value on a recurring basis in the consolidated balance sheets:

Basis of Fair Value Measurements

			Significant Other Observable Inputs (Level 2)
In millions	At March 31 2008		Significant Other Observable Inputs (Level 2)
Assets at fair value:
Debt securities (1)	$	18	$	18

(1) Included in “Other investments” in the consolidated balance sheets.

Assets that are measured using significant other observable inputs are primarily valued by reference to quoted prices of similar assets in active markets, adjusted for any terms specific to that asset. For all other assets for which observable inputs are used, fair value is derived through the use of fair value models, such as a discounted cash flow model or other standard pricing models.

NOTE G 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. At March 31, 2008, the Corporation had accrued obligations of $72 million for environmental remediation and restoration costs, including $21 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. At December 31, 2007, the Corporation had accrued obligations of $75 million for environmental remediation and restoration costs, including $23 million for the remediation of Superfund sites. 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 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.

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. Since then, the Corporation has compared current asbestos claim and resolution activity to the results of the most recent ARPC study at each balance sheet date to determine whether the accrual continues to be appropriate. In addition, the Corporation has requested ARPC to review the Corporation’s historical asbestos claim and resolution activity each November since 2004 to determine the appropriateness of updating the most recent ARPC study.

In November 2006, the Corporation requested ARPC to review the Corporation’s historical asbestos claim and resolution activity and determine the appropriateness of updating its most recent study from January 2005. In response to that request, ARPC reviewed and analyzed data through October 31, 2006 and concluded that the experience from 2004 through 2006 was sufficient for the purpose of forecasting future filings and values of asbestos claims filed against UCC and Amchem, and could be used in place of previous assumptions to update its January 2005 study. The resulting study, completed by ARPC in December 2006, stated that the undiscounted cost of resolving pending and future asbestos-related claims against UCC and Amchem, excluding future defense and processing costs, through 2021 was estimated to be between approximately $1.2 billion and $1.5 billion. As in its January 2003 and January 2005 studies, ARPC provided estimates for a longer period of time in its December 2006 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 December 2006 study and the Corporation’s own review of the asbestos claim and resolution activity, the Corporation decreased its asbestos-related liability for pending and future claims to $1.2 billion at December 31, 2006 which covered the 15-year period ending in 2021 (excluding future defense and processing costs). The reduction was $177 million and was shown as “Asbestos-related credit” in the consolidated statements of income.

In November 2007, the Corporation requested ARPC to review the Corporation’s 2007 asbestos claim and resolution activity and determine the appropriateness of updating its December 2006 study. In response to that request, ARPC reviewed and analyzed data through October 31, 2007. In December 2007, ARPC stated that an update of its study would not provide a more likely estimate of future events than the estimate reflected in its study of the previous year and, therefore, the estimate in that study remained applicable. Based on the Corporation’s own review of the asbestos claim and resolution activity and ARPC’s response, the Corporation determined that no change to the accrual was required. At December 31, 2007, the Corporation’s asbestos-related liability for pending and future claims was $1.1 billion. At December 31, 2007, approximately 31 percent of the recorded liability related to pending claims and approximately 69 percent related to future claims.

Based on the Corporation’s review of 2008 activity, the Corporation determined that no adjustment to the accrual was required at March 31, 2008. The Corporation’s asbestos-related liability for pending and future claims was $1.1 billion at March 31, 2008. Approximately 30 percent of the recorded liability related to pending claims and approximately 70 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 by the Corporation 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 Union Carbide’s insurance policies and to resolve issues that the insurance carriers may raise.

In September 2003, the Corporation filed a comprehensive insurance coverage case, now proceeding in the Supreme Court of the State of New York, County of New York, seeking to confirm its rights to insurance for various asbestos claims and to facilitate an orderly and timely collection of insurance proceeds. 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. Although the lawsuit is continuing, through the first quarter of 2008, the Corporation has reached settlements with several of the carriers involved in this litigation.

The Corporation’s receivable for insurance recoveries related to its asbestos liability was $465 million at March 31, 2008 and $467 million at December 31, 2007. At March 31, 2008 and December 31, 2007, all 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 to the receivable for insurance recoveries related to its asbestos liability, 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	March 31, 2008		Dec. 31, 2007
Receivables for defense costs	$	22	$	18
Receivables for resolution costs	248		253
Total	$	270	$	271

The Corporation expenses defense costs as incurred. The pretax impact for defense and resolution costs, net of insurance, was $14 million in the first quarter of 2008 and $17 million in the first quarter of 2007, and was reflected in “Cost of sales.”

After a 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, 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, 2007, the Corporation had various outstanding commitments for take-or-pay agreements, with terms extending from one to fifteen years. Such commitments were not in excess of current market prices. The fixed and determinable portion of obligations under purchase commitments at December 31, 2007 is presented in the following table:

Fixed and Determinable Portion of Take-or-Pay Obligations at December 31, 2007
In millions
2008	$	7
2009	7
2010	8
2011	2
2012	2
2013 and beyond	11
Total	$	37

Guarantees

The Corporation has undertaken obligations to guarantee the performance of certain nonconsolidated affiliates. 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 sheets for these guarantees.

Guarantees In millions	Final Expiration	Maximum Future Payments		Recorded Liability
Guarantees at March 31, 2008	2014	$	80	$	1
Guarantees at December 31, 2007	2014	$	77	$	1

Conditional Asset Retirement Obligations

In accordance with FIN No. 47, the Corporation has recognized conditional asset retirement obligations related to asbestos encapsulation as a result of planned demolition and remediation activities at manufacturing and administrative sites in the United States. The aggregate carrying amount of conditional asset retirement obligations was $9 million at March 31, 2008 and December 31, 2007. The discount rate used to calculate the Corporation’s asset retirement obligations was 5.08 percent, unchanged from December 31, 2007. These obligations are included in the consolidated balance sheets as “Accrued and other current liabilities.”

The Corporation has not recognized conditional asset retirement obligations for which a fair value cannot be reasonably estimated in its consolidated financial statements. It is the opinion of management that the possibility is remote that such conditional asset retirement obligations, when estimable, will have a material adverse impact on the Corporation’s consolidated financial statements based on current costs.

NOTE H PENSION AND OTHER POSTRETIREMENT BENEFITS

Net Periodic Benefit Cost (Credit) for All Significant Plans

	Defined Benefit Pension Plans						Other Postretirement Benefits
	Three Months Ended						Three Months Ended
In millions	March 31, 2008			March 31, 2007			March 31, 2008			March 31, 2007
Service cost	$	5		$	5		$	1		$	1
Interest cost	56			53			7			7
Expected return on plan assets	(78		)	(79		)	—			—
Amortization of prior service cost (credit)	2			1			(1		)	(1		)
Amortization of net loss	1			7			—			1
Net periodic benefit cost (credit)	$	(14	)	$	(13	)	$	7		$	8

NOTE I RELATED PARTY TRANSACTIONS

The Corporation sells products to Dow to simplify the customer interface process. Products are sold to and purchased from Dow at market-based prices in accordance with the terms of Dow’s long-standing intercompany pricing policies. 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 $1.0 billion in the first quarter of 2008 and $693 million in the first quarter of 2007.

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 $6 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 March 31, 2008, the Corporation had a note receivable of $3.5 billion ($3.2 billion at December 31, 2007) from Dow under a revolving loan agreement. The Corporation may draw from this note receivable in support of its daily working capital requirements and, as such, the net effect of cash inflows and outflows under this revolving loan agreement is presented in the consolidated statements of cash flows as an operating activity.

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, 2008, pursuant to an amendment effective as of September 30, 2007. Dow may demand repayment with a 30-day written notice to the Corporation, subject to certain restrictions. 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 March 31, 2008, $811 million ($813 million at December 31, 2007) was available under the revolving credit agreement. The cash collateral is reported as “Noncurrent receivables from related companies” in the consolidated balance sheets.

The losses and additional costs incurred by the Corporation in 2005 due to hurricane Katrina were covered by the Corporation’s insurance program. The Corporation has an insurance receivable for losses incurred of $99 million at March 31, 2008 from its insurer (an affiliate of Dow). Additionally, the Corporation has insurance coverage for lost sales and margins caused by hurricane Katrina. No amount of recovery for lost sales and margins had been recognized at March 31, 2008, and will only be recognized when the amount of recovery is realized through agreement among the insurers.

The Corporation received cash dividends from its related company investments of $77 million in the first quarter of 2008, including $75 million from Dow International Holdings LLC (“DIHC”). These dividends were included in “Sundry income (expense) – net.”

In December 2007, under the terms of a contribution agreement among UCC, Dow and DIHC, the Corporation contributed its 42.5 percent ownership interest in EQUATE Petrochemical Company K.S.C. (“EQUATE”) to UC Investment B.V. (“UCIBV”), a newly formed Dutch limited liability company in which the Corporation was the sole shareholder. The Corporation then contributed its ownership interest in UCIBV to DIHC in exchange for an increased ownership interest in DIHC. At March 31, 2008, the Corporation had a 19.13 percent ownership interest in DIHC which the Corporation accounts for using the cost method. The Corporation has the right to sell its shares in DIHC to Dow (anytime during the period January 1, 2009 through December 31, 2011) for an amount calculated using a formula in the agreement, which intends to approximate fair value. In accordance with the terms of the contribution agreement, Dow made a capital contribution to UCC in the amount of $191 million in the first quarter of 2008.

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-month period ended March 31, 2008, the most recent period, compared with the three-month period ended March 31, 2007, the corresponding period in the preceding fiscal year.

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

Union Carbide Corporation’s (the “Corporation” or “UCC”) 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 Statement of Financial Accounting Standards 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.

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 the Corporation. 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. 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

Total net sales for the first quarter of 2008 were $2,035 million compared with $1,726 million for the first quarter of 2007, an increase of 18 percent.

Net sales to related companies for the first quarter of 2008 were $1,989 million compared with $1,673 million for the first quarter of 2007, an increase of 19 percent. Selling prices to Dow are based on market prices for the related products. Average selling prices for most products were higher in the first quarter of 2008 compared with the first quarter of 2007, led by ethylene glycol (“EG”), polyethylene (“PE”) and polypropylene (“PP”). Sales volume was mixed with overall volume up in the first quarter of 2008 compared with the first quarter of 2007. Volume growth for several products (led by EG and PE) more than offset declines in the Corporation’s other products, principally PP. The decline in PP volume was related to the shutdown of the PP plant in St. Charles, Louisiana in the fourth quarter of 2007.

Cost of sales increased 23 percent from $1,598 million in the first quarter of 2007 to $1,961 million in the first quarter of 2008 principally due to higher feedstock and energy costs and higher sales volume.

Equity in earnings of nonconsolidated affiliates decreased $70 million in the first quarter of 2008 compared with the same quarter in 2007 principally due to the Corporation’s fourth quarter of 2007 contribution of its 42.5 percent ownership interest in EQUATE Petrochemical Company K.S.C. (“EQUATE”) to Dow International Holding Company (“DIHC”) for an increased ownership share in DIHC. Offsetting this decline was an increase in sundry income – net, due to a dividend of $75 million from DIHC in the first quarter of 2008. 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 first quarter of 2008 was income of $70 million compared with expense of $10 million for the first quarter of 2007.

See Note I to the Consolidated Financial Statements for information regarding the change in ownership.

Interest income was $32 million in the first quarter of 2008 compared with $37 million in the first quarter of 2007, due to lower interest rates, partially offset by an increased level of interest bearing assets. Interest expense and amortization of debt discount decreased $3 million in the first quarter of 2008 compared with the first quarter of 2007.

The effective tax rate fluctuates based on, among other factors, where income is earned, the level of after-tax income from joint ventures, dividends received from investments in related companies and the level of income relative to tax credits available. The effective tax rate for the first quarter of 2008 was 20.9 percent compared with 21.5 percent for the same quarter last year.

The Corporation reported net income of $155 million for the first quarter of 2008, compared with $186 million for the first quarter of 2007. While the results for the first quarter of 2008 were favorably impacted by higher dividends from investments, this improvement was more than offset by lower margins due to increased feedstock and energy costs, and lower equity earnings.

On December 13, 2007, Dow and Petrochemical Industries Company of the State of Kuwait, a wholly owned subsidiary of Kuwait Petroleum Corporation, announced plans to form a 50:50 joint venture that will be a market-leading, global petrochemicals company. The joint venture, to be headquartered in the United States, will manufacture and market polyethylene, ethyleneamines, ethanolamines, polypropylene, and polycarbonate. The joint venture is expected to have revenues of more than $11 billion and employ more than 5,000 people worldwide. It is anticipated that a significant part of UCC’s U.S.-based manufacturing assets will be included in the new joint venture. While the transaction is subject to the completion of definitive agreements, customary conditions and regulatory approvals, it is anticipated that the joint venture between Dow and PIC will close in late 2008. Management is currently evaluating the accounting treatment and the impact on the Corporation’s financial statements.

OTHER MATTERS

Recent Accounting Pronouncements

See Note B to the Consolidated Financial Statements for a summary of recent accounting pronouncements. In addition, see Note F to the Consolidated Financial Statements for the Corporation’s disclosures about fair value measurements. The sensitivity of fair value estimates is immaterial relative to the assets and liabilities measured at fair value, as well as to the total equity of the Corporation.

Critical Accounting Policies

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America 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, 2007 (“2007 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 2007 10-K. Since December 31, 2007, there have been no material changes in the Corporation’s critical accounting policies.

Asbestos-Related Matters

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.

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.

The table below provides information regarding asbestos-related claims filed against the Corporation and Amchem:

	2008		2007
Claims unresolved at January 1	90,322		111,887
Claims filed	2,716		3,085
Claims settled, dismissed or otherwise resolved	(2,854	)	(2,225	)
Claims unresolved at March 31	90,184		112,747
Claimants with claims against both UCC and Amchem	28,893		38,901
Individual claimants at March 31	61,291		73,846

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, the damages alleged 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. Since then, the Corporation has compared current asbestos claim and resolution activity to the results of the most recent ARPC study at each balance sheet date to determine whether the accrual continues to be appropriate. In addition, the Corporation has requested ARPC to review Union Carbide’s historical asbestos claim and resolution activity each November since 2004 to determine the appropriateness of updating the most recent ARPC study.

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

	Three Months Ended				Aggregate Costs
In millions	March 31, 2008		March 31, 2007		to Date as of March 31, 2008
Defense costs	$	14	$	17	$	579
Resolution costs	$	42	$	16	$	1,312

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 a number of factors, including 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

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.

In September 2003, the Corporation filed a comprehensive insurance coverage case, now proceeding in the Supreme Court of the State of New York, County of New York, seeking to confirm its rights to insurance for various asbestos claims and to facilitate an orderly and timely collection of insurance proceeds. 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. Although the lawsuit is continuing, through the end of the first quarter of 2008, the Corporation had reached settlements with several of the carriers involved in this litigation.

Receivables for Costs Submitted to Insurance Carriers

In millions	March 31, 2008		Dec. 31, 2007
Receivables for defense costs	$	22	$	18
Receivables for resolution costs	248		253
Total	$	270	$	271

Summary

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

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

ITEM 4T. CONTROLS AND PROCEDURES.

Evaluation of Disclosure 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 paragraph (b) of Exchange Act Rules 13a-15 or 15d-15. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Corporation’s disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

There were no changes in the Corporation’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that was conducted during the last fiscal quarter that have materially affected, or are 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 asbestos-related matters occurred during the first quarter of 2008. For a summary of the history and current status of asbestos-related matters, see Management’s Discussion and Analysis of Financial Condition and Results of Operations, Asbestos-Related Matters; and Note G to the Consolidated Financial Statements.

ITEM 1A. RISK FACTORS.

There were no material changes in the Corporation’s risk factors in the first quarter of 2008.

ITEM 6. EXHIBITS.

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

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: April 29, 2008

		By:	/s/ WILLIAM H. WEIDEMAN
			William H. Weideman
			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

10.3		Third Amended and Restated Agreement (to Provide Materials and Services), dated as of March 1, 2008, between the Corporation and Dow Hydrocarbons and Resources 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-10.3 2 a08-12670_1ex10d3.htm EX-10.3

EXHIBIT 10.3

Third Amended and Restated Agreement (to Provide Materials and Services), between the

Corporation and Dow Hydrocarbons and Resources LLC.

THIRD AMENDED AND RESTATED AGREEMENT

This THIRD AMENDED AND RESTATED AGREEMENT (“Agreement”), entered into as of March 1, 2008, between Union Carbide Corporation (“UCC”), a New York corporation, and Dow Hydrocarbons and Resources LLC (“DHR LLC”), a Delaware corporation, amends and restates that Second Amended and Restated Agreement of April 1, 2005, as amended as of January 1, 2008 (as so amended, the “Second Amended Agreement”), which amended and restated that certain agreement of February 6, 2001, as amended and restated as of July 1, 2003 . DHRI agrees to supply the UCC Group (as defined below) with certain products and services under the terms and conditions set forth below.

1. TERM

The term of this Agreement shall commence on the Effective Date and shall extend until December 31, 2008, and shall continue from year-to-year thereafter, unless earlier terminated in accordance with the provisions of this Agreement (the “Term”). Either UCC or DHR LLC may elect at any time to terminate this Agreement by providing the other with at least six (6) months’ advance written notice of termination.

2. DEFINITIONS

As used in this Agreement:

(a) An “Affiliate” with respect to any entity means any other entity directly or indirectly controlling, controlled by or under common control with, such entity, where “control” of an entity (including, with correlative meaning, the terms “controlling, “controlled by” and “under common control with”) shall mean the possession, directly or indirectly, of the power to direct or cause the direction of management and policies of such entity, whether through the ownership of voting securities, by contract or otherwise.

(b) “Arranged Sales” has the meaning given to it in Section 8(B)(2)(b).

(d) “Delivery Point” means the point at which product supplied by DHR LLC to a UCC Member under this Agreement is received (1) into the facilities of such UCC Member or its designee (including without limitation storage facilities operated by such UCC Member or its designee), or (2) into Intermediary Equipment directly connected to the facilities of such UCC Member or its designee, or (3) into the facilities of a third party, or a designee of such UCC Member or such third party, in fulfillment of an obligation of such UCC Member to deliver product to or on behalf of such third party; for avoidance of doubt, (A) when received into any truck or tank car, the Delivery Point is the point at which the product enters the receiving truck or car; (B) when received into any pipeline, the Delivery Point is the point at which the product passes the connection between the delivering pipeline and receiving pipeline; (C) when received into storage, the Delivery Point is the point at which the product enters a storage tank or cavern; (D) when received by “in-line” transfer or “in-storage” transfer, receipt at the Delivery Point occurs immediately upon such transfer; or (E) when received by or into any vessel, the Delivery Point is at the flange between the vessel’s permanent hose connection and the shore line.

(e) “Effective Date” means March 1, 2008.

(f) “Emission Products” means emission reduction credits, emission allowances, emission reduction certificates, emission off-sets, renewable energy credits and certificates, and any other emission product.

(g) “GAAP” means generally accepted accounting principles.

(h) “Intermediary Equipment” means, with respect to a UCC Member or its designee, intermediary systems or equipment, owned or controlled by a third party, used to deliver products to such UCC Member’s or designee’s facilities pursuant to a Separate Contract. For avoidance of doubt, the Burnel line connected to UCC’s Seadrift Operations is Intermediary Equipment.

(i) “Major Sites” means the following four sites: UCC’s West Virginia Operations in the vicinity of South Charleston, WV; UCC’s St. Charles Operations, in the vicinity of Hahnville, LA; UCC’s Texas City Operations in Texas City, TX; and UCC’s Seadrift Operations in the vicinity of Seadrift, TX.

(j) “Net Supply Cost” means the following costs, to be determined in accordance with the then-current cost accounting practices applied by DHR LLC consistent with GAAP: (1) for fuels, on a site specific basis, the cost of purchases of such fuel (and transportation and storage thereof, except as provided otherwise by the delivery terms of Section 4(b)(2)) under Third-Party Contracts, net of related sales and exchanges, (2) for hydrocarbon feedstocks, the cost of purchases of such hydrocarbon feedstocks (and transportation and storage thereof, except as provided otherwise by the delivery terms of Section 4(b)(2)) under Third-Party Contracts, using the weighted average cost of DHR LLC’s U.S. Gulf Coast pooled inventory and purchases, net of related sales and exchanges, (3) for monomers and aromatics, the cost of purchases of such monomers and aromatics (and transportation and storage thereof, except as provided otherwise by the delivery terms of Section 4(b)(2)), using the weighted average price for such monomers and aromatics under U.S. Gulf Coast Third-Party Contracts, and (4) for electricity, on a site specific basis, the cost (including without limitation applicable fees charged by non-Affiliate third parties) of purchases of such electricity (and transmission thereof), based on market prices, Third-Party Contract prices, or a combination thereof, as applicable, net of related sales of electricity.

(k) “Separate Contract” means an agreement, which pre-exists the Effective Date, between one or more third parties and one or more UCC Members, including without limitation any such agreement (1) for supply, delivery, storage or transportation of products to UCC or its designee, and/or (2) for the swap or exchange of any products.

(l) “Small Sites” means the UCC Group’s locations other than the Major Sites.

(m) “TDCC” means The Dow Chemical Company.

(n) “Term” has the meaning given to it in Section 1.

(o) “Third-Party Contracts” means contracts between the purchaser (i.e., DHR LLC or a DHR LLC Affiliate) and a third party that is not an Affiliate of such purchaser.

(p) “UCC Group” means UCC and the UCC Subsidiaries, collectively.

(q) “UCC Member” means a member of the UCC Group.

(r) “UCC Subsidiary” means a direct or indirect wholly-owned U.S. subsidiary of UCC (such as, but not limited to, Amerchol Corporation, Seadrift Pipeline Corporation, UCAR Pipeline Incorporated, and UCAR Louisiana Pipeline Company).

3. PRODUCTS AND SERVICES TO BE SUPPLIED BY DHRI TO UCC

(a) The following products and services will be supplied by DHR LLC to the UCC Group, as described below, in connection with the UCC Group’s U.S. locations except to the extent otherwise agreed to by DHR LLC and UCC:

(1) Products: 100% of the UCC Group’s procurement requirements for

(A) fuels, primarily natural gas,

(B) hydrocarbon feedstocks,

(D) electricity,

except to the extent supply of such products is arranged in accordance with Sections 3(a)(2) or 3(c), below, or is procured by a UCC Member pursuant to a Separate Contract.

(2) Services. DHR LLC shall provide: management of the UCC Group’s hydrocarbon and energy asset base, management of the UCC Group’s Emission Products, and management of the UCC Group’s hydrocarbon and energy business matters, including without limitation: (i) management of hydrocarbon and energy contracts (including without limitation Separate Contracts); (ii) communications, as required, with the UCC Group’s management and authorized representatives, as well as with any of the UCC Group’s external customers, in connection with such hydrocarbon and energy business matters; (iii) monitoring of the UCC Group’s and industry supply/demand balances of hydrocarbon and energy products; (iv) the implementation of both short and long term strategic positions in hydrocarbon and energy products; (v) oversight and consulting regarding markets for Emission Products; and (vi) as mutually determined by UCC and DHR LLC, provision to the UCC Group of applicable accounting and computer systems to manage the other services supplied to the UCC Group under this Agreement. To the extent a UCC Member elects to separately arrange the supply of any one or more of the foregoing services, in whole or in part, such supply is outside the scope of this Agreement.

Except to the extent supplied by DHR LLC pursuant to Section 3(a)(1) above, or procured by a UCC Member pursuant to a Separate Contract, and subject to Section 3(c), below, DHR LLC shall also arrange the supply and sales of fuels, feedstocks, monomers, aromatics, electricity, steam. utilities, and Emission Products, as described below:

(A) Arrange the supply to the UCC Group of 100% of the UCC Group’s procurement requirements for fuels (such as natural gas and coal) and hydrocarbon feedstocks, and arrange any storage or transportation needed to effectuate such supply.

(B) Arrange (1) the supply to the UCC Group of 100% of the UCC Group’s procurement requirements for monomers and aromatics, to supplement the UCC Group’s production of monomers and aromatics, (2) the sale of 100% of the UCC Group’s surplus monomers, aromatics, and hydrocarbon co-products and by-products, and (3) any storage or transportation needed to effectuate such supply or sales.

(C) Arrange (1) the supply to the UCC Group of 100% of the UCC Group’s procurement requirements for electricity, steam and other utilities, (2) the sale of 100% of the UCC Group’s surplus electricity, steam and other utilities, and (3) any transportation needed to effectuate such supply or sales; however, to the extent UCC or any other UCC Member elects to separately arrange the supply, sale, or transportation of a UCC Member’s procurement requirements for electricity, steam or other utilities, such supply or sales are outside the scope of this Agreement.

(D) Arrange (1) the supply to the UCC Group of 100% of the UCC Group’s procurement requirements for Emission Products, to supplement the UCC Group’s production of Emission Products and (2) the sale of 100% of the UCC Group’s surplus Emission Products.

(b) Where DHR LLC arranges product to be supplied to a UCC Member by TDCC or a TDCC Affiliate, TDCC or such TDCC Affiliate shall (and TDCC shall cause such Affiliate to) supply such product at Net Supply Cost.

(c) With respect to any one or more of the Small Sites, DHR LLC may elect to not supply or, to discontinue (at any time) supply of, any one or more of the products or services described in Section 3(a), above; in the event DHR LLC elects to discontinue supply of any one or more of such products or services (other than pursuant to other provisions of this Agreement which expressly provide for termination of this Agreement), DHR LLC will reasonably cooperate with UCC to effect a transition to another supplier of such service or product. For any UCC Group location where

DHR LLC does not supply a product or service as described in Section 3(a), above, then upon request of a UCC Member, DHR LLC may, at its option, consult with a UCC Member regarding the member’s procurement of such product or service from third parties.

(d) A representative list of products to be supplied to the UCC Group in connection with this Agreement is set forth in Exhibit A, attached to and hereby made part of this Agreement (“Exhibit A”).

(e) The parties’ respective obligations under Section 3(a) of this Agreement are subject to Separate Contracts; for the avoidance of doubt, a UCC Member shall remain responsible for the payment of any charges payable by such UCC Member under a Separate Contract.

(f) DHR LLC is authorized to act as a UCC Member’s delegate with respect to performance of any such UCC Member’s rights or obligations under Separate Contracts; provided that, as a delegate of such UCC Member, DHR LLC will not provide or receive products without corresponding compensation (for example, in the form of payment, in-kind product, or a combination thereof) from or to, respectively, such UCC Member or its designee. DHR LLC is not liable for Claims (as defined in Section 8(E), below) made by third parties with respect to the acts or omissions of DHR LLC when acting as delegate for a UCC Member, except to the extent such Claims arise as a result of DHR LLC’s gross negligence or willful misconduct.

(g) UCC shall cause the UCC Subsidiaries to fully accept, abide by, and comply with, the terms and conditions of this Agreement.

(h) Appointment as agent.

(1) UCC hereby makes, constitutes and appoints DHR LLC as its true and lawful attorney-in-fact and empowers DHR LLC to act for UCC as UCC’s agent during the term of this Agreement in matters connected with the services (for example, arranging the supply or sale of products, Emission Products, or utilities, including but not limited to arrangements between UCC and DHR LLC or UCC and DHR LLC Affiliates) and products supplied under this Agreement. Specifically, DHR LLC has the authority to issue and execute those business documents and contracts in the name of UCC which are necessarily issued in conjunction with the services and products being provided by DHR LLC to UCC under this Agreement. DHR LLC accepts such appointment and grant. To the extent applicable, UCC shall cause each UCC Subsidiary to make a similar appointment and grant, and DHR LLC hereby accepts such appointment and grant. DHR LLC is not liable for Claims (as defined in Section 8(E), below) made by third parties with respect to the acts or omissions of DHR LLC when acting as agent for a UCC Member, except to the extent such Claims arise as a result of DHR LLC’s gross negligence or willful misconduct.

(2) (A) For DHR LLC to provide electricity-related services to UCC Members in an efficient manner, DHR LLC may from time to time enter energy related agreements in DHR LLC’s name and/or in a UCC Member’s name that affect, or otherwise relate to, such UCC Member’s electricity matters (“Power Agreements”).

(B) UCC, for itself and on behalf of the UCC Subsidiaries, hereby authorizes and gives consent to DHR LLC to enter Power Agreements in DHR LLC’s and/or a UCC Member’s name. The Power Agreements provide for electricity-related matters applicable to one or more UCC Members which may include, without limitation, commitments regarding a QSE, REP, scheduling, pooling, ancillary services and marketing services.

(C) UCC, for itself and on behalf of the UCC Subsidiaries, hereby (i) authorizes and consents to DHR LLC taking actions for a UCC Member with respect to Power Agreements regarding such UCC Member’s electricity matters, (ii) agrees to comply with Power Agreements and with DHR LLC’s requests related thereto, and (iii) acknowledges and agrees that DHR LLC is entering Power Agreements and providing, coordinating or arranging for electricity-related services under Power Agreements within the scope of the services contemplated under this Agreement.

(D) UCC, for itself and on behalf of the UCC Subsidiaries, hereby acknowledges that any prior Power Agreements entered into by Dow Hydrocarbons and Resources Inc. (“DHRI”), and related actions by DHRI of the nature described in this Agreement that are applicable to a UCC Member’s electricity matters, are fully ratified, authorized and accepted by UCC, the UCC Subsidiaries, and DHR LLC.

(E) Notwithstanding the termination, expiration or cancellation of this Agreement, it is hereby agreed that, with respect to any UCC Group locations, (i) as long as any Power Agreement has not yet fully expired, been fully cancelled, or been otherwise fully terminated, the provisions of Section 3(h)(2)(C) above shall remain in full force and effect, and shall not expire, be cancelled or otherwise be terminated, and (ii) for the time period any Power Agreement extends beyond the termination, expiration or cancellation of this Agreement, UCC will reimburse, or cause the applicable UCC Member to reimburse, DHR LLC for any third party costs incurred by DHR LLC with respect to such Power Agreement and the products and services provided to UCC Group thereunder.

4. COMPENSATION and DELIVERY TERMS

(a) As compensation for the products and services supplied by DHR LLC under this Agreement, UCC (subject to Section 4(e), below) shall pay Product Charges and a Service Commission, as follows:

(1) Product Charges

(A) For hydrocarbon feedstocks supplied by DHR LLC under this Agreement, UCC shall pay to DHR LLC the Net Supply Cost thereof.

(B) For fuels supplied by DHR LLC under this Agreement, UCC shall pay to DHR LLC the Net Supply Cost thereof.

(C) For monomers and aromatics supplied by DHR LLC under this Agreement, UCC shall pay to DHR LLC the Net Supply Cost thereof.

(D) For electricity supplied by DHR LLC under this Agreement, UCC shall pay to DHR LLC the Net Supply Cost thereof.

(2) Service Commission – For all of the services supplied under Section 3(a)(2) of this Agreement, UCC shall pay a commission to DHR LLC, which shall be calculated as follows:

(A) 0.65 cents per pound ($6.50 per thousand pounds) of ethylene and propylene consumed by UCC at the Major Sites; plus

(B) 3.0 cents per million BTUs of natural gas consumed by UCC at the Major Sites; plus

(D) $1.00 per megawatt hour of electricity procured for or sold for the Major Sites (including without limitation electricity supplied to a UCC Member by DHR LLC or purchased from a UCC Member by DHR LLC).

(b) Delivery terms: (1) Product Charges include delivery of products supplied by DHR LLC to the applicable Delivery Point, and title to and risk of loss for product supplied by DHR LLC hereunder shall pass at the applicable Delivery Point. (2) The UCC Group shall not pay separate charges for pipeline transportation or storage in Texas- or Louisiana-based assets of DHR LLC or DHR LLC Affiliates.

(c) Renegotiation of Product Charges or Service Commission – Either UCC or DHR LLC may request a re-negotiation of Product Charges and/or the Service Commission upon thirty (30) days prior written notice, and the parties shall promptly negotiate in good faith to establish such new Product Charges and/or a new Service Commission.

(d) Notwithstanding any other provision of this Agreement, DHR LLC shall accept payment from any UCC Subsidiary for some or all of any amount due to DHR LLC under this Agreement, but UCC shall remain fully responsible and liable for any unpaid amounts due to DHR LLC under this Agreement.

5. PRODUCT SPECIFICATIONS; LIMITED WARRANTY; ASSUMPTION OF RISK

DHR LLC warrants that all product purchased from DHR LLC by a UCC Member hereunder shall meet the specifications set forth in Exhibit A. THE FOREGOING IS DHR LLC’S SOLE WARRANTY REGARDING PRODUCTS AND SERVICES SUPPLIED UNDER THIS AGREEMENT, AND IS MADE EXPRESSLY IN LIEU OF AND EXCLUDES ANY AND ALL IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, AND ALL OTHER EXPRESS OR IMPLIED WARRANTIES INCLUDING WITHOUT LIMITATION THOSE PROVIDED BY STATUTE OR COMMON LAW. DHR LLC MAKES NO OTHER WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THE PRODUCTS OR SERVICES SUPPLIED HEREUNDER. EACH UCC MEMBER, WITH RESPECT TO ANY PRODUCT RECEIVED BY SUCH UCC MEMBER HEREUNDER, ASSUMES ALL RISK, RESPONSIBILITY AND LIABILITY RESULTING FROM THE USE OR APPLICATION OF SUCH PRODUCT, AND DHR LLC SHALL HAVE NO LIABILITY OR RESPONSIBILITY WHATSOEVER FOR THE USE OR APPLICATION OF ANY SUCH PRODUCT.

6. TERMS OF PAYMENT

UCC shall make payments to DHR LLC for product purchased and services rendered hereunder within five (5) business days of the receipt of DHR LLC’s invoice. Invoices shall be issued once per month as soon as possible after the end of such month.

7. MEASUREMENT

The determination of quantity and quality of product purchased by a UCC Member from DHR LLC hereunder shall be made in accordance with the customary procedures and practices of the industry.

8. CLAIMS, REMEDIES, LIMITATION OF DAMAGES and INDEMNIFICATION

(A) IF ANY PRODUCT PURCHASED BY A UCC MEMBER FROM DHR LLC UNDER THIS AGREEMENT DOES NOT MEET APPLICABLE SPECIFICATIONS, DHR LLC SHALL HAVE THE RIGHT IN ITS DISCRETION, AS THE UCC MEMBER’S SOLE REMEDY, EITHER TO REPLACE IT OR REFUND THE PRODUCT CHARGE PAID TO DHR LLC FOR THE PRODUCT WHICH IS THE SUBJECT OF THE CLAIM.

(B) HOWEVER, AND IN ANY EVENT, DHR LLC’S MAXIMUM LIABILITY FOR DAMAGES IN RESPECT OF ANY AND ALL CLAIMS WHATSOEVER ARISING HEREUNDER WITH RESPECT TO

(1) PRODUCTS PURCHASED BY A UCC MEMBER FROM DHR LLC UNDER THIS AGREEMENT SHALL NOT EXCEED, IN THE AGGREGATE, THE PRODUCT CHARGE PAID TO DHRI FOR THE AMOUNT OF PRODUCT TO WHICH SUCH DAMAGES RELATE, AND

(2) SERVICES SUPPLIED BY DHR LLC TO A UCC MEMBER UNDER THIS AGREEMENT SHALL NOT EXCEED, IN THE AGGREGATE, THE FOLLOWING AMOUNTS:

(a) WITH RESPECT TO ARRANGING THE SUPPLY OF FUELS, HYDROCARBON FEEDSTOCKS, MONOMERS, AROMATICS, ELECTRICITY, STEAM AND UTILITIES (“ARRANGED SUPPLY”), TWO PERCENT (2%) OF THE AMOUNT PAID BY THE UCC MEMBER FOR THE ARRANGED PURCHASES TO WHICH SUCH DAMAGES RELATE;

(b) WITH RESPECT TO ARRANGING THE SALE OF MONOMERS, AROMATICS, ELECTRICITY, STEAM AND UTILITIES (“ARRANGED SALES”), TWO PERCENT (2%) OF THE AMOUNT RECEIVED BY THE UCC MEMBER FOR THE ARRANGED SALES TO WHICH SUCH DAMAGES RELATE; AND

(c) FOR ALL OTHER SERVICES INVOLVED IN SUCH CLAIMS, ONE HUNDRED TWENTY-FIVE THOUSAND DOLLARS ($125,000.00) PER MONTH (A MINIMUM OF ONE MONTH) FOR EACH MONTH OF THE TERM FALLING WITHIN THE PERIOD TO WHICH SUCH DAMAGES RELATE.

(C) NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT, IN NO EVENT SHALL DHR LLC BE LIABLE FOR (1) PROSPECTIVE OR LOST PROFITS, (2) SPECIAL, INDIRECT, INCIDENTAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR (3) ANY CLAIM BASED ON PRODUCT QUALITY WITH RESPECT TO PRODUCT WHICH, FOLLOWING DELIVERY TO A UCC MEMBER, HAS BEEN MIXED WITH ANY OTHER MATERIAL OF ANY KIND (WHETHER OR NOT SUPPLIED IN CONNECTION WITH THIS AGREEMENT), OR HAS BEEN PROCESSED IN ANY MANNER.

(D) WITHIN SIXTY (60) DAYS AFTER A UCC MEMBERS LEARNS, OR SHOULD REASONABLY HAVE LEARNED, OF ANY CLAIM WITH RESPECT TO THE PRODUCTS OR SERVICES SUPPLIED BY DHR LLC UNDER THIS AGREEMENT, UCC OR SUCH UCC MEMBER SHALL INFORM DHR LLC IN WRITING OF THE CLAIM OR THE CLAIM IS WAIVED.

(E) (1) TO THE EXTENT PERMITTED BY APPLICABLE LAW, UCC ASSUMES THE ENTIRE RESPONSIBILITY AND LIABILITY FOR, AND SHALL PROTECT, DEFEND, INDEMNIFY, AND HOLD HARMLESS DHR LLC FROM AND AGAINST, ANY AND ALL CLAIMS WHICH ARE MADE, ASSERTED OR ALLEGED AGAINST DHR LLC BY ANY ONE OR MORE UCC MEMBERS OR ANY OTHER PERSON, OR WHICH ARISE IN FAVOR OF ANY ONE OR MORE UCC MEMBERS OR ANY OTHER PERSON, ORIGINATING FROM ANY SOURCE IN CONNECTION WITH (a) DHR LLC ACTING AS AN AGENT OR DELEGATE FOR ANY ONE OR MORE UCC MEMBERS, AND/OR (b) THE FAILURE OF A UCC SUBSIDIARY TO FULLY ACCEPT, ABIDE BY, OR COMPLY WITH, THE TERMS OF THIS AGREEMENT, AND/OR (c) ARRANGED PURCHASES AND/OR ARRANGED SALES, AND/OR (d) THE USE OR APPLICATION, BY A UCC MEMBER OR ANY OTHER PERSON, OF ANY PRODUCT SUPPLIED UNDER THIS AGREEMENT.

IT IS DHR LLC AND UCC’S INTENT REGARDING SUCH CLAIMS THAT, SUBJECT TO SECTION 8(E)(2) BELOW, TO THE EXTENT PERMITTED BY APPLICABLE LAW, UCC SHALL PROTECT, DEFEND, INDEMNIFY AND HOLD HARMLESS DHR LLC AGAINST ALL OF THE CONSEQUENCES OF

(X) (I) THE NEGLIGENCE, FAULT, AND/OR STRICT LIABILITY OF DHR LLC OCCURRING JOINTLY, CONCURRENTLY, AND/OR COMPARATIVELY WITH THE NEGLIGENCE, FAULT, AND/OR STRICT LIABILITY OF A UCC MEMBER AND/OR ANY PERSON OTHER THAN DHR LLC, OTHER THAN THE SOLE NEGLIGENCE, IMPUTED SOLE NEGLIGENCE, SOLE FAULT AND/OR SOLE STRICT LIABILITY OF DHR LLC ADDRESSED IN SECTION 8(E)(2)(X)(II) BELOW; AND

(X) (II) THE SOLE NEGLIGENCE, IMPUTED SOLE NEGLIGENCE, SOLE FAULT, AND/OR SOLE STRICT LIABILITY OF DHR LLC, UNMIXED WITH NEGLIGENCE, GROSS NEGLIGENCE, FAULT, AND/OR STRICT LIABILITY OF A UCC MEMBER AND/OR ANY PERSON OTHER THAN DHR LLC; AND

(Y) THE NEGLIGENCE, GROSS NEGLIGENCE, FAULT, AND/OR STRICT LIABILITY OF A UCC MEMBER AND/OR ANY PERSON OTHER THAN DHR LLC, INCLUDING BUT NOT LIMITED TO JOINT, COMPARATIVE, AND/OR CONCURRENT NEGLIGENCE, FAULT, AND/OR STRICT LIABILITY OF SUCH UCC MEMBER AND/OR ANY PERSON OTHER THAN DHR LLC.

(2) NOTWITHSTANDING THE FOREGOING, (a) UCC’S OBLIGATIONS UNDER THE PROVISIONS OF SECTION 8(E)(1) SHALL NOT EXTEND TO ANY CLAIMS OF GROSS NEGLIGENCE, WILLFUL

MISCONDUCT, OR BREACH OF THIS AGREEMENT WHICH ARE MADE, ASSERTED OR ALLEGED AGAINST DHR LLC BY ANY ONE OR MORE UCC MEMBERS, AND (b) UCC’S INDEMNITY AND HOLD HARMLESS OBLIGATIONS UNDER THE PROVISIONS OF SECTION 8(E)(1) SHALL NOT EXTEND TO ANY CLAIMS OF PERSONS OTHER THAN UCC MEMBERS WHICH ARISE AS A RESULT OF DHR LLC’S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT (FOR THE AVOIDANCE OF DOUBT, UCC’S OBLIGATIONS TO PROTECT AND DEFEND SUCH CLAIMS ARE NOT EXCLUDED BY THIS SECTION 8(E)(2)(b)).

(3) DEFINITIONS - - AS USED IN THIS SECTION 8(E):

(a) “BODILY INJURY” MEANS ANY BODILY INJURY OF ANY KIND OR CHARACTER, INCLUDING WITHOUT LIMITATION, ANY ONE OR MORE OF THE FOLLOWING, COLLECTIVELY AND INDIVIDUALLY: PHYSICAL PAIN AND SUFFERING, ILLNESS, SICKNESS, DISEASE, IMPAIRMENT OF PHYSICAL CONDITION OF THE BODY, OR DEATH, AS WELL AS ANY PERSONAL INJURY INCLUDING, BUT NOT LIMITED TO, ANY INVASION OF PERSONAL RIGHTS SUCH AS LIBEL OR SLANDER, CIVIL RIGHTS VIOLATION, INVASION OF PRIVACY, TORTIOUS INTERFERENCE WITH A CONTRACT, OR MENTAL SUFFERING OF ANY TYPE.

(b) “CLAIMS” MEANS ALL CLAIMS OF ANY KIND OR CHARACTER, INCLUDING WITHOUT LIMITATION, ANY ONE OR MORE OF THE FOLLOWING, COLLECTIVELY AND INDIVIDUALLY: LOSSES, COSTS (INCLUDING, BUT NOT LIMITED TO, ATTORNEYS’ FEES, COURT COSTS, AND OTHER COSTS OF SUIT), DEMANDS, DAMAGES, JUDGMENTS, PENALTIES, LIABILITIES, DEBTS, EXPENSES, LAWSUITS AND CAUSES OF ACTION OF WHATEVER NATURE AND CHARACTER, WHETHER ARISING OUT OF OR RELATED TO CONTRACT (INCLUDING, WITHOUT LIMITATION, RELATED TO DELAYED DELIVERY, NON-DELIVERY, PRODUCT QUALITY OR DEFECTIVE PRODUCT), TORT, STRICT LIABILITY, BREACH OF WARRANTY, PRODUCTS LIABILITY, MISREPRESENTATION, VIOLATION OF APPLICABLE LAW, AND/OR ANY SOURCE OR CAUSE WHATSOEVER, WITHOUT LIMIT AND WITHOUT REGARD TO THE CAUSE OR CAUSES THEREOF, INCLUDING, WITHOUT LIMITATION, CLAIMS ARISING OUT OF OR ALLEGED TO ARISE OUT OF BODILY INJURY OR LOSS OF PROPERTY.

(c) “PERSON” MEANS ANY NATURAL PERSON, OR ANY COMPANY, CORPORATION, GENERAL OR LIMITED PARTNERSHIP, LIMITED LIABILITY COMPANY, JOINT VENTURE, ORGANIZATION, ASSOCIATION, OR OTHER ENTERPRISE OR ENTITY.

9. FORCE MAJEURE

Failure (in whole or in part) or delay on the part of either DHR LLC or a UCC Member in performance of any of the obligations imposed upon it shall be excused and such party shall not be liable for damages or otherwise when such failure or delay is beyond the control of DHR LLC or such UCC Member (“force majeure event”). Such events include, but are not limited to, the following: labor difficulties, total or partial loss or shortage of raw component material or products ordinarily required by DHR LLC; breakdown, either total or partial, of either party’s equipment, or act of God or nature. However, the settlement of strikes or lockouts shall be entirely within the discretion of the party having the difficulty. DHR LLC agrees to give written notice to UCC, and UCC agrees to give written notice (for itself and on behalf of the other UCC Members) when experiencing a force majeure event as soon as practicable.

Upon cessation of the cause or causes for any such failure or delay, performance hereof shall be resumed as soon as practicable. Such failure or delay shall not operate to extend the duration of this Agreement nor obligate either DHR LLC or any UCC Member to make up deliveries or receipts of product. If, by reason of any such circumstances, DHR LLC’s supply of product shall be insufficient to meet all of its requirements, DHR LLC shall apportion among any and all existing contract purchasers, including without limitation its Affiliates, in an equitable manner so that all parties share the product in proportion to their take prior to the circumstance reducing availability.

10. PATENTS

DHR LLC does not assume patent responsibility for the use by a UCC Member of product delivered hereunder. The use of product may or may not constitute an infringement of patents. A UCC Member receiving product hereunder assumes full responsibility and liability for patent infringement in connection with any use of such product by such UCC Member.

11. TAXES

In addition to the amounts to be paid under Section 4, above, (a) with respect to products purchased by a UCC Member from DHR LLC under this Agreement, such UCC Member shall also pay all taxes and duties, other than taxes measured by DHRI’s net income, that are increased or levied, now or in the future, in connection with the manufacture, sale, use, consumption, storage, transportation or disposal of such products, and (b) with respect to services supplied by DHR LLC to a UCC Member under this Agreement, such UCC Member shall also pay all taxes and duties, other than taxes measured by DHR LLC’s net income, that are increased or levied, now or in the future, in connection with the supply of such services.

12. WAIVER

No claim or right arising out of a breach of this Agreement can be discharged in whole or in part unless agreed to in writing executed by DHR LLC and UCC. Any such waiver shall not be deemed to be a waiver of any subsequent breach.

13. ASSIGNMENT

No right or obligation under, or interest in, this Agreement shall be assigned without prior written consent of both DHR LLC and UCC; provided, however, that DHR LLC may assign any part of its interest in, or any of its rights or obligations under, this Agreement to any DHR LLC Affiliate at any time without prior written consent from UCC.

14. APPLICABLE LAW

This Agreement shall be governed by the laws of the State of Texas, without regard to the conflict of laws principles thereof.

15. ENTIRETY OF AGREEMENT; SEVERABILITY

(a) This Agreement merges all prior understandings between DHRI or DHR LLC and UCC regarding the subject matter of this Agreement. No prior dealings between the parties and no usage of trade shall be relevant to supplement or explain any term used herein. All obligations, agreements, and understanding are expressly set forth herein and are not enforceable unless embodied herein. As of the Effective Date, (1) the Second Amended Agreement is hereby amended and restated, and neither UCC nor DHR LLC shall have any further rights, duties or obligations under the Second Amended Agreement, except for any payment rights and obligations for products and services provided prior to the Effective Date.

(b) To the degree that a party finds it convenient to employ their standard forms of purchase order or acknowledgement of order in administering their terms of this Agreement, such party may do so but none of the terms and conditions printed or otherwise appearing on such form shall be applicable except to the extent that it specifies information required to be furnished hereunder.

(c) Should any indemnification provisions set forth in this Agreement be limited by any law then applicable to this Agreement, this Agreement shall automatically be deemed amended to provide indemnification under this Agreement to the maximum extent permitted by such applicable law. However, and in any event, if any provision of this Agreement is held invalid, the invalidity shall not affect other provisions or application of the Agreement which

can be given effect without the invalid provision or application, and to this end the provisions of this Agreement are declared to be severable.

16. NOTICE

All notices, demands, requests and other communications provided for in this Agreement shall be given in writing, delivered in person (including without limitation via commercial courier) or via Certified or Registered U.S. Mail, with return receipt, and addressed to the party to be notified as follows:

DHR LLC	UCC
Dow Hydrocarbons and Resources LLC	Union Carbide Corporation
Houston Dow Center	400 West Sam Houston Parkway South
400 West Sam Houston Parkway South	Houston, Texas 77042
Houston, Texas 77042	Attn: President
Attn: Legal Department

or, in the case of either UCC or DHR LLC, to such other address as such party may hereafter specify by written notice to the other. All such notices, requests and communications shall be effective upon receipt.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as of the Effective Date.

UNION CARBIDE CORPORATION			DOW HYDROCARBONS AND
					RESOURCES LLC

By:	/s/ EDWARD W. RICH		By:	/s/ RICHARD A. WELLS
Name:		E.W. Rich	Name:			Richard A. Wells
Title:		Chief Financial Officer,	Title:			Executive Vice President
		Vice President, and Treasurer

ACKNOWLEDGED and AGREED as to Section 3(b):

THE DOW CHEMICAL COMPANY

By:	/s/ JOHN SUTTLE

Name:		JOHN SUTTLE
Title:		Authorized Representative

EXHIBIT A

1. Representative Products. The following is representative list of the products to be supplied to the UCC Group in connection with this Agreement (i.e., some or all of the following products, as well as products not listed, will be supplied to the UCC Group under this Agreement):

B-P Mix		Hydrocarbon Residual
Benzene		Mixed Butanes
Butadiene		N-butane
Coal		Naphtha
Condensate		Natural Gas
Crude Butadiene		Propane
Cumene		Propylene
E-P Mix		Pyrolysis Gasoline
Ethane		Styrene
Ethylene		Toluene
Fuel Oil		Electricity
Steam		Utilities

2. Specifications. All products purchased by a UCC Member from DHR LLC under this Agreement shall meet the then-current DHR LLC product specification or such specifications as DHR LLC reasonably determines (e.g., in connection with any of the services or consultation provided by DHR LLC under this Agreement) will meet such UCC Member’s product quality requirements.

EX-23 3 a08-12670_1ex23.htm EX-23

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 March 31, 2008.

/s/ B. THOMAS FLORENCE
B. Thomas Florence
President
Analysis, Research & Planning Corporation
April 25, 2008

EX-31.1 4 a08-12670_1ex31d1.htm EX-31.1

EXHIBIT 31.1

Union Carbide Corporation and Subsidiaries

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

I, Patrick E. Gottschalk, 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) 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

d) 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: April 29, 2008

			/s/ PATRICK E. GOTTSCHALK
			Patrick E. Gottschalk
			President and Chief Executive Officer

EX-31.2 5 a08-12670_1ex31d2.htm EX-31.2

EXHIBIT 31.2

Union Carbide Corporation and Subsidiaries

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

I, Edward W. Rich, 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: April 29, 2008

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

EX-32.1 6 a08-12670_1ex32d1.htm EX-32.1

EXHIBIT 32.1

Union Carbide Corporation and Subsidiaries

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

I, Patrick E. Gottschalk, 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 March 31, 2008 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/ PATRICK E. GOTTSCHALK
Patrick E. Gottschalk
President and Chief Executive Officer
Date: April 29, 2008

EX-32.2 7 a08-12670_1ex32d2.htm EX-32.2

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
Date: April 29, 2008

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