Securities and Exchange Commission, Washington, D.C. 20549
Annual Report on Form 10-K for the year ended December 31, 1997.
Filed pursuant to Section 13 of the Securities Exchange Act of 1934.
Commission file number 1-1463
Union Carbide Corporation
1997 10-K
Union Carbide Corporation Tel. (203) 794-2000
39 Old Ridgebury Road State of incorporation: New York
Danbury, Connecticut 06817-0001 IRS identification number: 13-1421730
Securities registered pursuant to Section 12(b) of the Act:
Class of security: Registered on:
Common Stock ($1 par value) New York Stock Exchange
Chicago Stock Exchange, Incorporated
The Pacific Stock Exchange Incorporated
Share Purchase Rights Plan New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 ("the Act") during the preceding 12 months, and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. X
At February 27, 1998, 136,995,590 shares of common stock were outstanding.
Non-affiliates held 133,765,732 of those shares, of which the aggregate market
value was $6.212 billion.
Documents incorporated by reference:
Annual report to stockholders for the year ended December 31, 1997 (Parts I
and II)
Proxy statement for the annual meeting of stockholders to be held on April 22,
1998 (Part III)
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Table of Contents
Part I
Item 1: Business 1
Item 2: Properties 3
Item 3: Legal Proceedings 4
Item 4: Submission of Matters to a Vote of Security Holders 4
Part II
Item 5: Market for Registrant's Common Equity and Related Stockholder
Matters 5
Item 6: Selected Financial Data 5
Item 7: Management's Discussion and Analysis of Financial Condition and
Results of Operations 5
Item 7a: Quantitative and Qualitative Disclosures About Market Risk 5
Item 8: Financial Statements and Supplementary Data 5
Item 9: Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 5
Part III
Item 10: Directors and Executive Officers of the Registrant 6
Item 11: Executive Compensation 8
Item 12: Security Ownership of Certain Beneficial Owners and Management 8
Item 13: Certain Relationships and Related Transactions 8
Part IV
Item 14: Exhibits, Financial Statement Schedules, and Reports on Form 8-K 9
Signatures 12
Exhibit Index 13
Cautionary statement for the purposes of the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995: All statements in this Form
10-K report that do not reflect historical information are forward looking
statements. These include statements incorporated herein by reference to the
1997 annual report to stockholders. Important factors that could cause actual
results to differ materially from those discussed in such forward looking
statements include the supply/demand balance for the corporation's products,
customer inventory levels, competitive pricing pressures, feedstock costs,
changes in industry production capacities and operating rates, currency
exchange rates, global economic conditions, particularly in Southeast Asia,
disruption in railroad and other transportation facilities, competitive
technology positions, failure to achieve technology objectives and failure to
achieve the corporation's cost reduction targets or to complete construction
projects on schedule. Some of these factors are discussed further in Part I,
Item 1: Business.
Definition of Terms: See page 44 of the 1997 annual report to stockholders.
Terms defined there are used herein.
Printed on Recycled, Recyclable Paper
<PAGE>
Part I
Item 1. Business
General-Union Carbide operates in two business segments of the chemicals and
plastics industry, Specialties & Intermediates and Basic Chemicals & Polymers.
Specialties & Intermediates converts basic and intermediate chemicals into a
diverse portfolio of chemicals and polymers serving industrial customers in
many markets. This segment also provides technology services, including
licensing, to the oil and gas and petrochemicals industries. The Basic
Chemicals & Polymers segment converts hydrocarbon feedstocks, principally
liquefied petroleum gas and naphtha, into polyethylene, polypropylene,
ethylene oxide and ethylene glycol for sale to third-party customers, as well
as propylene, ethylene, ethylene oxide and ethylene glycol for consumption by
the Specialties & Intermediates segment. The profitability of the Basic
Chemicals & Polymers segment of the chemicals and plastics industry is highly
cyclical, whereas that of the Specialties & Intermediates segment is less
cyclical. Consequently, Union Carbide's results are subject to the swings of
the business cycle in both the highly volatile Basic Chemicals & Polymers
segment and the less volatile Specialties & Intermediates segment. See page 1,
pages 6 through 8, and "Summary and Outlook" on pages 9 through 11 of the 1997
annual report to stockholders for further information about Union Carbide's
businesses, and Note Five on pages 28 and 29 of the 1997 annual report to
stockholders for financial information about Union Carbide's business
segments.
Union Carbide does not produce against a backlog of firm orders; production is
geared primarily to the level of incoming orders and to projections of future
demand. Inventories of finished products, work in process and raw materials
are maintained to meet delivery requirements of customers and Union Carbide's
production schedules.
At year-end 1997, 11,813 people were employed in the manufacturing facilities,
laboratories and offices of the corporation and its consolidated subsidiaries
around the world.
Raw Materials, Products and Markets-See information herein and in the 1997
annual report to stockholders on pages 6 through 8. The products of Union
Carbide are principally sold by its own sales force, directly to customers.
Union Carbide believes it has contracts or commitments for, or readily
available sources of, hydrocarbon feedstocks and fuel supplies to meet its
anticipated needs in all major product areas. The corporation's operations are
dependent upon the availability of hydrocarbon feedstocks and fuels which are
purchased from diverse domestic and international sources, including
independent oil and gas producers as well as integrated oil companies.
The availability and price of hydrocarbon feedstocks, energy and finished
products are subject to plant interruptions and outages and to market and
political conditions in the U.S. and elsewhere. Operations and products at
times may be adversely affected by legislation, government regulations,
shortages, or international or domestic events.
The business segments of Union Carbide are not dependent to a significant
extent upon a single customer or a few customers.
Patents; Trademarks; Research and Development-Union Carbide owns a large
number of United States and foreign patents that relate to a wide variety of
products and processes, has pending a substantial number of patent
applications throughout the world, and is licensed under a number of patents.
These patents expire at various times over the next 20 years. Such patents and
patent applications in the aggregate are material to Union Carbide's
competitive position. No one patent is considered to be material; however, the
patent portfolio relating to the UNIPOL process technology is, in the
aggregate, considered to be material. Union Carbide also has a large number of
trademarks. The UNION CARBIDE, UCAR and UNIPOL trademarks are material; no
other single trademark is material.
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Part I (Cont.)
Essentially all of Union Carbide's research and development activities are
company-sponsored. The principal research and development facilities of Union
Carbide are indicated in the discussion of Properties (Item 2) of this Form
10-K report. In addition to the facilities specifically indicated there,
product development and process technology laboratories are maintained at some
plants. Union Carbide expensed $157 million in 1997, $159 million in 1996, and
$144 million in 1995 on company-sponsored research activities to develop new
products, processes, or services, or to improve existing ones.
Environment-See Costs Relating to Protection of the Environment on pages 12
and 13 of the 1997 annual report to stockholders and Note Seventeen on pages
39 and 40 thereof.
Insurance-Union Carbide's policy is to obtain public liability and other
insurance coverage at terms and conditions and a cost that management
considers fair and reasonable. Union Carbide's management believes it has a
prudent risk management policy in effect, and it periodically reviews its
insurance coverage as to scope and amount and makes adjustments as deemed
necessary. There is no assurance, however, that Union Carbide will not incur
losses beyond the limits, or outside the coverage, of its insurance. Such
insurance is subject to substantial corporate retentions.
Competition-Each of the major product and service areas in which Union Carbide
participates is highly competitive. In some instances competition comes from
manufacturers of the same products as those produced by Union Carbide and in
other cases from manufacturers of different products which may serve the same
markets as those served by Union Carbide's products. Some of Union Carbide's
competitors, such as companies principally engaged in petroleum operations,
have more direct access to hydrocarbon feedstocks, and some have greater
financial resources than Union Carbide.
The Specialties & Intermediates segment is characterized by differentiated
products and is less subject to external changes in supply/demand
relationships than the Basic Chemicals & Polymers segment. In this segment,
competition is based primarily on product functionality and quality, with the
more unique products commanding significant price premiums.
The Basic Chemicals & Polymers segment is characterized by large volume
commodity products and is subject to external changes in supply/demand
relationships, including changes in the strength of the overall economy,
customer inventory levels, industry manufacturing capacity and operating rates
and raw material feedstock costs. Participants in this segment compete for
business primarily on the basis of price and efficient delivery systems.
See pages 6 through 8 of the 1997 annual report to stockholders for
information about each segment's principal products, competitive position and
major competitors.
Union Carbide is a major marketer of petrochemical products throughout the
world. Products that the corporation markets are largely produced in the
United States, while products marketed by the corporation's joint ventures are
principally produced outside the United States. Competitive products are
produced throughout the world.
Union Carbide's international operations face competition from local producers
and global competitors and a number of risks inherent in carrying on business
outside the United States, including risks of nationalization, expropriation,
restrictive action by local governments and changes in currency exchange
rates, in addition to the risks stated above.
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Part I (Cont.)
Item 2. Properties
In management's opinion, current facilities, together with planned expansions,
will provide adequate production capacity to meet Union Carbide's planned
business activities. Capital expenditures are discussed on pages 16 and 17 of
the 1997 annual report to stockholders.
Listed below are the principal manufacturing facilities operated by Union
Carbide worldwide. Research and engineering facilities are noted. Most of the
domestic properties are owned in fee. Union Carbide maintains numerous
domestic sales offices and warehouses, substantially all of which are leased
premises under relatively short-term leases. All principal international
manufacturing properties are owned or held under long-term leases.
International administrative offices, technical service laboratories, sales
offices and warehouses are owned in some instances and held under relatively
short-term leases in other instances. The corporation's headquarters is
located in Danbury, Connecticut, and is leased.
Principal domestic manufacturing facilities and the principal products
manufactured there are as follows:
Location City Principal Product(s)
Specialties & Intermediates Segment
California Torrance Latexes
Georgia Tucker Latexes
Illinois Alsip Latexes
Louisiana Greensburg Hydroxyethyl cellulose derivatives
Louisiana Taft Acrolein and derivatives, acrylic
monomers, caprolactone, UV-cured
coatings, cycloaliphatic epoxides,
glycol ethers, ethyleneamines,
ethanolamines, oxo alcohols
New Jersey Bound Brook Polyols, polyethylene compounding
New Jersey Edison Lanolin derivatives
New Jersey Somerset Latexes
Puerto Rico Bayamon Latexes
Texas Garland Latexes
Texas Seadrift Ethanolamines, glycol ethers,
surfactants, polyethylene
Texas Texas City Organic acids and esters, alcohols,
surfactants, vinyl acetate, solution
vinyl resins, heat transfer fluids
Washington Washougal Crystals
West Virginia Institute Caprolactone derivatives, polyethylene
glycol, hydroxyethyl cellulose,
polyethylene oxide, surfactants,
ethylidene norbornene, glutaraldehyde,
acetone and derivatives
West Virginia South Charleston Alkyl alkanolamines, brake fluids,
miscellaneous specialty products,
polyalkylene glycols, surfactants,
specialty ketones, polyvinyl acetate
resins, heat transfer fluids
Basic Chemicals & Polymers Segment
Louisiana Norco (Cypress Plant) Polypropylene
Louisiana Taft Ethylene oxide and glycol, olefins
Louisiana Taft (Star Plant) Polyethylene
Texas Seadrift Ethylene oxide and glycol, olefins,
polyethylene, polypropylene
Texas Texas City Olefins
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<PAGE>
Part I (Cont.)
Research and development for the Specialties & Intermediates segment is
carried on at technical centers in Bound Brook, Edison and Somerset, New
Jersey; Tarrytown, New York; Cary, North Carolina; Houston and Texas City,
Texas; and South Charleston, West Virginia. Research and development for the
Basic Chemicals & Polymers segment is carried on at technical centers in Bound
Brook and Somerset, New Jersey; Houston, Texas; and South Charleston, West
Virginia. Process and design engineering for both segments is conducted at a
technical center in South Charleston, West Virginia and in Houston, Texas, in
support of domestic and foreign projects.
Principal international manufacturing facilities and the principal products
manufactured there are as follows:
Country City Principal Product(s)
Specialties & Intermediates Segment
Belgium Vilvoorde Lanolin derivatives
Belgium Zwijndrecht Hydroxyethyl cellulose
Brazil Aratu Hydroxyethyl cellulose
Brazil Cabo Vinyl acetate
Brazil Cubatao Polyethylene
Ecuador Guayaquil Latex
Indonesia Jakarta Latex
Malaysia Seremban Latex
People's Republic of China Guangdong Latex, hydroxyethyl cellulose
derivatives
People's Republic of China Shanghai Latex
Philippines Batangas Latex
Sri Lanka Colombo Latex
Thailand Nonthaburi Latex
United Arab Emirates Dubai Latex
United Kingdom Wilton Glycol ethers, ethanolamines
Basic Chemicals & Polymers Segment
Canada Prentiss Ethylene glycol
United Kingdom Wilton Ethylene oxide and glycol
Research and development for the Specialties & Intermediates segment is
carried on at international facilities in Zwijndrecht, Belgium; Cubatao,
Brazil; Montreal East, Canada; Jurong, Singapore and Meyrin (Geneva),
Switzerland.
Item 3. Legal Proceedings
See Note Seventeen of Notes to Financial Statements on pages 39 and 40 of the
1997 annual report to stockholders.
Item 4. Submission of Matters to a Vote of Security Holders
The corporation did not submit any matters to a stockholder vote during the
last quarter of 1997.
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Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Market and dividend information for the corporation's common stock is
contained on pages 18 to 20 of the 1997 annual report to stockholders.
Information about the stock exchanges where the stock is traded in the United
States is listed on page 42 of the 1997 annual report to stockholders. The
declaration of dividends is a business decision made from time to time by the
Board of Directors based on the corporation's earnings and financial condition
and other factors the Board considers relevant.
The number of stockholders of record of the corporation's common stock is
contained on page 1 of the 1997 annual report to stockholders.
Sales of Unregistered Securities - During 1997, put options were sold to
institutional investors in a series of private placements exempt from
registration under Section 4(2) of the Securities Act of 1933, entitling the
holders to sell 2,710,469 shares of Union Carbide Corporation common stock to
the corporation, at prices ranging from $44.50 to $50.00 per share. Premiums
received for the sales of the options totaled $3,216,022.
Item 6. Selected Financial Data
Information pertaining to consolidated operations is included under the
captions "From the Income Statement," and "From the Balance Sheet", and
dividend information is included under the caption "Other Data" in the
Selected Financial Data on pages 18 and 19 of the 1997 annual report to
stockholders.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
See the information covered in the 1997 annual report to stockholders on pages
9 through 17.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
See the information covered in the 1997 annual report to stockholders on page
11.
Item 8. Financial Statements and Supplementary Data
The consolidated balance sheet of Union Carbide Corporation and subsidiaries
at December 31, 1997 and 1996, and the consolidated statements of income,
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1997, together with the report thereon of KPMG Peat
Marwick LLP dated January 16, 1998, are contained on pages 21 through 41 of
the 1997 annual report to stockholders.
Quarterly income statement data is contained on page 20 of the 1997 annual
report to stockholders.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Union Carbide has not had any disagreements covered by this item with KPMG
Peat Marwick LLP, its independent auditors.
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<PAGE>
Part III
Item 10. Directors and Executive Officers of the Registrant
For background information on the Directors of Union Carbide Corporation whose
terms are expected to continue after the annual meeting of stockholders and
persons nominated to become Directors, see pages 7 through 10 of the proxy
statement for the annual meeting of stockholders to be held on April 22, 1998.
The principal executive officers of the corporation are as follows. Data is as
of March 19, 1998.
Name Age Position Year
First
Elected
William H. Joyce 62 Chairman of the Board, President and Chief
Executive Officer 1993
Joseph S. Byck 56 Vice-President 1991
James F. Flynn 55 Vice-President 1993
Joseph E. Geoghan 60 Vice-President, General Counsel and Secretary 1987
Malcolm A. Kessinger 54 Vice-President 1991
Lee P. McMaster 55 Vice-President 1993
Joseph C. Soviero 59 Vice-President 1993
Roger B. Staub 63 Vice-President 1993
John K. Wulff 49 Vice-President, Chief Financial Officer and
Controller 1988
There are no family relationships between any officers or directors of the
corporation. There is no arrangement or understanding between any officer and
any other person pursuant to which the officer was elected an officer. An
officer is elected by the Board of Directors to serve until the next annual
meeting of stockholders and until his successor is elected and qualified.
The table on the next page gives a summary of the positions held during at
least the past five years by each officer. Each of the officers has been
employed by the corporation or a subsidiary of the corporation for the past
five years.
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<PAGE>
Part III (Cont.)
Name Position Years Held
William H. Joyce Chairman of the Board, President and
Chief Executive Officer 1996 to present
President and Chief Executive Officer 1995 to 1995
President and Chief Operating Officer 1993 to 1995
President, Union Carbide Chemicals
and Plastics Company Inc. 1993 to 1994
Joseph S. Byck Vice-President 1991 to present
Vice-President, Union Carbide Chemicals
and Plastics Company Inc. 1991 to 1994
James F. Flynn Vice-President 1993 to present
Joseph E. Geoghan Vice-President, General Counsel and
Secretary 1990 to present
Malcolm A. Kessinger Vice-President 1991 to present
Vice-President, Human Resources,
Union Carbide Chemicals and
Plastics Company Inc. 1990 to 1994
Lee P. McMaster Vice-President 1993 to present
Joseph C. Soviero Vice-President 1993 to present
Roger B. Staub Vice-President 1993 to present
John K. Wulff Vice-President, Chief Financial Officer
and Controller 1996 to present
Vice-President, Controller and Principal
Accounting Officer 1989 to 1996
See "Section 16(a) Beneficial Ownership Reporting Compliance" on page 23 of
the proxy statement for the annual meeting of stockholders to be held on April
22, 1998.
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<PAGE>
Part III (Cont.)
Item 11. Executive Compensation
See pages 18 through 21 of the proxy statement for the annual meeting of
stockholders to be held on April 22, 1998.
Item 12. Security Ownership of Certain Beneficial Owners and Management
See pages 22 and 23 of the proxy statement for the annual meeting of
stockholders to be held on April 22, 1998.
Item 13. Certain Relationships and Related Transactions
See pages 10 and 13 of the proxy statement for the annual meeting of
stockholders to be held on April 22, 1998.
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<PAGE>
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
UNION CARBIDE CORPORATION
(a) The following documents are filed as part of this report:
1. The consolidated financial statements set forth on pages 21 through
40 and the Independent Auditors' Report set forth on page 41 of the
1997 annual report to stockholders are incorporated by reference in
this Annual Report on Form 10-K.
2. The Report on Schedule of KPMG Peat Marwick LLP appears on page 10 of
this Annual Report on Form 10-K.
3. The following schedule should be read in conjunction with the
consolidated financial statements incorporated by reference in Item 8
of this Annual Report on Form 10-K. Schedules other than those listed
have been omitted because they are not applicable.
Page in this
Form 10-K Report
Valuation and Qualifying Accounts (Schedule II),
three years ended December 31, 1997 11
(b) No reports on Form 8-K were filed for the three months ended December 31,
1997.
(c) Exhibits-See Exhibit Index on pages 13 through 16 for exhibits filed with
this Annual Report on Form 10-K.
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<PAGE>
Part IV (Cont.)
Report of Independent Auditors
The Board of Directors
Union Carbide Corporation
Under date of January 16, 1998, we reported on the consolidated balance sheets
of Union Carbide Corporation and subsidiaries as of December 31, 1997 and
1996, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the years in the three-year period ended December
31, 1997, as contained on pages 21 through 40 in the 1997 annual report to
stockholders. These consolidated financial statements and our report thereon
are incorporated by reference in the Annual Report on Form 10-K for the year
1997. In connection with our audits of the aforementioned consolidated
financial statements, we also have audited the related financial statement
schedule as listed in Item 14(a)3. This financial statement schedule is the
responsibility of the corporation's management. Our responsibility is to
express an opinion on this financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
KPMG Peat Marwick LLP
Stamford, Conn.
January 16, 1998
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<PAGE>
Part IV (Cont.)
Schedule II-Valuation and Qualifying Accounts
Union Carbide Corporation and Consolidated Subsidiaries
Deductions
Items determined
to be uncollectible,
Additions less recovery
Balance at Charged to of amounts Balance at
beginning costs and previously end of
of period expenses written off period
Millions of dollars, year ended December 31, 1997
Allowance for
doubtful accounts $10 $3 $2 $11
Millions of dollars, year ended December 31, 1996
Allowance for
doubtful accounts $11 $1 $2 $10
Millions of dollars, year ended December 31, 1995
Allowance for
doubtful accounts $11 $5 $5 $11
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<PAGE>
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the corporation has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Union Carbide Corporation
March 19, 1998
/s/ John K. Wulff
by: John K. Wulff
Vice-President, Chief Financial
Officer and Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
corporation and in the capacities indicated on March 19, 1998.
/s/ William H. Joyce /s/ John J. Creedon /s/ Robert D. Kennedy
William H. Joyce John J. Creedon Robert D. Kennedy
Director, Chairman of the Board, Director Director
President and Chief Executive
Officer
/s/ Joseph E. Geoghan /s/ C. Fred Fetterolf /s/ Ronald L. Kuehn, Jr
Joseph E. Geoghan C. Fred Fetterolf Ronald L. Kuehn, Jr.
Director, Vice-President, Director Director
General Counsel and Secretary
/s/ John K. Wulff /s/ Rainer E. Gut /s/ Rozanne L. Ridgeway
John K. Wulff Rainer E. Gut Rozanne L. Ridgway
Vice-President, Chief Financial Director Director
Officer and Controller
/s/ Vernon E. Jordan, Jr. /s/ James M. Ringler /s/ William S. Sneath
Vernon E. Jordan, Jr. James M. Ringler William S. Sneath
Director Director Director
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Exhibit Index
Exhibit No.
3.1 Restated Certificate of Incorporation as filed May 2, 1994 (See
Exhibit 3.1 of the Corporation's 1994 Form 10-K).
3.2 By-Laws of the Corporation, amended as of December 3, 1996 (See
Exhibit 3.2.1 of the Corporation's 1996 Form 10-K).
4.1 Indenture dated as of June 1, 1995, between the Corporation and the
Chase Manhattan Bank (formerly Chemical Bank), Trustee (See Exhibit
4.1.2 to the Corporation's Form S-3 effective October 13, 1995, Reg.
No. 33-60705).
4.2 The Corporation will furnish to the Commission upon request any other
debt instrument referred to in item 601(b)(4)(iii) (A) of Regulation
S-K.
4.3.1 Rights Agreement, dated as of July 26, 1989, as amended and restated
as of May 27, 1992, between the Corporation and Chase Mellon
Shareholder Services Inc. (successor to Manufacturers Hanover Trust
Company), as Rights Agent (See Exhibit 4(a) to the Corporation's
Form 8 filed with the Commission on June 1, 1992, file number:
1-10297).
4.3.2 Amendment to Rights Agreement, dated as of December 3, 1996, between
the Corporation and Chase Mellon Shareholder Services Inc. as
Successor Rights Agent (See Exhibit 99.1 of the Corporation's Form 8-K
dated December 3, 1996).
10.1 Indemnity Agreement dated as of December 8, 1997, between the
Corporation and James F. Flynn. The Indemnity Agreement filed with the
Commission is substantially identical in all material respects, except
as to the parties thereto and dates thereof, with Indemnity Agreements
between the Corporation and each other person who is a director or
officer of the Corporation.
10.2.1 1988 Union Carbide Long-Term Incentive Plan (See Exhibit 10.14.1 of
the Corporation's 1993 Form 10-K).
10.2.2 Amendment to the 1988 Union Carbide Long-Term Incentive Plan effective
June 1, 1989 (See Exhibit 10.14.2 of the Corporation's 1994 Form
10-K).
10.2.3 Amendment to the 1988 Union Carbide Long-Term Incentive Plan effective
August 1, 1989 (See Exhibit 10.14.3 of the Corporation's 1994 Form
10-K).
10.2.4 Resolutions adopted by the Board of Directors of the Corporation on
February 26, 1992, with respect to stock options granted under the
1984 Union Carbide Stock Option Plan and the 1988 Union Carbide Long-
Term Incentive Plan.
10.2.5 Resolutions adopted by the Compensation and Management Development
Committee of the Board of Directors of the Corporation on June 30,
1992, with respect to stock options granted under the 1984 Union
Carbide Stock Option Plan and the 1988 Union Carbide Long-Term
Incentive Plan.
10.2.6 Amendment to the 1988 Union Carbide Long-Term Incentive Plan effective
October 1, 1997.
10.3.1 1983 Union Carbide Bonus Deferral Program (See Exhibit 10.4.1 of the
Corporation's 1996 Form 10-K).
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<PAGE>
Exhibit Index (Cont.)
Exhibit No.
10.3.2 Amendment to the 1983 Union Carbide Bonus Deferral Program effective
January 1, 1992.
10.4.1 1984 Union Carbide Cash Bonus Deferral Program (See Exhibit 10.5.1 of
the Corporation's 1996 Form 10-K).
10.4.2 Amendment to the 1984 Union Carbide Cash Bonus Deferral Program
effective January 1, 1986 (See Exhibit 10.5.2 of the Corporation's
1996 Form 10-K).
10.4.3 Amendment to the 1984 Union Carbide Cash Bonus Deferral Program
effective January 1, 1992.
10.5.1 Equalization Benefit Plan for Participants of the Retirement Program
Plan for Employees of Union Carbide Corporation and its Participating
Subsidiary Companies (See Exhibit 10.6.1 of the Corporation's 1996
Form 10-K).
10.5.2 Amendment to the Equalization Benefit Plan effective January 1, 1994
(See Exhibit 10.18.2 of the Corporation's 1994 Form 10-K).
10.6.1 Supplemental Retirement Income Plan (See Exhibit 10.7.1 of the
Corporation's 1996 Form 10-K).
10.6.2 Amendment to the Supplemental Retirement Income Plan effective January
1, 1994 (See Exhibit 10.19.3 of the Corporation's 1994 Form 10-K).
10.6.3 Amendment to the Supplemental Retirement Income Plan effective January
1, 1995 (See Exhibit 10.18.3 of the Corporation's 1995 Form 10-K).
10.7 Union Carbide Non-Employee Directors' Compensation Deferral Plan
effective February 1, 1997.
10.8 Severance Compensation Agreement, dated February 10, 1998, between the
Corporation and Ron J. Cottle. The Severance Compensation Agreement
filed with the Commission is substantially identical in all material
aspects, except as to the parties thereto and dates thereof, with
Agreements between the Corporation and other officers and employees of
the Corporation.
10.9 Resolution adopted by the Board of Directors of the Corporation on
November 30, 1988, with respect to an executive life insurance program
for officers and certain other employees (See Exhibit 10.22 of the
Corporation's 1993 Form 10-K).
10.10 1997 Union Carbide Variable Compensation Plan effective July 1, 1997.
10.11.1 Union Carbide Corporation Benefits Protection Trust, amended and
restated effective August 29, 1997.
10.11.2 Amendment to the Union Carbide Corporation Benefits Protection Trust
effective November 1, 1997.
10.12 Resolutions adopted by the Board of Directors of the Corporation on
February 24, 1988, with respect to the purchase of annuities to cover
liabilities of the Corporation under the Equalization Benefit Plan for
Participants of the Retirement Program Plan for Employees of Union
Carbide Corporation and its Participating Subsidiary Companies and the
Supplemental Retirement Income Plan (See Exhibit 10.25 of the
Corporation's 1994 Form 10-K).
10.13 Resolutions adopted by the Board of Directors of the Corporation on
June 28, 1989, with respect to the purchase of annuities to cover
liabilities of the Corporation under the Supplemental Retirement
Income Plan (See Exhibit 10.26 of the Corporation's 1994 Form 10-K).
10.14.1 Union Carbide Corporation Non-Employee Directors' Retirement Plan (See
Exhibit 10.27 of the Corporation's 1994 Form 10-K).
10.14.2 Amendment to the Union Carbide Corporation Non-Employee Directors'
Retirement Plan effective May 1, 1997.
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<PAGE>
Exhibit Index (Cont.)
Exhibit No.
10.15.1 1994 Union Carbide Long-Term Incentive Plan (See Exhibit 10.28 of the
Corporation's 1994 Form 10-K).
10.15.2 Amendment to the 1994 Union Carbide Long-Term Incentive Plan effective
October 1, 1997.
10.16.1 Union Carbide Compensation Deferral Program effective January 1, 1995
(See Exhibit 10.28 of the Corporation's 1995 Form 10-K).
10.16.2 Amendment to Union Carbide Compensation Deferral Program effective
January 1, 1995 (See Exhibit 10.17.2 of the Corporation's 1996 Form
10-K).
10.16.3 Amendment to Union Carbide Compensation Deferral Program effective
December 31, 1996 (See Exhibit 10.17.3 of the Corporation's 1996 Form
10-K).
10.17 Excess Long-Term Disability Plan effective January 1, 1994 (See
Exhibit 10.30 of the Corporation's 1994 Form 10-K).
10.18 1995 Union Carbide Performance Incentive Plan (See Appendix A of the
Corporation's proxy statement for the annual meeting of stockholders
held on April 26, 1995).
10.19.1 1997 Union Carbide Long-Term Incentive Plan (See Appendix A of the
Corporation's proxy statement filed with the Commission March 12,
1997, file number: 001-01463).
10.19.2 Amendment to the 1997 Union Carbide Long-Term Incentive Plan effective
April 23, 1997.
10.20 1997 Stock Option Plan for Non-Employee Directors of Union Carbide
Corporation (See Appendix B of the Corporation's proxy statement filed
with the Commission March 12, 1997, file number: 001-01463).
10.21 1997 Union Carbide Corporation EPS Incentive Plan.
10.22 The Mid-Career Hire Plan for Employees of Union Carbide Corporation
and Its Participating Subsidiary Companies, effective December 3,
1996.
10.23.1 Completion Guarantee dated September 15, 1996 by the Corporation and
its partner, Petrochemical Industries Company K.S.C., for the benefit
of certain banks with respect to construction of a petrochemicals
complex in Kuwait (See Exhibit 10.1 of the Corporation's Form 10-Q for
the quarter ended September 30, 1996).
10.23.2 Definitions Agreement dated September 15, 1996 among the Corporation
and various parties relating to Exhibit 10.23.1 (See Exhibit 10.2 of
the Corporation's Form 10-Q for the quarter ended September 30, 1996).
11 Computation of Earnings per Share for the Five Years Ended December
31, 1997.
13 The Corporation's 1997 annual report to stockholders (such report,
except for those portions which are expressly referred to in this Form
10-K, is furnished for the information of the Commission and is not
deemed "filed" as part of the Form 10-K).
21 Subsidiaries of the Corporation.
23 Consent of KPMG Peat Marwick LLP.
27.1 Financial Data Schedule for the year ended December 31, 1997.
27.2 Restated Financial Data Schedule for the years ended December 31, 1996
and 1995.
27.3 Restated Financial Data Schedule for the nine months ended September
30, 1997, the six months ended June 30, 1997 and the three months
ended March 31, 1997.
27.4 Restated Financial Data Schedule for the nine months ended September
30, 1996, the six months ended June 30, 1996 and the three months
ended March 31, 1996.
- 15 -
<PAGE>
Exhibit Index (Cont.)
Wherever an exhibit listed above refers to another exhibit or document (e.g.,
"See Exhibit 6 of . . ."), that exhibit or document is incorporated herein by
such reference.
A copy of any exhibit listed above may be obtained on written request to the
Secretary's Department, Union Carbide Corporation, Section E-4, 39 Old
Ridgebury Road, Danbury, CT 06817-0001. The charge for furnishing any exhibit
is 25 cents per page plus mailing costs.
- 16 -
Exhibit 10.1
Indemnity Agreement
This Amended and Restated Agreement, dated as of December 8, 1997
between Union Carbide Corporation, a New York corporation (the
"Corporation"), and James F. Flynn (the "Officer") amends and restates in
its entirety the Indemnity Agreement between the parties hereto, dated as
of October 27, 1993.
WITNESSETH:
In consideration of the mutual agreements herein set forth, the
parties hereto agree as follows:
1. As used herein, the following terms shall have the following
meanings:
(a) "Costs" and "Expenses" means any and all costs, expenses
and liabilities incurred by the Officer, including but not limited to (i)
attorney's fees, (ii) amounts paid in settlement of any Suit or Claim,
(iii) amounts paid in satisfaction of any order or judgment in any Suit or
Claim, and (iv) fines, penalties or assessments asserted or adjudged in any
Suit or Claim.
(b) "Suit" and "Claim" means, as the case may be, any and all
suits, claims, actions, investigations or proceedings, and threats thereof,
whether civil, criminal or administrative (including but not limited to any
Derivative Suit or Claim) arising out of, or alleged to arise out of, the
Officer's service (including any act or failure to act in the course of
such service) to the Corporation or to another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise at the
Corporation's request.
(c) "Derivative Suit or Claim" means any and all Suits or
Claims brought or alleged to be brought in the right of the Corporation to
procure a judgment in its favor.
(d) "Board" means the Board of Directors of the Corporation.
(e) A "Change in Control" shall be deemed to occur if any of
the following circumstances shall occur:
(i) any "person" or "group" within the meaning of
Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934
("Act") becomes the "beneficial owner" as defined in Rule 13d-3 under
the Act of more than 20% of the then outstanding voting securities of
the Corporation;
(ii) any "person" or "group" within the meaning of
Sections 13(d) and 14(d)(2) of the Act acquires by proxy or otherwise
the right to vote for the election of directors, for any merger or
consolidation of the Corporation or for any other matter or question
with respect to more than 20% of the then outstanding voting
securities of the Corporation;
(iii) during any period of twenty-four consecutive months,
Present Directors and/or New Directors cease for any reason to
constitute a majority of the Board.
For these purposes, "Present Directors" shall mean
individuals who at the beginning of such consecutive twenty-four
month period were members of the Board and "New Directors" shall mean
any director whose election by the Board or whose nomination for
election by the Corporation's stockholders was approved by a vote of
at least two-thirds of the directors then still in office who were
Present Directors or New Directors;
(iv) the stockholders of the Corporation approve a plan
of complete liquidation or dissolution of the Corporation; or
(v) there shall be consummated:
(x) a reorganization, merger or consolidation of
all or substantially all of the assets of the Corporation (a
"Business Combination"), unless, following such Business Combination,
(A) all or substantially all of the
individuals and entities who were the beneficial owners,
respectively, of the outstanding Common Stock of the
Corporation and outstanding voting securities of the
Corporation immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 50% of,
respectively, the then outstanding shares of common stock and
the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting
from such Business Combination (including, without limitation,
a corporation which as a result of such transaction owns the
Corporation or all or substantially all of the Corporation's
assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership,
immediately prior to such Business Combination of the
outstanding Common Stock of the Corporation and outstanding
voting securities of the Corporation, as the case may be,
(B) no "person" or "group" within the
meaning of Sections 13(d) and 14(d)(2) of the Act (excluding
any corporation resulting from such Business Combination or any
employee benefit plan (or related trust) of the Corporation or
such corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of
the corporation resulting from such Business Combination or the
combined voting power of the then outstanding voting securities
of such corporation except to the extent that such ownership
existed prior to the Business Combination and
(C) at least a majority of the members of
the board of directors of the corporation resulting from such
Business Combination were members of the Board at the time of
the execution of the initial agreement, or of the action of the
Board, providing for such Business Combination; or
(y) any sale, lease, exchange or other transfer
(in one transaction or a series of related transactions) of all, or
substantially all, of the assets of the Corporation, provided, that
the divestiture of less than substantially all of the assets of the
Corporation in one transaction or a series of related transactions,
whether effected by sale, lease, exchange, spin-off, sale of the
stock or merger of a subsidiary or otherwise, shall not constitute a
Change in Control.
Notwithstanding the foregoing, a Change in Control shall not be
deemed to occur pursuant to Subparagraphs (i) and (ii) above, solely
because twenty percent (20%) or more of the combined voting power of the
Corporation's then outstanding securities is acquired by one or more
employee benefit plans maintained by the Corporation.
(f) A "Potential Change in Control" shall occur if (i) the
Corporation enters into or the stockholders of the Corporation approve an
agreement, arrangement or plan, the consummation of which would result in
the occurrence of a Change in Control; (ii) any "person" or "group" within
the meaning of Sections 13(d) and 14(d)(2) of the Act publicly announces a
tender offer or comparable action which if consummated would constitute a
Change in Control; (iii) any "person" or "group" within the meaning of
Sections 13(d) and 14(d)(2) of the Act (other than a trustee or other
fiduciary holding securities under an employee benefit plan of the
Corporation acting in such capacity or a corporation owned, directly or
indirectly, by the stockholders of the Corporation in substantially the
same proportions as their ownership of stock of the Corporation), who is or
becomes the beneficial owner, directly or indirectly, of securities of the
Corporation representing 10% or more of the combined voting stock increases
beneficial ownership of such securities by 5% or more over the percentage
so owned by such person or group on the date hereof; or (iv) the Board
adopts a resolution to the effect that, for the purposes of this Agreement,
a Potential Change in Control has occurred.
(g) "Independent Counsel" means a law firm, or a member of a
law firm, that: (i) is experienced in matters of corporate law; (ii)
neither is, at the time of engagement hereunder, nor shall have been, in
the five (5) years prior to such engagement, retained to represent the
Corporation or the Officer in any matter material to either such party, or
any other party to a Suit or Claim giving raise to a claim for
indemnification hereunder; and (iii) under the applicable standards of
professional conduct then prevailing, would not have a conflict of interest
in representing either the Corporation or the Officer in an action to
determine the Officer's rights under this Agreement.
2. The Officer shall continue to serve (i), if elected subsequent
to the date hereof as a director of the Corporation, for the remainder of
the initial term to which he is elected by the stockholders or the Board
and for each successive term to which he may thereafter be elected by the
stockholders or the Board and/or (ii) as an officer of the Corporation
until his retirement at his normal retirement age under the Corporation's
retirement program or until he is removed or replaced as an officer of the
Corporation without appointment or election to another office of the
Corporation. During and after his term or terms as a director or officer
of the Corporation, the Officer will, upon the Corporation's request,
consult with and assist the Corporation in any Suits or Claims involving
the Corporation or any director or officer of the Corporation or another
corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise with which the Officer served at the Corporation's
request, and arising out of any event or matter that occurred while the
Officer was a director or officer of the Corporation or was serving with
such other entity.
3. The Officer shall have the right to resign from his position as
an officer or, if so elected, from his position as a director if the Board
consents to such resignation or if, in his reasonable judgment (i) he is or
may be unable to fulfill his duties as a director or officer by reason of
his health or (ii) he is or may be unable to fulfill his duties as a
director by reason of the requirements of his principal occupation or (iii)
there is a legal impediment to his continued service on the Board or as an
officer or (iv) continued service on the Board or as an officer is not in
the best interest of the Corporation or the Officer. The Officer shall not
be obligated to render the consultation and assistance specified in
Paragraph 2 hereof at any time that, in his reasonable judgment, he is or
may be unable to do so by reason of his health, the requirements of his
principal occupation or legal impediments thereto.
4. The Corporation shall pay the Officer reasonable compensation
for the time he spends in rendering the consultation and assistance set
forth in Paragraph 2 hereof (but not for any time so spent while he is an
officer of the Corporation) and shall reimburse him for the reasonable
expenses he incurs in rendering such consultation and assistance.
5. The Corporation shall indemnify the Officer to the fullest
extent permitted by law for any and all Costs and Expenses of the Officer
resulting from or relating to any Suit or Claim, whether now pending or
hereafter asserted, threatened or filed, other than a Suit or Claim that
has been finally adjudicated or settled prior to the date hereof. Without
limiting the generality of the foregoing:
(a) The Officer shall be indemnified for all Costs and
Expenses of all Suits and Claims excepting only those Costs and Expenses
that the Corporation is expressly prohibited from indemnifying him by
Section 721 of the New York Business Corporation Law.
(b) The termination of any Suit or Claim by settlement,
judgment, order, conviction or plea of nolo contendere or its equivalent
shall not, of itself, create a presumption that the Officer acted or failed
to act in a manner that would render him ineligible for indemnification
hereunder or reduce the indemnification to which he is entitled hereunder,
including but not limited to any presumption that the Officer acted in bad
faith, failed to act in good faith, was dishonest, gained any financial or
other advantage, failed to act in what he reasonably believed to be in, or
not opposed to, the best interests of the Corporation, or had reasonable
cause to believe that his conduct was unlawful.
(c) The Officer shall be indemnified for all Costs and
Expenses incurred in enforcing rights to indemnity or payment or
reimbursement of Costs and Expenses under this Agreement or otherwise.
6. (a) The Costs and Expenses of defending any Suit or Claim
shall be paid by the Corporation to the Officer in advance of the final
disposition of the Suit or Claim upon receipt of an undertaking by or on
behalf of the Officer to repay such amount as and to the extent required by
paragraph (a) of Section 725 of the New York Business Corporation Law.
(b) In the event of a Potential Change in Control or a Change
in Control, the Corporation shall, promptly upon written request by the
Officer, create a Trust for the benefit of the Officer and, from time to
time, upon written request of the Officer to the Corporation, shall fund
such Trust in an amount, as set forth in such request, sufficient to
satisfy any and all Costs and Expenses incurred or reasonably anticipated
at the time of each such request to be incurred in connection with or
relating to any Suit or Claim, including, to the extent not anticipated to
be covered by D&O Insurance (as provided in Section 6(c)), amounts claimed
in such Suit or Claim. The terms of the Trust shall provide that (i) the
Trust shall not be revoked or the principal thereof invaded, without the
written consent of the Officer; (ii) the Trustee shall advance, within two
business days of a request by the Officer, any and all Costs and Expenses
to the Officer, not advanced directly by the Corporation to the Officer
(and the Officer hereby agrees to reimburse the Trust under the
circumstances under which the Officer would be required to reimburse the
Corporation under Section 6(a)); (iii) the Trust shall continue to be
funded by the Corporation in accordance with the funding obligation set
forth above; (iv) the Trustee shall promptly pay to the Officer all amounts
for which the Officer shall be entitled to indemnification pursuant to this
Agreement or otherwise; and (v) all unexpended funds in such Trust shall
revert to the Corporation upon a final determination by the Independent
Counsel, chosen in accordance with Section 7(b), that the Officer has been
fully indemnified under the terms of this Agreement. The Trustee shall be
selected by the Officer and approved by the Corporation (which approval
shall not be unreasonably withheld). The Corporation shall pay the
reasonable fees of the Trustee and shall fully indemnify the Trustee
against any and all expenses (including attorney's fees), claims,
liabilities and damages arising out of this Agreement or the Trustee's
engagement pursuant hereto. Nothing in this Section 6(b) shall relieve the
Corporation of any of its obligations under this Agreement.
(c) (i) So long as the Officer shall continue to serve as
a director or officer of the Corporation (or shall, at the request of
the Corporation, serve another corporation, partnership, joint
venture, trust or other enterprise, including service with respect to
an employee benefit plan) and thereafter so long as the Officer shall
be subject to any possible Suit or Claim, the Corporation shall
purchase and maintain in effect for the benefit of the Officer one or
more valid, binding and enforceable policy or policies of directors
and officers liability insurance ("D&O Insurance") providing coverage
at least comparable to that provided pursuant to the policies of D&O
Insurance currently maintained by the Corporation.
(ii) The Corporation shall not be required to maintain
said policy or policies of D&O Insurance in effect if, in the
reasonable business judgment of the then directors of the Corporation
(x) the premium cost for such insurance is substantially
disproportionate to the amount of coverage, (y) the coverage provided
by such insurance is so limited by exclusions that there is
insufficient benefit from such insurance or (z) said insurance is not
otherwise reasonably available; provided, however, that in the event
the then directors make such a judgment, the Corporation shall
purchase and maintain in force a policy or policies of D&O Insurance
in the amount and with such coverage as the then directors determine
to be reasonably available. Notwithstanding the general provisions
of this Section 6(c)(ii), following a Change in Control, any decision
not to maintain any policy or policies of D&O Insurance or to reduce
the amount or coverage under any such policy or policies shall be
effective only if there are Disinterested Directors and shall require
the concurrence of a majority of the Disinterested Directors. For
this purpose "Disinterested Directors" shall mean directors who were
members of the Board prior to such Change in Control or whose
election by the Board or whose nomination for election by the
Corporation's stockholders was approved by a vote of at least two-
thirds of the directors then still in office who were Disinterested
Directors.
(iii) If and to the extent the Corporation, acting under
Section 6(c)(ii), does not purchase and maintain in effect the policy
or policies of D&O Insurance described in Section 6(c)(i), the
Corporation shall indemnify and hold harmless the Indemnitee to the
full extent of the coverage which would otherwise have been provided
by such policies. The rights of the Officer hereunder shall be in
addition to all other rights of the Officer under the remaining
provisions of this Agreement.
7. (a) The Costs and Expenses for which the Officer is entitled
to indemnification under this Agreement shall be paid by the Corporation in
accordance with the provisions of paragraph (b) of Section 723 of the New
York Business Corporation Law. All Costs and Expenses for which the
Officer is entitled to indemnification, payment or reimbursement hereunder
shall be paid by the Corporation within two business days after demand
therefor.
(b) In the event of a Change in Control of the Corporation,
then with respect to all matters thereafter arising concerning the rights
of the Officer to indemnity payments and payment or reimbursement of Costs
and Expenses under this Agreement or any other agreement, the Certificate
of Incorporation or By-Laws of the Corporation now or hereafter in effect
or otherwise relating to Suits or Claims for indemnity, the Corporation
shall seek legal advice only from Independent Counsel selected by the
Officer and approved by the Corporation (which approval shall not be
unreasonably withheld). Such counsel, among other things, shall render its
written opinion to the Corporation and the Officer as to whether and to
what extent the Officer would be permitted to be indemnified under
applicable law. The Corporation shall pay the reasonable fees of the
Independent Counsel and shall fully indemnify such counsel against any and
all expenses (including attorneys' fees), claims, liabilities and damages
arising out of or relating to this Agreement or its engagement pursuant
hereto.
8. (a) The Corporation shall not indemnify the Officer or pay
any advance to the Officer in connection with any Suit or Claim voluntarily
commenced by the Officer against the Corporation or any other director,
officer, employee or agent of the Corporation or any affiliate or any
employee benefit plan of the Corporation or an affiliate unless the
institution of such action, suit or proceeding was authorized prior to its
commencement by a majority vote of the Board or the Officer is successful
on the merits in such action, suit or proceeding or such action, suit or
proceeding was commenced by the Officer to enforce rights to
indemnification, payment or reimbursement under this Agreement or
otherwise.
(b) In the event of any dispute as to the Officer's rights to
indemnity or payment or reimbursement hereunder or otherwise, the Officer,
at his option may submit such dispute to binding arbitration by a single
arbitrator in accordance with the Commercial Arbitration Rules of the
American Arbitration Association.
(c) In the event that the indemnification provided for in
this Agreement is unavailable to the Officer for any reason whatsoever, the
Corporation, in lieu of indemnifying the Officer, shall contribute to the
amount incurred by the Officer, whether for Costs or Expenses, in
connection with any Suit or Claim in such proportion as is deemed fair and
reasonable in light of all of the circumstances of such Suit or Claim in
order to reflect (i) the relative benefits received by the Corporation and
the Officer as a result of the event(s) and/or transaction(s) giving cause
to such Suit or Claim; and/or (ii) the relative fault of the Corporation
(and its other directors, officers, employees and agents) and the Officer
in connection with such event(s) and/or transaction(s). The Officer's
right to contribution under this Section 8(c) shall be determined in
accordance with, pursuant to and in the same manner as, the provisions in
Sections 6, 7, 8(a) and 8(b) hereof relating to the Officer's right to
indemnification under this Agreement.
9. The Officer shall provide prompt written notice to the
Corporation of any Suit or Claim in connection with which the Officer may
assert a right to be indemnified hereunder; however, failure to provide
such notice shall not be construed as a waiver of any rights hereunder.
10. The indemnification and advances provided by this Agreement
shall not be deemed exclusive of any other rights to which the Officer may
be entitled under any law (common or statutory), provision of the
Corporation's Certificate of Incorporation or By-Laws, vote of stockholders
or disinterested directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding office or while
employed by or acting as agent for the Corporation.
11. This Agreement may not be amended without the agreement in
writing of the Corporation and the Officer.
12. If this Agreement or any portion hereof shall be deemed
invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained herein shall not
in any way be affected or impaired thereby, and the Corporation shall
nevertheless indemnify the Officer for Costs and Expenses to the full
extent permitted by any applicable portion of this Agreement that shall not
have been invalidated and to the full extent permitted by applicable law.
13. The Corporation acknowledges that the Officer is relying on
this Agreement in continuing to provide services to the Corporation and in
incurring, or refraining from incurring, Costs and Expenses. Accordingly,
the Corporation agrees that its obligations hereunder will survive (a) any
actual or purported termination of this Agreement by the Corporation or its
successors or assigns whether by operation of law or otherwise, and (b)
termination of the Officer's services to the Corporation, whether such
services were terminated by the Corporation or the Officer, with respect to
any Suit or Claim, whether or not such Claim is made or Suit is threatened
or commenced before or after the actual or purported termination of this
Agreement or the termination of the Officer's services to the Corporation.
14. This Agreement shall be binding on the Officer and shall inure
to the benefit of the Officer (both during and after his service as a
director or as an officer) and to his heirs, executors and administrators.
This Agreement shall be binding on the successors and assigns of the
Corporation whether by operation of law or otherwise.
15. This Agreement shall be governed in all respects, including
validity, interpretation and effect, by the laws of the State of New York
(without giving effect to the provisions thereof relating to conflicts of
law).
IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto (in the case of the Corporation, by a duly authorized officer
thereof on its behalf).
UNION CARBIDE CORPORATION
By:
Chairman of the Board
JAMES F. FLYNN
Exhibit 10.2.4
RESOLUTIONS ADOPTED BY THE BOARD OF DIRECTORS OF UNION
CARBIDE CORPORATION ON FEBRUARY 26, 1992, WITH RESPECT TO
STOCK OPTIONS GRANTED UNDER THE 1984 UNION CARBIDE STOCK
OPTION PLAN AND THE 1988 UNION CARBIDE LONG-TERM INCENTIVE PLAN
RESOLVED, that the Board authorizes the adjustment of
outstanding stock options to purchase stock in the Corporation by
splitting such options into two options, one option to purchase
stock in the Corporation and the other option to purchase stock
in Union Carbide Industrial Gases Inc. ("UCIG") as follows:
1. The exercise price for outstanding stock options
in the Corporation shall be reduced so that the
aggregate exercise price of such options and the
exercise price of options to purchase stock in UCIG
after the spinoff shall equal the exercise price of
options to purchase stock in the Corporation prior to
the spinoff;
2. UCIG shall issue an equal number of stock
options in UCIG on terms similar to the terms of the
Corporation's stock options;
3. The exercise prices for options to purchase
stock in the Corporation and options to purchase stock
in UCIG will be apportioned based upon the exercise
price of the stock options to be replaced and the
relative market prices of the Corporation's and UCIG's
common stock; and
4. If any circumstances hereafter become known or
develop which, in the judgment of the Board, cause any
adjustment in the option prices to be significantly
inequitable, the Board shall have the right to make
such further adjustments, as the Board in its judgment
determines are necessary to achieve equity;
and be it further
RESOLVED, that the proper officers of this Corporation be,
and they hereby are, authorized to execute or cause to be
executed such documents and other writings, and to take or do or
cause to be taken or done such other actions or things, as may be
necessary or desirable to effectuate the purposes and intent of
the foregoing resolution.
Exhibit 10.2.5
RESOLUTIONS ADOPTED BY THE COMPENSATION AND MANAGEMENT
DEVELOPMENT COMMITTEE OF THE BOARD OF DIRECTORS OF UNION
CARBIDE CORPORATION ON JUNE 30, 1992, WITH RESPECT TO STOCK
OPTIONS GRANTED UNDER THE 1984 UNION CARBIDE STOCK OPTION
PLAN AND THE 1988 UNION CARBIDE LONG-TERM INCENTIVE PLAN
RESOLVED, that the Committee authorizes that the exercise
price for options to purchase stock in the Corporation be
adjusted by multiplying each such exercise price by 0.406, which
is a fraction the numerator of which is the closing price
(regular way) of the Corporation's common stock on the New York
Stock Exchange Composite Transactions ("NYSE") on the date of
this meeting less the closing price (on a when-issued basis) of
the common stock of Praxair, Inc. on the NYSE on the date of this
meeting and the denominator of which is such closing price
(regular way) of the Corporation's common stock; and be it
further
RESOLVED, that the unexercised stock options of employees of
Praxair, Inc. shall not terminate upon the distribution by the
Corporation of all of the outstanding common stock of Praxair,
Inc., provided that such employees shall have the right to
exercise such stock options only in accordance with the terms of
such stock options, and the Committee hereby finds that such
continuation of the stock options is in the best interests of the
Corporation; and it is further
RESOLVED, that the proper officers of this Corporation be,
and they hereby are, authorized to execute or cause to be
executed such documents and other writings, and to take or do or
cause to be taken or done such other actions or things, as may be
necessary or desirable to effectuate the purposes and intent of
the foregoing resolutions.
Exhibit 10.2.6
FOURTH AMENDMENT TO THE 1988
UNION CARBIDE LONG-TERM INCENTIVE PLAN
The 1988 Union Carbide Long-Term Incentive Plan (the "Plan")
is hereby amended as follows:
1. Section 5.4 of the Plan is amended in its entirety to
read as follows:
" 5.4: An option may be exercised
with respect to part or all of the shares
subject to the option by giving written
notice to the Corporation of the exercise of
the option. The option price for the shares
for which an option is exercised shall be
paid on or within ten business days after the
date of exercise. The terms of the stock
option may provide that the option price may
be paid (i) in cash, (ii) in whole shares of
common stock of the Corporation owned by the
participant prior to exercising the option,
(iii) by having the Corporation withhold a
number of shares from the exercise, equal in
value to the option price, or (iv) in a
combination of cash and delivery of shares,
or cash and withholding of shares of common
stock. The value of any share of common
stock delivered or withheld in payment of the
option price shall be its Market Price on the
date the option is exercised."
2. Section 5.6 of the Plan is amended in its entirety to
read as follows:
" 5.6: In order to enable the
Corporation to meet any applicable federal,
state or local withholding tax requirements
arising as a result of the exercise of a
stock option, a participant shall pay the
Corporation the amount of tax to be withheld
or may elect to satisfy such obligation by
having the Corporation withhold shares that
otherwise would be delivered to the
participant pursuant to the exercise of the
option for which the tax is being withheld,
by delivering to the Corporation other shares
of common stock of the Corporation owned by
the participant prior to exercising the
option, or by making a payment to the
Corporation consisting of a combination of
cash and such shares of common stock. Such
an election shall be subject to the
following: (a) the election shall be made in
such manner as may be prescribed by the
Committee and the Committee shall have the
right, in its discretion, to disapprove such
election; and (b) the election shall be made
prior to the date to be used to determine the
tax to be withheld and shall be irrevocable.
The value of any share of common stock to be
withheld by the Corporation or delivered to
the Corporation pursuant to this Section 5.6
shall be the Market Price on the date to be
used to determine the amount of tax to be
withheld."
3. The amendments set forth herein shall be effective as
of October 1, 1997.
Signed this first day of October, 1997.
UNION CARBIDE CORPORATION
By: /s/ M.A. Kessinger
Exhibit 10.3.2
FIRST AMENDMENT TO THE 1983
UNION CARBIDE BONUS DEFERRAL PROGRAM
The 1983 Union Carbide Bonus Deferral Program is hereby
amended as follows:
1. Section 2.7 is amended to read as follows:
""Retirement Date" means the earliest date on which a
Participant could have retired with the right to receive
immediately a pension under the Corporation's Retirement
Program."
2. The first sentence of Section 6.1 is amended to read
as follows:
"A Participant, who remains an Employee at least until (i)
the Participant's Retirement Date or (ii) the date of the
Participant's termination of employment by the Corporation
without cause, shall be entitled to 15 annual Normal
Payments, commencing within 120 days following the latest
of:
(a) the date of actual retirement or termination of
employment by the Corporation without cause,
(b) the Participant's 65th birthday, or
(c) ten years following the Date of Deferral."
3. The first sentence of Section 6.2 is amended to read as
follows:
"In lieu of the Normal Payments provided by Section 6.1, a
Participant, who remains an Employee at least until (i) the
Participant's Retirement Date or (ii) the date of the
Participant's termination of employment by the Company
without cause, and who irrevocably so elects at the time the
election to participate is made, shall be entitled to 15
annual Alternate Payments, commencing within 120 days
following the latest of:
(a) the date of actual retirement or termination of
employment by the Corporation without cause,
(b) the Participant's 62nd birthday, or
(c) seven years following the Date of Deferral."
4. Section 6.7 is amended in its entirety to read as
follows:
"6.7 Payment upon Termination of Employment. A
Participant whose employment by the Corporation terminates,
for any reason other than (a) retirement on or after the
Participant's Retirement Date, (b) death, (c) Disability,
(d) termination by the Corporation without cause, or (e) a
reason approved by the Committee, shall receive, within 120
days following the effective date of termination of
employment, a lump sum payment, in lieu of any other payment
under the Program, equal to the amount of bonus award
deferred, plus interest thereon from April 1, 1984 to the
date of payment at the rate of six per cent per year,
compounded annually.
5. Section 6.9(D)(i) is amended to read as follows:
"A Participant has retired on or after the
Participant's Retirement Date, or has been terminated from
employment by the Corporation without cause, but the annual
payments provided for by Section 6.1 or 6.2 have not all
been made,"
The amendments set forth herein shall be effective as
of January 1, 1992 and shall apply to those Participants who
retire or terminate employment on or after such date.
Signed this 6th day of May, 1992.
UNION CARBIDE CORPORATION
By:/s/ M.A. Kessinger
Exhibit 10.4.3
FIRST AMENDMENT TO THE 1984
UNION CARBIDE CASH BONUS DEFERRAL PROGRAM
The 1984 Union Carbide Cash Bonus Deferral Program is hereby
amended as follows:
1. Section 2.8 is amended to read as follows:
""Retirement Date" means the earliest date on which a
Participant could have retired with the right to receive
immediately a pension under the Corporation's Retirement
Program."
2. The first sentence of Section 6.1 is amended to read as
follows:
"A Participant, who remains an Employee at least until (i)
the Participant's Retirement Date, or (ii) the date of the
Participant's termination of employment by the Corporation
without cause, shall be entitled to 15 annual Normal
Payments, commencing within 120 days following the latest
of:
(a) the date of actual retirement or termination of
employment by the Corporation without cause,
(b) the Participant's 65th birthday, or
(c) ten years following the Date of Deferral."
3. The first sentence of Section 6.2 is amended to read as
follows:
"In lieu of the Normal Payments provided for by Section 6.1,
a Participant, who remains an Employee at least until (i)
the Participant's Retirement Date or (ii) the date of the
Participant's termination of employment by the Corporation
without cause, and who irrevocably so elects at the time the
applicable election to participate is made, shall be
entitled to 15 annual Alternate Payments, commencing within
120 days following the latest of:
(a) the date of actual retirement or termination of
employment by the Corporation without cause,
(b) the Participant's 62nd birthday, or
(c) seven years following the Date of Deferral."
4. Section 6.7 is hereby amended in its entirety to read as
follows:
"6.7: Payment upon Termination of Employment. A
Participant whose employment by the Corporation terminates,
for any reason other than (a) retirement on or after the
Participant's Retirement Date, (b) death, (c) Disability,
(d) termination by the Corporation without cause, (e) the
reason set forth in the next sentence, or (f) a reason
approved by the Committee, shall receive, within 120 days
following the effective date of termination of employment, a
lump sum payment, in lieu of any other payment under the
Program, equal to the amount of bonus award or awards
deferred, plus interest thereon from the April 1 following
the applicable Service Year or Service Years to the date of
payment at the rate of six per cent per year, compounded
annually. A Participant whose employment is terminated by
the Corporation for willful failure to perform the normal
duties of employment, or for an act of dishonesty in
connection with such Participant's employment, shall
receive, within 120 days following the effective date of
termination of employment, a lump sum payment, in lieu of
any other payment under the Program, equal to the amount of
bonus award or awards deferred."
5. Section 6.9(i) is hereby amended to read:
"A Participant has retired on or after the
Participant's Retirement Date, or has been terminated from
employment by the Corporation without cause, but the annual
payments provided for by Section 6.1 or 6.2 have not all
been made,"
The amendments set forth herein shall be effective as of
January 1, 1992 and shall apply to those Participants who retire
or terminate employment on or after such date.
Signed this 6th day of May, 1992.
UNION CARBIDE CORPORATION
By: /s/M.A. Kessinger
Vice President
Exhibit 10.7
UNION CARBIDE NON-EMPLOYEE DIRECTORS' COMPENSATION
DEFERRAL PROGRAM
(Effective February 1, 1997)
UNION CARBIDE NON-EMPLOYEE DIRECTORS' COMPENSATION
DEFERRAL PROGRAM
ARTICLE I
PURPOSE
1.1 The purpose of this Program is to (i) allow Eligible
Directors to defer a portion or all of their meeting and retainer
fees and (ii) automatically defer all of the lump sum payments
from the Non-Employee Directors' Plan otherwise payable to an
Eligible Director as a result of such Plan's termination.
1.2 This Program shall be effective for amounts payable on
or after February 1, 1997.
ARTICLE II
DEFINITIONS
2.1 "Applicable Equity Investment Fund Rate" means the
difference between the value of each of the applicable investment
funds elected by a Participant under Section 8.2 of this Program:
Fidelity Asset Manager, Fidelity Equity Income Fund, Fidelity
Growth Company Fund, Fidelity Contrafund and Fidelity Overseas
Fund, determined on a fund by fund basis, as of (i) the later of
the Date of Deferral or the effective date of a Participant's
election under Section 8.2(c), and (ii) the relevant valuation
date for determining the amount of earnings of such investment
fund in accordance with Article VIII. Such value shall include
any hypothetical dividends and hypothetical capital gains
distributions paid on such investment fund during the period for
which the Applicable Equity Investment Fund Rate is being
determined, as if such hypothetical dividends or hypothetical
capital gains distributions are reinvested when payable in
additional shares of such fund. The value of a respective
investment fund for purposes of this Section 2.1, shall mean the
net asset value of such investment fund as reported by such fund.
2.2 "Administrator" means the Board of Directors of the
Corporation or a committee of the Board or subcommittee thereof
designated by the Board.
2.3 "Beneficiary" means the person, persons or estate
entitled (as determined under Article VII) to receive payment
under this Program following a Participant's death.
2.4 "Board" means the Board of Directors of Union
Carbide Corporation.
2.5 "Change in Control" means the occurrence of any of
the following:
(i) any "person" or "group" within the
meaning of Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934 ("Act")
becomes the "beneficial owner" as defined in
Rule 13d-3 under the Act of more than 20% of
the then outstanding voting securities of the
Corporation;
(ii) any "person" or "group" within the
meaning of Sections 13(d) and 14(d)(2) of the
Act acquires by proxy or otherwise the right
to vote for the election of directors, for
any merger or consolidation of the
Corporation or for any other matter or
question with respect to more than 20% of the
then outstanding voting securities of the
Corporation;
(iii) if during any period of twenty-four
consecutive months, Present Directors and/or
New Directors cease for any reason to
constitute a majority of the Board.
For these purposes, "Present Directors" shall
mean individuals who at the beginning of such
consecutive twenty-four month period were
members of the Board and "New Directors"
shall mean any director whose election by the
Board or whose nomination for election by the
Corporation's stockholders was approved by a
vote of at least two-thirds of the Directors
then still in office who were Present
Directors or New Directors;
(iv) the stockholders of the Corporation
approve a plan of complete liquidation or
dissolution of the Corporation; or
(v) there shall be consummated (x) a
reorganization, merger or consolidation of
all or substantially all of the assets of the
Corporation (a "Business Combination"),
unless, following such Business Combination,
(a) all or substantially all of the
individuals and entities who were the
beneficial owners, respectively, of the
outstanding Common Stock of the Corporation
and outstanding voting securities of the
Corporation immediately prior to such
Business Combination beneficially own,
directly or indirectly, more than 50% of,
respectively, the then outstanding shares of
common stock and the combined voting power of
the then outstanding voting securities
entitled to vote generally in the election of
directors, as the case may be, of the
corporation resulting from such Business
Combination (including, without limitation, a
corporation which as a result of such
transaction owns the Corporation or all or
substantially all of the Corporation's assets
either directly or through one or more
subsidiaries) in substantially the same
proportions as their ownership, immediately
prior to such Business Combination of the
outstanding Common Stock of the Corporation
and outstanding voting securities of the
Corporation, as the case may be, (b) no
Person (excluding any corporation resulting
from such Business Combination or any
employee benefit plan (or related trust) of
the Corporation or such corporation resulting
from such Business Combination) beneficially
owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of
common stock of the corporation resulting
from such Business Combination or the
combined voting power of the then outstanding
voting securities of such corporation except
to the extent that such ownership existed
prior to the Business Combination and (c) at
least a majority of the members of the board
of directors of the corporation resulting
from such Business Combination were members
of the Board at the time of the execution of
the initial agreement, or of the action of
the Board, providing for such Business
Combination; or (y) any sale, lease, exchange
or other transfer (in one transaction or a
series of related transactions) of all, or
substantially all, of the assets of the
Corporation, provided, that the divestiture
of less than substantially all of the assets
of the Corporation in one transaction or a
series of related transactions, whether
effected by sale, lease, exchange, spin-off,
sale of the stock or merger of a subsidiary
or otherwise, shall not constitute a Change
in Control.
Notwithstanding the foregoing, a Change
in Control shall not be deemed to occur
pursuant to Subparagraphs (i) and (ii) above,
solely because twenty percent (20%) or more
of the combined voting power of the
Corporation's then outstanding securities is
acquired by one or more employee benefit
plans maintained by the Corporation."
2.6 "Code" means the Internal Revenue Code of 1986, as
amended from time to time.
2.7 "Compensation" means, solely for purposes of this
Program, the retainer fees and the meeting fees paid to an
Eligible Director in connection with his or her service as a
member of the Board.
2.8 "Corporation" means Union Carbide Corporation, a New
York Corporation, any predecessor thereof and any successor
thereof by merger, consolidation or otherwise.
2.9 "Date of Deferral" means (i) with respect to
director fees deferral, the date on which the relevant fees would
be paid, and (ii) with respect to amounts which are paid from the
Non-Employee Directors' Plan, the date on which lump sum payments
under such Plan would otherwise be paid.
2.10 "Deferred Compensation" means the amount of
Compensation deferred by a Participant under this Program
pursuant to Section 5.3(a) of this Program.
2.11 "Disability" means a Participant's total physical
or mental inability to perform any work for compensation or
profit in any occupation for which the Participant is reasonably
qualified by reason of training, education or ability, and which
inability is adjudged to be permanent, as determined by the
Administrator.
2.12 "Eligible Director" means a non-employee director
who receives Compensation from the Corporation.
2.13 "Fixed Income Rate" means the rate of interest for
the Fixed Income Fund under the Savings Program, in effect from
time to time.
2.14 "Non-Employee Directors' Plan" means The Union
Carbide Corporation Non-Employee Directors' Retirement Plan.
2.15 "Participant" means an Eligible Director who (i)
elects in advance to defer all or a portion of his or her
director fees in accordance with Section 5.2(a) of this Program
and/or (ii) receives an automatic deferral to this Program of his
or her lump sum distribution from the Non-Employee Directors'
Plan in accordance with Section 5.2(b) of this Program.
2.16 "Program" means this Union Carbide Non-Employee
Directors' Compensation Deferral Program.
2.17 "Savings Program" means The Savings and Investment
Program for Employees of Union Carbide Corporation and
Participating Subsidiary Companies.
2.18 "Service Year" means one of the calendar years on
and after 1997, as to which an election may be made in accordance
with Article V.
2.19 "UCC Discounted Stock Value Rate" means the UCC
Stock Value Rate except that the value of the Corporation's
common stock as of the Date of Deferral, pursuant to which
earnings shall accrue at the UCC Stock Value Rate, shall be
determined as if purchased at a ten percent (10%) discount.
2.20 "UCC Stock Value Rate" means the difference between
the value of the Corporation's common stock as of the later of
(i) the Date of Deferral or the effective date of a Participant's
election under Section 8.2 pursuant to which earnings shall
accrue at the UCC Stock Value Rate and (ii) the relevant date of
determination of the amount of earnings in accordance with
Section 8.2(c) of this Program. Such value shall include the
value of any hypothetical dividends paid on the common stock
during the period for which the UCC Stock Value Rate is being
determined, as if such hypothetical dividends were reinvested
when payable (at a five percent (5%) discount) in additional
shares of the Corporation's common stock as determined on the
later of the Date of Deferral or the effective date of a
Participant's election under Section 8.2(c) pursuant to which
earnings shall accrue at the UCC Stock Value Rate. The value of
the Corporation's common stock for purposes of this Section 2.20,
shall mean the closing price of the stock on the New York Stock
Exchange - Composite Transaction on the relevant date of
determination.
2.21 "Unforeseen Emergency" means an event beyond the
control of the Participant that would result in severe financial
hardship to the Participant if early withdrawal of the
Participant's director fees deferral or lump sum payment from the
Non-Employee Directors Plan were not permitted. Whether a
Participant has an Unforeseen Emergency shall be determined by
the Administrator.
ARTICLE III
ADMINISTRATION
3.1 Except as otherwise indicated, the Administrator or its
designee shall supervise the administration and interpretation of
this Program, may establish administrative regulations to further
the purpose of this Program and shall take any other action
necessary to ensure the proper operation of this Program. All
decisions and acts of the Administrator shall be final and
binding upon all Participants, their Beneficiaries and all other
persons.
The Corporation's Human Resources Department shall be
the Administrator's designee with respect to all non-
discretionary administrative and ministerial functions under this
Program.
ARTICLE IV
ELIGIBILITY
4.1 To be eligible to participate in this Program for a
given year, a person must have become an Eligible Director not
later than the day on or before the date which an Eligible
Director must make the election provided for in Article V of this
Program for that year and be a member of the Board on the Date of
Deferral for that year.
ARTICLE V
DEFERRALS
5.1 During each of the years this Program is in effect,
Eligible Directors shall be informed of the opportunity to
participate in this Program. An Eligible Director choosing to
participate in this Program must make an election to do so on or
before the date designated by the Administrator and otherwise in
accordance with such procedures as may be established by the
Administrator.
5.2 (a) An Eligible Director must elect to defer his or
her Compensation which has not yet been paid to him for services
performed in calendar year 1997 during the period which
immediately follows the date this Program is approved by the
Board. Participation in this Program shall become effective only
on the Date of Deferral and only if, on such date, the Eligible
Director remains a member of the Board. Compensation for
services performed in calendar years 1998, and beyond, must be
deferred during the annual election period immediately preceding
the calendar year in which such services will be performed. A
Participant may suspend his or her election to defer his or her
Compensation (but may not otherwise reduce or change an election
mid-year) at any time; provided, however, that such Eligible
Director may not resume deferrals of Compensation until the
following calendar year. Notwithstanding the foregoing, an
Eligible Director who becomes eligible to participate in this
Program after the date this Program is approved by the Board, may
elect to defer a portion of his or her Compensation during the
calendar year in which services will be performed; provided he or
she makes an election to defer within 31 days after becoming
eligible to participate in this Program.
(b) If an Eligible Director is entitled to receive a
lump sum payment from the Non-Employee Director's Plan as a
result of that Plan's termination, such payment shall be deferred
to this Program.
5.3 On or before the date designated by the
Administrator, and otherwise in accordance with such procedures
as may be established, an Eligible Director may elect voluntarily
to defer up to 100% of his or her Compensation (in 10%
increments).
ARTICLE VI
PAYMENTS TO PARTICIPANTS AND BENEFICIARIES
6.1 Time of Payment. (a) Subject to subsections (b), (c)
and (d) of this Section 6.1, a Participant shall begin to receive
payment of his or her deferrals, and any earnings accruals
credited under Article VIII, during the January next following
the date he or she ceases to be a member of the Board.
(b) (i) Notwithstanding any provision in this Program to
the contrary, a Participant may elect to commence receipt of
payments of any amounts deferred upon a specific future payment
date which is at least five years after the Date of Deferral or
such shorter schedule as the Administrator may determine. Such
payments must begin no later than the calendar year after which
the Participant attains age 72. A Participant making such an
election shall receive his or her lump sum payment in the January
next following his or her future payment date or, if applicable,
such Participant shall receive installment payments in accordance
with Section 6.2.
(ii) With respect to a Participant who has attained
age 55 at the time of the election of his or her deferral, the
five year period described in subsection (i) shall instead be one
year.
(iii) A Participant is limited to four future fixed
year payments.
(c) A Participant who has not yet ceased to be a member of
the Board, but has an Unforeseen Emergency, may receive any or
all of his or her director fee deferrals, excluding any earning
accruals credited to him or her pursuant to Article VIII of this
Program; provided that the Participant may not receive an amount
greater than the amount necessary to meet the Unforeseen
Emergency and any amounts necessary to pay federal, state and
local income taxes or penalties reasonably anticipated to result
from a withdrawal under this Section 6.1. Earning accruals will
remain in the Program and continue to accrue earnings under
Article VIII until the payment date or dates described in
Article VI.
(d) Notwithstanding any provision in this Program to the
contrary, a Participant may, on the applicable Date of Deferral
or at any time thereafter prior to a Change in Control, elect to
receive payment of his or her entire account balance under this
Program at such time as the Board determines that a Change in
Control has occurred. Such payment shall be made in a lump sum
within 45 days after the Change in Control.
6.2 Form of Payments. (a) A Participant may elect
to receive payments under this Program in annual or quarterly
installments. Such installments must commence as described in
Section 6.1, and must be completed by the calendar year in which
the Participant attains age 85.
(b) A Participant may elect to receive installment
payments either (i) annually during each January or
(ii) quarterly, commencing in the January that payment was
otherwise due in accordance with Section 6.1. If a Participant
does not elect the form of his or her installment payments, such
installment payments shall be made annually during each January.
(c) If a Participant does not elect the form of his or her
payments, such payments shall be made in a lump sum payment.
(d) A Participant may change the form and timing of payment
previously elected only one time and subject to the following
restrictions:
(i) such election is made in the calendar
year that the Participant ceases to be a
member of the Board, to be effective no
earlier than the following calendar year; and
(ii) the election is subject to the consent
of the Administrator.
(e) 1. If a Participant dies at any time prior to
receiving any portion of his or her account balance under this
Program, payment shall be made to the Participant's Beneficiary
as follows:
(A) If the Participant's Beneficiary is his or her
surviving spouse, such Participant's entire account balance under
this Program shall be paid as follows:
(i) ten annual installments or a shorter
schedule, if so elected by the surviving
spouse, or
(ii) a lump sum payment payable on or about
the January 1st following the Participant's
death.
(B) If the Participant's Beneficiary is someone other
than his or her surviving spouse, such Participant's entire
account balance under this Program shall be paid in a lump sum
payment as soon as practical following the Participant's death.
2. If a Participant dies at any time after payment of
his or her account balance under this Program has begun, such
Participant's Beneficiary shall continue to receive payment of
the Participant's account in the same manner as the Participant
elected, or such shorter payment schedule as elected by the
Beneficiary.
6.3 Payment Medium. All payments under this Program
with respect to amounts which at the time of such payment were
accruing at the Fixed Income Rate, or an Applicable Equity
Investment Fund Rate, shall be made in U.S. dollars. Any
payments made to a Participant with respect to amounts which were
accruing under either the UCC Stock Value Rate or the UCC
Discounted Stock Value Rate shall be made in shares of common
stock of the Corporation.
6.4 Reduction of Payments; Share Withholding. (a) All
payments under this Program shall be reduced by any and all
amounts that the Corporation is required to withhold pursuant to
applicable law.
(b) In order to enable the Corporation to meet any
applicable federal, state or local tax withholding requirements,
a Participant (or Beneficiary) who is receiving payment in shares
of common stock of the Corporation, may elect to have the
Corporation withhold shares that would otherwise be delivered to
such Participant, or by delivering to the Corporation other
shares of common stock of the Corporation owned by the
Participant. The value of any such shares of common stock to be
withheld by the Corporation, or so delivered to the Corporation,
shall be the mean of the high and low prices of the common stock
of the Corporation as reported in the New York Stock Exchange -
Composite Transactions on the date of payment.
ARTICLE VII
BENEFICIARIES
7.1 A Participant may at any time, and from time to time,
prior to his or her death designate one or more Beneficiaries to
receive any payments to be made following the Participant's
death. If a Participant has not effectively designated a
beneficiary, or if no designated beneficiary has survived the
Participant, the Participant's Beneficiary shall be the
Participant's surviving spouse, or, if no spouse has survived the
Participant, the estate of the deceased Participant. If an
individual Beneficiary cannot be located for a period of one year
following the Participant's death, despite mail notification to
the Beneficiary's last known address, and if the Beneficiary has
not made a written claim for benefits within such period, the
Beneficiary shall be treated as having predeceased the
Participant. The Administrator may require such proof of death
and such evidence of the right of any person to receive all or
part of a deceased Participant account balance, as the
Administrator may consider appropriate. The Administrator may
rely upon any direction by the legal representatives of the
estate of a deceased Participant, without liability to any other
person.
ARTICLE VIII
EARNINGS ACCRUALS
8.1 Each Participant's account balance under this Program
shall be credited with earnings from the Date of Deferral through
the date such deferral is paid out or withdrawn pursuant to
Article VI. Earnings under this Section 8.1 shall accrue at the
rate elected in accordance with Section 8.2.
8.2 (a) Earnings accruing in accordance with Section 8.1
shall accrue at (i) the Fixed Income Rate, (ii) the UCC Stock
Value Rate, (iii) the UCC Discounted Stock Value Rate, (iv) the
Applicable Equity Investment Fund Rate or (v) a combination of
the four rates. An election to use the UCC Discounted Stock
Value Rate shall be effective for not less than one (1) year.
Amounts deferred pursuant to Section 5.2(b) cannot accrue at the
UCC Discounted Stock Rate. Notwithstanding the foregoing, if a
Participant has elected under Section 6.1 to receive payment of
his or her account balance upon ceasing to be a member of the
Board, such Participant may then receive a distribution based on
the UCC Discounted Stock Value Rate even if one (1) year has not
yet passed since the relevant Date of Deferral.
(b) Subject to subparagraph (c), a Participant shall
designate at the time of his or her election to defer any amounts
under this Program which accrual rate or rates shall apply to his
or her deferrals; provided such elections must be in whole
percentage points. Such elections shall be effective as of the
Date of Deferral through the date such deferral is paid out or
withdrawn pursuant to Article VI.
(c) A Participant may, one time each calendar month, elect
to change the accrual rate under this Section 8.2 with respect to
any or all previous deferrals under this Program; provided,
however, that Participants may elect to utilize the UCC
Discounted Stock Value Rate with respect to future deferrals
only, and not for the reallocation of any prior deferrals.
Participants may utilize the UCC Stock Value Rate only for
reallocation of previous deferrals.
(d) Any amounts initially deferred into either the UCC
Stock Value Rate or the UCC Discounted Stock Value Rate may not
be reallocated or withdrawn from the Program for at least six
months from the Date of Deferral, even where such reallocation or
withdrawal would otherwise be permitted under the terms of the
Program.
ARTICLE IX
GENERAL PROVISIONS
9.1 Prohibition of Assignment of Transfer. Any
assignment, hypothecation, pledge or transfer of a Participant's
or Beneficiary's right to receive payments under this Program
shall be null and void and shall be disregarded, except to the
extent required by law.
9.2 Program Not to Be Funded. The Corporation is not
required, for the purpose of funding this Program, to segregate
any monies from its general funds, create any trusts, or make any
special deposits, and the right of a Participant or Beneficiary
to receive a payment under this Program shall be no greater than
the right of an unsecured general creditor of the Corporation.
9.3 Communications To Be in Writing. All elections,
requests and communications to the Corporation or its designated
agent from Participants and Beneficiaries, and all communications
to such persons from the Corporation, shall be in writing, and in
such form and manner, and within such time, as the Corporation
shall determine. In lieu of the foregoing, the Corporation may
install a telephonic voice response system for such elections,
requests and communications.
9.4 Absence of Liability. No officer, director or
employee of the Corporation shall be personally liable for any
acts or omission to act under this Program or, except in
circumstances involving bad faith, for such officer's, director's
or employee's own act or omission to act.
9.5 Titles for Reference Only. The titles given herein
to sections and subsections are for reference only and are not to
be used to interpret the provisions of this Program.
9.6 New York Law To Govern. All questions pertaining to
the construction, regulation, validity and effect of the
provisions of this Program shall be determined in accordance with
New York law.
9.7 Amendment. The Administrator may amend this Program
at any time, but no amendment may be adopted which alters the
payments due Participants or Beneficiaries, as of the date of the
amendment, or the times at which payments are due, without the
consent of each Participant affected by the amendment and of each
Beneficiary (of a then deceased Participant) affected by the
amendment.
9.8 Program Termination. The Board may terminate this
Program for any reason and at any time. In the event of such
termination, the accounts of each Participant or Beneficiary
under this Program shall become immediately payable in accordance
with Section 6.1; provided that the Administrator, in its sole
discretion, upon Program termination or at any time thereafter,
may decide to make lump sum payments in lieu of annual payments.
UNION CARBIDE CORPORATION
Exhibit 10.8
UNION CARBIDE CORPORATION 39 OLD RIDGEBURY ROAD, DANBURY, CT 06817-001
February 10, 1998
R.J. Cottle
K3-462
Dear Ron:
At its meeting on January 27, 1998, the Board of Directors
(the "Board") of Union Carbide Corporation (the "Corporation")
authorized your participation in the arrangements set forth in
this Severance Compensation Agreement.
The Board recognizes that the possibility of a Change in
Control of the Corporation exists, as is the case with many
publicly held corporations, and the uncertainty and questions
which it may raise among management may result in the departure
or distraction of management personnel to the detriment of the
Corporation and its stockholders.
The Board has determined that appropriate steps should be
taken to reinforce and encourage the continued attention and
dedication of members of the Corporation's management, including
yourself, to their assigned duties without distraction in the
face of potentially disturbing circumstances arising from a
possible Change in Control of the Corporation. The Board has also
determined that it is in the best interests of the Corporation
and its stockholders to ensure your continued availability to the
Corporation in the event of a potential Change in Control of the
Corporation.
In order to induce you to remain in the employ of the
Corporation and in consideration of your continued service to the
Corporation, the Corporation agrees that you shall receive the
severance benefits set forth in this Severance Compensation
Agreement ("Agreement") in the event your employment with the
Corporation is terminated subsequent to a Change in Control of
the Corporation under the circumstances described below.
1. Definitions.
a. "Change in Control of the Corporation" shall be
deemed to occur if any of the following circumstances shall
occur:
(i) any "person" or "group" within
the meaning of Sections 13(d) and
14(d)(2) of the Securities Exchange
Act of 1934 ("Act") becomes the
"beneficial owner" as defined in
Rule 13d-3 under the Act of more
than 20% of the then outstanding
voting securities of the
Corporation;
(ii) any "person" or "group" within
the meaning of Sections 13(d) and
14(d)(2) of the Act acquires by
proxy or otherwise the right to
vote for the election of directors,
for any merger or consolidation of
the Corporation or for any other
matter or question with respect to
more than 20% of the then
outstanding voting securities of
the Corporation;
(iii) if during any period of
twenty-four consecutive months,
Present Directors and/or New
Directors cease for any reason to
constitute a majority of the Board.
For these purposes, "Present
Directors" shall mean individuals
who at the beginning of such
consecutive twenty-four month
period were members of the Board
and "New Directors" shall mean any
director whose election by the
Board or whose nomination for
election by the Corporation's
stockholders was approved by a vote
of at least two-thirds of the
Directors then still in office who
were Present Directors or New
Directors;
(iv) the stockholders of the
Corporation approve a plan of
complete liquidation or dissolution
of the Corporation; or
(v) there shall be consummated (x)
a reorganization, merger or
consolidation of all or
substantially all of the assets of
the Corporation (a "Business
Combination"), unless, following
such Business Combination, (a) all
or substantially all of the
individuals and entities who were
the beneficial owners,
respectively, of the outstanding
Common Stock of the Corporation and
outstanding voting securities of
the Corporation immediately prior
to such Business Combination
beneficially own, directly or
indirectly, more than 50% of,
respectively, the then outstanding
shares of common stock and the
combined voting power of the then
outstanding voting securities
entitled to vote generally in the
election of directors, as the case
may be, of the corporation
resulting from such Business
Combination (including, without
limitation, a corporation which as
a result of such transaction owns
the Corporation or all or
substantially all of the
Corporation's assets either
directly or through one or more
subsidiaries) in substantially the
same proportions as their
ownership, immediately prior to
such Business Combination of the
outstanding Common Stock of the
Corporation and outstanding voting
securities of the Corporation, as
the case may be, (b) no Person
(excluding any corporation
resulting from such Business
Combination or any employee benefit
plan (or related trust) of the
Corporation or such corporation
resulting from such Business
Combination) beneficially owns,
directly or indirectly, 20% or more
of, respectively, the then
outstanding shares of common stock
of the corporation resulting from
such Business Combination or the
combined voting power of the then
outstanding voting securities of
such corporation except to the
extent that such ownership existed
prior to the Business Combination,
and (c) at least a majority of the
members of the board of directors
of the corporation resulting from
such Business Combination were
members of the Board at the time of
the execution of the initial
agreement, or of the action of the
Board, providing for such Business
Combination; or (y) any sale,
lease, exchange or other transfer
(in one transaction or a series of
related transactions) of all, or
substantially all, of the assets of
the Corporation, provided, that the
divestiture of less than
substantially all of the assets of
the Corporation in one transaction
or a series of related
transactions, whether effected by
sale, lease, exchange, spin-off,
sale of the stock or merger of a
subsidiary or otherwise, shall not
constitute a Change in Control of
the Corporation.
Notwithstanding the foregoing, a Change in Control of the
Corporation shall not be deemed to occur: (A) pursuant to
Subparagraphs (i) and (ii) above, solely because twenty percent
(20%) or more of the combined voting power of the Corporation's
then outstanding securities is acquired by one or more employee
benefit plans maintained by the Corporation; or (B) pursuant to
Subparagraph (v)(y) above, if the Board determines that any sale,
lease, exchange or transfer does not involve substantially all of
the assets of the Corporation.
b. "Code" shall mean the Internal Revenue Code of 1986,
as amended.
c. "Date of Termination" shall mean:
(i) in case employment is
terminated for Disability, thirty
(30) days after Notice of
Termination is given (provided that
you shall not have returned to the
full-time performance of your
duties during such thirty (30) day
period), and
(ii) in all other cases, the date
specified in the Notice of
Termination (which shall not be
less than thirty (30) nor more than
sixty (60) days, respectively, from
the date such Notice of Termination
is given).
d. "Disability" shall mean total physical or mental
disability rendering you unable to perform the duties of your
employment for a continuous period of six (6) months. Any
question as to the existence of your Disability upon which you
and the Corporation cannot agree shall be determined by a
qualified physician not employed by the Corporation and selected
by you (or, if you are unable to make such selection, it shall be
made by any adult member of your immediate family), and approved
by the Corporation. The determination of such physician made in
writing to the Corporation and to you shall be final and
conclusive for all purposes of this Agreement.
e. "Good Reason for Resignation" shall mean, without
your express written consent, any of the following:
(i) (A) a change in your status or
position with the Corporation,
which in your reasonable judgment
does not represent a promotion from
your status or position,
immediately prior to a Change in
Control of the Corporation; or
(B) a reduction in the level of
your reporting responsibility as it
existed immediately prior to a
Change in Control of the
Corporation; or
(C) the assignment to you of any
duties or responsibilities or
diminution of duties or
responsibilities which in your
reasonable judgment are
inconsistent with your status or
position with the Corporation in
effect immediately prior to a
Change in Control of the
Corporation;
it being understood that any of the
foregoing in connection with a
termination of your employment for
Retirement, Disability or
Termination for Cause shall not
constitute Good Reason for
Resignation;
(ii) a reduction by the Corporation
in the annual rate of your base
salary as in effect immediately
prior to the date of a Change in
Control of the Corporation or as
the same may be increased from time
to time thereafter, or the
Corporation's failure to increase
the annual rate of your base salary
for a calendar year in an amount at
least equal to the average
percentage increase in base salary
for all employees of the
Corporation with Severance
Compensation Agreements in the
preceding calendar year. Within
three (3) days after your request,
the Corporation shall notify you of
the average percentage increase in
base salary for all such employees
of the Corporation in the calendar
year preceding your request;
(iii) the Corporation requiring you
to be based outside of a fifteen
(15) mile radius from where your
office is located immediately prior
to a Change in Control of the
Corporation except for required
travel on the Corporation's
business to an extent substantially
consistent with your business
travel obligations immediately
prior to a Change in Control of the
Corporation;
(iv) the failure by the Corporation
to continue in effect any
compensation plan in which you
participate as in effect
immediately prior to a Change in
Control of the Corporation,
including but not limited to the
Retirement Program, the Savings
Program, the Profit Sharing Plan,
any of the Incentive Compensation
Plans, compensation deferral plans,
or any substitute plans adopted
prior to a Change in Control of the
Corporation, unless an arrangement
satisfactory to you (embodied in an
ongoing substitute or alternative
plan) has been made with respect to
such plan, or the failure by the
Corporation to continue your
participation therein on at least
as favorable a basis, both in terms
of the amount of benefits provided
and the level of your participation
relative to other participants, as
existed immediately prior to a
Change in Control of the
Corporation;
(v) the failure by the Corporation
to continue to provide you with
benefits at least as favorable as
those enjoyed by you (and your
dependents, if applicable) under
any of the Corporation's pre-
retirement and post-retirement life
insurance, medical, health and
accident, and disability plans or
any other plan, program or policy
of the Corporation intended to
benefit employees in which you were
participating immediately prior to
a Change in Control of the
Corporation, the taking of any
action by the Corporation which
would directly or indirectly
materially reduce any of such
benefits or deprive you of any
material fringe benefit enjoyed by
you immediately prior to a Change
in Control of the Corporation, or
the failure by the Corporation to
provide you with the number of
annual paid vacation days to which
you were annually entitled
immediately prior to a Change in
Control of the Corporation;
(vi) the failure of the Corporation
to obtain a satisfactory agreement
from any Successor (as defined in
Paragraph 4a hereof) to assume and
agree to perform this Agreement, as
contemplated in Paragraph 4a
hereof; or
(vii) the failure of the
Corporation to pay to you an
Incentive Compensation Award, a
Profit Sharing Award, deferred
compensation or other compensation
award earned, but not paid, prior
to a Change in Control of the
Corporation.
f. "Incentive Compensation" means any compensation,
variable compensation, bonus, benefit or award paid or payable in
cash under an Incentive Compensation Plan.
g. "Incentive Compensation Award" shall mean (i) a cash
payment or payments awarded to you under any Incentive
Compensation Plan and (ii) the amount by which your variable
compensation is reduced in accordance with the 1997 Union Carbide
Corporation EPS Incentive Plan.
h. "Incentive Compensation Plan(s)" shall mean any
variable compensation or incentive compensation plan maintained
by the Corporation in which you were a participant immediately
prior to a Change in Control of the Corporation including, but
not limited to:
(i) 1997 Union Carbide Long Term
Incentive Plan;
(ii) 1997 Union Carbide Variable
Compensation Plan;
(iii) 1995 Union Carbide
Performance Incentive Plan; and
(iv) Benefit Capital Management
Corporation Annual Incentive Plan.
Notwithstanding the forgoing,
Incentive Compensation Plan shall
not include the 1997 Union Carbide
Corporation EPS Incentive Plan
i. "Notice of Termination" shall mean a written notice
as provided in Paragraph 8 hereof.
j. "Profit Sharing Award" shall mean a cash payment or
payments under the Profit Sharing Plan, plus any profit sharing
allocation under the Employee Stock Ownership Plan part of the
Savings Program.
k. "Profit Sharing Plan" shall mean the Union Carbide
Corporation Profit Sharing Plan.
l. "Retirement" shall mean (1) termination in accordance
with any retirement arrangement other than under the
Corporation's Retirement Program, which is established with your
consent with respect to you, or (2) mandatory retirement as set
forth under the policy of the Corporation as it existed prior to
a Change in Control of the Corporation or as agreed to by you
following a Change in Control of the Corporation.
m. "Retirement Program" shall mean the Retirement
Program Plan for Employees of Union Carbide Corporation and Its
Participating Subsidiary Companies and any excess or supplemental
pension plans maintained by the Corporation.
n. "Savings Program" shall mean the Savings and
Investment Program for Employees of Union Carbide Corporation and
Participating Subsidiary Companies.
o. "Termination for Cause" shall mean termination of
your employment upon your willfully engaging in conduct
demonstrably and materially injurious to the Corporation,
monetarily or otherwise, provided that there shall have been
delivered to you a copy of a resolution duly adopted by the
unanimous affirmative vote of the entire membership of the Board
at a meeting of the Board called and held for such purpose (after
reasonable notice to you and an opportunity for you, together
with your counsel, to be heard before the Board), finding that in
the good faith opinion of the Board you were guilty of the
conduct set forth and specifying the particulars thereof in
detail.
For purposes of this clause o, no act, or failure to act, on your
part shall be deemed "willful" unless done, or omitted to be
done, by you in bad faith and without reasonable belief that your
action or omission was in the best interest of the Corporation.
Any act or failure to act based upon authority given pursuant to
a resolution duly adopted by the Board or based upon the advice
of counsel for the Corporation shall be conclusively presumed to
be done or omitted to be done by you in good faith and in the
best interests of the Corporation.
p. "Variable Compensation Year" means a calendar year of
an Incentive Compensation Plan.
2. Compensation Upon Termination or While Disabled.
Following a Change in Control of the Corporation, you shall be
entitled to the following benefits:
a. Termination Other Than for Retirement, Death,
Disability or Termination for Cause; Termination By Your
Resignation with Good Reason for Resignation. If your employment
by the Corporation shall be terminated subsequent to a Change in
Control of the Corporation and during the term of this Agreement
(a) by the Corporation other than for Retirement, Death,
Disability or Termination for Cause, or (b) by you for Good
Reason for Resignation, then you shall be entitled to the
benefits provided below, without regard to any contrary provision
of any plan:
(i) Accrued Salary. The
Corporation shall pay you, not
later than the fifth day following
the Date of Termination, your base
salary and vacation pay accrued
through the Date of Termination
(including any banked vacation,
vested vacation for the calendar
year in which the Date of
Termination occurs and pro-rated,
vested vacation for the calendar
year following the year in which
the Date of Termination occurs) at
the rate in effect at the time the
Notice of Termination is given (or
at the rate in effect immediately
prior to a Change in Control of the
Corporation, if such rate was
higher).
(ii) Accrued Incentive
Compensation. The Corporation
shall pay you, not later than
thirty (30) days following your
Date of Termination, the amount of
your accrued Incentive Compensation
which shall be the sum of the
amounts set forth in the following
paragraphs (A) and (B).
(A) If the Date of Termination is
after the end of a Variable
Compensation Year, but before
Incentive Compensation for said
Variable Compensation Year has been
paid, the Corporation shall pay to
you under this Agreement for your
service during such Variable
Compensation Year the greatest of
the amounts set forth in the
following paragraphs (I), (II),
(III) and (IV):
(I) an amount that bears the same
ratio to your base salary in said
Variable Compensation Year as the
Incentive Compensation paid to you
with respect to the immediately
prior Variable Compensation Year
bears to your base salary for said
prior Variable Compensation Year;
(II) an amount that bears the same
ratio to your base salary for such
Variable Compensation Year as the
average Incentive Compensation paid
to you during the three (3)
immediately prior Variable
Compensation Years bears to your
average base salary for said three
(3) prior years;
(III) the amount of your target
variable compensation payment
(i.e., the percent of your salary
grade midpoint at risk) for such
Variable Compensation Year; or
(IV) the average amount of
Incentive Compensation, as a
percentage of base salary, paid to
other executives of the Corporation
at the same (or equivalent) grade
level as yourself.
(B) In addition, if the Date of
Termination is other than the first
day of a Variable Compensation
Year, the Corporation shall pay to
you under this Agreement for your
service during such Variable
Compensation Year up to the Date of
Termination, the greatest of the
amounts set forth in the following
paragraphs (I), (II) and (III):
(I) an amount that bears the same
ratio to your base salary (earned
up to the Date of Termination) in
said Variable Compensation Year as
the Incentive Compensation paid to
you with respect to the immediately
prior Variable Compensation Year
under the Incentive Compensation
Plan or pursuant to clause (A)
above bears to your base salary for
said prior Variable Compensation
Year;
(II) an amount that bears the same
ratio to your base salary earned
(up to the Date of Termination) for
such Variable Compensation Year as
the average Incentive Compensation
paid to you with respect to the
three (3) Variable Compensation
Years immediately prior to such
Variable Compensation Year under
the Incentive Compensation Plan or
pursuant to clause (A) above bears
to your average base salary for
said three (3) prior years; or
(III) the amount of your target
variable compensation payment
(i.e., the percent of your salary
grade midpoint at risk) for such
Variable Compensation Year
multiplied by a fraction, the
numerator of which is the total
number of days which have elapsed
in the current Variable
Compensation Year to the Date of
Termination, and the denominator of
which is three hundred sixty-five
(365).
If there is more than one Incentive
Compensation Plan, your accrued
Incentive Compensation under each
Incentive Compensation Plan shall
be determined separately for each
such Plan.
For the purpose of determining the
amount of your accrued Incentive
Compensation under this Paragraph
2a(ii), you will be deemed to have
been paid the full amount of all
prior Incentive Compensation,
whether or not such Incentive
Compensation was includible in your
gross income for Federal income tax
purposes.
(iii) Insurance Coverage. The
Corporation shall arrange to
provide you (and your dependents,
if applicable) with life,
disability, accident, dental and
medical benefits substantially
equivalent to those which you are
receiving, or were entitled to
receive, from the Corporation or a
subsidiary of the Corporation
immediately prior to a Change in
Control of the Corporation. Such
benefits shall be provided to you
for the longer of (x) thirty-six
(36) months after such Date of
Termination or (y) the period
during which such benefits would
have been provided to you, as a
terminated employee, under the
applicable life, disability,
accident, dental and medical plans
in effect immediately prior to a
Change in Control of the
Corporation (except that after a
period of thirty-six (36) months
such benefits shall be provided to
you on the same financial terms and
conditions as provided for under
the respective plans).
If you are a participant in the
Corporation's Executive Life
Insurance Plan, you shall have the
same rights thereunder as a person
who retires with a non-actuarially
reduced pension (whether or not you
are eligible for such a pension).
Should it be determined that any of
the medical benefits to be provided
to you (and your dependents, if
applicable) under this subparagraph
(iii) could be included in your
gross income for federal, state or
local tax purposes, then the
following shall apply:
(A) If you have a right to receive
an immediate pension on your Date
of Termination, then you shall
participate in the Corporation's
medical benefit plans as if you
retired from the Corporation on
your Date of Termination, except
that the Corporation shall provide
such medical coverage at no cost to
you for three (3) years following
your Date of Termination and
thereafter, you shall participate
therein on the same terms as other
retired employees;
(B) If you do not have a right to
receive an immediate pension on
your Date of Termination, you will
no longer continue to participate
in the Corporation's medical
benefit plans and (i) the
Corporation shall provide you with
a cash payment in an amount equal
to the amount required by you to
pay for coverage under COBRA for
the first eighteen (18) months
following your loss of medical
coverage, and thereafter, (ii) the
Corporation shall, for the
subsequent eighteen (18) months,
purchase for you at its cost, a
policy of medical insurance
providing benefits substantially
similar to the benefits you would
have received under the
Corporation's medical benefit
plans.
(iv) Retirement Benefits. The
Corporation shall pay you, as
hereafter provided in this
subparagraph (iv), at the time you
are entitled to be paid a
retirement pension under the
Retirement Program, a retirement
pension equal to the greater of:
(A) an amount computed in
accordance with the terms of the
Retirement Program in effect
immediately prior to a Change in
Control of the Corporation and as
if those terms were in effect on
the Date of Termination, or
(B) an amount computed in
accordance with the terms of the
Retirement Program in effect on the
Date of Termination;
in either case less the amount of
retirement pension actually to be
paid to you under the Retirement
Program in the absence of this
subparagraph (iv).
In computing the amounts of your
retirement pension under clauses
(A) and (B) above, three years
shall be added to your actual age
and to your actual Company Service
Credit under the Retirement Program
so that your retirement pension
under clauses (A) and (B) above
will be the amount it would have
been if you had been three years
older than you actually were, and
you had three years more Company
Service Credit than you actually
had, on the Date of Termination.
If for any reason, the benefits
under this subparagraph (iv) cannot
be paid under the tax-qualified
portion of the Retirement Program,
the Corporation shall, at its
option, provide such benefits to
you through the purchase, and
delivery to you, of a non-qualified
annuity from an insurance company,
or pay you a lump sum payment for
the benefits under this
subparagraph (iv) calculated under
such one of the following options
as would produce the highest lump
sum payment:
(I) calculated under the same
factors (interest rate and
mortality) as lump sum payments are
made under the Corporation's
Supplemental Retirement Income Plan
and Equalization Benefit Plan as in
effect immediately prior to a
Change in Control of the
Corporation;
(II) calculated under the same
factors (interest rate and
mortality) as lump sum payments are
made under the Corporation's
Supplemental Retirement Income Plan
and Equalization Benefit Plan, or
other similar plans, as in effect
on the Date of Termination; or
(III) calculated under the same
factors (interest rate and
mortality) as lump sum payments
would have been calculated under
the Corporation's Supplemental
Retirement Income Plan and
Equalization Benefit Plan on the
Date of Termination, if such
factors were determined using the
same methodology as such plans used
prior to a Change in Control of the
Corporation.
(v) Outplacement Counseling. The
Corporation shall make available to
you, at the Corporation's expense,
outplacement counseling for a
period of up to one year. You may
select the organization that will
provide the outplacement
counseling, however, the
Corporation's obligation to provide
you benefits under this
subparagraph (v) shall be limited
to $35,000.
(vi) Financial Counseling. The
Corporation shall, within 60 days
of the Date of Termination, make
available to you financial
counseling, tax counseling and tax
preparation services. You may
select the organization that will
provide such services. However,
the Corporation's obligation to
provide you benefits under this
subparagraph (vi) shall be limited
to $10,000. The Corporation shall
provide to you any information you
request regarding your personal and
financial situation that you wish
to provide to the financial
counseling firm in order for the
firm to provide the counseling
services required by this
subparagraph (vi).
(vii) Severance Payment. The
Corporation shall pay as a
severance payment to you, not later
than the fifth day following the
Date of Termination, a lump sum
severance payment (the "Severance
Payment") equal to three (3) times
the sum of the amounts set forth in
the following paragraphs (A), (B),
(C), (D) and (E):
(A) the greater of your annual base
salary which was payable to you by
the Corporation immediately prior
to the Date of Termination or your
annual base salary which was
payable to you by the Corporation
immediately prior to a Change in
Control of the Corporation; plus
(B) the greater of:
(I) the amount of your most recent
Profit Sharing Award received prior
to the Date of Termination; or
(II) the amount of your most recent
Profit Sharing Award received prior
to a Change in Control of the
Corporation; or
(III) an amount that bears the same
ratio to your annual base salary in
effect immediately prior to the
Date of Termination, or, if higher,
your annual base salary in effect
immediately prior to a Change in
Control of the Corporation, as the
average Profit Sharing Award paid
or payable to you during the three
(3) immediately full calendar years
prior to the Date of Termination
bears to your average base salary
for said three (3) prior years;
plus
(C) the greater of:
(I) the amount of your most recent
Incentive Compensation Award
received prior to the Date of
Termination; or
(II) the amount of your most recent
Incentive Compensation Award
received prior to a Change in
Control of the Corporation; or
(III) an amount that bears the same
ratio to your annual base salary in
effect immediately prior to the
Date of Termination, or, if higher,
your annual base salary in effect
immediately prior to a Change in
Control of the Corporation, as the
average Incentive Compensation
Award paid to you with respect to
the three (3) immediately prior
Incentive Compensation Years bears
to your average base salary for
said three (3) prior years; plus
(D) the greater of:
(I) the value, as determined by the
Corporation at the time of the
grant, attributable to any stock
options awarded to you by the
Corporation at the most recent date
of grant of stock options prior to
the Date of Termination; or
(II) the value, as determined by
the Corporation at the time of
grant, attributable to any stock
options awarded to you by the
Corporation at the most recent date
of grant of stock options prior to
a Change in Control of the
Corporation.
In determining such value, the
number of stock options awarded to
you shall be multiplied by the
value ascribed to a stock option by
the Corporation using the Black-
Scholes method or other similar
methodology. If at the time of
either of such grants it is
specified in writing that the grant
covers a period of more than one
year, then the value of such grant
as determined above shall be
annualized by dividing such value
by the number of years (or part
thereof) the grant is specified to
cover; plus
(E) the greater of:
(I) the value, as determined by the
Corporation at the time of the
grant, attributable to the grant to
you by the Corporation of
performance or restricted stock of
the Corporation at the most recent
date of grant prior to the Date of
Termination; or
(II) the value, as determined by
the Corporation at the time of
grant, attributable to the grant to
you by the Corporation of
performance or restricted stock of
the Corporation at the most recent
date of grant prior to a Change in
Control of the Corporation.
If at the time of either of such
grants it is specified in writing
that the grant covers a period of
more than one year, then the value
of such grant as determined above
shall be annualized by dividing
such value by the number of years
(or part thereof) the grant is
specified to cover. In determining
such annualized value, the number
of shares of performance or
restricted stock awarded to you
shall be multiplied by the closing
price of the common stock of the
Corporation on the New York Stock
Exchange-Composite Transactions on
the date of grant.
For purposes of calculations under
this subparagraph (vii), the
amounts of base salary, Profit
Sharing Awards and Incentive
Compensation Awards shall be the
amounts calculated without regard
to whether or not such amounts were
includible in your gross income for
Federal income tax purposes.
The Severance Payment shall not be
reduced to the extent the
Corporation could not properly
deduct amounts paid pursuant to
Paragraph 2a(i) through 2a(vii)
hereof or otherwise pursuant to
Section 280G of the Code.
(viii) Reduction in Severance
Payment. The Severance Payment
shall be reduced only in the event
specified in this subparagraph
(viii). If the aggregate present
value, as determined for purposes
of Code Section 280G, of all
amounts that are parachute payments
for purposes of such Section
exceeds the limitation set forth in
Code Section 280G(b)(2)(A)(ii) by
an amount not exceeding $50,000,
then there shall be a reduction in
the amount of your Severance
Payment so that such limit is not
exceeded.
(ix) Payment of Taxes.
(A) For purposes of this
subparagraph (ix), the following
terms shall have the following
meanings:
(I) Payment shall mean any payment
or distribution (or acceleration of
benefits) by the Corporation to or
for your benefit (whether paid or
payable or distributed or
distributable (or accelerated)
pursuant to the terms of this
Agreement or otherwise, but
determined without regard to any
additional payments required under
this subparagraph (ix)). In
addition, Payment shall also
include the amount of income deemed
to be received by you as a result
of the acceleration of the
exercisability of any of your
options to purchase stock of the
Corporation, the acceleration of
the lapse of any restrictions on
performance stock or restricted
stock of the Corporation held by
you or the acceleration of payment
from any deferral plan.
(II) Excise Tax shall mean the
excise tax imposed by Section 4999
of the Code, or any interest or
penalties incurred by you with
respect to such excise tax.
(III) Income Tax shall mean all
taxes other than the Excise Tax
(including any interest or
penalties imposed with respect to
such taxes) including, without
limitation, any income and
employment taxes imposed by any
federal (including (i) FICA and
Medicare taxes, and (ii) the tax
resulting from the loss of any
federal deductions or exemptions
which would have been available to
you but for receipt of the Payment),
state, local, commonwealth or
foreign government.
(B) In the event it shall be
determined that a Payment would be
subject to an Excise Tax, then you
shall be entitled to receive an
additional payment (a "Gross-Up
Payment") in an amount such that
after payment by you of Income Tax
and Excise Tax imposed upon the
Gross-Up Payment, you retain an
amount of the Gross-Up Payment
equal to the Excise Tax imposed
upon the Payment.
(C) All determinations required to
be made under this subparagraph
(ix), including whether and when a
Gross-Up Payment is required and
the amount of such Gross-Up Payment
and the assumptions to be utilized
in arriving at such determination,
shall be made by the public
accounting firm that is retained by
the Corporation as of the date
immediately prior to a Change in
Control of the Corporation (the
"Accounting Firm") which shall
provide detailed supporting
calculations both to the
Corporation and to you within
fifteen (15) business days of the
receipt of notice from you that
there has been a Payment, or such
earlier time as is requested by the
Corporation (collectively, the
"Determination"). In the event
that the Accounting Firm is serving
as accountant or auditor for the
individual, entity or group
effecting a Change in Control of
the Corporation, you may appoint
another nationally recognized
public accounting firm to make the
determinations required hereunder
(which accounting firm shall then
be referred to as the Accounting
Firm hereunder). All fees and
expenses of the Accounting Firm
shall be borne solely by the
Corporation. Any Gross-Up Payment,
as determined pursuant to this
subparagraph (ix), shall be paid by
the Corporation to you within ten
(10) days of the Determination. If
the Accounting Firm determines that
no Excise Tax is payable by you,
you may request the Accounting Firm
to furnish you with a written
opinion that failure to report the
Excise Tax on your applicable
federal income tax return would not
result in the imposition of a
negligence or similar penalty. The
Determination by the Accounting
Firm shall be binding upon the
Corporation and you. As a result
of the uncertainty in the
application of Section 4999 of the
Code at the time of the
Determination, it is possible that
Gross-Up Payments which will not
have been made by the Corporation
should have been made
("Underpayment"), consistent with
the calculations required to be
made hereunder. In the event that
the Corporation exhausts its
remedies pursuant to subparagraph
(ix)(D) below and you thereafter
are required to make payment of any
Excise Tax or income Tax, the
Accounting Firm shall determine the
amount of the Underpayment that has
occurred and any such Underpayment
shall be promptly paid by the
Corporation to or for your benefit.
(D) You shall notify the
Corporation in writing of any claim
by the Internal Revenue Service
that, if successful, would require
the payment by the Corporation of
the Gross-Up Payment or the
Underpayment. Such notification
shall be given as soon as
practicable but no later than ten
(10) business days after you are
informed in writing of such claim
and shall apprise the Corporation
of the nature of such claim and the
date on which such claim is
requested to be paid. You shall
not pay such claim prior to the
expiration of the 30-day period
following the date on which you
give such notice to the Corporation
(or such shorter period ending on
the date that any payment of taxes
with respect to such claim is due).
If the Corporation notifies you in
writing prior to the expiration of
such period that it desires to
contest such claim, you shall:
(1) give the Corporation any
information reasonably requested by
the Corporation relating to such
claim,
(2) take such action in connection
with contesting such claim as the
Corporation shall reasonably
request in writing from time to
time, including, without
limitation, accepting legal
representation with respect to such
claim by an attorney reasonably
selected by the Corporation,
(3) cooperate with the Corporation
in good faith in order effectively
to contest such claim, and
(4) permit the Corporation to
participate in any proceeding
relating to such claim;
provided, however, that the
Corporation shall bear and pay
directly all costs and expenses
(including additional interest and
penalties) incurred in connection
with such contest and shall
indemnify and hold you harmless, on
an after-tax basis, for any Excise
Tax or Income Tax imposed as a
result of such representation and
payment of costs and expenses.
Without limitation on the foregoing
provisions of this subparagraph
(ix)(D), the Corporation shall
control all proceedings taken in
connection with such contest and,
at its sole option, may pursue or
forego any and all administrative
appeals, proceedings, hearings and
conferences with the taxing
authority in respect of such claim
and may, at its sole option, either
direct you to pay the tax claimed
and sue for a refund or contest the
claim in any permissible manner,
and you agree to prosecute such
contest to a determination before
any administrative tribunal, in a
court of initial jurisdiction and
in one or more appellate courts, as
the Corporation shall determine;
provided further, that if the
Corporation directs you to pay such
claim and sue for a refund, the
Corporation shall advance the
amount of such payment to you on an
interest-free basis and shall
indemnify and hold you harmless, on
an after-tax basis, from any Excise
Tax or Income Tax imposed with
respect to such advance or with
respect to any imputed income with
respect to such advance; and
provided further, that any
extension of the statute of
limitations relating to payment of
taxes for your taxable year with
respect to which such contested
amount is claimed to be due is
limited solely to such contested
amount. Furthermore, the
Corporation's control of the
contest shall be limited to issues
with respect to which a Gross-Up
Payment would be payable hereunder
and you shall be entitled to settle
or contest, as the case may be, any
other issue raised by the Internal
Revenue Service or any other taxing
authority.
(E) If, after the receipt by you of
an amount advanced by the
Corporation pursuant to
subparagraph (ix)(D) above, you
become entitled to receive, and
receive, any refund with respect to
such claim, you shall (subject to
the Corporation's complying with
the requirements of subparagraph
(ix)(D)) promptly pay to the
Corporation the amount of such
refund (together with any interest
paid or credited thereon after
taxes applicable thereto). If,
after the receipt by you of an
amount advanced by the Corporation
pursuant to subparagraph (ix)(D), a
determination is made that you
shall not be entitled to any refund
with respect to such claims and the
Corporation does not notify you in
writing of its intent to contest
such denial of refund prior to the
expiration of thirty (30) days
after such determination, then such
advance shall be forgiven and shall
not be required to be repaid.
(x) No Duty to Mitigate. You shall
not be required to mitigate the
amount of any payment provided for
in this Paragraph 2 by seeking
other employment or otherwise, nor
shall the amount of any payment or
benefit hereunder be reduced by any
compensation earned by you as the
result of employment by another
employer or by retirement benefits
after the Date of Termination, or
otherwise; provided, however,
should you become reemployed in a
job which (a) offers medical plan
benefits which are equal to or
greater than the medical plan
benefits provided to you under
subparagraph 2(a)(iii), and (b)
such medical plan benefits are
offered to you at no cost, you
shall no longer be eligible to
receive medical plan benefits under
this Agreement.
b. Payments While Disabled. During any period prior to
the Date of Termination and during the term of this Agreement
that you are unable to perform your full-time duties with the
Corporation, whether as a result of your Disability or as a
result of a physical or mental disability that is not total and
therefore is not a Disability, you shall continue to receive your
base salary at the rate in effect at the commencement of any such
period, together with all other compensation and benefits that
are payable or provided under the Corporation's benefit plans,
including its disability plans. After the Date of Termination
for Disability, your benefits shall be determined in accordance
with the Retirement Program, insurance and other applicable
programs of the Corporation. The compensation and benefits,
other than salary, payable or provided pursuant to this
subparagraph b shall be the greater of (x) the amounts computed
under the Retirement Program, disability benefit plans, insurance
and other applicable programs in effect immediately prior to a
Change in Control of the Corporation, and (y) the amounts
computed under the Retirement Program disability benefit plans,
insurance and other applicable programs in effect at the time the
compensation and benefits are paid.
c. Payments if Terminated for Cause, or Termination by
You Other Than With Good Reason for Resignation. If your
employment shall be terminated by the Corporation as a
Termination for Cause or by you other than with Good Reason for
Resignation, the Corporation shall pay you your full base salary
and accrued vacation pay (including any banked vacation, vested
vacation for the calendar year in which the Date of Termination
occurs, and prorated, vested vacation for the calendar year
following the year in which the Date of Termination occurs)
through the Date of Termination, at the rate in effect at the
time Notice of Termination is given, plus any benefits or awards
which have been earned or become payable but which have not yet
been paid to you. You shall receive any payment due under this
subparagraph c on your Date of Termination. Thereafter, the
Corporation shall have no further obligation to you under this
Agreement.
d. After Retirement or Death. If your employment shall
be terminated by your Retirement, or by reason of your death,
your benefits shall be determined in accordance with the
Corporation's retirement and insurance programs then in effect.
3. Term of Agreement. This Agreement shall commence on the
date hereof and shall continue in effect through December 31
1998; provided, however, that commencing on January 1, 1999 and
each January 1 thereafter, the term of this Agreement shall
automatically be extended for one additional year unless, not
later than September 30 of the preceding year, the Corporation or
you shall have given notice that it or you does not wish to
extend this Agreement. Notwithstanding any such notice by the
Corporation not to extend, if a Change in Control of the
Corporation shall have occurred during the original or any
extended term of this Agreement, or within three months
thereafter, this Agreement shall continue in effect. In any
event, the term of this Agreement shall expire on the third (3rd)
anniversary of the date of a Change in Control of the
Corporation. This Agreement shall terminate if your employment
is terminated by you or the Corporation prior to a Change in
Control of the Corporation.
4. Successors; Binding Agreement.
a. Successors of the Corporation. The Corporation will
require any Successor to expressly assume and agree to perform
this Agreement in the same manner and to the same extent that the
Corporation would be required to perform it if no such succession
had taken place. Failure of the Corporation to obtain such
assent at least five business days prior to the time a person
becomes a Successor (or where the Corporation does not have at
least five business days advance notice that a person may become
a Successor, within three business days after having notice that
such person may become or has become a Successor) shall
constitute Good Reason for Resignation by you and, if a Change in
Control of the Corporation has occurred or thereafter occurs,
shall entitle you immediately to the benefits provided in
Paragraph 2a hereof upon delivery by you of a Notice of
Termination. For purposes of this Agreement, "Successor" shall
mean any person that obtains or succeeds to, or has the practical
ability to control (either immediately or with the passage of
time), the Corporation's business directly, by merger or
consolidation, or indirectly, by purchase of voting securities of
the Corporation by acquisition of rights to vote voting
securities of the Corporation or otherwise, including but not
limited to any person or group that acquires the beneficial
ownership or voting rights described in Paragraph 1a(i) or (ii).
b. Your Successor. This Agreement shall inure to the
benefit of and be enforceable by your personal or legal
representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If you should die following
your Date of Termination while any amount would still be payable
to you hereunder if you had continued to live, all such amounts,
unless otherwise provided herein, shall be paid in accordance
with the terms of this Agreement to your devisee, legatee or
other designee or, if there is no such designee, to your estate.
5. Nature of Payments. All payments to you under this
Agreement shall be considered either payments in consideration of
your continued service to the Corporation or severance payments
in consideration of your past service to the Corporation.
6. Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which
shall remain in full force and effect.
7. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but
all of which together will constitute one and the same
instrument.
8. Notice. Any purported termination of your employment by
the Corporation or by you following a Change in Control of the
Corporation shall be communicated to the other party by a written
Notice of Termination. A Notice of Termination by you shall
indicate in reasonable detail the facts and circumstances claimed
to provide a basis for a Good Reason for Resignation. For the
purpose of this Agreement, notices and all other communications
provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage
prepaid, addressed to the respective addresses set forth on the
first page of this Agreement, provided that all notices to the
Corporation shall be directed to the attention of the Board with
a copy to the Secretary of the Corporation or to such other
address as either party may have furnished to the other in
writing in accordance herewith, except that notice of change of
address shall be effective only upon receipt.
9. Fees and Expenses. The Corporation shall pay all legal
fees and related expenses incurred by you as a result of your
termination following a Change in Control of the Corporation or
by you in seeking to obtain or enforce any right or benefit
provided by this Agreement (including all fees and expenses, if
any, incurred in contesting or disputing any such termination or
incurred by you in seeking advice in connection therewith).
10. Miscellaneous. No provision of this Agreement may be
amended, modified, waived or discharged unless such
amendment, modification, waiver or discharge is agreed to in
writing and signed by you and such officer as may be specifically
designated by the Board. No waiver by either party hereto at any
time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be
performed by such other party shall be deemed a waiver of similar
or dissimilar provisions or conditions at the same or at any
prior or subsequent time. No agreements or representations, oral
or otherwise, express or implied, with respect to the subject
matter hereof have been made by either party which are not
expressly set forth in this Agreement.
11. Governing Law. The validity, interpretation,
construction and performance of this Agreement shall be governed
by the laws of the State of New York (without regard to the
choice of laws provisions thereof).
If this letter sets forth our agreement on the subject
matter hereof, kindly sign and return to the Corporation the
enclosed copy of this letter which will then constitute our
agreement on this subject.
Sincerely,
UNION CARBIDE CORPORATION
By: /s/ M.A. Kessinger
M.A. Kessinger
Title: Vice President-Human Resources
Agreed to this 20th day
of February, 1998
/s/ Cottle
Employee
Exhibit 10.10
1997 UNION CARBIDE VARIABLE COMPENSATION PLAN
TABLE OF CONTENTS
Section Title Page
1 Purpose 1
2 Definitions 1
3 Administration 3
4 Participation Data 4
5 Variable Compensation Payments 4
6 Payment of Variable Compensation Payments 7
7 Termination of Employment 7
8 Change of Position During a Plan Year 7
9 Beneficiary Designation 8
10 General Provisions 10
11 Amendment, Suspension, or Termination 10
12 Effective Date and Duration of Plan 11
1997 UNION CARBIDE VARIABLE COMPENSATION PLAN
Section 1: Purpose
The purpose of the Plan is to (a) provide incentives and
rewards to certain employees who are Eligible Officers of the
Corporation or who are in a managerial, administrative,
professional or policy-making capacity for the Corporation; (b)
assist the Corporation in attracting, retaining, and motivating
employees of high caliber and experience; and (c) make the
Corporation's compensation program competitive with those of
other major employers.
Section 2: Definitions
2.1 "Beneficiary" shall mean a Participant's deemed
beneficiary pursuant to Section 9 hereof.
2.2 "Board" shall mean the Board of Directors of Union
Carbide Corporation.
2.3 "Chief Executive Officer" or "CEO" shall mean the
chief executive officer of Union Carbide Corporation.
2.4 "Committee" shall mean the Compensation and
Management Development Committee of the Board.
2.5 "Corporation" shall mean Union Carbide Corporation
and such of its subsidiary companies as shall be designated by
the Board to participate in the Plan.
2.6 "Department" shall mean the Corporate Human
Resources Department of Union Carbide Corporation.
2.7 "Disability" or "Disabled" shall mean a
Participant's inability to engage in any substantial gainful
activity because of any medically determinable physical or mental
impairment which can be expected to result in death or which has
lasted, or can be expected to last, for a continuous period of
six (6) months or longer.
2.8 "Eligible Officer" shall mean an officer of Union
Carbide Corporation who is elected, and each of the Vice
Presidents of the Corporation who are appointed by the Board.
2.9 "Eligible Position" shall mean (i) a position as an
Eligible Officer or (ii) another position in the Corporation in
which an employee acts in a managerial, administrative,
professional or policy-making capacity and which the Committee
designates as an Eligible Position pursuant to Section 4.2.
2.10 "Organizational Unit" shall mean each division or
component of Union Carbide Corporation or any of its subsidiary
companies as shall be designated by the Board to participate in
the Plan.
2.11 "Participant" shall mean an employee of the
Corporation who occupies an Eligible Position, except that an
Eligible Officer who is a director of the Corporation and a
member of the Committee shall not be eligible to participate in
the Plan.
2.12 "Plan" shall mean this 1997 Union Carbide Variable
Compensation Plan.
2.13 "Plan Year" shall mean the calendar year, or part
thereof in the event the Plan is in effect only for part of a
calendar year.
2.14 "Savings Program" shall mean The Savings and
Investment Program for Employees of Union Carbide Corporation and
Participating Subsidiary Companies.
2.15 "Variable Compensation Payment" shall mean the
amount of the annual payment under the Plan determined in
accordance with procedures authorized by the Committee to be
payable to a Participant for a Plan Year.
Section 3: Administration
3.1 The Plan shall be administered by the Committee, who
shall have full power and authority to construe and interpret the
Plan, establish and amend administrative regulations to further
the purpose of the Plan, select or authorize the selection
criteria of Participants, authorize Variable Compensation
Payments, and take any other action necessary to administer the
Plan. The Committee's decisions, actions, and interpretations
regarding the Plan shall be final and binding upon all
Participants and Beneficiaries.
3.2 The Department shall: (i) formulate and recommend
to the Committee such changes in the Plan as may facilitate the
administration of the Plan; (ii) maintain records of Variable
Compensation Payments; (iii) prepare communications to
Participants; (iv) prepare reports and data required by the
Corporation and government agencies; (v) obtain necessary
consents and approvals by government agencies; (vi) obtain any
data requested by the Committee; and (vii) take such other
actions requested by the Committee as are necessary for effective
implementation of the Plan.
Section 4: Participation Data
4.1 On or before March 1 of a Plan Year the Department
shall prepare and submit to the Committee (i) "List A", which
shall set forth the name, job title, and grade level of each
Eligible Officer and each person occupying any other position
designated by the Committee; (ii) a summary of the Variable
Compensation Payments for other Eligible Positions; and (iii)
such other information as the Committee shall request.
4.2 All Eligible Positions included in the material
prepared pursuant to Section 4.1(ii) must be approved, and the
grade level agreed to, by the corporate officer having
responsibility for that Organizational Unit in consultation with
the Department. If the recommendation is not supported by the
Department and by the corporate officer then the matter will be
resolved by the CEO. With the appropriate approval of the
Committee, Eligible Positions may be added throughout the
calendar year.
4.3 If after March 1 of a Plan Year, a position is made an
Eligible Position, an employee occupying such a position shall
immediately become a Participant and the Department shall prepare
and submit to the Committee upon request any required
information.
Section 5: Variable Compensation Payments
5.1 The Committee shall determine for each Plan Year the
amount of the Variable Compensation Payment for each Participant
included in List A. The Committee shall make this determination
with reasonable promptness following the end of a Plan Year. In
determining the amount of the Variable Compensation Payment
granted to each "List A" Participant, there shall be considered
the extent to which a Participant and such Participant's
Organizational Unit achieves, during a Plan Year, specific
internal and external measures of performance established from
time to time during the Plan Year for the Participant and the
Participant's Organizational Unit. Other factors to be
considered in determining the amount of the Variable Compensation
Payments granted to Participants are set forth in Sections 5.2,
5.3 and 5.4 below.
5.2 The Committee may consider the following factors in
determining the amount of the Variable Compensation Payment
granted to the Participant who occupies the position of CEO: (i)
the Committee's evaluation of the Corporation's overall financial
performance during the Plan Year; (ii) the Corporation's and the
CEO's achievement of such specific critical internal and external
measures of performance as were established for the Corporation
or the CEO, as the case may be, prior to the end of the Plan
Year, and (iii) the compensation levels of Chief Executive
Officers, or their equivalent, in companies with whom the
Corporation compares itself for compensation purposes.
5.3 The Committee, in consultation with the CEO, may
consider the following factors in determining the amount of the
Variable Compensation Payments granted to Participants, other
than the CEO, who are Eligible Officers: (i) the Committee's
evaluation of the overall performance of the Corporation and the
Eligible Officer during the Plan Year; (ii) the achievement by
the Eligible Officers or Organizational Units for which the
respective Eligible Officers are responsible of such specific
critical measures of performance as were established for such
Eligible Officers or Organizational Units, as the case may be,
before the end of the Plan Year, and (iii) the compensation
levels of officers with comparable responsibility in companies
with whom the Corporation compares itself for compensation
purposes.
5.4 The Variable Compensation Payments for Participants
other than Eligible Officers shall be determined as follows: (i)
the CEO shall determine the aggregate amount to be awarded to
each Organizational Unit. That determination shall be based upon
an evaluation of the performance of the Corporation and those
Organizational Units during the Plan Year against such specific
critical measures of performance as were established for such
Organizational Units before the end of the Plan Year; (ii) the
Department shall advise the Organizational Units of the total
Variable Compensation Payments available; (iii) the individual
Variable Compensation Payments within each Organizational Unit
(other than for Eligible Officers) shall be determined by
Organizational Unit management for the approved Participants
based on the Participant's performance and salary grade level.
Organizational Unit Variable Compensation Payment totals must be
within the amounts provided the Organizational Unit by the
Department.
5.5 Variable Compensation Payments shall be payable, at the
discretion of the Committee, in cash, in Union Carbide common
stock, Union Carbide restricted stock or a combination thereof.
The value of the stock used to satisfy a Variable Compensation
Payment shall be the average of the high and low prices of Union
Carbide common stock as reported on the New York Stock Exchange -
Composite Transactions on the date which is five business days
before the Variable Compensation Payment is made or on the next
preceding day such stock was traded on a stock exchange included
in the New York Stock Exchange - Composite Transactions, if it
was not traded on any such exchange on the date the Variable
Compensation Payment is made.
Section 6: Payment of Variable Compensation Payments
6.1 The Committee shall normally authorize Variable
Compensation Payments for a Plan Year to be made on or about
March 31 following the end of such Plan Year.
6.2 The Committee reserves the right to delay payment of
some or all Variable Compensation Payments, in whole or in part,
upon such terms and conditions as the Committee in its
discretion may determine. The Committee's decision regarding the
delay in a Variable Compensation Payment shall be final and
binding on all Participants and Beneficiaries.
Section 7: Termination of Employment
7.1 If a Participant's employment with the Corporation
is terminated during a Plan Year, the Committee (with respect to
any officers of the Corporation), and the Department (with regard
to all other Participants) shall determine whether the
Participant shall be entitled to a Variable Compensation Payment
for such Plan Year and the amount of any such Variable
Compensation Payment.
7.2 A Participant whose employment with the Corporation is
terminated for any reason shall be deemed to have terminated
employment with the Corporation on the last day of the month in
which the termination occurs.
Section 8: Change of Position During a Plan Year
8.1 If a Participant is reassigned to a different
Eligible Position during a Plan Year, then the Variable
Compensation Payment to such Participant shall be prorated based
on the number of months and the performance of the Participant in
each Position.
8.2 A Participant who is assigned to an Eligible Position
during a Plan Year, and continues to be a Plan Participant until
the end of the calendar year, shall receive a Variable
Compensation Payment based on the number of months and
Participant's performance in the Position.
8.3 If a Participant ceases to occupy an Eligible Position
during a Plan Year and remains employed by the Corporation, then
the Variable Compensation Payment to such Participant shall equal
the amount which would have been granted to such Participant had
such Participant not ceased to occupy an Eligible Position,
multiplied by a fraction the numerator of which is the number of
months that such Participant occupied an Eligible Position, and
the denominator of which is 12.
8.4 A Participant whose position changes during the Plan
Year for any reason shall be deemed to have changed position on
the last day of the month in which such change of position
occurs.
Section 9: Beneficiary Designation
9.1 The beneficiary or beneficiaries designated by the
Participant or deemed to have been designated by the Participant
under the Savings Program shall be deemed to be the Participant's
Beneficiary. If a Participant does not participate in the
Savings Program or if a Participant does participate in the
Savings Program and has not designated or been deemed to have
designated a beneficiary thereunder, and such Participant dies
without designating a Beneficiary, then the Variable Compensation
Payment shall be distributed to the Participant's estate. If a
Beneficiary does not survive the Participant, then the
Participant's Variable Compensation Payment shall be distributed
to the Participant's estate. If the Beneficiary of a deceased
Participant survives the Participant, and dies before such
Participant's Variable Compensation Payment is distributed, then
such Variable Compensation Payment shall be distributed to the
Beneficiary's estate.
Section 10: General Provisions
10.1 A Participant may not assign a Variable
Compensation Payment without the Department's prior written
consent. Any attempted assignment without such consent shall be
null and void. For purposes of this paragraph, any designation
of, or payment to, a Beneficiary shall not be deemed an
assignment.
10.2 The Plan is intended to constitute an unfunded
incentive compensation arrangement for a select group of key
management. Nothing contained in the Plan, and no action taken
pursuant to the Plan, shall create or be construed to create a
trust of any kind. A Participant's right to receive a Variable
Compensation Payment shall be no greater than the right of an
unsecured general creditor of the Corporation. All Variable
Compensation Payments shall be paid from the general funds of the
Corporation, and no special or separate fund shall be established
and no segregation of assets shall be made to assure payment of
such Variable Compensation Payments.
10.3 Nothing contained in the Plan shall give any
Participant the right to continue in the employment of the
Corporation, or affect the right of the Corporation to discharge
a Participant.
10.4 The Plan shall be construed and governed in
accordance with the laws of the State of New York.
Section 11: Amendment, Suspension, or Termination
11.1 The Board reserves the right to amend, suspend, or
terminate the Plan at any time; provided, however, that any
amendment, suspension or termination shall not adversely affect
the rights of Participants or Beneficiaries to receive Variable
Compensation Payments granted prior to such action.
Section 12: Effective Date and Duration of Plan
The Plan shall be effective beginning as of July 1, 1997
until and including the date of the annual meeting of
shareholders of the Corporation in 2002.
UNION CARBIDE CORPORATION
By: /s/ M.A. Kessinger
Exhibit 10.11.1
UNION CARBIDE CORPORATION
BENEFITS PROTECTION TRUST
(Amended and Restated Effective August 29, 1997)
TABLE OF CONTENTS
ARTICLE PAGE
FIRST: Definitions - 3 -
SECOND: Creation of Trust - 8 -
THIRD: Payments from the Trust - 15 -
FOURTH: Management of Trust Assets - 19 -
FIFTH: Administrative Powers - 29 -
SIXTH: Insurance and Annuity Contracts - 30 -
SEVENTH: Taxes, Expenses and Compensation of Trustee
and the Committee - 33 -
EIGHTH: General Duties of Trustee and Investment
Director - 34 -
NINTH: General Duties of the Committee - 39 -
TENTH: Indemnification - 43 -
ELEVENTH: No Duty To Advance Funds - 44 -
TWELFTH: Accounts - 44 -
THIRTEENTH: Administration of the Plans; Communications - 45 -
FOURTEENTH: Resignation or Removal of Trustee - 47 -
FIFTEENTH: Amendment of Agreement; Termination of Trust - 49 -
SIXTEENTH: Prohibition of Diversion - 51 -
SEVENTEENTH: Prohibition of Assignment of Interest - 53 -
EIGHTEENTH: Affiliates - 53 -
NINETEENTH: Miscellaneous - 53 -
BENEFITS PROTECTION TRUST AGREEMENT
(Amended and Restated Effective August 29, 1997)
THIS AGREEMENT, made as of the 29th day of August, 1997, by
and between UNION CARBIDE CORPORATION, a corporation organized
and existing under the laws of the State of New York (hereinafter
referred to as the "Company"), and STATE STREET BANK AND TRUST
COMPANY, a trust company organized and existing under the laws of
the State of Massachusetts (hereinafter referred to as the
"Trustee"),
W I T N E S S E T H :
WHEREAS, the Company has adopted the plans, programs and
policies listed on Schedule 1 (hereinafter referred to as defined
in Schedule 1 or collectively as the "Plans") and may adopt or
enter into other such Plans as will be listed from time to time
on Schedule 1 and may, from time to time, amend, modify or
terminate any such Plan in accordance with its terms; and
WHEREAS, the Company has adopted the plans, programs, and
policies listed on Schedule 2 (hereinafter referred to
collectively as the "Protected Plans") and may adopt or enter
into other such Protected Plans as will be listed from time to
time on Schedule 2 and may, from time to time, amend, modify, or
terminate any such Protected Plan in accordance with its terms;
and
WHEREAS, the Company has previously established the Benefits
Protection Trust (hereinafter referred to as the "Trust"),
effective August 1, 1989, in order to ensure that its employees,
the employees of its Participating Subsidiaries, and their
beneficiaries will receive the benefits which the Company is
obligated to provide for them or which they reasonably anticipate
receiving pursuant to the Protected Plans; and
WHEREAS, The Chase Manhattan Bank, as successor to
Manufacturer Hanover Trust Company, was the original Trustee of
the Trust; and
WHEREAS, the Company has removed The Chase Manhattan Bank as
Trustee of the Trust and the Company has appointed State Street
Bank and Trust Company as the successor Trustee of the Trust; and
WHEREAS, the Company desires to amend and restate the Trust
effective August 29, 1997; and
WHEREAS, the Trust is intended to be a "grantor trust" with
the corpus and income of the Trust treated as assets and income
of the Company for federal income tax purposes pursuant to
Sections 671 through 678 of the Internal Revenue Code of 1986
(the "Code"), as amended; and
WHEREAS, the Company intends that the assets of the Trust
will be subject to the claims of creditors of the Company as
provided in Article SIXTEENTH; and
WHEREAS, the Company intends that the existence of the Trust
will not alter the characterization of the Plans as "unfunded"
and will not be construed to provide taxable income to any
participant under the Plans prior to actual payment of benefits
thereunder; and
WHEREAS, the Board of Directors of the Company shall appoint
an Administrative Committee (the "Committee") as provided in
Article NINTH;
WHEREAS, the Trustee is not a party to the Plans and makes
no representations with respect thereto, and all representations
and recitals with respect to the Plans shall be deemed to be
those of the Company;
NOW, THEREFORE, the Company and the Trustee agree as
follows:
FIRST: Definitions:
(a) Any term that is referenced in the Plans shall have in
this Agreement the same meaning ascribed to it in the Plans,
unless the context clearly indicates a different meaning.
(b) For purposes of this Agreement, a Change In Control
shall be deemed to occur if:
(i) any "person" or "group" within the
meaning of Sections 13(d) and 14(d)(2) of
the Securities Exchange Act of 1934
("Act") becomes the "beneficial owner" as
defined in Rule 13d-3 under the Act of
more than 20% of the then outstanding
voting securities of the Company;
(ii) any "person" or "group" within the
meaning of Sections 13(d) and 14(d)(2)
of the Act acquires by proxy or
otherwise the right to vote for the
election of directors, for any merger or
consolidation of the Company or for any
other matter or question with respect to
more than 20% of the then outstanding
voting securities of the Company;
(iii) if during any period of twenty-four
consecutive months, Present Directors
and/or New Directors cease for any
reason to constitute a majority of the
Board.
For these purposes, "Present Directors"
shall mean individuals who at the
beginning of such consecutive
twenty-four month period were members of
the Board and "New Directors" shall mean
any director whose election by the Board
or whose nomination for election by the
Company's stockholders was approved by a
vote of at least two-thirds of the
Directors then still in office who were
Present Directors or New Directors;
(iv) the stockholders of the Company approve
a plan of complete liquidation or
dissolution of the Company; or
(v) there shall be consummated (x) a
reorganization, merger or consolidation
of all or substantially all of the
assets of the Company (a "Business
Combination"), unless, following such
Business Combination, (a) all or
substantially all of the individuals and
entities who were the beneficial owners,
respectively, of the outstanding Common
Stock of the Company and outstanding
voting securities of the Company
immediately prior to such Business
Combination beneficially own, directly
or indirectly, more than 50% of,
respectively, the then outstanding
shares of common stock and the combined
voting power of the then outstanding
voting securities entitled to vote
generally in the election of directors,
as the case may be, of the corporation
resulting from such Business Combination
(including, without limitation, a
corporation which as a result of such
transaction owns the Company or all or
substantially all of the Company's
assets either directly or through one or
more subsidiaries) in substantially the
same proportions as their ownership,
immediately prior to such Business
Combination of the outstanding common
stock of the Company and outstanding
voting securities of the Company, as the
case may be, (b) no person (excluding
any corporation resulting from such
Business Combination or any employee
benefit plan (or related trust) of the
Company or such corporation resulting
from such Business Combination)
beneficially owns, directly or
indirectly, 20% or more of,
respectively, the then outstanding
shares of common stock of the
corporation resulting from such Business
Combination or the combined voting power
of the then outstanding voting
securities of such corporation except to
the extent that such ownership existed
prior to the Business Combination and
(c) at least a majority of the members
of the board of directors of the
corporation resulting from such Business
Combination were members of the Board at
the time of the execution of the initial
agreement, or of the action of the
Board, providing for such Business
Combination; or (y) any sale, lease,
exchange or other transfer (in one
transaction or a series of related
transactions) of all, or substantially
all, of the assets of the Company,
provided, that the divestiture of less
than substantially all of the assets of
the Company in one transaction or a
series of related transactions, whether
effected by sale, lease, exchange,
spin-off, sale of the stock or merger of
a subsidiary or otherwise, shall not
constitute a Change In Control.
Notwithstanding the foregoing, a Change In Control shall not
be deemed to occur: (A) pursuant to subparagraphs (i) and (ii)
above, solely because twenty percent (20%) or more of the
combined voting power of the Company's then outstanding
securities is acquired by one or more employee benefit plans
maintained by the Company; or (B) pursuant to subparagraph (v)(y)
above, if the Board determines that any sale, lease, exchange or
transfer does not involve substantially all of the assets of the
Corporation.
The Company shall notify the Committee and the Trustee in
writing of the occurrence of any event described in subparagraphs
(b)(i) through (b)(v) above, as soon as practicable after the
Company first learns of such event. The Committee and the
Trustee may rely upon such notice from the Company in performing
any of their obligations or taking any discretionary action under
this Agreement which is dependent upon a Change In Control having
occurred; provided, however, that in the absence of such notice,
the Committee and the Trustee may rely on their own
determination, including opinion of counsel (who may be counsel
to the Company, the Committee or the Trustee), that a Change In
Control has occurred, unless such a determination arises out of
the Committee's or the Trustee's gross negligence or willful
misconduct. The Trustee and the Committee may also request that
the Company furnish evidence to determine or to enable the
Trustee and the Committee to determine, whether a Change In
Control has occurred. The Trustee's or the Committee's
determination whether a Change In Control has occurred shall be
binding and conclusive on all Participants.
(c) "Threatened Change In Control" shall mean each of the
following events, except as otherwise provided below:
(1) any person or group as defined in Paragraph (b)(i)
above, without the prior approval of a majority of the Present
Directors, becomes the "beneficial owner" of more than fifteen
percent (15%) of the then outstanding voting securities of the
Company;
(2) any person or group as defined in Paragraph
(b)(ii) above, acquires by proxy or otherwise the right to vote
for the election of directors, for any merger or consolidation of
the Company or for any other matter or question with respect to
more than fifteen percent (15%) of the then outstanding voting
securities of the Company;
(3) any person or group as defined in Paragraph (b)(i)
or (ii) above, initiates a tender offer to acquire more than
twenty percent (20%) of the then outstanding voting securities of
the Company; or
(4) the Board of Directors of the Company notifies the
Trustee and the Committee in writing that a Threatened Change In
Control exists.
Notwithstanding the foregoing, a Threatened Change In
Control shall not be deemed to occur pursuant to Paragraphs
(c)(1) and (2) above solely because fifteen percent (15%) or more
of the then outstanding voting securities of the Company is
acquired by one or more employee benefit plans maintained by the
Company.
The Company shall notify the Trustee and the Committee in
writing of the occurrence of any event described in Paragraphs
(c)(1), (2), (3) or (4) above as soon as practicable after the
Company first learns of such event. The Committee and the
Trustee may rely upon such notice from the Company in performing
any of their obligations or taking any discretionary action under
this Agreement which is dependent upon a Threatened Change In
Control having occurred; provided, however, that in the absence
of such notice, the Trustee and the Committee may rely on their
own determinations, including opinion of counsel (who may be
counsel to the Company, the Committee or the Trustee), that a
Threatened Change In Control has occurred, unless such a
determination arises out of the Trustee's or the Committee's
gross negligence or willful misconduct. The Trustee or the
Committee may also request that the Company furnish evidence to
determine or to enable the Trustee or the Committee to determine,
whether a Threatened Change In Control has occurred. The
Trustee's or the Committee's determination whether a Threatened
Change In Control has occurred shall be binding and conclusive on
all Participants.
(d) "Threatened Change In Control Period" shall mean the
period beginning on the date a Threatened Change of Control
occurs and ending on the earliest of:
(1) If the Threatened Change In Control was caused by
an event described in Paragraph (c)(1) above, on the date first
subsequent to the date on which the person or group referred to
therein does not beneficially own more than fifteen percent (15%)
of the then outstanding voting securities of the Company; or
(2) If the Threatened Change In Control was caused by
an event described in Paragraph (c)(2) above, on the date first
subsequent to the date on which the person or group referred to
therein does not acquire by proxy or otherwise the right to vote
for the election of directors, for any merger or consolidation of
the Company or for any other matter or question with respect to
more than fifteen percent (15%) of the then outstanding voting
securities of the Company; or
(3) If the Threatened Change In Control was caused by
an event described in Paragraph (c)(3) above, on the date first
subsequent to the date on which the person or group referred to
therein terminates any tender offer to acquire more than twenty
percent (20%) of the then outstanding voting securities of the
Company; or
(4) If the Threatened Change In Control shall be
deemed to have occurred by reason of the notice described in
Paragraph (c)(4) above, on the date that a majority of the
Present Directors and New Directors of the Board of Directors of
the Company shall have notified the Trustee or the Committee in
writing that the Threatened Change In Control has terminated; or
(5) The date a Change In Control occurs.
SECOND: Creation of Trust. (a) The Company hereby
establishes with the Trustee and the Trustee hereby accepts a
trust consisting of the following property (subject to the rights
of the Company to withdraw such property pursuant to Paragraph
(f) of this Article SECOND):
(1) such cash or other property acceptable to the
Trustee as shall be paid or delivered to the Trustee from time to
time as contributions under the Equalization Plan, together with
the earnings, income, additions and appreciation thereon and
thereto (all of which is hereinafter called the "Equalization
Account");
(2) such cash and other property acceptable to the
Trustee as shall be paid or delivered to the Trustee from time to
time as contributions under the Supplemental Retirement Income
Plan, together with the earnings, income, additions and
appreciation thereon and thereto (all of which is hereinafter
referred to as the "SRIP Account");
(3) such cash or other property acceptable to the
Trustee as shall be paid or delivered to the Trustee from time to
time as contributions under the 1983 Cash Bonus Deferral Plan,
together with the earnings, income, additions and appreciation
thereon and thereto (all of which is hereinafter called the "1983
Bonus Deferral Account");
(4) such cash or other property acceptable to the
Trustee as shall be paid or delivered to the Trustee from time to
time as contributions under the 1984 Cash Bonus Deferral Plan,
together with the earnings, income, additions and appreciation
thereon and thereto (all of which is hereinafter called the "1984
Bonus Deferral Account");
(5) such cash or other property acceptable to the
Trustee as shall be paid or delivered to the Trustee from time to
time as contributions under the Key International Management
Plan, together with the earnings, income, additions and
appreciation thereon and thereto (all of which is hereinafter
called the "KIMP Account");
(6) such cash or other property acceptable to the
Trustee as shall be paid or delivered to the Trustee from time to
time to be used to satisfy future liabilities of the Company with
regard to the Severance Compensation Agreements of the Company,
together with the earnings, income, additions and appreciation
thereon and thereto (all of which is hereinafter called the
"Severance Compensation Agreement Account");
(7) such cash or other property acceptable to the
Trustee as shall be paid or delivered to the Trustee from time to
time as contributions under the Compensation Deferral Program,
together with the earnings, income, additions and appreciation
thereon and thereto (all of which is hereinafter called the
"Compensation Deferral Program Account");
(8) such cash or other property acceptable to the
Trustee as shall be paid or delivered to the Trustee from time to
time as contributions under the Non-Employee Directors'
Compensation Deferral Program, together with the earnings,
income, additions and appreciation thereon and thereto (all of
which is hereinafter called the "Directors' Compensation Deferral
Program Account");
(9) such cash or other property acceptable to the
Trustee as shall be paid or delivered to the Trustee from time to
time as contributions under the Mid-Career Hire Plan, together
with the earnings, income, additions and appreciation thereon and
thereto (all of which is hereinafter called the "Mid-Career Hire
Account");
(10) such cash or other property acceptable to the
Trustee as shall be paid or delivered to the Trustee from time to
time to be used to satisfy future liabilities of the Company with
regard to the Excess Long-Term Disability Plan, together with the
earnings, income, additions and appreciation thereon and thereto
(all of which is hereinafter called the "Excess LTD Account");
(11) such cash or other property acceptable to the
Trustee as shall be paid or delivered to the Trustee from time to
time to be used to satisfy future liabilities of the Company with
regard to the Enhanced Retirement Income Plan, together with the
earnings, income, additions and appreciation thereon and thereto
(all of which is hereinafter called the "ERIP Account"); and
(12) such cash or other property acceptable to the
Trustee as shall be paid or delivered to the Trustee from time to
time as contributions under the Special Severance Protection
Program, together with the earnings, income, additions and
appreciation thereon and thereto (all of which is hereinafter
called the "Special Severance Program Account");
(13) such cash or other property acceptable to the
Trustee as shall be paid or delivered to the Trustee from time to
time as contributions under the Retiree Medical Program, together
with the earnings, income, additions and appreciation thereon and
thereto (all of which is hereinafter called the " Retiree Medical
Program Account");
(14) such cash or other property acceptable to the
Trustee as shall be designated for inclusion by the Company,
together with the earnings, income, additions and appreciation
thereon and thereto (all of which is hereinafter called the
"General Account"); and
(15) cash in the amount of five hundred thousand
dollars ($500,000), together with the earnings thereon, and
realized and unrealized gains (net of any losses) attributable
thereto, (all of which is hereinafter called the "Benefits
Protection Account"). Neither the cash nor any other property
held in the Benefits Protection Account shall be available for
payment of benefits to participants and beneficiaries under the
Plans.
(b) The Company may contribute to the Trust on behalf of
any Account an irrevocable letter of credit (hereinafter referred
to as a "L/C"). The following provisions shall be applicable to
any such L/C:
(1) the L/C shall expire no sooner than one (1) year
from the date of issuance,
(2) the Company shall continue to maintain such L/C in
effect until it is replaced by cash or another irrevocable L/C or
the Company withdraws such L/C pursuant to Paragraph (f) of this
Article SECOND or this Agreement terminates, whichever occurs
first,
(3) the Company shall renew or replace such L/C at
least thirty (30) days before its expiration for an additional
period of one (1) year,
(4) if, prior to a Change In Control, such L/C, or any
renewal thereof, is not renewed or replaced by a L/C delivered to
the Trustee at least thirty (30) days before the expiration of
the predecessor L/C, the Trustee may draw down the full amount of
such L/C and hold the proceeds pursuant to the terms of this
Agreement,
(5) prior to a Change In Control, the Trustee may also
draw down on such L/C at any time the Trustee determines the
proceeds of such L/C are necessary to allow the Trustee to
fulfill its obligations under this Agreement,
(6) if, after a Change In Control, such L/C, or any
renewal thereof, is not renewed or replaced by a L/C delivered to
the Trustee at least thirty (30) days before the expiration of
the predecessor L/C, the Trustee may draw down the full amount of
such L/C and hold the proceeds pursuant to the terms of this
Agreement.
(7) after a Change In Control, the Committee may also
direct the Trustee to draw down on such L/C at any time the
Committee determines the proceeds of such L/C are necessary to
allow the Committee to fulfill its obligations under this
Agreement.
(8) the proceeds of such L/C shall be available to the
Trustee or the Committee, if applicable, upon the Trustee's
presentation of its sight draft,
(9) the Company may, at any time, replace such L/C
with another irrevocable L/C having substantially similar terms,
or with an equal amount of cash, or any combination thereof,
(10) any L/C shall be issued by a bank (including the
Trustee) with assets in excess of $2 billion and net worth in
excess of $100 million, shall be reasonably acceptable to the
Trustee and the Committee and shall be in a form as shall be
reasonably acceptable to the Trustee and the Committee.
(c) The Trustee or the Investment Director, if applicable,
for investment purposes only, may commingle all Trust assets and
treat them as a single fund, but the records of the Trustee or
the Investment Director, if applicable, at all times shall show
the percentages of the Trust allocable to the Equalization
Account, the SRIP Account, the ERIP Account, the Directors'
Compensation Deferral Account, the Compensation Deferral Account,
the Mid-Career Hire Account, the Excess LTD Account, the 1983
Bonus Deferral Account, the 1984 Bonus Deferral Account, the KIMP
Account, the Severance Compensation Agreement Account, the
Benefits Protection Account, the Special Severance Protection
Program Account, the Retiree Medical Program Account and such
other Account(s) as may subsequently be established under this
Trust (herein referred to collectively as the "Accounts").
(d) The assets of the Accounts shall be used to discharge
the obligations of the Company as follows:
(1) The assets of the Equalization Account shall be
used to discharge the obligations of the Equalization Plan.
(2) The assets of the SRIP Account shall be used to
discharge the obligations of the Supplemental Retirement Income
Plan.
(3) The assets of the 1983 Bonus Deferral Account
shall be used to discharge the obligations of the 1983 Bonus
Deferral Plan.
(4) The assets of the 1984 Bonus Deferral Account
shall be used to discharge the obligations of the 1984 Bonus
Deferral Plan.
(5) The assets of the KIMP Account shall be used to
discharge the obligations of the Key International Management
Plan.
(6) The assets of the Severance Compensation Agreement
Account shall be used to discharge the obligations of the Company
under the Severance Compensation Agreements.
(7) The assets of the Compensation Deferral Program
Account may be used to discharge the obligations of the
Compensation Deferral Program.
(8) The assets of the Directors' Compensation Deferral
Account may be used to discharge the obligations of the
Directors' Compensation Deferral Program.
(9) The assets of the Mid-Career Hire Account shall be
used to discharge the obligations of the Mid-Career Hire Plan.
(10) The assets of the Excess LTD Account shall be
used to discharge the obligations of the Company under the Excess
Long-Term Disability Plan.
(11) The assets of the ERIP Account shall be used to
discharge the obligations of the Enhanced Retirement Income Plan.
(12) The assets of the Special Severance Protection
Program Account shall be used to discharge the obligations of the
Special Severance Protection Program.
(13) The assets of the Retiree Medical Program Account
shall be used to discharge the obligation of the Retiree Medical
Program.
(13) The assets of the Benefits Protection Account may
be used as set forth in Paragraph (c) of Article SEVENTH, and
Article EIGHTH.
(14) Prior to a Change In Control, the Company may
direct the Trustee to reallocate the assets of an Account to one
or more other Accounts.
(15) After a Change In Control, the Committee may
direct the Trustee to transfer the assets of an Account to one or
more other Accounts if either (i) the Plan for which such Account
was established has expired or terminated, and all liabilities
with regard to such expired or terminated Plan have been
satisfied pursuant to Paragraph (d) of Article FIFTEENTH, or (ii)
the Committee, in its sole discretion, determines that the
remaining assets of such Account, after such transfer, are
reasonably sufficient to cover the liabilities of the Plan for
which such Account was established.
(e) The Company and the Trustee agree that the Trust
created herein shall not be revocable by the Company or by any
successor thereto during a Threatened Change In Control Period or
after a Change In Control, and is intended to be a grantor trust
under the provisions of Sections 671 through 678 of the Internal
Revenue Code of 1986, as amended.
(f) The Company may, from time to time, add to or withdraw
from the assets of the Trust, but subject to the termination
provisions of Article FIFTEENTH hereof, such withdrawal may not
reduce the property in the Benefits Protection Account, including
any L/C, below five hundred thousand dollars ($500,000). The
Company may add funds to the Trust at any time and shall
designate the Account to which such funds shall be credited. Any
such additional funds shall also be available to pay the fees and
expenses of the Trustee and/or the Committee if the amounts
transferred pursuant to the Benefits Protection Account are
exhausted. Notwithstanding the foregoing, the Company shall not
make any withdrawal from the Trust during a Threatened Change In
Control Period or after a Change In Control until all liabilities
of the Company under the Plans are satisfied and all of the
purposes of this Agreement are fulfilled.
THIRD: Payments from the Trust. (a) Subject to Paragraph
(f) of Article SECOND hereof, Paragraph (b) of this Article THIRD
and Paragraph (b) of Article SIXTEENTH hereof, the Trustee, from
time to time upon receipt of direction from the Company prior to
a Change In Control (other than during a Threatened Change In
Control Period), and from the Committee after a Change In
Control, shall make payments from the Trust, as specified in such
direction to such persons, in such manner and in such amounts as
the Company or the Committee, as the case may be, shall direct,
and amounts paid pursuant to such direction (or in accordance
with Article SEVENTH hereof) thereafter no longer shall
constitute a part of the Trust.
(b) The Company may, from time to time prior to a Change In
Control, furnish the Trustee with certain information regarding
the participants and beneficiaries under the Plans and the
determination of the benefits under the Plans (hereinafter
referred to as "Participants Data"). The Trustee shall be
entitled to rely on the accuracy of the Participant Data provided
by the Company prior to a Change In Control, and shall have no
duty to verify the accuracy thereof. The Company shall, during a
Threatened Change In Control Period, and, after a Change In
Control, furnish the Committee with Participant Data at least
once each Plan Year. Such Participant Data shall include (1)
names, addresses, dates of birth, and social security numbers of
each participant and beneficiary in the Plans; (2) the amount and
form of benefits under each of the Plans of each participant and
beneficiary if such participant would retire or die as of either
the last day of such Plan Year or the last day of the Plan Year
in which such Participant attained age 62; (3) earnings history,
compensation (cash and deferred) and bonus history of each
participant; (4) amounts payable from the Retirement Program Plan
for Employees of Union Carbide Corporation and its Participating
Subsidiary Companies on behalf of each participant; (5) a
schedule of the estimated yearly cash payments under the Plans;
and (6) any other information regarding the Plan which the
Committee may reasonably request or which the Committee may deem
necessary to administer this Trust.
During a Threatened Change In Control Period or after a
Change In Control and notwithstanding any other provisions of
this Agreement, the Trustee shall, without direction from the
Company, to the extent funds are available in the Trust for such
purpose, make payments to participants and beneficiaries in such
manner and in such amounts as the Committee shall determine they
are entitled to be paid under the Plans based on the most recent
Participant Data furnished to the Committee by the Company prior
to a Change In Control and any supplemental information furnished
to the Committee by a participant or beneficiary upon which the
Committee may reasonably rely in making such determination. The
Committee may make such reasonable inquiry of the Company as is
necessary to determine whether any amounts that would otherwise
be payable under this Agreement have previously been paid by the
Company, and may reasonably rely on any information provided by
the Company with regard to such payment. A determination by the
Committee with regard to a participant's entitlement to payments
under the terms of this Agreement shall be binding as to all
participants and the Company.
(c) In the event it shall be determined prior to a Change
In Control that the participants and/or beneficiaries of the
Plans are subject to any tax under the terms of the Trust created
hereunder, then the Trustee, upon receipt of direction from the
Company, shall make payments from the Trust to such persons, in
such manner and in such amounts as the Company shall direct, for
purposes of (1) paying the amount of Federal, State and Local tax
and interest and any penalties thereon which such participants
and/or beneficiaries may incur arising out of such determination
or (2) distributing the interests of participants and
beneficiaries in the Trust. In the event such a determination
is made after a Change In Control occurs, then each participant
or beneficiary who is subject to such tax, may notify the
Committee, in writing, to direct the Trustee to make payments
from the Trust for either of the purposes set forth in section
(1) or (2) of the preceding sentence. The Trustee shall not make
the payments for the purposes set forth in the first sentence of
this Paragraph (c) without such written direction.
(d) Payments to participants and beneficiaries pursuant to
Paragraphs (b) and (c) of this Article THIRD shall be made by the
Trustee to the extent that Trust funds for such purposes are
sufficient to allow such payments. Subject to Paragraph (d) of
Article SECOND, in any month in which the Committee directs the
Trustee to make payments from the Trust and the Committee
determines that a particular Account in the Trust does not have
sufficient funds to provide for the payment of all amounts
otherwise payable to participants and beneficiaries in such month
under a particular Plan, the amount otherwise payable to each
such participant or beneficiary under such Plan during such month
shall be multiplied by a fraction, the numerator of which is the
amount of funds then available for the payment of benefits under
such Plan and the denominator of which is the total of the
benefits payable prior to such reduction during such month to all
participants and beneficiaries under such Plan.
(e) After a Change In Control occurs the Company shall make
such contributions to the Trust created hereunder as shall be
necessary to ensure the assets of the Trust shall at all times be
sufficient to discharge the Company's obligations under the
Plans.
FOURTH: Management of Trust Assets. (a) Subject to
Paragraph (b) of this Article FOURTH, the Company, prior to a
Change In Control, shall have exclusive authority and discretion
to manage and control the Trust assets, and pursuant to such
authority and discretion, may direct the Trustee, to the extent
permitted by law, to exercise, from time to time and at any time,
the power:
(1) To invest and reinvest the Trust, without
distinction between principal and income, in shares of stock
(whether common or preferred) or other evidences of ownership,
bonds, debentures, notes or other evidences of indebtedness,
unsecured or secured by mortgages on real or personal property
wherever situated (including any part interest in a bond and
mortgage or note and mortgage whether insured or uninsured) and
other property, or part interest in property, real or personal,
foreign or domestic, whether or not productive of income or
consisting of wasting assets, and in order to reduce the rate of
interest rate fluctuations, contracts, as either buyer or seller,
for the future delivery of United States Treasury securities and
comparable Federal-Government-backed securities; provided,
however, that the Trustee, upon specific directions in writing
from the Company, shall invest and reinvest some or all of the
assets of the Trust in qualifying securities issued by the
Company or by an affiliate of the Company, to the extent
permitted by the Employee Retirement Income Security Act of 1974,
unless the Trustee shall deem such directed investment or
reinvestment to be inconsistent with the provisions of Paragraph
(a) of Article EIGHTH and that the Trustee may retain any such
securities acquired for the Trust at the direction of the Company
until the Company directs the Trustee to dispose of them; but no
direction of the Company to sell any securities issued by the
Company or by an affiliate of the Company shall be binding if it
would require the Trustee to violate any law respecting the
public distribution of securities, and, in any event, without
limiting the generality of the provisions of Article TENTH, the
Company agrees, to the extent permitted by law, to indemnify the
Trustee and hold it harmless from and against any claim or
liability that may be asserted against it, otherwise than on
account of the Trustee's breach of his own duties, by reason of
the Trustee's investing in, or reinvesting in or selling such
securities in accordance with any direction from the Company or
by reason of the Trustee's failure to sell any such securities in
the absence of any direction from the Company to sell them; and
(2) To sell, convey, redeem, exchange, grant options
for the purchase or exchange of, or otherwise dispose of, any
real or personal property, at public or private sale, for cash or
upon credit, with or without security, without obligation on the
part of any person dealing with the Trustee to see to the
application of the proceeds of or to inquire into the validity,
expediency or propriety of any such disposition;
(3) To manage, operate, repair and improve, and
mortgage or lease for any length of time any real property held
in the Trust; to renew or extend any mortgage, to agree to
reduction of the rate of interest or any other modification in
the terms of any mortgage or of any guarantee pertaining to it;
to enforce any covenant or condition of any mortgage or guarantee
or to waive any default in the performance thereof; to exercise
and enforce any right of foreclosure; to bid in property on
foreclosure; to take a deed in lieu of foreclosure with or
without paying consideration therefor and in connection therewith
to release the obligation on the bond secured by the mortgage;
and to exercise and enforce in any action, suit or proceeding at
law or in equity any rights or remedies in respect of any
mortgage or guarantee;
(4) To exercise, personally or by general or limited
proxy, the right to vote any shares of stock, bonds or other
securities held in the Trust; to delegate discretionary voting
power to trustees of a voting trust for any period of time; and
to exercise, personally or by power of attorney, any other right
appurtenant to any securities or other property of the Trust;
(5) To join in or oppose any reorganization,
recapitalization, consolidation, merger or liquidation, or any
plan therefor, or any lease, mortgage or sale of the property of
any organization the securities of which are held in the Trust;
to pay from the Trust any assessments, charges or compensation
specified in any plan of reorganization, recapitalization,
consolidation, merger or liquidation; to deposit any property
with any committee or depositary; and to retain any property
allotted to the Trust in any reorganization, recapitalization,
consolidation, merger or liquidation;
(6) To exercise or sell any conversion or subscription
or other rights appurtenant to any stock, security or other
property held in the Trust;
(7) To borrow from any lender (including the Trustee
in its individual capacity) money, in any amount and upon any
reasonable terms and conditions, for purposes of this Agreement,
and to pledge or mortgage any property held in the Trust to
secure the repayment of any such loan;
(8) To compromise, settle or arbitrate any claim,
debt, or obligation of or against the Trust; to enforce or
abstain from enforcing any right, claim, debt or obligation; and
to abandon any property determined by it to be worthless;
(9) To make loans of securities held in the Trust to
registered brokers and dealers upon such terms and conditions as
are permitted by applicable law and regulations, and in each
instance to permit the securities so lent to be registered in the
name of the borrower or a nominee of the borrower, provided that
in each instance the loan is adequately secured and neither the
borrower nor any affiliate of the borrower has discretionary
authority or control with respect to the assets of the Trust
involved in the transaction or renders investment advice with
respect to those assets; and
(10) To invest and reinvest any property in the Trust
in any other form or type of investment not specifically
mentioned in this Paragraph (a) of Article FOURTH, so long as
such form or type of investment is a form or type of investment
approved by the Chief Financial Officer of the Company, or such
other officer designated by the Company, for the investment of
assets of the Trust.
(b)(1) (A) Prior to a Change In Control, the Chief
Financial Officer of the Company, or such other officer
designated by the Company, at any time and from time to time
may direct the Trustee to segregate one or more specified
portions of the Trust into a separate investment account or
accounts (each hereinafter called a "Segregated Investment
Account"), and may appoint and designate an Investment
Director to direct the Trustee in the management of the
assets of each such Segregated Investment Account
(hereinafter called "that Investment Director's Segregated
Investment Account").
(B) Any Investment Director appointed by the Chief
Financial Officer of the Company may be either an officer or
employee of the Company, a subsidiary or affiliate of the
Company, or an Investment Manager who is not an officer,
employee, subsidiary or affiliate of the Company. Any
Investment Manager so appointed must be either (i) an
investment adviser registered as such under the Investment
Advisers Act; or (ii) a bank, as defined in that Act; or
(iii) an insurance company qualified to perform services in
the management, acquisition or disposition of the assets of
the Trust under the laws of more than one State. The
Trustee until notified in writing to the contrary shall be
fully protected in relying upon any written notice of the
appointment of an Investment Director furnished to it by the
Company. In the event of any vacancy in the office of
Investment Director, the Company shall be deemed to be the
Investment Director of that Investment Director's Segregated
Investment Account until an Investment Director shall have
been duly appointed to direct the Trustee in the management
of the assets of that Investment Director's Segregated
Investment Account; and in such event until an Investment
Director shall have been so appointed and qualified,
references herein to the Company's acting in respect of that
Investment Director's Segregated Investment Account pursuant
to direction from the Investment Director shall be deemed to
authorize the Company to direct the Trustee on the
investment or the assets of that Investment Director's
Segregated Investment Account, and subparagraphs (4) and (5)
of this Paragraph (b) shall have no effect and shall be
disregarded.
(2) Any Investment Director appointed pursuant to
Paragraph (b) (1) of this Article FOURTH shall have
exclusive authority and discretion to manage and control the
assets of that Investment Director's Segregated Investment
Account, and pursuant to such authority and discretion may
direct the Trustee from time to time and at any time:
(A) To invest and reinvest that Investment
Director's Segregated Investment Account, without
distinction between principal and income, in shares of
stock (whether common or preferred) or other evidences
of ownership, bonds, debentures, notes or other
evidences of indebtedness, unsecured or secured by
mortgages on real or personal property wherever
situated (including any part interest in a bond and
mortgage or note and mortgage whether insured or
uninsured) and other property, or part interest in
property, real or personal, foreign or domestic,
whether or not productive of income or consisting of
wasting assets, and in order to reduce the risk of
interest rate fluctuations, contracts, as either buyer
or seller, for the future delivery of United States
Treasury securities and comparable Federal Government-
backed securities; provided, however, that the Trustee,
upon specific directions in writing from that
Investment Director, shall invest and reinvest some or
all of the assets of that Investment Director's
Segregated Investment Account in qualifying securities
issued by the Company or by an affiliate of the
Company, to the extent permitted by the Employee
Retirement Income Security Act of 1974, unless the
Trustee shall deem such directed investment or
reinvestment to be inconsistent with the provisions of
Paragraph (a) of Article EIGHTH and that the Trustee
may retain any such securities acquired for that
Investment Director's Segregated Investment Account at
the direction of that Investment Director until that
Investment Director directs the Trustee to dispose of
them; but no direction of any Investment Director to
sell any securities issued by the Company or by an
affiliate of the Company shall be binding if it would
require the Trustee to violate any law respecting the
public distribution of securities, and, in any event,
without limiting the generality of the provisions of
Article TENTH, the Company agrees, to the extent
permitted by law, to indemnify the Trustee and hold it
harmless from and against any claim or liability that
may be asserted against it, otherwise than on account
of the Trustee's breach of his own duties, by reason of
the Trustee's investing in, or reinvesting in or
selling such securities in accordance with any
direction from any Investment Director or by reason of
the Trustee's failure to sell any such securities in
the absence of any direction from that Investment
Director to sell them; and
(B) To perform acts similar to those authorized
to the Trustee in subparagraphs (2) through (10) of
Paragraph (a) of this Article FOURTH.
(3) In addition, each Investment Director, from time
to time and at any time may delegate to the Trustee
discretionary authority to invest and reinvest funds of that
Investment Director's Segregated Investment Account in debt
securities (including obligations of the Government of the
United States) payable on demand or having maturities not
exceeding one year or in interests in any trust fund that
has been or shall be created and maintained by the Trustee
as trustee for the collective short-term investment of
funds, the instrument creating such trust fund, together
with any amendments, modifications or supplements thereof,
being hereby effective when and as such investments are
made, incorporated in and made a part of this Agreement as
fully and to all intents and purposes as if set forth herein
at length.
(4) The Trustee shall exercise in respect of each
Investment Director's Segregated Investment Account the
powers set forth in Paragraph (b) (2) of this Article FOURTH
only when and to the extent directed in writing by that
Investment Director. Each Investment Director, from time to
time and at any time, may issue orders for the purchase or
sale of securities directly to a broker or dealer, and for
such purpose the Trustee will upon request execute and
deliver to that Investment Director one or more trading
authorizations. Written notification of the issuance of
each such order shall be given promptly to the Trustee by
that Investment Director, and the execution of each such
order shall be confirmed by the broker to that Investment
Director and to the Trustee. Such notification shall be
authority to the Trustee to receive securities purchased
against payment therefor and to deliver securities sold
against receipt of the proceeds therefrom, as the case may
be.
(5) Unless the Trustee participates knowingly in, or
knowingly undertakes to conceal, an act or omission of any
Investment Director, knowing such act or omission to be a
breach of the fiduciary responsibility of that Investment
Director with respect to the Trust, or enables such a breach
to occur through the Trustee's failure to comply with the
Trustee's own duties, the Trustee shall not be liable for
any act or omission of any Investment Director, and shall
not be under any obligation to invest or otherwise manage
the assets of the Trust which are subject to the management
of any Investment Director. Without limiting the generality
of the foregoing, the Trustee shall not be liable by reason
of its taking or refraining from taking at the direction of
any Investment Director any action in respect of that
Investment Director's Segregated Investment Account,
pursuant to this Paragraph (b), or pursuant to a
notification of an order to purchase or sell securities by
the Committee or for the account of any Investment
Director's Segregated Investment Account issued by that
Investment Director nor shall the Trustee be liable by
reason of its refraining from taking any action with respect
to any Investment Director's Segregated Investment Account
because of the failure of such Investment Director to give
such direction or order; the Trustee shall be under no duty
to question or to make inquiries as to any direction or
order or failure to give direction or order by any
Investment Director; and the Trustee shall be under no duty
to make any review of investments acquired for any
Investment Manager's Segregated Investment Account at the
direction or order of that Investment Manager and shall be
under no duty at any time to make any recommendation with
respect to disposing of or continuing to retain any such
investment.
(6) Without limiting the generality of the provisions
of Article TENTH, the Company agrees, to the extent
permitted by law, to indemnify the Trustee and hold it
harmless from and against any claim or liability that may be
asserted against it, otherwise than on account of the
Trustee's breach of his own duties, by reason of the
Trustee's taking or refraining from taking any action in
accordance with this Paragraph (b), including, without
limiting the generality of the foregoing, any claim or
liability that may be asserted against the Trustee on
account of failure to receive securities purchased, or
failure to deliver securities sold, pursuant to orders
issued by an Investment Director directly to a broker or
dealer.
(c) After a Change In Control occurs and subject to Article
SIXTH hereof, the Committee shall have the exclusive authority
and discretion to manage and control the Trust assets, and may
appoint an Investment Director or an Investment Manager (as
defined in Paragraph (b) (1) (A) of this Article FOURTH)
including an affiliate of the Company or the Trustee to manage
the investment of the Trust assets. Pursuant to such authority
and discretion, the Committee, or any investment manager
appointed pursuant to this Paragraph (c), may exercise, from time
to time and at any time, the power to hold or dispose of any
assets held by the Trust on the date a Change In Control occurs,
and shall invest and reinvest the Trust, without distinction
between principal and income, in accordance with the provisions
described in Paragraph (a) of this Article FOURTH
FIFTH: Administrative Powers. The Trustee shall have and
in its sole and absolute discretion may exercise from time to
time and at any time the following administrative powers and
authority with respect to the Trust:
(a) To hold property of the Trust in its own name or in the
name of a nominee or nominees, without disclosure of the Trust,
or in bearer form so that it will pass by delivery, but no such
holding shall relieve the Trustee of its responsibility for the
safe custody and disposition of the Trust in accordance with the
provisions of this Agreement; the Trustee's books and records
shall at all times show that such property is part of the Trust;
and the Trustee shall be absolutely liable for any loss
occasioned by the acts of its nominee or nominees with respect to
securities registered in the name of the nominee or nominees;
(b) To continue to hold any property of the Trust whether
or not productive of income; to reserve from investment and keep
unproductive of income, without liability for interest, cash
temporarily awaiting investment and such cash as it deems
advisable or as the Company from time to time may specify prior
to a Change In Control in order to meet the administrative
expenses of the Trust or anticipated distributions therefrom;
(c) To organize and incorporate under the laws of any state
it may deem advisable one or more corporations (and to acquire an
interest in any such corporation that it may have organized and
incorporated) for the purpose of acquiring and holding title to
any property, interests or rights that the Trustee is authorized
to acquire under Article FOURTH hereof;
(d) To employ in the management of the Trust suitable
agents, without liability for any loss occasioned by any such
agents selected by the Trustee with the care, skill, prudence and
diligence under the circumstances then prevailing that a prudent
man acting in a like capacity and familiar with such matters
would use in the conduct of an enterprise of a like character and
with like aims;
(e) To make, execute and deliver, as Trustee, any deeds,
conveyances, leases, mortgages, contracts, waivers or other
instruments in writing that the Trustee may deem necessary or
desirable in the exercise of its powers under this Agreement; and
(f) To do all other acts that the Trustee may deem
necessary or proper to carry out any of the powers set forth in
Articles FOURTH, FIFTH, and SIXTH hereof or otherwise in the best
interests of the Trust.
SIXTH: Insurance and Annuity Contracts. (a) The Trustee,
upon written direction of the Company prior to a Change In
Control, or from the Committee after a Change In Control, shall
pay from the Trust such sums to such insurance company or
companies as the Company may direct for the purpose of procuring
participating or nonparticipating insurance and/or annuity
contracts for the Trust (hereinafter in Article SIXTH referred to
as "Contracts"). The Company shall prepare, or cause to be
prepared in such form as it shall prescribe, the application for
any Contract to be applied for. The Trustee shall receive and
hold in the Trust, subject to the provisions hereinafter set
forth in this Article SIXTH, all Contracts so obtained.
(b) The Trustee shall be the complete and absolute owner of
Contracts held in the Trust and, upon written direction of the
Company prior to a Change In Control, shall have the power,
without the consent of any other person, to exercise any and all
of the rights, options or privileges that belong to the absolute
owner of any Contract held in the Trust or that are granted by
the terms of any such Contract or by the terms of this Agreement.
Prior to a Change In Control, the Trustee shall have no
discretion with respect to the exercise of any of the foregoing
powers or to take any other action permitted by any Contract held
in the Trust, but shall exercise such powers or take such action
only upon the written direction of the Company and the Trustee
shall have no duty to exercise any of such powers or to take any
such action unless and until it shall have received such
direction. The Trustee, upon the written direction of the
Company prior to a Change In Control, shall deliver any Contract
held in the Trust to such person or persons as may be specified
in the direction.
(c) The Trustee shall hold in the Trust the proceeds of any
sale, assignment or surrender of any Contract held in the Trust
and any and all dividends and other payments of any kind received
in respect of any Contract held in the Trust.
(d) Upon the written direction of the Company prior to a
Change In Control, the Trustee shall pay from the Trust premiums,
assessments, dues, charges and interest, if any, upon any
Contract held in the Trust. The Trustee shall have no duty to
make any such payment unless and until it shall have received
such direction. After a Change In Control, the Trustee shall pay
from the Trust premiums, assessments, dues, charges and interest,
if any, upon any Contract held in the Trust, only upon direction
from the Committee.
(e) No insurance company that may issue any Contract or
Contracts held in the Trust shall be deemed to be a party to this
Agreement for any purpose, or to be responsible in any way for
the validity of this Agreement or to have any liability under
this Agreement other than as stated in each Contract that it may
issue. Any insurance company may deal with the Trustee as sole
owner of any Contract issued by it and held in the Trust, without
inquiry as to the authority of the Trustee to act, and may accept
and rely upon any written notice, instruction, direction,
certificate or other communication from the Trustee believed by
it to be genuine and to be signed by an officer of the Trustee
and shall incur no liability or responsibility for so doing. Any
sums paid out by any insurance company under any of the terms of
a Contract issued by it and held in the Trust either to the
Trustee, or, in accordance with its direction, to any other
person or persons designated as payees in such Contract shall be
a full and complete discharge of the liability to pay such sums,
and the insurance company shall have no obligation to look to the
disposition of any sums so paid. No insurance company shall be
required to look into the terms of this Agreement, to question
any action of the Trustee or to see that any action of the
Trustee is authorized by the terms of this Agreement.
(f) Anything contained herein to the contrary
notwithstanding, neither the Company, the Committee nor the
Trustee shall be liable for the refusal of any insurance company
to issue or change any Contract or Contracts or to take any other
action requested by the Trustee; nor for the form, genuineness,
validity, sufficiency or effect of any Contract or Contracts held
in the Trust; nor for the act of any person or persons that may
render any such Contract or Contracts null and void; nor for the
failure of any insurance company to pay the proceeds and avails
of any such Contract or Contracts as and when the same shall
become due and payable; nor for any delay in payment resulting
from any provision contained in any such Contract or Contracts;
nor for the fact that for any reason whatsoever (other than their
own negligence or willful misconduct) any Contract or Contracts
shall lapse or otherwise become uncollectible.
(g) After a Change In Control, the Committee shall exercise
any of the powers set forth in this Article SIXTH, including the
power to negotiate for and purchase Contracts the rates of return
and maturity dates of which may reasonably be expected to yield
assets of the Trust sufficient to discharge any or all of the
obligations of the Company under the Plans.
SEVENTH: Taxes, Expenses and Compensation of Trustee and
the Committee.
(a) The Company shall pay any Federal, State, Local or
other taxes imposed or levied with respect to the corpus and/or
income of the Trust or any part thereof under existing or future
laws, and the Company, or the Committee, if applicable, in their
discretion, or the Trustee, in its discretion, may contest the
validity or amount of any tax, assessment, claim or demand
respecting the Trust or any part thereof. Upon direction from
the Committee, the Trustee shall deduct any payroll taxes
required to be withheld with respect to any payments made
pursuant to the Trust.
(b) The Trustee, without direction from the Company, or the
Committee, if applicable, shall pay from the Trust the reasonable
and necessary expenses and compensation of counsel and all other
reasonable and necessary expenses of managing and administering
the Trust that are not paid by the Company including, but not
limited to, Participant record keeping expenses, investment
management fees, computer time charges, data retrieval and input
costs, charges for time expended by personnel of the Trustee in
fulfilling the Trustee's duties, expenses incurred by the members
of the Committee in performance of their duties and reasonable
compensation (as specified in Schedule 4) of each member of the
Committee.
(c)(i) The Company shall pay to the Trustee from time to
time such reasonable compensation for its services as trustee as
is specified in Schedule 3 or as subsequently agreed to by the
Company and the Trustee, but until paid, such compensation and
reimbursement for expenses incurred by the Trustee pursuant to
this Article SEVENTH shall constitute a charge upon the Trust,
such charge to have priority over any payments due participants
under the Plans.
(d) After a Change In Control, the Trustee shall bill the
Company directly, on a monthly basis, for all expenses described
in Paragraph (b) of this Article SEVENTH and all fees described
in Paragraph (c) thereof which amounts shall be immediately due
and payable except as otherwise provided in Paragraph (c). If
such amounts are not paid by the Company within thirty (30) days
of the billing date, the Trustee may pay such amounts from the
Benefits Protection Account. The Trustee may commence legal
action to recover any amount not paid within thirty (30) days of
the billing date.
EIGHTH: General Duties of Trustee and Investment Director.
(a) Subject to Article FIFTEENTH hereof, the Trustee, any
Investment Director appointed pursuant to Paragraph (b) of
Article FOURTH, and any Investment Manager appointed pursuant to
Paragraph (c) of Article FOURTH, shall discharge their duties
under this Agreement solely in the interest of the participants
in the Plans and their beneficiaries and (1) for the exclusive
purpose of providing benefits to such participants and their
beneficiaries and defraying reasonable expenses of administering
the Plans; and (2) with the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent man acting
in a like capacity and familiar with such matters would use in
the conduct of an enterprise of a like character and with like
aims; and (3), where applicable, by diversifying the investments
of the Trust so as to minimize the risk of large losses, unless
under the circumstances it is clearly prudent not to do so; but
the duties and obligations of the Trustee and any Investment
Director shall be limited to those expressly imposed upon them by
this Agreement notwithstanding any reference herein to the Plans
or the Protected Plans.
(b) The Trustee may consult with counsel, who may be
counsel for the Company or for the Trustee in its individual
capacity.
(c) (1) Within thirty (30) days after a Change In Control,
the Company shall notify participants and beneficiaries of the
Protected Plans in writing of the Committee's availability to aid
them in pursuing any claims they may have against the Company
under the terms of those of the Protected Plans under which they
are covered. The Company shall provide such notice by using the
same method used by Department of Labor 29 C.F.R. Section 2520.104b-
1(b)(1) as now in effect without regard to subsequent amendments.
If the Company fails to do so, the Committee shall provide such
notification by placing an advertisement in one newspaper of
general circulation in each of the ten locations in which the
largest number of employees are located as communicated by the
Company to the Trustee prior to a Change In Control or as
determined by the Committee.
(2) If, after a Change of Control, a participant or
beneficiary of a Protected Plan notifies the Committee that the
Company (or insurance company, contract administrator or any
other party, if applicable) has refused to pay a claim asserted
by the participant or beneficiary under any of the Protected
Plans, and the Committee determines that the assets held in the
Accounts are not available to pay such claim, then, unless the
Committee shall determine that the claim has no basis in law and
fact (in which case the Committee shall notify the participant or
beneficiary of such determination and shall take no further
action with respect to the claim), the Committee:
(A) will promptly attempt to negotiate with the
Company (or insurance company, contract administrator or
other party, if applicable) to obtain payment, settlement,
or other disposition of the claim, subject to the consent of
the participant or beneficiary;
(B) will if (i) negotiations fail after sixty (60)
days of their commencement to result in a payment,
settlement or other disposition agreeable to the participant
or beneficiary (hereafter referred to in this Paragraph (c)
of Article EIGHTH as the "Plaintiff"), (ii) the Committee at
any time reasonably believes further negotiations not to be
in the Plaintiff's best interest, or (iii) any applicable
statute of limitations would otherwise expire within sixty
(60) days, upon the receipt of written authorization from
the Plaintiff in substantially the form attached as Exhibit
A hereto, institute and maintain legal proceedings (the
"Litigation") against the Company or other appropriate
person or entity to recover on the claim on behalf of the
Plaintiff; and
(C) may, subject to the written consent of the
Plaintiff, settle or discontinue the Litigation. The Committee
shall direct the course of the Litigation and shall keep the
Plaintiff informed of the progress of the Litigation as the
Committee deems appropriate, but no less frequently than
quarterly. If, during the Litigation,
(i) the Plaintiff directs in writing that the
Litigation on behalf of the Plaintiff be settled or
discontinued, the Committee shall take all appropriate
action to follow such direction, provided that the
written direction specifies the terms and conditions of
the settlement or discontinuance, and further provided
that the Plaintiff, if requested by the Committee,
shall execute and deliver to the Committee a document
in a form acceptable to the Committee releasing and
holding harmless the Committee from any liability
resulting from the Committee following such direction;
or
(ii) the Plaintiff refuses to consent to the
settlement or other disposition of the Litigation on
terms recommended in writing by the Committee, the
Committee may proceed, in its sole and absolute
discretion, to take such action as it deems appropriate
in the Litigation, including settlement or
discontinuance of the Litigation, provided that the
Committee shall afford the Plaintiff at least fourteen
(14) days' advance notice of any decision to settle or
otherwise discontinue the Litigation, subject to the
provisions of the following sentence.
If, at any time, the Plaintiff (x) revokes in writing (in
substantially the form attached as Exhibit B hereto) the
authorization of the Committee to proceed on his behalf and
delivers such writing to the Committee and (y) appoints his own
counsel and so notifies the Committee in writing, whose fees and
expenses are not to be paid by the Trust and who shall appear in
the Litigation on behalf of the Plaintiff in lieu of counsel
retained by the Committee, then the Committee shall not be
authorized to proceed in the Litigation on behalf of the
Plaintiff. Thereafter, the Committee shall have no obligation to
proceed further on behalf of such Plaintiff or to pay any costs
or expenses incurred in the Litigation after the date of the
delivery of such writing.
The Committee is empowered to retain, at the expense of the
Trust, counsel and other appropriate experts, including actuaries
and accountants, to aid it in making any determination under this
Paragraph (c) of Article EIGHTH and in determining whether to
pursue or settle any Litigation. The Committee shall have the
discretion to determine the form and nature that any Litigation
against the Company or other appropriate person or entity shall
take, and the procedural rules and laws applicable to such
Litigation shall supersede any inconsistent provision of this
Agreement.
(3) Subparagraph (c)(2) shall be inapplicable in
respect of any Litigation involving the payment of benefits under
any Plan in which the Committee is named a defendant. Any
Plaintiff in an action in which the Committee or the Trustee is
named a defendant shall engage his own counsel, whose fees and
expenses shall be paid by the Plaintiff, provided, however, that
the Committee shall pay out of the assets of the Benefits
Protection Account of the Trust any legal fees and costs awarded
to the Plaintiff by a court in such Litigation pursuant to
Section 502 (g) (1) of ERISA.
(4) In the event the Committee determines that the
claim of a participant or beneficiary has no basis in law or fact
and such participant or beneficiary pursues such claim against
the Company, then the Committee shall reimburse the participant
or beneficiary out of the assets of the Benefits Protection
Account for any reasonable legal fees and other reasonable costs
incurred in pursuing such claim if such participant or
beneficiary obtains a settlement or final judgment of a court of
competent jurisdiction under which the participant or beneficiary
is to receive not less than 50% of the amount originally claimed
to the Committee as the amount owed by the Company.
(5) With respect to claims by holders of Severance
Compensation Agreements, such holders may elect to pursue their
own claim (with counsel of their choice) or to have the Committee
pursue such claim. In the event such holders elect to pursue
their own claims, the Committee shall promptly reimburse such
holders for all attorneys fees and other expenses incurred to the
extent the Company does not pay such amounts as provided in the
Severance Compensation Agreements.
(d) The Company will, prior to a Change In Control,
designate Kelley Drye & Warren LLP to act as counsel to the
Committee at the expense of the Trust after a Change In Control,
to enforce the rights of participants and beneficiaries to
benefits under the Protected Plans, as described above. If the
designated counsel declines to provide representation because of
an ethical or legal conflict of interest, or the Committee is not
satisfied with the quality of representation provided, the
Committee, may, from time to time, dismiss the designated firm or
any successor and engage another qualified law firm for this
purpose including the same law firm which represents the
Committee with respect to its responsibilities as Committee under
this Agreement. The Company may not dismiss or engage such
counsel or cause the Committee to engage or dismiss such counsel
after a Change In Control.
NINTH: General Duties of the Committee. (a) Subject to
Article FIFTEENTH hereof, the Committee shall discharge their
duties under this Agreement solely in the interest of the
participants in the Plans and their beneficiaries and (1) for the
exclusive purpose of providing benefits to such participants and
their beneficiaries and defraying reasonable expenses of
administering the Plans; and (2) with the care, skill, prudence
and diligence under the circumstances then prevailing that a
prudent man acting in a like capacity and familiar with such
matters would use in the conduct of an enterprise of a like
character and with like aims; and (3), after a Change In Control,
by diversifying the investments of the Trust so as to minimize
the risk of large losses, unless under the circumstances it is
clearly prudent not to do so; but the duties and obligations of
the Committee shall be limited to those expressly imposed upon
them by this Agreement notwithstanding any reference herein to
the Plans or the Protected Plans.
(b) The Committee shall consist of not less than five (5)
members to be appointed by and serve at the pleasure of the Board
of Directors of the Company. The Board may, at any time prior to
a Change In Control, fill vacancies or require the resignation of
one or more of the members of the Committee with or without
cause. In the event that a vacancy or vacancies shall occur on
the Committee prior to a Change In Control, the remaining member
or members shall act as the Committee until the Board fills such
vacancy or vacancies. However, upon a Change In Control, no
member may be removed, for any reason, by the Board. In the
event that a vacancy occurs after a Change In Control, the Board
shall have no authority to fill such vacancy and the remaining
members of the Committee shall select a replacement to serve on
the Committee. No person shall be ineligible to be a member of a
Committee because he is, was or may become entitled to benefits
under any plan in the Trust, or because he is a director and/or
officer of the Company, Affiliate or a Trustee; provided, that no
Participant who is a member of the Committee shall participate in
any determination by the Committee specifically relating to the
calculation or disposition of his benefits under any plan in the
Trust.
(c) Except as otherwise expressly provided in this
Agreement or by the Board of Directors prior to a Change In
Control:
1. After a Change In Control, the Committee shall have
the authority to invest and manage the assets of the Trust
pursuant to Article FOURTH.
2. The Committee shall have all powers necessary or
helpful for the carrying out of its responsibilities, and the
decisions or actions of the Committee in good faith in respect of
any matter hereunder shall be conclusive and binding upon all
parties concerned.
3. The Committee may delegate to one or more of its
members or any other person the right to act on its behalf with
respect to the implementation of a decision of the Committee.
4. After a Change In Control, subject to Paragraph
(b) of Article FIFTEENTH, the Committee shall have the authority
to amend this Agreement. No amendment shall be made without the
Trustee's consent thereto in writing if, and to the extent that,
the effect of such amendment is to increase the Trustee's
responsibilities hereunder. Such proposed amendment shall be
delivered to the Trustee as a written instrument of amendment,
duly executed and acknowledged by the Committee. The Trustee's
consent shall not be required for the termination of the Trust or
its removal as Trustee.
5. Without limiting the generality of the foregoing,
the Committee shall have full discretionary authority to:
(i) Determine all questions arising out of or in
connection with the terms and provisions of this Agreement
except as otherwise expressly provided herein;
(ii) Make rules and regulations for the
administration of the Trust which are not inconsistent with
the terms and provisions of this Agreement, and fix the
annual accounting period of the Trust as required for tax
purposes;
(iii) Construe all terms, provisions, conditions
and limitations to the Trust;
(iv) Determine all questions relating to the
administration the Trust (i) when disputes arise between the
Company and a Participant or his/her Beneficiary, spouse or
legal representatives and (ii) whenever the Committee deems
it advisable to determine such questions in order to promote
the uniform administration of the Trust; and
(v) Monitor the performance of the Trustee or
any Investment Director for the Trust. In order to
accomplish this, the Committee shall meet with the Trustee
or any Investment Director, at such time as the Committee
shall determine, and the Committee shall request the Trustee
or any Investment Director to present a full report on the
financial position of the Trust under the control of any
Investment Director.
The foregoing list of powers is not intended to be either
complete or exclusive, and the Committee shall, in addition,
have such powers as may be necessary for the performance of its
duties under the Trust.
(d) The Committee shall advise the Trustee in writing with
respect to all benefits which become payable under the terms of
the Trust and shall direct the Trustee to pay such benefits to or
on order of the Committee.
(e) The Committee may employ such counsel, including legal
counsel, actuaries, accountants, investment advisors, physicians,
agents and such clerical and other services as it may require in
carrying out the provisions of the Trust. Unless paid by the
Company, the Committee shall charge the fees, charges and costs
resulting from such employment as an expense of a trust
established relating to the Trust. Unless otherwise provided by
law, any person so employed by a Committee may be legal or other
counsel to the Company, an affiliate, a member of a Committee or
an officer or member of the Board of Directors or an affiliate.
(f) Each member of the Committee shall receive
compensation, as specified in Schedule 4, for their services in
connection with the Trust.
(g) The Committee may purchase such fiduciary liability
insurance or such other insurance as it deems necessary relating
to the performance of its obligations hereunder. Unless paid by
the Company, the Committee shall charge the premiums and charges
resulting from such insurance as an expense of the Trust.
TENTH: Indemnification. The Company agrees, to the extent
permitted by law, to indemnify and hold the Trustee and the
Committee harmless from and against any liability that they may
incur in the administration of the Trust, unless arising from the
Trustee's or the Committee's own gross negligence or willful
breach of the provisions of its obligations under this Agreement.
If the Company fails to indemnify and hold the Trustee and the
Committee harmless from and against any liability that they may
incur in the administration of this Trust pursuant to this
Article TENTH, the Trust shall indemnify the Trustee and the
Committee to the extent permitted by law. The Trustee and the
Committee shall not be required to give any bond or any other
security for the faithful performance of its duties under this
Agreement, except as required by law.
ELEVENTH: No Duty To Advance Funds. The Trustee shall have
no obligation to advance its own funds for the purposes of
fulfilling its responsibilities under this Agreement, and its
obligation to incur expenses shall at all times be limited to
amounts in the Trust available to be applied toward such
expenses.
TWELFTH: Accounts. (a) (1) The Trustee shall keep
accurate and detailed accounts of all its receipts, investments
and disbursements under this Agreement on a calendar year basis,
accounting for each Account on a separate basis. Such person or
persons as the Company shall designate shall be allowed to
inspect the books of account relating to the Trust upon request
at any reasonable time during the regular business hours of the
Trustee.
(2) Within 120 days after the close of each calendar
year, the Trustee shall transmit to the Company, and certify the
accuracy of, a written statement of the assets and liabilities of
the Trust, showing the current value of each asset at that date,
and a written account of all the Trustee's transactions relating
to the Trust during the period from the last previous accounting
to the close of that year. The report of any such valuation
shall not constitute a representation by the Trustee that the
amounts reported as fair market values would actually be realized
upon the liquidation of the Trust. For the purposes of this
Subparagraph, the date of the Trustee's resignation or removal as
provided in Article FOURTEENTH hereof or the date of termination
of the Trust as provided in Article FIFTEENTH hereof shall be
deemed to be the close of a year.
(3) Unless the Company shall have filed with the
Trustee written exceptions or objections to any such statement
and account within 90 days after receipt thereof, the Company
shall be deemed to have approved such statement and account; and
in such case or upon the written approval by the Company of any
such statement and account, the Trustee shall be forever released
and discharged with respect to all matters and things contained
in such statement and account as though it had been settled by
decree of a court of competent jurisdiction in an action or
proceeding to which the Company and all persons having any
beneficial interest in the Trust were parties.
(b) Nothing contained in this Agreement or in the Plans
shall deprive the Trustee of the right to have a judicial
settlement of its accounts. In any proceeding for a judicial
settlement of the Trustee's accounts or for instructions in
connection with the Trust, the only other necessary party thereto
in addition to the Trustee shall be the Company. If the Trustee
so elects, it may bring in as a party or parties defendant any
other person or persons. No person interested in the Trust,
other than the Company, shall have a right to compel an
accounting, judicial or otherwise, by the Trustee, and each such
person shall be bound by all accountings by the Trustee to the
Company, as herein provided, as if the account had been settled
by decree of a court of competent jurisdiction in an action or
proceeding to which such person was a party.
THIRTEENTH: Administration of the Plans; Communications.
(a) The Company and/or the Committee shall administer the Plans
as provided therein and subject to Paragraph (b) of Article THIRD
and Paragraph (c) of Article EIGHTH hereof, or subject to any
other delegation by the Company and/or the Committee and
assumption by the Trustee of the duties of administering the
Plans, the Trustee shall not be responsible in any respect for
administering the Plans nor shall the Trustee be responsible for
the adequacy of the Trust to meet and discharge all payments and
liabilities under the Plans. The Trustee shall be fully
protected in relying upon any written notice, instruction,
direction or other communication signed by an officer of the
Company or a member of the Committee who is authorized to execute
and deliver, in the name and on behalf of the Company or the
Committee, documents or instruments relating to the Trust
(hereinafter an "Authorized Officer"). The Company and the
Committee, from time to time, shall furnish the Trustee with the
names and specimen signatures of the Authorized Officers and
shall promptly notify the Trustee of the termination of office of
any Authorized Officer and the appointment of a successor
thereto. Until notified to the contrary, the Trustee shall be
fully protected in relying upon the most recent list of
Authorized Officers furnished to it by the Company and the
Committee.
(b) Any action required by any provision of this Agreement
to be taken by the Board of Directors of the Company shall be
evidenced by a resolution of such Board of Directors certified to
the Trustee by the Secretary or an Assistant Secretary of the
Company under its corporate seal, and the Trustee shall be fully
protected in relying upon any resolution so certified to it.
Unless other evidence with respect thereto has been specifically
prescribed in this Agreement, any other action of the Company
under any provision of this Agreement, including any approval of
or exceptions to the Trustee's accounts, shall be evidenced by a
certificate signed by an authorized officer, and the Trustee
shall be fully protected in relying upon such certificate. The
Trustee may accept a certificate signed by an Authorized Officer
as proof of any fact or matter that it deems necessary or
desirable to have established in the administration of the Trust
(unless other evidence of such fact or matter is expressly
prescribed herein), and the Trustee shall be fully protected in
relying upon the statements in the certificate.
(c) The Trustee shall be entitled conclusively to rely upon
any written notice, instruction, direction, certificate or other
communication believed by it to be genuine and to be signed by an
Authorized Officer, and the Trustee shall be under no duty to
make investigation or inquiry as to the truth or accuracy of any
statement contained therein.
(d) Until written notice is given to the contrary,
communications to the Trustee shall be sent to it at its office
at 3 Pine Hill Drive, Quincy, MA 02169, Attention: Legal
Division; communications to the Company shall be sent to it at
its office at 39 Old Ridgebury Road, Danbury, Connecticut 06817,
Attention: General Counsel and communications to the Committee
shall be sent to it at 39 Old Ridgebury Road, Danbury,
Connecticut 06817, Attention: [ ].
FOURTEENTH: Resignation or Removal of Trustee. (a) The Trustee
may resign at any time upon 120 days' written notice to the
Company or such shorter period as is acceptable to the Company.
However, such resignation shall not become effective unless and
until a successor trustee is appointed. If such resignation
occurs before a Change In Control and not during a Threatened
Change In Control Period, the Company shall appoint a successor
trustee. If such resignation occurs during a Threatened Change
In Control Period or after a Change In Control, the Committee
shall have the right to appoint a successor trustee. In either
case, the Company or the Committee, as the case may be, shall
diligently seek to obtain a successor trustee. Until the
appointment of a successor trustee, the Trustee shall continue to
perform its duties hereunder until the successor trustee is in
place, and the Trustee shall be entitled to expenses and fees
through the effective date of its resignation as Trustee.
(b) The Company, by action of its Board of Directors, may,
other than during a Threatened Change In Control Period, remove
the Trustee before a Change In Control, upon 60 days' written
notice to the Trustee, or upon shorter notice if acceptable to
the Trustee but in either event, if the removal occurs during the
first three years of this Agreement, the Company shall pay to the
Trustee all fees (but not expenses) which would have been due the
Trustee for the remainder of such initial three-year period. If
the removal occurs after the first three years of this Agreement,
the Company shall pay to the Trustee all fees (but not expenses)
which would have been due the Trustee through the next one-year
anniversary of the effective date of this Agreement. The Company
may not remove the Trustee during a Threatened Change In Control
Period or after a Change In Control. In the event it resigns or
is removed, the Trustee shall have a right to have its accounts
settled as provided in Article TWELFTH hereof.
(c) Each successor trustee shall have the powers and duties
conferred upon the Trustee in this Agreement, and the term
"Trustee" as used in this Agreement shall be deemed to include
any successor trustee. Upon designation or appointment of a
successor trustee, the Trustee shall transfer and deliver the
Trust to the successor trustee, reserving such sums as the
Trustee shall deem necessary to defray its expenses in settling
its accounts, to pay any of its compensation due and unpaid and
to discharge any obligation of the Trust for which the Trustee
may be liable. If the sums so reserved are not sufficient for
these purposes, the Trustee shall be entitled to recover the
amount of any deficiency from either the Company or the successor
trustee, or both. When the Trust shall have been transferred and
delivered to the successor trustee and the accounts of the
Trustee have been settled as provided in Article TWELFTH hereof,
the Trustee shall be released and discharged from all further
accountability or liability for the Trust and shall not be
responsible in any way for the further disposition of the Trust
or any part thereof.
FIFTEENTH: Amendment of Agreement; Termination of Trust.
(a) Subject to Paragraph (b) of this Article FIFTEENTH and
Article NINTH, the Company expressly reserves the right at any
time to amend or terminate this Agreement and the Trust created
thereby to any extent that it may deem advisable. No amendment
shall be made without the Trustee's consent thereto in writing
if, and to the extent that, the effect of such amendment is to
increase the Trustee's responsibilities hereunder. Such proposed
amendment shall be delivered to the Trustee as a written
instrument of amendment, duly executed and acknowledged by the
Company and accompanied by a certified copy of a resolution of
the Board of Directors of the Company authorizing such amendment.
The Company also shall deliver to the Trustee a copy of any
modifications or amendments to the Plans. The Trustee's consent
shall not be required for the termination of the Trust or its
removal as Trustee.
(b) Notwithstanding any other provisions of this Agreement,
the provisions of this Agreement and the Trust created thereby
may not be amended after the date a Change In Control occurs
without the written consent of a majority in number of
participants and beneficiaries. The Trustee may request that the
Company furnish evidence to establish that such a majority in
number of participants and beneficiaries have granted written
consent to such an amendment. The Trustee, after a Change In
Control, upon written advice of counsel, may amend the provisions
of this Agreement to the extent required by applicable law. The
Company reserves the right to amend or eliminate this Paragraph
(b) of Article FIFTEENTH prior to the date of a Change In
Control.
(c) In the event the Company terminates the Trust prior to
the occurrence of a Change In Control, other than during a
Threatened Change In Control Period, the Trustee (subject to the
provisions of Paragraph (d) of Article THIRD and Article
SIXTEENTH hereof and reserving such sums as the Trustee shall
deem necessary in settling its accounts and to discharge any
obligation of the Trust for which the Trustee may be liable)
shall distribute all remaining assets of the Trust in accordance
with the written directions of the Company.
(d) In case any one or all of the Equalization Plan, the
Supplemental Retirement Income Plan, the ERIP, the 1983 Bonus
Deferral Plan, the 1984 Bonus Deferral Plan, the Compensation
Deferral Program, the Directors' Compensation Deferral Program,
the Excess LTD Plan, the Mid-Career Hire Plan, the Special
Severance Protection Program, the Retiree Medical Program and the
Key International Management Plan is terminated in whole or in
part after a Change In Control occurs, then the Trustee, subject
to the provisions of Paragraph (d) of Article THIRD, and Article
SIXTEENTH hereof, and reserving such sums as the Trustee shall
deem necessary in settling its accounts and to discharge any
obligation of the Trust for which the Trustee may be liable)
shall apply or distribute the Account established with regard to
such Plan pursuant to Paragraph (a) of Article SECOND, in such
manner and in such amounts as the Committee shall determine based
upon the most recent Participant Data (as defined in Paragraph
(b) of Article THIRD hereof) forwarded by the Company to the
Trustee prior to such a Change In Control and any supplemental
information furnished to the Trustee or the Committee after a
Change In Control by a participant or beneficiary upon which the
Committee may reasonably rely in making such a determination.
After satisfying all liabilities with regard to such terminated
Plan, from the Account established with regard to such Plan, the
Committee shall direct the Trustee to distribute the remaining
assets in such Account in accordance with Paragraph (c)(15) of
Article SECOND. Subject to Paragraph (b) of Article SIXTEENTH,
in the event of a Change In Control, the Trust shall continue in
effect until the later of the fifth one year anniversary of the
date on which a Change In Control occurs or the date upon which
all of the participants' and beneficiaries' benefits under all of
the Plans have been paid or otherwise provided for. Upon
termination of the Trust, the Trustee shall have a right to have
its account settled as provided in Article TWELFTH hereof. Any
assets remaining in the Trust after payment or provision for all
benefits payable under the Plans, and after the Trustee has
reserved such sums as it deems necessary for the payment of its
expenses and fees hereunder shall be paid in accordance with the
written directions of the Committee. When the Trust assets shall
have been so applied or distributed and the accounts of the
Trustee shall have been so settled, the Trustee shall be released
and discharged from all further accountability or liability
respecting the Trust.
SIXTEENTH: Prohibition of Diversion. (a) Except as
provided in Paragraph (b) below, at no time prior to the
satisfaction of all liabilities with respect to the beneficiaries
under this Trust shall any part of the corpus and/or income of
the Trust be used for, or diverted to, purposes other than for
the exclusive benefit of such beneficiaries and the assets of the
Trust shall never inure to the benefit of the Company and shall
be held for the exclusive purposes of providing benefits to
participants in the Plans and their beneficiaries and defraying
reasonable expenses of administering the Plans or performing any
of the Trustee's duties under this Agreement.
(b) Notwithstanding any provision of this Agreement to the
contrary, the assets of the Trust shall at all times be subject
to claims of the creditors of the Company. In the event that (1)
a final judicial determination is entered that the Company is
unable to pay its debts as such debts mature or (2) there shall
have been filed by or against the Company in any court or other
tribunal either of the United States or of any State or of any
other authority now or hereafter exercising jurisdiction, a
petition in bankruptcy or insolvency proceedings or for
reorganization or for the appointment of a receiver or trustee of
all or substantially all of the Company's property under the
present or any future Federal bankruptcy code or any other
present or future applicable Federal, State or other bankruptcy
or insolvency statute or law, then the Trustee shall not make
payments from the Trust to any participant or beneficiary, but
under either of such circumstances, the Trustee shall deliver any
property held in the Trust only as a court or other tribunal of
competent jurisdiction may direct to satisfy the claims of the
Company's creditors. The Trustee shall resume payments under the
terms of the Trust only after determining that the Company is not
insolvent or after receiving a judicial decision to that effect.
The Chief Financial Officer of the Company, or an officer of the
Company with duties similar to those of a Chief Financial
Officer, and the Board of Directors of the Company shall have the
duty to inform the Trustee of the insolvency of the Company. The
Trustee is empowered to retain, at the expense of the Trust,
counsel and other appropriate experts, including accountants, to
aid it in making any determination with regard to the Company's
insolvency under this Paragraph (b) of Article SIXTEENTH.
SEVENTEENTH: Prohibition of Assignment of Interest. No
interest, right or claim in or to any part of the Trust or any
payment therefrom shall be assignable, transferable or subject
to sale, mortgage, pledge, hypothecation, commutation,
anticipation, garnishment, attachment, execution or levy of any
kind, and the Trustee shall not recognize any attempt to assign,
transfer, sell, mortgage, pledge, hypothecate, commute or
anticipate the same, except to the extent required by law.
EIGHTEENTH: Affiliates. Any corporation that, directly or
through one or more intermediaries, controls, is controlled by or
is under common control with the Company may adopt and become a
party to this Agreement by delivering to the Trustee an
instrument in writing, duly executed and acknowledged, adopting
and assuming jointly and severally the obligations of the Company
under this Agreement and constituting and appointing the Company
to be the agent and attorney in fact of such corporation for the
purposes of giving or receiving notices, instructions, directions
and other communications to or from the Trustee and approving the
accounts of the Trustee, accompanied by duly certified copies of
resolutions of the Board of Directors of such corporation
adopting the Plans and approving and authorizing execution,
acknowledgment and delivery of such instrument and a duly
certified copy of a resolution of the Board of Directors of the
Company approving and consenting to the same. Notwithstanding
the foregoing, no Affiliate may become a party to this Agreement
after a Change in Control or a Threatened Change In Control.
NINETEENTH: Miscellaneous. (a) This Agreement shall be
interpreted, construed and enforced, and the trust hereby created
shall be administered, in accordance with the laws of the United
States and of the State of New York. Nothing in this Agreement
shall be construed to subject either the Trust created hereunder
or the Plans to the Employee Retirement Income Security Act of
1974, as amended.
(b) The titles to Articles of this Agreement are placed
herein for convenience of reference only, and the Agreement is
not to be construed by reference thereto.
(c) This Agreement shall bind and inure to the benefit of
the successors and assigns of the Company and the Trustee,
respectively and the Plans.
(d) This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original but
all of which together shall constitute but one instrument, which
may be sufficiently evidenced by any counterpart.
(e) If any provision of this Agreement is determined to be
invalid or unenforceable the remaining provisions shall not for
that reason alone also be determined to be invalid or
unenforceable.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in their respective names by their duly
authorized officers under their corporate seals as of the day and
year first above written.
UNION CARBIDE CORPORATION
By /s/ M.A. Kessinger
ATTEST:
/s/ J. Macdonald
Assistant Secretary
STATE STREET BANK AND TRUST
COMPANY
By /s/ K. Driscoll
ATTEST:
/s/ D. Sisk
Trust Officer
EXHIBIT A
Authorization Pursuant to
Paragraph (c) of Article EIGHTH of
Union Carbide Corporation Benefits Protection Trust
TO: State Street Bank and Trust Company
This is to authorize the State Street Bank and Trust
Company, as Trustee of the Union Carbide Corporation Benefits
Protection Trust (the "Trust"), to institute and maintain legal
proceedings against the Company (as defined in the Trust) or
other appropriate person or entity to assert the following claim
on my behalf: [nature of claim]. The Trustee shall have the
powers and be subject to the procedures set forth in Paragraph
(c) of Article EIGHTH of the Trust.
Any proceedings by the Trustee under this authorization may
be initiated in my name as a plaintiff (or as a member of a
class) or in the name of the Trustee, or both, as the Trustee
determines is necessary or appropriate at the time proceedings
are commenced.
____________________________
Participant
EXHIBIT B
Revocation of Authorization
Pursuant to Paragraph (c) of Article EIGHTH of
Union Carbide Corporation Benefits Protection Trust
To: State Street Bank and Trust Company
This is to notify you that I revoke any prior authorization
I have given to you as Trustee of the Union Carbide Corporation
Benefits Protection Trust (the "Trust") to maintain legal
proceedings against the Company (as defined in the Trust) or
other appropriate person or entity to assert the following claim
on my behalf: [nature of claim].
I understand that this Revocation of Authorization is
conditioned upon, and shall not be effective until, the
appointment by me of my own counsel and the appearance of that
counsel in any legal proceeding on my behalf in lieu of counsel
retained by the Trustee. I understand further that, upon the
occurrence of these conditions, the Trustee shall have no
obligation to proceed further on my behalf, or to pay any costs
or expenses incurred after the delivery of this Revocation of
Authorization.
__________________________
Participant
STATE OF CONNECTICUT )
: SS. :
COUNTY OF )
On this _____ day of ____________, 1997, before me
personally came ________________, to me known, who, being by
me duly sworn, did depose and say that he/she resides at
___________________, and that he/she is _________________ of
UNION CARBIDE CORPORATION, one of the corporations described in
and which executed the foregoing instrument; that he/she knows
the seal of said corporation; that the seal affixed to said
instrument is such corporate seal; that it was so affixed by
order of the Board of Directors of said corporation; and that
he/she signed his/her name thereto by like order.
__________________________
STATE OF MASSACHUSETTS )
: SS.:
COUNTY OF )
On this ____ day of______________, 1997, before me
personally came _________________, to me known, who, being by me
duly sworn, did depose and say that he/she resides at
________________, and that he/she is a Vice President of STATE
STREET BANK AND TRUST COMPANY, one of the corporations described
in and which executed the foregoing instrument; that he/she knows
the seal of said corporation; that the seal affixed to said
instruments is such corporate seal; that it was so affixed by
order of the Board of Directors of said corporation; and that
he/she signed his/her name thereto by like order.
__________________________
SCHEDULE 1
1. The Equalization Benefit Plan for Participants of the
Retirement Program Plan for Employees of Union Carbide
Corporation and Its Participating Subsidiary Companies
(hereinafter, together with all amendments thereto from time to
time in effect, referred to as the "Equalization Plan").
2. The Supplemental Retirement Income Plan (hereinafter,
together with all amendments thereto from time to time in effect,
referred to as the "Supplemental Retirement Income Plan").
3. The 1983 Union Carbide Cash Bonus Deferral Program
(hereinafter, together with all amendments thereto from time to
time in effect, referred to as the "1983 Bonus Deferral Plan").
4. The 1984 Union Carbide Cash Bonus Deferral Program
(hereinafter, together with all amendments thereto from time to
time in effect, referred to as the "1984 Bonus Deferral Plan").
5. The Benefit Plan for Designated Key International
Management Employees (hereinafter, together with all amendments
thereto from time to time in effect, referred to as the "Key
International Management Plan").
6. All outstanding severance compensation agreements of the
Company as approved by the Board of Directors of the Company
(hereinafter, together with all amendments thereto from time to
time in effect, referred to as "Severance Compensation
Agreements").
7. The Union Carbide Corporation Compensation Deferral
Program (hereinafter, together with all amendments thereto from
time to time in effect, referred to as the "Compensation Deferral
Program").
8. The Union Carbide Corporation Non-Employee Directors'
Compensation Deferral Program (hereinafter, together with all
amendments thereto from time to time in effect, referred to as
the Directors' Compensation Deferral Program").
9. The Union Carbide Mid-Career Hire Plan (hereinafter,
together with all amendments thereto from time to time in effect,
referred to as the "Mid-Career Hire Plan").
10. The Union Carbide Corporation Excess Long Term
Disability Plan (hereinafter, together with all amendments
thereto from time to time in effect, referred to as the "Excess
LTD Plan").
11. The Union Carbide Enhanced Retirement Income Plan
(hereinafter, together with all amendments thereto from time to
time in effect, referred to as the "Enhanced Retirement Income
Plan").
12. The Special Severance Protection Program.
13. The Retiree Medical Program.
SCHEDULE 2
1. The Equalization Benefit Plan for Participants of the
Retirement Program Plan for Employees of Union Carbide
Corporation and It's Participating Subsidiary Companies.
2. The Supplemental Retirement Income Plan.
3. The 1983 Union Carbide Cash Bonus Deferral Program.
4. The 1984 Union Carbide Cash Bonus Deferral Program.
5. The Benefit Plan for Designated Key International
Management Employees.
6. All outstanding severance compensation agreements of the
Company as approved by the Board of Directors of the Company.
7. The Union Carbide Compensation Deferral Program.
8. The Union Carbide Non-Employee Directors' Compensation
Deferral Program.
9. The Union Carbide Mid-Career Hire Plan.
10. The Excess LTD Plan.
11. The Enhanced Retirement Income Plan.
12. The Special Severance Protection Program.
13. The Retiree Medical Program.
SCHEDULE 3
TRUSTEE'S FEES
SCHEDULE 4
COMMITTEE FEES
Exhibit 10.11.2
FIRST AMENDMENT TO THE
UNION CARBIDE CORPORATION
BENEFITS PROTECTION TRUST AGREEMENT
The Union Carbide Corporation Benefits Protection Trust
(Amended and Restated Effective August 29, 1997) (the "Trust")
between Union Carbide Corporation and State Street Bank and Trust
Company, as Trustee, is hereby amended as follows:
1. Paragraphs (a)(14) and (a)(15) of Article SECOND are
hereby renumbered to be paragraphs (a)(15) and (a)(16) of Article
SECOND.
2. A new paragraph (a)(14) of Article SECOND is created
to read as follows:
"(14) such cash or other property acceptable
to the Trustee as shall be paid or delivered
to the Trustee from time to time as
contributions under the 1997 Union Carbide
Corporation EPS Incentive Plan, together with
the earnings, income, additions and
appreciation thereon and thereto (all of
which is hereinafter called the "EPS Plan
Account");"
3. Paragraph (c) of Article SECOND is amended by
inserting the words, "EPS Plan Account" after "Retiree Medical
Program Account" and before "and such other Account(s)...."
4. Paragraphs (d)(13) (which should have been numbered
(d)(14) in the original Trust), (d)(14) and (d)(15) of Article
SECOND are hereby renumbered to be paragraphs (d)(15), (d)(16)
and (d)(17) of Article SECOND.
5. A new paragraph (d)(14) of Article SECOND is created
to read as follows:
"The assets of the EPS Plan Account shall be
used to discharge the obligation of the 1997
Union Carbide Corporation EPS Incentive
Plan."
6. Paragraph 15(d) of Article FIFTEENTH is amended by
inserting the words, "1997 Union Carbide Corporation EPS
Incentive Plan" after "Retiree Medical Program" and before "the
Key International Management Plan...."
7. Schedule 1 to the Trust is hereby amended by inserting
the following at the end thereof:
"14. 1997 Union Carbide Corporation EPS
Incentive Plan (hereinafter, together with
all amendments thereto from time to time in
effect, referred to as the "EPS Plan')."
8. Schedule 2 to the Trust is hereby amended
by inserting the following at the end
thereof:
"14. The EPS Plan."
9. The provisions of this First Amendment shall be
effective as of November 1, 1997
UNION CARBIDE CORPORATION
By: /s/ M.A. Kessinger
Title: Vice President, Human Resources
Date: December 31, 1997
STATE STREET BANK AND TRUST
COMPANY, AS TRUSTEE
By: /s/ K. Driscoll
Title: Vice President
Date: February 2, 1998
Exhibit 10.14.2
FIRST AMENDMENT TO THE
UNION CARBIDE CORPORATION
NON-EMPLOYEE DIRECTORS' RETIREMENT PLAN
The Union Carbide Corporation Non-Employee Directors'
Retirement Plan (the "Plan") is hereby amended as follows:
1. Section 4 of the Plan is hereby amended by adding the
following sentence at the end thereof:
"Effective February 1, 1997, each individual
who thereafter becomes a Non-Employee
Director of the Corporation shall no longer
be eligible to be a Participant in this
Plan."
2. Section 5.2 of the Plan is hereby amended by adding
the following sentence at the end thereof:
"Notwithstanding the foregoing, effective
February 1, 1997, a Participant shall no
longer accrue any additional benefits under
this Plan."
3. Section 5.5 of the Plan is hereby amended by adding
the following sentence at the end thereof:
"Notwithstanding the foregoing, effective May
1, 1997, the net present value of the Annual
Basic Benefit of each Participant which would
otherwise be payable under the terms of the
Plan will be automatically rolled over to the
Union Carbide Corporation Non Employee
Directors' Compensation Deferral Plan."
4. Section 7 of the Plan is hereby amended by adding the
following sentence at the end thereof:
"Effective February 1, 1997, the Plan is
terminated."
5. The amendments set forth in paragraphs 1, 2 and 4 of
this First Amendment shall be effective as of February 1, 1997.
6. The amendment set forth in paragraph 3 of this First
Amendment shall be effective as of May 1, 1997.
UNION CARBIDE CORPORATION
By: /s/ M.A. Kessinger
Exhibit 10.15.2
SECOND AMENDMENT TO THE 1994
UNION CARBIDE LONG-TERM INCENTIVE PLAN
The 1994 Union Carbide Long-Term Incentive Plan (the "Plan")
is hereby amended as follows:
1. Section 6.4 of the Plan is amended in its entirety to
read as follows:
" 6.4: An option may be exercised
with respect to part or all of the shares
subject to the option by giving written
notice to the Corporation of the exercise of
the option. The option price for the shares
for which an option is exercised shall be
paid on or within ten business days after the
date of exercise. The terms of the stock
option may provide that the option price may
be paid (i) in cash, (ii) in whole shares of
common stock of the Corporation owned by the
Participant prior to exercising the option,
(iii) by having the Corporation withhold a
number of shares from the exercise, equal in
value to the option price, or (iv) in a
combination of cash and delivery of shares,
or cash and withholding of shares of common
stock. The value of any share of common
stock delivered or withheld in payment of the
option price shall be its Market Price on the
date the option is exercised."
2. A new Section 6.7 is added to the Plan to read as
follows:
" 6.7: In order to enable the
Corporation to meet any applicable federal,
state or local withholding tax requirements
arising as a result of the exercise of a
stock option, a Participant shall pay the
Corporation the amount of tax to be withheld
or may elect to satisfy such obligation by
having the Corporation withhold shares that
otherwise would be delivered to the
Participant pursuant to the exercise of the
option for which the tax is being withheld,
by delivering to the Corporation other shares
of common stock of the Corporation owned by
the Participant prior to exercising the
option, or by making a payment to the
Corporation consisting of a combination of
cash and such shares of common stock. Such
an election shall be subject to the
following: (a) the election shall be made in
such manner as may be prescribed by the
Committee and the Committee shall have the
right, in its discretion, to disapprove such
election; and (b) the election shall be made
prior to the date to be used to determine the
tax to be withheld and shall be irrevocable.
The value of any share of common stock to be
withheld by the Corporation or delivered to
the Corporation pursuant to this Section 6.7
shall be the Market Price on the date to be
used to determine the amount of tax to be
withheld."
3. Section 9.1 of the Plan is amended to add the
following paragraph at the end thereof:
" Alternatively, the terms of the stock
or Restricted Stock grant may allow for the
Participant to satisfy tax withholding
obligations by delivering whole shares of
common stock of the Corporation to the Corporation
or; the value of any shares of
common stock delivered in payment of tax
withholding obligations shall be its Market
Price on the date to be used to determine the
amount of income tax to be paid."
4. The amendments set forth herein shall be effective as
of October 1, 1997.
Signed this 1st day of October, 1997.
UNION CARBIDE CORPORATION
By: /s/ M.A. Kessinger
Exhibit 10.19.2
FIRST AMENDMENT TO THE 1997
UNION CARBIDE LONG-TERM INCENTIVE PLAN
The 1997 Union Carbide Long-Term Incentive Plan (the
"Plan") is hereby amended as follows:
1. A new Section 8.3 is added to the Plan to read
as follows:
"8.3: A grant of Restricted Stock
pursuant to this Section 8 shall be subject
to a minimum vesting period of at least three
(3) years, or such longer period as the
Committee may, in its sole discretion,
determine; provided, however, that the
Committee may grant up to three hundred
thousand (300,000) shares of Restricted Stock
with a vesting period of less than three (3)
years. In the event that a Participant
terminates employment with the Corporation
prior to the date that the Restricted Stock
satisfies a vesting period, such Restricted
Stock shall be forfeited except (i) in the
case of the Participant's death, disability
or Retirement, (ii) in the case of a
Participant's termination of employment by
the Corporation other than for cause, (iii)
in the case of a Change in Control of the
Corporation, or (iv) if the Committee
determines it is in the best interests of the
Corporation to permit individual exceptions."
2. The amendment set forth herein shall be
effective as of April 23, 1997.
UNION CARBIDE CORPORATION
By: /s/ M.A. Kessinger
Exhibit 10.21
1997 UNION CARBIDE CORPORATION
EPS INCENTIVE PLAN
TABLE OF CONTENTS
Section Title Page
Section 1: Purpose . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2: Definitions . . . . . . . . . . . . . . . . . . . . . 1
Section 3: Administration . . . . . . . . . . . . . . . . . . . 6
Section 4: Participation . . . . . . . . . . . . . . . . . . . . 7
Section 5: Pay-At-Risk . . . . . . . . . . . . . . . . . . . . . 7
Section 6: Awards . . . . . . . . . . . . . . . . . . . . . . . 9
Section 7: Payments . . . . . . . . . . . . . . . . . . . . . . 10
Section 8: Termination of Employment . . . . . . . . . . . . . 12
Section 9: Beneficiary Designation . . . . . . . . . . . . . . 14
Section 10: General Provisions . . . . . . . . . . . . . . . . . 15
Section 11: Amendment, Suspension, or Termination . . . . . . . 16
Section 12: Effective Date . . . . . . . . . . . . . . . . . . . 16
1997 UNION CARBIDE EPS INCENTIVE PLAN
Section 1: Purpose
The purpose of the Plan is to incent designated employees of the
Corporation to achieve certain earnings per share goals in calendar
years 1999 and 2000. These employees will forfeit a portion of their
compensation if the earnings per share goals are not achieved and will
receive an incentive payment if the earnings per share goals are
achieved.
Section 2: Definitions
2.1 "Award" shall mean a cash amount payable to a Participant
pursuant to Section 7.2.
2.2 "Award Shares" shall mean the Phantom Shares credited to a
Participant pursuant to Section 6.3.
2.3 "Beneficiary" shall mean a Participant's beneficiary
pursuant to Section 9.
2.4 "Board" shall mean the Board of Directors of the
Corporation.
2.5 "CEO" shall mean the Chief Executive Officer of the
Corporation.
2.6 "Change in Control of the Corporation" shall be deemed to
occur if any of the following circumstances shall occur:
(i) any "person" or "group" within the meaning of Sections 13(d)
and 14(d)(2) of the Securities Exchange Act of 1934 ("Act") becomes the
"beneficial owner" as defined in Rule 13d-3 under the Act of more than
20% of the then outstanding voting securities of the Corporation;
(ii) any "person" or "group" within the meaning of Sections 13(d)
and 14(d)(2) of the Act acquires by proxy or otherwise the right to vote
for the election of directors, for any merger or consolidation of the
Corporation or for any other matter or question with respect to more
than 20% of the then outstanding voting securities of the Corporation;
(iii) if during any period of twenty-four consecutive months,
Present Directors and/or New Directors cease for any reason to
constitute a majority of the Board.
For these purposes, "Present Directors" shall mean individuals
who at the beginning of such consecutive twenty-four month period were
members of the Board and "New Directors" shall mean any director whose
election by the Board or whose nomination for election by the
Corporation's stockholders was approved by a vote of at least two-thirds
of the Directors then still in office who were Present Directors or New
Directors;
(iv) the stockholders of the Corporation approve a plan of complete
liquidation or dissolution of the Corporation; or
(v) there shall be consummated (x) a reorganization, merger or
consolidation of all or substantially all of the assets of the
Corporation (a "Business Combination"), unless, following such Business
Combination, (a) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the
outstanding common stock of the Corporation and outstanding voting
securities of the Corporation immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 50% of,
respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities entitled
to vote generally in the election of directors, as the case may be, of
the corporation resulting from such Business Combination (including,
without limitation, a corporation which as a result of such transaction
owns the Corporation or all or substantially all of the Corporation's
assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership, immediately prior
to such Business Combination of the outstanding common stock of the
Corporation and outstanding voting securities of the Corporation, as the
case may be, (b) no "person" or "group" within the meaning of Sections
13(d) and 14(d)(2) of the Act (excluding any corporation resulting from
such Business Combination or any employee benefit plan (or related
trust) of the Corporation or such corporation resulting from such
Business Combination) beneficially owns, directly or indirectly, 20% or
more of, respectively, the then outstanding shares of common stock of
the corporation resulting from such Business Combination or the combined
voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to
the Business Combination and (c) at least a majority of the members of
the board of directors of the corporation resulting from such Business
Combination were members of the Board at the time of the execution of
the initial agreement, or of the action of the Board, providing for such
Business Combination; or (y) any sale, lease, exchange or other transfer
(in one transaction or a series of related transactions) of all, or
substantially all, of the assets of the Corporation, provided, that the
divestiture of less than substantially all of the assets of the
Corporation in one transaction or a series of related transactions,
whether effected by sale, lease, exchange, spin-off, sale of the stock
or merger of a subsidiary or otherwise, shall not constitute a Change in
Control of the Corporation.
Notwithstanding the foregoing, a Change in Control of the
Corporation shall not be deemed to occur: (A) pursuant to clauses (i)
and (ii) above, solely because twenty percent (20%) or more of the
combined voting power of the Corporation's then outstanding securities
is acquired by one or more employee benefit plans maintained by the
Corporation; or (B) pursuant to clause (v)(y) above, if the Board
determines that any sale, lease, exchange or transfer does not involve
substantially all of the assets of the Corporation.
2.7 "Closing Price" shall mean the closing price of the
Corporation's common stock on the New York Stock Exchange - Composite
Transactions.
2.8 "Committee" shall mean the Compensation and Management
Development Committee of the Board.
2.9 "Compensation Deferral Plan" shall mean the 1995 Union
Carbide Compensation Deferral Plan, or any successor plan.
2.10 "Corporation" shall mean Union Carbide Corporation and its
consolidated subsidiaries.
2.11 "Dividend Shares" shall mean the Phantom Shares credited
to a Participant pursuant to Sections 5.5 and 7.7.
2.12 "EPS" shall mean the diluted earnings per share of the
Corporation's common stock as reported in the audited financial
statements of the Corporation.
2.13 "Participant" shall mean an employee of Union Carbide
Corporation and such of its subsidiaries as shall be designated by the
Committee to participate in this Plan.
2.14 "Pay-At-Risk" shall mean the aggregate amount of each
Participant's annual Variable Compensation placed at risk pursuant to
Sections 5.2 and 5.3.
2.15 "Pay-At-Risk Shares" shall mean the Phantom Shares
determined pursuant to Section 5.4.
2.16 "Performance Period" shall mean calendar years 1999 and
2000.
2.17 "Phantom Shares" shall mean units equal to the market
value of the Corporation's common stock on the New York Stock Exchange -
Composite Transactions.
2.18 "Plan" shall mean this 1997 Union Carbide Corporation EPS
Incentive Plan.
2.19 "Recalculated EPS" shall mean EPS as recalculated pursuant
to Section 6.5.
2.20 "Reduced Pay-At-Risk Shares" shall have the meaning set
forth in Section 8.3.
2.21 "Retirement" shall mean termination of employment with the
Corporation with the right to receive immediately a non-actuarially
reduced pension under the Corporation's Retirement Program.
2.22 "Retirement Program" shall mean the Retirement Program
Plan for Employees of Union Carbide Corporation and Its Participating
Subsidiary Companies.
2.23 "Variable Compensation" shall mean variable compensation
under the 1997 Union Carbide Variable Compensation Plan and/or the 1995
Union Carbide Performance Incentive Plan, as the same may be amended, or
any successor plan.
Section 3: Administration
3.1 The Plan shall be administered by the Committee, which
shall have full power and authority to construe and interpret the Plan,
establish and amend administrative regulations to further the purpose of
the Plan and take any other action necessary to administer the Plan.
3.2 In the event of a Change in Control of the Corporation or
other unusual and/or unplanned actions or events that significantly
affect the attainment of the EPS goals of the Plan during the
Performance Period, the Committee is authorized: (i) to increase or
decrease the Awards under the Plan, (ii) accelerate the payments under
the Plan, (iii) change the performance goals, (iv) determine that the
performance goals of the Plan have been met even though the Performance
Period has not been completed, or (v) otherwise alter the terms of the
Plan or make such equitable adjustments, as the Committee shall, in its
sole discretion, determine.
3.3 The Committee's decisions, actions and interpretations
shall be final and binding upon all Participants, Beneficiaries,
shareholders of the Corporation and any other person.
Section 4: Participation
4.1 The CEO, those Corporate Vice-Presidents and Vice-
President/General Managers reporting to the CEO, and certain other
senior managers with major functional responsibilities to achieve the
Corporation's profit growth/cost reduction objectives, as approved by
the CEO and authorized by the Committee, shall be the Participants in
the Plan. In addition, any Participants added to the Plan after March
1, 1998 shall be subject to such terms and conditions for participation
as the Committee shall determine.
Section 5: Pay-At-Risk
5.1 Overview: The Corporation will reduce each Participant's
Variable Compensation by the amount of the Pay-At-Risk, as provided in
Sections 5.2 and 5.3. The Pay-At-Risk will be converted to Pay-At-Risk
Shares as provided in Section 5.4. If the 1999 and 2000 performance
goals established pursuant to this Plan are not met, the Pay-At-Risk
Shares will be forfeited. If the goals are met, a Participant will
receive the value of the Pay-At-Risk Shares and the Award Shares as
provided in Sections 6 and 7.
5.2 Determination of Pay-at-Risk: The Pay-At-Risk for each
Participant will equal a percentage of such Participant's annual base
salary, in effect as of September 30, 1997, as follows:
CEO = 100%
Corporate Vice Presidents and
Vice President/General Managers = 65%
Other Selected Participants = 40%
5.3 Reduction of Variable Compensation: Variable Compensation,
if any, which would otherwise be paid to the Participant in each of the
three years, 1998, 1999 and 2000 will be reduced by one-third of the
Pay-At-Risk. The reduction shall be made after the Variable
Compensation is determined in accordance with the terms of the plans
under which the Variable Compensation is paid and before any deduction
for deferral of Variable Compensation pursuant to the Compensation
Deferral Plan. If for any reason, the Variable Compensation in any year
is less than the required reduction, any deficit would be carried over
and a subsequent year's Variable Compensation shall be reduced as
approved by the CEO. Based on individual circumstances, the CEO may
allow Participants, other than the CEO, to have the Participant's
Variable Compensation reduced over a period longer than three years.
Upon the request of a Participant, the CEO may allow Participants
(including himself) to elect to have the Participant's Variable
Compensation reduced over a period shorter than three years.
5.4 Phantom Shares: The Pay-At-Risk will be converted to the
number of Phantom Shares determined by dividing the Pay-At-Risk by the
Closing Price on September 24, 1997, which price was $47.75 (the "Pay-
At-Risk Shares"). In the event such conversion results in a fractional
Pay-At-Risk Share, the Pay-At-Risk Shares shall be rounded to the next
highest whole number.
5.5 Dividends: The Pay-At-Risk Shares, the Reduced Pay-At-Risk
Shares and any Dividend Shares thereon will be credited with amounts
equal to dividends paid on the Corporation's common stock and deemed
reinvested in additional Phantom Shares (or fractions thereof) based
upon the Closing Price on the date such dividends are paid by the
Corporation. Whenever the Pay-At-Risk Shares or the Reduced Pay-At-Risk
Shares are forfeited under the terms of the Plan, the Dividend Shares
thereon shall also be forfeited. Whenever the value of the Pay-At-Risk
Shares or Reduced Pay-At-Risk Shares is to be paid to a Participant
under the terms of the Plan, the value of the Dividend Shares thereon
shall also be paid to the Participant.
Section 6: Awards
6.1 Overview: The objective performance goals for the
Performance Period are based on EPS and Recalculated EPS as set forth in
Section 6.2. The Award Schedule set forth in Section 6.3 and the terms
and conditions relating to the achievement of Awards set forth in
Section 6.4 are based upon achievement during the Performance Period of
such performance goals.
6.2 Performance Goals: The performance goals are the
achievement of EPS and Recalculated EPS of $4.00 or more during 1999 and
2000.
6.3 Award Schedule: Subject to the provisions of Section 6.4,
if the performance goals are achieved, a Participant will be granted
additional Phantom Shares (the "Award Shares") according to the
following Award Schedule:
If EPS in 1999 Then the Award Shares shall be a Multiple
or 2000 is: of Pay-At-Risk Shares or Reduced
Pay-At-Risk Shares as follows:
1999 2000
Less than $4.00 0 0
$4.00 to $4.24 1X 1X
$4.25 to $4.49 2X 2X
$4.50 to $4.74 3X 3X
$4.75 or more 4X 4X
Participants shall be granted the Award Shares, if any, as of the
first quarter of 2001, by multiplying a Participant's Pay-At-Risk
Shares, or Reduced Pay-At-Risk Shares, by the multiple set forth in the
Award Schedule. The grant of Award Shares under the Award Schedule
shall be based upon EPS and not Recalculated EPS.
6.4 Eligibility For Award Shares; Forfeiture of Pay-At-Risk
Shares or Reduced Pay-At-Risk Shares: Participants shall be eligible
for Award Shares subject to the following conditions:
(a) If EPS is less than $4.00 for 2000, there will be no grant of Award
Shares for 1999 or 2000 and the Pay-At-Risk Shares or the Reduced Pay-
At-Risk Shares shall be forfeited.
(b) If EPS is $4.00 or more for 2000, but Recalculated EPS is less than
$4.00 in 2000, then there will be no grant of Award Shares for 1999 or
2000 and the value of the Pay-At-Risk Shares or the Reduced Pay-At-Risk
Shares shall be paid to the Participant pursuant to Section 7.1.
(c) If EPS and Recalculated EPS are each $4.00 or more in 2000, a
Participant will be granted Award Shares in accordance with the Award
Schedule for the year 2000.
(d) If EPS and Recalculated EPS are each $4.00 or more in both 1999 and
2000, a Participant will be granted Award Shares in accordance with the
Award Schedule for both the years 1999 and 2000.
6.5 Recalculated EPS: For each of 1999 and 2000, EPS shall be
recalculated using the spreads between customer prices and the cost of
feedstocks for Unipol Polymers, Ethylene Glycol and Polypropylene in
1993. The Committee shall adopt procedures for determining Recalculated
EPS.
Section 7: Payments
7.1 Pay-At-Risk Shares: If a Participant does not forfeit the
Pay-At-Risk Shares or the Reduced Pay-At-Risk Shares pursuant to Section
6.4 or Section 8, then the value of the Pay-At-Risk Shares or the
Reduced Pay-At-Risk Shares shall be paid to the Participant in the first
quarter of 2002, on a date determined by the Corporation.
7.2 Awards: The value of one-third of the Award Shares shall
be paid to the Participant in the first quarter of each of 2002, 2003
and 2004, on a date determined by the Corporation.
7.3 Value: The value of the Pay-At-Risk Shares, the Reduced
Pay-At-Risk Shares and the Award Shares to be paid to the Participant
pursuant to Sections 7.1 and 7.2 shall be determined by using the
average of the Closing Prices on each trading day in January of the year
of payment.
7.4 Deferral: Participants can elect to defer any or all of
the payments under Sections 7.1 and 7.2 in accordance with the terms of
the Compensation Deferral Plan.
7.5 Stock Ownership: If a Participant becomes entitled to
receive the value of the Pay-At-Risk Shares, the Reduced Pay-At-Risk
Shares or Award Shares, and is employed by the Corporation on January
31, 2002 but does not meet by January 31, 2002 the stock ownership
guidelines as heretofore or hereafter established by the Corporation,
the Participant shall forfeit on such date 50% of each of (i) the Pay-
At-Risk Shares or Reduced Pay-At-Risk Shares, (ii) the Award Shares and
(iii) any Dividend Shares credited by January 31, 2002 on such Pay-At-
Risk Shares or Reduced Pay-At-Risk Shares and the Award Shares.
7.6 Pensionable Earnings: The amounts by which a Participant's
Variable Compensation is reduced for Pay-At-Risk will continue to be
counted as part of the Participant's pensionable earnings under the
Corporation's Retirement Program for the year earned in accordance with
the terms of the Retirement Program. Any payment of the Pay-At-Risk
Shares, Reduced Pay-At-Risk Shares or Award Shares under Section 7.1 and
7.2 of this Plan will not be considered pensionable earnings under the
Corporation's Retirement Program or for any other benefit plan purpose.
7.7 Dividends: The Award Shares and any Dividend Shares
thereon will be credited with amounts equal to dividends paid on the
Corporation's common stock and deemed reinvested in additional Phantom
Shares (or fractions thereof) based upon the Closing Price on the date
such dividends are paid by the Corporation. Whenever the Award Shares
are forfeited under the terms of the Plan, the dividends thereon shall
also be forfeited. Whenever the value of the Award Shares is to be paid
to a Participant under the terms of the Plan, the value of the Dividend
Shares thereon shall also be paid to the Participant.
7.8 Corporate Changes: In the event of any change in the
number of outstanding shares of common stock of the Corporation by
reason of any stock split, stock dividend, recapitalization, merger,
consolidation, combination or exchange of shares or other similar
corporate change or in the event of any special distribution to the
stockholders, the Committee shall make such equitable adjustments in the
number of Pay-At-Risk Shares, Reduced Pay-At-Risk Shares and Award
Shares, both under the Plan as a whole and with respect to individuals,
as the Committee determines are necessary and appropriate. Any such
adjustment shall be final and binding upon all Participants,
Beneficiaries, shareholders of the Corporation and any other person.
Section 8: Termination of Employment
8.1 If a Participant terminates employment before 2001, no
Award shall be paid and the Pay-At-Risk Shares shall be forfeited except
as set forth in Sections 8.2 and 8.3, unless the Committee determines it
is in the best interests of the Corporation to permit individual
exceptions.
8.2 In the case of a Participant's death, disability or
termination of employment by the Corporation other than for cause prior
to 1999, the Participant shall not be entitled to any Award Shares and
the then value of the portion of Pay-At-Risk Shares which represents the
Pay-At-Risk for which the Participant's Variable Compensation has
actually been reduced, shall be paid to the Participant within sixty
days after the date of such death, disability or termination of
employment. Such value shall be determined using the average Closing
Price on the first ten days of trading following the date of such death,
disability or termination of employment.
In the case of a Participant's Retirement prior to 1999, the
Participant shall not be entitled to any Award Shares and the value of
the portion of the Pay-At-Risk Shares which represents Pay-At-Risk for
which the Participant's Variable Compensation has actually been reduced,
shall be paid to the Participant as provided in Section 7.1. Such value
shall be determined pursuant to Section 7.3.
8.3 In the case of a Participant's death, disability,
Retirement or termination of employment by the Corporation other than
for cause during 1999 or 2000, the Pay-At-Risk Shares shall be reduced
to equal the Pay-At-Risk Shares multiplied by a fraction, the numerator
of which is the number of days from January 1, 1999 to, and including,
the date of death, disability, Retirement or such termination of
employment, and the denominator of which is 731, and further reduced, if
necessary, to represent only Pay-At-Risk for which the Participant's
Variable Compensation has actually been reduced ("Reduced Pay-At-Risk
Shares"). A grant of Award Shares, if any, to any such Participant
shall be based only upon the Reduced Pay-At-Risk Shares. The value of
the excess of the Pay-At-Risk Shares less the Reduced Pay-At-Risk Shares
(plus dividends on such excess), to the extent such excess represents
Pay-At-Risk for which the Participant's Variable Compensation has
actually been reduced, shall be paid to the Participant as follows: (i)
in the case of the Participant's death, disability or termination of
employment by the Corporation other than for cause, within sixty days
after the date of such death, disability or termination of employment;
and (ii) in the case of Retirement at the time provided for in Section
7.1. For the events described in clause (i) above, such value shall be
determined using the average Closing Price on the first ten days of
trading following the date of such death, disability or termination of
employment. For the event described in clause (ii) above, such value
shall be determined pursuant to Section 7.3. The value of the reduced
Pay-At-Risk Shares and the Award Shares, if any, shall be paid to the
Participant as provided in Section 7.1 and 7.2 and such value shall be
determined as provided in Section 7.3.
8.4 If a Participant terminates employment for any reason other
than termination of employment by the Corporation for cause after 2000,
a Participant shall be entitled to receive payments under this Plan in
accordance with the provisions of Section 7. If a Participant is
terminated for cause after 2000, the Participant shall forfeit any
amount scheduled to be paid under Sections 7.1 and 7.2 after the date of
termination of employment.
Section 9: Beneficiary Designation
9.1 A Participant's Beneficiary under the Plan, who shall be
entitled to receive the amount, if any, payable under the Plan upon the
Participant's death, shall be the Beneficiary designated, or deemed to
be designated, by the Participant under the Compensation Deferral Plan.
If a Participant does not participate in the Compensation Deferral Plan
or if a Participant does participate in the Compensation Deferral Plan
and has not designated or been deemed to have designated a Beneficiary
thereunder, then any payments payable to the Participant under this Plan
shall be distributed to the Participant's estate. If the Corporation is
in doubt as to the right of any person to receive such amount, the
Corporation may retain such amount, without liability for any interest
thereon, until the rights thereto are determined, or the Corporation may
pay such amount into any court of appropriate jurisdiction and such
payment shall be a complete discharge of the liability of the Plan and
the Corporation therefor.
Section 10: General Provisions
10.1 A Participant may not assign any payment under this Plan.
Any attempted assignment shall be null and void. For purposes of this
paragraph, any designation of, or payment to, a Beneficiary shall not be
deemed an assignment.
10.2 The Plan is intended to constitute an unfunded incentive
compensation arrangement for a select group of key personnel. Nothing
contained in the Plan, and no action taken pursuant to the Plan, shall
create or be construed to create a trust of any kind. A Participant's
right to receive any payments under this Plan shall be no greater than
the right of an unsecured general creditor of the Corporation. There
shall not vest in any Participant or Beneficiary any right, title, or
interest in and to any specific assets of the Corporation. All payments
under this Plan shall be paid from the general funds of the Corporation,
and no special or separate fund shall be established and no segregation
of assets shall be made to assure payment of such amount except to the
extent this Plan is covered by the Benefits Protection Trust between the
Corporation and State Street Bank and Trust Company, or any successor
trust.
10.3 Nothing contained in this Plan shall give any Participant
the right to continue in the employment of the Corporation, or affect
the right of the Corporation to discharge a Participant.
10.4 The Plan shall be construed and governed in accordance
with the laws of the State of New York.
10.5 The Corporation shall deduct from all amounts paid under
the Plan all federal, state, local and other taxes required by law to be
withheld with respect to such payments.
Section 11: Amendment, Suspension, or Termination
11.1 The Board reserves the right to amend, suspend or
terminate the Plan at any time; provided however, that any amendment,
suspension or termination shall not adversely affect the rights of
Participants or Beneficiaries to receive amounts they became entitled to
receive prior to such amendment, suspension or termination.
Section 12: Effective Date
12.1 The Plan shall be effective as of September 24, 1997.
UNION CARBIDE CORPORATION
By: /s/ M.A. Kessinger
Exhibit 10.22
The Mid-Career Hire Plan for Employees
of Union Carbide Corporation and Its
Participating Subsidiary Companies
General
This Mid-Career Hire Plan for Employees of Union Carbide
Corporation and Its Participating Subsidiary Companies (the "Plan") has
been established primarily for the purpose of providing additional
retirement benefits for a select group of management or highly
compensated employees who were employed by the Corporation or
participating subsidiaries in mid-career. Specifically, the purpose of
this Plan is to provide for increased retirement benefits to eligible
employees in the event of a Change in Control of the Corporation. This
Plan is completely separate from the Retirement Program, is unfunded for
purposes of Title I of the Employee Retirement Income Security Act of
1974, and is not qualified for special tax treatment under the Internal
Revenue Code of 1986, as amended.
ARTICLE I
ELIGIBILITY
Employees eligible for participation in the Plan are those
individuals selected for inclusion in the Plan by the Vice President-
Human Resources of the Corporation and approved for inclusion in the
Plan by the Chief Executive Officer of the Corporation. To be
designated for inclusion in the Plan, any such individual must have at
such time (i) attained at least salary grade 19 (or its equivalent),
(ii) be a party to a Severance Compensation Agreement with the
Corporation, and (iii) have less than 85 Points under the Retirement
Program.
ARTICLE II
BENEFITS
In the event of a Change in Control of the Corporation, a
Participant, or a Participant's survivor, as the case may be, shall be
entitled to a benefit payable hereunder in accordance with Article III
of this Plan equal to the excess of:
(a) the amount of such Participant's or survivor's annual benefit,
as the case may be, under the Retirement Program computed under the
provisions of the Retirement Program (without regard to the vesting
provisions) by adding to a Participant's actual Company Service Credit
under the Retirement Program the years of service of the Participant
with the Participant's Prior Employer, but not in excess of the years of
service with a Prior Employer necessary for the Participant to attain 85
Points under the Retirement Program;
over the sum of:
(b) the amount of such Participant's or survivor's annual benefit,
as the case may be, under the provisions of the Retirement Program; and
(c) any pension benefit paid, or payable, to a Participant by the
Participant's Prior Employer (whether under a tax-qualified retirement
plan or otherwise as shall be determined by the Vice-President Human
Resources of the Corporation prior to a Change in Control of the
Corporation).
The amounts set forth in clauses (a) and (b) above shall be
calculated before any addition to a Participant's age and Company
Service Credit pursuant to a Severance Compensation Agreement between
the Participant and the Corporation.
ARTICLE III
PAYMENT OF BENEFITS
The benefits described in Article II shall be calculated and become
payable only when a Participant retires and begins to receive payments
under the Retirement Program and shall be paid in the same form and
manner as the Participant's benefit under the Retirement Program.
Notwithstanding the foregoing, a Participant may elect in the
calendar year in which the Participant retires that payments under the
Plan shall be made either: (i) in a lump sum as of January 1 of the
calendar year following such election, or (ii) in substantially equal
installments over a period of at least 2 but not more than 10 years
commencing as of that date. The lump sum payment or installment
payments described in the preceding sentence shall be calculated using
(a) a discount rate equal to the average of 10 and 20 year Aaa municipal
bonds as published by Moody's or a similar rating service for the third
month prior to the month payments commence, and (b) a mortality table
determined by the administrator for the Plan. The administrator of the
Plan shall determine the procedures for such elections and the time and
method of payments in accordance with this Article III.
ARTICLE IV
DEFINITIONS
A. "Change in Control of the Corporation" shall be deemed to
occur if any of the following circumstances shall occur:
(i) any "person" or "group" within the meaning of Sections 13(d)
and 14(d)(2) of the Securities Exchange Act of 1934 ("Act") becomes the
"beneficial owner" as defined in Rule 13d-3 under the Act of more than
20% of the then outstanding voting securities of the Corporation;
(ii) any "person" or "group" within the meaning of Sections 13(d)
and 14(d)(2) of the Act acquires by proxy or otherwise the right to vote
for the election of directors, for any merger or consolidation of the
Corporation or for any other matter or question with respect to more
than 20% of the then outstanding voting securities of the Corporation;
(iii) if during any period of twenty-four consecutive months,
Present Directors and/or New Directors cease for any reason to
constitute a majority of the Board.
For these purposes, "Present Directors" shall mean individuals
who at the beginning of such consecutive twenty-four month period were
members of the Board and "New Directors" shall mean any director whose
election by the Board or whose nomination for election by the
Corporation's stockholders was approved by a vote of at least two-thirds
of the Directors then still in office who were Present Directors or New
Directors;
(iv) the stockholders of the Corporation approve a plan of complete
liquidation or dissolution of the Corporation; or
(v) there shall be consummated (x) a reorganization, merger or
consolidation of all or substantially all of the assets of the
Corporation (a "Business Combination"), unless, following such Business
Combination, (a) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the
outstanding Common Stock of the Corporation and outstanding voting
securities of the Corporation immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 50% of,
respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities entitled
to vote generally in the election of directors, as the case may be, of
the corporation resulting from such Business Combination (including,
without limitation, a corporation which as a result of such transaction
owns the Corporation or all or substantially all of the Corporation's
assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership, immediately prior
to such Business Combination of the outstanding Common Stock of the
Corporation and outstanding voting securities of the Corporation, as the
case may be, (b) no Person (excluding any corporation resulting from
such Business Combination or any employee benefit plan (or related
trust) of the Corporation or such corporation resulting from such
Business Combination) beneficially owns, directly or indirectly, 20% or
more of, respectively, the then outstanding shares of common stock of
the corporation resulting from such Business Combination or the combined
voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to
the Business Combination and (c) at least a majority of the members of
the board of directors of the corporation resulting from such Business
Combination were members of the Board at the time of the execution of
the initial agreement, or of the action of the Board, providing for such
Business Combination; or (y) any sale, lease, exchange or other transfer
(in one transaction or a series of related transactions) of all, or
substantially all, of the assets of the Corporation, provided, that the
divestiture of less than substantially all of the assets of the
Corporation in one transaction or a series of related transactions,
whether effected by sale, lease, exchange, spin-off, sale of the stock
or merger of a subsidiary or otherwise, shall not constitute a Change in
Control.
Notwithstanding the foregoing, a Change in Control of the
Corporation shall not be deemed to occur: (A) pursuant to subparagraphs
(i) and (ii) above, solely because twenty percent (20%) or more of the
combined voting power of the Corporation's then outstanding securities
is acquired by one or more employee benefit plans maintained by the
Corporation; or (B) pursuant to subparagraph (v)(y) above, if the Board
determines that any sale, lease, exchange or transfer does not involve
substantially all of the assets of the Corporation.
B. "Company Service Credit" shall have the same meaning as set
forth in the Retirement Program.
C. "Corporation" shall mean Union Carbide Corporation and its
successors.
D. "Participant" shall mean an individual selected and approved
for inclusion in this Plan under Article I.
E. "Points" shall mean the sum of an individual's age and
actual or deemed years of Company Service Credit with the Corporation as
provided in the Retirement Program or under this Plan.
F. "Prior Employer" shall mean the Participant's employer
immediately prior to the Participant's employment by the Corporation,
regardless of length of employment of the Participant by such Prior
Employer. If a Participant was self-employed immediately prior to the
Participant's employment by the Corporation, then such Participant's
Prior Employer shall mean the Participant's employer immediately prior
to such self-employment.
G. "Retirement Program" shall mean the Retirement Program Plan
For Employees of Union Carbide Corporation and Its Participating
Subsidiary Companies and any excess or supplemental pension plans
maintained by the Corporation.
ARTICLE V
MISCELLANEOUS
A. The Vice President-Human Resources of the Corporation, or
his designee, shall administer this Plan. The Vice President-Human
Resources, or his designee, may adopt such rules as such person may deem
necessary for the proper administration of this Plan and such person's
decision in all matters involving the interpretation and application of
the Plan shall be final, conclusive, and binding.
B. The Corporation may amend or terminate this Plan at any time
prior to a Change in Control of the Corporation. After a Change in
Control of the Corporation, no amendment or termination of this Plan
shall be effective with respect to any Participant (or a survivor of
such Participant) unless such Participant, or survivor, consents in
writing thereto.
C. Except to the extent required by law, no assignment of the
rights and interests of a Participant or a survivor of a Participant
under this Plan will be permitted nor shall such rights be subject to
attachment or other legal processes for debts of the Participant or the
Participant's survivor. At all times the Participant's or survivor's
relationship to the Plan is that of an unsecured general creditor.
D. The validity, interpretation, construction and performance
of this Plan shall be governed by the laws of the State New York
(without regard to the choice of laws provisions thereof).
Exhibit 11
<TABLE>
UNION CARBIDE CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE FOR THE FIVE YEARS ENDED DECEMBER 31, 1997
(In millions of dollars except per share amounts)
<CAPTION>
Year Ended December 31,
1997 1996
<S> <C> <C>
Basic -
Income before cumulative effect of change
in accounting principle $ 676 $ 593
Less: Dividends on ESOP shares, pre-tax (9) (13)
Appreciation on ESOP shares redeemed
for cash (23) -
Income before cumulative effect of change
in accounting principle adjusted for
basic calculation 644 580
Cumulative effect of change in accounting
principle (17) -
Net income - common stockholders, adjusted for
basic calculation $ 627 $ 580
Weighted average number of shares outstanding
for basic calculation 128,185,093 131,029,621
Earnings per share -
Income before cumulative effect of change
in accounting principle $ 5.02 $ 4.43
Cumulative effect of change
in accounting principle (0.13) -
Net income - common stockholders $ 4.89 $ 4.43
Diluted -
Income before cumulative effect of change
in accounting principle, adjusted for
basic calculation $ 644 $ 580
Plus: Dividends on ESOP shares, pre-tax 9 13
Interest on convertible debentures,
net of tax - -
Less: Additional ESOP contribution resulting
from assumed conversion of ESOP shares (1) (1)
Income before cumulative effect of change
in accounting principle, adjusted for
diluted calculation 652 592
Cumulative effect of change in accounting
principle (17) -
Net income - common stockholders, adjusted for
diluted calculation $ 635 $ 592
Weighted average number of shares outstanding
for basic calculation 128,185,093 131,029,621
Add: Effect of stock options 4,034,969 4,495,656
Effect of equity put options - 403
Shares issuable upon conversion of UCC's
convertible debentures - -
Shares issuable upon conversion of UCC's
convertible ESOP shares 11,739,036 16,120,754
Weighted average shares outstanding,
adjusted for diluted calculation 143,959,098 151,646,434
Earnings Per Share -
Income before cumulative effect of change
in accounting principle, adjusted for
diluted calculation $ 4.53 $ 3.90
Cumulative effect of change in accounting
principle (0.12) -
Net income - common stockholders, adjusted for
diluted calculation $ 4.41 $ 3.90
<CAPTION>
Year Ended December 31,
1995 1994
<S> <C> <C>
Basic -
Income before cumulative effect of change
in accounting principle $ 925 $ 389
Less: Dividends on ESOP shares, pre-tax (13) (13)
Appreciation on ESOP shares redeemed
for cash - -
Income before cumulative effect of change
in accounting principle adjusted for
basic calculation 912 376
Cumulative effect of change in accounting
principle - -
Net income - common stockholders, adjusted for
basic calculation $ 912 $ 376
Weighted average number of shares outstanding
for basic calculation 137,219,676 149,904,755
Earnings per share -
Income before cumulative effect of change
in accounting principle $ 6.65 $ 2.51
Cumulative effect of change
in accounting principle - -
Net income - common stockholders $ 6.65 $ 2.51
Diluted -
Income before cumulative effect of change
in accounting principle, adjusted for
basic calculation $ 912 $ 376
Plus: Dividends on ESOP shares, pre-tax 13 13
Interest on convertible debentures,
net of tax - -
Less: Additional ESOP contribution resulting
from assumed conversion of ESOP shares (1) (1)
Income before cumulative effect of change
in accounting principle, adjusted for
diluted calculation 924 388
Cumulative effect of change in accounting
principle - -
Net income - common stockholders, adjusted for
diluted calculation $ 924 $ 388
Weighted average number of shares outstanding
for basic calculation 137,219,676 149,904,755
Add: Effect of stock options 4,367,153 4,208,776
Effect of equity put options - 495
Shares issuable upon conversion of UCC's
convertible debentures - -
Shares issuable upon conversion of UCC's
convertible ESOP shares 16,341,367 16,542,644
Weighted average shares outstanding,
adjusted for diluted calculation 157,928,196 170,656,670
Earnings Per Share -
Income before cumulative effect of change
in accounting principle, adjusted for
diluted calculation $ 5.85 $ 2.27
Cumulative effect of change in accounting
principle - -
Net income - common stockholders, adjusted for
diluted calculation $ 5.85 $ 2.27
<CAPTION>
Year Ended December 31,
1993
<S> <C>
Basic -
Income before cumulative effect of change
in accounting principle $ 165
Less: Dividends on ESOP shares, pre-tax (13)
Appreciation on ESOP shares redeemed
for cash -
Income before cumulative effect of change
in accounting principle adjusted for
basic calculation 152
Cumulative effect of change in accounting
principle (97)
Net income - common stockholders, adjusted for
basic calculation $ 55
Weighted average number of shares outstanding
for basic calculation 147,821,255
Earnings per share -
Income before cumulative effect of change
in accounting principle $ 1.03
Cumulative effect of change
in accounting principle (0.66)
Net income - common stockholders $ 0.37
Diluted -
Income before cumulative effect of change
in accounting principle, adjusted for
basic calculation $ 152
Plus: Dividends on ESOP shares, pre-tax 13
Interest on convertible debentures,
net of tax 4
Less: Additional ESOP contribution resulting
from assumed conversion of ESOP shares (1)
Income before cumulative effect of change
in accounting principle, adjusted for
diluted calculation 168
Cumulative effect of change in accounting
principle (97)
Net income - common stockholders, adjusted for
diluted calculation $ 71
Weighted average number of shares outstanding
for basic calculation 147,821,255
Add: Effect of stock options 3,483,252
Effect of equity put options -
Shares issuable upon conversion of UCC's
convertible debentures 4,545,194
Shares issuable upon conversion of UCC's
convertible ESOP shares 16,796,109
Weighted average shares outstanding,
adjusted for diluted calculation 172,645,810
Earnings Per Share -
Income before cumulative effect of change
in accounting principle, adjusted for
diluted calculation $ 0.97
Cumulative effect of change in accounting
principle (0.56)
Net income - common stockholders, adjusted for
diluted calculation $ 0.41
</TABLE>
Exhibit 13
Union Carbide Corporation
1997 Annual Report
(The cover) "Now, more than ever, our customers know they can count on
Carbide people to deliver products, services and chemical expertise that add
up to more value."
<PAGE>
(Inside Front Cover)
Contents
Financial Highlights
Summary comparison of 1997 and 1996 results 1
Chairman's Letter
Bill Joyce on performance in 1997, strategic objectives and
long-term outlook 2
Chemical Glossary
Chemicals and polymers central to Carbide's businesses 5
Principal Products & Services
Description of Specialties & Intermediates and Basic Chemicals &
Polymers segments, including major competitors and manufacturing
locations 6
Partnerships & Joint Ventures 8
Management's Discussion & Analysis
Results of Operations 9
Liquidity, Capital Resources and Other Financial Data 16
Selected Financial Data 18
Quarterly Data 20
Financial Statements
Consolidated Balance Sheet 21
Consolidated Statement of Income 22
Consolidated Statement of Cash Flows 23
Consolidated Statement of Stockholders' Equity 24
Notes to Financial Statements 25
Management's Statement of Responsibility for Financial Statements 41
Independent Auditors' Report 41
Corporate Information
Important dates, names, addresses, telephone numbers and other
information 42
Directors and Corporate Officers
List of directors, corporate officers and other senior management 43
Union Carbide Around the World
List of worldwide locations 44
Definition of Terms
Definition of nonchemical terms 44
Cautionary statement for the purposes of the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995: All statements in this
annual report that do not reflect historical information are forward looking
statements. These include statements about the chemical markets in 1998; cost
reduction targets; the corporation's share price; earnings and profitability
targets; development, production and acceptance of new products and process
technologies; ongoing and planned capacity additions and expansions; joint
ventures, and Management's Discussion & Analysis. Important factors that could
cause actual results to differ materially from those discussed in such forward
looking statements include the supply/demand balance for the corporation's
products; customer inventory levels; competitive pricing pressures; feedstock
costs; changes in industry production capacities and operating rates; currency
exchange rates; global economic conditions, particularly in Southeast Asia;
disruption in railroad and other transportation facilities; competitive
technology positions; failure to achieve technology objectives; and failure to
achieve the corporation's cost reduction targets or to complete
construction projects on schedule.
<PAGE>
Financial Highlights
Dollar amounts in millions
(except per share figures) 1997 1996 % Change
For the Year
Net sales $ 6,502 $ 6,106 6
Operating profit 1,045 921 13
Income before cumulative effect of
change in accounting principle 676 593 14
Per common share - basic 5.02 4.43 13
Per common share - diluted 4.53 3.90 16
Cumulative effect of change in
accounting principle (17) - -
Per common share - basic (0.13) - -
Per common share - diluted (0.12) - -
Net income - common stockholders 652 583 12
Per common share - basic 4.89 4.43 10
Per common share - diluted 4.41 3.90 13
Cash dividends on common stock 100 99 1
Per common share 0.7875 0.75 5
Capital expenditures 755 721 5
At Year-End
Total assets $ 6,964 $ 6,546 6
Total debt 1,887 1,599 18
Stockholders' equity 2,348 2,114 11
Per common share 17.15 16.72 3
Common shares outstanding (thousands) 136,944 126,440 8
Common stockholders of record 47,713 51,023 (6)
Employees 11,813 11,745 1
At a Glance
Union Carbide Corporation is a worldwide chemicals and polymers company. The
company possesses many of the industry's most advanced process and catalyst
technologies and some of the most cost efficient, large-scale production
facilities in the world. In addition to its consolidated operations, the
corporation participates in partnerships and joint ventures whose combined net
sales totaled more than $4.3 billion in 1997.
Union Carbide operates two business segments:
Specialties & Intermediates, which accounted for 68 percent of customer
revenues and 64 percent of operating profit in 1997, produces a broad range of
products, including specialty polyolefins used in wire and cable insulation;
surfactants for industrial cleaners; catalysts for the manufacture of
polymers; acrolein and derivatives; water-soluble polymers; cellulose-,
glucose- and lanolin-based materials for personal care products; specialty
coatings; acrylic and vinyl acrylic latex used in paints and adhesives;
solvents; vinyl acetate monomer, and ethylene oxide derivatives. This segment
also licenses olefins-based technologies and offers other specialized
technology licensing and services.
Basic Chemicals & Polymers converts various hydrocarbon feedstocks,
principally liquefied petroleum gases and naphtha, into the basic building-
block chemicals ethylene and propylene (also known as olefins), which are in
turn converted to polyethylene (the world's most widely used plastic),
polypropylene (one of the world's fastest-growing plastics), and ethylene
oxide and ethylene glycol (used to make polyester fiber, film and resin, and
automotive antifreeze). This segment provides ethylene, propylene, ethylene
oxide and ethylene glycol to the Specialties & Intermediates segment.
Union Carbide's leading end markets as a percentage of sales are:
Packaging and consumer plastics 24
Paints, coatings and adhesives 21
Wire and cable 11
Textile 9
Household and personal care 6
Automotive, including antifreeze 5
Agriculture and food 4
Oil and gas 3
Industrial cleaners 3
- 1 -
<PAGE>
Chairman's Letter
(Contained in the left hand margin is a picture of William H. Joyce, Chairman,
President and Chief Executive Officer.)
I am pleased to report that Carbide had another good year in 1997, surpassing
the prior year and posting the third highest net income available to common
stockholders of the past 10 years.
Worldwide sales rose 6.5 percent, to $6.5 billion. Income available to
common stockholders from continuing operations (before the effect of a change
in accounting principle) rose 14.8 percent from the prior year, to $669
million, and diluted per-share income increased 16.2 percent, to $4.53, before
the change in accounting principle.
Despite improved earnings, our 1997 common stock performance was
disappointing. We increased the quarterly dividend 20 percent, to 22.5 cents,
and repurchased 7 million shares during the year, but our share price
increased only 5 percent by year-end.
It seems clear that investors were looking past improved earnings in 1997
and focusing instead on the 1999/2000 cyclical trough anticipated by most
experts, and on the widely held expectation that overcapacity in the chemical
industry will depress the earnings of companies like Carbide until the cycle
turns up.
Adding to investor concerns was the inability of our Specialties &
Intermediates (S&I) segment, for the second year in a row, to deliver the
strong double-digit earnings growth of prior years, causing investors to doubt
that its recovery could occur in time to meet our earnings target in the
trough.
And as the year ended, the Asian economic crisis appeared to make the next
few years even more difficult for companies such as Carbide with significant
sales in the region. Since the Far East region accounts for 14 percent of our
sales, mainly exports, we are also concerned. Yet we're confident that Carbide
can cope and that our company will be well positioned to participate when the
region's growth resumes.
As for 1997 performance, although we posted significant earnings growth, we
should have done much better in light of our improvements over the past
several years.
Increases of 5.1 percent in volume and 3.7 percent in productivity for the
corporation (based on actual fixed cost per pound of product sold, adjusted
for inflation) were good, but below target. And some of our product lines,
notably our solvents, monomers and industrial performance chemicals, were
unable to deliver targeted results.
Why did we not do better in 1997? And what are we doing to improve and to
accelerate profitable growth over the longer term as well?
Management's Discussion & Analysis, beginning on page 9, covers operations
in detail. To summarize: The performance of solvents, monomers and industrial
performance chemicals products suffered from price declines; abnormally low
margins, particularly for solvents and monomers, and the impact of a strong
dollar on exports.
Although the strong dollar affected our Basic Chemicals & Polymers (BC&P)
segment, as did problems with certain production units, segment earnings were
much improved compared to 1996.
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<PAGE>
Startup costs for our huge new petrochemical joint venture in Kuwait also
reduced earnings, as did costs associated with the delayed startup of a new
facility for producing ethylene/propylene rubber (EPR).
The Kuwait plant is in the final stage of startup at this writing, with both
ethylene glycol and polyethylene already shipped to customers in Europe and
Asia. And the EPR plant, which uses proprietary new technology to achieve
vastly lower production costs, is scheduled for restarting in the fourth
quarter of 1998, although further modification is required before that can
happen.
On the plus side, the drain on 1997 earnings was partly offset by improved
pricing for ethylene glycol, and for polyethylene early in the year, and by
the continuing, substantial benefit derived from our work process improvement
and cost reduction programs over the past several years.
To say that Carbide has few peers when it comes to improving work processes
and reducing costs is only repeating what's often been said by others who
follow our progress. Since 1992, total fixed costs have dropped by nearly $8
million, notwithstanding a $1.6 billion increase in revenues and a 27 percent
increase in volume. Fixed cost per pound of product sold has dropped by 4.7
cents since the beginning of the decade, a 30 percent decrease. In 1997, costs
associated with the Kuwait and EPR startups and other unusual growth
expenses reduced earnings by $0.72 per diluted share. Those expenses aside,
the fixed cost improvements mean that, given margin conditions no better than
the ones faced by BC&P in 1993, Carbide could have earned about three times as
much per diluted share in 1997 as we earned in the 1993 trough.
Over the past seven years, we have learned that productivity improvement
requires relentless focus on cost reduction throughout the entire enterprise.
During this period, virtually every unit within Carbide has established
savings initiatives with specific, quantifiable targets. More often than not,
as Carbiders have progressed with these efforts, new opportunities have been
identified.
In 1990 we embarked on a $200 million savings program. Less than three years
into that effort, it was clear that far more significant savings were
possible, and a $575 million target was established. That program, dubbed
EQAI, was largely completed by the end of 1994, after we had achieved
substantially all of the targeted savings. In 1995 we unveiled a new series of
initiatives with targeted savings of $637 million, compared to 1993, to be
achieved by the year 2000. Last October, after having attained a substantial
portion of these targets, we increased the savings goal to $1.1 billion by the
year 2000.
Carbiders have time and again shown themselves dedicated to creating value
by reducing costs. I am confident that over the next three years they will
extend the progress they've made since early in the decade. They have become
as skilled as any workforce anywhere at finding ways to improve work processes
and reduce costs while delivering the service that our customers expect.
On that score: We track customer evaluations of Carbide very closely, and
it's clear that now, more than ever, our customers know they can count on
Carbide people to deliver products, services and chemical expertise that add
up to more value.
Carbiders take a great deal of pride in those evaluations and in our profit
improvement work. And, not incidentally, they also benefit financially as
shareholders and profit sharing participants when our company does well.
Beyond participation in the profit sharing program, most of our managers,
including all senior managers, receive variable compensation based in large
part upon our ability to realize returns on capital in excess of our
competitors'.
While there can be no assurances, if we are successful in achieving our
savings targets, we believe that it will be possible also to earn
at least $4.00 per diluted share in both 1999 and 2000, the anticipated trough
years of the current commodity chemical cycle.
To leave no doubt about management's own commitment to doing what it takes
to reach these earnings levels, we have bet a large part of our pay on
reaching them. If we fail in 2000, I will forfeit the equivalent of a year's
salary, and 16 members of our senior management team each will forfeit the
equivalent of 65 percent of a year's base pay. If we succeed, the plan, which
investors have encouraged us to implement, has a substantial upside
opportunity to go along with the risk.
In other words, Carbide management has real incentive to reach the target.
Although we are committed to our volume growth and savings targets, reaching
them will not be easy or assured. But work is under way across our worldwide
locations to improve operations, further streamline work processes and make
the most of our strong market and technology positions. And much has already
been accomplished.
To cite just a few examples: 1997 cost savings in our S&I segment of $336
million, and savings of $302 million for BC&P, kept
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<PAGE>
us ahead of schedule toward our year-2000 cost reduction target.
Regarding programs designed to promote growth, we launched Univation
Technologies, our joint venture with Exxon Chemical Company, to develop and
license leading-edge polyethylene process and catalyst technologies. Companies
in South America and Europe recently selected its technology to build 1.8
billion pounds of capacity.
A major modernization of our UCON fluids manufacturing unit in 1997
increased capacity while cutting operating costs, and the fluids business was
named a "supplier of the year" by General Motors, whose cars use our UCON
brake fluids and UCON refrigeration lubricants.
At our Taft, La., plant, we completed a 200-million-pound-capacity
ethanolamines unit, strengthening our leading position as a supplier to the
gas treating and personal care markets. Also at Taft, we are scheduled to
complete by mid-1998 a new CARBOWAX polyethylene glycols (PEGs) facility to
support sales flowing from new PEG applications in pharmaceuticals and wood
treating.
Our polypropylene units ran at high rates during the year, with added
capacity, achieved through de-bottlenecking, that will help the
business meet its year-2000 growth targets.
Construction began at Taft on a new butanol facility, planned for startup in
mid-1999, that will bring Carbide's total butanol capacity to 1.2 billion
pounds, the world's largest. Butanol is a key raw material in the manufacture
of solvents and monomers used by the paints and coatings industries. Employing
our proprietary LP OXO Process technology, the 300-million-pounds-per-year
facility is designed to be among the world's most cost effective.
Dr. David Bryant, the Carbide scientist who played a key role in developing
OXO technology, has been named 1998 winner of the Perkin Medal - one of the
chemical industry's most prestigious honors - for his achievement.
In 1997 we expanded capacity for producing propionic acid, a key ingredient
in the production of feed and food additives, herbicides and chemical
intermediates.
We are completing modernization of our ethylene oxide and derivatives units
at Wilton in the United Kingdom, and a new glycol unit is on schedule for
second-quarter 1998 startup. And we are concluding new long-term glycol supply
agreements to support the added capacity represented by Wilton and our EQUATE
joint venture in Kuwait.
Work is also under way to expand capacity at Seadrift, Tex., and at Wilton,
for butyl glycol ethers, widely used in industrial coatings and as industrial
cleaners. In addition, we have just announced plans to build a world-scale
methylmercapto propionaldehyde (MMP) unit at Seadrift. This unit will supply
MMP, an amino acid precursor, to Novus International for the manufacture of a
feed supplement.
We are confident that these and many other projects undertaken in 1997 will
help to keep us on course toward our near-term growth and profitability
targets.
Our parallel agenda as a RESPONSIBLE CARE company is to keep improving
Carbide's environmental and safety performance. The year just ended marked six
years in a row without a major process incident. But there were
disappointments as well, chiefly a death that occurred in a forklift accident
- - at a latex plant of a Union Carbide affiliate company in China - after five
consecutive years without a fatality in any of our operations.
(For more information about our 1997 environmental and safety performance,
write to Carbide's Public Affairs Department for our RESPONSIBLE CARE progress
report.)
All of us were pleased and proud to have our TRITON surfactants business
receive two environmental awards in 1997. One, from the Environmental
Protection Agency (EPA), recognized Carbide's TRITON splittable surfactants as
an innovation in surfactant chemistry that greatly reduces risk to the aquatic
environment. The other, from the Office of the Vice President of the U.S.,
recognized the TRITON surfactant-based partnership we entered into with the
EPA to control environmental risk so that more regulation and its cost to
business and the public would become unnecessary. Finally, I wish to applaud
two of our directors - John Creedon and Bill Sneath - who, in accordance with
the board's retirement policy, will not stand for reelection. Both have given
outstanding service to the corporation, with Bill's tenure including 31 years
of service as an employee, five of those as Chairman and CEO. We will miss
their support and wise counsel.
William H. Joyce
Feb. 25, 1998
(Within the preceding section, the following three phrases are set in larger
type:
- - Despite improved earnings, our 1997 common stock performance was
disappointing.
- - Carbiders have time and again shown themselves dedicated to creating
value by reducing costs.
- - Our parallel agenda is to keep improving Carbide's environmental and
safety performance. )
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<PAGE>
Chemical Glossary
Alcohols
Chemicals, such as butanol, ethanol and isopropanol, that serve as solvents
and intermediates for the manufacture of personal care products,
pharmaceuticals, esters, ketones, monomers for latexes, herbicides, petroleum
additives and synthetic lubricants.
Biocides
Chemicals used to control or inhibit the growth of bacteria, algae, fungi and
mold.
Chemical intermediates
Chemicals formed or introduced as an intermediate step between the starting
material and the final product in chemical processing. Examples include:
o Acrolein, used to make glutaraldehyde, animal feed supplements and coatings
resins.
o Esters, such as ethyl acetate and butyl acrylate, made by reacting alcohols
and acids and used primarily as paints and coatings
solvents.
o Ethanolamines, reaction products of ethylene oxide and ammonia, used in
detergents and other cleaning materials, in personal care products and for
removal of sulfur and other impurities from natural gases for consumer use.
o Ethyleneamines, made from ethylene oxide or ethylene dichloride and used in
a wide range of industrial products, including fuel, lubricant and motor oil
additives, adhesives, wet-strength paper resins and paints.
Ethylene glycol
Chemical made from ethylene oxide and water. It is used in the manufacture of
polyester resins, film and fiber, automotive antifreeze and engine coolants
and aircraft deicing/anti-icing fluids.
Ethylene oxide
Chemical made from ethylene and oxygen. It combines with other chemicals to
produce a wide range of products, such as ethylene glycol, water-soluble
polymers for personal care products and surfactants for detergents and
cleaning products.
Glutaraldehyde
An acrolein derivative predominantly used as a biocide for industrial water
treatment and in oil field applications, animal housing sanitizers, surgical
instrument sterilants and paper manufacturing.
Glycol ethers
Solvents used in higher-technology coating applications, such as waterborne
industrial finishes for the automotive market, and noncoating applications,
such as in hard surface cleaners, military jet fuels and brake fluids.
Ketones
Chemicals, such as acetone, used as solvents for vinyl resins, industrial
lacquers and pharmaceuticals, and as an intermediate for resins, dyes and
rubber chemicals.
Monomer
Reactive chemical that can be converted into a polymer. For example, ethylene
is a monomer that is made into polyethylene.
Olefins
Generic name for ethylene, propylene and other unsaturated hydrocarbons
(carbon atoms joined by double bonds) made from components of petroleum or
natural gas.
Examples include:
o Ethylene and propylene, chemicals derived from natural gases or petroleum
components, and the starting materials from which most
of Union Carbide's chemicals and polymers are made.
Oxo alcohols, aldehydes and acids
Chemicals Carbide manufactures via its LP OXO Process, such as butanol and
propionic acid, which are used as chemical intermediates
and industrial solvents.
Polymers
Chains or networks of linked monomers. All plastics are polymers. Examples
include:
o Polyethylene, the world's most widely used plastic, made by the reaction of
ethylene and other olefins. It is used in hundreds of
consumer and industrial products, including grocery and trash bags, waste
containers, housewares, bottles, drums, food packaging and
wire and cable insulation and jacketing. Union Carbide produces most of its
polyethylene via UNIPOL Process technology developed
by the company in the early 1970's, which is licensed to polyethylene makers
around the world.
o Polypropylene, a fast-growing, high-volume plastic made from the reaction of
propylene and other olefins. The broad range of
applications includes lawn furniture, carpet fiber and backing, food
containers, toys, appliance housings and binding materials. Much
of Union Carbide's production is via the UNIPOL PP Process, also licensed
around the world.
Solvents
Chemicals used to dissolve or absorb other chemicals. For example, ketones,
esters, alcohols and glycol ethers are effective solvents
commonly used in paints and coatings.
Surfactants
Chemicals that increase the cleaning and wetting properties of household and
industrial cleaners and detergents. They are used also in
textile and paper processing, paints and agricultural products. Surfactants
also are used in cosmetics, shampoos and other personal care
products. Carbide makes its surfactants primarily from ethylene oxide and
alcohols.
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<PAGE>
Principal Products & Services
Major Competitors
Specialties & Intermediates
Air Products, AT Plastics, BASF, Borealis AS, British Petroleum, Clariant ,
DeGussa, Dow Chemical, Eastman Chemical, Equistar Chemicals, Hercules, Hoechst
Celanese, Huntsman, Mitsui Petrochemical, Montell Polyolefins, National Starch
& Chemical, Phillips Chemicals, Reichhold Chemicals, Rhone-Poulenc, Rohm &
Haas, Shell Chemical, Solvay, Ube Industries, Wacker
Basic Chemicals & Polymers
Amoco, Dow Chemical, Equistar Chemicals, Exxon Chemical, Fina, Huntsman, Mobil
Chemical, Montell Polyolefins, NOVA Chemicals, Occidental Chemical, Phillips
Chemicals, Saudi Basic Industries, Shell Chemical
Specialties & Intermediates Segment
Union Carbide's Specialty Polymers and Products group manufactures and markets
numerous specialty products. Many of its technologies are targeted for sharply
defined market segments.
o Specialty Industrial Products produces acrolein and derivatives, such as
methylmercapto propionaldehyde (MMP), for the manufacture of an amino acid
used in animal feed supplements; glutaraldehyde, a biocide; ethylidene
norbornene (ENB), used in the production of ethylene propylene rubber, and
specialty ketones.
o Performance Polymers produces POLYOX water-soluble resins, used in personal
care products, pharmaceuticals, inks and thermoplastics. It also produces
polyvinyl acetate resins, used in chewing-gum resins, low-profile additives,
NEULON polyester modifiers, fast-cure additives and pigmentable systems, and
UCURE reactive modifiers.
o Coating Materials reaches markets for paints, coatings, inks, substrates and
other materials for magnetic tape, food and beverage packaging, plastics and
orthopedic materials. Its products include CELLOSIZE hydroxyethyl cellulose
(HEC); UCAR solution vinyl
resins; TONE caprolactone-based materials; cycloaliphatic epoxides, including
CYRACURE ultraviolet-curing products, and FLEXOL plasticizers.
o Amerchol Corporation, a Union Carbide subsidiary, manufactures and sells a
wide variety of cellulose-, glucose-and lanolin-based materials for personal
care products.
Ucar Emulsion Systems makes products used in interior and exterior house
paints, adhesives and sealants. They include UCAR POLYPHOBE rheology
modifiers, used to thicken coatings, and UCAR latex products, used as binders
and to impart exterior durability, scrub and stain resistance, and adhesion.
Specialty Polyolefins manufactures and markets worldwide a variety of
performance polyolefin products. Chief among these are polyolefin-based
compounds for sophisticated insulation, semiconductives and jacketing systems
for power distribution, telecommunications and flame-retardant wire and cable.
Other Specialty Polyolefins products are used in adhesives, laminating film
and flexible tubing.
UNIPOL Systems owns and develops UNIPOL Process technology, the most versatile
method of manufacturing polyethylene and polypropylene, for producers of these
products worldwide. It also develops new process technology for the
manufacture of other olefins-based polymers, such as ethylene propylene
rubber, and sells catalysts to UNIPOL Process licensees worldwide. Licensing
of UNIPOL PE and PP Processes, as well as the development of new PE
technologies, such as metallocene catalysis and Super Condensed Mode
Technology, is handled through Univation Technologies, LLC, a Union
Carbide/Exxon Chemical Company joint venture.
Industrial Performance Chemicals manufactures and sells a broad range of
ethylene oxide derivatives and formulated glycol products for specialty
applications. These include CARBOWAX polyethylene glycols,
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<PAGE>
with a wide range of applications in pharmaceutical, personal care, household
and industrial markets; ethanolamines, for detergents, personal care products
and natural gas conditioning and refining; ethyleneamines, for many industrial
uses; TERGITOL and TRITON specialty and commodity surfactants, for
institutional and household cleaning products and other industrial
applications; UCON fluids and lubricants, and alkyl alkanolamines for water-
treating chemicals. Formulated glycol products include UCAR and UCAR ULTRA+
deicing and anti-icing fluids for the aviation industry, UCARTHERM and NORKOOL
heat-transfer fluids, and gas-treating products, including UCARSOL and SELEXOL
solvents.
Solvents, Intermediates and Monomers (SIM) supplies one of the industry's
broadest product lines of solvents, intermediates and monomers. Its products
include aldehydes, acids and alcohols, including high-quality industrial-grade
synthetic and fermentation ethanol; esters; glycol ethers (brake fluids and
CARBITOL and CELLOSOLVE solvents); ketones, and monomers (vinyl acetate and
acrylics for waterborne coatings). Its principal customers are the paints and
coatings industries. Many of SIM's products are also used widely in cosmetics
and personal care preparations, adhesives, household and institutional
products, drugs and pharmaceuticals; as fuel and lube oil additives, and in
agricultural products. The UNICARB System is a pollution-reducing,
supercritical fluid technology that can cut costs and reduce volatile organic
compounds (VOCs) in spray-applied coatings by up to 80 percent.
Basic Chemicals & Polymers Segment
Union Carbide's Hydrocarbons group manufactures about two thirds of the
company's ethylene requirements and almost one third of its propylene
requirements. Ethylene and propylene are the key raw materials for many of
Union Carbide's businesses.
Union Carbide is the world's leading producer of ethylene oxide and ethylene
glycol, supplied by the Ethylene Oxide/Glycol group. Ethylene oxide is a
chemical intermediate primarily used in the manufacture of ethylene glycol,
polyethylene glycol, glycol ethers, ethanolamines, surfactants and other
performance chemicals and polymers. Ethylene glycol is used extensively in the
production of polyester fiber, resin and film, automotive antifreeze and
engine coolants, and aircraft anti-icing and deicing fluids. Other ethylene
oxide-based glycol products include di-, tri-, and tetraethylene glycols, used
as chemical intermediates and in dehydrating natural gas.
Union Carbide is a leading manufacturer of polyethylene, the world's most
widely used plastic. UNIPOL Polymers produces and markets linear low-, medium-
and high-density polyethylenes, used in high-volume applications such as
housewares, milk and water bottles, grocery sacks, trash bags, packaging,
water and gas pipe, and FLEXOMER very low-density resins, used as a polymer
modifier in other polyolefins and to produce flexible hose and tubing, frozen-
food bags and stretch wrap.
Carbide's Polypropylene Resins operations manufacture and sell polypropylene,
one of the world's largest-volume, fastest-growing plastics. End-use
applications include carpeting and upholstery, apparel, packaging films, food
containers, housewares and appliances, and automobile interior trim and
panels.
For a summary of business and geographic segment data, see note five to the
financial statements.
Manufacturing Locations
United States
Torrance, Calif., Tucker, Ga., Alsip, Ill., Greensburg, La., Norco, La.,
Taft, La., Bound Brook, N.J.. Edison, N.J., Somerset, N.J., Bayamon, P.R.,
Garland, Tex., Seadrift, Tex., Texas City, Tex., Washougal, Wash., Institute,
W.Va., South, Charleston, W.Va.
Canada
Prentiss, Alberta
Europe
Vilvoorde, Belgium, Zwijndrecht, Belgium, Wilton, U.K.
Latin America
Aratu, Brazil, Cabo, Brazil, Cubatao, Brazil,, Guayaquil, Equador
Far East & Other
Guangdong, China, Shanghai, China, Jakarta, Indonesia, Seremban, Malaysia,
Batangas, Philippines, Colombo, Sri Lanka, Nonthaburi, Thailand, Dubai, United
Arab Emirates
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<PAGE>
Partnerships & Joint Ventures
The corporation has for many years participated in a number of businesses
through partnerships and joint ventures. These affiliations have enabled Union
Carbide to combine its competitive strengths in technology, project
engineering and operational know-how with the complementary strengths of its
partners.
The most significant partnerships and joint ventures of the Specialties &
Intermediates segment include:
UOP LLC o a leading worldwide supplier of process technology, catalysts,
molecular sieves and adsorbents to the petrochemical and gas-processing
industries, owned jointly with AlliedSignal Inc. UOP LLC has facilities in
Mobile, Ala.; Anaheim and Eldorado Hills, Calif.; Des Plaines and McCook,
Ill.; Shreveport, La.; Tonawanda, N.Y.; Shanghai, China; Reggio di Calabria,
Italy, and Brimsdown, U.K.
Nippon Unicar Company Limited o a Japan-based producer of commodity and
specialty polyethylene resins and specialty silicone products. This joint
venture with Tonen Corporation has a facility in Kawasaki, Japan.
Aspell Polymeres SNC o a France-based producer of specialty polyethylenes.
This partnership with Elf Atochem has a facility in Gonfreville, France.
World Ethanol Company o a U.S.-based partnership with Archer Daniels Midland
Company that supplies ethanol worldwide. World Ethanol has facilities in Texas
City, Tex. and Peoria, Ill.
Univation Technologies, LLC o a U.S.-based joint venture with Exxon Chemical
Company for the research, development, marketing and licensing of polyethylene
technology and metallocene catalysts. Univation has a facility in Mont
Belvieu, Tex.
Asian Acetyls Co., Ltd. o a South Korea-based producer of vinyl acetate
monomers used in the production of emulsion resins by customers in the
coatings and adhesives industries. This joint venture with BP Chemicals and
Samsung Fine Chemicals Company has a facility in Ulsan, South Korea.
The most significant partnerships and joint ventures of the Basic Chemicals &
Polymers segment include:
Polimeri Europa S.r.l. o a Europe-based producer of ethylene and
polyethylene resins. This joint venture with EniChem S.p.A. of Italy has
facilities at Dunkirk, France; Oberhausen, Germany; and Brindisi, Ferrara,
Gela, Priolo and Ragusa, Italy.
EQUATE Petrochemical Company K.S.C. o a joint venture with Petrochemical
Industries Company and Boubyan Petrochemical Company that manufactures
polyethylene and ethylene glycol at its world-scale petrochemicals complex in
Shuaiba, Kuwait.
Petromont and Company, Limited Partnership o a Canada-based olefins and
polyethylene resins producer owned jointly with Ethylec Inc. This partnership
has facilities at Montreal and Varennes, Quebec, Canada.
Alberta & Orient Glycol Company Limited o a joint venture with Mitsui & Co.,
Ltd., Japan, and Far Eastern Textile Ltd., Taiwan. This Canada-based producer
of ethylene glycol has a facility in Prentiss, Alberta, Canada.
For a summary of partnership and joint venture results for the past three
years, see pages 14, 15 and note eight to the financial statements.
(At the bottom of this section there is a picture of the world shown flat with
square boxes shown for all locations described above.)
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<PAGE>
Management's Discussion & Analysis
Results of Operations
Millions of dollars (except per share figures)
for the year ended December 31, 1997 1996 1995
Net sales $ 6,502 $6,106 $5,888
Operating profit(a) 1,045 921 1,348
Interest expense 79 76 89
Income before provision for income taxes 966 845 1,259
Income before cumulative effect of change in
accounting principle 676 593 925
Net income 659 593 925
Net income - common stockholders 652 583 915
Per share - basic -
income before cumulative effect of change in
accounting principle $ 5.02 $ 4.43 $ 6.65
Net income - common stockholders 4.89 4.43 6.65
Per share - diluted -
income before cumulative effect of change in
accounting principle 4.53 3.90 5.85
Net income - common stockholders 4.41 3.90 5.85
a) See note five to the financial statements for a discussion of the special
items included in operating profit.
Summary and Outlook
Union Carbide operates two business segments. Specialties & Intermediates
converts basic and intermediate chemicals into a diverse portfolio of
chemicals and polymers serving industrial customers in many markets. This
segment also provides technology services, including licensing, to the oil and
petrochemicals industries. Basic Chemicals & Polymers converts hydrocarbon
feedstocks, principally liquefied petroleum gas and naphtha, into ethylene or
propylene and then into polyethylene, polypropylene, ethylene oxide and
ethylene glycol for sale to third-party customers, as well as ethylene,
propylene, ethylene oxide and ethylene glycol for consumption by the
Specialties & Intermediates segment. In contrast to those of Specialties &
Intermediates, the revenues and operating profit of Basic Chemicals & Polymers
tend to be more cyclical and very sensitive to a number of external variables,
including overall economic demand, hydrocarbon feedstock costs, industry
capacity increases and plant operating rates.
Segment results were mixed in 1997 with Basic Chemicals & Polymers reporting
substantially improved operating profit as compared with 1996 while
Specialties & Intermediates operating profit decreased 10.1 percent. The Basic
Chemicals & Polymers business benefited from increased ethylene glycol prices
throughout the first three quarters of 1997 and improved polyethylene pricing
through the first half of the year. In addition, the segment experienced
reduced average feedstock costs versus 1996. Specialties & Intermediates
operating profit was adversely impacted by increased raw material costs, most
significantly ethylene oxide transferred from the Basic Chemicals & Polymers
segment at approximate market value, higher energy costs and shipment
disruptions associated with railroad problems in the U.S. Gulf Coast region.
Average selling prices for the Specialties & Intermediates segment were
negatively impacted by a much stronger U.S. dollar as well as by increased
competition, principally in the segment's solvents, intermediates and
monomers product lines. On a consolidated basis, sales volumes increased by
5.1 percent, while fixed cost per pound sold declined to 10.8 cents, the
lowest of this decade. Partnership income remained strong, excluding certain
costs, principally research and development, assumed by our new technology
venture, Univation Technologies, LLC. Additionally, the improved earnings from
our equity companies represented increases in earnings of Polimeri Europa
partially offset by increased preoperating expenses associated with EQUATE
Petrochemical Company.
In 1996 the corporation's earnings were adversely impacted by declines in
selling prices, particularly for ethylene glycol, polyethylene and vinyl
acetate monomer, and by high raw material and energy costs. These factors
significantly impacted Basic Chemicals & Polymers operating profit and limited
Specialties & Intermediates operating profit growth. Sales volumes experienced
their largest increase in the past decade, while productivity, as measured by
fixed cost per pound of product sold, also improved. Partnerships continued to
report strong profits, while equity company results declined due to the
preoperating costs of EQUATE and increased raw material costs for Polimeri
Europa.
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<PAGE>
(Included within this section are three bar charts which provide the following
data:
(1) Volume - millions of pounds
S&I BC&P Total
1991 6,144 4,958 11,102
1992 6,458 5,510 11,968
1993 6,454 5,502 11,956
1994 7,093 5,680 12,773
1995 7,112 5,878 12,990
1996 7,743 6,706 14,449
1997 8,264 6,923 15,187
(2) Fixed Costs Per Pound - cents/pound
S&I BC&P
1991 20.6 9.2
1992 19.0 7.7
1993 17.5 7.5
1994 15.0 7.0
1995 15.8 7.2
1996 14.7 6.7
1997 14.2 6.8
(3) Employee Productivity
Number of 1,000s of pounds
Employees /employee
1991 16,705 665
1992 15,075 794
1993 13,051 916
1994 12,004 1,064
1995 11,521 1,128
1996 11,745 1,230
1997 11,813 1,286 )
In 1995 the corporation's profitability benefited from improved pricing in
virtually all product groups, with particular strength in polyethylene through
midyear and ethylene oxide and ethylene glycol throughout the year, modest
volume increases, lower average feedstock costs, continued benefits from
ongoing productivity improvement programs and strong partnership earnings. In
addition, 1995 net income was enhanced by a nonrecurring after-tax gain
associated with the sales of the corporation's investment in UCAR
International Inc., partially offset by a number of nonrecurring after-tax
losses.
Highlights of 1997 included:
o Completion of an ethanolamines unit at Taft, La.
o Startup of the EQUATE facility in Shuaiba, Kuwait
o Formation of Univation Technologies, LLC, a 50-50 joint venture with Exxon
Chemical Company to research, develop, market and license leading-edge
technologies and metallocene catalysts for the production of polyethylene
o Signing of a joint undertaking with NOVA Chemicals, Ltd., to construct, own
and operate a new 2.8-billion-pounds-per-year ethylene production facility in
Joffre, Alberta, Canada
o Increase in the quarterly dividend per common share from $0.1875 to $0.225
o Repurchase of 7.0 million common shares, bringing the total number of shares
repurchased since the beginning of 1993 to 49.3 million
o Conversion of preferred shares held by the Employee Stock Ownership Plan
(ESOP) into the corporation's common shares
o Announcement of a new plan to increase the target for annual net savings to
$1.1 billion by year-end 2000, as compared with 1993, and better-than-planned
progress toward achievement of this target
As 1998 progresses, pricing for Basic Chemicals & Polymers products is
expected to continue to decline. The pace and extent of the drop cannot be
predicted with any accuracy and is dependent in part on developments in Asian
Pacific economies, which are major markets for these products. Feedstock costs
are expected to decline at least modestly from fourth quarter 1997 levels.
Specialties & Intermediates operating profit in 1998 should benefit somewhat
from a decline in raw material and energy prices. Moreover, the corporation
expects continued strong performance from the Specialties & Intermediates
partnerships as a group, and from licensing activities. However, as is the
case with Basic Chemicals & Polymers, the ability to anticipate future results
with any accuracy is dependent on the resolution and stabilization of Asian
Pacific market conditions.
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<PAGE>
The corporation regularly reviews its assets with the objective of
maximizing the deployment of resources in core operations. In this regard, UCC
continues to consider strategies and/or transactions with respect to certain
noncore assets and other assets not essential to the operation of the business
that, if implemented, could result in material nonrecurring gains or losses.
Quantitative and Qualitative Disclosures About Market Risk
The corporation selectively uses derivative financial instruments to manage
its exposure to market risk related to changes in foreign currency exchange
rates and interest rates. The corporation does not hold derivatives for
trading purposes. The value of market sensitive derivative instruments is
subject to change as a result of movements in market rates and prices.
Sensitivity analysis is one technique used to evaluate these impacts. Based on
a hypothetical 10 percent weakening in the U.S. dollar across all currencies
or a 10 percent increase in interest rates, the potential losses in future
earnings, fair values and cash flows would not be material. This methodology
has limitations; for example, a weakening U.S. dollar would benefit future
earnings through favorable translation of non-U.S. operating results.
Foreign Operations
A portion of the financial results of each of the corporation's segments is
derived from activities conducted outside the U.S. and denominated in
currencies other than the U.S. dollar. Because the financial results of the
corporation are reported in U.S. dollars, they are affected by changes in the
value of the various foreign currencies in relation to the U.S. dollar.
Exchange rate risks are lessened, however, by the diversity of the
corporation's foreign operations and the fact that international activities
are not concentrated in any single non-U.S. currency. In addition, the effects
of a strengthening U.S. dollar could cause pricing pressures on worldwide
chemical markets which could result in declines in the corporation's sales
volumes.
The corporation is subject to other risks customarily associated with doing
business in foreign countries, including local labor and economic conditions,
unfavorable changes in foreign tax laws, and possible controls on repatriation
of earnings and capital. Future losses associated with such risks, if any,
cannot be predicted.
Specialties & Intermediates
Millions of dollars 1997 1996 1995
Sales $4,453 $4,286 $4,123
Depreciation and amortization 214 188 194
Operating profit 667 742 709
Capital expenditures 458 522 392
Identifiable assets 4,146 3,892 3,527
1997 Compared with 1996
Sales of the Specialties & Intermediates segment increased 3.9 percent, as a
result of a 6.7 percent increase in volume offset by lower average selling
prices. Average selling price reductions were due in part to a strengthening
of the U.S. dollar against currencies such as the German Deutschemark and
Japanese Yen, as well as by increased competition in solvents, intermediates
and monomers product lines. Additionally, shipments for this segment's
products were affected by rail problems in the U.S. Gulf Coast region.
Variable margin (revenues less variable manufacturing and distribution costs)
as a percentage of sales declined 2.2 percentage points, from 44.6 percent in
1996 to 42.4 percent in 1997, while gross margin (variable margin less fixed
manufacturing and distribution costs) as a percentage of sales declined 2.4
percentage points to 24.6 percent in 1997. Increases in the market-related
transfer cost of raw materials produced by the Basic Chemicals & Polymers
segment, as well as the increasing cost of natural gas, significantly affected
these margins. Fixed manufacturing and distribution costs for this segment
increased 5.3 percent, or $40 million, from the previous year's levels.
Selling, administration and other expenses (SA&O) for this segment decreased
$5 million, or 2.0 percent. Research and development expenditures decreased $2
million, to $126 million, mainly attributable to costs assumed by the
corporation's new technology venture, Univation Technologies.
Operating profit decreased $75 million, or 10.1 percent, to $667 million
from $742 million in 1996. The current year operating profit includes a charge
of $12 million for the write-off of certain equipment associated with the
corporation's ethylene propylene rubber project.
1996 Compared with 1995
Revenues of the Specialties & Intermediates segment increased 4.0 percent,
the result of an 8.9 percent increase in volume partially offset by a 4.7
percent decline in average selling prices. The reduction in average selling
prices reflected the combined effect of increases in
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<PAGE>
sales of lower priced products and declines in prices of certain products from
the unusually high levels experienced in 1995. Variable margin as a percentage
of sales dropped by 1.6 percentage points, from 46.2 percent in 1995 to 44.6
percent in 1996, while gross margin as a percentage of sales declined by 0.8
percentage points, to 27.0 percent in 1996 from 27.8 percent in 1995. Fixed
manufacturing and distribution costs were held at 1995 levels.
The segment's 1996 SA&O decreased $45 million, or 15.1 percent, because of
the inclusion in 1995 SA&O of a nonrecurring $48 million charge for
postemployment benefits. Excluding this charge, SA&O increased $3 million, or
1.2 percent. Research and development expenditures increased $14 million, to
$128 million.
Operating profit increased in 1996 to $742 million from $709 million in
1995.
Basic Chemicals & Polymers
Millions of dollars 1997 1996 1995
Sales $2,420 $2,125 $2,080
Depreciation and amortization 126 124 112
Operating profit 386 162 444
Capital expenditures 297 199 150
Identifiable assets 2,540 2,328 2,095
1997 Compared with 1996
Sales of the Basic Chemicals & Polymers segment increased 13.9 percent,
largely as a result of a 9.2 percent increase in average customer selling
price coupled with a 3.2 percent increase in customer volume. The increase in
average customer selling price reflects the strong increase in ethylene glycol
pricing during the first three quarters of 1997 and improved polyethylene
pricing throughout the first half of the year. Variable margin as a percentage
of sales increased to 39.9 percent from 34.6 percent in 1996. Overall, this
segment benefited from an increase in gross margin as a percentage of sales to
25.0 percent, compared with only 18.2 percent in 1996. Fixed manufacturing and
distribution costs increased by 3.7 percent.
The segment's SA&O increased $8 million, or 11.9 percent, over the 1996
amount. Research and development expenditures were unchanged from the prior
year.
Operating profit of $386 million in 1997 represented an increase of over 100
percent from the prior year.
1996 Compared with 1995
Revenues of the Basic Chemicals & Polymers segment increased 2.2 percent,
due to a 14.1 percent increase in customer volume, 11.5 percent of which was
due to the January 1996 acquisition of the polypropylene business of Shell Oil
Company, offset by a 9.7 percent decrease in selling prices. Variable margin
as a percentage of sales declined from 46.4 percent in 1995 to 34.6 percent in
1996. Ethylene glycol selling prices declined throughout the first three
quarters of 1996. While polyethylene prices improved beginning in the second
quarter of 1996, they nonetheless averaged below 1995 levels for the full
year. Raw material and energy costs rose during 1996, especially in the fourth
quarter. Gross margin as a percentage of sales declined to 18.2 percent in
1996 as compared with 30.8 percent in 1995. Fixed manufacturing and
distribution costs increased $24 million, or 7.4 percent, from 1995 to 1996,
principally due to the acquisition of Shell's polypropylene assets and
business.
SA&O decreased $20 million, or 23.0 percent, versus 1995. Prior year SA&O
included a nonrecurring $20 million charge for postemployment benefits.
Research and development expenditures increased $1 million, to $31 million.
Operating profit declined to $162 million in 1996 from $444 million in 1995.
Other
Millions of dollars
for the year ended December 31, 1997 1996 1995
Operating profit (loss) $(8) $17 $195
The Other segment includes the operating profit (loss) of noncore activities
and financial transactions. The 1995 operating profit included a nonrecurring
pre-tax gain of $381 million from the sales of the corporation's remaining
interest in UCAR International Inc., partially offset by a $191 million charge
for unused office space, principally at the corporation's headquarters.
Costs Relating to Protection of the Environment
Worldwide costs relating to environmental protection continue to be
significant, due primarily to stringent laws and regulations and to
the corporation's commitment to industry initiatives such as RESPONSIBLE CARE,
as well as to its own internal standards. In 1997, worldwide expenses related
to environmental protection for compliance with Federal, state and local laws
regulating solid and hazardous wastes and discharge of materials to air and
water, as well as for waste site remedial activities, totaled $100 million.
Expenses in 1996 and 1995 were $110 million and $138 million, respectively.
Such expenses were material to operating results in 1997, 1996 and 1995, and
will be material to operating results in future years. In recent years, such
environmental expenses have decreased as the corporation has made progress
toward completing major remediation projects. In addition, worldwide capital
expenditures relating to
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environmental protection, including those for new capacity and cost reduction
and replacement, in 1997 totaled $68 million, compared with $43 million and
$49 million in 1996 and 1995, respectively.
The corporation, like other companies in the U.S., periodically receives
notices from the U.S. Environmental Protection Agency and from state
environmental agencies, as well as claims from other companies, alleging that
the corporation is a potentially responsible party (PRP) under the
Comprehensive Environmental Response, Compensation and Liability Act and
equivalent state laws (hereafter referred to collectively as Superfund) for
past and future cleanup costs at hazardous waste sites at which the
corporation is alleged to have disposed of, or arranged for treatment or
disposal of, hazardous substances. The corporation is also undertaking
environmental investigation and remediation projects at hazardous waste sites
located on property currently and formerly owned by the corporation pursuant
to Superfund, as well as to the Resource Conservation and Recovery Act and
equivalent state laws.
There are approximately 117 hazardous waste sites at which management
believes it is probable or reasonably possible that the corporation will incur
liability for investigation and/or remediation costs. The corporation has
established accruals for those hazardous waste sites where it is probable that
a loss has been incurred and the amount of the loss can reasonably be
estimated. The reliability and precision of the loss estimates are affected by
numerous factors, such as the stage of site evaluation, the allocation of
responsibility among PRPs and the assertion of additional claims. The
corporation adjusts its accruals as new remediation requirements are defined,
as information becomes available permitting reasonable estimates to be made,
and to reflect new and changing facts.
At Dec. 31, 1997, the corporation's accruals for environmental remediation
totaled $264 million ($310 million in 1996). Approximately 55 percent of the
accrual (58 percent in 1996) pertains to estimated future expenditures for
site investigation and cleanup, and approximately 45 percent (42 percent in
1996) pertains to estimated expenditures for closure and postclosure
activities. See note seventeen to the financial statements for a discussion of
the environmental sites for which the corporation has remediation
responsibility. In addition, the corporation had environmental loss
contingencies of $159 million at Dec. 31, 1997.
Estimates of future costs of environmental protection are necessarily
imprecise, due to numerous uncertainties. These include the impact of new laws
and regulations, the availability and application of new and diverse
technologies, the identification of new hazardous waste sites at which the
corporation may be a PRP and, in the case of Superfund sites, the ultimate
allocation of costs among PRPs and the final determination of the remedial
requirements. While estimating such future costs is inherently imprecise,
taking into consideration the corporation's experience to date regarding
environmental matters of a similar nature and facts currently known, the
corporation estimates that worldwide expenses related to environmental
protection, expressed in 1997 dollars, should average about $110 million
annually over the next five years. Worldwide capital expenditures for
environmental protection, also expressed in 1997 dollars, are expected to
average about $50 million annually over the same period. Management
anticipates that future annual costs for environmental protection after 2002
will continue at levels comparable to the five-year average estimates.
Subject to the inherent imprecision and uncertainties in estimating and
predicting future costs of environmental protection, it is management's
opinion that any future annual costs for environmental protection in excess of
the five-year average estimates stated here, plus those costs anticipated to
continue thereafter, would not have a material adverse effect on the
corporation's consolidated financial position.
Litigation
The corporation and its consolidated subsidiaries are involved in a number
of legal proceedings and claims with both private and governmental parties.
These cover a wide range of matters, including, but not limited to, product
liability; governmental regulatory proceedings; health, safety and
environmental matters; employment; patents; contracts, and taxes. In addition,
the corporation continues to be named as one of a number of defendants in
lawsuits involving silicone breast implants. The corporation supplied bulk
silicone materials to certain companies that at various times were involved in
the manufacture of breast implants. These cases are discussed in more detail
in note seventeen to the financial statements. In some of these legal
proceedings and claims, the cost of remedies that may be sought or damages
claimed is substantial. While it is impossible at this time to determine with
certainty the ultimate outcome of any such legal proceedings and claims,
management believes that adequate provisions have been made for probable
losses with respect thereto and that such ultimate outcome, after provisions
therefor, will not have a material adverse effect on the consolidated
financial position of the corporation but could have a material effect on
consolidated results of operations in a given quarter or year. Should any
losses be sustained in connection with any of such legal proceedings and
claims in excess of provisions therefor, they will be charged to income in
the future.
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<PAGE>
Partnerships and Joint Ventures
As described on page 8, the corporation's most significant partnerships and
joint ventures are UOP, Nippon Unicar, Aspell Polymeres, World Ethanol,
Univation Technologies and Asian Acetyls within the Specialties &
Intermediates segment, and Polimeri Europa, EQUATE Petrochemical Company,
Petromont and Alberta & Orient Glycol within the Basic Chemicals & Polymers
segment.
The combined financial information of the partnerships and joint ventures in
each segment, and the corporation's proportionate share thereof, are presented
in the following tables.
Specialties & Intermediates
Combined UCC's Proportionate
Share(a)
Millions of dollars 1997 1996 1995 1997 1996 1995
Net sales $2,246 $2,238 $2,311 $1,109 $1,082 $1,114
Cost of sales 1,395 1,456 1,486 567 680 720
Depreciation 90 86 67 51 39 35
Income from operations 340 322 338 175 187 175
Interest expense 42 31 32 15 12 15
Provision for income taxes 76 63 54 38 32 27
Net Income $ 224 $ 227 $ 257 $ 122 $ 143 $ 137
UCC share of dividends and
distributions $ 107 $ 101 $ 92
Total assets $1,837 $1,769 $ 820 $ 757
Total third party debt 588 577 249 212
Net Assets $ 451 $ 561 $ 277 $ 263
Basic Chemicals & Polymers
Combined UCC's Proportionate
Share(a)
Millions of dollars 1997 1996 1995 1997 1996 1995
Net sales $2,078 $1,930 $1,512 $1,038 $ 965 $ 756
Cost of sales 1,661 1,575 1,014 855 798 507
Depreciation 102 126 115 46 51 58
Income from operations 219 96 209 68 30 105
Interest expense 70 67 61 35 34 30
Provision for income taxes 49 20 36 18 11 17
Net Income (Loss) $ 100 $ 9 $ 114 $ 14 $ (15) $ 58
UCC share of dividends and
distributions $ 19 $ 40 $ 0
Total assets $3,980 $3,536 $1,797 $1,650
Total third party debt 1,595 1,197 744 561
Net Assets $ 985 $ 972 $ 413 $ 432
a) Includes U.S. GAAP adjustments made by the corporation, such as goodwill
and related amortization, and adjustments needed to conform the accounting
policies of the partnerships and joint ventures to those of UCC.
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<PAGE>
Specialties & Intermediates
The corporation's share of the net income of Specialties & Intermediates
partnerships and joint ventures decreased $21 million in 1997. This decline
resulted from the assumption of certain costs, principally research and
development, by the corporation's new technology venture, Univation
Technologies, and decreased earnings of World Ethanol, mainly attributable to
lower prices and volumes caused by a different mix of ethanol sales in 1997.
Increased earnings in 1996, as compared with 1995, resulted from increased
earnings from UOP being partially offset by the elimination of earnings of the
polypropylene partnership with Shell Oil Company. The 1996 and 1997 earnings
from the polypropylene business were included in the consolidated results.
Basic Chemicals & Polymers
The corporation's share of the net income of Basic Chemicals & Polymers
partnerships and joint ventures increased $29 million from 1996 to 1997, due
to significant improvement in Polimeri Europa and Petromont earnings, offset
by increased preoperating expenses EQUATE. Strong results of our polyolefins
partnerships in 1997 were the result of increases in worldwide polymer pricing
over the prior year. The decrease from 1995 to 1996 reflected losses from
Polimeri Europa and decreased earnings from Petromont, caused by lower
polyethylene prices and higher raw material costs, and the recognition of
preoperating expenses of EQUATE.
EQUATE Petrochemical Company commenced operations in the fourth quarter of
1997. Losses of $43 million for development of this world-scale petrochemical
complex were recognized by the corporation in 1997 ($23 million and $3 million
in 1996 and 1995, respectively). The corporation has severally guaranteed 45
percent (approximately $606 million at Dec. 31, 1997) of EQUATE's debt and
working capital financing needs until certain completion and financial tests
are achieved. If these tests are met, a $54 million several guarantee will
provide ongoing support thereafter. The corporation also severally guaranteed
certain sales volume targets until EQUATE's sales capabilities are proved. In
addition, the corporation has pledged its shares in EQUATE as security for
EQUATE's debt. The corporation has political risk insurance coverage for its
equity investment and, through Sept. 30, 1998, substantially all of its
several guarantee of EQUATE's debt.
Other
The corporation's remaining interest in UCAR International Inc., a
manufacturer of carbon and graphite products, was sold in 1995. Income (loss)
from corporate investments carried at equity included $4 million in 1995,
representing the corporation's share of UCAR's earnings in that year.
Additionally, the corporation's share of dividends and distributions from UCAR
was $5 million in 1995.
Interest Expense
Interest expense increased $3 million, from $76 million in 1996 to $79
million in 1997. This increase reflects the effect of a full year's interest
expense associated with the 7.75 percent debentures due in 2096 and an
increase in short-term debt, partially offset by an increase in capitalized
interest associated with the corporation's capital program. Interest expense
decreased $13 million from 1995 to 1996 as a result of increased capitalized
interest.
Provision for Income Taxes
The effective tax rate was 28.9 percent in 1997 compared with 27.9 percent
and 30.2 percent in 1996 and 1995, respectively. The corporation's effective
tax rate was reduced in each of these years as a result of foreign sales
corporation income taxed at a preferential rate and research and
experimentation tax credits. The 1995 effective tax rate was increased as a
result of taxes provided on the sale of UCAR International Inc.
Accounting Changes
1995 through 1997
In November 1997, the Emerging Issues Task Force reached consensus on Issue
97-13, "Accounting for Costs Incurred in Connection with a Consulting Contract
or an Internal Project That Combines Business Process Reengineering and
Information Technology Transformation," requiring companies to expense as
incurred costs associated with business process reengineering activities.
Effective Oct. 1, 1997, the corporation adopted the provisions of Issue 97-13
as a cumulative effect of a change in accounting principle, reversing
$28 million ($17 million, after-tax) of costs previously capitalized from 1995
through the third quarter of 1997.
Additionally in 1997, the corporation adopted Statement of Financial
Accounting Standards (SFAS) 128, "Earnings Per Share", and SFAS 129,
"Disclosure of Information About Capital Structure." In 1996, the corporation
adopted SFAS 123, "Accounting for Stock-Based Compensation," under which the
corporation elected to continue following Accounting Principles Board Opinion
25. In 1995, the corporation adopted SFAS 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," the effect
of which was not material.
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<PAGE>
1998
In June 1997, the Financial Accounting Standards Board issued SFAS 130,
"Reporting Comprehensive Income," and SFAS 131, "Disclosures About Segments of
an Enterprise and Related Information," for fiscal years beginning after Dec.
15, 1997. These statements address presentation and disclosure matters and
will have no impact on the corporation's financial position or results of
operations. The corporation does not anticipate a change in the identification
of its business segments.
Effective Jan. 1, 1998, Brazil was no longer considered to be a highly
inflationary economy. Had this change occurred effective Jan. 1, 1997, the
effect on results of operations and financial position would not have been
material.
Year 2000 Issue
Most of the corporation's computer and process control systems were designed
to use only two digits to represent years. Thus they may not recognize "00" as
representing the year 2000, but rather 1900, which could result in errors or
system failures. These systems must be corrected in a timely manner to remain
functional.
The corporation is addressing the year 2000 issue in several ways. Since
1995, the corporation has expended significant funds to upgrade the bulk of
its commercial computer systems to enhance the information available to the
corporation. This upgrade will correct the year 2000 issue for the computer
systems it replaces. The upgrade will be implemented in three parts, the first
of which commenced operation in 1998. The remaining parts are scheduled for
operation by year-end. The corporation is reviewing the balance of its
domestic and international internal processes, including hardware, software
and control systems, and is assessing its external relationships to address
potential impacts arising from interfaces with customers, suppliers and
service providers. Priorities are being set and required system modifications
are progressing. The corporation estimates its worldwide expenses related to
the year 2000 project could range between $20 and $50 million over the next
two years. The corporation believes the year 2000 project will be completed
prior to the year 2000. However, considerable work remains to be accomplished
in a limited period of time and unforeseen difficulties may arise which could
adversely affect the corporation's ability to complete its systems
modifications correctly, completely, on time and/or within its cost estimate.
In addition, there can be no assurance that customers, suppliers and service
providers on which the corporation relies will resolve their year 2000 issues
accurately, thoroughly and on time. Failure to complete the year 2000 project
by the year 2000 could have a material adverse effect on future operating
results or financial condition.
Liquidity, Capital Resources and Other Financial Data
Cash Flow From Operations
Cash flow from operations increased by $55 million to $917 million in 1997,
as compared with $862 million in 1996. Increased earnings for the year were
offset by increases in working capital, principally the result of an increase
in inventory partially offset by a decrease in notes and accounts receivable.
Cash Flow Used for Investing
Cash flow used for investing includes capital expenditures, investments,
advances and acquisitions, and proceeds from the sale of investments and
assets.
Capital expenditures increased to $755 million in 1997, from $721 million in
1996 and $542 million in 1995. Major capital projects funded during 1997
included a new CARBOWAX polyethylene glycol and TERGITOL surfactants facility,
an ethanolamines unit and olefins expansion, all at Taft, La., as well as a
continuing upgrade of the information technology infrastructure. Major capital
projects funded during 1996 included an ethylene propylene rubber facility at
Seadrift, Tex., expansion of ethylene production units at Taft, La., as well
as new cogeneration facilities at Texas City, Tex. and Taft, La., and new
information technology infrastructure. Major capital projects funded during
1995 included a new butanol unit at Taft, La., an energy systems upgrade at
Texas City, Tex., new TRITON surfactants production facilities at South
Charleston, W.Va. and a new UNIPOL II polyethylene production facility at
Taft, La.
Over the past three years 52 percent of capital expenditures was directed to
new capacity, 44 percent to cost reduction and replacement, and 4 percent to
environmental, safety and health facilities. Of these expenditures, 92 percent
was in the U.S. and Puerto Rico.
Investments and acquisitions in 1996 included the purchases of Shell's
polypropylene assets and business and of 95 percent of the outstanding shares
of Companhia Alcoolquimica Nacional, a Brazilian producer of vinyl acetate
monomer. Investments and acquisitions during 1995 included the $216 million
acquisition of a 50 percent interest in Polimeri Europa, a $134 million
investment in the EQUATE joint venture, and the $71 million purchase of
certain ethylene oxide derivative businesses in the U.K.
Net proceeds from the sale of investments in 1995 included $542 million from
the sales of the corporation's remaining interest in UCAR International Inc.
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<PAGE>
At Dec. 31, 1997, the cost of completing authorized construction projects
was estimated to be $1.375 billion, of which $50 million is covered by firm
commitments. Future construction expenditures are anticipated to be sourced
through operating cash flows and borrowings.
Cash Flow Used for Financing
Cash flow used for financing includes stockholder and minority interest
dividends and funds used to buy back common stock, offset in part by net
proceeds from short- and long-term debt and sales of common stock pursuant to
the corporation's dividend reinvestment plan and its employee savings and
investment programs.
Cash flow used for financing in 1997 totaled $132 million, compared with
$254 million in 1996 and $57 million in 1995. Net borrowings totaled $306
million, while cash dividends totaled $134 million.
In January 1997, a newly formed real estate investment trust (REIT)
subsidiary issued $250 million of preferred stock bearing a current dividend
yield of 14 percent for 10 years and 1 percent thereafter. In October 1997,
the corporation paid $240 million in cash to redeem the preferred stock
shares. Cash dividends paid to preferred shareholders of the REIT during 1997
totaled $25 million.
In September 1997, the board of directors declared an increase in the
quarterly common stock dividend to $0.225 per share. In October 1997, the
trustee of the Employee Stock Ownership Plan (ESOP) exercised its right to
convert all shares of the corporation's preferred stock held by the ESOP into
the corporation's common stock. This noncash conversion increased the
corporation's common stock outstanding at that time by 15.4 million shares.
In 1996, the corporation issued $200 million of 7.75 percent debentures
maturing in 2096, the proceeds of which were used to finance ongoing share
repurchases and to pay down existing short-term debt. In 1995 the corporation
completed a $400 million, two-part public offering of debt securities.
On July 23, 1997, the corporation's board of directors authorized an
increase in the number of shares that may be repurchased under the existing
common stock repurchase program by 10 million shares, to an aggregate of 60
million shares since inception of the program. During 1997, pursuant to the
share repurchase program, the corporation repurchased 7.0 million shares of
its common stock for $337 million, at an average effective price of $47.62 per
share, bringing the total amount repurchased since the beginning of 1993 to
49.3 million shares for $1.713 billion, at an average effective price of
$34.69 per share. The corporation intends to acquire additional shares from
time to time at prevailing market prices, at a rate consistent with the
combination of corporate cash flow and market conditions.
At Dec. 31, 1997, there were no outstanding borrowings under either the
corporation's existing $1 billion bank credit agreement or its $500 million
medium-term note program.
Debt Ratios
Total debt outstanding at year-end for the past three years was:
Millions of dollars 1997 1996 1995
Domestic $1,719 $1,492 $1,254
International 168 107 69
Total $1,887 $1,599 $1,323
Year-end ratios of total debt to total capital were:
1997 1996 1995
Debt ratio 44.2% 42.7% 39.0%
Total debt consists of short-term debt, long-term debt and the current
portion of long-term debt. Total capital consists of total debt plus minority
stockholders' equity in consolidated subsidiaries and stockholders' equity.
(Included within this section is one bar chart which provides the following
data:
(1) Shares Repurchased - millions
Net of
Reissuances Total
1993 1.4 3.8
1994 6.1 11.6
1995 9.3 14.1
1996 8.7 12.8
1997 4.9(a) 7.0
(a) Does not include 15.4 million shares issued in connection
with the ESOP preferred share conversion. )
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Page 18 and 19
<TABLE>
Selected Financial Data
Union Carbide Corporation and Subsidiaries
<CAPTION>
Millions of dollars
(except per share figures) 1997 1996 1995 1994
<S> <C> <C> <C> <C>
From the Income Statement
Net sales $ 6,502 $ 6,106 $ 5,888 $ 4,865
Cost of sales, exclusive of depreciation
and amortization 4,806 4,568 4,100 3,673
Research and development 157 159 144 136
Selling, administration and
other expenses 324 321 387(a) 290
Depreciation and amortization 340 312 306 274
Partnership income (loss) 133 144 152 98
Other income (expense) - net 37 31 245 (39)
Income before interest expense and
provision for income taxes 1,045 921 1,348 551
Interest expense 79 76 89 80
Income (loss) before provision for
income taxes - continuing operations 966 845 1,259 471
Provision (credit) for income taxes 279 236 380 137
Income (loss) from corporate
investments carried at equity 3 (16) 47 55
Income (loss) from continuing operations 676 593 925 389
Cumulative effect of change in
accounting principle (17) - - -
Net income (loss) - common stockholders 652 583 915 379
Per common share
Basic - Income (loss) from
continuing operations $ 5.02 $ 4.43 $ 6.65 $ 2.51
- Net income (loss) 4.89 4.43 6.65 2.51
Diluted - Income (loss) from
continuing operations 4.53 3.90 5.85 2.27
- Net income (loss) 4.41 3.90 5.85 2.27
From the Balance Sheet
Net current assets of continuing
operations $ 362 $ 595 $ 858 $ 329
Total assets 6,964 6,546 6,256 5,028
Long-term debt 1,458 1,487 1,285 899
Other long-term obligations 738 811 834 537
Total capital(b) 4,268 3,742 3,392 2,479
Stockholders' equity 2,348 2,114 2,045 1,509
Stockholders' equity per common share 17.15 16.72 15.14 10.45
Other Data
Cash dividends on common stock $ 100 $ 99 $ 103 $ 113
Cash dividends per common share 0.7875 0.75 0.75 0.75
Special distribution per common share - - - -
Market price per common share - high(c) 56.81 49.88 42.75 35.88
Market price per common share - low(c) 40.50 36.38 25.50 21.50
Common shares outstanding (thousands) 136,944 126,440 135,108 144,412
Capital expenditures 755 721 542 409
Employees - continuing operations 11,813 11,745 11,521 12,004
Selected Financial Ratios
Total debt/total capital 44.2% 42.7% 39.0% 38.2%
Return on capital(b) 19.6% 18.6% 39.2% 18.0%
Return on equity(e) 30.8% 28.5% 60.6% 26.5%
Income from continuing operations/average
stockholders' equity 30.3% 28.5% 52.1% 26.5%
Cash dividends on common stock/income
from continuing operations 14.8% 16.7% 11.1% 29.0%
<CAPTION>
Millions of dollars
(except per share figures) 1993 1992 1991
<S> <C> <C> <C>
From the Income Statement
Net sales $ 4,640 $ 4,872 $ 4,877
Cost of sales, exclusive of depreciation
and amortization 3,589 3,764 3,787
Research and development 139 155 157
Selling, administration and
other expenses 340 383 408
Depreciation and amortization 276 293 287
Partnership income (loss) 67 60 (22)
Other income (expense) - net (66) (13) (135)
Income before interest expense and
provision for income taxes 297 324 81
Interest expense 70 146 228
Income (loss) before provision for
income taxes - continuing operations 227 178 (147)
Provision (credit) for income taxes 78 45 (50)
Income (loss) from corporate
investments carried at equity 16 (14) (21)
Income (loss) from continuing operations 165 119 (116)
Cumulative effect of change in
accounting principle (97) (361) -
Net income (loss) - common stockholders 58 (187) (28)
Per common share
Basic - Income (loss) from
continuing operations $ 1.03 $ 0.79 $ (1.07)
- Net income (loss) 0.37 (1.48) (0.22)
Diluted - Income (loss) from
continuing operations 0.97 0.76 (1.07)
- Net income (loss) 0.41 (1.24) (0.22)
From the Balance Sheet
Net current assets of continuing
operations $ 233 $ 66 $ 209
Total assets 4,689 4,941 6,826
Long-term debt 931 1,113 1,160
Other long-term obligations 378 277 428
Total capital(b) 2,395 2,710 4,694
Stockholders' equity 1,428 1,238 2,239
Stockholders' equity per common share 9.49 9.32 17.55
Other Data
Cash dividends on common stock $ 110 $ 114 $ 126
Cash dividends per common share 0.75 0.875 1.00
Special distribution per common share - 15.875 -
Market price per common share - high(c) 23.13 17.13(d) 22.63
Market price per common share - low(c) 16.00 10.88(d) 15.13
Common shares outstanding (thousands) 150,548 132,865 127,607
Capital expenditures 395 359 400
Employees - continuing operations 13,051 15,075 16,705
Selected Financial Ratios
Total debt/total capital 40.3% 54.3% 52.0%
Return on capital(b) 7.7% 6.9% -
Return on equity(e) 4.7% (8.4)% (1.2)%
Income from continuing operations/average
stockholders' equity 12.4% 6.8% -
Cash dividends on common stock/income
from continuing operations 66.7% 95.8% -
<CAPTION>
Millions of dollars
(except per share figures) 1990 1989 1988
<S> <C> <C> <C>
From the Income Statement
Net sales $ 5,238 $ 5,613 $ 5,525
Cost of sales, exclusive of depreciation
and amortization 3,876 3,909 3,696
Research and development 157 143 124
Selling, administration and
other expenses 466 442 394
Depreciation and amortization 278 261 255
Partnership income (loss) 70 82 95
Other income (expense) - net 103 108 (1)
Income before interest expense and
provision for income taxes 634 1,048 1,150
Interest expense 269 268 172
Income (loss) before provision for
income taxes - continuing operations 365 780 978
Provision (credit) for income taxes 130 257 381
Income (loss) from corporate
investments carried at equity (42) 27 33
Income (loss) from continuing operations 188 530 608
Cumulative effect of change in
accounting principle - - -
Net income (loss) - common stockholders 308 573 662
Per common share
Basic - Income (loss) from
continuing operations $ 1.34 $ 3.79 $ 4.52
- Net income (loss) 2.19 4.10 4.92
Diluted - Income (loss) from
continuing operations 1.32 3.63 4.30
- Net income (loss) 2.16 3.92 4.67
From the Balance Sheet
Net current assets of continuing
operations $ 7 $ 22 $ 14
Total assets 7,389 7,355 7,327
Long-term debt 2,058 2,060 2,271
Other long-term obligations 357 572 594
Total capital(b) 5,338 5,319 4,805
Stockholders' equity 2,373 2,383 1,836
Stockholders' equity per common share 18.88 16.83 13.34
Other Data
Cash dividends on common stock $ 138 $ 140 $ 155
Cash dividends per common share 1.00 1.00 1.15
Special distribution per common share - - -
Market price per common share - high(c) 24.88 33.25 28.38
Market price per common share - low(c) 14.13 22.75 17.00
Common shares outstanding (thousands) 125,674 141,578 137,602
Capital expenditures 381 483 380
Employees - continuing operations 17,722 18,032 17,258
Selected Financial Ratios
Total debt/total capital 54.0% 49.9% 56.1%
Return on capital(b) 8.4% 21.2% 24.5%
Return on equity(e) 12.9% 31.2% 53.1%
Income from continuing operations/average
stockholders' equity 7.9% 25.1% 39.4%
Cash dividends on common stock/income
from continuing operations 73.4% 26.4% 25.5%
<FN>
a) Selling, administration and other expenses in 1995 include a charge of $68
million for postemployment benefits.
b) Return on capital is computed by dividing income by beginning-of-year
capital. Income consists of income from continuing operations, less
preferred dividends, plus after-tax interest cost (net of interest income
received from Praxair), plus income attributable to minority interests.
Capital consists of total debt plus minority stockholders' equity in
consolidated subsidiaries and stockholders' equity, adjusted for the
corporation's Praxair-related assets and the cumulative effect of changes
in accounting principles. Total debt consists of short-term debt, long-term
debt and the current portion of long-term debt.
c) Prices are based on New York Stock Exchange Composite Transactions.
d) In 1992 the corporation spun off Praxair, Inc. The high and low presented
in the table for 1992 represent the value of the common stock after the
spin-off. The high and low for 1992 before the spin-off were $29.63 and
$20.13, respectively.
e) Return on equity is computed by dividing net income (loss)-common
stockholders by beginning-of-year stockholders' equity.
</TABLE>
- 18 - and - 19 -
<PAGE>
<TABLE>
Quarterly Data
Union Carbide Corporation and Subsidiaries
<CAPTION>
Millions of dollars 1Q 2Q 3Q 4Q Year
<S> <C> <C> <C> <C> <C>
1997
Net sales $1,638 $1,666 $1,659 $1,539 $6,502
Cost of sales 1,231 1,220 1,199 1,156 4,806
Gross profit 407 446 460 383 1,696
Depreciation and amortization 82 87 87 84 340
Operating profit 247 291 291 216 1,045
Income before cumulative effect of
change in accounting principle 157 191 181 147 676
Cumulative effect of change in
accounting principle - - - (17) (17)
Net income 157 191 181 130 659
Net income - common stockholders 155 188 179 130 652
1996
Net sales $1,501 $1,559 $1,538 $1,508 $6,106
Cost of sales 1,099 1,150 1,145 1,174 4,568
Gross profit 402 409 393 334 1,538
Depreciation and amortization 75 79 81 77 312
Operating profit 259 245 242 175 921
Net income 157 173 161 102 593
Net income - common stockholders 155 170 159 99 583
Dollars per common share 1Q 2Q 3Q 4Q Year
1997
Basic -
Income before cumulative effect of
change in accounting principle $ 1.17 $ 1.46 $ 1.34 $ 1.07 $ 5.02
Cumulative effect of change in
accounting principle - - - (0.13) (0.13)
Net income - common stockholders 1.17 1.46 1.34 0.94 4.89
Diluted -
Income before cumulative effect of
change in accounting principle 1.03 1.28 1.18 1.04 4.53
Cumulative effect of change in
accounting principle - - - (0.12) (0.12)
Net income - common stockholders 1.03 1.28 1.18 0.92 4.41
Cash dividends declared 0.1875 0.1875 0.4125 - 0.7875
Market price - high(a) 49.38 50.63 56.81 50.13 56.81
Market price - low(a) 40.50 42.50 46.69 41.44 40.50
1996
Basic -
Net income - common stockholders $ 1.15 $ 1.27 $ 1.22 $ 0.77 $ 4.43
Diluted -
Net income - common stockholders 1.01 1.12 1.08 0.68 3.90
Cash dividends declared 0.1875 0.1875 0.1875 0.1875 0.75
Market price - high(a) 49.88 49.63 46.25 47.00 49.88
Market price - low(a) 36.63 39.00 36.38 39.00 36.38
a) Prices are based on New York Stock Exchange Composite Transactions.
</TABLE>
- 20 -
<PAGE>
<TABLE>
Consolidated Balance Sheet
Union Carbide Corporation and Subsidiaries
<CAPTION>
Millions of dollars at December 31, 1997 1996
<S> <C> <C>
Assets
Cash and cash equivalents $ 68 $ 94
Notes and accounts receivable 993 1,047
Inventories 604 541
Other current assets 201 191
Total Current Assets 1,866 1,873
Property, plant and equipment 7,707 7,159
Less: Accumulated depreciation 3,927 3,750
Net Fixed Assets 3,780 3,409
Companies carried at equity 690 695
Other investments and advances 73 77
Total Investments and Advances 763 772
Other assets 555 492
Total Assets $6,964 $6,546
Liabilities and Stockholders' Equity
Accounts payable $ 273 $ 268
Short-term debt and current portion of long-term debt 429 112
Accrued income and other taxes 75 133
Other accrued liabilities 727 765
Total Current Liabilities 1,504 1,278
Long-term debt 1,458 1,487
Postretirement benefit obligation 464 473
Other long-term obligations 738 811
Deferred credits 419 301
Minority stockholders' equity in consolidated subsidiaries 33 29
Convertible preferred stock - ESOP - 144
Unearned employee compensation - ESOP - (91)
Stockholders' equity
Common stock
Authorized - 500,000,000 shares
Issued - 154,609,669 shares 155 155
Additional paid-in capital 47 370
Translation and other equity adjustments (104) (33)
Retained earnings 3,074 2,629
Unearned employee compensation - ESOP (80) -
Less: Treasury stock, at cost - 17,666,164 shares
(28,169,324 in 1996) 744 1,007
Total Stockholders' Equity 2,348 2,114
Total Liabilities and Stockholders' Equity $6,964 $6,546
<FN>
The Notes to Financial Statements on pages 25 through 40 should be read in
conjunction with this statement.
</TABLE>
- 21 -
<PAGE>
<TABLE>
Consolidated Statement of Income
Union Carbide Corporation and Subsidiaries
<CAPTION>
Millions of dollars (except per share figures),
year ended December 31, 1997 1996 1995
<S> <C> <C> <C>
Net Sales $6,502 $6,106 $5,888
Cost of sales, exclusive of
depreciation and amortization 4,806 4,568 4,100
Research and development 157 159 144
Selling, administration and other expenses 324 321 387
Depreciation and amortization 340 312 306
Partnership income 133 144 152
Other income - net 37 31 245
Income Before Interest Expense and
Provision for Income Taxes 1,045 921 1,348
Interest expense 79 76 89
Income Before Provision for Income Taxes 966 845 1,259
Provision for income taxes 279 236 380
Income of Consolidated Companies and Partnerships 687 609 879
Minority interest 14 - 1
Income (loss) from corporate investments
carried at equity 3 (16) 47
Income Before Cumulative Effect of Change in
Accounting Principle 676 593 925
Cumulative effect of change in accounting principle (17) - -
Net Income 659 593 925
Preferred stock dividends, net of income taxes 7 10 10
Net Income - Common Stockholders $ 652 $ 583 $ 915
Earnings per Common Share
Basic -
Income before cumulative effect of change in
accounting principle $ 5.02 $ 4.43 $ 6.65
Cumulative effect of change in accounting
principle (0.13) - -
Net income - common stockholders $ 4.89 $ 4.43 $ 6.65
Diluted -
Income before cumulative effect of change in
accounting principle 4.53 3.90 5.85
Cumulative effect of change in accounting
principle (0.12) - -
Net income - common stockholders $ 4.41 $ 3.90 $ 5.85
Cash Dividends Declared per Common Share $ 0.7875 $ 0.75 $ 0.75
<FN>
The Notes to Financial Statements on pages 25 through 40 should be read in
conjunction with this statement.
</TABLE>
- 22 -
<PAGE>
<TABLE>
Consolidated Statement of Cash Flows
Union Carbide Corporation and Subsidiaries
<CAPTION>
Increase (decrease) in cash and cash equivalents
Millions of dollars, year ended December 31, 1997 1996 1995
<S> <C> <C> <C>
Operations
Income before cumulative effect of change
in accounting principle $ 676 $ 593 $ 925
Noncash charges (credits) to net income
Depreciation and amortization 340 312 306
Deferred income taxes 86 82 (29)
Net gains on investing transactions - (3) (379)
Other 6 16 186
Increase in working capital(a) (144) (92) (242)
Long-term assets and liabilities (47) (46) (4)
Cash Flow From Operations 917 862 763
Investing
Capital expenditures (755) (721) (542)
Investments, advances and acquisitions
(excluding cash acquired) (68) (263) (431)
Sale of investments - - 552
Sale of fixed and other assets 13 22 54
Cash Flow Used for Investing (810) (962) (367)
Financing
Change in short-term debt (3 months or less) 271 96 (11)
Proceeds from short-term debt 51 21 6
Repayment of short-term debt - (37) -
Proceeds from long-term debt 14 203 402
Repayment of long-term debt (30) (10) (22)
Issuance of common stock 44 129 116
Purchase of common stock (337) (544) (425)
Proceeds from subsidiary preferred stock 250 - -
Purchase of subsidiary preferred stock (240) - -
Payment of dividends (134) (111) (116)
Other (21) (1) (7)
Cash Flow Used for Financing (132) (254) (57)
Effect of exchange rate changes on cash
and cash equivalents (1) (1) 1
Change in cash and cash equivalents (26) (355) 340
Cash and cash equivalents beginning-of-year 94 449 109
Cash and Cash Equivalents End-of-Year $ 68 $ 94 $ 449
Cash paid for interest and income taxes
Interest (net of amount capitalized) $ 77 $ 66 $ 68
Income Taxes 121 169 329
<FN>
a) Net change in certain components of working capital
(excluding noncash transactions):
(Increase) decrease in current assets
Notes and accounts receivable $ 53 $ (26) $ (111)
Inventories (63) 43 (144)
Other current assets - 25 8
Increase (decrease) in payables and accruals (134) (134) 5
(Increase) in working capital $(144) $ (92) $(242)
The Notes to Financial Statements on pages 25 through 40 should be read in
conjunction with this statement.
</TABLE>
- 23 -
<PAGE>
<TABLE>
Consolidated Statement of Stockholders' Equity
Union Carbide Corporation and Subsidiaries
<CAPTION>
1997
Shares Millions
(in thousands) of dollars
<S> <C> <C>
Common Stock
Balance at December 31 154,610 $ 155
Additional Paid-In Capital
Balance at January 1 $ 370
Put options, net 26
Issued:
For the Dividend Reinvestment
and Stock Purchase Plan 2
For employee savings and
incentive plans (66)
Effect of conversion of preferred
shares held by the ESOP (285)
Balance at December 31 $ 47
Translation and Other
Equity Adjustments
Balance at January 1 $ (33)
Translation and other adjustments (71)
Sale of businesses -
Balance at December 31 $ (104)
Retained Earnings
Balance at January 1 $ 2,629
Net income - common stockholders 652
Effect of conversion of preferred
shares held by the ESOP (107)
Cash dividends on common stock (100)
Balance at December 31 $ 3,074
Unearned Employee Compensation - ESOP
Balance at January 1 $ -
Reclassification due to conversion of
preferred shares held by the ESOP (81)
Shares allocated to ESOP participants 1
Balance at December 31 $ (80)
Treasury Stock
Balance at January 1 28,169 $ 1,007
Common stock repurchase program 7,071 340
Issued:
For the Dividend Reinvestment
and Stock Purchase Plan (189) (7)
Effect of conversion of preferred
shares held by the ESOP (15,406) (530)
For employee savings and
incentive plans (1,979) (66)
Balance at December 31 17,666 $ 744
Total Stockholders' Equity $ 2,348
<CAPTION>
1996
Shares Millions
(in thousands) of dollars
<S> <C> <C>
Common Stock
Balance at December 31 154,610 $ 155
Additional Paid-In Capital
Balance at January 1 $ 343
Put options, net 8
Issued:
For the Dividend Reinvestment
and Stock Purchase Plan 2
For employee savings and
incentive plans 17
Effect of conversion of preferred
shares held by the ESOP -
Balance at December 31 $ 370
Translation and Other
Equity Adjustments
Balance at January 1 $ (15)
Translation and other adjustments (18)
Sale of businesses -
Balance at December 31 $ (33)
Retained Earnings
Balance at January 1 $ 2,145
Net income - common stockholders 583
Effect of conversion of preferred
shares held by the ESOP -
Cash dividends on common stock (99)
Balance at December 31 $ 2,629
Unearned Employee Compensation - ESOP
Balance at January 1 $ -
Reclassification due to conversion of
preferred shares held by the ESOP -
Shares allocated to ESOP participants -
Balance at December 31 $ -
Treasury Stock
Balance at January 1 19,502 $ 583
Common stock repurchase program 12,821 550
Issued:
For the Dividend Reinvestment
and Stock Purchase Plan (212) (7)
Effect of conversion of preferred
shares held by the ESOP - -
For employee savings and
incentive plans (3,942) (119)
Balance at December 31 28,169 $ 1,007
Total Stockholders' Equity $ 2,114
<CAPTION>
1995
Shares Millions
(in thousands) of dollars
<S> <C> <C>
Common Stock
Balance at December 31 154,610 $ 155
Additional Paid-In Capital
Balance at January 1 $ 369
Put options, net (19)
Issued:
For the Dividend Reinvestment
and Stock Purchase Plan 1
For employee savings and
incentive plans (8)
Effect of conversion of preferred
shares held by the ESOP -
Balance at December 31 $ 343
Translation and Other
Equity Adjustments
Balance at January 1 $ (59)
Translation and other adjustments (11)
Sale of businesses 55
Balance at December 31 $ (15)
Retained Earnings
Balance at January 1 $ 1,333
Net income - common stockholders 915
Effect of conversion of preferred
shares held by the ESOP -
Cash dividends on common stock (103)
Balance at December 31 $ 2,145
Unearned Employee Compensation - ESOP
Balance at January 1 $ -
Reclassification due to conversion of
preferred shares held by the ESOP -
Shares allocated to ESOP participants -
Balance at December 31 $ -
Treasury Stock
Balance at January 1 10,197 $ 289
Common stock repurchase program 14,127 426
Issued:
For the Dividend Reinvestment
and Stock Purchase Plan (322) (9)
Effect of conversion of preferred
shares held by the ESOP - -
For employee savings and
incentive plans (4,500) (123)
Balance at December 31 19,502 $ 583
Total Stockholders' Equity $ 2,045
<FN>
The Notes to Financial Statements on pages 25 through 40 should be read in
conjunction with this statement.
</TABLE>
- 24 -
<PAGE>
Notes to Financial Statements
Index PAGE
ONE Summary of Significant Accounting Policies 25
TWO Financial Instruments 26
THREE Supplementary Balance Sheet Detail 27
FOUR Supplementary Income Statement Detail 28
FIVE Business and Geographic Segment Information 28
SIX Acquisitions and Divestitures 29
SEVEN Income Taxes 30
EIGHT Partnerships and Joint Ventures 31
NINE Long-Term Debt 32
TEN Minority Interest 32
ELEVEN Earnings per Share 33
TWELVE Retirement Programs 34
THIRTEEN Employee Stock Ownership Plan 36
FOURTEEN Incentive Plans 36
FIFTEEN Stockholders' Equity 38
SIXTEEN Leases 38
SEVENTEEN Commitments and Contingencies 39
ONE
Summary of Significant Accounting Policies
Nature of Operations o Union Carbide Corporation is engaged in two segments
of the chemicals and plastics industry, Specialties & Intermediates and Basic
Chemicals & Polymers. See note five.
Principles of Consolidation o The consolidated financial statements include
the accounts of all significant subsidiaries. All significant intercompany
transactions have been eliminated in consolidation. Investments in 20 percent-
to 50 percent-owned companies and partnerships are carried at equity in net
assets. Other investments are carried generally at cost.
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles, which require the corporation to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Accounting Changes o In November 1997, the Emerging Issues Task Force
reached consensus on Issue 97-13, "Accounting for Costs Incurred in Connection
with a Consulting Contract or an Internal Project That Combines Business
Process Reengineering and Information Technology Transformation," requiring
companies to expense as incurred costs associated with business process
reengineering activities. Effective Oct. 1, 1997, the corporation adopted the
provisions of Issue 97-13 as a cumulative effect of a change in accounting
principle, reversing $28 million ($17 million, after tax) of costs previously
capitalized from 1995 through the third quarter of 1997.
Additionally in 1997, the corporation adopted Statement of Financial
Accounting Standards (SFAS) 128, "Earnings Per Share," and SFAS 129,
"Disclosure of Information About Capital Structure." In 1996, the corporation
adopted SFAS 123, "Accounting for Stock-Based Compensation," under which the
corporation elected to continue following Accounting Principles Board (APB)
Opinion 25. In 1995, the corporation adopted SFAS 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
the effect of which was not material.
Foreign Currency Translation o Unrealized gains and losses resulting from
translating foreign subsidiaries' assets and liabilities into U.S. dollars
generally are accumulated in an equity account on the balance sheet until such
time as the subsidiary is sold or substantially or completely liquidated.
Translation gains and losses relating to operations located in Latin American
countries, where hyperinflation exists, and to international operations using
the U.S. dollar as their functional currency are included in the income
statement.
- 25 -
<PAGE>
Financial Instruments o Financial instruments are used to hedge financial
risk caused by fluctuating interest and currency rates. The amounts to be paid
or received on interest rate risk instruments that hedge debt, accrue and are
recognized over the lives of the instruments. Gains and losses on foreign
currency risk instruments used to hedge firm commitments are deferred and
recognized as part of the related foreign currency transactions.
Foreign currency instruments that are designated to offset fluctuations in
the dollar value of foreign currency accounts receivable and payable and from
earnings fluctuations in anticipated foreign currency cash flows are marked to
market and the results recognized immediately as other income or other
expense.
Cash Equivalents o The corporation considers as cash equivalents all highly
liquid investments that are readily convertible to known amounts of cash and
are so near their maturity that they present insignificant risk of changes in
value because of changes in interest rates.
Inventories o Inventories are stated at cost or market, whichever is lower.
These amounts do not include depreciation and amortization, the impact of
which is not significant to the financial statements.
Approximately 67 percent of inventory amounts before application of the LIFO
method at Dec. 31, 1997 (66 percent at Dec. 31, 1996) have been valued on the
LIFO basis; the "average cost" method is used for the balance. It is estimated
that if inventories had been valued at current costs, they would have been
approximately $348 million and $329 million higher than reported at Dec. 31,
1997 and 1996, respectively.
Fixed Assets o Fixed assets are carried at cost. Expenditures for
replacements are capitalized, and the replaced items are retired. Gains and
losses from the sale of property are included in income.
Depreciation is calculated on a straight-line basis. The corporation and its
subsidiaries generally use accelerated depreciation methods for tax purposes
where appropriate.
Patents, Trademarks and Goodwill o Amounts paid for purchased patents and
newly acquired businesses in excess of the fair value of the net assets of
such businesses have been charged to patents, trademarks and goodwill. The
portion of such amounts determined to be attributable to patents is amortized
over their remaining lives, while trademarks and goodwill are amortized over
the estimated period of benefit, generally 5 to 20 years.
Research and Development o Research and development costs are charged to
expense as incurred. Depreciation expense applicable to research and
development facilities and equipment is included in Depreciation and
amortization in the Consolidated Statement of Income ($12 million in 1997, $11
million in 1996 and $14 million in 1995).
Income Taxes o Provisions have been made for deferred income taxes based on
differences between financial statement and tax bases of assets and
liabilities using currently enacted tax rates and regulations.
Environmental Costs o Environmental expenditures are expensed or capitalized
as appropriate, depending on their future economic benefit. Expenditures
relating to an existing condition caused by past operations and having no
future economic benefits are expensed. Environmental expenditures include site
investigation, physical remediation, operation and maintenance, and legal and
administrative costs. Environmental accruals are established for sites where
it is probable that a loss has been incurred and the amount of the loss can
reasonably be estimated. Where the estimate is a range and no amount within
the range is a better estimate than any other amount, the corporation accrues
the minimum amount in the range and includes the balance of the range in its
reported contingencies.
Retirement Programs o The cost of pension benefits under the U.S. Retirement
Program is determined by an independent actuarial firm using the projected
unit credit actuarial cost method, with an unrecognized net asset at Jan. 1,
1986, amortized over 15 years. Contributions to this program are made in
accordance with the regulations of the Employee Retirement Income Security Act
of 1974.
The cost of postretirement benefits is recognized on the accrual basis over
the period in which employees become eligible for benefits.
Incentive Plans o The corporation applies APB Opinion 25 in accounting for
the stock purchase plan and the stock option portion of its employee
compensation plan. Compensation expense is recognized for other stock-based
incentives issued under the long-term incentive plan.
Reclassifications o Certain prior year amounts have been reclassified to
conform with the current year's presentation.
TWO
Financial Instruments
Fair values of financial instruments are estimated by using a method that
indicates the amount at which the instrument could be exchanged in a current
transaction between willing parties, other than in a forced or liquidation
sale. The fair values of the financial instruments included on the
Consolidated Balance Sheet were estimated as follows:
Cash, Short-Term Receivables and Accounts Payable o At Dec. 31, 1997 and
1996, the carrying amounts approximate fair values because of the short
maturity of these instruments. The corporation did not
- 26 -
<PAGE>
have any foreign currency forward contracts outstanding at Dec. 31, 1997 ($38
million at Dec. 31, 1996) to hedge fluctuations in the dollar value of short-
term foreign currency receivables and payables.
Outstanding foreign currency forward contracts and options used as a means
of offsetting fluctuations in the dollar value of other foreign currency
accounts receivable and payable and earnings fluctuations from anticipated
foreign currency cash flows totaled $185 million at Dec. 31, 1997 ($188
million at Dec. 31, 1996). During 1997 and 1996, the average fair values of,
and the resultant gains and losses associated with, these contracts were not
material.
Investments o The corporation's investments in equity companies,
partnerships and other businesses generally involve joint ventures for which
it is not practicable to determine fair values.
Long-Term Receivables o The fair values of long-term receivables are
calculated using current interest rates and consideration of underlying
collateral where appropriate. The fair value, which approximate the carrying
values of $85 million and $51 million, are included in Other assets in the
Consolidated Balance Sheet at Dec. 31, 1997 and 1996, respectively.
Debt o The corporation uses various types of financial instruments,
including interest rate swaps and forward rate agreements, to manage exposure
to financial market risk caused by interest rate fluctuations. An interest
rate swap held at Dec. 31, 1997 and 1996, had a nominal carrying amount and
fair value.
Carrying and Fair Values o The carrying values and fair values of the
corporation's investments, long-term receivables and debt financial
instruments at Dec. 31, 1997 and 1996, are summarized in the table below. Fair
values are based on quoted market values, where available, or discounted cash
flows (principally long-term debt).
Millions of dollars
at December 31, 1997 1996
Carrying Fair Carrying Fair
Assets (Liabilities) Amount Value Amount Value
Investments and
receivables $ 158 $ 158 $ 128 $ 128
Short- and
long-term debt (1,887) (1,956) (1,599) (1,619)
THREE
Supplementary Balance Sheet Detail
Millions of dollars at December 31, 1997 1996
Notes and Accounts Receivable
Trade $ 826 $ 846
Other 178 211
1,004 1,057
Less: Allowance for doubtful accounts 11 10
$ 993 $1,047
Inventories
Raw materials and supplies $ 135 $ 114
Work in process 62 54
Finished goods 407 373
$ 604 $ 541
Property, Plant and Equipment
Land and improvements $ 328 $ 326
Buildings 407 393
Machinery and equipment 6,230 5,795
Construction in progress and other 742 645
$7,707 $7,159
Other Assets
Deferred charges $ 227 $ 193
Insurance recovery receivables 147 135
Long-term receivables 85 51
Patents, trademarks and goodwill 96 113
$ 555 $ 492
Other Accrued liabilities
Accrued accounts payable $ 301 $ 335
Payrolls 55 56
Environmental remediation costs 68 58
Postretirement benefit obligation 34 33
Employee profit sharing 55 51
Other 214 232
$ 727 $ 765
Other Long-Term Obligations
Environmental remediation costs $ 196 $ 252
Product liability costs 174 170
Impairment of unused office space 136 151
Postemployment benefits 72 83
Other 160 155
$ 738 $ 811
Translation and Other
Equity Adjustments
Canada $ (54) $ (44)
Europe (7) 18
Far East & Other (43) (7)
$ (104) $ (33)
- 27 -
<PAGE>
FOUR
Supplementary Income Statement Detail
Millions of dollars
for the year ended December 31, 1997 1996 1995
Selling, Administration and Other Expenses
Selling $124 $130 $128
Administration(a) 126 121 186
Other expenses 74 70 73
$324 $321 $387
Other Income (Expense) - Net
Gains on sales and disposals of
business and other assets(b) $ - $ - $387
Investment and interest income 27 32 19
Foreign currency adjustments (8) (7) (6)
Unused space charge(c) - - (191)
Other 18 6 36
$ 37 $ 31 $245
Interest Expense
Interest incurred(d) $ 130 $121 $119
Less: interest capitalized and
other adjustments 51 45 30
$ 79 $ 76 $ 89
a) Includes a charge of $68 million for postemployment benefits in 1995.
b) Includes for 1995 a $381 million gain from the sales of the corporation's
remaining interest in UCAR International Inc.
c) See note sixteen.
d) Includes $12 million in 1997, 1996 and 1995, representing the interest
component of certain leases.
FIVE
Business and Geographic Segment Information
The company's operations are classified into two business segments. The
Specialties & Intermediates segment includes the corporation's specialty
chemicals and polymers product lines, licensing, and solvents and chemical
intermediates. The Basic Chemicals & Polymers segment includes the
corporation's ethylene and propylene manufacturing operations as well as the
production of first-level ethylene and propylene derivatives - polyethylene,
polypropylene, ethylene oxide and ethylene glycol. The corporation's noncore
operations and financial transactions are included in the Other segment.
Millions of dollars 1997 1996 1995
Net Sales
Specialties & Intermediates $ 4,453 $4,286 $4,123
Basic Chemicals & Polymers 2,420 2,125 2,080
Intersegment eliminations (371) (305) (315)
$6,502 $6,106 $5,888
Partnership Income
Specialties & Intermediates $ 116 $ 134 $ 130
Basic Chemicals & Polymers 17 10 22
$ 133 $ 144 $ 152
Depreciation and Amortization
Specialties & Intermediates $ 214 $ 188 $ 194
Basic Chemicals & Polymers 126 124 112
$ 340 $ 312 $ 306
Operating Profit (Loss)
Specialties & Intermediates $ 667 $ 742 $ 709
Basic Chemicals & Polymers 386 162 444
Other (8) 17 195
$1,045 $ 921 $1,348
Capital Expenditures
Specialties & Intermediates $ 458 $ 522 $ 392
Basic Chemicals & Polymers 297 199 150
$ 755 $ 721 $ 542
Identifiable Assets
Specialties & Intermediates $4,146 $3,892 $3,527
Basic Chemicals & Polymers 2,540 2,328 2,095
Other 278 326 634
$6,964 $6,546 $6,256
Sales of the Basic Chemicals & Polymers segment include intersegment sales,
principally ethylene oxide, which are made at the estimated market value of
the products transferred. Operating profit is Income Before Interest Expense
and Provision for Income Taxes.
The operating profit of the Specialties & Intermediates segment for 1997
includes a $12 million charge for the write-off certain equipment associated
with the corporation's ethylene propylene rubber project.
- 28 -
<PAGE>
The operating profit of the Specialties & Intermediates segment for 1995
includes a $48 million charge for postemployment benefits and an increase of
$12 million in depreciation expense related to a reduction in the depreciable
lives of certain computer equipment. The operating profit of the Basic
Chemicals & Polymers segment for 1995 includes a $20 million charge for
postemployment benefits. Other operating profit for 1995 includes a gain of
$381 million on the sales of the corporation's interest in UCAR International
Inc. and a charge of $191 million for future lease costs on unused office
space, primarily at the corporation's headquarters.
Net sales, operating profit (loss) and identifiable assets by geographic
area were as follows:
Millions of dollars 1997 1996 1995
Net Sales
United States & Puerto Rico(a) $4,634 $4,336 $4,071
Canada 172 147 142
Europe 685 664 719
Latin America 255 228 227
Far East & Other 756 731 729
International operations 1,868 1,770 1,817
$6,502 $6,106 $5,888
Operating Profit (Loss)
United States & Puerto Rico $ 957 $ 820 $1,228
Canada 29 28 36
Europe(b) 7 41 50
Latin America 12 (11) 12
Far East & Other 41 37 29
International operations 89 95 127
Intersegment eliminations (1) 6 (7)
$1,045 $ 921 $1,348
Identifiable Assets
United States & Puerto Rico $5,501 $4,977 $4,433
Canada 302 305 277
Europe 378 408 404
Latin America 232 224 191
Far East & Other 279 312 322
International operations 1,191 1,249 1,194
Intersegment eliminations (6) (6) (5)
Other 278 326 634
$6,964 $6,546 $6,256
a) Includes export sales of $894 million in 1997 ($743 million in 1996 and
$732 million in 1995).
b) Included in 1997 are higher costs associated with expansion and maintenance
of the corporation's Wilton, U.K. facility.
SIX
Acquisitions and Divestitures
In April 1997, the corporation and Exxon Chemical Company formed Univation
Technologies, LLC, a 50-50 joint venture for the research, development,
marketing and licensing of polyethylene technology and metallocene catalysts.
In January 1996, the corporation purchased the polypropylene assets and
business of Shell Oil Company. The purchased assets, located in the U.S.,
consist of Shell's polypropylene technology and manufacturing facilities and
polypropylene assets previously held jointly by both companies.
In February 1996, the corporation purchased 95 percent of the outstanding
shares of Companhia Alcoolquimica Nacional, a Brazilian producer of vinyl
acetate monomer.
In July 1995, the corporation and two Kuwaiti corporations, Petrochemical
Industries Company and Boubyan Petrochemical Company, formed EQUATE
Petrochemical Company, a joint venture for development of a world-scale
petrochemical complex in Kuwait. EQUATE commenced operations in 1997.
In March 1995, the corporation acquired 50 percent of the equity of Polimeri
Europa S.r.l., a producer of ethylene and polyethylene resins, from EniChem
S.p.A. for $216 million. EniChem retained the other 50 percent.
In February 1995, the corporation purchased certain ethylene oxide
derivative businesses from Imperial Chemical Industries of London for $71
million.
In January 1995, the corporation and Mitsubishi Corporation concluded the
sale of newly issued common stock of UCAR International Inc. to a new company
formed by Blackstone Capital Partners II Merchant Banking Fund L.P. and a
repurchase of certain shares by UCAR that resulted in Blackstone acquiring a
75 percent interest in UCAR. The corporation received $343 million in net cash
proceeds and retained a 25 percent equity interest in UCAR. This transaction
resulted in a gain of $220 million ($154 million after-tax). In August 1995,
the corporation joined in UCAR's initial public offering to sell its remaining
equity interest in UCAR for net cash proceeds of $199 million. This sale
resulted in a gain of $161 million ($99 million after-tax).
- 29 -
<PAGE>
SEVEN
Income Taxes
The following is a summary of the U.S. and non-U.S. components of Income
Before Provision for Income Taxes:
Millions of dollars
for the year ended December 31, 1997 1996 1995
U.S. $897 $766 $1,137
Non-U.S. 69 79 122
$966 $845 $1,259
The following is an analysis of income tax expense:
<TABLE>
<CAPTION>
1997 1996
Millions of dollars
for the year ended December 31, Current Deferred Current Deferred
<S> <C> <C> <C> <C>
U.S. Federal income taxes $154 $80 $107 $79
U.S. business and research and
experimentation tax credits (14) - (8) -
U.S. state and local taxes
based on income 1 4 1 2
Non-U.S. income taxes 52 2 54 1
193 86 154 82
Provision for Income Taxes $279 $236
<CAPTION>
1995
Millions of dollars
for the year ended December 31, Current Deferred
<S> <C> <C>
U.S. Federal income taxes $332 $(24)
U.S. business and research and
experimentation tax credits (17) -
U.S. state and local taxes
based on income 47 (7)
Non-U.S. income taxes 47 2
409 (29)
Provision for Income Taxes $380
</TABLE>
The tax effects of temporary differences that gave rise to significant
portions of the deferred tax assets and deferred tax liabilities are as
follows:
1997 1996
Millions of dollars Deferred Deferred Deferred Deferred
at December 31, Assets Liabilities Assets Liabilities
Depreciation and amortization $ - $495 $ - $435
Postretirement and
postemployment benefits 226 - 229 -
Environmental and litigation costs 113 - 133 -
Sale/leaseback and related deferrals 101 - 103 -
Other 174 242 199 246
Gross deferred tax assets and
liabilities 614 737 664 681
Net Deferred Tax Liability $123 $17
Net noncurrent deferred tax liabilities of $263 million ($142 million in
1996) are included in Deferred credits in the Consolidated Balance Sheet. Net
current deferred tax assets of $135 million ($118 million in 1996) are
included in Other current assets. Net noncurrent deferred tax assets of $5
million ($7 million in 1996) are included in Other assets. In 1997 and 1996
there were $2 million in non-U.S. net operating loss carryforwards included in
the deferred tax assets above.
Undistributed earnings of affiliates intended to be reinvested indefinitely
amounted to approximately $469 million at Dec. 31, 1997 ($403 million at Dec.
31, 1996). Determination of deferred taxes related to these earnings is not
practicable.
- 30 -
<PAGE>
An analysis of the difference between Provision for income taxes and the
amount computed by applying the statutory Federal income tax rate to Income
Before Provision for Income Taxes is as follows:
Percentage of
Pre-Tax Income
Year ended December 31, 1997 1996 1995
Tax at statutory Federal rate 35.0% 35.0% 35.0%
Taxes related to operations
outside the U.S. (0.7) (1.0) 0.1
U.S. state and local taxes
based on income 0.3 0.3 1.0
Foreign sales corporation (2.9) (3.0) (1.4)
Business credits (1.5) (0.9) (1.4)
Other, net (1.3) (2.5) (3.1)
Consolidated effective
income tax rate 28.9% 27.9% 30.2%
EIGHT
Partnerships and Joint Ventures
The following are financial summaries of 33 percent- to 50 percent-owned
Companies carried at equity. The corporation's most significant companies
carried at equity, classified as partnerships, include UOP LLC, Petromont and
Company, Limited Partnership, Aspell Polymeres SNC, World Ethanol Company and
Univation Technologies, LLC. The corporation purchased the balance of the
Union Carbide/Shell polypropylene partnership in January 1996 (see note six).
Partnerships
Millions of dollars 1997 1996 1995
Net Sales(a) $2,076 $2,109 $2,146
Cost of sales 1,242 1,338 1,312
Depreciation 83 83 66
Partnership income 249 242 283
UCC Share of Partnership Income $ 133 $ 144 $ 152
Current assets $ 746 $ 704
Noncurrent assets 886 806
Total assets 1,632 1,510
Current liabilities 451 608
Noncurrent liabilities 711 385
Total liabilities 1,162 993
Net assets 470 517
UCC Equity $ 278 $ 251
a) Includes $208 million net sales to the corporation in 1997 ($159 million in
1996 and $177 million in 1995).
The corporation's companies earned at equity, classified as corporate
investments, include Polimeri Europa S.r.l., EQUATE Petrochemical Company
K.S.C., Nippon Unicar Company Limited, Alberta & Orient Glycol Company
Limited, Asian Acetyls Co., Ltd., several smaller entities and, in 1995, UCAR
International Inc.
Corporate Investments
Millions of dollars 1997 1996 1995
Net Sales(a) $2,248 $2,059 $1,731
Cost of sales 1,814 1,693 1,221
Depreciation 109 129 119
Net income (loss) 75 (6) 96
UCC Share of Net Income (Loss) $ 3 $ (16) $ 47
Current assets $ 933 $ 877
Noncurrent assets 3,252 2,918
Total assets 4,185 3,795
Current liabilities 872 888
Noncurrent liabilities 2,347 1,891
Total liabilities 3,219 2,779
Net assets 966 1,016
UCC Equity $ 412 $ 444
a) Includes $156 million net sales to the corporation in 1997 ($153 million in
1996 and $167 million in 1995).
Dividends and distributions received from joint ventures and partnerships
aggregated $126 million in 1997 ($141 million in 1996 and $97 million in
1995).
- 31 -
<PAGE>
NINE
Long-Term Debt
Millions of dollars at December 31, 1997 1996
6.75% Notes due 2003 $ 125 $ 125
6.79% Debentures due 2025(a) 250 250
7.00% Notes due 1999 175 175
7.50% Debentures due 2025 150 150
7.75% Debentures due 2096 200 200
7.875% Debentures due 2023 175 175
8.75% Debentures due 2022(b) 117 125
Pollution control and other facility obligations 242 243
Other debt - various maturities and
interest rates 29 54
1,463 1,497
Less: payments to be made within 1 year 5 10
$1,458 $1,487
a) Holders may request redemption of these debentures from the corporation on
June 1, 2005.
b) Redeemable at the option of the corporation on or after Aug. 1, 2002.
The corporation has a credit agreement with a group of banks providing the
corporation with $1 billion in credit through January 2002, but with the
option, subject to certain conditions, to increase the available credit by
$250 million and to extend the maturity date of the agreement by one year on a
rolling basis. Several options are available to borrow at floating interest
rates based on LIBOR (London Interbank Offered Rate) or Certificate of Deposit
Rate on a revolving basis.
In 1997, the corporation established a medium-term note program that allows
for borrowings of up to $500 million. Notes issued under the program will have
a maturity of nine months or longer and will bear interest at either a fixed
or floating rate determined by reference to interest rate formulas.
At Dec. 31, 1997, there were no outstanding borrowings under either the
corporation's credit agreement or its medium-term note program.
In 1996, the corporation issued $200 million of 7.75 percent debentures
maturing in 2096. The maturity of the debentures may be shortened under
certain circumstances to preserve the deductibility of interest payments for
Federal income tax purposes.
The corporation's credit agreement and the indentures under which notes and
debentures are issued contain covenants normal for these types of instruments.
These covenants place certain limits on the corporation's ability to merge
with another entity, sell assets, engage in sale-leaseback transactions, incur
debt or create liens on assets. In addition, the credit agreement requires the
corporation to meet leverage and interest coverage tests.
Pollution control and other facility obligations represent state,
commonwealth and local governmental bond financing of pollution control and
other facilities, and are treated for accounting and tax purposes as debt of
the corporation. These tax-exempt obligations mature at various dates from
1998 through 2023 and had an average annual effective interest rate of 7.2
percent in 1997.
The weighted average and effective interest rates in 1997 on the
corporation's fixed-rate debt, other than pollution control and other facility
obligations, were 7.7 percent. The corporation's weighted average interest
rate on short-term borrowings outstanding as of Dec. 31, 1997 was 6.4 percent
(6.3 percent at Dec. 31, 1996).
Payments due on long-term debt in the four years following 1998 are: 1999,
$182 million; 2000, $21 million; 2001, $23 million, and 2002, $16 million.
TEN
Minority Interest
In January 1997, a newly formed real estate investment trust subsidiary
issued $250 million of preferred stock bearing a current dividend yield of 14
percent for 10 years and 1 percent thereafter. In October 1997, the preferred
shares were redeemed for $240 million.
- 32 -
<PAGE>
ELEVEN
Earnings Per Share
Basic and diluted earnings per share (EPS) are calculated based upon the
provisions of SFAS 128, adopted in 1997:
In millions
(except share and per share amounts) 1997 1996 1995
Basic -
Income before cumulative effect of
change in accounting principle $ 676 $ 593 $ 925
Less: Dividends on ESOP shares,
pre-tax (9) (13) (13)
Appreciation on ESOP
shares redeemed for cash (23) - -
Income before cumulative effect of
change in accounting principle
adjusted for basic calculation 644 580 912
Cumulative effect of change
in accounting principle (17) - -
Net income-common stockholders,
adjusted for basic calculation $ 627 $ 580 $ 912
Weighted average shares outstanding
for basic calculation 128,185,093 131,029,621 137,219,676
Earnings per share -
Income before cumulative effect of
change in accounting principle $ 5.02 $4.43 $6.65
Cumulative effect of change in
accounting principle (0.13) - -
Net income-common stockholders $ 4.89 $ 4.43 $ 6.65
Diluted -
Income before cumulative effect of
change in accounting principle,
adjusted for basic calculation $ 644 $ 580 $ 912
Plus: Dividends on ESOP shares,
pre-tax 9 13 13
Less: Additional ESOP contribution
resulting from assumed
conversion of ESOP shares (1) (1) (1)
Income before cumulative effect of
change in accounting principle,
adjusted for diluted calculation 652 592 924
Cumulative effect of change in
accounting principle (17) - -
Net income-common stockholders,
adjusted for diluted calculation $ 635 $ 592 $ 924
Weighted average shares outstanding
for basic calculation 128,185,093 131,029,621 137,219,676
Add: Effect of stock options 4,034,969 4,495,656 4,367,153
Effect of equity put options - 403 -
Shares issuable upon conversion of the
corporation's convertible ESOP shares 11,739,036 16,120,754 16,341,367
Weighted average shares outstanding,
adjusted for diluted calculation 143,959,098 151,646,434 157,928,196
Earnings per share -
Income before cumulative effect of
change in accounting principle,
adjusted for diluted calculation $ 4.53 $ 3.90 $ 5.85
Cumulative effect of change in
accounting principle (0.12) - -
Net income-common stockholders,
adjusted for diluted calculation $ 4.41 $ 3.90 $ 5.85
- 33 -
<PAGE>
TWELVE
Retirement Programs
Pension Benefits o The noncontributory defined benefit retirement program of
Union Carbide Corporation ("U.S. Retirement Program") covers substantially all
U.S. employees and certain employees in other countries. Pension benefits are
based primarily on years of service and compensation levels prior to
retirement. Pension coverage for employees of the corporation's non-U.S.
consolidated subsidiaries is provided through separate plans, to the extent
deemed appropriate. Obligations under such plans are principally provided for
by depositing funds with trustees.
The components of net periodic pension cost for the plans combined are as
follows:
Millions of dollars
for the year ended December 31, 1997 1996 1995
(Gain) loss on plan assets
Actual $(827) $(190) $(904)
Deferred 588 (31) 692
(239) (221) (212)
Service cost - benefits earned
during the period 56 54 44
Interest cost on projected
benefit obligation 208 196 197
Amortization (8) (3) (6)
Net Periodic Pension Cost $ 17 $ 26 $ 23
The funded status of the plans combined is as follows:
Millions of dollars at December 31, 1997 1996
Actuarial present value of plan benefits
Accumulated benefit obligation
Vested $2,905 $2,599
Nonvested 138 132
3,043 2,731
Projected benefit obligation 3,324 3,001
Fair value of plan assets, primarily
invested in common stocks and
fixed-income securities 3,820 3,180
Plan assets in excess of projected
benefit obligation 496 179
Unamortized net asset at transition (49) (64)
Unamortized prior service cost 15 19
Unrecognized gains - net (457) (127)
Prepaid Pension Cost $ 5 $ 7
Pension obligations are valued using the 1994 Uninsured Pensioner Mortality
Table. Prior to 1997, these obligations were valued using the 1983 Group
Annuity Mortality Table. The actuarial assumptions used were as
follows:
At December 31, 1997 1996
Discount rate for determining
projected benefit obligation 6.50% 7.25%
Rate of increase in compensation levels 3.75% 4.50%
Expected long-term rate of return
on plan assets 8.00% 8.50%
- 34 -
<PAGE>
Postretirement Benefits Other Than Pensions o The corporation provides
health care and life insurance benefits for eligible retired employees and
their eligible dependents. These benefits are provided through various
insurance companies and health care providers.
The obligation is determined by application of the terms of health and life
insurance plans, together with relevant actuarial assumptions and health care
cost trends projected to increase annually at rates of 8.0 percent in 1998 and
7.5 percent in 1999, falling incrementally to a 5.0 percent annual increase in
2004 and thereafter.
The effect of a 1 percent annual increase in the assumed health care cost
trend rates would increase the accumulated postretirement benefit obligation
at Dec. 31, 1997 by $33 million, and the aggregate of service and interest
cost components of net periodic postretirement benefit costs by $4 million.
Measurement of the accumulated postretirement benefit obligation was based on
the same actuarial assumptions used in the pension calculations.
The corporation has funded postretirement benefits for certain retirees who
retired prior to Dec. 31, 1988. The funds are invested primarily in common
stocks.
The components of net periodic postretirement benefit cost are as follows:
Millions of dollars
for the year ended December 31, 1997 1996 1995
(Gain) loss on plan assets
Actual $ (9) $ (4) $ (8)
Deferred 7 2 6
(2) (2) (2)
Service cost - benefits earned
during the period 14 13 11
Interest cost 33 31 35
Amortization (21) (21) (21)
Net Periodic Postretirement Benefit Cost $ 24 $ 21 $ 23
The funded status of the postretirement benefit obligation is as follows:
Millions of dollars at December 31, 1997 1996
Accumulated postretirement
benefit obligations
Retirees $382 $366
Fully eligible active plan participants 90 79
Other active plan participants 31 27
503 472
Fair value of plan assets 17 17
Accumulated postretirement benefits
in excess of plan assets 486 455
Unrecognized gains - net 12 51
Accrued Unfunded Postretirement
Benefit Obligations $498 $506
The accumulated postretirement benefit obligation for retirees is net of
$131 million at Dec. 31, 1997 ($130 million at Dec. 31, 1996), which is
reimbursed to the corporation in part by previously owned businesses under
ongoing benefit-sharing agreements.
Deferred Compensation Plan o Since Jan. 1, 1995, the corporation has
provided an unfunded, nonqualified deferred compensation plan to certain key
employees, offering them an election to defer a portion of their gross pay.
The corporation's obligation to employees is adjusted to reflect changes in
the market values of employees' investment choices. With limited exceptions,
participants' deferred account balances are scheduled for payment at or after
full retirement.
Postemployment Benefits o During 1995 the corporation recorded a charge of
$68 million ($49 million after-tax) for postemployment benefits. The charge
included severance costs relating to future staff reductions associated with
work process simplification efforts and changes in the corporation's severance
benefits.
- 35 -
<PAGE>
THIRTEEN
Employee Stock Ownership Plan
The Union Carbide Corporation Employee Stock Ownership Plan (ESOP) is an
integral part of the Savings and Investment Program (the Program) for
employees. Prior to October 1997, each share of the corporation's preferred
stock held by the ESOP (ESOP shares) was convertible into and had the same
voting rights as one share of the corporation's common stock. The annual
preferred dividend was $0.794 per share. In October 1997 the trustee of the
ESOP exercised its right to convert all outstanding ESOP shares into the
corporation's common stock. As a result of the conversion, the corporation's
common stock outstanding at that date was increased by 15.4 million shares.
Substantially all full-time employees in the U.S. are eligible to
participate in the ESOP through the allocation of ESOP shares equivalent to
the corporation's matching contribution of 75 percent of eligible employee
contributions to the Program. In addition, in 1997, eligible employees
received the equivalent of up to twenty days pay in ESOP shares through the
corporation's ESOP profit sharing plan.
Common shares held by the ESOP generally are sold in the open market when
employees make withdrawals or sell ESOP shares within their account.
The cost of the ESOP is recognized as incurred and was $7 million in 1997
($2 million and $4 million in 1996 and 1995, respectively). The increase in
1997 costs was principally due to the allocation of more shares to
participants through the corporation's ESOP profit sharing plan. Continued
reductions in ESOP costs are due primarily to appreciation in the
corporation's common stock. At Dec. 31, 1997, 15.4 million common shares held
by the ESOP were outstanding, 6.5 million of which were allocated to
employees' accounts. During 1997, 1.3 million ESOP shares were allocated to
employees' accounts.
FOURTEEN
Incentive Plans
On April 27, 1997, stockholders approved the 1997 Union Carbide Long-Term
Incentive Plan for key employees. The Plan provides for granting incentive and
nonqualified stock options; exercise payment rights; grants of stock,
including restricted stock, and performance awards. Holders of options may be
granted the right to receive payments of amounts equal to the regular cash
dividends paid to holders of the corporation's common stock during the period
an option is outstanding. The number of shares granted or subject to options
generally cannot exceed 2 million under the Plan. However, up to 4 million
additional shares may be granted or subject to options to the extent the
corporation acquires shares after April 27, 1997. Option prices are equal to
the closing price of the corporation's common stock on the date of the grant,
as listed on the New York Stock Exchange Composite Transactions. Options
generally become exercisable two years after such date. Options may not have a
duration of more than ten years. The option price may be settled in cash,
common shares of the corporation currently owned by a participant, withholding
stock shares from the exercise or a combination of these alternatives.
Restricted stock award shares are entitled to vote and dividends are credited
to the holder's account, but these shares are generally nontransferable for
varying periods after the grant date. Once the vesting conditions are met, the
shares become fully transferable. Performance awards may be paid in common
stock, cash or other forms of property. No dividend-equivalent payment rights
or performance awards were granted in 1997.
No awards were made in 1997, and no further awards can be made, under
previous plans. Prior plans still have options outstanding and restricted
stock not yet vested, whose terms are generally similar to nonqualified stock
options and restricted stock grants under the 1997 plan.
- 36 -
<PAGE>
Changes in outstanding fixed price options were as follows:
<TABLE>
<CAPTION>
1997 1996
Weighted Weighted
Average Average
Shares in thousands Shares Exercise Price Shares Exercise Price
<S> <C> <C> <C> <C>
Outstanding at January 1 12,782 $21.45 13,350 $18.54
Granted 1,508 46.31 1,166 45.55
Exercised (1,717) 13.45 (1,569) 13.05
Canceled or expired (40) 38.47 (165) 36.00
Outstanding at December 31 12,533 25.48 12,782 21.45
Options exercisable
at December 31 9,889 10,460
<CAPTION>
1995
Weighted
Average
Shares in thousands Shares Exercise Price
<S> <C> <C>
Outstanding at January 1 13,807 $15.70
Granted 1,270 40.38
Exercised (1,667) 11.37
Canceled or expired (60) 27.25
Outstanding at December 31 13,350 $18.54
Options exercisable
at December 31 10,200
</TABLE>
Options were exercised during 1997 at prices ranging from $6.70 to $45.63 per
share ($6.70 to $28.63 per share during 1996 and $1.00 to $21.63 per share
during 1995).
The following table summarizes information about fixed price option shares
outstanding at Dec. 31, 1997:
Weighted Average
Shares Remaining Weighted Average
Shares in thousands Outstanding Contractual life Exercise Price
Range of Exercise Prices
$ 6.70 to $ 9.69 2,635 3.3 years $ 8.40
$11.37 to $16.75 2,439 4.3 years $15.76
$21.63 to $28.63 3,666 6.4 years $24.78
$39.88 to $46.31 3,793(a) 9.0 years $44.28
12,533
a) At Dec. 31, 1997, 1.149 million options were exercisable at a price of
$40.38.
Had compensation cost related to the fixed price options been recorded at
fair value on the dates of grant in accordance with SFAS 123, the effect on
the corporation's net income and EPS amounts would have been as follows:
Millions of dollars (except per share figures),
for the year ended December 31, 1997 1996 1995
Net income-
common stockholders As reported $ 652 $ 583 $ 915
Pro forma $ 639 $ 576 $ 913
Basic EPS As reported $4.89 $4.43 $6.65
Pro forma $4.79 $4.37 $6.63
Diluted EPS As reported $4.41 $3.90 $5.85
Pro forma $4.32 $3.86 $5.84
The Black-Scholes Option Pricing Model was used to estimate the fair values
of options granted during 1997, 1996 and 1995. The assumptions used for these
grants included a 6-year average expected life for all years, and zero-coupon
U.S. government risk free interest rates of 5.92%, 5.95%, and 5.70%, current
dividend yields of 1.73%, 1.78%, and 1.75%, and volatility of 28.77%, 28.00%,
and 28.78% for the years ended 1997, 1996 and 1995, respectively. The weighted
average fair values of options granted during the years 1997, 1996, and 1995
were $15.54, $15.31 and $13.43, respectively.
On Sept. 24, 1997, the board approved the 1997 Union Carbide Corporation EPS
Incentive Plan for a limited number of senior managers. It is designed to
grant awards if the corporation achieves $4.00 or more diluted earnings per
share performance during 1999 and 2000. The plan requires these senior
managers to put an amount equivalent to a portion of their annual base pay at
risk, up to 100 percent, should diluted earnings per share not equal or exceed
$4.00 in the year 2000. The amount at risk will be deducted from compensation
over three years and is converted to units equivalent to common stock using a
$47.75 share price, the closing price of the corporation's common stock on the
date the plan was approved by the board of directors. Participants could be
awarded up to four times the number of units at risk for each of the years
1999 and 2000, depending on the extent to which the goals of the plan are
exceeded. Participants will also be credited with dividend-equivalents in the
form of additional units. Payments under the plan will be in cash and are
scheduled for 2002, 2003 and 2004. Failure to meet the requirements of the
plan will result in forfeiture of the amounts at risk.
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<PAGE>
FIFTEEN
Stockholders' Equity
Subject to the following discussion, each outstanding share of common stock
has identical rights in voting on corporate matters, dividends when declared,
liquidation and other corporate matters.
Each outstanding share of common stock bears one Right entitling its holder,
under certain circumstances, to buy a share of common stock at a purchase
price of $37.67 (subject to adjustment). The Rights may not be exercised until
10 days after a person or group acquires 20 percent or more of UCC's common
stock, or until a date determined by the board of directors following
announcement of a tender offer that, if consummated, would result in 20
percent or more ownership of the common stock. Until then, separate Rights
certificates will not be issued, nor will the Rights be traded separately from
the stock.
Should an acquirer become the beneficial owner of 20 percent of the common
stock, and under certain additional circumstances, the corporation's
stockholders (other than the acquirer) would have the right to buy common
stock in Union Carbide Corporation, or in the surviving enterprise if the
corporation is acquired, having a value equal to two times the purchase price
of the Right then in effect.
The Rights will expire on Aug. 31, 1999, unless redeemed prior to that date.
The redemption price is $0.01 per Right.
On July 23, 1997, the board of directors of the corporation increased the
number of shares that may be repurchased under the existing common stock
repurchase program to 60 million shares.
Through Dec. 31, 1997, the corporation had repurchased 49.3 million shares
since inception of the program in 1993 (7.0 million during 1997) at an average
effective price of $34.69 per share. The corporation will continue to acquire
additional shares from time to time at prevailing market prices, at a rate
consistent with the combination of corporate cash flow and market conditions.
In conjunction with the corporation's common stock buyback program, put
options were sold in a series of private placements entitling the holders to
sell 12.9 million shares of common stock to UCC at specified prices upon
exercise of the options. Since inception of this program through Dec. 31,
1997, options representing 9.8 million common shares have expired unexercised,
while options representing 3.1 million shares were exercised for $129 million,
or an average price of $40.94 per share. No options were outstanding at Dec.
31, 1997. Premiums received since inception of the program, which are recorded
as Additional paid-in capital, have reduced the average price of repurchased
shares to $34.69 per share from $34.97.
SIXTEEN
Leases
Leases that meet the criteria for capitalization have been classified and
accounted for as capital leases. For operating leases, primarily involving
facilities and distribution equipment, the future minimum rental payments
under leases with remaining noncancelable terms in excess of one year are:
Millions of dollars,
year ending December 31,
1998 $ 62
1999 58
2000 53
2001 50
2002 58
Subsequent to 2002 186
Total minimum payments 467
Future sublease rentals 81
Net Minimum Rental Commitments $386
The present value of the net minimum rental payments amounts to $303
million, of which $214 million pertains to the corporation's headquarters
lease. Total lease and rental payments (net of sublease rental of $21 million
in 1997 and $20 million in 1996 and 1995) were $54 million, $53 million and
$67 million for 1997, 1996 and 1995, respectively.
During 1995 the corporation recognized a nonrecurring, noncash charge of
$191 million ($134 million after-tax) for future minimum lease payments on
unused office space, primarily at the corporation's headquarters. The
headquarters charge reflects the pro rata costs of unused office space over
the remaining term of the lease, which runs to 2006, less anticipated net
sublease income. Neither the expected future costs nor expected net sublease
revenues were discounted.
- 38 -
<PAGE>
SEVENTEEN
Commitments and Contingencies
Purchase Agreements o The corporation has three major agreements for the
purchase of ethylene-related products and two other purchase agreements in the
U.S. and Canada. Total purchases under these agreements were $245 million,
$233 million and $251 million in 1997, 1996 and 1995, respectively. The net
present value of the fixed and determinable portion of obligations under these
purchase commitments at Dec. 31, 1997 (at current exchange rates, where
applicable) is presented in the following table.
Millions of dollars,
year ending December 31,
1998 $ 69
1999 60
2000 31
2001 23
2002 20
2003 to expiration of contracts 88
Total $291
Environmental o The corporation is subject to loss contingencies resulting
from environmental laws and regulations, which include obligations to remove
or remediate the effects on the environment of the disposal or release of
certain wastes and substances at various sites. The corporation has
established accruals in current dollars for those hazardous waste sites where
it is probable that a loss has been incurred and the amount of the loss can
reasonably be estimated. The reliability and precision of the loss estimates
are affected by numerous factors, such as different stages of site evaluation,
the allocation of responsibility among potentially responsible parties and the
assertion of additional claims. The corporation adjusts its accruals as new
remediation requirements are defined, as information becomes available
permitting reasonable estimates to be made, and to reflect new and changing
facts.
At Dec. 31, 1997, the corporation had established environmental remediation
accruals in the amount of $264 million ($310 million in 1996). These accruals
have two components, estimated future expenditures for site investigation and
cleanup and estimated future expenditures for closure and postclosure
activities. In addition, the corporation had environmental loss contingencies
of $159 million at Dec. 31, 1997.
The corporation has sole responsibility for the remediation of approximately
36 percent of its environmental sites for which accruals have been
established. These sites are well advanced in the investigation and cleanup
stage. The corporation's environmental accruals at Dec. 31, 1997, included
$197 million for these sites ($222 million at Dec. 31, 1996), of which $79
million ($92 million at Dec. 31, 1996) was for estimated future expenditures
for site investigation and cleanup and $118 million ($130 million at Dec. 31,
1996) was for estimated future expenditures for closure and postclosure
activities. In addition, $87 million of the corporation's environmental loss
contingencies at Dec. 31, 1997, related to these sites. The site with the
largest total potential cost to the corporation is a nonoperating site. Of the
above accruals, this site accounted for $31 million ($32 million at Dec. 31,
1996), of which $17 million ($18 million at Dec. 31, 1996) was for estimated
future expenditures for site investigation and cleanup and $14 million ($14
million at Dec. 31, 1996) was for estimated future expenditures for closure
and postclosure activities. In addition, $20 million of the above
environmental loss contingencies related to this site.
The corporation does not have sole responsibility at the remainder of its
environmental sites for which accruals have been established. All of these
sites are in the investigation and cleanup stage. The corporation's
environmental accruals at Dec. 31, 1997, included $67 million for estimated
future expenditures for site investigation and cleanup at these sites ($88
million at Dec. 31, 1996). In addition, $72 million of the corporation's
environmental loss contingencies related to these sites. The largest two of
these sites are also nonoperating sites. Of the above accruals, these sites
accounted for $29 million ($37 million at Dec. 31, 1996) for estimated future
expenditures for site investigation and cleanup. In addition, $20 million of
the above environmental loss contingencies related to these sites.
Worldwide expenses related to environmental protection for compliance with
Federal, state and local laws regulating solid and hazardous wastes and
discharge of materials to air and water, as well as for waste site remedial
activities, totaled $100 million in 1997, $110 million in 1996 and $138
million in 1995.
- 39 -
<PAGE>
Other o The corporation has severally guaranteed 45 percent (approximately
$606 million at Dec. 31, 1997) of EQUATE Petrochemical Company's debt and
working capital financing needs until certain completion and financial tests
are achieved. If these tests are met, a $54 million several guarantee will
provide ongoing support thereafter. The corporation also severally guaranteed
certain sales volume targets until EQUATE's sales capabilities are proved. In
addition, the corporation has pledged its shares in EQUATE as security for
EQUATE's debt. The corporation has political risk insurance coverage for its
equity investment and, through Sept. 30, 1998, substantially all of its
several guarantee of EQUATE's debt.
The corporation and its consolidated subsidiaries had additional contingent
obligations at Dec. 31, 1997, totaling $63 million, of which $31 million
related to guarantees of debt.
Litigation o The corporation is one of a number of defendants named in
approximately 4,900 lawsuits in both Federal and state courts, some of which
have more than one plaintiff, involving silicone breast implants. The
corporation was not a manufacturer of breast implants but did supply generic
bulk silicone materials to certain manufacturers. Also, the corporation in
1990 acquired and in 1992 divested the stock of a small specialty silicones
company that, among other things, supplied silicone gel intermediates and
silicone dispersions for breast implants. In 1993 most of the suits that were
brought in Federal courts were consolidated for pretrial purposes in the
United States District Court, Northern District of Alabama.
In 1995, the District Court approved a settlement program proposed by
certain defendants, including the corporation. In August 1997, the court ruled
that all claims based solely on the supply of generic bulk silicone materials
should be dismissed against the corporation. That decision is final with
respect to cases in Federal courts, but does not affect the corporation's
participation in the settlement program. Based on the corporation's
understanding of the number of claims that were properly filed under the
settlement, the corporation estimates that its maximum expenditures under the
program should not exceed $100 million prior to insurance recovery. Although
insurance coverage is subject to issues as to scope and application of
policies, retention limits, exclusions and policy limits, and the insurers
have reserved their right to deny coverage, the corporation believes that
after probable insurance recoveries neither the settlement nor litigation
outside the settlement will have a material adverse effect on the consolidated
financial position of the corporation.
In addition to the above, the corporation and its consolidated subsidiaries
are involved in a number of legal proceedings and claims with both private and
governmental parties. These cover a wide range of matters, including, but not
limited to, product liability; trade regulation; governmental regulatory
proceedings; health, safety and environmental matters; employment; patents;
contracts, and taxes. In some of these legal proceedings and claims, the cost
of remedies that may be sought or damages claimed is substantial.
The corporation has recorded nonenvironmental litigation accruals of $184
million, and related insurance recovery receivables of $147 million. At Dec.
31, 1997, the corporation had nonenvironmental litigation loss contingencies
of $57 million.
While it is impossible at this time to determine with certainty the ultimate
outcome of any legal proceedings and claims referred to in this note,
management believes that adequate provisions have been made for probable
losses with respect thereto and that such ultimate outcome, after provisions
therefor, will not have a material adverse effect on the consolidated
financial position of the corporation, but could have a material effect on
consolidated results of operations in a given quarter or year. Should any
losses be sustained in connection with any of such legal proceedings and
claims in excess of provisions therefor, they will be charged to income in the
future.
- 40 -
<PAGE>
Management's Statement of Responsibility for Financial Statements
Union Carbide Corporation's financial statements are prepared by management,
which is responsible for their fairness, integrity and objectivity. The
accompanying financial statements have been prepared in conformity with
generally accepted accounting principles and, accordingly, include amounts
that are estimates and judgments. All historical financial information in this
annual report is consistent with the accompanying financial statements.
The corporation maintains accounting systems, including internal accounting
controls monitored by a staff of internal auditors, that are designed to
provide reasonable assurance of the reliability of financial records and the
protection of assets. The concept of reasonable assurance is based on
recognition that the cost of a system must not exceed the related benefits.
The effectiveness of those systems depends primarily upon the careful
selection of financial and other managers, clear delegation of authority and
assignment of accountability, inculcation of high business ethics and
conflict-of-interest standards, policies and procedures for coordinating the
management of corporate resources and the leadership and commitment of top
management.
The corporation's financial statements are audited by KPMG Peat Marwick LLP,
independent certified public accountants, in accordance with generally
accepted auditing standards. These standards provide for the auditors to
consider the corporation's internal control structure to the extent they deem
necessary in order to issue their opinion on the financial statements.
The Audit Committee of the board of directors, which consists solely of
nonemployee directors, is responsible for overseeing the functioning of the
accounting system and related controls and the preparation of annual financial
statements. The Audit Committee recommends to the board of directors the
selection of the independent auditors, which is submitted to the stockholders
for ratification. The Audit Committee periodically meets with the independent
auditors, management and internal auditors to review and evaluate their
accounting, auditing and financial reporting activities and responsibilities.
The independent and internal auditors have full and free access to the Audit
Committee and meet with the committee, with and without management present.
William H. Joyce John K. Wulff
Chairman, President and Vice-President, Chief Financial
Chief Executive Officer Officer and Controller
Danbury, Conn.
Jan. 16, 1998
Independent Auditors' Report
To the Stockholders and Board of Directors of
Union Carbide Corporation:
We have audited the accompanying consolidated balance sheet of Union Carbide
Corporation and subsidiaries as of Dec. 31, 1997 and 1996, and the related
consolidated statements of income, stockholders' equity, and cash flows for
each of the years in the three-year period ended Dec. 31, 1997. These
consolidated financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Union
Carbide Corporation and subsidiaries at Dec. 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended Dec. 31, 1997, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Stamford, Conn.
Jan. 16, 1998
- 41 -
<PAGE>
Corporate Information
1998 Annual Meeting
The 1998 annual meeting of stockholders will be held on Wednesday, April 22,
at the John C. Creasy Health Education Center, 24 Hospital Ave., Danbury, CT
06810, beginning at 10 A.M.
A notice of the annual meeting, a proxy statement and a proxy voting card
will be mailed to each stockholder in March, together with a copy of the
current annual report.
General Offices
The general offices of Union Carbide Corporation are located at 39 Old
Ridgebury Road, Danbury, CT 06817-0001 (Telephone: 203-794-2000).
Stock Exchanges
Union Carbide stock is traded primarily on the New York Stock Exchange
(ticker symbol: UK). The stock is also listed on the Chicago and Pacific Stock
Exchanges in the U.S.
Stock Records and Transfer
The corporation acts as its own stock transfer agent through its Shareholder
Services Department, which maintains stockholder records, transfers stock and
answers questions regarding stockholders' accounts, including dividend
reinvestment accounts. Stockholders wishing to transfer stock to someone else
or to change the name on a stock certificate should contact Shareholder
Services for assistance. The Registrar is Chase Mellon Shareholder Services.
Dividend Reinvestment
Stockholders of record may purchase shares directly through Union Carbide's
Dividend Reinvestment and Stock Purchase Plan. Under the plan, shares may be
purchased from Union Carbide free of commissions and service charges.
Requests for a prospectus that explains the plan in detail should be
directed to the Shareholder Services Department (Telephone: 800-934-3350).
Form 10-K
A Form 10-K report for the year ended Dec. 31, 1997, will be available in
April 1998. A copy without exhibits may be obtained without charge by writing
to Union Carbide Corporation, Joseph E. Geoghan, secretary, 39 Old Ridgebury
Road, Danbury, CT 06817-0001.
Charitable Contributions Booklet
Union Carbide annually publishes a booklet that lists organizations
receiving charitable, educational, cultural or similar grants of $250 or more
from the corporation. The booklet is available on written request to the
secretary.
RESPONSIBLE CARE Progress Report
This report covers health, safety and environmental progress at Union
Carbide. Information includes performance data for U.S. and other worldwide
locations, RESPONSIBLE CARE goals, and progress Carbide made in 1997 as it
completed implementation of RESPONSIBLE CARE management practices. To obtain a
copy, write to Union Carbide Corporation, Public Affairs Department, Section
L-4505, 39 Old Ridgebury Road, Danbury, CT 06817-0001 (Telephone: 800-552-
5272).
Inquiries
o Inquiries from the public about Union Carbide and its products and services
should be directed to the Corporate Information Center, Union Carbide
Corporation, Section N-0, 39 Old Ridgebury Road, Danbury, CT 06817-0001
(Telephone: 203-794-5300).
o Inquiries about stockholder accounts and dividend reinvestment should be
directed to Union Carbide Corporation, William H. Smith, manager, Shareholder
Services Department, Section G-1328, 39 Old Ridgebury Road, Danbury, CT 06817-
0001 (Telephone: 203-794-3350).
o Institutional investors, financial analysts and portfolio managers should
direct questions about Union Carbide to Union Carbide Corporation, D. Nicholas
Thold, director of investor relations, Investor Relations Department, Section
E-4286, 39 Old Ridgebury Road, Danbury, CT 06817-0001 (Telephone: 203-794-
6440).
o Financial journalists should direct questions to Union Carbide Corporation,
David N. Kernis, assistant director, communications, Public Affairs
Department, Section L-4502, 39 Old Ridgebury Road, Danbury, CT 06817-0001
(Telephone: 203-794-6929).
o Information about Union Carbide also may be found on the company's home page
on the Internet at www.unioncarbide.com. Union Carbide's site provides
information in five categories: general, financial, business, RESPONSIBLE CARE
and recruitment.
- 42 -
<PAGE>
Directors and Corporate Officers
Directors
John J. Creedon is retired president and chief executive officer of
Metropolitan Life Insurance Company. A Carbide director since 1984, he chairs
the Audit Committee and serves on the Compensation & Management Development,
Executive and Health, Safety and Environmental Affairs (HS&EA) Committees.
C. Fred Fetterolf is a retired director, president and chief operating officer
of Aluminum Company of America. A UCC director since 1987, he chairs the HS&EA
Committee and serves on the Audit, Compensation & Management Development
and Nominating Committees.
Joseph E. Geoghan is vice-president, general counsel and secretary of Union
Carbide Corporation and has been a director since 1990. He serves on the
Executive and Public Policy Committees.
Rainer E. Gut is chairman of Credit Suisse Group, Zurich, Switzerland, Credit
Suisse First Boston and Credit Suisse. A UCC board member since 1994, he is a
member of the Compensation & Management Development, Finance & Pension
and Nominating Committees.
Vernon E. Jordan, Jr. is a senior partner of Akin, Gump, Strauss, Hauer & Feld
LLP. He is chairman of the Nominating Committee and a member of the Executive,
Finance & Pension and Public Policy Committees. He has been a board
member since 1987.
William H. Joyce is chairman, president and chief executive officer of Union
Carbide Corporation. A director since 1992, he is chairman of the Executive
Committee.
Robert D. Kennedy is retired chairman and chief executive officer of Union
Carbide Corporation and has been a director since 1985. He serves on the
Audit, Executive, Nominating and Public Policy Committees.
Ronald L. Kuehn, Jr. is a director and chairman, president and chief executive
officer of Sonat, Inc. A UCC board member since 1984, he chairs the
Compensation & Management Development Committee and serves on the Finance &
Pension and HS&EA Committees.
Rozanne L. Ridgway is former assistant secretary of state for Europe and
Canada. A director since 1990, she chairs the Public Policy Committee and is a
member of the Audit, HS&EA and Nominating Committees.
James M. Ringler is a director and chairman, president and chief executive
officer of Premark International, Inc. Elected a director in 1996, he is a
member of the Compensation & Management Development and the Finance & Pension
Committees.
William S. Sneath is a director of various corporations and retired chairman
and chief executive officer of Union Carbide Corporation. He chairs the
Finance & Pension Committee and serves on the Executive, HS&EA and Nominating
Committees. He has been a director since 1969.
Corporate Officers
William H. Joyce
Chairman of the Board, President and Chief Executive Officer
Joseph S. Byck
Vice-President, Strategic Planning, Investor Relations and Public Affairs
James F. Flynn
Vice-President, General Manager, Solvents, Intermediates and Monomers
Joseph E. Geoghan
Vice-President, General Counsel and Secretary
Malcolm A. Kessinger
Vice-President, Human Resources
Lee P. McMaster
Vice-President, General Manager, Ethylene Oxide/Glycol
Joseph C. Soviero
Vice-President, Corporate Ventures
Roger B. Staub
Vice-President, General Manager, UNIPOL Systems
John K. Wulff
Vice-President, Chief Financial Officer and Controller
Other Senior Management
Eugene J. Boros
Vice-President, General Manager, Specialty Polymers and Products, UCAR
Emulsion Systems
David L. Brucker
Vice-President, Engineering and Operations
Ron J. Cottle
Vice-President, Health, Safety and Environment
John L. Gigerich
Vice-President, Information Systems
Kevin P. Lynch
Vice-President, General Manager, UNIPOL Polymers
Philip F. McGovern
Vice-President, Tax
Gordon D. Mounts
Vice-President, General Manager, Industrial Performance Chemicals
F. Don Ryan
Vice-President, General Manager, Specialty Polyolefins and Vice-President,
Purchasing
Lee C. Stewart
Vice-President and Treasurer
Vince F. Villani
Vice-President, General Manager, Olefins
Donald R. Wood
Vice-President, Polypropylene Resins
John P. Yimoyines
Vice-President, Venture Management
- 43 -
<PAGE>
Union Carbide Around the World
(Excluding partnership or corporate joint venture locations)
United States &
Puerto Rico
California
Colorado
Connecticut
District of Columbia
Georgia
Illinois
Louisiana
New Jersey
New York
North Carolina
Texas
Vermont
Washington
West Virginia
Puerto Rico
Canada
Alberta
Ontario
Quebec
Europe
Austria
Belgium
France
Germany
Italy
Russia
Spain
Sweden
Switzerland
Turkey
United Kingdom
Latin America
Argentina
Brazil
Chile
Colombia
Costa Rica
Ecuador
Guatemala
Mexico
Peru
Venezuela
Far East & Other
Australia
China
Egypt
Hong Kong
Indonesia
Japan
Jordan
Malaysia
Morocco
Philippines
Singapore
South Africa
South Korea
Sri Lanka
Taiwan
Thailand
United Arab Emirates
Definition of Terms
Unless the context otherwise requires, the terms below refer to the following:
Union Carbide Corporation, Union Carbide Corporation,
Union Carbide, Carbide, the parent company, and its
the corporation, we, our, consolidated subsidiaries
the company, UCC
Domestic United States and Puerto Rico
Domestic operations Operations of Union Carbide in this area,
including exports
International operations Operations of Union Carbide in areas of the
world other than the United States and Puerto
Rico
The use of these terms is for convenience of reference only. The consolidated
subsidiaries are separate legal entities that are managed by, and accountable
to, their respective boards of directors.
CARBITOL, CARBOWAX, CELLOSIZE, CELLOSOLVE, CYRACURE, FLEXOL, FLEXOMER, NEULON,
NORKOOL, LP OXO, POLYOX, POLYPHOBE, SELEXOL, TERGITOL, TONE, TRITON, TUFLIN,
UCAR, UCARSOL, UCARTHERM, UCON, UCURE, UNICARB, UNIPOL, and UNION CARBIDE are
registered trademarks of Union Carbide Corporation.
RESPONSIBLE CARE is a registered service mark of the Canadian Chemical
Producers Association and the Chemical Manufacturers Association.
EQUATE is a trademark of EQUATE Petrochemical Company K.S.C. of Kuwait.
<PAGE>
(Inside back cover)
Printed on Recycled, Recyclable Paper.
Printed in U.S.A.
<PAGE>
(Back cover)
(The back cover depicts a hexagon containing the words "Union Carbide".)
Union Carbide Corporation
39 Old Ridgebury Road
Danbury, Connecticut 06817-0001
UC-1389
Exhibit 21
Percentage
of Voting
State or Securities
Sovereign Owned By
Power of Immediate
Name of Company Incorporation Parent
Union Carbide Corporation (the "Corporation") New York - %
Subsidiaries included in the Consolidated Financial Statements except where
noted otherwise:
Amerchol Corporation Delaware 100.00
Benefit Capital Management Corporation Delaware 100.00
Calidria Corporation Delaware 100.00
Catalysts, Adsorbents & Process Systems, Inc. Maryland 100.00
Dexter Realty Corporation Ohio 100.00
JWS Hampshire, Inc. Delaware 99.95
KTI Chemicals, Inc. Delaware 100.00
P.T. Union Carbide Indonesia Indonesia 100.00
Prentiss Glycol Company Delaware 100.00
Seadrift Pipeline Corporation Delaware 100.00
South Charleston Sewage Treatment Co. West Virginia 100.00
UCAR Emulsion Systems International, Inc. Delaware 100.00
UCAR Interam, Inc. Delaware 100.00
UCAR Louisiana Pipeline Company Delaware 100.00
UCAR Pipeline Incorporated Delaware 100.00
UCAR, Polimeros y Quimicos C.A. Ecuador 100.00
UCAR Resinas Caribe Inc. Delaware 100.00
UCAR Vanor (Proprietary) Limited South Africa 100.00
UCEX (U.K.) Limited England 100.00
Umetco Minerals Corporation Delaware 100.00
Union Carbide Argentina S.A.I.C.S. Argentina 100.00
Union Carbide Asia Limited Hong Kong 100.00
Union Carbide Asia Pacific, Inc. Delaware 100.00
Union Carbide Benelux N.V. Belgium (1)
Union Carbide do Brasil S/A Brazil 100.00
Union Carbide Caribe LLC Delaware 100.00
Union Carbide Canada Inc. Canada 100.00
Union Carbide Chemicals and Plastics
Technology Corporation Delaware 100.00
Union Carbide Chemicals (Australia) Pty. Ltd. Australia 100.00
Union Carbide Chemicals Korea Limited Korea 100.00
Union Carbide Chemicals (Malaysia) Sdn. Bhd. Malaysia 100.00
Union Carbide Comercial, C.A. Venezuela 100.00
Union Carbide Customer Services Pte. Ltd. Singapore 100.00
Union Carbide Engineering and Hydrocarbons
Service Company, Inc. Delaware 100.00
Union Carbide Ethylene Oxide/Glycol Company Delaware 100.00
Union Carbide Eurofinance B.V. Netherlands 100.00
Union Carbide (Europe) S.A. Switzerland 100.00
Union Carbide Foreign Sales Corporation US Virgin Is. 100.00
(1) 99.83% of the voting securities of Union Carbide Benelux N.V. is
owned by Union Carbide Corporation; and 00.17% by Union Carbide
(Europe) S.A.
Percentage
of Voting
State or Securities
Sovereign Owned By
Power of Immediate
Name of Company Incorporation Parent
Union Carbide Corporation. (Continued)
Union Carbide Formosa Co., Ltd. Taiwan 100.00
Union Carbide (Guangdong Zhongshan) Company Limited P. Rep. China 75.00
Union Carbide Imaging Systems, Inc. Delaware 100.00
Union Carbide Inter-America Inc. Delaware 100.00
Union Carbide Inter-America Inc. New Jersey 100.00
Union Carbide Investimentos e Participacoes S/C Ltda. Brazil 100.00
Union Carbide Japan K.K. Japan 100.00
Union Carbide Limited England 100.00
Union Carbide Pan America, Inc. Delaware 100.00
Union Carbide Philippines (Far East) Inc. Philippines 100.00
Union Carbide Quimicos y Plasticos, S.A. de C.V. Mexico 100.00
Union Carbide South Africa (Proprietary) Limited South Africa 100.00
Union Carbide Subsidiary C, Inc. Delaware 100.00
Union Carbide Subsidiary L, Inc. Delaware 100.00
Union Carbide Thailand Limited Thailand 100.00
Union Carbide Wire & Cable Company, Inc. Delaware 100.00
Union Polymers Sdn. Bhd. Malaysia 60.00
Westbridge Insurance Ltd. Bermuda 100.00
Companies reported in the Consolidated Financial Statements on an Equity in
Net Assets Basis included:
Alberta & Orient Glycol Company Limited Canada 50.00
Asian Acetyls Rep. of Korea 33.00
ASPELL Polymeres SNC France 50.00
Commercial Alcohols Limited Canada 50.00
Equate Petrochemical Company K.S.C. Kuwait 45.00
Nippon Unicar Company Limited Japan 50.00
Petromont and Company, Limited Partnership Canada 49.95
Petromont Inc. Canada 50.00
Polimeri Europa S.r.l. Italy 50.00
Seadrift Polypropylene Company Texas 50.00
Shawinigan Pipeline Reg'd. Canada 50.00
Union Carbide Lanka Limited Sri Lanka 49.00
UOP LLC New York 50.00
Union Showa K.K. Japan 50.00
Univation Technologies, LLC Delaware 50.00
World Ethanol Company Illinois 50.00
* * * * * * * * * * * *
The names of the Corporation's other consolidated subsidiaries and companies
carried on an equity in net assets basis are not listed. These subsidiaries
and companies, if considered in the aggregate as a single subsidiary, would
not constitute a significant subsidiary. In addition, the Corporation has
investments in other subsidiaries and 20-to-50%-owned companies for which
financial statements are not submitted because all such subsidiaries and
companies, considered in the aggregate as a single subsidiary, would not
constitute a significant subsidiary.
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Union Carbide Corporation
We consent to the incorporation by reference in each of the
Registration Statements of Union Carbide Corporation on Form S-3
(Nos. 33-26185, 33-60705 and 333-17309), and on Form S-8 (Nos. 2-
90419, 33-22125, 33-38714, 33-53573, 33-58931, 333-02829, 333-
38493 and 333-38495) of our reports dated January 16, 1998,
relating to the consolidated balance sheets of Union Carbide
Corporation and subsidiaries as of December 31, 1997 and 1996,
and the related consolidated statements of income, stockholders'
equity and cash flows and related schedule for each of the years
in the three-year period ended December 31, 1997, appearing and
incorporated by reference in the Annual Report on Form 10-K of
Union Carbide Corporation for the year ended December 31, 1997.
KPMG PEAT MARWICK LLP
Stamford, Connecticut
March 19, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNION
CARBIDE CORPORATION'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31,
1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000100790
<NAME> UNION CARBIDE CORPORATION
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 68
<SECURITIES> 0
<RECEIVABLES> 993
<ALLOWANCES> 0
<INVENTORY> 604
<CURRENT-ASSETS> 1866
<PP&E> 7707
<DEPRECIATION> 3927
<TOTAL-ASSETS> 6964
<CURRENT-LIABILITIES> 1504
<BONDS> 1458
0
0
<COMMON> 155
<OTHER-SE> 2193
<TOTAL-LIABILITY-AND-EQUITY> 6964
<SALES> 6502
<TOTAL-REVENUES> 6502
<CGS> 4806
<TOTAL-COSTS> 4806
<OTHER-EXPENSES> 497<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 79
<INCOME-PRETAX> 966
<INCOME-TAX> 279
<INCOME-CONTINUING> 676
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 17
<NET-INCOME> 659
<EPS-PRIMARY> 4.89<F2>
<EPS-DILUTED> 4.41<F2>
<FN>
<F1>OTHER EXPENSES ARE EQUAL TO RESEARCH AND DEVELOPMENT OF 157 AND DEPRECIATION
AND AMORTIZATION OF 340.
<F2>THE EPS-PRIMARY AMOUNT REPRESENTS BASIC EARNINGS PER SHARE AND THE
EPS-DILUTED AMOUNT REPRESENTS DILUTED EARNINGS PER SHARE, COMPUTED IN
ACCORDANCE WITH STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 128,
"EARNINGS PER SHARE".
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
UNION CARBIDE CORPORATION'S ANNUAL REPORTS ON FORM 10-K FOR THE YEARS ENDED
DECEMBER 31, 1997 AND DECEMBER 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000100790
<NAME> UNION CARBIDE CORPORATION
<MULTIPLIER> 1,000,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> DEC-31-1996 DEC-31-1995
<CASH> 94 449
<SECURITIES> 0 0
<RECEIVABLES> 1047 996
<ALLOWANCES> 0 00
<INVENTORY> 541 544
<CURRENT-ASSETS> 1873 2196
<PP&E> 7159 6357
<DEPRECIATION> 3750 3549
<TOTAL-ASSETS> 6546 6256
<CURRENT-LIABILITIES> 1278 1338
<BONDS> 1487 1285
144 146
0 0
<COMMON> 155 155
<OTHER-SE> 1959 1890
<TOTAL-LIABILITY-AND-EQUITY> 6546 6256
<SALES> 6106 5888
<TOTAL-REVENUES> 6106 5888
<CGS> 4568 4100
<TOTAL-COSTS> 4568 4100
<OTHER-EXPENSES> 471<F1> 450<F3>
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 76 89
<INCOME-PRETAX> 845 1259
<INCOME-TAX> 236 380
<INCOME-CONTINUING> 593 925
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 593 925
<EPS-PRIMARY> 4.43<F2> 6.65<F2>
<EPS-DILUTED> 3.90<F2> 5.85<F2>
<FN>
<F1>OTHER EXPENSES IN 1996 ARE EQUAL TO RESEARCH AND DEVELOPMENT OF 159 AND
DEPRECIATION AND AMORTIZATION OF 312.
<F2>THE EPS-PRIMARY AMOUNT REPRESENTS BASIC EARNINGS PER SHARE AND THE
EPS-DILUTED AMOUNT REPRESENTS DILUTED EARNINGS PER SHARE, COMPUTED IN
ACCORDANCE WITH STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 128,
"EARNINGS PER SHARE".
<F3>OTHER EXPENSES IN 1995 ARE EQUAL TO RESEARCH AND DEVELOPMENT OF 144 AND
DEPRECIATION AND AMORTIZATION OF 306.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
UNION CARBIDE CORPORATION'S FORMS 10-Q FOR THE QUARTERS ENDED MARCH 31, 1997,
JUNE 30, 1997 AND SEPTEMBER 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000100790
<NAME> UNION CARBIDE CORPORATION
<MULTIPLIER> 1,000,000
<S> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> SEP-30-1997 JUN-30-1997 MAR-31-1997
<CASH> 132 115 214
<SECURITIES> 0 0 0
<RECEIVABLES> 1064 1079 1082
<ALLOWANCES> 0 0 0
<INVENTORY> 556 544 553
<CURRENT-ASSETS> 1954 1923 2028
<PP&E> 7577 7424 7274
<DEPRECIATION> 3886 3855 3809
<TOTAL-ASSETS> 6975 6770 6795
<CURRENT-LIABILITIES> 1306 1131 1221
<BONDS> 1459 1467 1494
138 140 140
0 0 0
<COMMON> 155 155 155
<OTHER-SE> 2063 2053 1972
<TOTAL-LIABILITY-AND-EQUITY> 6975 6770 6795
<SALES> 4963 3304 1638
<TOTAL-REVENUES> 4963 3304 1638
<CGS> 3650 2451 1231
<TOTAL-COSTS> 3650 2451 1231
<OTHER-EXPENSES> 374<F1> 250<F3> 122<F4>
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 57 38 19
<INCOME-PRETAX> 772 500 228
<INCOME-TAX> 228 145 66
<INCOME-CONTINUING> 529 348 157
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 529 348 157
<EPS-PRIMARY> 3.97<F2> 2.63<F2> 1.17<F2>
<EPS-DILUTED> 3.49<F2> 2.31<F2> 1.03<F2>
<FN>
<F1>OTHER EXPENSES FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 ARE EQUAL TO
RESEARCH AND DEVELOPMENT OF 118 AND DEPRECIATION AND AMORTIZATION OF 256.
<F2>THE EPS-PRIMARY AMOUNT REPRESENTS BASIC EARNINGS PER SHARE AND THE
EPS-DILUTED AMOUNT REPRESENTS DILUTED EARNINGS PER SHARE, COMPUTED IN
ACCORDANCE WITH STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 128,
"EARNINGS PER SHARE".
<F3>OTHER EXPENSES FOR THE SIX MONTHS ENDED JUNE 30, 1997 ARE EQUAL TO
RESEARCH AND DEVELOPMENT OF 81 AND DEPRECIATION AND AMORTIZATION OF 169.
<F4>OTHER EXPENSES FOR THE THREE MONTHS ENDED MARCH 31, 1997 ARE EQUAL TO
RESEARCH AND DEVELOPMENT OF 40 AND DEPRECIATION AND AMORTIZATION OF 82.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
UNION CARBIDE CORPORATION'S FORMS 10-Q FOR THE QUARTERS ENDED MARCH 31, 1997
AND 1996, JUNE 30, 1997 AND 1996, AND SEPTEMBER 30, 1997 AND 1996, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000100790
<NAME> UNION CARBIDE CORPORATION
<MULTIPLIER> 1,000,000
<S> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1996 JAN-01-1996 JAN-01-1996
<PERIOD-END> SEP-30-1996 JUN-30-1996 MAR-31-1996
<CASH> 111 78 144
<SECURITIES> 0 0 0
<RECEIVABLES> 1058 1079 1061
<ALLOWANCES> 0 0 0
<INVENTORY> 528 515 546
<CURRENT-ASSETS> 1910 1856 1893
<PP&E> 6993 6875 6758
<DEPRECIATION> 3698 3673 3632
<TOTAL-ASSETS> 6518 6334 6314
<CURRENT-LIABILITIES> 1441 1290 1237
<BONDS> 1295 1288 1289
144 145 145
0 0 0
<COMMON> 155 155 155
<OTHER-SE> 1929 1910 1968
<TOTAL-LIABILITY-AND-EQUITY> 6518 6334 6314
<SALES> 4598 3060 1501
<TOTAL-REVENUES> 4598 3060 1501
<CGS> 3394 2249 1099
<TOTAL-COSTS> 3394 2249 1099
<OTHER-EXPENSES> 350<F1> 230<F3> 111<F4>
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 55 37 23
<INCOME-PRETAX> 691 467 236
<INCOME-TAX> 194 131 66
<INCOME-CONTINUING> 491 330 157
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 491 330 157
<EPS-PRIMARY> 3.64<F2> 2.42<F2> 1.15<F2>
<EPS-DILUTED> 3.21<F2> 2.13<F2> 1.01<F2>
<FN>
<F1>OTHER EXPENSES FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 ARE EQUAL TO
RESEARCH AND DEVELOPMENT OF 115 AND DEPRECIATION AND AMORTIZATION OF 235.
<F2>THE EPS-PRIMARY AMOUNT REPRESENTS BASIC EARNINGS PER SHARE AND THE
EPS-DILUTED AMOUNT REPRESENTS DILUTED EARNINGS PER SHARE, COMPUTED IN
ACCORDANCE WITH STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 128,
"EARNINGS PER SHARE".
<F3>OTHER EXPENSES FOR THE SIX MONTHS ENDED JUNE 30, 1996 ARE EQUAL TO
RESEARCH AND DEVELOPMENT OF 76 AND DEPRECIATION AND AMORTIZATION OF 154.
<F4>OTHER EXPENSES FOR THE THREE MONTHS ENDED MARCH 31, 1996 ARE EQUAL TO
RESEARCH AND DEVELOPMENT OF 36 AND DEPRECIATION AND AMORTIZATION OF 75.
</FN>
</TABLE>
