STOCK OPTION AGREEMENT
This STOCK OPTION AGREEMENT, dated as of August 3, 1999 (this "Agreement"),
is between Union Carbide Corporation, a New York corporation ("Issuer") and The
Dow Chemical Company, a Delaware corporation ("Grantee").
RECITALS
A. The Merger Agreement. Prior to the entry into this Agreement and prior
to the grant of the Option, Issuer, Grantee, and Transition Sub Inc., a
wholly-owned subsidiary of Grantee ("Merger Sub") have entered into an Agreement
and Plan of Merger, dated as of the date of this Agreement (the "Merger
Agreement"), pursuant to which Grantee and Issuer intend to effect a merger of
Merger Sub with and into Issuer (the "Merger").
B. The Stock Option Agreement. As an inducement and condition to Grantee's
and Merger Sub's willingness to enter into the Merger Agreement, and in
consideration thereof, the board of directors of Issuer has approved the grant
to Grantee of the Option pursuant to this Agreement and the acquisition of
Common Stock by Grantee pursuant to this Agreement; provided, that such grant
was expressly conditioned upon, and made of no effect until after, execution and
delivery by Issuer, Grantee and Merger Sub of the Merger Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements set forth in this Agreement and in the Merger Agreement, the
parties agree as follows:
1. The Option. (a) Issuer hereby grants to Grantee an unconditional,
irrevocable option (the "Option") to purchase, subject to the terms of this
Agreement, up to 26,502,964 fully paid and nonassessable shares of common stock,
$1.00 par value per share ("Common Stock"), of Issuer at a price per share in
cash equal to $48.8125 (the "Option Price"); provided, however, that in no event
shall the number of shares for which the Option is exercisable exceed 19.9% of
the shares of Common Stock issued and outstanding at the time of exercise
(without giving effect to the shares of Common Stock issued or issuable under
the Option) (the "Maximum Applicable Percentage"). The number of shares of
Common Stock purchasable upon exercise of the Option and the Option Price are
subject to adjustment as set forth in this Agreement.
(b) In the event that any additional shares of Common Stock are issued or
otherwise become outstanding after the date of this Agreement (other than
pursuant to this Agreement), the aggregate number of shares of Common Stock
purchasable upon exercise of the Option (inclusive of shares, if any, previously
purchased upon exercise of the Option) shall automatically be increased (without
any further action on the part of Issuer or Grantee being necessary) so that,
after such issuance, it equals the Maximum Applicable Percentage. Any such
increase shall not affect the Option Price.
2. Exercise; Closing. (a) Conditions to Exercise; Termination. Grantee or
any other person that shall become a holder of all or a part of the Option in
accordance with the terms of this Agreement (each such person being referred to
in this Agreement as the "Holder") may exercise the Option, in whole or in part,
by delivering a written notice thereof as provided in Section 2(d) within 180
days following the occurrence of a Triggering Event unless prior to such
Triggering Event the Effective Time (as defined in the Merger Agreement) shall
have occurred. If no notice pursuant to the preceding sentence has been
delivered prior thereto, the Option shall terminate upon either (i) the
occurrence of the Effective Time or (ii) the close of business on the earlier of
(x) the day 180 days after the date that Grantee becomes entitled to receive the
Termination Fee (as defined in the Merger Agreement) under Section 8.5(b) of the
Merger Agreement and (y) the date that Grantee is no longer potentially entitled
to receive the Termination Fee under Section 8.5(b) of the Merger Agreement for
a reason other than that Grantee has already received the Termination Fee.
(b) Triggering Event. A "Triggering Event" shall have occurred if the
Merger Agreement is terminated and Grantee thereby becomes entitled to receive
the Termination Fee pursuant to Section 8.5(b) of the Merger Agreement.
(c) Notice of Triggering Event by Issuer. Issuer shall notify Grantee
promptly in writing of the occurrence of any Triggering Event, it being
understood that the giving of such notice by Issuer shall not be a condition to
the right of the Holder to exercise the Option.
(d) Notice of Exercise by Grantee. If a Holder shall be entitled to and
wishes to exercise the Option, it shall send to Issuer a written notice (the
date of which is referred to in this Agreement as the "Notice Date") specifying
(i) the total number of shares that the Holder will purchase pursuant to such
exercise and (ii) a place and date (a "Closing Date") not earlier than three
business days nor later than 60 business days from the Notice Date for the
closing of such purchase (a "Closing"); provided, that if a filing is required
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), or any other notice, report, filing or approval is required with
respect to any governmental or regulatory authority, court, agency, commission,
body or other governmental entity (a "Governmental Entity") in connection with
such purchase, (x) the Holder or Issuer, as required, promptly after the giving
of such notice shall file the required notice, report, filing or application for
approval and shall expeditiously process the same and (y) the period of time
referred to in clause (ii) above shall commence on the
2
date on which the Holder furnishes to Issuer a supplemental written notice
setting forth the Closing Date, which notice shall be furnished as promptly as
practicable after all required notification, reporting or filing periods shall
have expired or been terminated, all required approvals shall have been obtained
and all requisite waiting periods shall have passed. Each of the Holder and the
Issuer agrees to use its reasonable best efforts to cooperate with and provide
information to Issuer or Holder, as the case may be, for the purpose of any
required notice, report, filing or application for approval.
(e) Payment of Purchase Price. At each Closing, the Holder shall pay to
Issuer the aggregate purchase price for the shares of Common Stock purchased
pursuant to the exercise of the Option in immediately available funds by a wire
transfer to a bank account designated by Issuer; provided, that failure or
refusal of Issuer to designate such a bank account shall not preclude the Holder
from exercising the Option, in whole or in part.
(f) Delivery of Common Stock. At such Closing, simultaneously with the
payment of the purchase price by the Holder, Issuer shall deliver to the Holder
a certificate or certificates representing the number of shares of Common Stock
purchased by the Holder and, if the Option shall be exercised in part only, a
new Option evidencing the rights of the Holder to purchase the balance (as
adjusted pursuant to Section 1(b)) of the shares of Common Stock then
purchasable under this Agreement.
(g) Restrictive Legend. Certificates for Common Stock delivered at a
Closing may be endorsed with a restrictive legend that shall read substantially
as follows:
"The transfer of the shares represented by this
certificate is subject to resale restrictions arising
under the Securities Act of 1933, as amended."
It is understood and agreed that the above legend shall be removed by delivery
of substitute certificate(s) without such reference if the Holder shall have
delivered to Issuer a copy of a letter from the staff of the Securities and
Exchange Commission, or a written opinion of counsel, in form and substance
reasonably satisfactory to Issuer, to the effect that such legend is not
required for purposes of the Securities Act of 1933, as amended (the "Securities
Act"). In addition, such certificates shall bear any other legend as may be
required by applicable law.
(h) Ownership of Record; Tender of Purchase Price; Expenses. Upon the
giving by the Holder to Issuer of a written notice of exercise referred to in
Section 2(d) and the tender of the applicable purchase price in immediately
available funds, the Holder shall be deemed to be the holder of record of the
shares of Common Stock issuable upon such exercise, notwithstanding that the
stock transfer books of Issuer shall then be closed or that certificates
representing such shares of Common Stock shall not have been delivered to the
Holder. Issuer shall pay all expenses, and any and all United States federal,
state and local taxes and other
3
charges that may be payable in connection with the preparation, issue and
delivery of stock certificates under this Section 2 in the name of the Holder or
its assignee, transferee or designee.
3. Covenants of Issuer. In addition to its other agreements and covenants
in this Agreement, Issuer agrees:
(a) Shares Reserved for Issuance. It will maintain, free from
preemptive rights, sufficient authorized but unissued or treasury shares of
Common Stock to issue the appropriate number of shares of Common Stock
pursuant to the terms of this Agreement so that the Option may be fully
exercised without additional authorization of Common Stock after giving
effect to all other options, warrants, convertible securities and other
rights of third parties to purchase shares of Common Stock from Issuer.
(b) No Avoidance. It will not avoid or seek to avoid (whether by
charter amendment or through reorganization, consolidation, merger,
issuance of rights, dissolution or sale of assets, or by any other
voluntary act) the observance or performance of any of the covenants,
agreements or conditions to be observed or performed under this
Agreement by Issuer.
(c) Further Assurances. Promptly after the date of this Agreement it
will take all actions as may from time to time be required (including (i)
complying with all applicable premerger notification, reporting and waiting
period requirements under the HSR Act and (ii) in the event that prior
notice, report, filing or approval with respect to any Governmental Entity
is necessary under any applicable foreign or United States federal, state
or local law before the Option may be exercised, cooperating fully with the
Holder in preparing and processing the required applications or notices) in
order to permit each Holder to exercise the Option and purchase shares of
Common Stock pursuant to such exercise and to take all action necessary to
protect the rights of the Holder against dilution.
(d) Stock Exchange Listing. It will use its reasonable best efforts to
cause the shares of Common Stock to be issued pursuant to the Option to be
approved for listing (to the extent they are not already listed) on the New
York Stock Exchange ("NYSE") and on all other stock exchanges on which
shares of Common Stock of the Issuer are then listed, subject to official
notice of issuance.
4. Representations and Warranties of Issuer. Issuer represents and warrants
to Grantee as follows:
(a) Merger Agreement. Issuer hereby makes each of the representations
and warranties contained in Sections 5.1(a), (b)(i), (c)(i), (d)(i),
(d)(ii), (j) and (p) of the
4
Merger Agreement as they relate to Issuer and this Agreement, as if such
representations were set forth in this Agreement.
(b) Shares Reserved for Issuance; Capital Stock. Issuer has taken all
necessary corporate action to authorize and reserve, free from preemptive
rights, and permit it to issue, sufficient authorized but unissued or
treasury shares of Common Stock so that the Option may be fully exercised
without additional authorization of Common Stock after giving effect to all
other options, warrants, convertible securities and other rights of third
parties to purchase shares of Common Stock from Issuer, and all such
shares, upon issuance pursuant to the Option, will be duly authorized,
validly issued, fully paid and nonassessable, and will be delivered free
and clear of all claims, liens, encumbrances, and security interests (other
than those created by this Agreement) and not subject to any preemptive
rights.
5. Representations and Warranties of Grantee. Grantee represents and
warrants to Issuer that Grantee has all requisite corporate power and authority
and has taken all corporate action necessary in order to execute, deliver and
perform its obligations under and to consummate the transactions contemplated by
this Agreement. This Agreement has been duly and validly executed and delivered
by Grantee and constitutes a valid and binding agreement of Grantee enforceable
against Grantee in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general equity
principles.
6. Exchange; Replacement. This Agreement and the Option granted by this
Agreement are exchangeable, without expense, at the option of the Holder, upon
presentation and surrender of this Agreement at the principal office of Issuer,
for other Agreements providing for Options of different denominations entitling
the holder thereof to purchase in the aggregate the same number of shares of
Common Stock purchasable at such time under this Agreement, subject to
corresponding adjustments in the number of shares of Common Stock purchasable
upon exercise so that the aggregate number of such shares under all stock option
agreements issued in respect of this Agreement shall not exceed the Maximum
Applicable Percentage. Unless the context shall require otherwise, the terms
"Agreement" and "Option" as used in this Agreement include any stock option
agreements and related Options for which this Agreement (and the Option granted
by this Agreement) may be exchanged. Upon (i) receipt by Issuer of evidence
reasonably satisfactory to it of the loss, theft, destruction of this Agreement,
or mutilation of this Agreement, (ii) receipt by Issuer of reasonably
satisfactory indemnification in the case of loss, theft or destruction of this
Agreement and (iii) surrender and cancellation of this Agreement in the case of
mutilation, Issuer will execute and deliver a new Agreement of like tenor and
date. Any such new Agreement executed and delivered shall constitute an
additional contractual obligation on the part of Issuer, whether or not the
Agreement so lost, stolen, destroyed or mutilated shall at any time be
enforceable by any person other than the holder of the new Agreement.
5
7. Adjustments. In addition to the adjustment to the total number of shares
of Common Stock purchasable upon exercise of the Option pursuant to Section
1(b), the total number of shares of Common Stock purchasable upon the exercise
of the Option and the Option Price shall be subject to adjustment from time to
time as follows:
(a) In the event of any change in the outstanding shares of Common
Stock by reason of stock dividends, split-ups, mergers, recapitalizations,
combinations, subdivisions, conversions, exchanges of shares or the like,
the type and number of shares of Common Stock purchasable upon exercise of
the Option shall be appropriately adjusted, and proper provision shall be
made in the agreements governing any such transaction, so that (i) any
Holder shall receive upon exercise of the Option the number and class of
shares, other securities, property or cash that such Holder would have
received in respect of the shares of Common Stock purchasable upon exercise
of the Option if the Option had been exercised and such shares of Common
Stock had been issued to such Holder immediately prior to such event or the
record date therefor, as applicable, and (ii) in the event any additional
shares of Common Stock are to be issued or otherwise become outstanding as
a result of any such change (other than pursuant to an exercise of the
Option), the number of shares of Common Stock purchasable upon exercise of
the Option shall be increased so that, after such issuance and together
with shares of Common Stock previously issued pursuant to the exercise of
the Option (as adjusted on account of any of the foregoing changes in the
Common Stock), the number of shares so purchasable equals the Maximum
Applicable Percentage of the number of shares of Common Stock issued and
outstanding immediately after the consummation of such change.
(b) Whenever the number of shares of Common Stock purchasable upon
exercise of the Option is adjusted as provided in this Section 7, the
Option Price shall be adjusted by multiplying the Option Price by a
fraction, the numerator of which is equal to the number of shares of Common
Stock purchasable prior to the adjustment and the denominator of which is
equal to the number of shares of Common Stock purchasable after the
adjustment.
8. Registration. (a) Upon the occurrence of a Triggering Event, Issuer
shall, at the request of Grantee delivered in the written notice of exercise of
the Option provided for in Section 2(d), as promptly as practicable prepare,
file and keep current a shelf registration statement under the Securities Act
covering any or all shares issued and issuable pursuant to the Option and shall
use its best efforts to cause such registration statement to become effective
and remain current in order to permit the sale or other disposition of any
shares of Common Stock issued upon total or partial exercise of the Option
("Option Shares") in accordance with any plan of disposition requested by
Grantee; provided, however, that Issuer may postpone filing a registration
statement relating to a registration request by Grantee under this Section 8 for
a period of time (not in excess of 30 days) if in its judgment such filing would
require the
6
disclosure of material information that Issuer has a bona fide business purpose
for preserving as confidential. Issuer will use its best efforts to cause such
registration statement first to become effective as soon as practicable and then
to remain effective for 270 days from the day such registration statement first
becomes effective or until such earlier date as all shares registered shall have
been sold by Grantee. In connection with any such registration, Issuer and
Grantee shall provide each other with representations, warranties, indemnities
and other agreements customarily given in connection with such registrations. If
requested by Grantee in connection with such registration, Issuer shall become a
party to any underwriting agreement relating to the sale of such shares, but
only to the extent of obligating Issuer in respect of representations,
warranties, indemnities, contribution and other agreements customarily made by
issuers in such underwriting agreements.
(b) In the event that Grantee so requests, the closing of the sale or other
disposition of the Common Stock or other securities pursuant to a registration
statement filed pursuant to Section 8(a) shall occur substantially
simultaneously with the exercise of the Option.
9. Repurchase of Option and/or Shares. (a) Repurchase; Repurchase Price.
Upon the occurrence of a Triggering Event, (i) at the request of a Holder,
delivered in writing within 180 days of such occurrence (or such later period as
provided in Section 2(d) with respect to any required notice or application or
in Section 10), Issuer shall repurchase the Option from the Holder, in whole or
in part, at a price (the "Option Repurchase Price") equal to the number of
shares of Common Stock then purchasable upon exercise of the Option (or such
lesser number of shares as may be designated in the Repurchase Notice)
multiplied by the amount by which the market/offer price exceeds the Option
Price and (ii) at the request of a Holder or any person who has been a Holder
(for purposes of this Section 9 only, each such person being referred to as a
"Holder"), delivered in writing within 180 days of such occurrence (or such
later period as provided in Section 2(d) with respect to any required notice or
application or in Section 10), Issuer shall repurchase such number of Option
Shares from such Holder as the Holder shall designate in the Repurchase Notice
at a price (the "Option Share Repurchase Price") equal to the number of shares
designated multiplied by the market/offer price. The term "market/offer price"
shall mean the highest of (x) the price per share of Common Stock at which a
tender or exchange offer for Common Stock has been made, (y) the price per share
of Common Stock to be paid by any third party pursuant to an agreement with
Issuer and (z) the highest trading price for shares of Common Stock on the NYSE
(or, if the Common Stock is not then listed on the NYSE, any other national
securities exchange or automated quotation system on which the Common Stock is
then listed or quoted) within the 120-day period immediately preceding the
delivery of the Repurchase Notice. In the event that a tender or exchange offer
is made for the Common Stock or an agreement is entered into for a merger, share
exchange, consolidation or reorganization involving consideration other than
cash, the value of the securities or other property issuable or deliverable in
exchange for the Common Stock shall (I) if such consideration is in securities
and such securities are listed on a national securities exchange, be determined
to be the highest trading price for such securities on such national securities
exchange within the 120-day period
7
immediately preceding the delivery of the Repurchase Notice or (II) if such
consideration is not securities, or if in securities and such securities are not
traded on a national securities exchange, be determined in good faith by a
nationally recognized investment banking firm selected by an investment banking
firm designated by Grantee and an investment banking firm designated by Issuer.
(b) Method of Repurchase. A Holder may exercise its right to require Issuer
to repurchase the Option, in whole or in part, and/or any Option Shares then
owned by such Holder pursuant to this Section 9 by surrendering for such purpose
to Issuer, at its principal office, this Agreement or certificates for Option
Shares, as applicable, accompanied by a written notice or notices stating that
the Holder elects to require Issuer to repurchase the Option and/or such Option
Shares in accordance with the provisions of this Section 9 (each such notice, a
"Repurchase Notice"). As promptly as practicable, and in any event within two
business days after the surrender of the Option and/or certificates representing
Option Shares and the receipt of the Repurchase Notice relating thereto, Issuer
shall deliver or cause to be delivered to the Holder the applicable Option
Repurchase Price and/or the Option Share Repurchase Price. Any Holder shall have
the right to require that the repurchase of Option Shares shall occur
immediately after the exercise of all or part of the Option. In the event that
the Repurchase Notice shall request the repurchase of the Option in part, Issuer
shall deliver with the Option Repurchase Price a new Stock Option Agreement
evidencing the right of the Holder to purchase that number of shares of Common
Stock purchasable pursuant to the Option at the time of delivery of the
Repurchase Notice minus the number of shares of Common Stock represented by that
portion of the Option then being repurchased.
(c) Effect of Statutory or Regulatory Restraints on Repurchase. To the
extent that, upon or following the delivery of a Repurchase Notice, Issuer is
prohibited under applicable law or regulation from repurchasing the Option (or
portion thereof) and/or any Option Shares subject to such Repurchase Notice (and
Issuer will undertake to use its reasonable best efforts to obtain all required
regulatory and legal approvals and to file any required notices as promptly as
practicable in order to accomplish such repurchase), Issuer shall immediately so
notify the Holder in writing and thereafter deliver or cause to be delivered,
from time to time, to the Holder the portion of the Option Repurchase Price and
the Option Share Repurchase Price that Issuer is no longer prohibited from
delivering, within two business days after the date on which it is no longer so
prohibited; provided, however, that upon notification by Issuer in writing of
such prohibition, the Holder may, within five days of receipt of such
notification from Issuer, revoke in writing its Repurchase Notice, whether in
whole or to the extent of the prohibition, whereupon, in the latter case, Issuer
shall promptly (i) deliver to the Holder that portion of the Option Repurchase
Price and/or the Option Share Repurchase Price that Issuer is not prohibited
from delivering; and (ii) deliver to the Holder, as appropriate, (A) with
respect to the Option, a new Stock Option Agreement evidencing the right of the
Holder to purchase that number of shares of Common Stock for which the
surrendered Stock Option Agreement was exercisable at the time of delivery of
the Repurchase Notice less the number of shares as to which the Option
8
Repurchase Price has theretofore been delivered to the Holder, and/or (B) with
respect to Option Shares, a certificate for the Option Shares as to which the
Option Share Repurchase Price has not theretofore been delivered to the Holder.
Notwithstanding anything to the contrary in this Agreement, including, without
limitation, the time limitations on the exercise of the Option, the Holder may
give notice of exercise of the Option for 180 days after a notice of revocation
has been issued pursuant to this Section 9(c) and thereafter exercise the Option
in accordance with the applicable provisions of this Agreement.
(d) Acquisition Transactions. In addition to any other restrictions or
covenants, Issuer agrees that, in the event that a Holder delivers a Repurchase
Notice, Issuer shall not enter or agree to enter into an agreement or series of
agreements relating to a merger with or into or the consolidation with any other
person or entity, the sale of all or substantially all of the assets of Issuer
or any similar disposition unless the other party or parties to such agreement
or agreements agree to assume in writing Issuer's obligations under Section 9(a)
and, notwithstanding any notice of revocation delivered pursuant to the proviso
to Section 9(c), a Holder may require such other party or parties to perform
Issuer's obligations under Section 9(a) unless such party or parties are
prohibited by law or regulation from such performance, in which case such party
or parties shall be subject to the obligations of the Issuer under Section 9(c).
10. Extension of Exercise Periods. The 180-day periods for exercise of
certain rights under Sections 2 and 9 shall be extended in each such case at the
request of the Holder to the extent necessary to avoid liability by the Holder
under Section 16(b) of the Securities Exchange Act of 1934, as amended, by
reason of such exercise.
11. Assignment. Neither party may assign any of its rights or obligations
under this Agreement or the Option to any other person without the express
written consent of the other party except that Grantee may, without the prior
written consent of Issuer assign the Option, in whole or in part, to any
affiliate of Grantee. Any attempted assignment in contravention of the preceding
sentence shall be null and void.
12. Filings; Other Actions. Issuer and Grantee each will use its best
efforts to make all filings with, and to obtain consents of, all third parties
and governmental authorities necessary for the consummation of the transactions
contemplated by this Agreement.
13. Specific Performance. The parties acknowledge that damages would be an
inadequate remedy for a breach of this Agreement by either party and that the
obligations of the parties shall be specifically enforceable through injunctive
or other equitable relief.
14. Severability. If any term, provision, covenant, or restriction
contained in this Agreement is held by a court or a federal or state regulatory
agency of competent jurisdiction to be invalid, void, or unenforceable, the
remainder of the terms, provisions, covenants, and restrictions contained in
this Agreement shall remain in full force and effect, and shall in no way
9
be affected, impaired, or invalidated. If for any reason such court or
regulatory agency determines that the Holder is not permitted to acquire, or
Issuer is not permitted to repurchase pursuant to Section 9, the full number of
shares of Common Stock provided in Section 1(a) of this Agreement (as adjusted
pursuant to Sections 1(b) and 7 of this Agreement), it is the express intention
of Issuer to allow the Holder to acquire or to require Issuer to repurchase such
lesser number of shares as may be permissible, without any amendment or
modification of this Agreement.
15. Notices. Notices, requests, instructions, or other documents to be
given under this Agreement shall be in writing and shall be deemed given (i)
three business days following sending by registered or certified mail, postage
prepaid, (ii) when sent, if sent by facsimile, provided that a copy of the fax
is promptly sent by U.S. mail, (iii) when delivered, if delivered personally to
the intended recipient, and (iv) one business day later, if sent by overnight
delivery via a national courier service, in each case at the respective
addresses of the parties set forth in the Merger Agreement.
16. Expenses. Except as otherwise expressly provided in this Agreement or
in the Merger Agreement, all costs and expenses incurred in connection with this
Agreement and the transactions contemplated by this Agreement shall be paid by
the party incurring such expense, including fees and expenses of its own
financial consultants, investment bankers, accountants, and counsel.
17. Entire Agreement. This Agreement, the Confidentiality Agreement (as
defined in the Merger Agreement) and the Merger Agreement constitute the entire
agreement, and supersede all other prior agreements, understandings,
representations and warranties, both written and oral, between the parties, with
respect to the subject matter of this Agreement. The terms and conditions of
this Agreement shall inure to the benefit of and be binding upon the parties and
their respective successors and permitted assigns. Nothing in this Agreement, is
intended to confer upon any person or entity, other than the parties to this
Agreement, and their respective successors and permitted assigns, any rights or
remedies under this Agreement.
18. Governing Law and Venue; Waiver of Jury Trial.
(a) This Agreement shall be deemed to be made in and in all respects shall
be interpreted, construed and governed by and in accordance with Delaware law
without regard to the conflict of law principles thereof, except that matters
relating to the corporate governance of Issuer shall be governed by New York
law. The parties irrevocably and unconditionally consent to submit to the
exclusive jurisdiction of the courts of the State of Delaware and of the United
States of America located in Wilmington, Delaware (the "Delaware Courts") for
any litigation arising out of or relating to this Agreement and the transactions
contemplated by this Agreement (and agree not to commence any litigation
relating thereto except in such Delaware Courts), waive any objection to the
laying of venue of any such litigation in the Delaware Courts and
10
agree not to plead or claim in any Delaware Court that such litigation brought
therein has been brought in an inconvenient forum.
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE
UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND
THEREFORE EACH SUCH PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH
PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR
INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i)
NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE OTHER PARTY HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT THE OTHER PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH PARTY UNDERSTANDS
AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH PARTY MAKES THIS
WAIVER VOLUNTARILY, AND (iv) EACH PARTY HAS BEEN INDUCED TO ENTER INTO THIS
AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS
SECTION 18.
19. Captions. The Section and paragraph captions in this Agreement are for
convenience of reference only, do not constitute part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions of this
Agreement.
20. Limitation on Profit. (a) Notwithstanding any other provision of this
Agreement, in no event shall the Grantee's Total Profit (as defined herein)
exceed in the aggregate $50 million (the "Maximum Amount") and, if it otherwise
would exceed such amount, the Grantee, at its sole election, shall either: (i)
reduce the number of shares of Common Stock subject to this Option; (ii) deliver
to the Issuer for cancellation Option Shares previously purchased by Grantee;
(iii) pay cash to the Issuer; or (iv) any combination thereof, so that Grantee's
actually realized Total Profit shall not exceed the Maximum Amount taking into
account the foregoing actions.
(b) Notwithstanding any other provision of this Agreement, this Option may
not be exercised for a number of shares as would, as of the date of exercise,
result in a Notional Total Profit (as defined below) which would exceed the
Maximum Amount; provided, that nothing in this sentence shall restrict any
exercise of the Option permitted hereby on any subsequent date.
(c) As used in this Agreement, the term "Total Profit" shall mean the
aggregate amount (before taxes) of the following: (i) (x) the amount received by
Grantee pursuant to Issuer's repurchase of the Option (or any portion thereof)
or any Option Shares pursuant to Section 9, less, in the case of any repurchase
of Option Shares, (y) the Grantee's purchase price for such Option Shares, as
the case may be and (ii) (x) the net cash amounts received by Grantee pursuant
to the sale of Option Shares (or any other securities into which such Option
Shares are
11
converted or exchanged) to any unaffiliated party, less (y) the Grantee's
purchase price of such Option Shares.
(d) As used in this Agreement, the term "Notional Total Profit" with
respect to any number of shares as to which Grantee may propose to exercise this
Option shall be the Total Profit determined as of the date of such proposal
assuming that this Option were exercised on such date for such number of shares
and assuming that such shares, together with all other Option Shares held by
Grantee and its affiliates as of such date, were sold for cash at the closing
market price for the Common Stock as of the close of business on the preceding
trading day (less customary brokerage commissions).
12
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
duly authorized officers of the parties as of the day and year first written
above.
UNION CARBIDE CORPORATION
By:
-----------------------------------
Name: William H. Joyce
Title: Chairman, President and
Chief Executive Officer
THE DOW CHEMICAL COMPANY
-----------------------------------
Name: J. Pedro Reinhard
Title: Executive Vice President and Chief
Financial Officer