Dow Chemical 2012 Annual Report Download - page 92

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For additional information see Part I, Item 3. Legal Proceedings and Asbestos-Related Matters in Note 14 to the
Consolidated Financial Statements.
Matters Involving the Formation of K-Dow Petrochemicals
Introduction
On December 13, 2007, the Company and Petrochemical Industries Company (K.S.C.) (“PIC”) of Kuwait, a wholly owned
subsidiary of Kuwait Petroleum Corporation, announced plans to form a 50:50 global petrochemicals joint venture. The
proposed joint venture, K-Dow Petrochemicals (“K-Dow”), was expected to have revenues of more than $11 billion and
employ more than 5,000 people worldwide.
On November 28, 2008, the Company entered into a Joint Venture Formation Agreement (the “JVFA”) with PIC that
provided for the establishment of K-Dow. To form the joint venture, the Company would transfer by way of contribution and
sale to K-Dow, assets used in the research, development, manufacture, distribution, marketing and sale of polyethylene,
polypropylene, polycarbonate, polycarbonate compounds and blends, ethyleneamines, ethanolamines, and related licensing and
catalyst technologies; and K-Dow would assume certain related liabilities. PIC would receive a 50 percent equity interest in K-
Dow in exchange for the payment by PIC of the initial purchase price, estimated to be $7.5 billion. The purchase price was
subject to certain post-closing adjustments.
Failure to Close
On December 31, 2008, the Company received a written notice from PIC with respect to the JVFA advising the Company of
PIC's position that certain conditions to closing were not satisfied and, therefore, PIC was not obligated to close the transaction.
On January 2, 2009, PIC refused to close the K-Dow transaction in accordance with the JVFA. The Company disagreed with
the characterizations and conclusions expressed by PIC in the written notice and the Company informed PIC that it breached
the JVFA. On January 6, 2009, the Company announced that it would seek to fully enforce its rights under the terms of the
JVFA and various related agreements.
Arbitration
The Company's claims against PIC were subject to an agreement between the parties to arbitrate under the Rules of Arbitration
of the International Court of Arbitration of the International Chamber of Commerce (“ICC”). On February 18, 2009, the
Company initiated arbitration proceedings against PIC alleging that PIC breached the JVFA by failing to close the transaction
on January 2, 2009, and as a result, Dow suffered substantial damages.
On May 24, 2012, the ICC released to the parties a unanimous Partial Award in favor of the Company on both liability and
damages. A three-member arbitration Tribunal found that PIC breached the JVFA by not closing K-Dow on January 2, 2009,
and awarded the Company $2.16 billion in damages, not including pre- and post-award interest and arbitration costs.
On June 15, 2012, PIC filed an application for remand under the English Arbitration Act of 1996 (“Remand Application”)
in the High Court of Justice in London (“High Court”). In its Remand Application, PIC did not challenge the Tribunal's finding
of liability but it requested that the High Court remand the case back to the Tribunal for further consideration of the Company's
claim for consequential damages. On October 11, 2012, the High Court ruled in favor of the Company and dismissed PIC's
Remand Application; and on October 19, 2012, the High Court denied PIC's request for leave to appeal its ruling, bringing an
end to PIC's Remand Application.
The ICC is expected to issue a Final Award covering the Company's substantial claim for pre- and post-award interest and
arbitration costs in early 2013.