Contribution Agreement

CONTRIBUTION AGREEMENT


by and among


PHILLIPS PETROLEUM COMPANY,


CHEVRON CORPORATION


And


CHEVRON PHILLIPS CHEMICAL COMPANY LLC


Dated as of May 23, 2000 2
TABLE OF CONTENTS


PAGE ARTICLE I CERTAIN DEFINITIONS.................................................................................... 1


ARTICLE II CONTRIBUTION TO THE COMPANY........................................................................... 12


SECTION 2.1. The Company.............................................................................. 12


SECTION 2.2. Contribution of P Chem to the Company.................................................... 13


SECTION 2.3. Contribution of C Chem to the Company.................................................... 13


SECTION 2.4. Assumption of Liabilities by the Company................................................. 13


ARTICLE III THE CLOSING.......................................................................................... 14


SECTION 3.1. Closing Place and Date................................................................... 14


SECTION 3.2. Closing Date Deliveries.................................................................. 14


SECTION 3.3. Post-Closing Adjustment.................................................................. 15


ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PHILLIPS............................................................ 16


SECTION 4.1. Corporate Organization................................................................... 17


SECTION 4.2. Capitalization........................................................................... 17


SECTION 4.3. Authority; No Violation.................................................................. 17


SECTION 4.4. Consents and Approvals................................................................... 18


SECTION 4.5. Licenses; Compliance with Applicable Law................................................. 18


SECTION 4.6. Financial Statements; Undisclosed Liabilities............................................ 18


SECTION 4.7. Brokers' Fees............................................................................ 19


SECTION 4.8. Absence of Certain Changes or Events..................................................... 19


SECTION 4.9. Legal Proceedings........................................................................ 20


SECTION 4.10. Contracts............................................................................... 20


SECTION 4.11. Real Property........................................................................... 21


SECTION 4.12. Environmental Matters................................................................... 22


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SECTION 4.13. Intellectual Property................................................................... 22


SECTION 4.14. Employee Benefit Plans.................................................................. 23


SECTION 4.15. Labor Relations......................................................................... 23


SECTION 4.16. Transactions with Affiliates............................................................ 24


SECTION 4.17. Personal Property....................................................................... 24


SECTION 4.18. Year 2000............................................................................... 24


SECTION 4.19. Insurance............................................................................... 24


SECTION 4.20. Acquisition of Company Interests for Investment......................................... 24


SECTION 4.21. Sufficiency of Contribution............................................................. 25


ARTICLE V REPRESENTATIONS AND WARRANTIES OF CHEVRON.............................................................. 25


SECTION 5.1. Corporate Organization................................................................... 25


SECTION 5.2. Capitalization........................................................................... 25


SECTION 5.3. Authority; No Violation.................................................................. 26


SECTION 5.4. Consents and Approvals................................................................... 26


SECTION 5.5. Licenses; Compliance with Applicable Law................................................. 27


SECTION 5.6. Financial Statements; Undisclosed Liabilities............................................ 27


SECTION 5.7. Brokers' Fees............................................................................ 27


SECTION 5.8. Absence of Certain Changes or Events..................................................... 27


SECTION 5.9. Legal Proceedings........................................................................ 28


SECTION 5.10. Contracts............................................................................... 28


SECTION 5.11. Real Property........................................................................... 30


SECTION 5.12. Environmental Matters................................................................... 30


SECTION 5.13. Intellectual Property................................................................... 31


SECTION 5.14. Employee Benefit Plans.................................................................. 31


SECTION 5.15. Labor Relations......................................................................... 32


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SECTION 5.16. Transactions with Affiliates............................................................ 32


SECTION 5.17. Personal Property....................................................................... 32


SECTION 5.18. Year 2000............................................................................... 33


SECTION 5.19. Insurance............................................................................... 33


SECTION 5.20. Acquisition of Company Interests for Investment......................................... 33


SECTION 5.21. Sufficiency of Contribution............................................................. 33


ARTICLE VI COVENANTS............................................................................................. 33


SECTION 6.1. Investigation of Business; Access to Properties and Records.............................. 33


SECTION 6.2. Consents and Approvals................................................................... 35


SECTION 6.3. Further Assurances....................................................................... 35


SECTION 6.4. Conduct of the Phillips Chemicals Business............................................... 36


SECTION 6.5. Conduct of the Chevron Chemicals Business................................................ 37


SECTION 6.6. Preservation of Business................................................................. 39


SECTION 6.7. Public Announcements..................................................................... 39


SECTION 6.8. Assignment of Contracts, Leases, Permits, etc............................................ 40


SECTION 6.9. Corporate Names.......................................................................... 41


SECTION 6.10. D&O Indemnification..................................................................... 41


SECTION 6.11. Additional Agreements................................................................... 42


SECTION 6.12. Company Integration Expenses............................................................ 44


SECTION 6.13. Insurance............................................................................... 44


SECTION 6.14. Guarantees.............................................................................. 45


SECTION 6.15. Actions by Affiliates of Phillips and Chevron........................................... 46


SECTION 6.16. Financing............................................................................... 46


SECTION 6.17. Special Indemnities and Risk Allocation between the Company and the Parties............. 46


SECTION 6.18. Intellectual Property................................................................... 46


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SECTION 6.19. K-Resin Contribution.................................................................... 50


ARTICLE VII CONDITIONS TO CLOSING................................................................................ 52


SECTION 7.1. Conditions to Phillips' Obligation to Close.............................................. 52


SECTION 7.2. Conditions to Chevron's Obligation to Close.............................................. 53


ARTICLE VIII TERMINATION......................................................................................... 54


SECTION 8.1. Termination.............................................................................. 54


SECTION 8.2. Procedure and Effect of Termination...................................................... 55


ARTICLE IX SURVIVAL; INDEMNIFICATION............................................................................. 55


SECTION 9.1. Indemnification by Company............................................................... 55


SECTION 9.2. Indemnification by Phillips and Chevron.................................................. 55


SECTION 9.3. Indemnification Procedure................................................................ 56


SECTION 9.4. Survival................................................................................. 56


SECTION 9.5. Indemnification Limitation............................................................... 56


SECTION 9.6. Materiality Qualifiers................................................................... 57


SECTION 9.7. Knowledge Qualifiers..................................................................... 57


ARTICLE X EMPLOYEE MATTERS....................................................................................... 57


ARTICLE XI TAX MATTERS........................................................................................... 57


ARTICLE XII MISCELLANEOUS........................................................................................ 58


SECTION 12.1. Counterparts............................................................................ 58


SECTION 12.2. Governing Law; Jurisdiction and Forum; Waiver of Jury Trial............................. 58


SECTION 12.3. Entire Agreement........................................................................ 58


SECTION 12.4. Expenses................................................................................ 59


SECTION 12.5. Notices................................................................................. 59


SECTION 12.6. Successors and Assigns.................................................................. 60


SECTION 12.7. Headings; Definitions................................................................... 60


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SECTION 12.8. Amendments and Waivers.................................................................. 60


SECTION 12.9. Schedules............................................................................... 61


SECTION 12.10. Severability........................................................................... 61


SECTION 12.11. Interpretation......................................................................... 61


SECTION 12.12. Specific Performance................................................................... 61


APPENDICES


Appendix A Form of Amended and Restated Limited Liability Company Agreement of
the Company


Appendix B Tradename License Agreement


EXHIBITS


Exhibit A - 1 P Chem Assets Exhibit A - 2 C Chem Assets


Exhibit B - 1 Phillips Excluded Assets Exhibit B - 2 Chevron Excluded Assets


Exhibit C - 1 Phillips Excluded Liabilities Exhibit C - 2 Chevron Excluded Liabilities


ANNEXES


Annex A Employee Matters Annex Annex B Tax Matters Annex Annex C Continuing Indemnification Annex


vi 7
CONTRIBUTION AGREEMENT (this "Agreement"), dated as of May 23, 2000, by and among PHILLIPS PETROLEUM COMPANY, a Delaware corporation ("Phillips"), CHEVRON CORPORATION, a Delaware corporation ("Chevron"), and CHEVRON PHILLIPS CHEMICAL COMPANY LLC, a Delaware limited liability company (the "Company").


RECITALS:


WHEREAS, Phillips and Chevron (each, a "Party") desire to combine certain of their chemicals businesses in order to realize synergies and increase the efficiency and profitability of such businesses;


WHEREAS, each of Phillips and Chevron intends that the Company shall be the primary vehicle by which each Party conducts its chemicals businesses;


WHEREAS, each of Phillips and Chevron envisions that the Company will be a competitive, growing chemical venture meeting or exceeding the financial return expectations of the Parties on their investment in petrochemicals, plastics, and selected specialties;


WHEREAS, Phillips and Chevron desire to create a structure pursuant to which each of Phillips and Chevron shall, directly or through direct or indirect wholly-owned subsidiaries, own 50% of the voting and economic interests of the Company, into which each of Phillips and/or Affiliates (as defined herein) of Phillips and Chevron and/or Affiliates of Chevron shall contribute certain assets and related liabilities, operations and subsidiaries engaged in the chemicals businesses, all as more fully provided for herein;


WHEREAS, the Parties intend that the Company will be a self-financing entity with an investment-grade credit rating; and


WHEREAS, the parties hereto, at the closing of the transactions contemplated by this Agreement (the "Closing"), shall cause the limited liability company agreement of the Company to be amended and restated in the form set forth as Appendix A (as amended, the "Amended LLC Agreement");


NOW, THEREFORE, in consideration of the premises and the representations, warranties, covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereto hereby agree as follows:


ARTICLE I


CERTAIN DEFINITIONS


As used in this Agreement, the following terms shall have the respective meanings set forth below:


"Actual Contributed Cash" shall have the meaning set forth in Section 3.3(c). 8
"Actual Net Working Capital" shall have the meaning set forth in Section 3.3(c).


"Affiliate" shall mean, with respect to any Person, a Person, directly or indirectly, Controlling, Controlled by, or under common Control with, such Person.


"Agreement" shall have the meaning set forth in the Preamble.


"Amended LLC Agreement" shall have the meaning set forth in the Recitals.


"Basket" shall mean, with respect to either Party's obligation under Article IX, $300,000,000.


"Beneficially Own" shall mean, with respect to any security, having or sharing the power to direct or control the voting or disposition of such security.


"Beneficial Owner" shall mean, with respect to any security, a Person who Beneficially Owns such security, and "Beneficial Ownership" has a corresponding meaning.


"BI Insurance Policy" shall have the meaning set forth in Section 6.19(d).


"BI Insurance Proceeds" shall have the meaning set forth in Section 6.19(d).


"Business Day" shall mean any day on which banks are generally open to conduct business in the State of New York.


"C Chem" shall mean, collectively, the businesses, operations and assets that comprise the Chemicals segment separately reported in Chevron's September 30, 1999 Form 10-Q, including the assets set forth in Part I of Exhibit A-2 (including, in the case of any real property assets identified in Part I of Exhibit A-2, all right, title and interest of Chevron and its Subsidiaries in and to all land, improvements, easements, rights of way, fixtures, equipment and personal property associated with such real property assets, irrespective of whether such land, improvements, easements, rights of way, fixtures, equipment and personal property are specifically identified in Exhibit A-2 or in Schedule 5.11(a)(i) or Schedule 5.11(a)(ii) of the Chevron Disclosure Schedule, but subject to any specific exclusions or limitations, if any, set forth in Part I of Exhibit A-2), the entities set forth in Part II of Exhibit A-2 and C Chem Liabilities, but excluding the Chevron Excluded Assets and the Chevron Excluded Liabilities.


"C Chem December 31 Balance Sheet" shall mean the consolidated balance sheet of C Chem as of December 31, 1999, including the pro forma adjustments, attached as Schedule 5.6 the Chevron Disclosure Schedule.


"C Chem Discontinued Business" shall mean the AgChem and Consumer Products businesses of Chevron, the Specialty Polymers business of Chevron and any business which is materially different in terms of both products and processes from the businesses conducted by C Chem as of the date of this Agreement.


"C Chem Employee" shall have the meaning set forth in Annex A.


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"C Chem Intellectual Property" shall have the meaning set forth in Section 5.13(a).


"C Chem Leases" shall have the meaning set forth in Section 5.11(c).


"C Chem Liabilities" shall mean all Liabilities of Chevron and its Subsidiaries and/or Affiliates attributable to the businesses and operations of C Chem, including (i) all Liabilities arising from the ownership or use of assets that are part of C Chem, (ii) all Liabilities attributable to products produced by or with such assets, (iii) all Liabilities attributable to the production of such products, including all claims for personal injury, defective products, and the like, (iv) all Liabilities under contracts, leases or permits if and to the extent utilized in the business of C Chem as conducted on or before the Closing Date, and (v) all Liabilities made the responsibility of the Company pursuant to Annex A, Annex B or Annex C; but excluding the Chevron Excluded Liabilities.


"C Chem Material Contracts" shall have the meaning set forth in Section 5.10(a).


"C Chem Patent Rights" shall mean all claims of letters patent and patent applications owned or controlled by Chevron or its Patent Subsidiaries, in the sense of having the right to grant licenses thereunder, all subject to the terms and conditions, including the obligation to account to third parties, under which such rights are held, based upon inventions conceived prior to the later of (i) December 31, 2000 or (ii) the six-month anniversary of the Closing Date, insofar and only insofar as such claims cover in whole or in part technology or inventions that are primarily used by or identified as relating primarily to the C Chem business, or which arose from research, development or demonstration activities which relate primarily to the C Chem business, including those patents and patent applications listed on Schedule 6.18 of the Chevron Disclosure Schedule and foreign counterparts thereof. C Chem Patent Rights (i) shall specifically exclude patent claims to the extent they cover Oronite technology for fuel and lubricant additives or additive precursors and their manufacture and blending and products, packages, and formulations containing such additives or additive precursors except where such products, packages, and formulations are comprised of a major portion of normal alpha olefins and their derivatives, and (ii) shall specifically exclude patent claims covering Fischer-Tropsch gas-to-liquids technology and upgrading of products therefrom to chemical products other than normal alpha olefins and their derivatives.


"C Chem Proprietary Technology" shall mean transferable rights in unpublished technical information, knowhow and trade secrets owned or controlled by Chevron or its Patent Subsidiaries prior to the later of (i) December 31, 2000 or (ii) the six-month anniversary of the Closing Date, relating primarily to the C Chem business and research, development, and demonstration activities relating primarily to the C Chem business, including information relating to proprietary computer programs, data bases, computer models, engineering correlations, process design, engineering and operating data, proprietary catalysts and other materials, formulations, experimental data, performance testing information, pilot plant data, and test methods, and including information licensed from third parties, all subject to the terms and conditions, including the obligation to account to third parties, under which such rights are held. C Chem Proprietary Technology (i) shall specifically exclude Oronite technology for fuel and lubricant additives or additive precursors and their manufacture and blending and products, packages, and formulations containing such additives or additive precursors except where such products, packages, and


3 10 formulations are comprised of a major portion of normal alpha olefins and their derivatives, and (ii) shall specifically exclude Fischer-Tropsch gas-to-liquids technology and upgrading of products therefrom to chemical products other than normal alpha olefins and their derivatives.


"C Chem Real Property" shall have the meaning set forth in Section 5.11(b).


"C Chem Subsidiaries" shall mean, collectively, any Subsidiaries to be contributed by Chevron or Chevron Member Affiliates to the Company.


"C Chem Working Capital Difference" shall mean (i) C Chem's Actual Net Working Capital, plus (ii) $18.76 million, minus (iii) Net Working Capital set forth on the C Chem December 31 Balance Sheet.


"Cap" shall mean, with respect to either Party's obligation under Article IX, $800,000,000.


"Chevron" shall have the meaning set forth in the Preamble.


"Chevron Disclosure Schedule" shall mean the disclosure schedules delivered by Chevron concurrently herewith.


"Chevron Excluded Assets" shall mean the assets set forth on Exhibit B-2.


"Chevron Excluded Liabilities" shall mean the liabilities set forth on Exhibit C-2.


"Chevron Indemnified Person" shall have the meaning set forth in Section 9.1.


"Chevron Member Affiliates" shall have the meaning set forth in Section 2.1(a).


"Chevron Plans" shall mean, collectively, all material employee benefit plans providing benefits to any C Chem Employees that are sponsored or maintained by Chevron or any of its Affiliates or to which Chevron or any of its Affiliates contributes or is obligated to contribute on behalf of C Chem Employees, including any employee welfare benefit plan within the meaning of Section 3(1) of ERISA, any employee pension benefit plan within the meaning of Section 3(2) of ERISA, and any bonus, incentive, deferred compensation, stock purchase, stock option, severance, change of control or fringe benefit plan.


"Chevron Pipe Line Contribution" shall have the meaning set forth in Exhibit A-2.


"Chevron Retained Affiliates" shall mean, collectively, all Affiliates of Chevron other than C Chem Subsidiaries.


"Chevron Savings Plan" shall have the meaning set forth in Annex A.


"Claim Notice" shall have the meaning set forth in Annex C.


"Claims" shall have the meaning set forth in Annex C.


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"Class C Member" shall have the definition set forth in the Amended LLC Agreement.


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