**Exhibit 10.3**

** **

February 24, 2003

 

ChevronTexaco Corporation

6001 Bollinger Canyon Road

San Ramon, California 94583

Attn: Darald W. Callahan

 

Chevron Phillips ChemicalCompany LLC

10001 Six Pines Drive

The Woodlands, Texas 77380

Attn:  James Gallogly

 

Re:            ContributionAgreement Amendments – Section 6.19: K-Resin Contribution and Annex C,Section 2.2: Indemnificaion By Phillips and Chevron

 

Gentlemen:

 

This letter shall serve toamend and clarify the Contribution Agreement dated May 23, 2000, as previouslyamended by a letter agreement dated July 5, 2001, (hereinafter collectively,the “Contribution Agreement”) by and among ConocoPhillips Company (f/k/aPhillips Petroleum Company) (“ConocoPhillips” or “Phillips”), ChevronTexacoCorporation (f/k/a Chevron Corporation)(“ChevronTexaco” or “Chevron”) andChevron Phillips Chemical Company LLC (“CPC” or the “Company”). ConocoPhillips,CPC and ChevronTexaco are referred to herein, collectively, as “Parties”.Capitalized terms used and not otherwise defined herein shall have the meaningascribed to them in the Contribution Agreement and Annex C of the ContributionAgreement.

 

This amendment is to resolve,restate and clarify certain issues relating to the obligations ofConocoPhillips as to the K-Resin Accident.

 

I.  Final Accounting for Actual ExpeditingExpenses

 

For purposes of K-Resin Repaircost allocation issues, ChevronTexaco and ConocoPhillips previously estimatedthat $10,000,000 of the proceeds from insurance policies relating to lossesfrom business interruption due to the K-Resin Accident was allocable asexpediting expenses and therefore, such amount was allocated to offsetConocoPhillips’ obligation relating to the K-Resin Repair under Section2.2(a)(ix) of Annex C. The Parties now agree that the final actual expeditingexpenses paid are equal to $4,700,000. The calculations and amounts contained in this letter (in particular thecapital contributions provided for in sections II and III below) reflect theagreed usage of the actual expediting expenses of $4,700,000 and no furtheradjustments or expediting expense payments are required.

 

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II.  Contribution Agreement-Section 6.19(b):K-Resin Contribution

 

The Parties wish to clarify andfinalize the calculation of ConocoPhillips’ capital contribution to CPC requiredunder Section 6.19(b) of the Contribution Agreement for the Tax-AdjustedShortfall from the Projected K-Resin EBITDA for the period from the ClosingDate to December 31, 2002.  Accordingly,Section 6.19(b) of the Contribution Agreement is hereby amended and replaced inits entirety by the following:

 

**“(b)    -    Phillipsshall make a capital contribution to the Company equal to $21,700,000 aspayment for the tax-adjusted shortfall from the Projected K-Resin EBITDA forthe period commencing on the Closing Date and ending on December 31, 2002.ConocoPhillips shall make such payment to the Company no later than March 5,2003.”**

 

III.  Contribution Agreement-Annex C, Section2.2(a)(ix)

 

The Parties recognize that atthe present time due to various factors, completion and startup of Phase 3 ofthe K-Resin Repair, as generally described in the materials dated November 2002attached to the Written Consent Action of the Board of Directors for theK-Resin Repair AFE supplements, may not be in the best interest of CPC and thatat some point in time in the future, completion and startup of Phase 3 may bemore desirable.  Given certaindifferences in interpretation of Annex C, Section 2.2(a)(ix), the Parties wishto amend said Section to take into consideration the amounts paid to date byConocoPhillips for the K-Resin Repair and the desire to clarify the extent ofConocoPhillips’ obligation to indemnify ChevronTexaco and CPC for additionalK-Resin Repair amounts after January 1, 2003, the Parties hereby agree as follows:

 

(a) Section 2.2(a)(ix) of AnnexC of the Contribution Agreement is hereby amended and replaced in its entiretyby the following:

 

**“(ix) (A) all K-Resin Repair authority forexpenditure (“AFE”) amounts approved by the Company Board of Directors prior toJanuary 1, 2003 which are hereby agreed equal to $108,780,667 (hereinafter, the“P50 Repair Cost”). No later than March 5, 2003, Phillips shall make a capitalcontribution of $12,286,871 (the “Capital Contribution”) to the Company toreach the P50 Repair Cost amount. For purposes of clarity, the CapitalContribution represents the unreimbursed portion of the total K-Resin RepairAFE amounts plus the estimated amount to complete the K-Resin Repair, in eachcase, approved by Company’s Board of Directors prior to January 1, 2003 (thecalculations for which are set forth in Schedule A attached hereto).  Phillips shall have no right to audit anyexpenditure submitted by the Company to Phillips for reimbursement prior toDecember 31, 2002 and no right to a reimbursement of any portion of the P50Repair Cost.  After payment of theCapital Contribution as provided for in this Section 2.2(a)(ix)(A),  Phillips shall have no**

** **

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**further indemnity obligation to the Companyor Chevron as to the K-Resin Repair except in the event that the total cost tocomplete the K-Resin Repair exceeds the P90 Repair Cost.  In such case, Phillips shall indemnify andhold harmless Chevron and its Affiliates and the Company and its Affiliatesfrom and against any and all Damages incurred by Chevron and its Affiliates orthe Company and its Affiliates in connection with all costs of the K-ResinRepair which exceed the P90 Repair Cost. In all cases, the Company shall be responsible for costs ofthe K-Resin Repair exceeding the P50 Repair Cost up to P90 Repair Cost.**

 

**The P90 Repair Cost shall be equal to$112,550,667 unless adjusted as follows. In the event that (i) the completion of the K-Resin Repair istemporarily stopped or delayed at any time after January 1, 2003, (ii) at thetime of such stoppage or delay the total costs of the K-Resin Repair have notexceeded $112,550,667, and (iii) such stoppage or delay lasts for a period ofat least six months, then, in such case the P90 Repair Cost shall be adjustedand redefined as follows:**

** **

**P90 Repair Cost = (SPT) + ((UNSPT) x (NFIn/1630.0))**

** **

**where:**

** **

**SPT = the total aggregate cost of the K-ResinRepair incurred by the Company at the time of stoppage or delay of the K-ResinRepair**

** **

**UNSPT = $112,550,667 - SPT**

** **

**NFIn=The most recent 12 monthaverage of the monthly Nelson-Farrar Refinery (Inflation) Index as published bythe Oil & Gas Journal at the time in which the K-Resin Repair work resumes.The Nelson Farrar Index is published in the first issue of the Oil & GasJournal each month.  There is athree-month lag in the index, therefore for example, if the K-Resin Repair workresumes in October 2005, the applicable index would be the average of the 12-monthperiod from July 2004 through June 2005. In the event that the Index is no longer published at the time of theresumption of the K-Resin Repair work, Phillips, Chevron and the Company shallmeet and agree on a suitable replacement index or inflation factor.**

** **

**(B) Notwithstanding the over expenditureallowance in Section 7.1(a)(vi) of the Amended and Restated Limited LiabilityCompany Agreement of the Company (the “LLC Agreement”), the Company is notauthorized to commit, or in any way expend, funds in excess of the respectiveAFE amounts as set forth in the last (December 2002) Board of Directorsapproved AFEs for the K-Resin Repair without further Board of Directorsapproval.  In addition, for purposes of**

 

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**Section 7.1(a)(xvii) of the LLC Agreement,the decisions to halt and/or resume Phase 3 of the K-Resin Repair, and beginthe commissioning and/or the startup of Phase 3 of the K-Resin Repair, are each“material” and therefore require Board of Directors approval.**

** **

**(C) All amounts paid pursuant to this Section 2.2(a)(ix) shall be in allcases, (i) net of (a) any insurance proceeds from independent sources (notaffiliated with Phillips or Chevron) that the Indemnified Party receives inrespect of such matter net of any costs incurred by such party in the nature ofincreased insurance premiums or similar costs related to such recovery(determined on a reasonable present value basis) and (b) any indemnity payments(less costs of collection thereof) which such party receives from parties otherthan the party against whom such claim is asserted under the ContributionAgreement (including Annex C), and (ii) increased on a Net After-Tax Basis forany income or franchise tax incurred by such party as a result of any insuranceproceeds or indemnity payments described in clause (i) of this sentence (otherthan any such insurance proceeds or indemnities payable to reimburse lost orforgone income) constituting taxable income. For purposes of this definition, “Net After-Tax Basis” means after anyU.S. federal, state or local income or franchise taxes (assuming thedeductibility of such state and local income and franchise taxes in calculatingfederal income tax) incurred as a result of receipt by the Company of anyinsurance proceeds or indemnity payments described in clause (i) of theimmediately preceding sentence (other than any such insurance proceeds orindemnities payable to reimburse lost or forgone income), reduced by any taxbenefit arising as a result of receipt of such insurance proceeds or such indemnitypayments *provided, however*, thatPhillips’ obligations with respect to the foregoing shall be limited to suchchanges, modifications or improvements that are identified to Phillips or theCompany prior to the K-Resin Plant (and/or Designated Replacement Facilities)achieving sustainable production capacity equal to 335 million pounds per year.**

 

(b)  Intent of the Parties: The Parties acknowledge their intent and expectation that the K-ResinRepair be completed at such time and on such terms as to optimize the businessactivities of the Company and that all material decisions relating to thecompletion of K-Resin Repair shall be made by the CPC Board of Directors inaccordance with the relevant provisions of the Amended and Restated LimitedLiability Company Agreement of Chevron Phillips Chemical Company LLC; providedthat the members of the CPC Board of Directors shall consider the best interestof the CPC business and the foregoing intent when making decisions relating tothe K-Resin Repair; and provided further that the CPC Board of Directors whenmaking decisions relating to the K-Resin Repair shall make such decisionswithout regard to the indemnification obligations under Section 2.2(a)(ix) ofAnnex C.  In addition, the Partiesrecognize that in the future the

 

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market for K-Resin may demandor otherwise require a product of a different quality and/or specification thanthat which is currently produced at the K-Resin Plant. In the event that thecosts to complete the K-Resin Repair exceed the P90 Repair Cost, the Partiesintend that any identifiable incremental costs of design, scope and/orconstruction changes to the K-Resin Plant implemented to produce a differentproduct than that which is currently produced in response to such changes inthe market for K-Resin shall not be deemed to be K-Resin Repair costs forpurposes of Section 2.2(a)(ix) of Annex C.

 

All other terms and conditionsof the Contribution Agreement and Annex C shall remain in full force and effectand shall be applied consistently with these amendments.  Section 12.1 (Counterparts), Section 12.2(Governing Law; Jurisdiction and Forum; Waiver of Jury Trial), Section 12.8(Amendments and Waivers), Section 12.10 (Severability), Section 12.11(Interpretation) and Article 3 of Annex C of the Contribution Agreement, areincorporated herein by reference and applied mutates mutandis to this letter.

 

If you are in agreement withthe forgoing, please indicate such by signing in the appropriate spacebelow.  This letter agreementconstitutes the entire understanding and agreement of the Parties andsupersedes all prior communications, agreements and understandings, written ororal, with respect to the matters contained herein.

 

Sincerely,

 

CONOCOPHILLIPS COMPANY

 

 
| By:                                   | /s/ John E.  Lowe                                              |   |   |
|---------------------------------------|----------------------------------------------------------------|--------|--------|
|                                  |                                                           |
| Name:                                 | John E. Lowe                                                   |   |
| Title:                                | Executive  Vice President, Planning and Strategic Transactions |   |
|                                  |                                                           |
| Acknowledged  and Agreed              | Acknowledged  and Agreed                                       |
|                                  |                                                           |
| CHEVRONTEXACO  CORPORATION            | CHEVRON  PHILLIPS CHEMICAL                                     |
|                                  | COMPANY LLC                                                    |
|                                  |                                                           |
| By:                                   | /s/ Darald  W. Callahan                                        |   | By:    | /s/ James L.  Gallogly |   |
|                                  |                                                           |
| Name: Darald  W. Callahan             | Name: James  L. Gallogly                                       |
| Title:  Executive Vice President | Title:  President and Chief Executive Officer                  |
|                                       |                                                                |        |        |  |  |  |

 

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**SCHEDULEA**

** **
| Total K-Resin AFE approved amount |                                | $      | 110,523,162    |       |
|-----------------------------------|-------------------------------------|--------|----------------|------------|
| Adjustments                       |                                |   |           |
|                              | Improved Resin project (WMC.HCK041) |   | $              | (1,742,495 | ) |
|                              |                                |   |           |
| Reimbursable Amount               |                                | $      | 108,780,667    |       |
|                              |                                |   |           |
| Reimbursement by Phillips         |                                |   |           |
|                              | Paid Prior to JV                    |   | $              | 4,194,516  |   |
|                              | Paid thru Dec 2002                  |   | $              | 87,599,280 |   |
|                              | Total                               |   | $              | 91,793,796 |   |
|                              |                                |   |           |
| Credit for Expediting Expense     |                                | $      | 4,700,000      |       |
|                              |                                |   |           |
| Total K-Resin amount reimbursed   |                                | $      | 96,493,796     |       |
|                              |                                |   |           |
|                              | **REMAINING PAYMENT FOR REBUILD***  |   |           |       |
|                              |                                | **$**  | **12,286,871** |       |
| **BREAKDOWN OF PAYMENT**          |                                |   | ** **     |
|                              |                                |   |           |
|                              | * Expediting expense reversal       |   | $              | 5,300,000  |   |
|                              |                                |   |           |       |
|                              | * Remaining K-Resin AFE amount      |   | $              | 6,986,871  |   |
|                              |                                | $      | 12,286,871     |       |
|                                   |                                     |        |                |            |  |  |

 

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