Exhibit 10.3


 


February 24, 2003


 


ChevronTexaco Corporation


6001 Bollinger Canyon Road


San Ramon, California 94583


Attn: Darald W. Callahan


 


Chevron Phillips Chemical
Company LLC


10001 Six Pines Drive


The Woodlands, Texas 77380


Attn:  James Gallogly


 


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


 


Gentlemen:


 


This letter shall serve to
amend and clarify the Contribution Agreement dated May 23, 2000, as previously
amended by a letter agreement dated July 5, 2001, (hereinafter collectively,
the “Contribution Agreement”) by and among ConocoPhillips Company (f/k/a
Phillips Petroleum Company) (“ConocoPhillips” or “Phillips”), ChevronTexaco
Corporation (f/k/a Chevron Corporation)(“ChevronTexaco” or “Chevron”) and
Chevron 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 meaning
ascribed to them in the Contribution Agreement and Annex C of the Contribution
Agreement.


 


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


 


I.  Final Accounting for Actual Expediting
Expenses


 


For purposes of K-Resin Repair
cost allocation issues, ChevronTexaco and ConocoPhillips previously estimated
that $10,000,000 of the proceeds from insurance policies relating to losses
from business interruption due to the K-Resin Accident was allocable as
expediting expenses and therefore, such amount was allocated to offset
ConocoPhillips’ obligation relating to the K-Resin Repair under Section
2.2(a)(ix) of Annex C. The Parties now agree that the final actual expediting
expenses paid are equal to $4,700,000. 
The calculations and amounts contained in this letter (in particular the
capital contributions provided for in sections II and III below) reflect the
agreed usage of the actual expediting expenses of $4,700,000 and no further
adjustments or expediting expense payments are required.


 

















 


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


 


The Parties wish to clarify and
finalize the calculation of ConocoPhillips’ capital contribution to CPC required
under Section 6.19(b) of the Contribution Agreement for the Tax-Adjusted
Shortfall from the Projected K-Resin EBITDA for the period from the Closing
Date to December 31, 2002.  Accordingly,
Section 6.19(b) of the Contribution Agreement is hereby amended and replaced in
its entirety by the following:


 


“(b)    -    Phillips
shall make a capital contribution to the Company equal to $21,700,000 as
payment for the tax-adjusted shortfall from the Projected K-Resin EBITDA for
the 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, Section
2.2(a)(ix)


 


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


 


(a) Section 2.2(a)(ix) of Annex
C of the Contribution Agreement is hereby amended and replaced in its entirety
by the following:


 


“(ix) (A) all K-Resin Repair authority for
expenditure (“AFE”) amounts approved by the Company Board of Directors prior to
January 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 capital
contribution of $12,286,871 (the “Capital Contribution”) to the Company to
reach the P50 Repair Cost amount. For purposes of clarity, the Capital
Contribution represents the unreimbursed portion of the total K-Resin Repair
AFE amounts plus the estimated amount to complete the K-Resin Repair, in each
case, approved by Company’s Board of Directors prior to January 1, 2003 (the
calculations for which are set forth in Schedule A attached hereto).  Phillips shall have no right to audit any
expenditure submitted by the Company to Phillips for reimbursement prior to
December 31, 2002 and no right to a reimbursement of any portion of the P50
Repair Cost.  After payment of the
Capital Contribution as provided for in this Section 2.2(a)(ix)(A),  Phillips shall have no


 


2

















 


further indemnity obligation to the Company
or Chevron as to the K-Resin Repair except in the event that the total cost to
complete the K-Resin Repair exceeds the P90 Repair Cost.  In such case, Phillips shall indemnify and
hold harmless Chevron and its Affiliates and the Company and its Affiliates
from and against any and all Damages incurred by Chevron and its Affiliates or
the Company and its Affiliates in connection with all costs of the K-Resin
Repair which exceed the P90 Repair Cost. 
In all cases, the Company shall be responsible for costs of
the 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 is
temporarily stopped or delayed at any time after January 1, 2003, (ii) at the
time of such stoppage or delay the total costs of the K-Resin Repair have not
exceeded $112,550,667, and (iii) such stoppage or delay lasts for a period of
at least six months, then, in such case the P90 Repair Cost shall be adjusted
and redefined as follows:


 


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


 


where:


 


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


 


UNSPT = $112,550,667 - SPT


 


NFIn=The most recent 12 month
average of the monthly Nelson-Farrar Refinery (Inflation) Index as published by
the 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 & Gas
Journal each month.  There is a
three-month lag in the index, therefore for example, if the K-Resin Repair work
resumes in October 2005, the applicable index would be the average of the 12-month
period from July 2004 through June 2005. 
In the event that the Index is no longer published at the time of the
resumption of the K-Resin Repair work, Phillips, Chevron and the Company shall
meet and agree on a suitable replacement index or inflation factor.


 


(B) Notwithstanding the over expenditure
allowance in Section 7.1(a)(vi) of the Amended and Restated Limited Liability
Company Agreement of the Company (the “LLC Agreement”), the Company is not
authorized to commit, or in any way expend, funds in excess of the respective
AFE amounts as set forth in the last (December 2002) Board of Directors
approved AFEs for the K-Resin Repair without further Board of Directors
approval.  In addition, for purposes of


 


3

















 


Section 7.1(a)(xvii) of the LLC Agreement,
the decisions to halt and/or resume Phase 3 of the K-Resin Repair, and begin
the 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 all
cases, (i) net of (a) any insurance proceeds from independent sources (not
affiliated with Phillips or Chevron) that the Indemnified Party receives in
respect of such matter net of any costs incurred by such party in the nature of
increased 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 other
than the party against whom such claim is asserted under the Contribution
Agreement (including Annex C), and (ii) increased on a Net After-Tax Basis for
any income or franchise tax incurred by such party as a result of any insurance
proceeds or indemnity payments described in clause (i) of this sentence (other
than any such insurance proceeds or indemnities payable to reimburse lost or
forgone income) constituting taxable income. 
For purposes of this definition, “Net After-Tax Basis” means after any
U.S. federal, state or local income or franchise taxes (assuming the
deductibility of such state and local income and franchise taxes in calculating
federal income tax) incurred as a result of receipt by the Company of any
insurance proceeds or indemnity payments described in clause (i) of the
immediately preceding sentence (other than any such insurance proceeds or
indemnities payable to reimburse lost or forgone income), reduced by any tax
benefit arising as a result of receipt of such insurance proceeds or such indemnity
payments provided, however, that
Phillips’ obligations with respect to the foregoing shall be limited to such
changes, modifications or improvements that are identified to Phillips or the
Company 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-Resin
Repair be completed at such time and on such terms as to optimize the business
activities of the Company and that all material decisions relating to the
completion of K-Resin Repair shall be made by the CPC Board of Directors in
accordance with the relevant provisions of the Amended and Restated Limited
Liability Company Agreement of Chevron Phillips Chemical Company LLC; provided
that the members of the CPC Board of Directors shall consider the best interest
of the CPC business and the foregoing intent when making decisions relating to
the K-Resin Repair; and provided further that the CPC Board of Directors when
making decisions relating to the K-Resin Repair shall make such decisions
without regard to the indemnification obligations under Section 2.2(a)(ix) of
Annex C.  In addition, the Parties
recognize that in the future the


 


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


 


All other terms and conditions
of the Contribution Agreement and Annex C shall remain in full force and effect
and 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, are
incorporated herein by reference and applied mutates mutandis to this letter.


 


If you are in agreement with
the forgoing, please indicate such by signing in the appropriate space
below.  This letter agreement
constitutes the entire understanding and agreement of the Parties and
supersedes all prior communications, agreements and understandings, written or
oral, 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

  
							



 


5

















 


SCHEDULE
A


 


	
  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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