Exhibit
10.7


 




 





ANNUAL
INCENTIVE PLAN


 


OF


 


CHEVRON
PHILLIPS CHEMICAL COMPANY LLC


 


(As
Amended and Restated Effective January 1, 2005)


 




 





 


 

















 


ANNUAL
INCENTIVE PLAN


OF


CHEVRON
PHILLIPS CHEMICAL COMPANY LLC


(As
Amended and Restated Effective January 1, 2005)


 


TABLE OF
CONTENTS


 


	
   

  	
   

  	
  Page

  
	
  1.

  	
  Interpretation and
  Definitions

  	
  1

  	
   

  
	
  2.

  	
  Administration of Plan.

  	
  5

  	
   

  
	
  3.

  	
  Eligibility and
  Participation 

  	
  5

  	
   

  
	
  4.

  	
  AIP Awards .

  	
  6

  	
   

  
	
  5.

  	
  Payment of AIP Awards

  	
  7

  	
   

  
	
  6.

  	
  Vesting and Forfeiture

  	
  7

  	
   

  
	
  7.

  	
  Amendment and
  Discontinuance

  	
  8

  	
   

  
	
  8.

  	
  Recapitalization,
  Merger, and Consolidation

  	
  8

  	
   

  
	
  9.

  	
  General Provisions

  	
  8

  	
   

  
	
   

  	
  Schedule A
  “Administrative Procedures”

  	
  10

  	
   

  



 


i

















 


ANNUAL
INCENTIVE PLAN


OF


CHEVRON
PHILLIPS CHEMICAL COMPANY LLC


(As
Amended and Restated Effective January 1, 2005)


 


PURPOSE


 


The purpose of this
amended and restated Annual Incentive Plan (the “Plan”) is to attract,
motivate, and retain qualified management personnel by providing to them an
annual incentive compensation plan that will provide competitive compensation
opportunities similar to those of comparable companies in the chemical
industry, align the interests of key management with the interests of the
Company’s owners, and assist the Company in achieving its goals of being the
top performer in each of its businesses.


 


The Plan is intended to
be a “bonus program” within the meaning of Labor Reg. § 2510.3-2(c) and,
therefore, is not intended to be subject to the requirements of ERISA. It is
also intended to comply with the requirements of Section 409A of the Internal
Revenue Code, as added by the American Jobs Creation Act of 2004 (“Section 409A”),
to the extent such provisions apply.


 


The Plan was originally
established effective January 1, 2001.


 


The Plan is, except as
otherwise set forth in the document, amended and restated effective January 1,
2005.


 


1.             Interpretation
and Definitions


 


(a)                                  General.


 


(1)           Interpretation.
Unless a clear contrary intention appears, for purposes of construction of this
Plan and all related Plan Documents:


 


(i)            the
singular number includes the plural number and vice versa;


 


(ii)           reference
to any person includes such person’s successors and assigns but, if applicable,
only if such successors and assigns are permitted by the Plan Documents, and
reference to a person in a particular capacity excludes such person in any
other capacity or individually;


 


(iii)          reference
to any gender includes the other gender;


 


(iv)          reference
to any Plan Document or any other agreement, document or instrument means the
applicable Plan Document or such other agreement, document or instrument as
amended or modified and in effect from time to time in accordance with the
terms thereof;


 


1

















 


(v)           reference
to any law means such law as amended, modified, codified, replaced or
reenacted, in whole or in part, and in effect from time to time, including
rules and regulations promulgated thereunder, and reference to any section or
other provision of any law means that provision of such law from time to time
in effect and constituting the substantive amendment, modification,
codification, replacement or reenactment of such section or other provision;


 


(vi)          reference
in any Plan Document to any article, section, appendix, schedule or exhibit
means such article or section thereof or appendix, schedule or exhibit thereto;


 


(vii)         “hereunder”,
“hereof”, and words of similar import shall be deemed references to a Plan
Document as a whole and not to any particular article, section or other
provision thereof;


 


(viii)        “including”
(and with the correlative meaning “include”) means including without limiting
the generality of any description preceding such term;


 


(ix)           “or”
is not exclusive;


 


(x)            relative
to the determination of any period of time, “from” means “from and including”
and “to” means “to but excluding;” and


 


(xi)           references
to days, weeks, months, quarters and years are references to such periods as
determined by the Gregorian calendar.


 


(2)           Accounting Terms. In each Plan Document, unless expressly
otherwise provided, accounting terms shall be construed and interpreted, and
accounting determinations and computations shall be made, in accordance with
generally accepted accounting principles.


 


(3)           Conflict in Plan Documents. If there is any conflict between
any two or more Plan Documents, such Plan Documents shall be interpreted and
construed, if possible, so as to avoid or minimize such conflict but, to the
extent (and only to the extent) of such conflict, the Plan Document dealing
most specifically with the matter as to which there is a conflict shall prevail
and control. If it cannot be determined which Plan Document deals most
specifically with a matter as to which there is a conflict then the Plan shall
prevail and control.


 


(b)           Definitions.


 


(1)           “Annual
Incentive Plan Award” or “AIP Award” means an award of cash made pursuant to
the Plan (or any prorated portion thereof).


 


2

















 


(2)           “Board”
means the Board of Directors of the Company.


 


(3)           “Bonus
Level Employee” means:


 


(i)            with
respect to Employees on the U.S. Dollar payroll of a Participating Employer,
any regular, full-time Employee (including an Employee who is also a director
or an officer) who is a pay grade 90 or above; and


 


(ii)           with
respect to Employees who are not on a U.S. Dollar payroll, those Employees who
are employed within pay grades which are deemed by the Committee to be
equivalent to grades 90 or above.


 


Notwithstanding anything
contained in the Plan to the contrary, any person who, pursuant to a written
contract with a Participating Employer that provides that he is an independent
contractor and not an Employee, shall be excluded from the definition of Bonus
Level Employee and shall not be eligible to participate in the Plan during the
period such written contract is in effect regardless of such person’s
reclassification as an Employee for such period by the Internal Revenue Service
for tax withholding purposes. If, during any period, a Participating Employer
has not treated an individual as an Employee and, for that reason, has not
withheld employment taxes with respect to that individual, then that individual
shall not be a Bonus Level Employee for that period, even in the event that the
individual is determined, retroactively, to have been an Employee during all or
any portion of that period.


 


(4)           “Chevron”
means Chevron Corporation, or such entity as may be controlled by Chevron
Corporation, that directly or indirectly holds a membership interest in the
Company.


 


(5)           “Committee”
means the Compensation Committee of the Board.


 


(6)           “Company”
means Chevron Phillips Chemical Company LLC and any successor entity.


 


(7)           “ConocoPhillips”
means ConocoPhillips, or such entity as may be controlled by ConocoPhillips,
that directly or indirectly holds a membership interest in the Company.


 


(8)           “Date
of Termination” means the date on which a Participant ceases to be an Employee.


 


(9)           “Deferred
Compensation Plan” means the Chevron Phillips Chemical Company LP Executive
Deferred Compensation Plan.


 


3

















 


(10)         “Disability”
means the Participant is eligible for, and is continuously receiving disability
insurance benefits under the Social Security Act or the Participating Employer’s
long-term disability plan.


 


(11)         “Employee”
means any employee of a Participating Employer.


 


(12)         “ERISA”
means the Employee Retirement Income Security Act of 1974, as amended.


 


(13)         “Layoff”
means termination of employment by reason of layoff pursuant to the Chevron
Phillips Chemical Company LP’s severance program or similar program adopted by
a Participating Employer.


 


(14)         “Parent
Company” means Chevron, ConocoPhillips, and their respective successors.


 


(15)         “Participant”
means an Employee who has been designated as a participant pursuant to Section
3.


 


(16)         “Participating
Employer” means the Company and any direct or indirect subsidiary entity of the
Company which, with the Company’s consent, has adopted the Plan.


 


(17)         “Plan”
means the Annual Incentive Plan of Chevron Phillips Chemical Company LLC.


 


(18)         “Plan
Document” means this Plan, any administrative procedures that may from time to
time be adopted by the Committee (including Schedule A), and any other document
defining the defining the rights and liabilities of any Participant.


 


(19)         “Plan
Year” means a period of twelve (12) months beginning on January 1 of any
calendar year.


 


(20)         “Retirement”
means a Participant’s Termination of Service in connection with the attainment
of any applicable early retirement age or normal retirement age as defined in
the Chevron Phillips Chemical Company LP Retirement Plan or any retirement plan
of any Participating Employer. A Participant whose Termination of Service
occurs while eligible to retire under any of such plans, but who does not elect
to immediately commence the receipt of benefits thereunder, shall nevertheless
be deemed to have retired under such plan for purposes of this Plan.


 


(21)         “Salary”
means the annualized base rate of a Participant as of December 31 of the Plan
Year with respect to which an AIP Award is made or, in the case of (i)
Disability, the base rate of the Participant when he is placed on Disability or
(ii) Termination of Service by reason of Retirement, Layoff, death, or transfer
to a Parent Company, the base rate of the Participant on his Date of
Termination.


 


4

















 


(22)         “Termination
of Service” occurs when a Participant ceases to serve as an Employee for any
reason.


 


2.             Administration
of the Plan


 


(a)           The
Plan shall be administered by the Committee.


 


(b)           Notwithstanding
any other provision of the Plan, the Plan shall be interpreted, operated and
administered in a manner consistent with Section 409A.


 


(c)           The
Committee may establish, from time to time and at any time, subject to the
limitations of the Plan as set forth herein, such rules and regulations and
amendments and supplements thereto, as it deems necessary to comply with
applicable law and for the proper administration of the Plan.


 


(d)           The
Committee’s interpretation and construction of the provisions of the Plan and
rules and regulations adopted by the Committee shall be final. No member of the
Committee or the Board shall be liable for any action taken, or determination
made, in respect of the Plan in good faith.


 


(e)           The members
of the Committee may retain counsel, employ agents, and provide for such
clerical, accounting and consulting services as they may require in carrying
out the provisions of the Plan; and may allocate among themselves or delegate
to other persons all or such portion of their duties under the Plan as they, in
their sole discretion, shall decide. Each member of the Committee and each
member of the Board shall be fully justified in relying upon or acting in good
faith upon any opinion, report, or information furnished in connection with the
Plan by any accountant, counsel, or other specialist so retained (including
financial officers of the Company, whether or not such persons are Participants
in the Plan).


 


(f)            This
Plan may be adopted by such subsidiary entities of the Company as the Board or
Committee may approve, whereupon such entities shall become Participating
Employers.


 


3.                                      Eligibility
and Participation


 


(a)           Except as
otherwise provided herein, all regular, full time Employees who are Bonus Level
Employees as of January 1 of the Plan Year shall be Participants in the Plan.


 


(b)           Notwithstanding
anything contained in the Plan Documents to the contrary, the Committee may
from time to time select additional Employees or classes of Employees for
participation in the Plan, and may direct that specific Bonus Level Employees,
or classes of Bonus Level Employees be removed from participation. Any such
determination may be made at any time prior to the payment of AIP Awards with
respect to any Plan Year, and may be made with respect to participation during
all or any part of any Plan Year.


 


5

















 


(c)           If,
during a Plan Year, a regular, full-time Employee is promoted to a pay grade of
90 or above, the Employee will become a Participant in the Plan, and will be
eligible for an AIP Award for said Plan Year. Such AIP Award will be prorated
for the period which begins on the date of promotion and ends as of the end of
the applicable Plan Year in question. If, during a Plan Year, an individual is
hired as an Employee in a pay grade of 90 or above, the Employee will become a
Participant in the Plan, and will be eligible for an AIP Award for said Plan
Year. Such AIP Award will be prorated for the period which begins on the date of
employment and ends as of the end of the applicable Plan Year. If, during a
Plan Year, a Participant is demoted to a pay grade lower than 90, his AIP Award
for said Plan Year will be prorated for the period which begins on the first
day of the applicable Plan Year and ends on the effective date of the Employee’s
demotion.


 


If during the Plan Year a
Participant transfers between pay grade levels for Bonus Level Employee, his
AIP Award will be determined by: Dividing the number of months in each pay
grade level by 12. Multiplying each quotient by the corresponding target
percentage for the pay grade as set forth in Paragraph 1 of Schedule A. The AIP
Award for which the Participant will be considered is the sum of the products. In
this regard, the Participant will receive credit for each month based on the
grade level in which the Participant resides on the first day of each month.


 


4.             AIP
Awards


 


(a)           As
soon as practicable following the beginning of each Plan Year, the Committee
shall (1) make such determinations as it may deem appropriate with respect to
the selection of Participants for such Plan Year; and (2) establish target AIP
Awards for each Participant which will be measured as a percentage of the
Participant’s Salary based upon the Participant’s grade level, as more
particularly described in the Administrative Procedures document, attached
hereto as ScheduleA.


 


At the end of each Plan
Year, the Committee shall evaluate the Company’s performance based upon
performance measures approved by the Committee at the beginning of the
applicable Plan Year under the Company’s Employee Incentive Program (“EIP”) to
determine what percentage of the Participant’s AIP Award target amount will be
awarded the Participant. The percentage may range from 0% to 200%.


 


Any resultant AIP Award
may be further adjusted as a result of the application of the provisions in
Section 4(b) or by the Committee in its sole and absolute discretion whether in
individual cases or in the aggregate.


 


(b)           Notwithstanding
anything contained in the Plan Documents to the contrary, in the event that any
Participant engages in any activity which the Committee judges to be
detrimental to any Participating Employer, or otherwise fails to perform his
obligations as a regular, full-time Employee, the Committee may cancel or
reduce the AIP Award in whole or in part at any time prior to payment of the
AIP Award.


 


6

















 


5.             Payment of AIP Awards


 


(a)           AIP
Awards for Plan Year 2004 were paid in a lump sum between January 1, 2005 and
March 15, 2005. AIP Awards for Plan Years beginning on or after January 1, 2005
will be paid in a lump sum on March 22 of the Plan Year following the end of
the Plan Year to which the AIP Award relates; provided, however, that if a
payment date occurs on a Saturday,
Sunday or bank holiday, payment will be made the next following business day.


 


(b)           If
a Participant is eligible to participate in the Deferred Compensation Plan,
then the Participant may voluntarily elect to defer receipt of his AIP Award
and to cause such amount to be credited to his account with the Deferred
Compensation Plan. The rules and procedures governing the Deferred Compensation
Plan, including Section 409A, shall govern and be binding upon any Participants
who elect to make such deferrals.


 


6.             Vesting and Forfeiture


 


(a)           Except
as otherwise provided in the Plan Documents, a Participant will be vested in
his AIP Award if the Participant is a regular, full time Employee on the date
of payment of the AIP Award.


 


(b)           If
a Participant becomes Disabled or has a Termination of Service due to
Retirement, Layoff, transfer to a Parent Company, or death prior to the date of
payment of the AIP Award, the Participant shall be vested in his AIP Award when
the Participant is placed on Disability or on his Date of Termination, as
applicable, in which event the AIP Award payable to the Participant for such
Plan Year shall be prorated. For this purpose, the proration period will begin
on January 1 of such Plan Year and will end (1) when the Participant is place
on Disability or on the Participant’s Date of Termination, as applicable, or
(2) December 31 of such Plan Year, whichever occurs first. Any amount payable
by reason of a Participant’s death shall be paid to such Participant’s estate or
to such other individuals or entities as the Committee shall direct. If a
Participant terminates employment with the Participating Employer for any
reason other than Retirement, Layoff, transfer to a Parent Company, or death,
the Participant’s AIP Award and all rights hereunder shall be forfeited.


 


(c)           Notwithstanding
the foregoing, in the event a Participant: (1) takes a leave of absence from
the Company for personal reasons or as a result of entry into the Armed Forces
of the United States, or (2) terminates employment for reasons which, in the
judgment of the Committee, are deemed to be special circumstances, the
Committee may consider such circumstances and may take such action (to the
extent consistent with Section 409A) as it may deem appropriate under the
circumstances, including extending the rights of a Participant to continue
participation in the Plan beyond his Date of Termination; provided in no event
may participation be extended beyond the term of the Plan Year in question.


 


7

















 


7.             Amendment or Discontinuance


 


The Company may at any
time and from time to time, without the consent of the Participants, alter,
amend, revise, suspend, or discontinue the Plan in whole or in part. The
Committee may amend Schedule A at any time and from time to time. Any such
amendments may be made effective with respect to any Plan Year and with respect
to any AIP Awards which, as of the date of the amendment, have not become
payable.


 


8.             Recapitalization,
Merger, and Consolidation


 


The existence of
this Plan and the AIP Awards granted hereunder shall not affect in any way the
right or power of the Company or those entities holding membership interests in
the Company to make or authorize any or all adjustments, reorganizations, or
other changes in the Company’s capital structure and its business, or any
merger or consolidation of the Company, or the dissolution or liquidation of
the Company, or any sale or transfer of all or part of its assets or business,
or any other corporate act or proceeding, whether of a similar character or
otherwise.


 


9.             General
Provisions


 


(a)           AIP Awards
shall be nontransferable and nonassignable, except that any such AIP Awards may
be transferred (1) by testamentary instrument or by the laws of descent and
distribution, or (2) to such individual or entity as the Committee may
designate in the event of a Participant’s death.


 


(b)           The
establishment of the Plan shall not confer any legal rights upon any Employee
or other person to continued employment, nor shall it interfere with the right
of any Participating Employer (which right is hereby reserved) to discharge any
Employee and to treat him without regard to the effect which that treatment might
have upon him as a Participant or potential
Participant.


 


(c)           Neither
the adoption of this Plan nor any action of the Board or the Committee shall be
deemed to give any person any right to receive an AIP Award or any other rights
except otherwise specifically provided herein.


 


(d)           The
Company shall have the right to deduct from all amounts hereunder paid in cash,
any federal, state, local, or other taxes required by law to be withheld with
respect to such payments.


 


(e)           THE
VALIDITY, CONSTRUCTION AND EFFECT OF THE PLAN, ANY PLAN DOCUMENTS, AND ANY
ACTIONS TAKEN OR RELATING TO THE PLAN SHALL BE DETERMINED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF TEXAS APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED
WITHIN SUCH STATE.


 


8

















 


(f)            The
Company will require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the business
and/or assets of the Company, expressly to assume and agree to perform the
Company’s obligations under this Plan in the same manner and to the same extent
that the Company would be required to perform them if no such succession had
taken place.


 


(g)           The
Plan shall be unfunded. Neither the Company, any Participating Employer, the
Committee, nor the Board shall be required to segregate any assets or secure
any liability that may at any time exist under the Plan.


 


9

















 


IN WITNESS WHEREOF, Chevron Phillips Chemical
Company LLC by its duly authorized officer(s), has caused the Plan to be
amended and restated on the 24 day of February, 2006.


 


 


	
  Chevron Phillips Chemical Company LLC

  
	
   

  
	
  By:

  	
  /s/ James
  L. Gallogly

  
	
   

  
	
  Title:

  	
   President and Chief Executive Officer

  
			



 


10

















 


SCHEDULE A


 


Administrative Procedures


 


1.              Target
AIP Awards


 


The following target AIP
Award schedule shall apply to Participants in the Plan for the Plan Year 2005
and for subsequent Plan Years unless changed by the Company or the Committee:


 


 




	
  Grade Level

  	
   

  	
  Target

  (% of Salary at 12/31 of Plan Year)

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  99

  	
   

  	
   

  	
  80

  	
  %

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  98

  	
   

  	
   

  	
  60

  	
  %

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  97

  	
   

  	
   

  	
  55

  	
  %

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  96

  	
   

  	
   

  	
  50

  	
  %

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  95

  	
   

  	
   

  	
  45

  	
  %

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  94

  	
   

  	
   

  	
  40

  	
  %

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  93

  	
   

  	
   

  	
  35

  	
  %

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  92

  	
   

  	
   

  	
  30

  	
  %

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  91

  	
   

  	
   

  	
  27.5

  	
  %

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  90

  	
   

  	
   

  	
  22.5

  	
  %

  	
   

  






 


2.              Assignment to Award
Units


 


The Company has established Award Units for purposes of the EIP
applicable to Employees generally. Each Participant shall be deemed to be a
member of the Award Unit through which such individual would participate in the
EIP if such individual were not a Participant in this Plan.


 


3.              Calculation of AIP
Awards


 


The AIP Award payable to
each Participant shall be determined under the following formula:


 


	
  AIP Award

  	
  =

  	
  S * T * X/7%

  



 


11

















 


	
  Where:

  
	
   

  	
   

  
	
  S

  	
  is the Participant’s
  Salary;

  
	
   

  	
   

  
	
  T

  	
  is the Participant’s
  target AIP Award, determined under Paragraph 1 above; and

  
	
   

  	
   

  
	
  X

  	
  is
  the percentage of EIP Target paid to Employees in the Award Unit to which the
  Participant is assigned.

  



 


The above calculation may
result in an AIP Award ranging from 0% up to 200% of the target AIP Award.


 


4.             Performance
and Other Adjustments


 


In the case of the Chief
Executive Officer (“CEO”) or other Participants who, in the Committee’s
judgment, do not provide services to a single Strategic Business Unit,
Facility, Technology Group or Staff, the Committee shall make a special
determination as to the manner in which any such individual’s AIP Award shall
be calculated.


 


In the event the
Committee determines that an individual Participant or group of Participants
has made contributions to the success of the Company which deserve special
recognition, the Committee may provide for such enhancement of the AIP Awards
payable to them as the Committee may deem appropriate. Conversely, if the
Committee determines that an individual Participant or group of Participants
has failed to make such contribution as would have been justified by
application of the formula described in Paragraph 3 above, the Committee may
reduce or cancel the AIP Award payable to any such Participant.


 


12