<PAGE>   1
                                                                    EXHIBIT 10.1




                             CONTRIBUTION AGREEMENT

                                  by and among

                           PHILLIPS PETROLEUM COMPANY,



                               CHEVRON CORPORATION

                                       And

                      CHEVRON PHILLIPS CHEMICAL COMPANY LLC

                            Dated as of May 23, 2000
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                                TABLE OF CONTENTS

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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
</TABLE>

                                       ii
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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
</TABLE>

                                       iii
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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
</TABLE>

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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
</TABLE>



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
<PAGE>   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).
<PAGE>   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.


                                       2
<PAGE>   9
                  "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
<PAGE>   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.


                                       4
<PAGE>   11
                  "Class C Member" shall have the definition set forth in the
Amended LLC Agreement.

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

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

                  "Class P Membership Interests" shall have the definition set
forth in the Amended LLC Agreement.

                  "Closing" shall have the meaning set forth in the Recitals.

                  "Closing Date" shall have the meaning set forth in Section
3.1.

                  "Code" shall mean the United States Internal Revenue Code of
1986, as amended.

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

                  "Company Interests" shall mean limited liability company
interests of any class in the Company.

                  "Confidentiality Agreement" shall mean that certain
Confidentiality Agreement, dated as of September 8, 1999, by and between
Phillips and Chevron.

                  "Contributed Cash" shall mean, with respect to P Chem or C
Chem, cash and cash equivalents owned by a wholly-owned P Chem Subsidiary or
Sweeny Olefins Limited Partnership, or a wholly-owned C Chem Subsidiary, as the
case may be.

                  "Contributed Cash Statement" shall have the meaning set forth
in Section 3.3(a).

                  "Control", with respect to any entity, shall mean the
possession, directly or indirectly, through one or more intermediaries, by any
Person or group (within the meaning of Section 13(d)(3) of the Exchange Act) of
both of the following:

                  (a) (i) in the case of a corporation, more than 25% of the
economic interests in the outstanding equity securities thereof; (ii) in the
case of a limited liability company, partnership, limited partnership or
venture, the right to more than 25% of the distributions therefrom (including
liquidating distributions); (iii) in the case of a trust or estate, including a
business trust, more than 25% of the current and residual beneficial interest
therein; and (iv) in the case of any other entity, more than 25% of the economic
or beneficial interest therein; and

                  (b) in the case of any entity, the power or authority, through
ownership of voting securities, by contract or otherwise, to control or direct
the management and policies of the entity.

                  "Controlled Group Liability" shall mean any and all
liabilities (a) under Title IV of ERISA, (b) under Section 302 of ERISA, (c)
under Sections 412 and 4971 of the Code, or (d) as a

                                       5
<PAGE>   12
result of a failure to comply with the continuation coverage requirements of
Section 601 ET SEQ. of ERISA and Section 4980B of the Code, and (e) under
corresponding or similar provisions of foreign laws or regulations.

                  "Cut-Off Date" shall have the meaning set forth in Section
6.19(b).

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

                  "Designated Replacement Facilities" shall have the meaning set
forth in Annex C.

                  "Designated Representatives" shall have the meaning set forth
in Section 6.1(a).

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

                  "Environmental Law" shall mean any and all principles of
common law and any and all laws, statutes, ordinances, rules, regulations, or
orders of any Governmental Entity pertaining to the protection of the natural
environment or to Hazardous Materials in any and all jurisdictions in which the
party in question and its Subsidiaries own property or conduct business,
including the Clean Air Act, the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, the Federal Water Pollution Control
Act, the Occupational Safety and Health Act of 1970, the Resource Conservation
and Recovery Act of 1976, the Safe Drinking Water Act, the Toxic Substances
Control Act, the Hazardous & Solid Waste Amendments Act of 1984, the Superfund
Amendments and Reauthorization Act of 1986, the Hazardous Materials
Transportation Act, the Oil Pollution Act of 1990, any state or local laws
implementing or substantially equivalent to the foregoing federal laws, and all
other environmental conservation or protection laws, all as amended from time to
time from enactment or adoption through the date of this Agreement.

                  "Environmental Liabilities" shall have the meaning set forth
in Annex C.

                  "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.

                  "ERISA Affiliate" shall mean, with respect to any entity,
trade or business, any other entity, trade or business that is a member of a
group described in Section 414(b), (c), (m) or (o) of the Code or Section
4001(b)(1) of ERISA that includes the first entity, trade or business, or that
is a member of the same "controlled group" as the first entity, trade or
business pursuant to Section 4001(a)(14) of ERISA.

                  "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.

                  "Final Determination" shall have the meaning set forth in
Annex B.

                  "Financing" shall have the meaning set forth in Section 6.16.

                  "GAAP" shall mean generally accepted accounting principles in
the United States.

                  "Governmental Entity" shall mean any federal, state, political
subdivision or other governmental agency or instrumentality, foreign or
domestic.

                                       6
<PAGE>   13
                  "Hazardous Materials" shall mean: (a) any chemicals, materials
or substances defined or as included in the definition of "hazardous
substances," "hazardous materials," "toxic substances," or words of similar
import, under any Environmental Law; (b) radioactive materials (other than
naturally occurring radioactive materials), asbestos in any form that is or
could be friable, polychlorinated biphenyls, radon, mercury, lead-based paint;
and (c) regulated constituents or substances in concentrations or levels that
exceed numeric or risk-based standards established pursuant to Environmental
Laws.

                  "HSR Act" shall mean the United States Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended.

                  "Indemnified Party" shall mean the party seeking
indemnification under Article IX, Annex B or Annex C.

                  "Indemnifying Party" shall mean the party against whom an
indemnification claim is asserted under Article IX, Annex B or Annex C.

                  "K-Resin Plant" shall have the meaning set forth in Annex C.

                  "K-Resin Repair" shall have the meaning set forth in Annex C.

                  "knowledge" shall have the meaning set forth in Section 12.11.

                  "Knowledge Requirement" shall mean any requirement in a
representation or warranty that a condition, event or state of fact be "known"
by Chevron or Phillips, or be "to Chevron's knowledge" or be "to Phillips'
knowledge" (or other words or phrases of similar effect or impact) in order for
such condition, event or state of facts to cause such representation or warranty
to be inaccurate.

                  "Liabilities" shall mean liabilities and obligations of any
nature, whether known or unknown, absolute, accrued, contingent or otherwise and
whether due or to become due.

                  "Lien" shall mean any lien, claim, option, mortgage, pledge,
hypothecation, security interest, encumbrance, lien, charge or deposit
arrangement, or other arrangement having the practical effect of the foregoing.

                  "Material Adverse Effect" shall mean, (a) with respect to P
Chem, a material adverse effect on the businesses, assets, operations, results
of operations or financial condition of P Chem as set forth on the P Chem
December 31 Balance Sheet, taken as a whole, (b) with respect to C Chem, a
material adverse effect on the businesses, assets, operations, results of
operations or financial condition of C Chem as set forth on the C Chem December
31 Balance Sheet, taken as a whole, and (c) with respect to any Person (other
than P Chem or C Chem), a material adverse effect on the businesses, assets,
operations, financial condition or results of operations of such Person and its
Subsidiaries, taken as a whole, in each case, excluding effects reasonably
attributable to the general state of the industries in which P Chem, C Chem or
such Person and its Subsidiaries, as applicable, operate (including chemicals
price levels), to general economic conditions in the United States (including
prevailing interest rate and stock market levels), to the transactions
contemplated

                                       7
<PAGE>   14
by this Agreement or the Amended LLC Agreement, or to the fire and explosion on
March 27, 2000 at the K-Resin plant in Pasadena, Texas.

                  "Materiality Requirement" shall mean any requirement in a
representation or warranty that a condition, event or state of fact be
"material," correct or true in "all material respects," have a "Material Adverse
Effect," or be or not be "reasonably expected to have a Material Adverse Effect"
(or other words or phrases of similar effect or impact) in order for such
condition, event or state of facts to cause such representation or warranty to
be inaccurate.

                  "Membership Interests" shall have the definition set forth in
the Amended LLC Agreement.

                  "Multiemployer Plans" shall have the meaning set forth in
Section 4.14(c).

                  "Net After-Tax Basis" shall mean after any U.S. federal, state
or local income or franchise taxes (computed using the Tax Rate) incurred as a
result of certain indemnification (assuming the deductibility of such state and
local income and franchise taxes in calculating federal income tax), reduced by
any tax benefit arising as a result of such indemnification or disguised sale
treatment, as the case may be.

                  "Net Working Capital" shall mean, with respect to P Chem or C
Chem, non-cash current assets (including accounts receivable, the book value of
inventory and current prepaid and deferred charges and excluding prepaid or
deferred Income Taxes) less accounts payable and other current liabilities
(excluding current Income Taxes payable and the current portion of long-term
debt), in each case as actually contributed to the Company, excluding any
receivables from and payables to Phillips or its Affiliates or Chevron or its
Affiliates. For purposes of this calculation, all items shall be determined in
accordance with GAAP, applied on a basis consistent with the P Chem December 31
Balance Sheet or the C Chem December 31 Balance Sheet, as applicable.

                  "Net Working Capital Statement" shall have the meaning set
forth in Section 3.3(a).

                  "Neutral Firm" shall have the meaning set forth in Section
3.3(c).

                  "P Chem" shall mean, collectively, the businesses, operations
and assets that comprise the Chemicals segment separately reported in Phillips'
September 30, 1999 Form 10-Q, including the assets set forth in Part I of
Exhibit A-1 (including, in the case of any real property assets identified in
Part I of Exhibit A-1, all right, title and interest of Phillips 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
Part I of Exhibit A-1 or in Schedule 4.11(a)(i) or Schedule 4.11(a)(ii) of the
Phillips Disclosure Schedule, but subject to any specific exclusions or
limitations, if any, set forth in Part I of Exhibit A-1), the entities set forth
in Part II of Exhibit A-1, and the P Chem Liabilities, but excluding the
Phillips Excluded Assets and the Phillips Excluded Liabilities.

                  "P Chem December 31 Balance Sheet" shall mean the consolidated
balance sheet of P Chem as of December 31, 1999, including the pro forma
adjustments, attached as Schedule 4.6 the Phillips Disclosure Schedule.


                                       8
<PAGE>   15
                  "P Chem Discontinued Business" shall mean American
Thermoplastics Company, Catalyst Services Inc., fertilizer and biotechnology
businesses and any business which is materially different in terms of both
products and processes from the businesses conducted by P Chem as of the date of
this Agreement.

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

                  "P Chem Intellectual Property" shall have the meaning set
forth in Section 4.13(a).

                  "P Chem Leases" shall have the meaning set forth in Section
4.11(c).

                  "P Chem Liabilities" shall mean all Liabilities of Phillips
and its Subsidiaries and/or Affiliates attributable to the businesses and
operations of P Chem, including (i) all Liabilities arising from the ownership
or use of assets that are part of P 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 P 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
Phillips Excluded Liabilities.

                  "P Chem Material Contracts" shall have the meaning set forth
in Section 4.10(a).

                  "P Chem Patent Rights" shall mean all claims of letters patent
and patent applications owned or controlled by Phillips 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 P Chem business, or which arose from research,
development or demonstration activities which relate primarily to the P Chem
business, including those patents and patent applications listed on Schedule
6.18 of the Phillips Disclosure Schedule and foreign counterparts thereof. P
Chem Patent Rights shall specifically exclude patent claims covering S Zorb
sulfur removal technology and the Phillips MaxCat coke reduction technology.

                  "P Chem Proprietary Technology" shall mean transferable rights
in unpublished technical information, knowhow and trade secrets owned or
controlled by Phillips 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 P Chem business and research, development, and
demonstration activities relating primarily to the P 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. P Chem Proprietary Technology shall specifically exclude S
Zorb sulfur removal technology and the Phillips MaxCat coke reduction
technology.

                                       9
<PAGE>   16
                  "P Chem Real Property" shall have the meaning set forth in
Section 4.11(b).

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

                  "P Chem Working Capital Difference" shall mean P Chem's Actual
Net Working Capital minus the Net Working Capital set forth on the P Chem
December 31 Balance Sheet.

                  "Party" shall have the meaning set forth in the Recitals.

                  "Patent Subsidiary" shall mean, when used with respect to any
Person, any corporation, partnership, limited liability company, or other
organization, whether incorporated or unincorporated, of which such Person owns
or controls, directly or indirectly, more than 50% of the voting power of the
outstanding equity securities (or equivalent voting interests).

                  "Permit" shall have the meaning set forth in Section 4.5.

                  "Permitted Encumbrances" shall mean, with respect to or upon
any of the property or assets of P Chem or C Chem, as the case may be, whether
owned as of the date hereof or thereafter, any Liens, Claims, rights (including
rights of Governmental Entities), reservations, exceptions, easements,
rights-of-way, conditions, restrictions (including restrictive covenants and
zoning and land use restrictions imposed by applicable laws, regulations and
ordinances), leases, and other similar title exceptions or encumbrances
affecting such property or assets that either (a) affect such property or assets
as of the date of this Agreement and are identified with reasonable
particularity in the Phillips Disclosure Schedule or the Chevron Disclosure
Schedule, as applicable, or (b) were not incurred in the borrowing of money and,
individually and in the aggregate, do not and will not materially interfere with
the use in the ordinary conduct of such Person's businesses or present or impose
any material financial obligations not reflected in the financial statements
described in Section 4.6 or Section 5.6, as applicable. Without limiting the
generality of the foregoing definition, the following shall constitute
"Permitted Encumbrances": (a) all rights to consent by, required notices to,
filings with, or other actions by Governmental Entities in connection with the
sale or conveyance of such properties or assets if the same are customarily
obtained subsequent to the transfer of title; and (b) the terms and conditions
of all easements, rights-of-way, and leases included within such properties and
assets, but only to the extent such terms and conditions would be acceptable to
a reasonably prudent person acquiring those easements, rights of way and leases
for the purposes for which they have been used.

                  "Person" shall mean any individual, partnership, firm,
corporation, association, joint venture, limited liability company, trust or
other entity, or any Governmental Entity.

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

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

                  "Phillips Excluded Assets" shall mean the assets set forth on
Exhibit B-1.

                  "Phillips Excluded Liabilities" shall mean the liabilities set
forth on Exhibit C-1.

                                       10
<PAGE>   17
                  "Phillips Indemnified Person" shall have the meaning set forth
in Section 9.1.

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

                  "Phillips Plans" shall mean, collectively, all material
employee benefit plans providing benefits to any P Chem Employees that are
sponsored or maintained by Phillips or any of its Affiliates or to which
Phillips or any of its Affiliates contributes or is obligated to contribute on
behalf of P 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.

                  "Phillips Retained Affiliates" shall mean, collectively, all
Affiliates of Phillips other than P Chem Subsidiaries.

                  "Phillips Savings Plans" shall have the meaning set forth in
Annex A.

                  "Projected K-Resin EBITDA" shall mean (i) $37.4 million for
the year 2000 (prorated from the Closing Date), plus (ii) $40.7 million for the
year 2001 (prorated to the Cut-Off Date if prior to December 31, 2001), plus
(iii) $45.8 million for the year 2002 (prorated to the Cut-Off Date if prior to
December 31, 2002).

                  "Reference Rate" shall have the meaning set forth in Section
3.3(e).

                  "Returns" or "Tax Returns" shall have the meaning set forth in
Annex B.

                  "SEC" shall mean the Securities and Exchange Commission.

                  "Securities Act" shall mean the Securities Act of 1933, as
amended.

                  "Subsidiary" shall mean, when used with respect to any Person,
any corporation, partnership, limited liability company, or other organization,
whether incorporated or unincorporated, of which such Person owns or controls,
directly or indirectly, 50% or more of the voting power of the outstanding
equity securities (or equivalent voting interests).

                  "Target Quantities" shall have the meaning set forth in
Section 6.19(a).

                  "Tax" or "Taxes" shall mean all taxes (whether federal, state,
local or foreign) based upon or measured by income and any other tax whatsoever,
including gross receipts, profits, windfall profits, sales, use, occupation,
value added, AD VALOREM, transfer, franchise, withholding, payroll, employment,
excise, stamp, premium, capital stock, production, business and occupation,
disability, severance, or real or personal property taxes, fees, or assessments
of any kind whatsoever imposed by any Governmental Entity, together with any
interest or penalties imposed with respect thereto.

                  "Tax-Adjusted Shortfall" shall have the meaning set forth in
Section 6.19(b).

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

                                       11
<PAGE>   18
                  "Tax Return" shall have the meaning set forth in Annex B.

                  "Taxing Authority" shall mean any Governmental Entity having
jurisdiction over the assessment, determination, collection or other imposition
of any Tax.

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

                  "Trademarks and Logos" shall mean any names, marks, trade
names, trademarks and logos.

                  "Tradename License Agreement" shall have the meaning set forth
in Section 6.9(a).

                  "Transition Services Agreement" shall have the meaning set
forth in Section 6.11(a).

                  "Year 2000 Problem" shall mean the inability of any hardware,
software or process to recognize and correctly calculate dates or the failure of
computer systems, products or services to perform any of their intended
functions in a proper manner in connection with data containing any date.

                                   ARTICLE II

                           CONTRIBUTION TO THE COMPANY

                  SECTION 2.1. The Company. (a) At the Closing, (i) Phillips
shall execute and deliver, and shall cause to be executed and delivered by each
of its Affiliates set forth on Schedule 2.1(a) of the Phillips Disclosure
Schedule (such Affiliates, the "Phillips Member Affiliates"), the Amended LLC
Agreement, and (ii) Chevron shall execute and deliver, and shall cause to be
executed and delivered by each of its Affiliates set forth on Schedule 2.1(a) of
the Chevron Disclosure Schedule (such Affiliates, the "Chevron Member
Affiliates"), the Amended LLC Agreement.

                  (b) Unless otherwise agreed by the Parties prior to the
Closing, at the Closing, (i) all indebtedness for borrowed money between P Chem
Subsidiaries, on the one hand, and Phillips or any of its Affiliates (excluding
P Chem Subsidiaries), on the other hand, shall be distributed, capitalized,
discharged or otherwise canceled in a manner consistent with the pro forma
adjustments reflected in the P Chem December 31 Balance Sheet, and (ii) all
indebtedness for borrowed money between C Chem Subsidiaries, on the one hand,
and Chevron or any of its Affiliates (excluding C Chem Subsidiaries), on the
other hand, shall be distributed, capitalized, discharged or otherwise canceled
in a manner consistent with the pro forma adjustments reflected in the C Chem
December 31 Balance Sheet.

                  (c) At the Closing, the Company shall accept the contributions
from Phillips and the Phillips Member Affiliates referred to in Section 2.2,
and, in consideration therefor, Phillips and the Phillips Member Affiliates
shall become Class P Members of the Company owning an aggregate of 100% of the
Class P Membership Interests, which represents 50% of the Membership Interests
in the Company. Phillips and the Phillips Member Affiliates shall receive
Membership Interests as set forth on Schedule 2.1(a) of the Phillips Disclosure
Schedule.

                                       12
<PAGE>   19
                  (d) At the Closing, the Company shall accept the contributions
from the Chevron Member Affiliates referred to in Section 2.3, and, in
consideration therefor, the Chevron Member Affiliates shall become Class C
Members of the Company owning an aggregate of 100% of the Class C Membership
Interests, which represents 50% of the Membership Interests in the Company. The
Chevron Member Affiliates shall receive Membership Interests as set forth on
Schedule 2.1(a) of the Chevron Disclosure Schedule.

                  SECTION 2.2. Contribution of P Chem to the Company. Phillips
shall, at the Closing, convey, transfer, assign and deliver, and cause to be
conveyed, transferred, assigned and delivered by the Phillips Member Affiliates,
to the Company all right, title and interest in the assets, operations and
entities that constitute P Chem in the manner set forth on Schedule 2.2 of the
Phillips Disclosure Schedule. To the extent any of the P Chem Subsidiaries
currently own any Phillips Excluded Assets, such Phillips Excluded Assets shall,
where feasible, be conveyed, transferred, leased or assigned by such P Chem
Subsidiaries to Phillips or a Subsidiary of Phillips (other than a P Chem
Subsidiary) prior to the Closing (and, to the extent conveyance, transfer,
leasing or assignment of such Phillips Excluded Assets prior to Closing is not
feasible, Phillips shall be entitled, as provided in Section 6.11(d), to require
such P Chem Subsidiaries or the Company, as applicable, to convey, transfer,
lease or assign such Phillips Excluded Assets to Phillips or a Subsidiary of
Phillips (other than the Company or a P Chem Subsidiary) as soon as practicable
subsequent to the Closing).

                  SECTION 2.3. Contribution of C Chem to the Company. Chevron
shall, at the Closing, convey, transfer, assign and deliver, and cause to be
conveyed, transferred, assigned and delivered by the Chevron Member Affiliates,
to the Company all right, title and interest in the assets, operations and
entities that constitute C Chem in the manner set forth on Schedule 2.3 of the
Chevron Disclosure Schedule. To the extent any of the C Chem Subsidiaries
currently own any Chevron Excluded Assets, such Chevron Excluded Assets shall,
where feasible, be conveyed, transferred, leased or assigned by such C Chem
Subsidiaries to Chevron or a Subsidiary of Chevron (other than a C Chem
Subsidiary) prior to the Closing (and, to the extent conveyance, transfer,
leasing or assignment of such Chevron Excluded Assets prior to Closing is not
feasible, Chevron shall be entitled, as provided in Section 6.11(d), to require
such C Chem Subsidiaries or the Company, as applicable, to convey, transfer,
lease or assign such Chevron Excluded Assets to Chevron or a Subsidiary of
Chevron (other than the Company or a C Chem Subsidiary) as soon as practicable
subsequent to the Closing).

                  SECTION 2.4. Assumption of Liabilities by the Company. (a) The
Company shall, at the Closing, assume from Phillips and each Phillips Member
Affiliate (and, thereafter, pay, perform and discharge), and Phillips shall, at
the Closing, convey, transfer, assign and deliver, and cause to be conveyed,
transferred, assigned and delivered by the Phillips Member Affiliates to the
Company, the P Chem Liabilities.

                  (b) The Company shall, at the Closing, assume from Chevron and
each Chevron Member Affiliate (and, thereafter, pay, perform and discharge), and
Chevron shall, at the Closing, convey, transfer, assign and deliver, and cause
to be conveyed, transferred, assigned and delivered by the Chevron Member
Affiliates to the Company, the C Chem Liabilities.


                                       13
<PAGE>   20
                                   ARTICLE III

                                   THE CLOSING

                  SECTION 3.1. Closing Place and Date. The Closing shall take
place at the offices of Wachtell, Lipton, Rosen & Katz, 51 West 52nd Street, New
York, New York 10019, as of the close of business on June 30, 2000, or if later,
on the second Business Day after the date on which all conditions to each
party's obligations hereunder have been satisfied or waived, or such other time
and place upon which the parties may agree. The day on which the Closing occurs
is referred to as the "Closing Date."

                  SECTION 3.2. Closing Date Deliveries

                  (a) Phillips Deliveries. At the Closing, Phillips shall
deliver, or cause to be delivered, the following:

                           (i) to Chevron, the certificate required to be
                  delivered by Phillips pursuant to Section 7.2(a)(iii);

                           (ii) to the Company, bills of sale, bargain and sale
                  deeds, assignments and other instruments of transfer, and
                  documents as shall be appropriate to effectively convey and
                  transfer P Chem to the Company and to put the Company in
                  operational control of P Chem or for aiding, assisting,
                  collecting and reducing to possession the assets of P Chem and
                  exercising rights with respect thereto; and

                           (iii) to Chevron and the Company, the Amended LLC
                  Agreement, executed by the Phillips Member Affiliates.

                  (b) Chevron Deliveries. At the Closing, Chevron shall deliver,
or cause to be delivered, the following:

                           (i) to Phillips, the certificate required to be
                  delivered by Chevron pursuant to Section 7.1(a)(iii);

                           (ii) to the Company, bills of sale, bargain and sale
                  deeds, assignments and other instruments of transfer, and
                  documents as shall be appropriate to effectively convey and
                  transfer C Chem to the Company and to put the Company in
                  operational control of C Chem or for aiding, assisting,
                  collecting and reducing to possession the assets of C Chem and
                  exercising rights with respect thereto; and

                           (iii) to Phillips and the Company, the Amended LLC
                  Agreement, executed by the Chevron Member Affiliates.

                  (c) Company Deliveries. At the Closing, the Company shall
deliver the following:


                                       14
<PAGE>   21
                           (i) to Phillips and each Phillips Member Affiliate,
                  an assignment and assumption agreement relating to the
                  assumption of P Chem Liabilities, in a form reasonably
                  satisfactory to the Parties; and

                           (ii) to each Chevron Member Affiliate, an assignment
                  and assumption agreement relating to the assumption of C Chem
                  Liabilities, in a form reasonably satisfactory to the Parties.

                  SECTION 3.3. Post-Closing Adjustment. (a) Within 30 days after
the Closing, (i) Phillips will deliver to Chevron and the Company an unaudited
statement of Net Working Capital of P Chem as of the Closing Date, prepared on a
basis consistent with the P Chem December 31 Balance Sheet (Phillips' "Net
Working Capital Statement") and an unaudited statement of Contributed Cash
(Phillips' "Contributed Cash Statement"), and (ii) Chevron will deliver to
Phillips an unaudited statement of Net Working Capital of C Chem as of the
Closing Date, prepared on a basis consistent with the C Chem December 31 Balance
Sheet (Chevron's "Net Working Capital Statement") and an unaudited statement of
Contributed Cash (Chevron's "Contributed Cash Statement").

                  (b) Each Party shall provide the other Party (and, if
applicable, the Neutral Firm), upon request, prompt and reasonable access to its
books and records and other supporting information reasonably necessary for the
other Party (and, if applicable, the Neutral Firm) to verify the determination
of such Party's Net Working Capital Statement and Contributed Cash Statement.

                  (c) Unless, within 45 days after receipt by a Party of the
other Party's Net Working Capital Statement and Contributed Cash Statement, the
receiving Party notifies the delivering Party that the receiving Party does not
agree with the determination of Net Working Capital and/or Contributed Cash as
of the Closing Date set forth in such delivering Party's Net Working Capital
Statement and/or Contributed Cash Statement, such delivering Party's Net Working
Capital and Contributed Cash determinations shall be final and binding on the
Parties and shall be deemed such Party's "Actual Net Working Capital" and
"Actual Contributed Cash," respectively. If the receiving Party notifies the
delivering Party in writing during such 45-day period that the receiving Party
does not agree with the delivering Party's Net Working Capital or Contributed
Cash determination, then the Parties shall discuss such disagreement in good
faith for 15 days from the date of such written notice, and, if such
disagreement is not resolved at the end of such 15-day period, the disagreement
will be submitted to KPMG LLP (the "Neutral Firm"). The Neutral Firm will review
the disagreement, and, as soon as possible but in any event not later than 60
days after the disagreement was submitted to it, the Neutral Firm shall deliver
to Phillips and Chevron its determination of the Actual Net Working Capital
and/or Actual Contributed Cash, which determination shall be final and binding
on the Parties and then shall be deemed such Party's Actual Net Working Capital
and/or Actual Contributed Cash. The fees and expenses of the Neutral Firm shall
be allocated between Phillips and Chevron by the Neutral Firm.

                  (d) After a determination of either Party's Contributed Cash
shall have become final and binding on Phillips and Chevron as described in
Section 3.3(c), the Company shall pay to such Party an amount equal to the
Actual Contributed Cash of such Party.


                                       15
<PAGE>   22
                  (e) After a determination of both Parties' Actual Net Working
Capital shall have become final and binding on Phillips and Chevron as described
in Section 3.3(c):

                           (i) if both of the C Chem Working Capital Difference
                  and the P Chem Working Capital Difference are greater than or
                  equal to zero, then the absolute difference between the C Chem
                  Working Capital Difference and the P Chem Working Capital
                  Difference shall be a loan to the Company and the Company
                  shall pay such difference either to Chevron, if the C Chem
                  Working Capital Difference is greater than the P Chem Working
                  Capital Difference, or to Phillips, if the P Chem Working
                  Capital Difference is greater than the C Chem Working Capital
                  Difference;

                           (ii) if both of the C Chem Working Capital Difference
                  and the P Chem Working Capital Difference are less than zero,
                  then the absolute difference between the C Chem Working
                  Capital Difference and the P Chem Working Capital Difference
                  shall be a loan to the Company and the Company shall pay such
                  difference either to Chevron, if the C Chem Working Capital
                  Difference is closer to zero than the P Chem Working Capital
                  Difference, or to Phillips, if the P Chem Working Capital
                  Difference is closer to zero than the C Chem Working Capital
                  Difference;

                           (iii) if the C Chem Working Capital Difference is
                  greater than or equal to zero and the P Chem Working Capital
                  Difference is less than zero, then the sum of the C Chem
                  Working Capital Difference and the absolute value of the P
                  Chem Working Capital Difference shall be a loan to the Company
                  and the Company shall pay such sum to Chevron; or

                           (iv) if the P Chem Working Capital Difference is
                  greater than or equal to zero and the C Chem Working Capital
                  Difference is less than zero, then the sum of the P Chem
                  Working Capital Difference and the absolute value of the C
                  Chem Working Capital Difference shall be a loan to the Company
                  and the Company shall pay such sum to Phillips.

                  (f) The payments described in Sections 3.3(d) and 3.3(e),
together with interest thereon from and including the Closing Date to but
excluding such payment date, at a rate equal to the rate of interest from time
to time announced publicly by Chase Manhattan Bank as its prime rate (the
"Reference Rate"), will be paid out of borrowings by the Company and will be
made within five (5) Business Days after the necessary determination(s) has
become final and binding as described above and will be made in immediately
available funds by wire transfer to an account designated by the Person to
receive the payment.

                                   ARTICLE IV

                   REPRESENTATIONS AND WARRANTIES OF PHILLIPS

                  Phillips hereby represents and warrants to each of Chevron and
the Company that, except as disclosed on the Phillips Disclosure Schedule
(PROVIDED that, as used in this Article

                                       16
<PAGE>   23
IV only, unless the context otherwise requires, all references to Phillips
(and/or its Affiliates) shall be deemed to refer to Phillips and all of the
Subsidiaries of Phillips, but in each case, only with respect to the businesses
of P Chem):

                  SECTION 4.1. Corporate Organization. Phillips and the P Chem
Subsidiaries are duly organized, validly existing and in good standing under the
laws of their respective jurisdictions of incorporation or organization. Each of
Phillips and each P Chem Subsidiary has all requisite corporate power and
authority to own or lease all of its properties and assets and to carry on its
businesses as it is now being conducted, and is duly licensed or qualified to do
business in each jurisdiction in which the nature of the businesses conducted by
it or the character or location of the properties and assets owned or leased by
it makes such licensing or qualification necessary, except where the failure to
be so licensed or qualified would not have, individually or in the aggregate, a
Material Adverse Effect on either Phillips or P Chem, as applicable. True and
complete copies of the certificate of incorporation and by-laws or comparable
organizational documents of each P Chem Subsidiary, in effect as of the date of
this Agreement, have previously been made available by Phillips to Chevron.

                  SECTION 4.2. Capitalization. Schedule 4.2 of the Phillips
Disclosure Schedule sets forth a complete list of all of the P Chem Subsidiaries
and their respective jurisdictions of organization and capitalization as of the
date hereof. All of the outstanding shares of capital stock or outstanding
limited liability company interests of each P Chem Subsidiary are validly
issued, fully paid and nonassessable, and, except as set forth on Schedule 4.2
of the Phillips Disclosure Schedule, such shares or interests are owned by
Phillips or a wholly-owned Subsidiary of Phillips free and clear of any material
Lien with respect thereto. Except as described above, as of the date of this
Agreement, there are not, and, at the Closing, there will not be, any capital
stock or other equity interests in any P Chem Subsidiary issued or outstanding
or any subscriptions, options, warrants, calls, rights, convertible securities
or other agreements or commitments of any character obligating any P Chem
Subsidiary to issue, transfer or sell any of its capital stock or other equity
interests, or any agreements, arrangements or understandings granting any person
any rights in any P Chem Subsidiary similar to capital stock or other equity
interests. Except as set forth on Schedule 4.2 of the Phillips Disclosure
Schedule, P Chem does not include any material interest in any corporation,
partnership, joint venture or other entity.

                  SECTION 4.3. Authority; No Violation. (a) Phillips has full
corporate power and authority to execute and deliver this Agreement and the
Amended LLC Agreement, and to consummate the transactions contemplated by this
Agreement and the Amended LLC Agreement. The execution and delivery of this
Agreement and the Amended LLC Agreement and the consummation of the transactions
contemplated by this Agreement and the Amended LLC Agreement have been duly and
validly approved by all corporate action on the part of Phillips. No other
corporate proceedings on the part of Phillips or any of its Affiliates are
necessary to approve this Agreement or the Amended LLC Agreement or to
consummate the transactions contemplated by this Agreement or the Amended LLC
Agreement. This Agreement has been duly and validly executed and delivered by
Phillips, and, assuming due authorization, execution and delivery by Chevron and
the Company, constitutes a valid and binding obligation of Phillips, enforceable
against Phillips in accordance with its terms.


                                       17
<PAGE>   24
                  (b) Phillips has full corporate power, right and authority to
transfer and convey, or cause to be transferred and conveyed, to the Company at
the Closing, P Chem.

                  (c) The execution, delivery and performance of this Agreement
and the Amended LLC Agreement by Phillips do not, and the consummation by
Phillips of the transactions contemplated by this Agreement and the Amended LLC
Agreement will not, constitute (i) a breach or violation of, or a default under,
the certificate of incorporation or by-laws of Phillips, (ii) constitute a
breach or violation of, or a default under, or give rise to any Lien, any
buy-out right, any right of first offer or refusal, any acceleration of
remedies, or any right of termination under or trigger any "change of control"
rights or remedies under, any indenture, license, contract, agreement or other
instrument to which Phillips is a party or by which any of its properties or
assets may be bound, or (iii) assuming compliance with the applicable
requirements of the HSR Act, violate any law, rule, regulation, judgment, decree
or order applicable to P Chem or any of its properties or assets, except, in the
case of (ii) and (iii), for such breaches, violations, defaults, Liens,
accelerations or rights as would not be reasonably expected, individually or in
the aggregate, to result in a Material Adverse Effect on P Chem or to adversely
affect the ability of Phillips to consummate the transactions contemplated by
this Agreement or the Amended LLC Agreement.

                  SECTION 4.4. Consents and Approvals. Except for applicable
requirements of the HSR Act and the European Commission, no notice to, filing
with, authorization of, exemption by, or consent or approval of, or the taking
of any other action in respect of, any Governmental Entity or any other Person
on the part of Phillips is necessary for the consummation by Phillips of the
transactions contemplated by this Agreement, except where the failure to provide
such notice, make such filing or obtain such authorization, exemption, consent
or approval would not, individually or in the aggregate, be reasonably expected
to result in a Material Adverse Effect on P Chem or to adversely affect the
ability of Phillips to consummate the transactions contemplated by this
Agreement or the Amended LLC Agreement.

                  SECTION 4.5. Licenses; Compliance with Applicable Law.
Phillips or a P Chem Subsidiary holds all licenses, franchises, permits and
authorizations (each, a "Permit") necessary for the lawful conduct of P Chem's
businesses under and pursuant to, and has complied with and is not in default
under, any applicable laws, statutes, orders, rules or regulations of any
Governmental Entity relating to P Chem, except, in each case, where the failure
to hold such Permit or such noncompliance or default would not, individually or
in the aggregate, have a Material Adverse Effect on P Chem. To Phillips'
knowledge, the businesses of P Chem are not being and have not been conducted in
violation of any applicable laws or any orders, writs, injunctions or decrees of
any Governmental Entity, except for such violations, if any, as would not,
individually or in the aggregate, have a Material Adverse Effect on P Chem.

                  SECTION 4.6. Financial Statements; Undisclosed Liabilities.
Phillips has previously made available to Chevron copies of the unaudited
consolidated balance sheets of P Chem as of December 31, for the fiscal years
1998 and 1999, and the related unaudited consolidated statements of income and
cash flows for the years then ended. The financial statements referred to in
this Section 4.6 fairly present in all material respects (except for the absence
of footnotes) the financial position of P Chem at December 31, 1999 and 1998,
and the results of its operations and its cash flows for the respective fiscal
periods therein set forth. The financial statements described in this Section
4.6 (including the related notes, if any) comply in all

                                       18
<PAGE>   25
material respects with applicable internal Phillips accounting requirements with
respect thereto; and these statements (including the related notes, if any) have
been prepared in all material respects in accordance with GAAP consistently
applied during the periods involved, except for the absence of footnotes. P Chem
does not have any liabilities required by GAAP to be set forth on a consolidated
balance sheet of P Chem (other than as set forth in the notes thereto, if any),
except (i) as set forth on the P Chem December 31 Balance Sheet, (ii) for
liabilities incurred in the ordinary course of business since December 31, 1999
and (iii) for liabilities that would not reasonably be expected to have a
Material Adverse Effect on P Chem. The financial statements described in this
Section 4.6 (including the related notes, if any) are derived from the financial
statements used in preparing Phillips' audited financial statements set forth in
Phillips' filings with the SEC. Schedule 4.6 of the Phillips Disclosure Schedule
sets forth the P Chem December 31 Balance Sheet.

                  SECTION 4.7. Brokers' Fees. Except for Goldman, Sachs & Co.,
neither Phillips nor any Affiliate of Phillips nor any of their respective
officers or directors has employed any broker or finder or incurred any
Liability for any brokers' fees, commissions or finders' fees in connection with
the transactions contemplated by this Agreement or the Amended LLC Agreement.

                  SECTION 4.8. Absence of Certain Changes or Events. From
December 31, 1999 through the date of this Agreement, the businesses of P Chem
have been operated in the ordinary and normal course in all material respects,
and there has not been:

                  (a) any event (whether covered by insurance or not) that,
individually or in the aggregate, has had or would reasonably be expected to
have a Material Adverse Effect on P Chem;

                  (b) any increase in compensation (including severance or
termination pay) payable to or to become payable to any consultants, officers,
directors, employees or agents working in connection with the businesses of P
Chem or any change in any insurance, pension or other benefit plan, payment or
arrangement made to, for or with any of such consultants, officers, directors,
employees or agents, in each case, other than (i) general increases or changes
reasonably consistent with past practices and applicable to at least 10% of the
employees of Phillips and its Subsidiaries, or (ii) other increases that are in
accordance with past practice and are not material in the aggregate;

                  (c) any change in financial accounting methods, principles or
practices by P Chem materially affecting its assets, Liabilities or businesses,
except insofar as such change may have been required by a change in GAAP;

                  (d) any indebtedness for borrowed money incurred by P Chem
other than from Phillips or its Affiliates, any issuance of debt securities by P
Chem other than to Phillips or its Affiliates, any assumption, guarantee,
endorsement or other action that would result in P Chem having responsibility
for the obligations of any other Persons, or any mortgage or encumbrance on
properties or assets of P Chem other than Liens that do not materially restrict
or detract from the value of such properties or assets; or

                  (e) any declaration, setting aside or payment of any
distribution (other than in cash), directly or indirectly, except as permitted
by this Agreement.


                                       19
<PAGE>   26
                  SECTION 4.9. Legal Proceedings. (a) As of the date hereof,
neither Phillips nor any of its Subsidiaries is a party to any, and there are no
pending or, to Phillips' knowledge, threatened, legal, administrative, arbitral
or other proceedings, claims, actions or governmental or regulatory
investigations of any nature against Phillips or any of its Subsidiaries that
(i) individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect on P Chem, or (ii) would adversely affect the ability of
Phillips to consummate the transactions contemplated by this Agreement or the
Amended LLC Agreement. Schedule 4.9 of the Phillips Disclosure Schedule lists
all legal, administrative, arbitral or other proceedings relating to the
businesses and operations of P Chem to which Phillips or any of its Subsidiaries
is a party, and all pending or, to Phillips' knowledge, threatened claims which
are material to the business and operations of P Chem.

                  (b) There is no injunction, order, judgment or decree imposed
upon P Chem, or any assets of P Chem, which has had, or would reasonably be
expected to have, a Material Adverse Effect on P Chem.

                  SECTION 4.10. Contracts. (a) Schedule 4.10(a) of the Phillips
Disclosure Schedule sets forth a true and complete list, as of the date of this
Agreement, of all contracts, agreements and commitments of the following
categories, whether oral or written, express or implied, to which Phillips or
any P Chem Subsidiary is a party, relating to P Chem or by which any of P Chem's
properties or assets are bound (excluding the agreements contemplated by this
Agreement or the Amended LLC Agreement) (collectively, the "P Chem Material
Contracts"):

                           (i) any employment, product design or development,
                  personal services, consulting, non-competition, severance,
                  golden parachute, or indemnification contract requiring
                  payments by P Chem in excess of $500,000 per year;

                           (ii) any contract involving or requiring expenditures
                  or receipts by P Chem of more than $2,000,000 in any calendar
                  year and not cancelable or terminable within one year from the
                  Closing Date;

                           (iii) any contract containing covenants limiting the
                  freedom of P Chem to engage in any line of business or compete
                  with any Person or operate at any location;

                           (iv) any contract granting a right of first refusal
                  or first negotiation other than for the purchase of goods or
                  services in the aggregate less than $2,000,000;

                           (v) any partnership or joint venture agreement;

                           (vi) any agreement for the acquisition, sale or lease
                  of material properties or assets of P Chem (by merger,
                  purchase or sale of assets or stock, or otherwise) entered
                  into since January 1, 1998;

                           (vii) any contract or agreement with any Governmental
                  Entity requiring expenditures or receipts by P Chem in excess
                  of $2,000,000;


                                       20
<PAGE>   27
                           (viii) any collective bargaining agreement or other
                  labor union contract;

                           (ix) any contract between P Chem, on the one hand,
                  and Phillips or any Affiliate of Phillips (other than P Chem),
                  on the other hand; and

                           (x) any commitments and agreements to enter into any
                  of the foregoing.

                  (b) Each P Chem Material Contract is a valid, binding and
enforceable (except as such enforceability may be subject to any bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer or other laws, now
or hereafter in effect, relating to or limiting creditors' rights generally)
obligation of P Chem. There is no default under any P Chem Material Contract by
P Chem or, to Phillips' knowledge, by any other party thereto, and no event has
occurred that with the lapse of time or the giving of notice or both would
constitute a default thereunder by P Chem, or, to Phillips' knowledge, any other
party, which default or event, individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect on P Chem. As of the
date of this Agreement, no party to any P Chem Material Contract has given
notice to P Chem or made a claim against P Chem with respect to any breach or
default thereunder, which breach or default, individually or in the aggregate,
would reasonably be expected to have a Material Adverse Effect on P Chem. As of
the date of this Agreement, there has been no amendment or modification of any
of the P Chem Material Contracts, except as specifically listed on Schedule
4.10(a) of the Phillips Disclosure Schedule. The enforceability of any P Chem
Material Contract shall not be impaired by the execution and delivery of this
Agreement or the Amended LLC Agreement or the consummation of the transactions
contemplated hereby or thereby, and, as of the date of this Agreement, no P Chem
Material Contract requires that a transaction of the kind contemplated by this
Agreement or the Amended LLC Agreement receive the approval of any party to such
P Chem Material Contract, except where such impairments or failures to receive
approvals, individually or in the aggregate, would not reasonably be expected to
have a Material Adverse Effect on P Chem.

                  (c) As of the date of this Agreement, Phillips has delivered
to Chevron or otherwise made available to Chevron at the offices of Phillips or
its Subsidiaries true, correct and complete copies of all P Chem Material
Contracts.

                  SECTION 4.11. Real Property. (a) Schedule 4.11(a)(i) of the
Phillips Disclosure Schedule identifies all real property assets (other than
real property assets associated with pipelines identified on Exhibit A-1) the
fee title to which is owned, beneficially and/or of record, by Phillips as of
the date of this Agreement and which are material to the businesses of P Chem.
Schedule 4.11(a)(ii) of the Phillips Disclosure Schedule identifies all real
property assets (other than real property assets associated with pipelines
identified on Exhibit A-1) a leasehold interest in which is owned, beneficially
and/or of record, by Phillips as of the date of this Agreement and which are
material to the businesses of P Chem.

                  (b) With respect to any real property owned or leased by
Phillips (the "P Chem Real Property"), Phillips has good and valid fee or
leasehold title, as the case may be, to all real property owned or leased by
Phillips, in each case, free and clear of all Liens, except for Permitted
Encumbrances, defects in title or Liens described on Schedules 4.11(a)(i) or
4.11(a)(ii) of the Phillips Disclosure Schedule and other defects in title or
Liens that, individually or in the

                                       21
<PAGE>   28
aggregate, do not and would not reasonably be expected to have a Material
Adverse Effect on P Chem.

                  (c) Each of the leases (including subleases) to which Phillips
is a party (the "P Chem Leases") is a valid, binding and enforceable (except as
such enforceability may be subject to any bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer or other laws, now or hereafter
in effect, relating to or limiting creditors' rights generally) obligation of
each of the lessee and the lessor under such P Chem Lease, and neither Phillips
nor, to Phillips' knowledge, the other party to any P Chem Lease is in default
under such P Chem Lease in any material respect, other than such defaults, if
any, which would not, individually or in the aggregate, have or reasonably be
expected to have a Material Adverse Effect on P Chem. As of the date of this
Agreement, except where, individually or in the aggregate, there would not
reasonably be expected to be a Material Adverse Effect on P Chem or as otherwise
set forth on Schedule 4.11(a)(ii) of the Phillips Disclosure Schedule, (i) the
enforceability of any of the P Chem Leases will not be impaired by the execution
or delivery of this Agreement or the Amended LLC Agreement, (ii) the execution
and delivery of this Agreement or the Amended LLC Agreement or the consummation
of the transactions contemplated by this Agreement or the Amended LLC Agreement
will not entitle the lessor under any P Chem Lease to terminate such P Chem
Lease prior to the scheduled expiration thereof, and (iii) neither Phillips nor
any P Chem Subsidiary is currently participating in any discussions or
negotiations regarding termination of any P Chem Lease of a property at which P
Chem conducts business operations prior to the scheduled expiration of such P
Chem Lease by reason of a breach or alleged breach by the tenant thereunder.

                  SECTION 4.12. Environmental Matters. Except for matters that,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect on P Chem, (a) the properties, operations and activities
of P Chem are in material compliance with all applicable Environmental Laws; (b)
P Chem is not subject to any existing, pending or, to Phillips' knowledge,
threatened, action, suit, proceeding or remediation activity under any
Environmental Law; (c) Hazardous Materials have not at any time been released or
disposed of at the properties currently owned, operated, leased or used by P
Chem; (d) the previous and current methods of releasing or disposing of
Hazardous Materials generated, used, treated, recycled or stored at, upon or
under the properties previously or currently owned, operated, leased or used by
P Chem have been disclosed to Chevron; and (e) Phillips has not restricted
access for the review of and copying by Chevron all of the environmental
reports, documents, data and other information prepared by or for P Chem
relating to the properties previously or currently owned, operated, leased or
used by P Chem.

                  SECTION 4.13. Intellectual Property. (a) Phillips has, or will
as of the Closing have, such ownership of or such rights by license or other
agreement to use all patents and patent applications, trademarks and service
marks, trademark and service mark registrations and applications, trade names,
logos, copyrights and copyright registrations and applications, proprietary
information and data, including trade secrets, as are necessary to permit P Chem
to conduct its businesses as currently conducted (collectively, the "P Chem
Intellectual Property"), except where the failure to have such ownership,
license or right to use would not, individually or in the aggregate, have a
Material Adverse Effect on P Chem.

                  (b) To Phillips' knowledge, the conduct of the businesses of P
Chem as currently conducted does not infringe the valid proprietary rights of
any third party, and there are no present

                                       22
<PAGE>   29
or threatened infringements of the P Chem Intellectual Property by any third
party, except, in either case, for such infringements that would not,
individually or in the aggregate, have a Material Adverse Effect on P Chem.
There are no pending or, to Phillips' knowledge, threatened infringement
proceedings, litigation or claims by any Person against the use by P Chem of any
P Chem Intellectual Property or any third-party intellectual property.

                  (c) Schedule 6.18 of the Phillips Disclosure Schedule sets
forth a list of all United States patents and United States patent applications
which are primarily used by or identified as relating primarily to the P Chem
business, including licensing, research, development and demonstration
activities.

                  (d) Schedule 6.18 of the Phillips Disclosure Schedule sets
forth a list of all United States registered trademarks other than Trademarks
and Logos as defined in Section 6.9 which are primarily used or identified as
relating to the P Chem business.

                  SECTION 4.14. Employee Benefit Plans. (a) Schedule 4.14(a) of
the Phillips Disclosure Schedule includes a complete list of all Phillips Plans.
Except as set forth on Schedule 4.14(a) of the Phillips Disclosure Schedule,
none of the Phillips Plans is sponsored or maintained by P Chem or any P Chem
Subsidiary.

                  (b) With respect to each Phillips Plan, Phillips has delivered
or made available to Chevron a true, correct and complete copy of all plan
documents and the current summary plan description.

                  (c) No Phillips Plans are "multiemployer plans" within the
meaning of Section 4001(a)(3) of ERISA ("Multiemployer Plans"). None of the P
Chem Subsidiaries or any of their respective ERISA Affiliates has, at any time
during the last six years, contributed to or been obligated to contribute to any
Multiemployer Plan, and none of the P Chem Subsidiaries or any of their
respective ERISA Affiliates has incurred any withdrawal liability under Part I
of Subtitle E of Title IV of ERISA that has not been satisfied in full.

                  (d) There does not now exist, nor do any circumstances exist
that could result in, any Controlled Group Liability that would be a liability
of any of the P Chem Subsidiaries following the Closing.

                  (e) Except as specifically provided in Annex A and except for
stock options granted by Phillips to P Chem Employees, neither the execution and
delivery of this Agreement nor the consummation of the transactions contemplated
hereby will (either alone or in conjunction with any other event) result in,
cause the accelerated vesting or delivery of, or increase the amount or value
of, any payment or benefit to any P Chem Employee.

                  SECTION 4.15. Labor Relations. Phillips is in material
compliance with all applicable laws respecting employment and employment
practices, terms and conditions of employment, wages, hours of work, employment
discrimination, equal opportunity, affirmative action, workers' compensation,
unemployment insurance, immigration, and occupational safety and health, and is
not engaged in any unfair labor practices as defined in the National Labor
Relations Act or other applicable laws, except where the failure to comply would
not reasonably be expected to cause a Material Adverse Effect on P Chem. Neither
Phillips nor any Subsidiary of Phillips is a

                                       23
<PAGE>   30
party to any collective bargaining agreement or other labor union contract with
respect to any P Chem Employee, and, to Phillips's knowledge, there are no
activities or proceedings of any labor union to organize any P Chem Employees.
No claim has been made by any labor organization that the operations of P Chem
to be contributed to the Company under this Agreement would be subject to any
agreement with such labor organization or to a duty to bargain with such labor
organization regarding the terms and conditions of employment for any group of
employees involved in such operations. There is no labor strike, slowdown,
stoppage or lockout actually pending, or, to the knowledge of Phillips,
threatened, against or affecting P Chem.

                  SECTION 4.16. Transactions with Affiliates. As of the date of
this Agreement, except as set forth on Schedule 4.16 of the Phillips Disclosure
Schedule and except for transactions contemplated by this Agreement, (a) no
director or officer of Phillips is currently, directly or indirectly, a party to
any transaction with P Chem, including any agreement, arrangement or
understanding, written or oral, providing for the employment of, furnishing of
services by, rental of real or personal property from or otherwise requiring
payment to any such director or officer, and (b) P Chem has no outstanding
material contract, agreement or other arrangement with Phillips or any of its
Affiliates (other than P Chem) and has not engaged in any material transaction
outside the ordinary course of business with Phillips or its Affiliates (other
than P Chem) since January 1, 1999.

                  SECTION 4.17. Personal Property. Phillips owns, or holds valid
leasehold interests in, the personal property owned or used by it, in each case,
free and clear of all Liens, except for such Liens that, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect on
P Chem.

                  SECTION 4.18. Year 2000. Phillips has developed and
implemented a plan for addressing the Year 2000 Problem, except where its
failure to do so would not reasonably be expected to have a Material Adverse
Effect on P Chem. As of the date of this Agreement, except as would not
reasonably be expected to have a Material Adverse Effect on P Chem, none of the
assets or equipment owned or utilized by P Chem will fail to perform because of,
or due in any way to, a Year 2000 Problem. As of the date of this Agreement, to
Phillips' knowledge, no vendor, supplier or customer of P Chem is reasonably
expected to experience a Year 2000 Problem that, individually or in the
aggregate, would reasonably be expected to have a Material Adverse Effect on P
Chem.

                  SECTION 4.19. Insurance. P Chem is, and has been continuously
since December 31, 1999, insured with Phillips-affiliated insurance companies or
with third-party insurers in such amounts and against such risks and losses as
are customary in all material respects for companies conducting the businesses
as conducted by P Chem during such time period. As of the date of this
Agreement, P Chem has not received any notice of cancellation or termination
with respect to any insurance policy of P Chem that would reasonably be expected
to have a Material Adverse Effect on P Chem.

                  SECTION 4.20. Acquisition of Company Interests for Investment.
With respect to Phillips' acquisition of Company Interests, Phillips has such
knowledge and experience in financial and business matters that it is capable of
evaluating the merits and risks of its acquisition of Company Interests.
Phillips is acquiring the Company Interests for investment and not with a view

                                       24
<PAGE>   31
toward or for sale in connection with any distribution thereof, or with any
present intention of distributing or selling the Company Interests. Phillips
agrees that the Company Interests may not be sold, transferred, offered for
sale, pledged, hypothecated or otherwise disposed of without registration under
the Securities Act, except pursuant to an exemption from such registration
available under the Securities Act, and without compliance with foreign
securities laws, in each case, to the extent applicable.

                  SECTION 4.21. Sufficiency of Contribution. Except as disclosed
elsewhere in this Agreement or in the Phillips Disclosure Schedule, as of the
Closing, Phillips holds, and shall transfer and convey to the Company at
Closing, all right, title and interest of Phillips and its Affiliates to all
properties, rights, assets and Liabilities (other than the Phillips Excluded
Assets and the Phillips Excluded Liabilities) of the chemicals businesses of
Phillips and its Affiliates as conducted as of the date of this Agreement and as
of the Closing.

                                    ARTICLE V

                    REPRESENTATIONS AND WARRANTIES OF CHEVRON

                  Chevron hereby represents and warrants to each of Phillips and
the Company that, except as disclosed on the Chevron Disclosure Schedule
(PROVIDED that, as used in this Article V only, unless the context otherwise
requires, all references to Chevron (and/or its Affiliates) shall be deemed to
refer to Chevron and all of the Subsidiaries of Chevron, but, in each case, only
with respect to the businesses of C Chem):

                  SECTION 5.1. Corporate Organization. Chevron and the C Chem
Subsidiaries are duly organized, validly existing and in good standing under the
laws of their respective jurisdictions of incorporation or organization. Each of
Chevron and each C Chem Subsidiary has all requisite corporate power and
authority to own or lease all of its properties and assets and to carry on its
businesses as it is now being conducted, and is duly licensed or qualified to do
business in each jurisdiction in which the nature of the businesses conducted by
it or the character or location of the properties and assets owned or leased by
it makes such licensing or qualification necessary, except where the failure to
be so licensed or qualified would not have, individually or in the aggregate, a
Material Adverse Effect on either Chevron or C Chem, as applicable. True and
complete copies of the certificate of incorporation and by-laws or comparable
organizational documents of each C Chem Subsidiary, in effect as of the date of
this Agreement, have previously been made available by Chevron to Phillips.

                  SECTION 5.2. Capitalization. Schedule 5.2 of the Chevron
Disclosure Schedule sets forth a complete list of all of the C Chem Subsidiaries
and their respective jurisdictions of organization and capitalization, as of the
date hereof. All of the outstanding shares of capital stock or outstanding
limited liability company interests of each C Chem Subsidiary are validly
issued, fully paid and nonassessable, and, except as set forth on Schedule 5.2
of the Chevron Disclosure Schedule, such shares or interests are owned by
Chevron or a wholly-owned Subsidiary of Chevron free and clear of any material
Lien with respect thereto. Except as described above, as of the date of this
Agreement, there are not, and, at the Closing, there will not be, any capital
stock or other equity interests in any C Chem Subsidiary issued or outstanding
or any subscriptions, options,

                                       25
<PAGE>   32
warrants, calls, rights, convertible securities or other agreements or
commitments of any character obligating any C Chem Subsidiary to issue, transfer
or sell any of its capital stock or other equity interests, or any agreements,
arrangements or understandings granting any person any rights in any C Chem
Subsidiary similar to capital stock or other equity interests. Except as set
forth on Schedule 5.2 of the Chevron Disclosure Schedule, C Chem does not
include any material interest in any corporation, partnership, joint venture or
other entity.

                  SECTION 5.3. Authority; No Violation. (a) Chevron has full
corporate power and authority to execute and deliver this Agreement and the
Amended LLC Agreement and to consummate the transactions contemplated by this
Agreement and the Amended LLC Agreement. The execution and delivery of this
Agreement and the Amended LLC Agreement and the consummation of the transactions
contemplated by this Agreement and the Amended LLC Agreement have been duly and
validly approved by all corporate action on the part of Chevron. No other
corporate proceedings on the part of Chevron or any of its Affiliates are
necessary to approve this Agreement or the Amended LLC Agreement or to
consummate the transactions contemplated by this Agreement or the Amended LLC
Agreement. This Agreement has been duly and validly executed and delivered by
Chevron, and, assuming due authorization, execution and delivery by Phillips and
the Company, constitutes a valid and binding obligation of Chevron, enforceable
against Chevron in accordance with its terms.

                  (b) Chevron has full corporate power, right and authority to
transfer and convey, or cause to be transferred and conveyed, to the Company at
the Closing, C Chem.

                  (c) The execution, delivery and performance of this Agreement
and the Amended LLC Agreement by Chevron do not, and the consummation by Chevron
of the transactions contemplated by this Agreement and the Amended LLC Agreement
will not, constitute (i) a breach or violation of, or a default under, the
certificate of incorporation or by-laws of Chevron, (ii) constitute a breach or
violation of, or a default under, or give rise to any Lien, any buy-out right,
any right of first offer or refusal, any acceleration of remedies, or any right
of termination under or trigger any "change of control" rights or remedies
under, any indenture, license, contract, agreement or other instrument to which
Chevron is a party or by which any of its properties or assets may be bound, or
(iii) assuming compliance with the applicable requirements of the HSR Act,
violate any law, rule, regulation, judgment, decree or order applicable to C
Chem or any of its properties or assets, except, in the case of (ii) and (iii),
for such breaches, violations, defaults, Liens, accelerations or rights as would
not be reasonably expected, individually or in the aggregate, to result in a
Material Adverse Effect on C Chem or to adversely affect the ability of Chevron
to consummate the transactions contemplated by this Agreement or the Amended LLC
Agreement.

                  SECTION 5.4. Consents and Approvals. Except for applicable
requirements of the HSR Act and the European Commission, no notice to, filing
with, authorization of, exemption by, or consent or approval of, or the taking
of any other action in respect of, any Governmental Entity or any other Person
on the part of Chevron is necessary for the consummation by Chevron of the
transactions contemplated by this Agreement, except where the failure to provide
such notice, make such filing or obtain such authorization, exemption, consent
or approval would not, individually or in the aggregate, be reasonably expected
to result in a Material Adverse Effect on C

                                       26
<PAGE>   33
Chem or to adversely affect the ability of Chevron to consummate the
transactions contemplated by this Agreement or the Amended LLC Agreement.

                  SECTION 5.5. Licenses; Compliance with Applicable Law. Chevron
or a C Chem Subsidiary holds all Permits necessary for the lawful conduct of C
Chem's businesses under and pursuant to, and has complied with and is not in
default under, any applicable laws, statutes, orders, rules or regulations of
any Governmental Entity relating to C Chem, except, in each case, where the
failure to hold such Permit or such noncompliance or default would not,
individually or in the aggregate, have a Material Adverse Effect on C Chem. To
Chevron's knowledge, the businesses of C Chem are not being and have not been
conducted in violation of any applicable laws or any orders, writs, injunctions
or decrees of any Governmental Entity, except for such violations, if any, as
would not, individually or in the aggregate, have a Material Adverse Effect on C
Chem.

                  SECTION 5.6. Financial Statements; Undisclosed Liabilities.
Chevron has previously made available to Phillips copies of the unaudited
consolidated balance sheets of C Chem as of December 31, for the fiscal years
1998 and 1999, and the related unaudited consolidated statements of income and
cash flows for the years then ended. The financial statements referred to in
this Section 5.6 fairly present in all material respects (except for the absence
of footnotes) the financial position of C Chem at December 31, 1999 and 1998,
and the results of its operations and its cash flows for the respective fiscal
periods therein set forth. The financial statements described in this Section
5.6 (including the related notes, if any) comply in all material respects with
applicable internal Chevron accounting requirements with respect thereto; and
these statements (including the related notes, if any) have been prepared in all
material respects in accordance with GAAP consistently applied during the
periods involved, except for the absence of footnotes. C Chem does not have any
liabilities required by GAAP to be set forth on a consolidated balance sheet of
C Chem (other than as set forth on the notes thereto, if any), except (i) as set
forth on the C Chem December 31 Balance Sheet, (ii) for liabilities incurred in
the ordinary course of business since December 31, 1999 and (iii) for
liabilities that would not reasonably be expected to have a Material Adverse
Effect on C Chem.

                  The financial statements described in this Section 5.6
(including the related notes, if any) are derived from the financial statements
used in preparing Chevron's audited financial statements set forth in Chevron's
filings with the SEC. Schedule 5.6 of the Chevron Disclosure Schedule sets forth
the C Chem December 31 Balance Sheet.

                  SECTION 5.7. Brokers' Fees. Except for Lehman Brothers,
neither Chevron nor any Affiliate of Chevron nor any of their respective
officers or directors has employed any broker or finder or incurred any
Liability for any brokers' fees, commissions or finders' fees in connection with
the transactions contemplated by this Agreement or the Amended LLC Agreement.

                  SECTION 5.8. Absence of Certain Changes or Events. From
December 31, 1999 through the date of this Agreement, the businesses of C Chem
have been operated in the ordinary and normal course in all material respects,
and there has not been:

                  (a) any event (whether covered by insurance or not) that,
individually or in the aggregate, has had or would reasonably be expected to
have a Material Adverse Effect on C Chem;


                                       27
<PAGE>   34
                  (b) any increase in compensation (including severance or
termination pay) payable to or to become payable to any consultants, officers,
directors, employees or agents working in connection with the businesses of C
Chem or any change in any insurance, pension or other benefit plan, payment or
arrangement made to, for or with any of such consultants, officers, directors,
employees or agents, in each case, other than (i) general increases or changes
reasonably consistent with past practices and applicable to at least 10% of the
employees of Chevron and its Subsidiaries, or (ii) other increases that are in
accordance with past practice and are not material in the aggregate;

                  (c) any change in financial accounting methods, principles or
practices by C Chem materially affecting its assets, Liabilities or businesses,
except insofar as such change may have been required by a change in GAAP;

                  (d) any indebtedness for borrowed money incurred by C Chem
other than from Chevron or its Affiliates, any issuance of debt securities by C
Chem other than to Chevron or its Affiliates, any assumption, guarantee,
endorsement or other action that would result in C Chem having responsibility
for the obligations of any other Persons, or any mortgage or encumbrance on
properties or assets of C Chem other than Liens that do not materially restrict
or detract from the value of such properties or assets; or

                  (e) any declaration, setting aside or payment of any
distribution (other than in cash), directly or indirectly, except as permitted
by this Agreement.

                  SECTION 5.9. Legal Proceedings. (a) As of the date hereof,
neither Chevron nor any of its Subsidiaries is a party to any, and there are no
pending or, to Chevron's knowledge, threatened, legal, administrative, arbitral
or other proceedings, claims, actions or governmental or regulatory
investigations of any nature against Chevron or any of its Subsidiaries that (i)
individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect on C Chem, or (ii) would adversely affect the ability of
Chevron to consummate the transactions contemplated by this Agreement or the
Amended LLC Agreement. Schedule 5.9 of the Chevron Disclosure Schedule lists all
legal, administrative, arbitral or other proceedings relating to the businesses
and operations of C Chem to which Chevron or any of its Subsidiaries is a party,
and all pending or, to Chevron's knowledge, threatened claims which are material
to the business and operations of C Chem.

                  (b) There is no injunction, order, judgment or decree imposed
upon C Chem, or any assets of C Chem, which has had, or would reasonably be
expected to have, a Material Adverse Effect on C Chem.

                  SECTION 5.10. Contracts. (a) Schedule 5.10(a) of the Chevron
Disclosure Schedule sets forth a true and complete list, as of the date of this
Agreement, of all contracts, agreements and commitments of the following
categories, whether oral or written, express or implied, to which Chevron or any
C Chem Subsidiary is a party, relating to C Chem or by which any of C Chem's
properties or assets are bound (excluding the agreements contemplated by this
Agreement or the Amended LLC Agreement) (collectively, the "C Chem Material
Contracts"):


                                       28
<PAGE>   35
                           (i) any employment, product design or development,
                  personal services, consulting, non-competition, severance,
                  golden parachute or indemnification contract requiring
                  payments by C Chem in excess of $500,000 per year;

                           (ii) any contract involving or requiring expenditures
                  or receipts by C Chem of more than $2,000,000 in any calendar
                  year and not cancelable or terminable within one year from the
                  Closing Date;

                           (iii) any contract containing covenants limiting the
                  freedom of C Chem to engage in any line of business or compete
                  with any Person or operate at any location;

                           (iv) any contract granting a right of first refusal
                  or first negotiation other than for the purchase of goods or
                  services in the aggregate less than $2,000,000;

                           (v) any partnership or joint venture agreement;

                           (vi) any agreement for the acquisition, sale or lease
                  of material properties or assets of C Chem (by merger,
                  purchase or sale of assets or stock, or otherwise) entered
                  into since January 1, 1998;

                           (vii) any contract or agreement with any Governmental
                  Entity requiring expenditures or receipts by C Chem in excess
                  of $2,000,000;

                           (viii) any collective bargaining agreement or other
                  labor union contract;

                           (ix) any contract between C Chem, on the one hand,
                  and Chevron or any Affiliate of Chevron (other than C Chem),
                  on the other hand; and

                           (x) any commitments and agreements to enter into any
                  of the foregoing.

                  (b) Each C Chem Material Contract is a valid, binding and
enforceable (except as such enforceability may be subject to any bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer or other laws, now
or hereafter in effect, relating to or limiting creditors' rights generally)
obligation of C Chem. There is no default under any C Chem Material Contract by
C Chem or, to Chevron's knowledge, by any other party thereto, and no event has
occurred that with the lapse of time or the giving of notice or both would
constitute a default thereunder by C Chem, or, to Chevron's knowledge, any other
party, which default or event, individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect on C Chem. As of the
date of this Agreement, no party to any C Chem Material Contract has given
notice to C Chem or made a claim against C Chem with respect to any breach or
default thereunder, which breach or default, individually or in the aggregate,
would reasonably be expected to have a Material Adverse Effect on C Chem. As of
the date of this Agreement, there has been no amendment or modification of any
of the C Chem Material Contracts, except as specifically listed on Schedule
5.10(a) of the Chevron Disclosure Schedule. The enforceability of any C Chem
Material Contract shall not be impaired by the execution and delivery of this
Agreement or the Amended LLC Agreement or the consummation of the transactions
contemplated hereby or thereby, and, as of the date of this Agreement, no C Chem
Material Contract requires that a transaction of the kind contemplated by

                                       29
<PAGE>   36
this Agreement or the Amended LLC Agreement receive the approval of any party to
such C Chem Material Contract, except where such impairments or failures to
receive approvals, individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect on C Chem.

                  (c) As of the date of this Agreement, Chevron has delivered to
Phillips or otherwise made available to Phillips at the offices of Chevron or
its Subsidiaries true, correct and complete copies of all C Chem Material
Contracts.

                  SECTION 5.11. Real Property. (a) Schedule 5.11(a)(i) of the
Chevron Disclosure Schedule identifies all real property assets the fee title to
which is owned, beneficially and/or of record, by Chevron as of the date of this
Agreement and which are material to the businesses of C Chem. Schedule
5.11(a)(ii) of the Chevron Disclosure Schedule identifies all real property
assets a leasehold interest in which is owned, beneficially and/or of record, by
Chevron as of the date of this Agreement and which are material to the
businesses of C Chem.

                  (b) With respect to any real property owned or leased by
Chevron (the "C Chem Real Property"), Chevron has good and valid fee or
leasehold title, as the case may be, to all real property owned or leased by
Chevron, in each case, free and clear of all Liens, except for Permitted
Encumbrances, defects in title or Liens described on Schedules 5.11(a)(i) and
5.11(a)(ii) of the Chevron Disclosure Schedule and other defects in title or
Liens that, individually or in the aggregate, do not and would not reasonably be
expected to have a Material Adverse Effect on C Chem.

                  (c) Each of the leases (including subleases) to which Chevron
is a party (the "C Chem Leases") is a valid, binding and enforceable (except as
such enforceability may be subject to any bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer or other laws, now or hereafter
in effect, relating to or limiting creditors' rights generally) obligation of
each of the lessee and the lessor under such C Chem Lease, and neither Chevron
nor, to Chevron's knowledge, the other party to any C Chem Lease is in default
under such C Chem Lease in any material respect, other than such defaults, if
any, which would not, individually or in the aggregate, have or reasonably be
expected to have a Material Adverse Effect on C Chem. As of the date of this
Agreement, except where, individually or in the aggregate, there would not
reasonably be expected to be a Material Adverse Effect on C Chem or as otherwise
set forth on Schedule 5.11(a)(i) of the Chevron Disclosure Schedule, (i) the
enforceability of any of the C Chem Leases will not be impaired by the execution
or delivery of this Agreement or the Amended LLC Agreement, (ii) the execution
and delivery of this Agreement or the Amended LLC Agreement or the consummation
of the transactions contemplated by this Agreement or the Amended LLC Agreement
will not entitle the lessor under any C Chem Lease to terminate such C Chem
Lease prior to the scheduled expiration thereof, and (iii) neither Chevron nor
any C Chem Subsidiary is currently participating in any discussions or
negotiations regarding termination of any C Chem Lease of a property at which C
Chem conducts business operations prior to the scheduled expiration of such C
Chem Lease by reason of a breach or alleged breach by the tenant thereunder.

                  SECTION 5.12. Environmental Matters. Except for matters that,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect on C Chem, (a) the properties, operations and activities
of C Chem are in material compliance with all applicable Environmental Laws; (b)
C Chem is not subject to any existing, pending or, to Chevron's

                                       30
<PAGE>   37
knowledge, threatened, action, suit, proceeding or remediation activity under
any Environmental Law; (c) Hazardous Materials have not at any time been
released or disposed of at the properties currently owned, operated, leased or
used by C Chem; (d) the previous and current methods of releasing or disposing
of Hazardous Materials generated, used, treated, recycled or stored at, upon or
under the properties previously or currently owned, operated, leased or used by
C Chem have been disclosed to Phillips; and (e) Chevron has not restricted
access for the review of and copying by Phillips all of the environmental
reports, documents, data and other information prepared by or for C Chem
relating to the properties previously or currently owned, operated, leased or
used by C Chem.

                  SECTION 5.13. Intellectual Property. (a) Chevron has, or will
as of the Closing have, such ownership of or such rights by license or other
agreement to use all patents and patent applications, trademarks and service
marks, trademark and service mark registrations and applications, trade names,
logos, copyrights and copyright registrations and applications, proprietary
information and data, including trade secrets, as are necessary to permit C Chem
to conduct its businesses as currently conducted (collectively, the "C Chem
Intellectual Property"), except where the failure to have such ownership,
license or right to use would not, individually or in the aggregate, have a
Material Adverse Effect on C Chem.

                  (b) To Chevron's knowledge, the conduct of the businesses of C
Chem as currently conducted does not infringe the valid proprietary rights of
any third party, and there are no present or threatened infringements of the C
Chem Intellectual Property by any third party, except, in either case, for such
infringements that would not, individually or in the aggregate, have a Material
Adverse Effect on C Chem. There are no pending or, to Chevron's knowledge,
threatened infringement proceedings, litigation or claims by any Person against
the use by C Chem of any C Chem Intellectual Property or any third-party
intellectual property.

                  (c) Schedule 6.18 of the Chevron Disclosure Schedule sets
forth a list of all United States patents and United States patent applications
which are primarily used by or identified as relating primarily to the C Chem
business, including licensing, research, development and demonstration
activities.

                  (d) Schedule 6.18 of the Chevron Disclosure Schedule sets
forth a list of all United States registered trademarks other than Trademarks
and Logos as defined in Section 6.9 which are primarily used or identified as
relating to the C Chem business.

                  SECTION 5.14. Employee Benefit Plans. (a) Schedule 5.14(a) of
the Chevron Disclosure Schedule includes a complete list of all Chevron Plans.
Except as set forth on Schedule 5.14(a) of the Chevron Disclosure Schedule, none
of the Chevron Plans is sponsored or maintained by C Chem or any C Chem
Subsidiary.

                  (b) With respect to each Chevron Plan, Chevron has delivered
or made available to Phillips a true, correct and complete copy of all plan
documents and the current summary plan description.

                  (c) No Chevron Plans are Multiemployer Plans. None of the C
Chem Subsidiaries or any of their respective ERISA Affiliates has, at any time
during the last six years,

                                       31
<PAGE>   38
contributed to or been obligated to contribute to any Multiemployer Plan, and
none of the C Chem Subsidiaries or any of their respective ERISA Affiliates has
incurred any withdrawal liability under Part I of Subtitle E of Title IV of
ERISA that has not been satisfied in full.

                  (d) There does not now exist, nor do any circumstances exist
that could result in, any Controlled Group Liability that would be a liability
of any of the C Chem Subsidiaries following the Closing.

                  (e) Except as specifically provided in Annex A and except for
stock options granted by Chevron to C Chem Employees, neither the execution and
delivery of this Agreement nor the consummation of the transactions contemplated
hereby will (either alone or in conjunction with any other event) result in,
cause the accelerated vesting or delivery of, or increase the amount or value
of, any payment or benefit to any C Chem Employee.

                  SECTION 5.15. Labor Relations. Chevron is in material
compliance with all applicable laws respecting employment and employment
practices, terms and conditions of employment, wages, hours of work, employment
discrimination, equal opportunity, affirmative action, workers' compensation,
unemployment insurance, immigration, and occupational safety and health, and is
not engaged in any unfair labor practices as defined in the National Labor
Relations Act or other applicable laws, except where the failure to comply would
not reasonably be expected to cause a Material Adverse Effect on C Chem. Neither
Chevron nor any Subsidiary of Chevron is a party to any collective bargaining
agreement or other labor union contract with respect to any C Chem Employee,
and, to Chevron's knowledge, there are no activities or proceedings of any labor
union to organize any C Chem Employees. No claim has been made by any labor
organization that the operations of C Chem to be contributed to the Company
under this Agreement would be subject to any agreement with such labor
organization or to a duty to bargain with such labor organization regarding the
terms and conditions of employment for any group of employees involved in such
operations. There is no labor strike, slowdown, stoppage or lockout actually
pending, or, to the knowledge of Chevron, threatened, against or affecting C
Chem.

                  SECTION 5.16. Transactions with Affiliates. As of the date of
this Agreement, except as set forth on Schedule 5.16 of the Chevron Disclosure
Schedule and except for transactions contemplated by this Agreement, (a) no
director or officer of Chevron is currently, directly or indirectly, a party to
any transaction with C Chem, including any agreement, arrangement or
understanding, written or oral, providing for the employment of, furnishing of
services by, rental of real or personal property from or otherwise requiring
payment to any such director or officer, and (b) C Chem has no outstanding
material contract, agreement or other arrangement with Chevron or any of its
Affiliates (other than C Chem) and has not engaged in any material transaction
outside the ordinary course of business with Chevron or its Affiliates (other
than C Chem) since January 1, 1999.

                  SECTION 5.17. Personal Property. Chevron owns, or holds valid
leasehold interests in, the personal property owned or used by it, in each case,
free and clear of all Liens, except for such Liens that, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect on
C Chem.

                                       32
<PAGE>   39
                  SECTION 5.18. Year 2000. Chevron has developed and implemented
a plan for addressing the Year 2000 Problem, except where its failure to do so
would not reasonably be expected to have a Material Adverse Effect on C Chem. As
of the date of this Agreement, except as would not reasonably be expected to
have a Material Adverse Effect on C Chem, none of the assets or equipment owned
or utilized by C Chem will fail to perform because of, or due in any way to, a
Year 2000 Problem. As of the date of this Agreement, to Chevron's knowledge, no
vendor, supplier or customer of C Chem is reasonably expected to experience a
Year 2000 Problem that, individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect on C Chem.

                  SECTION 5.19. Insurance. C Chem is, and has been continuously
since December 31, 1999, insured with Chevron-affiliated insurance companies or
with third-party insurers in such amounts and against such risks and losses as
are customary in all material respects for companies conducting the businesses
as conducted by C Chem during such time period. As of the date of this
Agreement, C Chem has not received any notice of cancellation or termination
with respect to any insurance policy of C Chem that would reasonably be expected
to have a Material Adverse Effect on C Chem.

                  SECTION 5.20. Acquisition of Company Interests for Investment.
With respect to Chevron's acquisition of Company Interests, Chevron has such
knowledge and experience in financial and business matters that it is capable of
evaluating the merits and risks of its acquisition of Company Interests. Chevron
is acquiring the Company Interests for investment and not with a view toward or
for sale in connection with any distribution thereof, or with any present
intention of distributing or selling the Company Interests. Chevron agrees that
the Company Interests may not be sold, transferred, offered for sale, pledged,
hypothecated or otherwise disposed of without registration under the Securities
Act, except pursuant to an exemption from such registration available under the
Securities Act, and without compliance with foreign securities laws, in each
case, to the extent applicable.

                  SECTION 5.21. Sufficiency of Contribution. Except as disclosed
elsewhere in this Agreement or in the Chevron Disclosure Schedule, as of the
Closing, Chevron holds, and shall transfer and convey to the Company at Closing,
all right, title and interest of Chevron and its Affiliates to all properties,
rights, assets and Liabilities (other than the Chevron Excluded Assets and the
Chevron Excluded Liabilities) of the chemicals businesses of Chevron and its
Affiliates as conducted as of the date of this Agreement and as of the Closing.

                                   ARTICLE VI

                                    COVENANTS

                  SECTION 6.1. Investigation of Business; Access to Properties
and Records. (a) From the date of this Agreement through the Closing, Phillips
and Chevron shall cause P Chem and C Chem, respectively, to afford to
representatives of the other Party reasonable access to their offices,
properties, books and records, during normal business hours, in order that the
other Party may have a full opportunity to make such investigations as it
desires of their affairs; PROVIDED, HOWEVER, that such investigation shall be at
reasonable times and upon reasonable notice and

                                       33
<PAGE>   40
shall not unreasonably disrupt the personnel or operations of Phillips or P
Chem, or Chevron or C Chem, respectively. All requests for access to the
offices, properties, books, and records relating to P Chem or C Chem shall be
made to such representatives as may be designated in writing by Phillips or
Chevron, as appropriate (the "Designated Representatives"), which Designated
Representatives shall be solely responsible for coordinating all such requests
and all access permitted hereunder. Neither Phillips nor Chevron nor their
respective representatives shall contact any of the employees, customers or
suppliers of the other Party and its Subsidiaries, in connection with the
transactions contemplated by this Agreement and the Amended LLC Agreement,
whether in person or by telephone, mail or other means of communication, without
the specific prior written authorization of the other Party's Designated
Representatives, which consent shall not be unreasonably withheld.

                  (b) Any information provided to a Party or its representatives
pursuant to this Agreement or the Amended LLC Agreement shall be held by such
Party and its representatives in accordance with, and shall be subject to the
terms of, the Confidentiality Agreement and the Amended LLC Agreement, as
applicable. From and after the Closing, each Party shall, and shall cause its
Affiliates to, maintain in confidence and not use nonpublic information of the
other Party, except as otherwise specifically permitted by this Agreement or the
Amended LLC Agreement or as required by law.

                  (c) Except as contemplated by this Agreement and the Amended
LLC Agreement, each of Phillips and Chevron agrees, and agrees to cause its
representatives not to, until the earlier of the Closing or termination of this
Agreement in accordance with its terms, not to (i) enter into any agreement with
any third party, or engage in any discussions with attorneys, investment
bankers, other advisors or representatives, or any third party, regarding a
transaction involving the sale of, or creation of a joint venture involving, all
or any material portion of the operations of P Chem or C Chem, as applicable, or
(ii) solicit, initiate or encourage offers in respect thereof.

                  (d) The Company agrees to (i) hold all of the books and
records of each of P Chem and C Chem existing on the Closing Date and not to
destroy or dispose of any thereof for a period of four years from the Closing
Date or such longer time as may be required by law, and, thereafter, if it
desires to destroy or dispose of such books and records, to offer first in
writing, at least 60 days prior to such destruction or disposition, to surrender
them to Phillips or Chevron, respectively, and (ii) following the Closing Date
to afford Phillips and Chevron, their respective accountants and counsel, during
normal business hours, upon reasonable notice, full access to such books and
records to the extent that such access may be requested for any legitimate
purpose at no cost to Phillips or Chevron (other than for reasonable
out-of-pocket expenses); PROVIDED, HOWEVER, that nothing herein shall limit any
of Phillips' or Chevron's respective rights of discovery pursuant to any legal
proceeding. The Company shall have the same rights, and Phillips and Chevron,
respectively, the same obligations, as are set forth in this Section 6.1(d) with
respect to any books, non-privileged records and employees of Phillips or
Chevron pertaining to the Company and its Subsidiaries, with the exception of
Tax Returns. The Company will provide additional information to the extent
reasonably requested and required by Phillips or Chevron for a legitimate
purpose.

                                       34
<PAGE>   41
                  SECTION 6.2. Consents and Approvals. (a) Subject to the terms
and conditions of this Agreement and the Amended LLC Agreement, each of Phillips
and Chevron agrees to use its best commercially reasonable efforts to promptly
(i) take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement
and the Amended LLC Agreement, (ii) obtain and maintain all approvals, consents,
registrations, Permits and other confirmations required to be obtained from any
third party (including any Governmental Entity) that are necessary, proper or
advisable to consummate the transactions contemplated by this Agreement and the
Amended LLC Agreement, (iii) lift or rescind any injunction or restraining order
or other order adversely affecting its ability to consummate the transactions
contemplated by this Agreement and the Amended LLC Agreement, and (iv) fulfill
all conditions to this Agreement and the Amended LLC Agreement. Subject to
applicable laws relating to the exchange of information, Phillips and Chevron
shall each have the right to review, in advance, and to the extent practicable
will consult each other on, all submissions and communications relating to P
Chem or C Chem, as the case may be, made with any third party and/or any
Governmental Entity in connection with the transactions contemplated by this
Agreement and the Amended LLC Agreement.

                  (b) Notwithstanding anything to the contrary in this
Agreement, in the event of any sale of non-current assets approved by Phillips
or Chevron, as applicable, and consummated prior to the Closing pursuant to
Sections 6.2, 6.4 or 6.5, at the Closing, all after-Tax proceeds from such sale
shall be held by P Chem or C Chem, as applicable, and the representations and
warranties in Articles IV and V shall be deemed to be adjusted appropriately.

                  (c) In furtherance and not in limitation of the foregoing,
each of Phillips and Chevron agrees to (i) make appropriate antitrust filings,
including filing of a Notification and Report Form pursuant to the HSR Act with
respect to the transactions contemplated by this Agreement, and filings with the
European Commission, as promptly as practicable (if not already completed by the
date of this Agreement), (ii) supply as promptly as practicable any additional
information and documentary material that may be requested pursuant to any
applicable antitrust laws in connection with the transaction contemplated by
this Agreement, and (iii) complete the review process under any relevant
antitrust laws to permit the consummation of the transactions contemplated by
this Agreement and the Amended LLC Agreement, including causing the expiration
or termination of the applicable waiting periods under any relevant antitrust
laws as soon as possible.

                  SECTION 6.3. Further Assurances. (a) Phillips and Chevron
agree that, from time to time, whether before, at or after the Closing Date,
each of them will execute and deliver, or cause to be executed and delivered,
such further instruments of conveyance and transfer and take such other action
as may be necessary to carry out the purposes and intents of this Agreement and
the Amended LLC Agreement.

                  (b) To the extent not already in the possession of the Company
or its Subsidiaries on or before the Closing Date, Phillips shall deliver to the
Company all original agreements, documents, books, records and files relating to
the ownership or operation of the businesses of P Chem or its respective
properties or assets, including all books of account, journals and ledgers,
correspondence, memoranda, maps, plats, customer lists, information and account

                                       35
<PAGE>   42
histories, supplier lists and information, personnel records relating to P Chem
Employees, engineering plans, property records, title insurance policies, stock
certificates and stock transfer records, minute books and corporate seals.

                  (c) To the extent not already in the possession of the Company
or its Subsidiaries on or before the Closing Date, Chevron shall deliver to the
Company all original agreements, documents, books, records and files relating to
the ownership or operation of the businesses of C Chem or its properties or
assets, including all books of account, journals and ledgers, correspondence,
memoranda, maps, plats, customer lists, information and account histories,
supplier lists and information, personnel records relating to C Chem Employees,
engineering plans, property records, title insurance policies, stock
certificates and stock transfer records, minute books and corporate seals.

                  SECTION 6.4. Conduct of the Phillips Chemicals Business. From
the date of this Agreement through the Closing, except as disclosed on Schedule
6.4 of the Phillips Disclosure Schedule or otherwise provided for in, or
contemplated by, this Agreement or the Amended LLC Agreement, and, except as
consented to or approved by Chevron in writing, Phillips covenants and agrees
that:

                  (a) Phillips shall cause the businesses of P Chem to be
operated in the ordinary course in substantially the same manner as conducted as
of the date hereof, including by funding all capital expenditures in the
ordinary course as contemplated by the 2000 capital expenditure budget set forth
on Schedule 6.4(a) of the Phillips Disclosure Schedule;

                  (b) none of the P Chem Subsidiaries shall (i) amend its
respective certificate or articles of incorporation or by-laws or comparable
organizational documents, or (ii) make any change in its authorized or issued
capital stock, limited liability company interests or other equity interests;

                  (c) none of the P Chem Subsidiaries shall (i) issue, sell or
agree to issue or sell any shares of capital stock, limited liability company
interests or any other securities (including any securities convertible into, or
options with respect to, or warrants to purchase or rights to subscribe for, any
shares of capital stock, limited liability company interests or other
securities), or (ii) redeem, purchase or otherwise acquire, directly or
indirectly, any securities of any of the P Chem Subsidiaries;

                  (d) except in the ordinary course of business, Phillips shall
cause the P Chem Subsidiaries not to, and Phillips and its Affiliates shall not,
with respect to P Chem, enter into any joint venture, partnership or other
similar arrangement, or enter into or assume any material contract which would
be required to be listed on Schedule 4.10 of the Phillips Disclosure Schedule if
such contract were entered into or assumed prior to the date of this Agreement;

                  (e) except (i) in the ordinary course of business or (ii) for
the transactions set forth on Schedule 6.4(e) of the Phillips Disclosure
Schedule and any other acquisition involving expenditures of less than
$5,000,000, Phillips shall cause the P Chem Subsidiaries not to, and Phillips
and its Affiliates shall not, with respect to P Chem, (A) acquire any material
assets or

                                       36
<PAGE>   43
securities of any Person or any interests therein or (B) except pursuant to
Section 6.2, sell, assign, license, transfer, lease (as lessor) or otherwise
dispose of any material assets or securities;

                  (f) except as contemplated by the 2000 capital expenditure
budget set forth on Schedule 6.4(a) of the Phillips Disclosure Schedule, and
except for acquisitions permitted under Section 6.4(e), Phillips shall cause the
P Chem Subsidiaries not to, and Phillips and its Affiliates shall not, with
respect to P Chem, make or authorize any capital expenditure or expenditures
that will be paid for by the Company following the Closing;

                  (g) Phillips shall cause the P Chem Subsidiaries not to, and
Phillips and its Affiliates shall not, with respect to P Chem, make any change
in any of their present financial accounting methods and practices pertaining to
P Chem, except as required by changes in GAAP;

                  (h) Phillips shall cause the P Chem Subsidiaries not to, and
Phillips and its Affiliates shall not, with respect to P Chem, declare or pay
any non-cash dividend or make any similar distribution or payment, directly or
indirectly; PROVIDED, HOWEVER, that Phillips shall be entitled to cause the
Phillips Excluded Assets to be conveyed, transferred, leased or assigned to
Phillips or a Subsidiary of Phillips (other than a P Chem Subsidiary);

                  (i) Phillips shall cause (i) any trade accounts payable, (ii)
any payments required by any indentures, mortgages, financing arrangements, loan
agreements or similar arrangements, or (iii) any other obligations, in each case
pertaining to P Chem, to be paid in full when due unless Phillips or its
Affiliate is in good faith contesting the same (with appropriate reserves);

                  (j) except in the ordinary course of business, Phillips shall
cause the P Chem Subsidiaries not to, and Phillips and its Affiliates shall not,
with respect to P Chem, (i) incur any indebtedness for borrowed money other than
from Phillips or its Affiliates, issue any debt securities other than to
Phillips and its Affiliates, or assume, guarantee, endorse or otherwise be
responsible for the obligations of any other Persons, or (ii) mortgage or
encumber any of its properties or assets other than with Liens that do not
materially restrict or detract from the value of such properties or assets;

                  (k) Phillips shall cause the P Chem Subsidiaries not to, and
Phillips and its Affiliates shall not, with respect to P Chem, enter into any
contract, agreement or other arrangement with Phillips or its Affiliates; and

                  (l) none of Phillips or its Affiliates (including Subsidiaries
of Phillips) shall agree to take any action prohibited by this Section 6.4.

                  Notwithstanding the provisions of this Section 6.4, nothing in
this Agreement or the Amended LLC Agreement shall be construed or interpreted to
prevent any entity from (i) paying or making regular or special dividends or
other distributions consisting of cash, (ii) making or accepting inter- or
intra-company advances, or (iii) engaging in any transaction incident to the
normal cash management procedures of Phillips and its Affiliates prior to the
Closing.

                  SECTION 6.5. Conduct of the Chevron Chemicals Business. From
the date of this Agreement through the Closing, except as disclosed on Schedule
6.5 of the Chevron Disclosure

                                       37
<PAGE>   44
Schedule or otherwise provided for in, or contemplated by, this Agreement or the
Amended LLC Agreement, and, except as consented to or approved by Phillips in
writing, Chevron covenants and agrees that:

                  (a) Chevron shall cause the businesses of C Chem to be
operated in the ordinary course in substantially the same manner as conducted as
of the date hereof, including by funding all capital expenditures in the
ordinary course as contemplated by the 2000 capital expenditure budget set forth
on Schedule 6.5(a) of the Chevron Disclosure Schedule;

                  (b) none of the C Chem Subsidiaries shall (i) amend its
respective certificate or articles of incorporation or by-laws or comparable
organizational documents or (ii) make any change in its authorized or issued
capital stock, limited liability company interests or other equity interests;

                  (c) none of the P Chem Subsidiaries shall (i) issue, sell or
agree to issue or sell any shares of capital stock, limited liability company
interests or any other securities (including any securities convertible into, or
options with respect to, or warrants to purchase or rights to subscribe for, any
shares of capital stock, limited liability company interests or other
securities), or (ii) redeem, purchase or otherwise acquire, directly or
indirectly, any securities of any of the C Chem Subsidiaries;

                  (d) except in the ordinary course of business, Chevron shall
cause the C Chem Subsidiaries not to, and Chevron and its Affiliates shall not,
with respect to C Chem, enter into any joint venture, partnership or other
similar arrangement, or enter into or assume any material contract which would
be required to be listed on Schedule 5.10 of the Chevron Disclosure Schedule if
such contract were entered into or assumed prior to the date of this Agreement;

                  (e) except (i) in the ordinary course of business or (ii) for
the transactions set forth on Schedule 6.5(e) of the Chevron Disclosure Schedule
and any other acquisition involving expenditures of less than $5,000,000,
Chevron shall cause the C Chem Subsidiaries not to, and Chevron and its
Affiliates shall not, with respect to C Chem, (A) acquire any material assets or
securities of any Person or any interests therein or (B) except pursuant to
Section 6.2, sell, assign, license, transfer, lease (as lessor) or otherwise
dispose of any material assets or securities;

                  (f) except as contemplated by the 2000 capital expenditure
budget set forth on Schedule 6.5(a) of the Chevron Disclosure Schedule, and
except for acquisitions permitted under Section 6.5(e), Chevron shall cause the
C Chem Subsidiaries not to, and Chevron and its Affiliates shall not, with
respect to C Chem, make or authorize any capital expenditure or expenditures
that will be paid for by the Company following the Closing;

                  (g) Chevron shall cause the C Chem Subsidiaries not to, and
Chevron and its Affiliates shall not, with respect to C Chem, make any change in
any of their present financial accounting methods and practices pertaining to C
Chem, except as required by changes in GAAP;

                  (h) Chevron shall cause the C Chem Subsidiaries not to, and
Chevron and its Affiliates shall not, with respect to C Chem, declare or pay any
non-cash dividend or make any similar distribution or payment, directly or
indirectly; PROVIDED, HOWEVER, that Chevron

                                       38
<PAGE>   45
shall be entitled to cause the Chevron Excluded Assets to be conveyed,
transferred, leased or assigned to Chevron or a Subsidiary of Chevron (other
than a C Chem Subsidiary);

                  (i) Chevron shall cause (i) any trade accounts payable, (ii)
any payments required by any indentures, mortgages, financing arrangements, loan
agreements or similar arrangements, or (iii) any other obligations, in each case
pertaining to C Chem, to be paid in full when due unless Chevron or its
Affiliate is in good faith contesting the same (with appropriate reserves);

                  (j) except in the ordinary course of business, Chevron shall
cause the C Chem Subsidiaries not to, and Chevron and its Affiliates shall not,
with respect to C Chem, (i) incur any indebtedness for borrowed money other than
from Chevron or its Affiliates, issue any debt securities other than to Chevron
and its Affiliates, or assume, guarantee, endorse or otherwise be responsible
for the obligations of any other Persons, or (ii) mortgage or encumber any of
its properties or assets other than with Liens that do not materially restrict
or detract from the value of such properties or assets;

                  (k) Chevron shall cause the C Chem Subsidiaries not to, and
Chevron and its Affiliates shall not, with respect to C Chem, enter into any
contract, agreement or other arrangement with Chevron or its Affiliates; and

                  (l) none of Chevron or its Affiliates (including Subsidiaries
of Chevron) shall agree to take any action prohibited by this Section 6.5.

                  Notwithstanding the provisions of this Section 6.5, nothing in
this Agreement or the Amended LLC Agreement shall be construed or interpreted to
prevent any entity from (i) paying or making regular or special dividends or
other distributions consisting of cash, making or accepting inter- or
intra-company advances, or (iii) engaging in any transaction incident to the
normal cash management procedures of Chevron and its Affiliates prior to the
Closing.

                  SECTION 6.6. Preservation of Business. (a) Subject to the
terms and conditions of this Agreement and the Amended LLC Agreement, Phillips
shall use reasonable efforts to preserve the businesses of P Chem intact, to
keep available to P Chem and the Company the services of P Chem Employees and to
preserve the goodwill of customers and others having business relations with P
Chem in all material respects.

                  (b) Subject to the terms and conditions of this Agreement and
the Amended LLC Agreement, Chevron shall use reasonable efforts to preserve the
businesses of C Chem intact, to keep available to C Chem and the Company the
services of C Chem Employees and to preserve the goodwill of customers and
others having business relations with C Chem in all material respects.

                  SECTION 6.7. Public Announcements. Except as otherwise
required by law, each of Phillips and Chevron will consult with the other and
obtain the consent of the other (which consent shall not be unreasonably
withheld or delayed) before issuing, or permitting any agent or Affiliate to
issue, any press releases or otherwise making, or permitting any agent or
Affiliate to make, any public statements with respect to this Agreement or the
transactions contemplated hereby.

                                       39
<PAGE>   46
                  SECTION 6.8. Assignment of Contracts, Leases, Permits, etc.
(a) Anything in this Agreement to the contrary notwithstanding, this Agreement
shall not constitute an agreement to assign any contract, lease or Permit, or
any Claim or benefit if an attempted assignment thereof, without the consent of
a third party, would constitute a breach or other contravention thereof, be
ineffective with respect to any party thereto or in any way adversely affect the
rights of the Company, P Chem or C Chem thereunder.

                  (b) With respect to any contract, lease or Permit necessary to
the conduct of businesses of P Chem or C Chem as presently conducted (and any
Claim or benefit arising thereunder or resulting therefrom) and not held as of
the Closing by a P Chem Subsidiary or a C Chem Subsidiary, and with respect to
any P Chem Material Contract or C Chem Material Contract, and any other
contract, lease or Permit pertaining to and advantageous for the businesses of P
Chem or C Chem, Phillips, Chevron and the Company will use their best
commercially reasonable efforts to obtain as expeditiously as possible the
written consent of the other parties to such contract, lease or Permit for the
assignment or, if required, novation, thereof to the Company or a Subsidiary
thereof, as applicable, or, alternatively, written confirmation from such
parties reasonably satisfactory in form and substance to Phillips and Chevron
that such consent is not required. In furtherance of the foregoing, as soon as
practicable following the date hereof, Phillips and Chevron shall submit, or
cause to be submitted, to the other party or parties thereto documentation
seeking the written waiver or approval of such other contracting party or
parties thereto to the transfer and assignment of all of Phillips' or Chevron's
(or their respective Affiliates'), as applicable, Claims, benefits and
Liabilities thereunder to the Company or a Subsidiary thereof, as applicable.

                  (c) The failure by the Parties to obtain any required consent,
waiver, confirmation, novation or approval with respect to any contract, lease
or Permit shall not relieve either Party from its obligation to consummate at
the Closing the transactions contemplated by this Agreement or the Amended LLC
Agreement or any other obligations hereunder or thereunder unless such failures
would, in the aggregate, have a Material Adverse Effect on C Chem or P Chem.

                  (d) If any consent, waiver, confirmation, novation or approval
is not obtained prior to the Closing with respect to any contract, lease or
Permit described in subparagraph (b) of this Section 6.8, then Phillips or
Chevron, as applicable, shall establish, or cause to be established, an agency
type or other arrangement satisfactory to the other Party and to the Company
under which Phillips or Chevron, as applicable, shall hold, or cause to be held,
such interest, lease or Permit for the Company and the Company would obtain the
Claims and benefits and assume the corresponding Liabilities thereunder in
accordance with this Agreement (including by means of any subcontracting,
sublicensing or subleasing arrangement) or under which Phillips or Chevron, as
applicable, would enforce, or cause to be enforced, at the direction of and for
the benefit of the Company with the Company assuming and agreeing to pay
Chevron's or Phillips' (or their respective Affiliates') obligations and
expenses, any and all Claims and benefits of Phillips or Chevron (or their
respective Affiliates) against a third party thereto; PROVIDED, HOWEVER, that
Phillips' or Chevron's obligation to maintain, or cause to be maintained, any
such arrangement shall terminate upon the earliest to occur of: (i) the
expiration or termination of such contract, lease or Permit in accordance with
its terms (without regard to any extensions, automatic or otherwise); or (ii)
with regard to a Permit, such time as the Company shall obtain a Permit in
reasonable

                                       40
<PAGE>   47
substitution therefor, or have its application for such substitute Permit
denied. In any such arrangement, Phillips or Chevron, as applicable, shall
promptly pay, or cause to be paid, to the Company when received, all moneys
relating to the period after the Closing Date received by it under any contract
or any Claim, right or benefit arising thereunder not transferred pursuant to
this Section 6.8, and the Company shall promptly pay, perform or discharge when
due any Liability arising thereunder after the Closing Date.

                  SECTION 6.9. Corporate Names. (a) The Company and Phillips
acknowledge that, from and after the Closing Date, the Company and Phillips
shall have no rights with respect to any Trademarks and Logos incorporating
"Chevron" by itself or in combination with any other Trademark or Logo,
including the corporate design logos associated therewith, and that Chevron
shall retain absolute and exclusive proprietary rights thereto or goodwill
represented thereby or pertaining thereto, except as granted in the Tradename
License Agreement among Phillips, Chevron and the Company, in the form set forth
as Appendix B (the "Tradename License Agreement"). Phillips shall not and,
except as permitted in such Tradename License Agreement, the Company shall not,
nor shall they permit any of their respective Affiliates to, use any name,
phrase or logo incorporating "Chevron" or such corporate design logo or any
confusingly similar name, phrase, logo or corporate design logo in or on any of
its literature, sales materials or products or otherwise in connection with the
sale of any products or services; PROVIDED, HOWEVER, that the Company may
continue to use any signage, printed literature, sales materials, purchase
orders and sales or lease agreements, and sell any products, that are included
in the inventories of C Chem on the Closing Date and that bear a name, phrase or
logo incorporating "Chevron" or such corporate design logo, until the supplies
thereof existing on the Closing Date have been exhausted, but in any event for
not longer than one year from the Closing Date.

                  (b) The Company and Chevron acknowledge that, from and after
the Closing Date, the Company and Chevron shall have no rights with respect to
any Trademarks and Logos incorporating "Phillips" or "66" by themselves or in
combination with any other Trademark or Logo, including the corporate design
logos associated therewith, and that Phillips shall retain absolute and
exclusive proprietary rights thereto or goodwill represented thereby or
pertaining thereto, except as granted in the Tradename License Agreement.
Chevron shall not and, except as permitted in such Tradename License Agreement,
Company shall not, nor shall they permit any of their respective Affiliates to,
use any name, phrase or logo incorporating "Phillips" or "66" or such corporate
design logo or any confusingly similar name, phrase, logo or corporate design
logo in or on any of its literature, sales materials or products or otherwise in
connection with the sale of any products or services; PROVIDED, HOWEVER, that
the Company may continue to use any signage, printed literature, sales
materials, purchase orders and sales or lease agreements, and sell any products,
that are included in the inventories of P Chem on the Closing Date and that bear
a name, phrase or logo incorporating "Phillips" or "66" or such corporate design
logo, until the supplies thereof existing on the Closing Date have been
exhausted, but in any event for not longer than one year from the Closing Date.

                  (c) Each of Phillips, Chevron and the Company shall execute
and deliver to each other the Tradename License Agreement on or prior to the
Closing.

                  SECTION 6.10. D&O Indemnification. The parties hereto agree
that the transactions contemplated by this Agreement and the Amended LLC
Agreement shall not affect or

                                       41
<PAGE>   48
diminish any duties and obligations of indemnification from Phillips or Chevron
or their respective Affiliates (other than the P Chem Subsidiaries and the C
Chem Subsidiaries) existing as of the Closing Date in favor of employees,
agents, directors or officers of the P Chem Subsidiaries or the C Chem
Subsidiaries, respectively, arising by virtue of their respective certificates
of incorporation or by-laws or comparable organizational documents in the form
in effect at the date of this Agreement or arising by operation of law or
arising by virtue of any contract, resolution or other agreement or document
existing at the date of this Agreement, and such duties and obligations shall
continue in full force and effect and shall be honored by the Company for so
long as they would (but for the transactions contemplated by this Agreement and
the Amended LLC Agreement) otherwise survive and continue in full force and
effect.

                  SECTION 6.11. Additional Agreements. (a) At the Closing,
Phillips and certain of its Affiliates, Chevron and certain of its Affiliates
shall enter into the Amended LLC Agreement. At the Closing, Phillips, Chevron
and the Company shall enter into one or more transition services agreement(s)
(the "Transition Services Agreements"), providing for the provision of certain
administrative, information technology and other transitional services by
Phillips and Chevron to be reasonably requested by the Company on a fully
allocated cost basis for a period of not more than two years after the Closing
Date and subject to termination by the Company at any time on thirty (30) days'
notice.

                  (b) The P Chem Subsidiaries and/or the Company and/or its
wholly owned subsidiaries, on the one hand, and Phillips and its Affiliates, on
the other hand, shall enter into agreements relating to operating and supply
commitments (including pricing) between, the P Chem Subsidiaries and/or the
Company and/or its wholly owned subsidiaries, on the one hand, and Phillips and
its Affiliates, on the other hand. Schedule 6.11(b)(i) of the Phillips
Disclosure Schedule sets forth a list of such agreements to be entered into as
of the Closing Date in the forms attached to Schedule 6.11(b)(i) of the Phillips
Disclosure Schedule, such forms being agreed to as of the date hereof. Section
6.11(b)(ii) of the Phillips Disclosure Schedule sets forth a list of such
agreements to be entered into as of the Closing Date (and the assets, properties
or subject matter to which such agreements pertain) which shall be based on
customary terms consistent with past practice and consistent in all material
respects with financial information previously provided by Phillips to Chevron
with regard to P Chem, except as may otherwise be provided in Schedule
6.11(b)(ii). The C Chem Subsidiaries and/or the Company and/or its wholly owned
subsidiaries, on the one hand, and Chevron and its Affiliates, on the other
hand, shall enter into agreements relating to operating and supply commitments
(including pricing) between, the C Chem Subsidiaries and/or the Company and/or
its wholly owned subsidiaries, on the one hand, and Chevron and its Affiliates,
on the other hand. Schedule 6.11(b)(i) of the Chevron Disclosure Schedule sets
forth a list of such agreements to be entered into as of the Closing Date in the
forms attached to Schedule 6.11(b)(i) of the Chevron Disclosure Schedule, such
forms being agreed to as of the date hereof. Section 6.11(b)(ii) of the Chevron
Disclosure Schedule sets forth a list of such agreements to be entered into as
of the Closing Date (and the assets, properties or subject matter to which such
agreements pertain) which shall be based on customary terms consistent with past
practice and consistent in all material respects with financial information
previously provided by Chevron to Phillips with regard to C Chem, except as may
otherwise be provided in Schedule 6.11(b)(ii).

                  (c) The P Chem Subsidiaries and/or the Company and/or its
wholly owned subsidiaries, on the one hand, and Phillips and its Affiliates, on
the other hand, shall enter into the

                                       42
<PAGE>   49
lease and sublease agreements set forth in Schedule 6.11(c) of the Phillips
Disclosure Schedule as of the Closing Date, in the forms attached to Schedule
6.11(c) of the Phillips Disclosure Schedule, such forms being agreed to as of
the date hereof. The C Chem Subsidiaries and/or the Company and/or its wholly
owned subsidiaries, on the one hand, and Chevron and its Affiliates, on the
other hand, shall enter into the lease and sublease agreements set forth in
Schedule 6.11(c) of the Chevron Disclosure Schedule as of the Closing Date, in
the forms attached to Schedule 6.11(c) of the Chevron Disclosure Schedule, such
forms being agreed to as of the date hereof.

                  (d) With regard to assets and facilities involving P Chem, C
Chem or the Company and/or its wholly owned subsidiaries, on the one hand, and
Phillips or Chevron, on the other hand, other than assets and facilities for
which arrangements have been provided in the agreements listed in Schedule
6.11(b) or 6.11(c) of the Chevron Disclosure Schedule or in Schedule 6.11(b) or
6.11(c) of the Phillips Disclosure Schedule, such assets and facilities shall,
to the extent reasonably practicable (including taking into account the costs of
any actions taken), be severed, divided or otherwise separated from each other
so that the P Chem Subsidiaries, C Chem Subsidiaries or the Company and/or its
wholly owned subsidiaries, on the one hand, and Phillips or Chevron, on the
other hand, shall own and control their respective assets as of the Closing
Date; PROVIDED, HOWEVER, that none of Phillips, Chevron or the Company or its
wholly owned subsidiaries shall be obligated to make significant expenditures to
effect such separation prior to the Closing Date. Actions taken and expenditures
incurred to separate the shared assets and facilities shall be subject to the
agreement of Phillips, Chevron and the Company. Such separation may include
subdivision of real property, subleasing or other division of shared buildings
or premises and allocation of shared working capital, equipment and other
assets. Such separation shall be effected in a manner that does not unreasonably
disrupt either the businesses of P Chem, C Chem or the Company or its wholly
owned subsidiaries or the businesses of Phillips or Chevron, and minimizes, to
the extent practicable, current and future costs (and losses of tax or other
economic benefits) of the respective businesses. With respect to any assets or
facilities that cannot reasonably be separated or otherwise allocated as
provided above, (i) right, title and interest shall be allocated between
Phillips and its Affiliates (other than the P Chem Subsidiaries, the Company
and/or its wholly owned subsidiaries) and the Company and between Chevron and
its Affiliates (other than the C Chem Subsidiaries, the Company and/or its
wholly owned subsidiaries) based on which entity predominantly uses or holds
such asset or facility for use or to which entity's business the asset or
facility predominantly relates, and (ii) the other entity shall have a right to
use such assets or facilities in its businesses in a manner consistent with past
practice for a period which is coterminous with the life of the asset or
facility described in (i) (and the coextensive obligation to pay its allocable
share of any costs or expenses related to such asset or facility pursuant to the
last sentence of this Section 6.11(d)). To the extent the separation of assets
and facilities cannot be achieved in a reasonably practicable manner, the
parties will enter into appropriate arrangements regarding the shared assets and
facilities. Such arrangements shall provide that any costs related to the use of
shared assets or facilities that are not separated as of the Closing Date shall
be allocated, with respect to the twelve month period beginning immediately
after the Closing Date, based on the methodology historically used by Phillips
or Chevron, as applicable, and, for any period thereafter, using such reasonable
manner as agreed by Phillips and the Company or by Chevron and the Company, as
applicable; provided, that the Company may terminate such arrangements at any
time after six months after the Closing Date upon written notice to the other
party or parties to such arrangements, and any party to such arrangements may
terminate the arrangements at any time

                                       43
<PAGE>   50
after twelve months from the Closing Date upon written notice to the other party
or parties to such arrangements.

                  (e) From and after the Closing Date, (i) Phillips shall be
entitled to require the Company or P Chem, as applicable, to convey, transfer,
lease or assign to Phillips or a Phillips Subsidiary (other than the Company or
a P Chem Subsidiary) any Phillips Excluded Assets that shall not have been
conveyed, transferred, leased or assigned by P Chem prior to the Closing, and
(ii) Chevron shall be entitled to require the Company or C Chem, as applicable,
to convey, transfer, lease or assign to Chevron or a Chevron Subsidiary (other
than the Company or a C Chem Subsidiary) any Chevron Excluded Assets that shall
not have been conveyed, transferred, leased or assigned by C Chem prior to the
Closing.

                  SECTION 6.12. Company Integration Expenses. All integration
expenses (excluding corporate expenses of Phillips or Chevron) shall be borne by
the Company.

                  SECTION 6.13. Insurance. (a) Phillips and the Company
acknowledge that the programs and policies of insurance maintained by Chevron
and its Affiliates to provide coverage in favor of the C Chem operations shall
be terminated effective 12:01 A.M. on the day following the Closing Date. From
and after the Closing Date, except as otherwise provided in this Agreement, all
risk of loss with respect to properties and assets of C Chem shall be borne by
the Company, notwithstanding any insurance coverage that Phillips or Chevron
have for their own benefit. With respect to events occurring after December 31,
1999 but prior to the Closing Date, the C Chem operations shall be entitled to
the benefits of insurance from independent sources (not affiliated with
Chevron), including insurance benefits from third-party reinsurance of any
Chevron-affiliated insurance company maintained by or for the benefit of the C
Chem operations with respect to properties and assets of C Chem; PROVIDED,
HOWEVER, that, notwithstanding anything to the contrary contained in this
Agreement, the Company is not an "insured" under any Chevron-affiliated
insurance company policy with respect to events occurring from and after the
Closing Date and therefore is not entitled to any insurance recovery under such
insurance; PROVIDED, HOWEVER, that, notwithstanding anything to the contrary
contained in this Agreement, Chevron retains its status as an "insured" under
any Chevron-affiliated insurance company policy including its rights to such
insurance for liability arising out of the transactions contemplated by this
Agreement. Further, the Company shall indemnify and hold harmless Chevron and
its Affiliates from any retroactive premiums imposed by any insurer under
programs or policies maintained by Chevron prior to the Closing as a result of
any claims made after the Closing Date with respect to the properties and assets
of C Chem, regardless of the date of loss.

                  (b) Chevron and the Company acknowledge that the programs and
policies of insurance maintained by Phillips and its Affiliates to provide
coverage in favor of the P Chem operations shall be terminated effective 12:01
A.M. on the day following the Closing Date. From and after the Closing Date,
except as otherwise provided in this Agreement, all risk of loss with respect to
properties and assets of P Chem shall be borne by the Company, notwithstanding
any insurance coverage that Phillips or Chevron have for their own benefit. With
respect to events occurring after December 31, 1999 but prior to the Closing
Date, the P Chem operations shall be entitled to the benefits of insurance from
independent sources (not affiliated with Phillips), including insurance benefits
from third-party reinsurance of any Phillips-affiliated insurance company
maintained by or for the benefit of the P Chem operations with respect to
properties and

                                       44
<PAGE>   51
assets of P Chem; PROVIDED, HOWEVER, that, notwithstanding anything to the
contrary contained in this Agreement, from and after the Closing Date, the
Company is not an "insured" under any Phillips-affiliated insurance company
policy with respect to events occurring from and after the Closing Date and
therefore is not entitled to any insurance recovery under such insurance;
PROVIDED, HOWEVER, that, notwithstanding anything to the contrary contained in
this Agreement, Phillips retains its status as an "insured" under any
Phillips-affiliated insurance company policy including its rights to such
insurance for liability arising out of the transactions contemplated by this
Agreement. Further, the Company shall indemnify and hold harmless Phillips and
its Affiliates from any retroactive premiums imposed by any insurer under
programs or policies maintained by Phillips prior to the Closing as a result of
any claims made after the Closing Date with respect to the properties and assets
of P Chem, regardless of the date of loss.

                  (c) Each of Phillips and Chevron shall cooperate to cause the
Company to have insurance from independent sources (not affiliated with either
Phillips or Chevron) in such amounts and against such risks and losses as are
customary for companies conducting the businesses to be conducted by the
Company.

                  SECTION 6.14. Guarantees. (a) In the event that, after the
Closing Date, Phillips or any Affiliate of Phillips (other than the Company and
its Subsidiaries) remains liable for any guarantees (whether of payment or
performance), letters of credit or other undertakings it has delivered prior to
the Closing Date to others for the benefit of P Chem, the Company agrees to
indemnify and hold harmless Phillips or such Affiliate of Phillips from any
cost, expense or loss (including reasonable attorneys' fees) incurred by
Phillips or such Affiliate of Phillips arising, directly or indirectly,
therefrom, except insofar as such cost, expense or loss constitutes or arises
from a matter with respect to which the Company or any of its Affiliates
(excluding Phillips) is entitled to indemnification hereunder. Any such
guarantees, letters of credit or other undertakings (including performance
guarantees) are set forth on Schedule 6.14(a) of the Phillips Disclosure
Schedule. The Company shall use its commercially reasonable best efforts
(including an offer of a substitute guarantee, letter of credit or undertaking)
to cause or procure the release, as soon as practicable following the Closing
Date, of all Liabilities of Phillips or any Affiliate of Phillips (other than
the Company and its Subsidiaries) with respect to such guaranties, letters of
credit or other undertakings from any of the P Chem Liabilities; PROVIDED
HOWEVER, that neither the Company nor its Subsidiaries shall incur any cost or
expense in causing or procuring such release.

                  (b) In the event that, after the Closing Date, Chevron or any
Affiliate of Chevron (other than the Company and its Subsidiaries) remains
liable for any guarantees (whether of payment or performance), letters of credit
or other undertakings it has delivered prior to the Closing Date to others for
the benefit of C Chem, the Company agrees to indemnify and hold harmless Chevron
or such Affiliate of Chevron from any cost, expense or loss (including
reasonable attorneys' fees) incurred by Chevron or such Affiliate of Chevron
arising, directly or indirectly, therefrom, except insofar as such cost, expense
or loss constitutes or arises from a matter with respect to which the Company or
any of its Affiliates (excluding Chevron) is entitled to indemnification
hereunder. Any such guarantees, letters of credit or other undertakings
(including performance guarantees) are set forth on Schedule 6.14(b) of the
Chevron Disclosure Schedule. The Company shall use its commercially reasonable
best efforts (including an offer of a substitute guarantee, letter of credit or
undertaking) to cause or procure the release, as soon as practicable following
the Closing Date, of all Liabilities of Chevron or any Affiliate of Chevron
(other than the

                                       45
<PAGE>   52
Company and its Subsidiaries) with respect to such guaranties, letters of credit
or other undertakings from any of the C Chem Liabilities; PROVIDED HOWEVER, that
neither the Company nor its Subsidiaries shall incur any cost or expense in
causing or procuring such release.

                  SECTION 6.15. Actions by Affiliates of Phillips and Chevron.
Each of Phillips and Chevron shall ensure that each of its Affiliates (other
than, following the Closing, the Company and its Subsidiaries) takes all actions
necessary to be taken by such Affiliate in order to fulfill the obligations of
Phillips or Chevron, as the case may be under this Agreement.

                  SECTION 6.16. Financing. Each of Phillips and Chevron shall
use its commercially reasonable best efforts and cooperate with each other to
cause the Company to secure, by the Closing Date or as soon as practicable
thereafter, bank credit facilities of $1,670,000,000 (or such lesser amount as
would allow the Company to maintain an investment-grade debt rating) on
reasonably available commercial terms mutually agreeable to the Parties (the
"Financing"). Upon the funding of the Financing, the Company shall distribute
50% of the net proceeds of the Financing to Phillips and 50% of the net proceeds
of the Financing to Chevron; PROVIDED, HOWEVER, that the amount distributed to
Phillips shall be reduced by (a) the sum of any P Chem Liability as of the
Closing Date representing indebtedness for borrowed money of a P Chem Subsidiary
other than indebtedness of the entities set forth on Schedule 6.16 of the
Phillips Disclosure Schedule and other than debt incurred in the ordinary course
of business (pursuant to financial arrangements or plans previously disclosed to
Chevron) by such entities, and (b) the SOLP adjustment amount set forth on
Schedule 6.16 of the Phillips Disclosure Schedule, and the amount distributed to
Chevron shall be reduced by the sum of any C Chem Liability as of the Closing
Date representing indebtedness for borrowed money of a C Chem Subsidiary other
than indebtedness of the entities set forth on Schedule 6.16 of the Chevron
Disclosure Schedule and other than debt incurred in the ordinary course of
business (pursuant to financial arrangements or plans previously disclosed to
Phillips) by such entities; and PROVIDED, FURTHER that the distributions set
forth in this sentence shall be done in accordance with the terms of Section
9.2(f) of the Amended LLC Agreement.

                  SECTION 6.17. Special Indemnities and Risk Allocation between
the Company and the Parties. The provisions of Annex C are hereby incorporated
herein.

                  SECTION 6.18. Intellectual Property. (a) At the Company's
election and expense, P Chem Patent Rights will be transferred and assigned to
the Company upon Closing or at such later time as the Company may specify,
subject to Phillips' reservation of (1) an irrevocable, nonexclusive royalty
free worldwide license extendible to Phillips' Patent Subsidiaries for use in
Phillips' and such Patent Subsidiaries' own business operations and (2) an
irrevocable, nonexclusive royalty free worldwide right to Phillips, or its
designee, to license any of its Affiliates or any third party for use in any
field other than a field primarily related to the P Chem or C Chem business
without obligation to account to any other party. If the Company elects not to
be assigned any or all of the P Chem Patent Rights, Phillips shall provide the
Company with an exclusive license under such P Chem Patent Rights as indicated
in subsection (b) below. Notwithstanding the foregoing, Phillips shall not be
obligated to assign to the Company title to specific letters patent and patent
applications which contain claims that cover technology and inventions that are
not primarily used by or identified as relating to the P Chem business or to the
extent that such assignment would compromise or adversely impact the validity or
enforceability of other letters patent and patent

                                       46
<PAGE>   53
applications owned by Phillips. Nothing in this Agreement shall be deemed to
require that Phillips obtain or maintain any patent; provided, however, that
prior to Phillips' abandonment of any P Chem patent by failure to pay
maintenance fees or taxes or by disclaimer of rights or other dedication to the
public, Phillips will offer to assign such P Chem patent to the Company at the
Company's expense.

                  (b) Upon Closing, Phillips shall and shall cause, if
necessary, its Patent Subsidiaries to grant to the Company the exclusive,
irrevocable, royalty free worldwide right and license, including the right to
sublicense, to practice, make, use and sell under all P Chem Proprietary
Technology and P Chem Patent Rights not otherwise assigned to Company; PROVIDED,
HOWEVER, that Phillips reserves (1) an irrevocable, nonexclusive royalty free
worldwide license extendible to Phillips' Patent Subsidiaries for use in
Phillips' and such Patent Subsidiaries' own business operations and (2) an
irrevocable, nonexclusive royalty free worldwide right to Phillips, or its
designee, to license any of its Affiliates or any third party for use in any
field other than a field primarily related to the P Chem or C Chem business
without obligation to account to any other party. Phillips shall and shall cause
its Affiliates and third parties to take appropriate measures to protect the
confidentiality of P Chem Proprietary Technology and to limit its use, which
shall be no less stringent than measures Phillips takes with respect to its own
proprietary technology of the same type and shall cause its Affiliates and third
parties to accept any applicable restrictions placed on proprietary technology
by others.

                  (c) The Company shall have (1) an irrevocable, royalty-free
worldwide license under any proprietary technology owned or otherwise licensable
by Phillips or its Patent Subsidiaries not contained in the definition of P Chem
Proprietary Technology and (2) an irrevocable, royalty-free worldwide immunity
from suit under any patent rights which are owned or otherwise licensable by
Phillips or its Patent Subsidiaries not contained within the definition of P
Chem Patent Rights, insofar, and only insofar as such proprietary technology and
claims of such patent rights cover technology and inventions that are used in
the P Chem or C Chem business as of the Closing Date, or which embody technology
or inventions relating to the P Chem or C Chem business conceived by the Company
or on its behalf prior to the later of (i) December 31, 2000 or (ii) the
six-month anniversary of the Closing Date, provided such patent rights are based
on applications for patents filed or claiming priority from applications filed
heretofore or hereafter prior to three years after the Closing Date, in each
case subject to the terms and conditions, including the obligation to account to
third parties, under which such rights are held. Such license and immunity from
suit shall be limited to the conduct of the Company's business operations
primarily related to the P Chem or C Chem business, including without limitation
research, development, and demonstration activities, the manufacture, use, or
sale of P Chem or C Chem products and the licensing of P Chem or C Chem
technology by the Company, and may be extended by the Company to its Affiliates,
contractors, suppliers, customers and other third parties, only as appropriate
for the purpose of conducting such P Chem or C Chem business and P Chem or C
Chem licensing operations; PROVIDED, HOWEVER, that no licenses or immunities
will be granted to Company covering technology and inventions that are part of
Phillips non-P Chem technology licensing packages being offered as of the date
that is the later of December 31, 2000 or the six-month anniversary of the
Closing Date, except under separate agreement by the Company and Phillips
thereto. The Company shall and shall cause its Affiliates and third parties to
take appropriate measures to protect the confidentiality of such proprietary
technology and to limit its use as provided above, which shall be no less
stringent than measures the Company takes with

                                       47
<PAGE>   54
respect to its own proprietary technology of the same type and shall cause its
Affiliates and third parties to accept any applicable contractual restrictions
placed on proprietary technology obtained from others.

                  (d) Promptly after the later of (i) December 31, 2000 or (ii)
the six-month anniversary of the Closing Date, Phillips shall fully disclose
and, if necessary, shall cause its Patent Subsidiaries to fully disclose and
make available to the Company any and all P Chem Proprietary Technology not
theretofore disclosed and made available to Company, including any inventions
within the scope of the P Chem Patent Rights, and shall cooperate and cause its
personnel to cooperate with the Company or its nominee as may be reasonably
required in order to obtain patent protection therefor.

                  (e) At the Company's election and expense, C Chem Patent
Rights will be transferred and assigned to the Company upon Closing or at such
later time as the Company may specify, subject to Chevron's reservation of (1)
an irrevocable, nonexclusive royalty free worldwide license extendible to
Chevron's Patent Subsidiaries for use in Chevron's and such Patent Subsidiaries'
own business operations and (2) an irrevocable, nonexclusive royalty free
worldwide right to Chevron, or its designee, to license its Affiliates or any
third party for use in any field other than a field primarily related to the P
Chem or C Chem business without obligation to account to any other party. If the
Company elects not to be assigned any or all of the C Chem Patent Rights,
Chevron shall provide the Company with an exclusive license under such C Chem
Patent Rights as indicated in subsection (f) below. Notwithstanding the
foregoing, Chevron shall not be obligated to assign to the Company title to
specific letters patent and patent applications which contain claims that cover
technology and inventions that are not primarily used by or identified as
relating to the C Chem business or to the extent that such assignment would
compromise or adversely impact the validity or enforceability of other letters
patent and patent applications owned by Chevron. Nothing in this Agreement shall
be deemed to require that Chevron obtain or maintain any patent; provided,
however, that prior to Chevron's abandonment of any C Chem patent by failure to
pay maintenance fees or taxes or by disclaimer of rights or other dedication to
the public, Chevron will offer to assign such C Chem patent to Company at
Company's expense.

                  (f) Upon Closing, Chevron shall and shall cause, if necessary,
its Patent Subsidiaries to grant to the Company the exclusive, irrevocable,
royalty free worldwide right and license, including the right to sublicense, to
practice, make, use and sell under all C Chem Proprietary Technology and C Chem
Patent Rights not otherwise assigned to the Company; PROVIDED, HOWEVER, that
Chevron reserves (1) an irrevocable, nonexclusive royalty free worldwide license
extendible to Chevron's Patent Subsidiaries for use in Chevron's and such Patent
Subsidiaries' own business operations and (2) an irrevocable, nonexclusive
royalty free worldwide right to Chevron, or its designee, to license its
Affiliates or any third party for use in any field other than a field primarily
related to the P Chem or C Chem business without obligation to account to any
other party. Chevron shall and shall cause its Affiliates and third parties to
take appropriate measures to protect the confidentiality of C Chem Proprietary
Technology and to limit its use, which shall be no less stringent than Chevron
takes with respect to its own proprietary technology of the same type and shall
cause its Affiliates and third parties to accept any applicable contractual
restrictions placed on proprietary technology obtained from others.


                                       48
<PAGE>   55
                  (g) The Company shall have (1) an irrevocable, royalty-free
worldwide license under any proprietary technology owned or otherwise licensable
by Chevron or its Patent Subsidiaries not contained in the definition of C Chem
Proprietary Technology and (2) an irrevocable, royalty-free worldwide immunity
from suit under any patent rights which are owned or otherwise licensable by
Chevron or its Patent Subsidiaries not contained within the definition of C Chem
Patent Rights, insofar as, and only insofar as such proprietary technology and
claims of such patent rights cover technology and inventions that are used in
the C Chem or P Chem business as of the Closing Date or which embody technology
or inventions relating to C Chem or P Chem business conceived by the Company or
on its behalf prior to the later of (i) December 31, 2000 or (ii) the six-month
anniversary of the Closing Date, provided such patent rights are based on
applications for patents filed or claiming priority from applications filed
heretofore or hereafter prior to three years after the Closing Date; in each
case subject to the terms and conditions, including the obligation to account to
third parties, under which such rights are held. Such license and immunity from
suit shall be limited to the conduct of the Company's business operations
primarily related to the P Chem or C Chem business, including without limitation
research, development, and demonstration activities, the manufacture, use, or
sale of P Chem or C Chem products and the licensing of P Chem or C Chem
technology by the Company, and may be extended by the Company to its Affiliates,
contractors, suppliers, customers and to other third parties, only as
appropriate for the purpose of conducting such P Chem or C Chem business and P
Chem or C Chem licensing operations; PROVIDED, HOWEVER, that no licenses or
immunities will be granted to the Company covering technology and inventions
that are part of Chevron non-C Chem technology licensing packages being offered
as of the date that is the later of December 31, 2000 or the six-month
anniversary of the Closing Date, except under separate agreement by the Company
and Chevron thereto. Company shall and shall cause its Affiliates and third
parties to take appropriate measures to protect the confidentiality of such
proprietary technology and to limit its use as provided above as the Company
takes with respect to its own proprietary technology of the same type and shall
cause its Affiliates and third parties to accept any applicable contractual
restrictions placed on proprietary technology obtained from others.

                  (h) Promptly after the later of (i) December 31, 2000 or (ii)
the six-month anniversary of the Closing Date, Chevron shall fully disclose and,
if necessary, shall cause its Patent Subsidiaries to fully disclose and make
available to the Company any and all C Chem Proprietary Technology not
theretofore disclosed and made available to the Company, including any
inventions within the scope of C Chem Patent Rights, and shall cooperate and
cause its personnel to cooperate with the Company or its nominee as may be
reasonably required in order to obtain patent protection therefor.

                  (i) The Company's exclusive license granted under subsections
(b) and (f) above and subject to the reservations therein, shall include,
without limitation, the exclusive right to file, prosecute or abandon patent
applications, issue patents, and license third parties under such patent rights
and proprietary technology and the exclusive right to enforce such patents and
proprietary technology rights, including the exclusive discretion to commence,
control and settle any litigation and other proceedings and to recover for past,
present, or future damages and other relief under such patents and proprietary
technology rights; and the licensor shall participate in any such litigation or
proceedings and provide the Company with such information and assistance as
reasonably necessary for such litigation or other proceedings, including
execution of documents

                                       49
<PAGE>   56
and assignment of such patent or proprietary technology to the Company upon the
Company's request and at the Company's cost.

                  (j) Phillips and Chevron recognize that each has entered into
numerous agreements with third parties which contain provisions for the transfer
of technology and improvements and for granting licenses and patent rights to
such technology and improvements, and it is the intent of Chevron and Phillips
that such third parties shall not acquire rights pursuant to this Agreement or
at Closing except through separately negotiated contractual provisions with the
Company. Consequently, notwithstanding anything in this Agreement to the
contrary, the Company's licenses and rights to assignment under P Chem Patent
Rights and C Chem Patent Rights and rights to use P Chem Proprietary Technology
and C Chem Proprietary Technology shall not include:

                           (i) the right for the Company to disclose P Chem
                  Proprietary Technology to any third party or to license or
                  sublicense any third party to use P Chem Proprietary
                  Technology or to license or sublicense any third party under P
                  Chem Patent Rights pursuant to contractual obligations entered
                  into or otherwise existing between Chevron and such third
                  party prior to Closing; and

                           (ii) the right for the Company to disclose C Chem
                  Proprietary Technology to any third party or to license or
                  sublicense any third party to use C Chem Proprietary
                  Technology or to license or sublicense any third party under C
                  Chem Patent Rights pursuant to contractual obligations entered
                  into or otherwise existing between Phillips and such third
                  party prior to closing;

unless and until the Company after Closing has executed a separate written
agreement with such third party providing for such disclosure, license or
sublicense of proprietary technology or patent rights.

                  (k) All registered trademarks, other than Trademarks and
Logos, which are primarily used or identified as relating to the P Chem business
as listed in Schedule 6.18 of the Phillips Disclosure Schedule and to the C Chem
business as listed in Schedule 6.18 of the Chevron Disclosure Schedule and all
foreign counterparts thereof, shall be assigned to the Company at Closing (with
recording of such assignments in the applicable trademark registration issuance
office to occur as soon as practicable after the Closing with the costs of such
assignment to be borne by the Company, subject to such written agreements,
licenses or consents as exist as of the Closing Date.

                  SECTION 6.19. K-Resin Contribution. (a) Phillips shall make a
cash advance to the Company that may be either repaid in part to Phillips or
added to and treated as part of the capital contribution that Phillips and its
Affiliates are making at the Closing, in any case, as set forth in this Section
6.19(a). At Closing, Phillips shall advance to the Company $70 million, subject
to adjustment depending on the calendar month by which the Company has produced
at the K-Resin Plant (and/or Designated Replacement Facilities) and sold into
the market an aggregate of 143 million pounds of K-Resin, of which at least 114
million pounds must be of prime quality (the "Target Quantities") and subject to
a maximum cap of $109 million. No adjustment shall be due if Target Quantities
are achieved later than November 30, 2001 but prior to the close of business on

                                       50
<PAGE>   57
December 31, 2001, and in such event the entire advance shall be added to
Phillips' capital contribution to the Company. For each calendar month prior to
December 2001 by which Target Quantities have been achieved, Phillips' advance
shall be repaid by $3.2 million and the balance of the advance shall be treated
as a capital contribution to the Company. If it is determined that the Target
Quantities have not been achieved by December 31, 2001, then the entire advance
shall be treated as a capital contribution to the Company and, on the tenth
business day of each calendar month after December 2001 until Target Quantities
have been achieved, Phillips shall make an additional capital contribution of
$3.2 million to the Company; provided that no contribution will be due after
December 2002 even if Target Quantities have not been achieved by December 31,
2002.

                  (b) In addition to the capital contribution set forth in
Section 6.19(a), Phillips shall make a capital contribution to the Company equal
in amount to the tax-adjusted shortfall (the "Tax-Adjusted Shortfall") from the
Projected K-Resin EBITDA for the period commencing on the Closing Date and
ending on the earlier of (i) December 31, 2002 or (ii) six months after
production capacity equal to 370 million pounds per year has been restored at
the K-Resin Plant (the "Cut-Off Date"), subject to a maximum cap of $30 million.
The amount of Phillips' contribution pursuant to this Section 6.19(b) shall be
determined as soon as practicable after the Cut-Off Date, and any contribution
which is then due shall be made within three business days of such
determination. However, no capital contribution will be due unless there is a
cumulative EBITDA shortfall at the end of the period. The "Tax-Adjusted
Shortfall" is an amount equal to the product of (i) the applicable cumulative
EBITDA shortfall and (ii) the excess of 100% over the applicable Tax Rate (as
defined in the Amended LLC Agreement). The "Tax-Adjusted Shortfall" shall be
determined after giving effect to the provisions contained below in Section
6.19(e).

                  (c) The Parties intend that the capital contributions set
forth in Sections 6.19(a) and 6.19(b) above are intended to be capital
contributions to the Company and not taxable income to the Company or its
members. In furtherance of this intent, Phillips shall indemnify Chevron and the
Class C Members of the Company on a Net After-Tax Basis against any income or
franchise tax incurred in the event that any such capital contribution is
treated as taxable income. Phillips shall indemnify Chevron and the Class C
Members of the Company on a Net After-Tax Basis against any income or franchise
tax in the event that there is a disguised sale under section 707(a)(2)(B) of
the Internal Revenue Code or corresponding provision of state or local law by
Chevron or any Class C Member that would not have occurred but for Phillips
capital contributions in Sections 6.19(a) and 6.19(b) and any related
distribution to Chevron or any Class C Member or payment of a liability by the
Company or any of its Subsidiaries, provided, however, that in each case the
terms and conditions of the Amended LLC Agreement have been complied with.

                  (d) Phillips shall, by assignment or other means, take
appropriate steps to ensure that the Company promptly receives, for the period
following the Closing, the benefits of and proceeds (the "BI Insurance
Proceeds") from any insurance policy for losses from business interruption ("BI
Insurance Policy") due to the K-Resin Accident.

                  (e) The Company shall have the economic benefit of any BI
Insurance Policy and any BI Insurance Proceeds and shall include such proceeds
in the calculation of its taxable income for federal income tax purposes, and
Phillips shall have no indemnity obligation with respect to any such income.
When actually received by the Company, such proceeds will be

                                       51
<PAGE>   58
credited toward the K-Resin Plant EBITDA. The amount credited toward the K-Resin
Plant EBITDA will be equal to 100% of the amount of the BI Insurance Proceeds
unless it is determined by a Final Determination with respect to the Company or
Phillips that the Company should not include such proceeds in the calculation of
its taxable income for federal income tax purposes then the amount credited
towards the K-Resin Plant EBITDA shall be equal to the product of the amount of
such proceeds and a fraction (expressed as a percent), the numerator of which is
100 and the denominator of which is 100 minus the Tax Rate. In the event that
the Company receives the BI Insurance Proceeds and it is so determined that the
Company should not include such proceeds in the calculation of its taxable
income for federal income tax purposes, the Company shall refund to Phillips an
amount equal to the product of (i) the BI Insurance Proceeds and (ii) the Tax
Rate. Phillips, as a member of the Company and on behalf of the Company, will
have sole and exclusive authority to manage any recovery under a BI Insurance
Policy, and the Company will cooperate fully with Phillips in making and
establishing claims and in seeking to maximize recovery under the BI Insurance
Policies.

                                   ARTICLE VII

                              CONDITIONS TO CLOSING

                  SECTION 7.1. Conditions to Phillips' Obligation to Close.
Phillips' obligation to consummate the transactions contemplated by this
Agreement and the Amended LLC Agreement on the terms specified herein shall be
subject to the satisfaction or waiver, on or prior to the Closing Date, of all
of the following conditions:

                  (a) Representations, Warranties and Covenants of Chevron. (i)
The representations and warranties of Chevron contained in this Agreement shall
be true and correct both when made and on and as of the Closing Date with the
same effect as though such representations and warranties had been made on and
as of such date (except for representations and warranties expressly made as of
an earlier date, in which case as of such date), except for such failures to be
true and correct (without giving effect to any Materiality Requirement) which,
individually or in the aggregate, do not have a Material Adverse Effect on C
Chem.

                           (ii) The covenants and agreements of Chevron to be
                  performed on or before the Closing Date in accordance with
                  this Agreement shall have been duly performed in all material
                  respects.

                           (iii) Phillips shall have received, at the Closing, a
                  certificate dated the Closing Date and validly executed on
                  behalf of Chevron by an officer of Chevron to the effect that
                  the conditions specified in Sections 7(a)(i) and 7(a)(ii) have
                  been satisfied.

                  (b) Regulatory Approvals. Any waiting periods applicable to
the transactions contemplated by this Agreement under applicable antitrust or
trade regulation laws and regulations, including under the HSR Act, shall have
expired or been terminated.


                                       52
<PAGE>   59
                  (c) No Injunction. At the Closing Date, there shall be no
statute, rule, regulation, injunction, restraining order or decree of any nature
of any Governmental Entity of competent jurisdiction that is in effect that
restrains or prohibits the consummation of a material portion of the
transactions contemplated by this Agreement.

                  (d) Material Adverse Effect. From December 31, 1999 through
the Closing, other than actions contemplated by Section 6.2, no Material Adverse
Effect on C Chem shall have occurred, and there shall exist no fact or
circumstances that would reasonably be expected to have a Material Adverse
Effect on C Chem.

                  (e) Affiliate Agreements. All contracts and agreements between
C Chem Subsidiaries and/or the Company and/or its wholly owned subsidiaries, on
the one hand, and Chevron and its Affiliates (other than C Chem Subsidiaries,
the Company and its wholly owned subsidiaries), on the other hand, relating to
operating, supply and lease commitments and pricing between, C Chem Subsidiaries
and/or the Company and/or its wholly owned subsidiaries, on the one hand, and
Chevron and its Affiliates (other than C Chem Subsidiaries, the Company and its
wholly owned subsidiaries), including the agreements set forth on Schedules
6.11(b) and 6.11(c) of the Chevron Disclosure Schedule and the Tradename License
Agreement, are in full force and effect.

                  SECTION 7.2. Conditions to Chevron's Obligation to Close.
Chevron's obligation to consummate the transactions contemplated by this
Agreement and the Amended LLC Agreement on the terms specified herein shall be
subject to the satisfaction or waiver, on or prior to the Closing Date, of all
of the following conditions:

                  (a) Representations, Warranties and Covenants of Phillips. (i)
The representations and warranties of Phillips contained in this Agreement shall
be true and correct both when made and on and as of the Closing Date, with the
same effect as though such representations and warranties had been made on and
as of such date (except for representations and warranties expressly made as of
an earlier date, in which case as of such date), except for such failures to be
true and correct (without giving effect to any Materiality Requirement) which,
individually or in the aggregate, do not have a Material Adverse Effect on P
Chem.

                           (ii) The covenants and agreements of Phillips to be
                  performed on or before the Closing Date in accordance with
                  this Agreement shall have been duly performed in all material
                  respects.

                           (iii) Chevron shall have received, at the Closing, a
                  certificate dated the Closing Date and validly executed on
                  behalf of Phillips by an officer of Phillips to the effect
                  that the conditions specified in Sections 7.2(a)(i) and
                  7.2(a)(ii) have been satisfied.

                  (b) Regulatory Approvals. Any waiting periods applicable to
the transactions contemplated by this Agreement under applicable antitrust or
trade regulation laws and regulations, including under the HSR Act, shall have
expired or been terminated.

                  (c) No Injunction. At the Closing Date, there shall be no
statute, rule, regulation, injunction, restraining order or decree of any nature
of any Governmental Entity of

                                       53
<PAGE>   60
competent jurisdiction that is in effect that restrains or prohibits the
consummation of a material portion of the transactions contemplated by this
Agreement.

                  (d) Material Adverse Effect. From December 31, 1999 through
the Closing, other than actions contemplated by Section 6.2, no Material Adverse
Effect on P Chem shall have occurred, and there shall exist no fact or
circumstances that would reasonably be expected to have a Material Adverse
Effect on P Chem.

                  (e) Affiliate Agreements. All contracts and agreements between
P Chem Subsidiaries and/or the Company and/or its wholly owned subsidiaries, on
the one hand, and Phillips and its Affiliates (other than P Chem Subsidiaries,
the Company and its wholly owned subsidiaries), on the other hand, relating to
operating, supply and lease commitments and pricing between, P Chem Subsidiaries
and/or the Company and/or its wholly owned subsidiaries, on the one hand, and
Phillips and its Affiliates (other than P Chem Subsidiaries, the Company and its
wholly owned subsidiaries), including the agreements set forth on Schedules
6.11(b) and 6.11(c) of the Phillips Disclosure Schedule and the Tradename
License Agreement, are in full force and effect.

                                  ARTICLE VIII

                                   TERMINATION

                  SECTION 8.1. Termination. This Agreement may be terminated at
any time prior to the Closing by:

                  (a) the mutual written consent of Phillips and Chevron;

                  (b) either Phillips or Chevron if the Closing has not occurred
by the close of business on September 30, 2000; PROVIDED, HOWEVER, that the
failure to consummate the transactions contemplated by this Agreement did not
result from the failure by the party seeking termination of this Agreement to
fulfill any material undertaking or commitment provided for herein that is
required to be fulfilled prior to the Closing;

                  (c) either Phillips or Chevron if the other Party shall have
breached or failed to perform in any material respect any of its respective
representations, warranties, covenants or other agreements contained in this
Agreement, which breach or failure to perform (i) would give rise to the failure
of a condition set forth in Section 7.1(a) or 7.2(a), as applicable, and (ii)
cannot be or has not been cured within 30 days after the giving of written
notice to Phillips or Chevron, as applicable; or

                  (d) either Phillips or Chevron in the event that any order,
law, statute, ordinance, rule, regulation or decree becomes effective (and final
and nonappealable), permanently restraining, enjoining or otherwise prohibiting
or making illegal or otherwise prohibiting the consummation of a material
portion of the transactions contemplated by this Agreement or the Amended LLC
Agreement, upon notification of the non-terminating party by the terminating
party.


                                       54
<PAGE>   61
                  SECTION 8.2. Procedure and Effect of Termination. In the event
of termination of this Agreement by either or both of Phillips and Chevron
pursuant to Section 8.1, written notice thereof shall forthwith be given by the
terminating party to the other parties hereto, and this Agreement shall
thereupon terminate and become void and have no effect, and the transactions
contemplated by this Agreement shall be abandoned without further action by the
parties hereto, except that the provisions of Section 6.1(b) shall survive the
termination of this Agreement; PROVIDED, HOWEVER, that such termination shall
not relieve any party hereto of any liability for any willful breach of this
Agreement. If this Agreement is terminated as provided herein, all filings,
applications and other submissions made pursuant hereto shall, to the extent
practicable, be withdrawn from the agency or other Person to which they were
made by the party making such filing, application or other submission.

                                   ARTICLE IX

                            SURVIVAL; INDEMNIFICATION

                  SECTION 9.1. Indemnification by Company. Subject to the
provisions of this Article IX, the Company shall indemnify and hold harmless
each of Phillips and its Affiliates (other than the Company and its
Subsidiaries) (each a "Phillips Indemnified Person") and Chevron and its
Affiliates (other than the Company and its Subsidiaries) (each a "Chevron
Indemnified Person") from and against any and all Damages incurred by such
Phillips Indemnified Person or Chevron Indemnified Person in connection with any
failure by the Company to perform any covenant or other agreement hereunder.

                  SECTION 9.2. Indemnification by Phillips and Chevron. (a)
Subject to the provisions of this Article IX, Phillips shall indemnify and hold
harmless Chevron and its Affiliates and the Company and its Affiliates
(excluding Phillips, but including the P Chem Subsidiaries following the
Closing) from and against any and all Damages incurred by Chevron and its
Affiliates or the Company or its Affiliates (excluding Phillips, but including
the P Chem Subsidiaries following the Closing) in connection with (i) a breach
of any representation or warranty made by Phillips hereunder or in any schedule,
exhibit or other document attached to or delivered pursuant to this Agreement,
and (ii) any failure by Phillips to perform any covenant or agreement hereunder.

                  (b) Subject to the provisions of this Article IX, Chevron
shall indemnify and hold harmless Phillips and its Affiliates and the Company
and its Affiliates (excluding Chevron, but including the C Chem Subsidiaries
following the Closing) from and against any and all Damages incurred by Phillips
and its Affiliates or the Company and its Affiliates (excluding Chevron, but
including the C Chem Subsidiaries following the Closing) in connection with (i)
a breach of any representation or warranty made by Chevron hereunder or in any
schedule, exhibit or other document attached to or delivered pursuant to this
Agreement, and (ii) any failure by Chevron to perform any covenant or agreement
hereunder.

                  (c) Matters relating to indemnification for Taxes shall not be
governed by this Article IX (other than this Section 9.2(c)), except to the
extent otherwise provided in Annex B. The parties hereto agree that the
indemnification provisions in Annex B shall be the exclusive remedy

                                       55
<PAGE>   62
of the parties with respect to breaches of the representations and warranties in
Sections 6.1 and 6.2 of Annex B, except for actions grounded in fraud, with
respect to which the remedies and limitations set forth in this Agreement shall
not apply or in any manner limit the scope or availability of any other remedy
at law or in equity.

                  SECTION 9.3. Indemnification Procedure. All claims by any
Indemnified Party under this Article IX shall be asserted and resolved as set
forth in Section 2.3 and Article 3 of Annex C.

                  SECTION 9.4. Survival. The representations and warranties of
the parties contained in this Agreement shall survive the Closing and remain
enforceable for 24 months from the Closing Date; PROVIDED, HOWEVER, that (i) the
representations and warranties set forth in Sections 4.1, 4.2, 4.3, 4.7, 5.1,
5.2, 5.3 and 5.7 shall survive the Closing and remain enforceable without time
limit and (ii) the representations and warranties set forth in Annex B shall
survive to the extent provided in Annex B. No claim for indemnity under this
Article IX for any breach of a representation or warranty may be brought unless
the appropriate Claim Notice shall have been delivered to the Indemnifying Party
prior to expiration of the applicable survival period. Notwithstanding the
foregoing, any covenants or agreements contained in this Agreement (including
any covenants or agreements contained in any representation or warranty) shall
survive the Closing and remain enforceable without time limit.

                  SECTION 9.5. Indemnification Limitation. (a) Each Indemnified
Party under this Article IX shall use its reasonable efforts to mitigate Damages
for which it seeks indemnification hereunder, and shall assign to the
Indemnifying Party all of such Indemnified Party's claims for recovery against
third parties as to Damages, whether by insurance coverage, contribution claims,
subrogation or otherwise.

                  (b) Phillips' obligation to indemnify Chevron and its
Affiliates and the Company and its Affiliates as provided in Section 9.2(a)(i)
shall not become effective until the aggregate of all Damages sustained by
Chevron and its Affiliates and the Company and its Affiliates as described in
Section 9.2(a)(i) shall have exceeded the Basket. If the aggregate amount of
Damages sustained by Chevron and its Affiliates and the Company and its
Affiliates as described in Section 9.2(a)(i) exceeds the Basket, then Chevron
and its Affiliates and the Company and its Affiliates shall be entitled to
assert claims under this Article IX for indemnification for the amount of such
Damages in excess of the Basket only; PROVIDED that Phillips' obligation with
respect to indemnification under Section 9.2(a)(i) shall not exceed the Cap in
the aggregate.

                  (c) Chevron's obligation to indemnify Phillips and its
Affiliates and the Company and its Affiliates as provided in Section 9.2(b)(i)
shall not become effective until the aggregate of all Damages sustained by
Phillips and its Affiliates and the Company and its Affiliates as described in
Section 9.2(b)(i) shall have exceeded the Basket. If the aggregate amount of
Damages sustained by Phillips and its Affiliates and the Company and its
Affiliates as described in Section 9.2(b)(i) exceeds the Basket, then Phillips
and its Affiliates and the Company and its Affiliates shall be entitled to
assert claims under this Article IX for indemnification for the amount of such
Damages in excess of the Basket only; PROVIDED that Chevron's obligation with
respect to indemnification under Section 9.2(b)(i) shall not exceed the Cap in
the aggregate.


                                       56
<PAGE>   63
                  (d) Notwithstanding the foregoing, none of Phillips, Chevron
or the Company or their respective Affiliates shall be entitled to assert claims
for indemnification under this Article IX unless the aggregate amount of Damages
claimed in any individual Claim Notice exceeds $2,000,000 in the aggregate.

                  (e) For avoidance of doubt, the indemnification provisions set
forth in Sections 9.1, 9.2(a)(ii) and 9.2(b)(ii) shall not be subject to the
Basket or Cap.

                  (f) The parties hereto agree that the indemnification
provisions in this Article IX shall be the exclusive remedy of the parties with
respect to breaches of the representations and warranties in Articles IV and V,
except for actions grounded in fraud, with respect to which the remedies and
limitations set forth in this Agreement shall not apply or in any manner limit
the scope or availability of any other remedy at law or in equity.

                  SECTION 9.6. Materiality Qualifiers. For purposes of
determining Damages and rights to indemnification under this Article IX, the
representations and warranties set forth in Articles IV and V shall be read
without giving effect to any Materiality Requirement set forth therein; PROVIDED
that representations and warranties qualified by "Material Adverse Effect" shall
be deemed to be true to the extent the breach thereof is reasonably attributable
to the general state of the industries in which such Person and its Subsidiaries
operate (including chemicals price levels), to general economic conditions in
the United States (including prevailing interest rate and stock market levels,)
or to the transactions contemplated by this Agreement or the Amended LLC
Agreement.

                  SECTION 9.7. Knowledge Qualifiers. For purposes of determining
Damages and rights to indemnification under this Article IX, the representations
and warranties set forth in Sections 4.5 and 5.5 shall be read without giving
effect to any Knowledge Requirement set forth therein.

                                    ARTICLE X

                                EMPLOYEE MATTERS

           [The provisions of Annex A are hereby incorporated herein.]

                                   ARTICLE XI

                                   TAX MATTERS

           [The provisions of Annex B are hereby incorporated herein.]


                                       57
<PAGE>   64
                                   ARTICLE XII

                                  MISCELLANEOUS

                  SECTION 12.1. Counterparts. This Agreement may be executed in
one or more counterparts, all of which shall be considered one and the same
agreement, and shall become effective when one or more counterparts have been
signed by each of the parties hereto and delivered (including by facsimile) to
the other parties hereto.

                  SECTION 12.2. Governing Law; Jurisdiction and Forum; Waiver of
Jury Trial. (a) This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware without reference to the choice of law
principles thereof.

                  (b) Each party hereto irrevocably submits to the jurisdiction
of any Delaware state court or any federal court sitting in the State of
Delaware in any action arising out of or relating to this Agreement, and hereby
irrevocably agrees that all claims in respect of such action may be heard and
determined in such Delaware state or federal court. Each party hereto hereby
irrevocably waives, to the fullest extent it may effectively do so, the defense
of an inconvenient forum to the maintenance of such action or proceeding. The
parties hereto further agree, to the extent permitted by law, that final and
unappealable judgment against any of them in any action or proceeding
contemplated above shall be conclusive and may be enforced in any other
jurisdiction within or outside the United States by suit on the judgment, a
certified copy of which shall be conclusive evidence of the fact and amount of
such judgment.

                  (c) To the extent that any party hereto has or hereafter may
acquire any immunity from jurisdiction of any court or from any legal process
(whether through service or notice, attachment prior to judgment, attachment in
aid of execution, execution or otherwise) with respect to itself or its
property, each party hereto hereby irrevocably waives such immunity in respect
of its obligations with respect to this Agreement.

                  (d) Each party hereto waives, to the fullest extent permitted
by applicable laws, any right it may have to a trial by jury in respect of any
action, suit or proceeding arising out of or relating to this Agreement. Each
party hereto certifies that it has been induced to enter into this Agreement by,
among other things, the mutual waivers and certifications set forth above in
this Section 12.2.

                  SECTION 12.3. Entire Agreement. This Agreement and the
annexes, schedules and exhibits hereto (which are each incorporated herein and
made a part hereof), together with the Confidentiality Agreement, contain the
entire agreement between the parties with respect to the subject matter hereof,
and there are no agreements, understandings, representations or warranties
between the parties other than those set forth or referred to herein. Except for
Annex C hereto and Articles IX and XI, which are intended to benefit, and to be
enforceable by, any of the indemnified parties thereunder, this Agreement is not
intended to confer upon any Person not a party hereto (and their successors and
assigns) any rights or remedies hereunder.


                                       58
<PAGE>   65
                  SECTION 12.4. Expenses. (a) Except as set forth in this
Agreement, whether or not the transactions contemplated in this Agreement or the
Amended LLC Agreement are consummated, all legal and other costs and expenses
incurred in connection with this Agreement and the Amended LLC Agreement and the
transactions contemplated by this Agreement and the Amended LLC Agreement shall
be paid by the party incurring such costs and expenses.

                  (b) Any sales, use, transfer, excise or similar Taxes (but not
Taxes imposed on income, gain or profit) incurred in connection with any
transfers required by this Agreement shall be paid and borne as follows
(provided both Parties consult and cooperate with each other regarding transfer
tax planning):

                           (i) with respect to any transfer between the Company,
                  on the one hand, and Phillips or any of its Affiliates (other
                  than P Chem Subsidiaries and the Company), or Chevron or any
                  of its Affiliates (other than C Chem Subsidiaries and the
                  Company), on the other hand, 100% by the Company;

                           (ii) with respect to any transfer between Phillips or
                  any Phillips Retained Affiliate, on the one hand, and any P
                  Chem Subsidiaries, on the other hand, 100% by Phillips; and

                           (iii) with respect to any transfers between Chevron
                  or any Chevron Retained Affiliate, on the one hand, and any C
                  Chem Subsidiaries, on the other hand, 100% by Chevron.

                  (c) Any Taxes imposed on income, gain or profit incurred in
connection with any transfers required by this Agreement shall be paid and borne
by Chevron and Phillips, respectively.

                  SECTION 12.5. Notices. All notices and other communications to
be given to any party hereunder shall be sufficiently given for all purposes
hereunder if in writing and delivered by hand, courier or overnight delivery
service or three days after being mailed by certified or registered mail, return
receipt requested, with appropriate postage prepaid, or when received in the
form of a telegram or facsimile and shall be directed to the address or
facsimile number set forth below (or at such other address or facsimile number
as such party shall designate by like notice):

                  (a)      If to Phillips:

                           Phillips Petroleum Company
                           1266 Adams Building
                           Bartlesville, Oklahoma  74004
                           Attention:  Clyde W. Lea
                           Fax No.:  (918) 662-2301

                           With a copy to:

                           Wachtell, Lipton, Rosen & Katz
                           51 West 52nd Street
                           New York, New York  10019



                                       59
<PAGE>   66
                           Attention:  Andrew R. Brownstein, Esq.
                           Fax No.:  (212) 403-2000

                  (b)      If to Chevron:

                           Chevron Corporation
                           575 Market Street
                           San Francisco, California  94104
                           Attention:  Harvey D. Hinman,
                           Vice President and General
                           Counsel
                           Fax No.:  (415) 894-6017

                           With a copy to:

                           Pillsbury Madison & Sutro
                           50 Fremont Street
                           San Francisco, California  94105
                           Attention:  Terry Kee, Esq.
                           Fax No.:  (415) 983-1200

                  (c)      If to the Company:


                           Chevron Phillips Chemical Company LLC
                           1301 McKinney Street
                           Houston, Texas  77010
                           Attention:  James Gallogly
                           Fax No.:

                  SECTION 12.6. Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns; PROVIDED, HOWEVER, that no party hereto will
assign its rights or delegate any or all of its obligations under this Agreement
without the express prior written consent of each other party hereto.

                  SECTION 12.7. Headings; Definitions. The Section and Article
headings contained in this Agreement are inserted for convenience of reference
only and will not affect the meaning or interpretation of this Agreement. All
references to Sections or Articles contained herein mean Sections or Articles of
this Agreement unless otherwise stated and except in the Annexes hereto, wherein
references to Sections or Articles shall mean Articles or Sections of such Annex
unless otherwise stated. All capitalized terms defined herein are equally
applicable to both the singular and plural forms of such terms.

                  SECTION 12.8. Amendments and Waivers. This Agreement may not
be modified or amended except by an instrument or instruments in writing signed
by all parties hereto. The parties hereto may, only by an instrument in writing,
waive compliance by the other parties hereto

                                       60
<PAGE>   67
with any term or provision of this Agreement on the part of such other party
hereto to be performed or complied with. The waiver by any party hereto of a
breach of any term or provision of this Agreement shall not be construed as a
waiver of any subsequent breach. Except as otherwise expressly provided herein,
no failure to exercise, delay in exercising or single or partial exercise of any
right, power or remedy by any party, and no course of dealing between the
parties, shall constitute a waiver of any such right, power or remedy.

                  SECTION 12.9. Schedules. The disclosure or inclusion of any
matter or item in any Schedule to the Phillips Disclosure Schedule or the
Chevron Disclosure Schedule shall not be deemed an acknowledgment or admission
that any such matter or item is required to be disclosed or is material for
purposes of the representations and warranties set forth in this Agreement or
whether the subject matter of such disclosure may have a Material Adverse Effect
on P Chem or C Chem. Phillips and Chevron shall not be prejudiced in any manner
whatsoever by, and no presumptions shall be created by virtue of, any disclosure
of any matter in the Phillips Disclosure Schedule or the Chevron Disclosure
Schedule, respectively, which is not expressly required to be disclosed under
this Agreement. Information disclosed in any schedule hereto shall only
constitute a disclosure with respect to the specific Section of this Agreement
in which such schedule is referenced.

                  SECTION 12.10. Severability. If any provision of this
Agreement shall be held invalid, illegal or unenforceable, the validity,
legality or enforceability of the other provisions of this Agreement shall not
be affected thereby, and there shall be deemed substituted for the provision at
issue a valid, legal and enforceable provision as similar as possible to the
provision at issue.

                  SECTION 12.11. Interpretation. For the purposes of this
Agreement, "knowledge" shall mean, with respect to Phillips, except as otherwise
specified in this Agreement, the actual knowledge (after due inquiry) of the
Persons identified on Schedule 12.11 of the Phillips Disclosure Schedule and,
with respect to Chevron, the actual knowledge (after due inquiry) of the Persons
identified on Schedule 12.11 of the Chevron Disclosure Schedule. The phrase
"including" shall be deemed to be followed by "without limitation." The words
"hereof," "hereby," "herein," "hereunder" and similar terms in this Agreement
shall refer to this Agreement as a whole and not any particular Section or
Article in which such words appear. In the event an ambiguity or question of
intent or interpretation arises, this Agreement shall be construed as if drafted
jointly by the parties and no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of the authorship of any provisions
of this Agreement.

                  SECTION 12.12. Specific Performance. The parties hereto agree
that irreparable damage would occur in the event that any party fails to
consummate the transactions contemplated by this Agreement in accordance with
the terms of this Agreement, and that the parties shall be entitled to specific
performance in such event in addition to any other remedy at law or in equity.




                                       61
<PAGE>   68
                  IN WITNESS WHEREOF, each of the undersigned, intending to be
legally bound, has caused this Agreement to be duly executed and delivered on
the date first set forth above.

                                  PHILLIPS PETROLEUM COMPANY

                                  By:  /s/ John E. Lowe
                                       -----------------------------------------
                                           John E. Lowe
                                           Senior Vice President
                                           Planning and Strategic Transactions

                                  CHEVRON CORPORATION

                                  By:  /s/ John S. Watson
                                       -----------------------------------------
                                           John S. Watson
                                           Vice President, Strategic Planning

                                  CHEVRON PHILLIPS CHEMICAL
                                  COMPANY LLC

                                  By:  /s/ James L. Gallogly
                                       -----------------------------------------
                                           James L. Gallogly
                                           President and Chief Executive Officer




                                       62
<PAGE>   69

                                   APPENDIX A



                                      FINAL


                              AMENDED AND RESTATED

                       LIMITED LIABILITY COMPANY AGREEMENT

                                       of

                     CHEVRON PHILLIPS CHEMICAL COMPANY LLC


                                DATED: June ,2000
<PAGE>   70
                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                   Page
<S>                                                                               <C>
ARTICLE 1 Definitions...........................................................     2

ARTICLE 2 Offices and Statutory Agent...........................................     9

  2.1    Registered Office and Statutory Agent..................................     9
  2.2    Principal Executive Office.............................................    10
  2.3    Business...............................................................    10

ARTICLE 3 Members; Classes; Voting Rights; Meetings of Members..................    10

  3.1    Members................................................................    10
  3.2    Classes of Members.....................................................    10
  3.3    Duties of Members......................................................    10
  3.4    Voting Rights..........................................................    10
  3.5    Place of Meetings......................................................    11
  3.6    Meetings of Members; Notice of Meetings................................    11
  3.7    Quorum.................................................................    11
  3.8    Waiver of Notice.......................................................    11
  3.9    Action by Members Without a Meeting....................................    11

ARTICLE 4 Board of Directors....................................................    12

  4.1    General................................................................    12
  4.2    Number and Classes of Directors........................................    13
  4.3    Election and Removal of Directors......................................    13
  4.4    Vacancies; Resignations, Replacements..................................    13
  4.5    Initial Directors......................................................    14
  4.6    Compensation of Directors..............................................    14
  4.7    Fiduciary Duties of Directors..........................................    14
  4.8    Limitation of Liability................................................    14

ARTICLE 5 Meetings of Board of Directors........................................    14

  5.1    Place of Meetings......................................................    14
  5.2    Meetings of Directors..................................................    14
  5.3    Quorum; Alternates; Participation in Meetings By
         Conference Telephone Permitted; Vote Required for Action...............    15
  5.4    Waiver of Notice; Consent to Meeting...................................    15
  5.5    Action by Board of Directors Without a Meeting.........................    15
  5.6    Committees and Subcommittees...........................................    16

ARTICLE 6 Officers..............................................................    16

  6.1    General................................................................    16
  6.2    Appointment and Removal................................................    16
  6.3    Chief Executive Officer and President..................................    16
  6.4    Vice Presidents........................................................    16
  6.5    Secretary..............................................................    17
</TABLE>


                                           -i-
<PAGE>   71
<TABLE>

<S>                                                                               <C>
   6.6   Chief Financial Officer................................................    17
   6.7   Initial Officers.......................................................    17

ARTICLE 7 Operational Matters...................................................    17

   7.1   Board of Director Approval.............................................    17
   7.2   Strategic and Business Plans; Reports..................................    19

ARTICLE 8 Capital Contributions and Percentage Interests........................    20

   8.1   Capital Contributions and Percentage Interests.........................    20
   8.2   Additional Capital Contributions.......................................    22
   8.3   Withdrawal or Reduction of Capital Contributions.......................    22
   8.4   No Interest on Capital Contributions...................................    22
   8.5   Capital Accounts.......................................................    22
   8.6   Loans by Members to the Company........................................    23
   8.7   Treatment of Certain Indemnity Payments................................    23

ARTICLE 9 Allocation of Profits and Losses; Distributions;
          Tax and Accounting Matters............................................    24
   9.1   Allocations............................................................    24
   9.2   Distributions..........................................................    27
   9.3   Accounting Matters.....................................................    29
   9.4   Tax Status and Returns.................................................    30
   9.5   754 Election and Other Tax Elections...................................    30
   9.6   Tax Matters Partner....................................................    30

ARTICLE 10 Restrictions on Transfer.............................................    31

   10.1  Transfer of Interests..................................................    31
   10.2  Conditions of Transfer.................................................    31
   10.3  Admission of Substitute Member.........................................    31
   10.4  Effect of Transfer without Approval....................................    32
   10.5  Liability for Breach...................................................    32
   10.6  Permitted Transfers Subject to Right of First Refusal..................    32
   10.7  Permitted Transfers Among Wholly-Owned Affiliates......................    33
   10.8  Transfers of Equity Interests in a Member..............................    33

ARTICLE 11 Competition..........................................................    34

   11.1  General................................................................    34
   11.2  Resolution of Competitive Conflicts....................................    34

ARTICLE 12 Term and Dissolution.................................................    35

   12.1  Term...................................................................    35
   12.2  Dissolution............................................................    35
   12.3  Liquidation............................................................    35
   12.4  Liabilities............................................................    36
   12.5  Settling of Accounts...................................................    36
   12.6  Distribution of Proceeds...............................................    36
   12.7  Certificate of Cancellation............................................    37

ARTICLE 13 Indemnification......................................................    37
</TABLE>

                                             -ii-
<PAGE>   72
<TABLE>
<S>                                                                               <C>
   13.1   Indemnification: Proceeding Other Than by Company.....................    37
   13.2   Indemnification: Proceeding by Company................................    37
   13.3   Mandatory Advancement of Expenses.....................................    38
   13.4   Effect and Continuation...............................................    38
   13.5   Insurance and Other Financial Arrangements............................    38
   13.6   Notice of Indemnification and Advancement.............................    39
   13.7   Repeal or Modification................................................    39

ARTICLE 14 Inspection of Company Records; Annual and Other Reports..............    39

   14.1   Records to be Kept....................................................    39
   14.2   Access to Company Information.........................................    40
   14.3   Annual and Quarterly Reports..........................................    40

ARTICLE 15 Defaults and Remedies................................................    40

   15.1   Defaults..............................................................    40
   15.2   Remedies..............................................................    41
   15.3   No Waiver.............................................................    41

ARTICLE 16 Miscellaneous........................................................    41

   16.1   Amendments............................................................    41
   16.2   Representation of Shares of Companies or
          Interests in Other Entities...........................................    41
   16.3   Seal..................................................................    41
   16.4   Actions by Affiliates of Phillips and Chevron.........................    41
   16.5   Entire Agreement......................................................    42
   16.6   Third Parties.........................................................    42
   16.7   Governing Law; Jurisdiction and Forum; Waiver of Jury Trial...........    42
   16.8   Counterparts..........................................................    42
   16.9   Titles and Subtitles; Form of Pronouns; Construction and Definitions..    43
   16.10  Delaware Limited Liability Company Act Prevails.......................    43
   16.11  Severability..........................................................    43
</TABLE>

                                         -iii-
<PAGE>   73
                              AMENDED AND RESTATED

                       LIMITED LIABILITY COMPANY AGREEMENT

                                       of

                      CHEVRON PHILLIPS CHEMICAL COMPANY LLC


       THIS AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT (this
"Agreement") is made and entered into as of the __ day of June __,2000 by and
between Chevron Corporation, a Delaware corporation ("Chevron"), Phillips
Petroleum Company, a Delaware corporation ("Phillips," or the "Initial Phillips
Member"), Chevron U.S.A. Inc., a Pennsylvania corporation ("CUSA," or the
"Initial Chevron Member"), Chevron Pipe Line Company, a Delaware corporation
("CPL"), Chevron Overseas Petroleum Inc., a Delaware corporation ("COPI"),
Drilling Specialties Co., a Delaware corporation ("Drilling Specialties"),
WesTTex 66 Pipeline Co., a [Delaware corporation] ("WesTTex 66"), and Phillips
Petroleum International Corporation, [currently a Panamanian corporation that
will be converted to a Delaware corporation] ("PPIC").

                              W I T N E S S E T H:

       WHEREAS, on May 23, 2000, a Certificate of Formation (the "Certificate")
for Chevron Phillips Chemical Company LLC (the "Company"), a limited liability
company organized under the laws of the State of Delaware, was filed with the
Secretary of State of the State of Delaware; and

       WHEREAS, the Initial Chevron Member and the Initial Phillips Member
entered into the original Limited Liability Company Agreement of the Company
(the "Original LLC Agreement") on May 23, 2000; and

       WHEREAS, the purpose of the Company is to hold and manage its interests
in entities which in aggregate will combine the existing chemicals businesses of
Chevron and certain of its affiliates with the existing chemicals businesses of
Phillips and certain of its affiliates and thereafter to conduct the combined
businesses; and

       WHEREAS, Chevron and Phillips envision that the Company (together with
its Subsidiaries and Affiliates) will be a competitive, growing chemical venture
meeting or exceeding the financial return expectations of the owners on their
investment in petrochemicals, plastics, and selected specialties; and

       WHEREAS, Chevron and Phillips intend that the Company will be a
self-financing entity, premised on an investment grade credit rating, without
the benefit of corporate guarantees; and


                                       -1-
<PAGE>   74
     WHEREAS, the Members (as defined herein), including the Initial Chevron
Member and the Initial Phillips Member, now desire to amend and restate the
limited liability company agreement of the Company in its entirety to reflect
the consummation of the transactions contemplated by the Contribution Agreement
(as defined herein) and to more particularly provide for their respective
rights, powers, duties and obligations as Members, and the management,
operations and activities of the Company; and

     WHEREAS, Chevron and Phillips desire to agree to the undertaking set forth
in Section 10.8 of this Agreement:

     NOW, THEREFORE, the Members by this Agreement set forth the limited
liability company agreement for the Company under the Delaware Limited Liability
Company Act (6 Del.C. Section 18-101 et seq., the "Act") upon the following
terms and conditions:

                                    ARTICLE 1

                                   Definitions

       Capitalized terms used in this Agreement without other definition shall,
unless expressly stated otherwise, have the meanings specified in this Article
1.

       "Adjusted Capital Account Balance" means each Member's Capital Account,
increased by the amount of such Member's share of "minimum gain" and "partner
nonrecourse debt minimum gain" as such terms are defined in Treasury Regulation
1.704-2 and such other amounts as such Member is unconditionally obligated to
contribute hereunder.

       "Adjusted Capital Account Deficit" means, with respect to any Member, the
deficit balance, if any, in such Member's Capital Account as of the end of the
relevant Fiscal Year, after giving effect to the following adjustments:

              (a) Credit such Capital Account by any amounts which such Member
       is obligated to restore pursuant to this Agreement (including any note
       obligations) or is deemed to be obligated to restore pursuant to the
       penultimate sentence of each of sections 1.704-2(i)(5) and 1.704-2(g)(l)
       of the Income Tax Regulations; and

              (b) Debit such Capital Account by the items described in sections
       1.704- 1(b)(2)(ii)(d)(4), (5) and (6) of the Income Tax Regulations.

       The foregoing definition of Adjusted Capital Account Deficit is intended
to comply with the provisions of section l.704-l(b)(2)(ii)(d) of the Income Tax
Regulations and shall be interpreted consistently therewith.

       "Adjusted Class C Financial Statement Net Contribution" has the meaning
set forth in Section 8.1 (c)(ii).

       "Adjusted Class P Financial Statement Net Contribution" has the meaning
set forth in Section 8.1 (c)(ii).


                                       -2-
<PAGE>   75
       "Adjusted Taxable Income" means, for a Fiscal Year, Fiscal Quarter or
other period, the federal taxable income allocated by the Company to the Member
for such Fiscal Year, Fiscal Quarter or other period; provided, that such
taxable income shall be computed by taking into account any special basis
adjustment with respect to such Member resulting from an election by the Company
under Code Section 754.

       "Affiliate" has the meaning set forth in Rule 405 under the Securities
Act of 1933, as amended.

       "Agreement" means this Amended and Restated Limited Liability Company
Agreement, as originally executed and as amended, modified or supplemented from
time to time. Words such as "herein," "hereinafter," "hereof," "hereto,"
"hereby" and "hereunder," when used with reference to this Agreement, refer to
this Agreement as a whole, unless the context otherwise requires.

       "Basket" has the meaning set forth in Article I of the Contribution
Agreement.

       "Board of Directors" has the meaning set forth in Section 4.1.

       "Cap" has the meaning set forth in Article I of the Contribution
Agreement.

       "Capital Account" has the meaning set forth in Section 8.5.

       "Capital Contributions" means the contributions made by the Members to
the Company pursuant to Section 8.1 or 8.2 hereof and, in the case of all the
Members, the aggregate of all such Capital Contributions.

       "Carrying Value" means, with respect to any Company asset, such asset's
adjusted basis for federal income tax purposes, except as follows:

              (a) The fair market value as agreed by the Members, when
       contributed, of an asset contributed to the Company by any Member. The
       aggregate Carrying Value effective as of the Closing of the assets
       initially contributed by each Member to the Company pursuant to Section
       8.1(a), shall be the amount determined in accordance with Section 8.1(c),
       which amount shall be set forth opposite such Member's name on Schedule 3
       hereto.

              (b) The Carrying Values of all Company assets shall be adjusted to
       equal their respective fair market values as agreed to by the Board of
       Directors, and the resulting unrecognized gain or loss allocated to the
       Capital Accounts of the Members as though such assets had been sold for
       their respective fair market values as of the following times: (i)
       immediately before the acquisition of an additional interest in the
       Company by any new or existing Member in exchange for more than a de
       minimis capital contribution; (ii) upon the distribution by the Company
       to a Member of more than a de minimis amount of Company assets, unless
       all Members receive simultaneous distributions of either undivided
       interests in the distributed property or identical Company assets in
       proportion to their interests in the Company; (iii) the date the Company
       is liquidated within the meaning of section 1.704-

                                       -3-
<PAGE>   76
       l(b)(2)(ii)(g) of the Income Tax Regulations; and (iv) the termination of
       the Company pursuant to the provisions of this Agreement.

              (c) The Carrying Value of the Company assets shall be increased or
       decreased to the extent required under section l.704-l(b)(2)(iv)(m) of
       the Income Tax Regulations in the event that the adjusted tax basis of
       Company assets are adjusted pursuant to section 732, 734 or 743 of the
       Code, provided, however, that the Carrying Value shall not be adjusted
       pursuant to this subparagraph (c) to the extent that an adjustment
       pursuant to subparagraph (b) is required in connection with a transaction
       that would otherwise result in an adjustment pursuant to this
       subparagraph (c).

              (d) The Carrying Value of a Company asset that is distributed
       (whether in liquidation of the Company or otherwise) to one or more
       Members shall be adjusted to equal its fair market value at the time of
       such distribution as determined by the Board of Directors, and the
       resulting unrecognized gain or loss shall be allocated to the Capital
       Accounts of the Members as though such asset had been sold for such fair
       market value.

              (e) The Carrying Value of a Company asset shall be adjusted by the
       Depreciation attributable to such asset.

       "Chemicals Business" means the lines of business comprising P Chem and C
Chem (as defined in the Contribution Agreement), other petrochemicals businesses
and related businesses; provided, however, that Chemicals Business shall not
include any specific businesses comprising Chevron Excluded Assets or Phillips
Excluded Assets (as defined in the Contribution Agreement).

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

       "Class C Financial Statement Net Contribution" has the meaning set forth
in Section 8.l(c)(i).

       "Class C Member" includes CUSA, CPL and COPI, and any other Member to
whom a Class C Member Transfers a Membership Interest in accordance with this
Agreement; provided, however, that a Class C Member shall cease to be a Class C
Member upon the Transfer of all of such Person's Membership Interest in
accordance with this Agreement.

       "Class C Members Aggregate Allocable Share" means, for each Fiscal Year,
Fiscal Quarter or other period of the Company, the sum of the Adjusted Taxable
Income of the Company allocated to all Class C Members for such Fiscal Year,
Fiscal Quarter or other period.

       "Class P Financial Statement Net Contribution" has the meaning set forth
in Section 8.l(c)(i).

       "Class P Member" includes Phillips, Drilling Specialties, WesTTex 66 and
PPIC, and any other Member to whom a Class P Member Transfers a Membership
Interest in accordance

                                       -4-
<PAGE>   77
with this Agreement; provided, however, that a Class P Member shall cease to be
a Class P Member upon the Transfer of all of such Person's Membership Interest
in accordance with this Agreement.

       "Class P Members Aggregate Allocable Share" means, for each Fiscal Year,
Fiscal Quarter or other period of the Company, the sum of the Adjusted Taxable
Income of the Company allocated to all Class P Members for such Fiscal Year,
Fiscal Quarter or other period.

       "Class Membership Interest" means the aggregate Membership Interest of
all of the Class C Members or all of the Class P Members, as the case may be.

       "Closing" has the meaning provided for in the Contribution Agreement.

       "Closing Date" means the date of the Closing.

       "Code" means the United States Internal Revenue Code of 1986, as amended,
or any corresponding provision or provisions of any succeeding law.

       "Company Indemnifiable Payment" has the meaning set forth in Section 8.7.

       "Company Minimum Gain" has the meaning set forth in sections 1
 .704-2(b)(2) and 1.704- 2(d) of the Income Tax Regulations for the phrase
"partnership minimum gain."

       "Contribution Agreement" means that certain Contribution Agreement, dated
as of May 23, 2000, by and among Chevron Corporation, Phillips Petroleum Company
and the Company.

       "Costs" means the sum of all cash expenditures made by the Company in
connection with the ownership of the Company's assets and the operation of the
Company's business, including, without limitation, the cost of all materials
purchased, goods returned, services provided and other similar fees, costs and
expenses; all real estate and sales taxes; all insurance premiums; all payments
of principal and interest on Company indebtedness; any distributions to Members,
and other similar expenditures.

       "Depreciation" means, for a Fiscal Year or other period, an amount equal
to the federal income tax depreciation, amortization or other cost recovery
deduction allowable with respect to an asset for such Fiscal Year or other
period, except that if the Carrying Value of an asset differs from its adjusted
basis for federal income tax purposes at the beginning of such Fiscal Year or
other period, Depreciation shall be an amount that bears the same ratio to such
beginning Carrying Value as the federal income tax depreciation, amortization or
other cost recovery deduction for such Fiscal Year or other period bears to such
beginning adjusted tax basis; provided, however, that if the federal income tax
depreciation, amortization or other cost recovery deduction for such Fiscal Year
or other period is zero, then Depreciation shall be determined with reference to
such beginning Carrying Value using any reasonable method selected by the Board
of Directors.

       "Director" means a Person who is elected as a Director of the Company
pursuant to Section 4.3 or 4.4 of this Agreement.

                                       -5-
<PAGE>   78
       "Fiscal Quarter" means the three (3) month period beginning on the first
day of the Company's Fiscal Year, and each subsequent (3) month period within
the Company's Fiscal Year.

       "Fiscal Year" means the Company's tax year for U.S. federal income tax
purposes specified in Section 9.3.

       "Income Tax Regulations" means the regulations issued with respect to the
Code.

       "Indemnified Party" and "Indemnifying Party" shall have the meanings set
forth in Article I of the Contribution Agreement.

       "K-Resin Accident" means the fire and explosion on March 27, 2000 that
took place at the Phillips K-Resin plant located in Pasadena, Texas.

       "Leverage Ratio Deficit" means, as of any relevant date, the amount, if
any, by which the book value of the indebtedness for money borrowed would need
to increase, without the Company's receiving and holding an asset of
corresponding value, to cause the Company's Total Debt to Total Capitalization
Ratio, as of such date, to increase to 20%.

       "Member" has the meaning set forth in Section 3.1.

       "Member Nonrecourse Debt Minimum Gain" means an amount, with respect to
each Member, equal to the Company Minimum Gain that would result if all such
Member's Member Nonrecourse Debt were treated as a Nonrecourse Liability, as
determined in accordance with section 1 .704-2(i)(3) of the Income Tax
Regulations.

       "Member Nonrecourse Debt" has the meaning set forth in section 1
 .704-2(b)(4) of the Income Tax Regulations for the phrase "partner nonrecourse
debt."

       "Member Nonrecourse Deduction" has the meaning set forth in section 1
 .704-2(i)(2) of the Income Tax Regulations for the phrase "partner nonrecourse
deduction."

       "Member's Proportionate Tax Share" means (i) with respect to a Class C
Member, the product of(X) the Tax Distribution for the Fiscal Year, Fiscal
Quarter or other period, as applicable, and (Y) a fraction, the numerator of
which is the Percentage Interest of such Class C Member for such Fiscal Year,
Fiscal Quarter or other period and the denominator is the sum of the Percentage
Interests for all Class C Members for such Fiscal Year, Fiscal Quarter or other
period and (ii) with respect to a Class P Member, the product of (X) the Tax
Distribution for the Fiscal Year, Fiscal Quarter or other period, as applicable,
and (Y) a fraction, the numerator of which is the Percentage Interest of such
Class P Member for such Fiscal Year, Fiscal Quarter or other period and the
denominator is the sum of the Percentage Interests for all Class P Members for
such Fiscal Year, Fiscal Quarter or other period. In the event that the
Percentage Interest of a Member changes during any Fiscal Year, Fiscal Quarter
or other period, the Member's Proportionate Tax Share of such Member and the
other Class P Members or Class C Members, as the case may be, for such Fiscal
Year, Fiscal Quarter or other period shall be appropriately adjusted to take
into account the Class P Members' or Class C Members', as the case may be,
varying interests. In no event shall the application of the foregoing formula
result in the Class C Members in the aggregate or the Class P Members in the
aggregate receiving an amount in

                                       -6-
<PAGE>   79
excess of the Tax Calculation Share applicable to such Fiscal Year, Fiscal
Quarter or other period.

       "Membership Interest" means the ownership interest of a Member in the
Company, including a Member's right to share in the Company's items of income,
gain, loss, deduction, credits and similar items, and the right to receive
distributions from the Company, as well as a Member's rights to vote and
otherwise participate in the operation or affairs of the Company as provided for
herein and under the Act.

       "Minimum Leverage Distribution" means the lesser of(x) five (5) times the
amount of the Leverage Ratio Deficit or (y) the Net Cash Available for
Distribution.

       "Net Cash Available for Distribution" means (i) the excess, for each
semi-annual period ending on the last day of the second and fourth Fiscal
Quarter of each Fiscal Year, of Revenues for such period over Costs for such
period; plus (ii) cash and cash equivalent securities on hand at the beginning
of such period; minus (iii) adequate reserves for working capital, approved
future expenditures and known liabilities.

       "Net Profit" or "Net Loss" means for each Fiscal Year or other period, an
amount equal to the Company's taxable income or loss for such Fiscal Year or
period determined in accordance with section 703(a) of the Code (for this
purpose, all items of income, gain, loss or deduction required to be stated
separately pursuant to section 703(a)(1) of the Code shall be included in
taxable income or loss), with the following adjustments:

              (a) Any income of the Company that is exempt from federal income
       tax and not otherwise taken into account in computing Net Profit or Net
       Loss pursuant to this definition shall be added to such taxable income or
       loss;

              (b) Any expenditure of the Company described in section
       705(a)(2)(B) of the Code or treated as such expenditure pursuant to
       section 1.704-1 (b)(2)(iv)(i) of the Income Tax Regulations, and not
       otherwise taken into account in computing Net Profit or Net Loss, shall
       be subtracted from such taxable income or loss;

              (c) Gain or loss resulting from any disposition of Company assets
       where such gain or loss is recognized for federal income tax purposes
       shall be computed by reference to the Carrying Value of the Company
       assets disposed of, notwithstanding that the adjusted tax basis of such
       Company assets differs from its Carrying Value;

              (d) In lieu of the depreciation, amortization and other cost
       recovery deductions taken into account in computing such taxable income
       or loss, there shall be taken into account Depreciation for such Fiscal
       Year;

              (e) To the extent an adjustment to the adjusted tax basis of any
       asset included in Company assets pursuant to section 734(b) of the Code
       or section 743(b) is required pursuant to section 1.704-1(b)(2)(iv)(m)(4)
       of the Income Tax Regulations to be taken into account in determining
       Capital Accounts as a result of a distribution other than in liquidation
       of a Member's Membership Interest, the

                                       -7-
<PAGE>   80
       amount of such adjustment shall be treated as an item of gain (if the
       adjustment increases the basis of the asset) or loss (if the adjustment
       decreases the basis of the asset) from the disposition of the asset and
       shall be taken into account for the purposes of computing Net Profit and
       Net Loss;

              (f) If the Carrying Value of any Company asset is adjusted in
       accordance with either of clauses (b) or (d) of the definition of
       "Carrying Value," the amount of such adjustment shall be taken into
       account in the Fiscal Year of such adjustment as gain or loss from the
       disposition of such asset for purposes of computing Net Profit or Net
       Loss; and

              (g) Notwithstanding any other provision of this definition, any
       items that are specially allocated pursuant to Section 9.1(b) shall not
       be taken into account in computing Net Profit or Net Loss.

       "Nonrecourse Deductions" has the meaning set forth in section 1.704-2(c)
of the Income Tax Regulations.

       "Nonrecourse Liability" has the meaning set forth in section 1
 .704-2(b)(3) of the Income Tax Regulations.

       "Parent" means, when used with respect to any Person, any corporation,
partnership, limited liability company, or other organization, whether
incorporated or unincorporated, which owns or controls, directly or indirectly,
50% or more of the outstanding voting securities (or equivalent voting
interests) of such Person.

       "Percentage Interest" means a Member's percentage interest in the Company
determined in the manner set forth in Section 8.1 (a), provided, however, that
the aggregate percentage interests of the Class C Members shall be 50% and the
aggregate percentage interests of the Class P Members shall be 50%. After the
Percentage Interests of each Member has been determined in accordance with
Section 8.1(a), each such Member's Percentage Interest shall be set forth
opposite such Members name on Schedule 3 hereto.

       "Person" means any general partnership, limited partnership, joint
venture, association, corporation, limited liability company, trust or other
entity and, where the contexts so permits or requires, a natural person.

       "Pre-Adjustment Excess" has the meaning set forth in Section 8.1(b).

       "Quarterly Tax Distribution" means, for each Member for each of the first
three Fiscal Quarters of the Company during the term of the Company, such
Member's Proportionate Tax Share for such Fiscal Quarter.

       "Revenues" means revenues and receipts of every kind and nature (from
both cash and credit transactions), including sales proceeds, rental, license,
lease or other income, net proceeds from issuance of indebtedness, proceeds from
insurance and all other similar items, but excluding (i) payments received as an
advance or deposit, until actually applied by the Company;


                                       -8-
<PAGE>   81
and (ii) except as otherwise expressly agreed by the Members, the amount of any
Capital Contributions.

       "Subsidiary" means, when used with respect to any Person, any
corporation, partnership, limited liability company, or other organization,
whether incorporated or unincorporated, of which such Person owns or controls,
directly or indirectly, 50% or more of the outstanding voting securities (or
equivalent voting interests).

       "Tax Basket Amount" shall have the meaning set forth in Section 1.11 of
Annex B to the Contribution Agreement.

       "Tax Calculation Share" means, for each Fiscal Year, Fiscal Quarter or
other period, the greater of(i) the Class P Members Aggregate Allocable Share
for such Fiscal Year, Fiscal Quarter or other period and (ii) the Class C
Members Aggregate Allocable Share for such Fiscal Year, Fiscal Quarter or other
period.

       "Tax Distribution" means, for each Fiscal Year, Fiscal Quarter or other
period of the Company during the term of the Company, the product of(i) the Tax
Calculation Share for such Fiscal Year, Fiscal Quarter or other period and (ii)
the Tax Rate for such Fiscal Year, Fiscal Quarter or other period.

       "Tax Rate" means the marginal blended tax rate determined by assuming
that (i) such Person is a corporation subject to the highest marginal corporate
United States federal income tax rate applicable for the applicable period, (ii)
such Person is subject to franchise and other income taxes at a combined rate
initially determined to be 5% (which rate may be periodically changed to such
rate as shall be agreed upon by the Class C Member(s) and Class P Member(s)),
and (iii) the franchise and other income taxes described in the preceding clause
(ii) are deductible for United States federal income tax purposes.

       "Total Debt to Total Capitalization Ratio" means the ratio, the numerator
of which is the sum of the Company's long-term debt plus current maturities,
commercial paper and other short- term borrowings, and the denominator of which
is the sum of the Company's long-term debt plus current maturities, commercial
paper and other short-term borrowings plus members' equity plus minority
interest, if any.

       "Ultimate Parent" means, with respect to any Person, a Parent who is not
a Subsidiary of any other Person.

       "Wholly-Owned Affiliate" means a wholly-owned Subsidiary of the Ultimate
Parent of a Member.

                                    ARTICLE 2

                           Offices and Statutory Agent

       2.1 Registered Office and Statutory Agent. The registered office and
statutory agent in Delaware required by the Act shall be as set forth in the
Certificate until such time as the registered office or statutory agent is
changed in accordance with the Act.


                                       -9-
<PAGE>   82
       2.2 Principal Executive Office. The location of the principal executive
office for the transaction of the business of the Company shall be Houston,
Texas, or such other location as determined by the Board of Directors from time
to time.

       2.3 Business. The Company may carry on any lawful business, purpose or
activity which is permitted to be carried on by a limited liability company
under the Act. The actual business of the Company shall be determined by the
Board of Directors.

                                    ARTICLE 3

              Members; Classes; Voting Rights; Meetings of Members

       3.1 Members. Each party to this Agreement, except for Chevron, and each
person admitted as a Member pursuant to this Agreement shall be a member of the
Company until they cease to be a member in accordance with the provisions of the
Act, the Certificate or this Agreement (the "Members"). The names of the Members
shall be set forth on Schedule I hereto.

       3.2 Classes of Members. The Membership Interests in the Company shall be
divided into two (2) classes of members, such classes being designated as Class
C Members and Class P Members.

       3.3 Duties of Members. Members shall not owe duties, fiduciary or
otherwise, or obligations to the Company or other Members, except as expressly
set forth herein.

       3.4 Voting Rights.

       (a) Except as may otherwise be provided by this Agreement or the Act or
the Certificate, the unanimous vote of the Members on a matter shall constitute
the act of the Members.

       (b) The Members shall have the right to elect Directors in accordance
with Sections 4.3 and 4.4 of this Agreement.

       (c) Only Persons whose names are listed as Members on the records of the
Company at the close of business on the business day immediately preceding the
day on which notice of the meeting is given or, if such notice is waived, at the
close of business on the business day immediately preceding the day on which the
meeting of Members is held (except that the record date for Members entitled to
give consent to action without a meeting shall be determined in accordance with
Section 3.9) shall be entitled to receive notice of and to vote at such meeting,
and such day shall be the record date for such meeting. Any Member entitled to
vote on any matter shall be entitled to cast that number of votes equal to such
Member's Percentage Interest and may cast part of the votes in favor of the
proposal and refrain from exercising the remaining votes or vote against the
proposal (other than elections of a Director), but if the Member fails to
specify the number of votes such Member is exercising affirmatively, it will be
conclusively presumed that the Member's approving vote is with respect to all
votes such Member is entitled to cast. Such vote may be viva voce or by ballot;
provided, however, that all elections for Directors must be by ballot upon
demand made by a Member at any election and before the voting begins.


                                      -10-
<PAGE>   83
       3.5 Place of Meetings. All meetings of the Members shall be held at any
place within or without the State of Delaware which may be designated either by
the Board of Directors or by the written consent of all Members entitled to vote
thereat given either before or after the meeting and filed with the secretary.
In the event of any inconsistency in the places designated by the Board of
Directors or the Members as herein provided, or in the absence of any such
designation, Members' meetings shall be held at the principal executive office
of the Company.

       3.6 Meetings of Members: Notice of Meetings. Meetings of the Members for
the purpose of taking any action permitted to be taken by the Members may be
called by a majority of the Directors or by Members holding a majority of the
Percentage Interests. Upon request in writing that a meeting of Members be
called for any proper purpose, the Secretary forthwith shall cause notice to be
given to the Members entitled to vote that a meeting will be held at a time
requested by the person or persons calling the meeting, not less than
thirty-five (35) nor more than sixty (60) days after receipt of the request.
Except in special cases where other express provision is made by statute, notice
of such meetings shall be given personally, in writing, via electronic means or
via facsimile to each Member entitled to vote not less than thirty-five (35) nor
more than sixty (60) days before the meeting. Such notices shall state:

       (a) The place, date and hour of the meeting;

       (b) Those matters which the Directors, at the time of the mailing of the
notice, intend to present for action by the Members; and

       (c) The names of the Directors intended at the time of the notice to be
presented for election.

       3.7 Quorum. The presence at any meeting in person or by proxy of Members
holding one-hundred percent (100%) of the aggregate Percentage Interests
entitled to vote at such meeting shall constitute a quorum for the transaction
of business.

       3.8 Waiver of Notice. The actions of any meeting of Members, however
called and noticed, and wherever held, shall be as valid as if taken at a
meeting duly held after regular call and notice, if a quorum be present either
in person or by proxy, and if, either before or after the meeting, each person
entitled to vote, not present in person or by proxy, signs a written waiver of
notice or a consent to a holding of the meeting, or an approval of the minutes
thereof. The waiver of notice, consent or approval need not specify either the
business to be transacted or the purpose of any regular or special meeting of
Members. All such waivers, consents or approvals shall be filed with the Company
records and made a part of the minutes of the meeting.

       Attendance of a Member at a meeting shall also constitute a waiver of
notice of and presence at such meeting, except when the Member objects, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened, and except that attendance at a meeting is
not a waiver of any right to object to the consideration of matters required to
be included in the notice but not so included, if such objection is expressly
made at the meeting.

       3.9 Action by Members Without a Meeting. Directors may be elected or
removed without a meeting by a consent in writing, setting forth the action so
taken, signed by Members


                                      -11-
<PAGE>   84
entitled to elect or remove Directors in accordance with Section 4.3; in
addition, a Director may be elected at any time to fill a vacancy by a written
consent signed by Members entitled to elect or remove Directors in accordance
with Section 4.3. Notice of such election shall be promptly given to
nonconsenting Members.

       Any other action which, under any provision of the Act or the Certificate
or this Agreement, may be taken at a meeting of the Members, may be taken
without a meeting, and without notice except as hereinafter set forth, if a
consent in writing, setting forth the action so taken, is signed by Members
having not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all Members entitled to vote
thereon were present and voted. All such consents shall be filed with the
secretary of the Company and shall be maintained in the Company's records.

       Unless the consents of all Members entitled to vote have been solicited
in writing, prompt notice shall be given of the taking of any action approved by
Members without a meeting by less than unanimous written consent to those
Members entitled to vote who have not consented in writing.

       Unless the Board of Directors sets a record date for the determination of
Members entitled to notice of and to give such written consent, the record date
for such determination shall be the day on which the first written consent is
given.

       Any Member giving a written consent, or the Member's proxyholders, or a
personal representative of the Member or their respective proxyholders, may
revoke the consent by a writing received by the secretary prior to the time that
written consents of the number of votes required to authorize the proposed
action have been filed with the secretary, but may not do so thereafter. Such
revocation is effective upon its receipt by the secretary or, if there shall be
no person then holding such office, upon its receipt by any other officer or
Director of the Company.

                                    ARTICLE 4

                               Board of Directors

       4.1 General. Subject to the provisions of the Act and any limitations in
the Certificate and this Agreement as to action required to be authorized or
approved by the Members, the business and affairs of the Company shall be
managed and all its powers shall be exercised by the Members, who have in turn
delegated their authority to manage the business and affairs of the Company and
to exercise all of the Company's powers to the board of directors of the Company
(the "Board of Directors"), who have in turn delegated to the Officers (as
defined herein) such portions of the authority of the Board of Directors as set
forth herein (and as may be set forth in resolutions of the Board of Directors),
provided that any delegation of authority to the Officers set forth herein or
otherwise is subject to the discretion of the Board of Directors. Without
prejudice to such general powers, but subject to the same limitations, it is
hereby expressly declared that the Board of Directors shall have the following
powers:


                                      -12-
<PAGE>   85
       (a) To conduct, manage and control the business and affairs of the
Company, including, to the extent determined by the Board of Directors, managing
any Subsidiary limited liability company and to make such rules and regulations
therefor not inconsistent with law or with the Certificate or with this
Agreement, as the Board of Directors shall deem to be in the best interests of
the Company;

       (b) To appoint and remove at pleasure the officers, agents and employees
of the Company, prescribe their duties and fix their compensation;

       (c) To borrow money and incur indebtedness for the purposes of the
Company and to cause to be executed and delivered therefor, in the Company's
name, promissory notes, bonds, debentures, deeds of trust, mortgages, pledges,
hypothecations or other evidences of debt and securities therefor;

       (d) To designate an executive and other committees, each consisting of
two or more Directors, to serve at the pleasure of the Board of Directors, and
to prescribe the manner in which proceedings of such committees shall be
conducted; and

       (e) To acquire real and personal property, arrange financing, enter into
contracts and complete all other arrangements needed to effectuate the business
of the Company.

       4.2 Number and Classes of Directors. The Board of Directors shall consist
of four (4) voting Directors (the "Voting Directors") and two (2) non-voting
Directors (the "Non-Voting Directors").

       4.3 Election and Removal of Directors. The Directors shall be elected as
follows:

       (a) The Class C Member(s) shall elect two (2) Voting Directors
(individually, a "Class C Director", and together, the "Class C Directors").

       (b) The Class P Member(s) shall elect two (2) Voting Directors
(individually, a "Class P Director", and together, the "Class P Directors").

       (c) The Class C Member(s) may remove, at any time, either or both of the
Class C Directors, with or without cause. The Class P Member(s) may remove, at
any time, either or both of the Class P Directors, with or without cause.

       (d) The chief executive officer and the chief financial officer of the
Company shall be ex officio the two Non-Voting Directors. The Non-Voting
Directors may be removed at any time by the Board of Directors. If either the
office of chief executive officer or the office of chief financial officer is
vacant, the Non-Voting Director position associated with such office shall also
be vacant.

       4.4 Vacancies: Resignations, Replacements.

       (a) Upon the death, resignation or removal of any Voting Director, the
Member(s) that elected such Voting Director is authorized to fill the vacancy
and shall have power to elect a successor to take office when the resignation,
removal or deemed vacancy becomes effective.


                                      -13-
<PAGE>   86
       (b) Any Voting Director may resign effective upon giving thirty (30) days
written notice to each Member of the Company, unless the notice specifies a
later time for the effectiveness of such resignation.

       4.5 Initial Directors. The names and addresses of the initial Class C
Directors and Class P Directors are set forth in Schedule 2. The initial Class C
Directors and Class P Directors shall hold office from and after the date of
this Agreement until their removal pursuant to this Agreement or until their
respective successors are elected and qualified pursuant to this Agreement.

       4.6 Compensation of Directors. Directors of the Company, as such, shall
not be entitled to compensation, unless otherwise unanimously approved by the
Members.

       4.7 Fiduciary Duties of Directors. The Class C Directors shall owe
fiduciary duties exclusively to the Class C Member(s), and the Class P Directors
shall owe fiduciary duties exclusively to the Class P Member(s). No person shall
be authorized to institute an action against a Voting Director for breach of
fiduciary duty other than a Member to whom a fiduciary duty is owed pursuant to
the previous sentence.

       4.8 Limitation of Liability. The Voting Directors shall not be liable to
the Company or its Members for actions taken in good faith.

                                    ARTICLE 5

                         Meetings of Board of Directors

       5.1 Place of Meetings. Meetings of the Board of Directors shall be held
at any place within or without the State of Delaware that has been designated
from time to time by the Board of Directors. In the absence of such designation,
meetings of the Board of Directors shall be held at the principal executive
office of the Company, except as provided in Section 5.2.

       5.2 Meetings of Directors. The Board of Directors shall meet at least
eight (8) times per year, pursuant to a schedule established by the Board of
Directors as early as practicable each year. In addition, meetings of the Board
of Directors for any purpose or purposes may be called at any time by any
Director. Notice of the time and place of meetings shall be delivered personally
or by telephone to each Director, or sent by first-class mail or by telex,
telegram, electronic mail or facsimile transmission, charges prepaid, addressed
to him or her at his or her address as it appears upon the records of the
Company or, if it is not so shown on the records and is not readily
ascertainable, at the place at which the meetings of the Board of Directors are
regularly held. In case such notice is mailed, it shall be deposited in the
United States mail at least four (4) days prior to the time of the holding of
the meeting. In case such notice is telegraphed or sent by telex, electronic
mail or facsimile transmission, it shall be delivered to a common carrier for
transmission to the Director or actually transmitted by the person giving the
notice by electronic means to the Director at least forty-eight (48) hours prior
to the time of the holding of the meeting. In case such notice is delivered
personally or by telephone as above provided, it shall be so delivered at least
twenty-four (24) hours prior to the time of the holding of the meeting. Any
notice given personally or by telephone shall be communicated directly to


                                      -14-
<PAGE>   87
the Director. Such deposit in the mail, delivery to a common carrier,
transmission by electronic means or delivery, personally or by telephone, as
above provided, shall be due, legal and personal notice to such Directors. The
notice need not specify the purpose of the meeting.

       5.3 Quorum: Alternates: Participation in Meetings By Conference Telephone
Permitted: Vote Required for Action.

       (a) The presence of at least one Class C Director and at least one Class
P Director constitutes a quorum for the transaction of business. If the meeting
is adjourned for more than twenty-four (24) hours, notice of any adjournment to
another time or place (other than adjournments until the time fixed for the
next regular meeting of the Board of Directors, as to which no notice is
required) shall be given prior to the time of the adjourned meeting to the
Directors who were not present at the time of the adjournment.

       (b) Each Voting Director may, by written notice given to the chief
executive officer, appoint an alternate to attend and vote at meetings, or at
any particular meeting, if the Voting Director is unable to attend. The presence
of an alternate at any meeting shall be deemed to be presence of the Director at
such meeting for all purposes, and the vote of such alternate shall be deemed to
be the vote of the relevant Director. No Director may retract the vote of any
duly appointed alternate on behalf of such Director after the close of the
meeting at which such vote is made. In the event that the Director who appointed
an alternate attends a meeting, the appointment of such alternate shall be
ineffective for such meeting, and the alternate shall have no right to be
present or to participate in that meeting.

       (c) Directors may participate in a meeting through use of conference
telephone or similar communications equipment, so long as all Directors
participating in such meeting can communicate with and hear one another.

       (d) Every act or decision done or made the Board of Directors shall
require the unanimous consent of all Voting Directors present at a meeting duly
held at which a quorum is present.

       5.4 Waiver of Notice: Consent to Meeting. Notice of a meeting need not be
given to any Director who signs a waiver of notice or a consent to holding the
meeting or an approval of the minutes thereof, whether before or after the
meeting, or who attends the meeting without protesting, prior thereto or at its
commencement, the lack of notice to such Director. All such waivers, consents
and approvals shall be filed with the Company's records and made a part of the
minutes of the meeting.

       5.5 Action by Board of Directors Without a Meeting. Any action required
or permitted to be taken by the Board of Directors may be taken without a
meeting if at least one Class C Director and at least one Class P Director (or
their alternates who have been appointed pursuant to Section 5.3(b) above) shall
individually or collectively consent in writing to such action. Such written
consent or consents shall be filed with the minutes of the proceedings of the
Board of Directors. Such action by written consent shall have the same force and
effect as a unanimous vote of the Board of Directors.


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<PAGE>   88
       5.6 Committees and Subcommittees. The provisions of this Article 5 shall
also apply, with necessary changes in points of detail, to committees and
subcommittees of the Board of Directors, if any, and to actions by such
committees or subcommittees (except for the first sentence of Section 5.2,
which shall not apply, and except that special meetings of a committee or
subcommittee may also be called at any time by any two members of the committee
or subcommittee), unless otherwise provided by this Agreement or by the
resolution of the Board of Directors designating such committee or subcommittee.
For such purpose, references to the Directors collectively shall be deemed to
refer to each such committee or subcommittee, and references to "Directors"
shall be deemed to refer to members of the committee or subcommittee. In
addition, the Members intend that the Board of Directors appoint a separate
committee responsible for taxes and that such committee at least be given the
authority to make routine and/or recurring decisions with respect to taxes.

                                    ARTICLE 6

                                    Officers

       6.1 General. Subject to the provisions of the Act, the Certificate and
this Agreement, the Board of Directors shall from time to time to appoint one or
more individuals who shall be termed officers of the Company (the "Officers").
Subject to the decision and control of the Board of Directors, the Officers of
the Company shall manage the day-to-day activities and affairs and will have
discretion with regard to all matters not otherwise reserved to the Board of
Directors of the Company. Each Officer shall hold his or her respective office
at the pleasure of the Board of Directors. Except as otherwise specifically
provided for below, an Officer need not be a Member or Director of the Company,
and any number of offices may be held by the same person. The Officers of the
Company shall include a president and chief executive officer, a chief financial
officer, and a secretary. The Company may also have, at the discretion of the
Board of Directors, one or more vice presidents, and such other Officers as may
be designated from time to time by the Board of Directors.

       6.2 Appointment and Removal. Officers shall be appointed by the Board of
Directors. Each Officer, including an Officer elected to fill a vacancy, shall
hold office until his or her successor is elected, except as otherwise provided
by the Act or the Certificate, unless earlier removed pursuant to this Section
6.2. Any Officer may be removed, with or without cause, at any time by the Board
of Directors.

       6.3 Chief Executive Officer and President. The chief executive officer
and president shall, subject to the oversight and control of the Board of
Directors, have general supervision, direction and control of the business and
affairs of the Company. Subject to Section 7.1 hereof, the chief executive
officer and president shall have all of the powers which are ordinarily inherent
in the office of the chief executive officer and president of a corporation, and
he shall have such further powers and shall perform such further duties, as may
be prescribed for him by the Board of Directors.

       6.4 Vice Presidents. In the absence or disability of the president, the
vice presidents in order of their rank as fixed by the chief executive officer,
or, if not ranked, the vice president designated by the chief executive officer,
shall perform all of the duties of the chief executive


                                      -16-
<PAGE>   89
officer and when so acting shall have all the powers of and be subject to all
the restrictions upon the chief executive officer. The vice presidents shall
have such other powers and perform such other duties as from time to time may be
prescribed for them, respectively, by president or by this Agreement or by the
Board of Directors.

       6.5 Secretary. The secretary shall keep or cause to be kept at the
principal executive office of the Company, or such other place as the president
may order, a book of minutes of all proceedings of the Members and of the Board
of Directors, with the time and place of holding, whether regular or special,
and if special how authorized, the notice thereof given, the names of those
present and the number of votes present or represented at Members' or Board of
Directors meetings. The secretary or an assistant secretary, or, if they are
absent or unable or refuse to act, any other officer of the Company, shall give
or cause to be given notice of all the meetings of the Members required by the
Agreement or by law to be given, and he shall keep the seal of the Company, if
any, in safe custody and shall have such other powers and perform such other
duties as may be prescribed by the president or by this Agreement or by the
Board of Directors.

       6.6 Chief Financial Officer. The chief financial officer shall keep and
maintain, or cause to be kept and maintained, adequate and correct books and
records of account of the Company. The chief financial officer shall keep or
cause to be kept at the principal executive office a record of Members in the
form of Schedule 3 hereto showing the names of the Members and their addresses,
their initial and all subsequent Capital Contributions and their respective
Percentage Interests, as they may vary from time to time. The chief financial
officer shall receive and deposit all moneys and other valuables belonging to
the Company in the name and to the credit of the Company and shall disburse the
same only in such manner as the chief executive officer or the appropriate
officers of the Company may from time to time determine, shall render, whenever
requested, an account of all his transactions as chief financial officer and of
the financial condition of the Company, and shall perform such further duties as
the chief executive officer or this Agreement or the Board of Directors may
prescribe.

       6.7 Initial Officers. The initial Officers of the Company are set forth
in Schedule 4 hereto. These initial Officers shall be appointed for a term of
three years from the Closing, which term may be renewed by the Board of
Directors. Notwithstanding the foregoing sentence, the initial Officers shall
serve at the pleasure of the Board of Directors and may be removed by the Board
of Directors in its discretion at any time prior to the end of their three year
terms pursuant to Section 6.2 hereof.

                                    ARTICLE 7

                               Operational Matters

       7.1 Board of Director Approval.

       (a) Unless otherwise determined by the Board of Directors pursuant to
subsection (b) below, the Company shall not have the authority to approve or
undertake any of the following matters without the approval of the Board of
Directors (obtained as set forth in Section 5.3(d)):


                                      -17-
<PAGE>   90
              (i) The hiring, firing, renewal, compensation, evaluation and
       planning for succession of the chief executive officer and president, the
       chief financial officer and senior vice presidents and other Officers of
       similar rank.

              (ii) Compensation policies for Company employees, including
       specific compensation and benefit plans and programs.

              (iii) Annual strategic and business plans and amendments thereto
       (including entering into any unrelated new lines of business) in
       accordance with Section 7.2, Company-wide financing plans, and
       Company-wide risk management plans (including a program of insurance).

              (iv) Any distribution to the Members in excess of, or in an amount
       less than, the Minimum Tax Distributions and Minimum Leverage
       Distributions (both of which are deemed automatically approved by the
       Board of Directors).

              (v) The following material transactions:

                     (A) Projects, long-term contracts (including cancellation
              thereof), mergers, consolidations, re-capitalization,
              acquisitions, divestitures, joint ventures or alliances involving
              the commitment or transfer by the Company of value in excess of
              $25 million and shut-downs of material facilities; and

                     (B) Investments and transactions outside the normal lines
              of business in excess of $10 million.

              (vi) Capital expenditures in excess of 110% of the approved
       capital expenditure budget or overruns on major projects greater than
       10%.

              (vii) Individual borrowings and leasing arrangements in excess of
       $25 million, or if the Board of Directors in its discretion sets a debt
       ceiling, any borrowing in excess of such debt ceiling.

              (viii) Unusual, non-recurring uses of Company credit in support of
       operations above a $10 million exposure.

              (ix) The settlement of actions or claims against the Company
       involving more than $10 million.

              (x) Related-party transactions involving the receipt or payment of
       more than $5 million in any one transaction or $10 million in any series
       of related transactions, irrespective of individual amounts (other than
       transactions reflected by the agreements referred to on Schedules 6.11(b)
       and 6.11(c) of each of the Phillips Disclosure Schedule to the
       Contribution Agreement and the Chevron Disclosure Schedule to the
       Contribution Agreement).

              (xi) Any amendment to the Certificate or this Agreement.


                                      -18-
<PAGE>   91
              (xii) Except as otherwise specifically provided for in Article X,
       the admission of an additional Member or other equity holder of the
       Company.

              (xiii) Any redemption of an equity interest in the Company.

              (xiv) Any adoption of or change in the Company's form of business
       or accounting principles.

              (xv) Any material consolidation or relocation of the Company's
       research and development facilities, or the exercise or waiver of any
       right affecting the term of any leasehold for research and development
       facilities.

              (xvi) The commencement of voluntary bankruptcy proceedings for the
       Company.

              (xvii) Any material decision regarding repair, replacement or
       startup relating to the K-Resin Accident.

              (xviii) The liquidation or dissolution of the Company.

              (xix) Any use by the Company of the "Chevron" or "Phillips" name,
       by itself.

       (b) The Board of Directors shall review periodically the appropriateness
of the list of items contained in Section 7.1(a) (including the related
threshold dollar amounts contained therein) which must be brought before the
Board of Directors, and will implement changes if and when appropriate. Any such
changes shall be set forth in a written resolution, and, to the extent that such
written resolution is inconsistent with Section 7.1(a), the written resolution
will control.

       7.2 Strategic and Business Plans: Reports.

       (a) The Board of Directors and the Officers will conduct an interactive
strategic planning process on an annual basis. In connection with this process,
the Officers shall prepare and submit to the Board of Directors and the Board of
Directors shall review, consider and adopt:

              (i) a strategic plan for the Company; and

              (ii) a three (3) year business plan, including capital and
       operating budgets.

Such process shall be conducted in accordance with the strategic planning
processes of the Members, as determined by the Board of Directors.

       (b) In the event that the Board of Directors fails to timely approve
capital or operating budgets for any period, the Officers will be authorized to
spend such amounts as are necessary or appropriate to meet the Company's prior
commitments and obligations and to conduct and


                                      -19-
<PAGE>   92
maintain the Company's operations and properties in a safe and efficient manner
in accordance with industry practice.

       (c) The Officers shall provide the Board of Directors with monthly
reports of the operating results of the Company compared with the strategic and
business plan, including the capital and operating budgets, and annual and
periodic reports of compliance matters (e.g. financial controls, environmental,
human resources, etc.).

                 Capital Contributions and Percentage Interests

       8.1 Capital Contributions and Percentage Interests.

       (a) Effective as of the Closing, each of the Members shall make a Capital
Contribution to the Company as contemplated by Article II of the Contribution
Agreement and the credit balance in the Capital Account of each Member, as a
result of such contribution, shall be determined in accordance with Sections
8.1(b). The Percentage Interest of each Class C Member shall be equal to the
product, expressed as a percentage, of (i) a fraction, the numerator of which is
the credit balance in the Capital Account of such Class C Member determined as
set forth in Section 8.1(b) and the denominator of which is the sum of the
credit balances in the Capital Accounts of all Class C Members determined as set
forth in Section 8.1(b), and (ii) 50. The Percentage Interest of each Class P
Member shall be equal to the product of (i) a fraction, the numerator of which
is the credit balance in the Capital Account of such Class P Member as
determined in accordance with Section 8.1(b) and the denominator of which is the
sum of the credit balances in the Capital Accounts of all Class P Members
determined as set forth in Section 8.1(b), and (ii) 50. It is the agreement of
the parties that (i) the aggregate Percentage Interests of all Class C Members
shall equal 50% and the aggregate Percentage Interests of all Class P Members
shall equal 50%, (ii) such aggregate Percentage Interests shall not change
unless otherwise agreed by the Members and (iii) such aggregate Percentage
Interests shall not be affected by the Chevron Pipe Line Contribution.

       (b) As soon as practicable after the Closing, Chevron and Phillips shall
determine the Capital Account balance of each Member as of the Closing Date
which shall be equal to the excess of(x) the Carrying Value of the assets
contributed by such Member as of the Closing Date determined in accordance with
Section 8.1(c) over (y) the liabilities of the Member that are assumed by the
Company in connection with such contribution or to which such assets are
subject.

       (c) As soon as practicable after the Closing, (i) Chevron and Phillips
shall determine the Capital Account balance of each Member as of the Closing
Date by determining in accordance with this Section 8.1(c) the Carrying Values
as of the Closing Date of the assets contributed effective as of the Closing
Date to the Company by each Member pursuant to Article II of the Contribution
Agreement and the liabilities of such Member assumed by the Company effective as
of the Closing Date and the liabilities that are secured by assets contributed
effective as of the Closing Date to the Company by such Member pursuant to
Article II of the Contribution Agreement, (ii) Chevron and Phillips shall
determine in accordance with Section 8.1(a) the Percentage Interest as of the
Closing Date of each Member, (iii) Schedule 3 hereto shall be completed so that
it reflects such Capital Account Balances and Percentage Interests of


                                      -20-
<PAGE>   93
each Member, and (iv) Chevron and Phillips shall agree to schedules setting
forth the Carrying Values specified in clause (i) of this sentence. Except to
the extent the Members otherwise unanimously agree, the Carrying Value of the
assets contributed by each Member pursuant to Article II of the Contribution
Agreement shall be determined as follows:

              (i) Chevron and Phillips shall compute (x) the excess of the net
       book value for financial reporting purposes as of the Closing Date of the
       assets contributed pursuant to Article II of the Contribution Agreement
       by the Class P Members in the aggregate over the aggregate amount of
       liabilities of such Members that are assumed by the Company in connection
       with such contribution or to which the such assets are subject ("Class P
       Financial Statement Net Contribution") and (y) the excess of the net book
       value for financial reporting purposes as of the Closing Date of the
       assets contributed pursuant to Article II of the Contribution Agreement
       by the Class C members in the aggregate over the amount of liabilities of
       such Members that are assumed by the Company in connection with such
       contribution or to which such assets are subject ("Class C Financial
       Statement Net Contribution").

              (ii) If(x) the Class P Financial Statement Net Contribution
       reduced by the aggregate amount to be distributed to the Class P Members
       pursuant to Section 9.2(0 ("Adjusted Class P Financial Statement Net
       Contribution") and (y) the amount of the Class C Financial Statement Net
       Contribution reduced by the aggregate amount to be distributed to the
       Class C Members pursuant to Section 9.2(0 ("Adjusted Class C Financial
       Statement Net Contribution") are not equal, an amount equal to the
       difference between the Adjusted Class P Financial Statement Net
       Contribution and the Adjusted Class C Financial Statement Net
       Contribution shall, unless the Members otherwise unanimously agree, be
       allocated among the assets included in the Class P Financial Statement
       Net Contribution or Class C Financial Statement Net Contribution,
       whichever is smaller after reduction of each as provided above in this
       Section 8.l(c)(ii) by the amounts to be distributed pursuant to Section
       9.2(0. The allocation of such difference between the Adjusted Class P
       Financial Statement Net Contribution and the Adjusted Class C Financial
       Statement Net Contribution shall be made among such assets in the ratio
       of each such asset's net book value to the aggregate net book values of
       all such assets. For purposes of the preceding sentence, the net book
       value for each such asset shall be the net book value for such asset used
       in computing the Class P Financial Statement Net Contribution or Class C
       Financial Statement Net Contribution, as applicable.

       (d) Section 8.1(b) and (c) are designed to result in the aggregate credit
balances in the Capital Accounts of the Class C Members being equal to the
aggregate credit balances in the Capital Accounts of the Class P Members after
giving effect to the distributions provided for in Section 9.2(0 which is
consistent with the agreement of the Members that the fair market value of the
net assets being contributed to the Company by the Class C Members and the fair
market value of the net assets being contributed to the Company by the Class P
Members are equal after giving effect to the distributions provided for in
Section 9.2(0, and this result shall not be affected by the Chevron Pipe Line
Contribution.


                                      -21-
<PAGE>   94
       8.2 Additional Capital Contributions. No Member may make additional
Capital Contributions other than pursuant to its obligations under the
Contribution Agreement without the consent of the Board of Directors. The Board
of Directors shall approve all material terms of any such Capital Contribution,
including its effect on the Members' relative Capital Accounts and Percentage
Interests.

       8.3 Withdrawal or Reduction of Capital Contributions.

       (a) Except as expressly provided in this Agreement, no Member shall have
the right to withdraw from the Company all or any part of its Capital
Contribution.

       (b) A Member, irrespective of the nature of its Capital Contribution,
shall not have the right to demand and receive a distribution in kind in return
for its Capital Contribution, unless the Members shall have otherwise
unanimously agreed.

       8.4 No Interest on Capital Contributions. No interest shall be payable on
or with respect to the Capital Contributions or Capital Accounts of Members.

       8.5 Capital Accounts. A single Capital Account shall be maintained for
each Member (regardless of the class of interests owned by such Member and
regardless of the time or manner in which such interests were acquired) in
accordance with the capital accounting rules of section 704(b) of the Code and
the Income Tax Regulations thereunder (including without limitation section
1.704-1(b)(2)(iv) of the Income Tax Regulations) and as further described in
this Section 8.5.

       (a) There shall be established for each Member a Capital Account
reflecting the excess (or deficit) of(a) the sum of(i) the Carrying Value of
assets contributed to the Company by such Member and the amount of cash
contributed to the Company or paid pursuant to a note contributed to the Company
by such Member, (ii) such Member's share of Net Profits and any items in the
nature of income or gain that are specifically allocated to such Member and
(iii) the amount of any Company liabilities assumed by such Member or which are
secured by any property distributed to such Member over (b) the sum of(i) such
Member's share of Net Losses and any items in the nature of losses or expenses
that are specifically allocated to such Member, (ii) any distributions to such
Member and (iii) liabilities of such Member assumed by the Company or which are
secured by any property contributed by such Member. In determining the amount of
any liability for purposes of this section, there shall be taken into account
section 752(c) of the Code and any other applicable provisions of the Code and
Income Tax Regulations.

       (b) In the event of a transfer of all or any portion of a Member's
interest in the Company pursuant to Article 10 hereof, the Capital Account of
any transferee shall include the appropriate portion of the Capital Account of
the Member from which the transferee's interest in the Company was obtained.

       (c) When Company property is distributed in kind (whether in connection
with liquidation and dissolution or otherwise), the Capital Accounts of the
Members shall first be adjusted to reflect the manner in which the unrealized
income, gain, loss and deduction inherent in such property (that has not been
reflected in the Capital Account previously) would be allocated among the
Members if there were a taxable disposition of such property for the fair


                                      -22-
<PAGE>   95
market value of such property (taking into account section 770 1(g) of the Code)
on the date of distribution.

       (d) The appropriate Officers shall make or cause to be made all necessary
adjustments in each Member's Capital Account as required by the capital
accounting rules of section 704(b) of the Code and the regulations thereunder.

       8.6 Loans by Members to the Company. No Member shall be obligated to lend
money to the Company. No Member may lend money to the Company without the
consent of the Board of Directors. The Board of Directors shall approve all
material terms of such a loan, including, without limitation, the interest rate
and term. Any loan by a Member to the Company with the required consent of the
Board of Directors shall be separately entered on the books of the Company as a
loan to the Company and not as a Capital Contribution, and shall be evidenced by
a promissory note duly executed by at least one Class C Director and one Class P
Director on behalf of the Company and delivered to the lending Member.

       8.7 Treatment of Certain Indemnity Payments.

       (a) If Company makes any payment to a third party that is subject to
indemnification by a Class C Member or a Class P Member (or any Affiliate
thereof) pursuant to the Contribution Agreement or Annex B or C thereto (a
"Company Indemnifiable Payment"), the Members intend such payment to be treated
as preserving the value of the contribution made pursuant to Article II of the
Contribution Agreement by the Member liable for the indemnity payment. Toward
that end, each indemnity obligation arising in respect of a Company
Indemnifiable Payment will be treated as having arisen immediately prior to such
contribution of assets by the Indemnifying Party, the Indemnifying Party will be
treated as if it had originally contributed assets with a Carrying Value
increased by the amount of the Company Indemnifiable Payment, and the Company
will be treated as having assumed an additional liability in the amount of the
Company Indemnifiable Payment. As a result, the amounts credited to the Capital
Accounts of the Class C Members in the aggregate and the Class P Members in the
aggregate will remain equal. The Members also intend that the tax consequences
of such Company Indemnifiable Payment and the indemnification payment itself
shall inure to the Indemnifying Party, but, except as otherwise agreed by the
Members, only to the extent that such tax result can be achieved without causing
the Capital Accounts of the Class C Members in the aggregate and the Capital
Accounts of the Class P Members in the aggregate to fail to be equal.

       (b) If a Member makes any payment to a third party that is subject to
indemnification by the Company pursuant to the Contribution Agreement or Annex B
or C thereto (a "Member Indemnifiable Payment"), the Members intend that the tax
consequences of such Member Indemnifiable Payment and the indemnification
payment itself shall inure to the Company and be shared by the Members in
accordance with their respective Percentage Interests, but, except as otherwise
agreed by the Members, only to the extent that such tax results can be achieved
without causing the Capital Accounts of the Class C Members in the aggregate and
the Capital Accounts of the Class P Members in the aggregate to fail to be
equal.

       8.8 Treatment of Certain Deferred Capital Contributions. As a result of
the K-Resin Accident, the value of certain assets contributed by the Class P
Members has declined from that


                                      -23-
<PAGE>   96
which existed when the Members were first agreeing on the economic terms of the
arrangement described in this Agreement. The Members cannot agree on the amount
of the decline in value, in part because they are currently unable to reach an
agreement on the likely time and expense involved in repairing the damage caused
by the K-Resin Accident and the degree and permanence of any loss of customers
that the K-Resin Accident may cause. In order to resolve the issue, one or more
of the Class P Members may have to make capital contributions to the Company
after the Closing under the circumstances and in the amounts calculated under
the provisions of the Contribution Agreement. The Members view such deferred
capital contributions as necessary to preserve the pre K-Resin Accident value of
the business and assets contributed by the Class P Members. The Members agree
that any deferred contributions are capital contributions and will not be
reported as income by the Company.

       8.9 Special Rule. An Indemnifying Party will indemnify the Indemnified
Party on a Net After-Tax Basis against any income or franchise tax incurred in
the event that any indemnification payment is treated as taxable income to the
Indemnified Party. For purposes of this paragraph, "Net After-Tax Basis" means
after any U.S. federal, state or local income or franchise taxes (computed using
the Tax Rate) incurred as a result of such indemnification (assuming the
deductibility of such state and local income and franchise taxes in calculating
federal income tax), reduced by any tax benefit arising as a result of such
indemnification.

       8.10 Application of the Basket. Tax Basket Amount and Cap. No provision
of this Agreement or the Contribution Agreement (including the Annexes thereto)
shall be applied or interpreted in a manner that would cause any indemnification
payment to be made that otherwise would not be payable because of application of
the Basket, Tax Basket Amount or the Cap.

                                    ARTICLE 9

   Allocation of Profits and Losses; Distributions; Tax and Accounting Matters

       9.1 Allocations. Net Profit and Net Loss of the Company shall be
determined and allocated with respect to each Fiscal Year, Fiscal Quarter or
other period of the Company as follows:

       (a) General Allocation. Except as otherwise provided in this Article 9,
Net Profit and Net Loss for each Fiscal Year, Fiscal Quarter or other period
shall be allocated to the Members in accordance with their Percentage Interests.

       (b) Regulatory Allocations. Notwithstanding the foregoing, the following
special allocations shall be made for each Fiscal Year or other period in the
following order of priority:

              (i) If there is a net decrease in Company Minimum Gain during a
       Company taxable year, then each Member shall be allocated items of
       Company income and gain for such taxable year (and, if necessary, for
       subsequent years) in an amount equal to such Member's share of net
       decrease in Company Minimum Gain, determined in accordance with section
       1.704-2(g)(2) of the Income Tax Regulations. This subsection (b)(i) is
       intended to comply with the minimum gain chargeback


                                      -24-
<PAGE>   97
       requirement of section 1.704-2(0 of the Income Tax Regulations and shall
       be interpreted consistently therewith.

              (ii) If there is a net decrease in Member Nonrecourse Debt Minimum
       Gain attributable to a Member Nonrecourse Debt during any Company taxable
       year, each Member who has a share of the Member Nonrecourse Debt Minimum
       Gain attributable to such Member Nonrecourse Debt, determined in
       accordance with section 1 .704-2(i)(5) of the Income Tax Regulations,
       shall be specially allocated items of Company income and gain for such
       taxable year (and, if necessary, subsequent years) in the amount equal to
       such Member's share of net decrease in Member Nonrecourse Debt Minimum
       Gain attributable to such Member Nonrecourse Debt, determined in a manner
       consistent with the provisions of section 1 .704-2(i)(4) of the Income
       Tax Regulations. This subsection (b)(ii) is intended to comply with the
       partner nonrecourse debt minimum gain chargeback requirement of section 1
       .704-2(i)(4) of the Income Tax Regulations and shall be interpreted
       consistently therewith.

              (iii) If any Member unexpectedly receives (or Members unexpectedly
       receive) an adjustment, allocation or distribution of the type
       contemplated by section l.704-1(b)(2)(ii)(d)(4), (5) or (6) of the Income
       Tax Regulations, items of income and gain shall be allocated to such
       Member (or if more than one Member receives such an adjustment,
       allocation or distribution, items of income and gain shall be allocated
       to such Members in proportion to the amounts of their respective Adjusted
       Capital Account Deficits) in an amount (or amounts) and manner sufficient
       to eliminate the Adjusted Capital Account Deficit of such Member (or
       deficits of such Members) as quickly as possible. It is intended that
       this subsection (b)(iii) qualify and be construed as a "qualified income
       offset" within the meaning of section 1.704-1(b)(2)(ii)(d) of the Income
       Tax Regulations.

              (iv) If the allocation of Net Loss to a Member as provided in
       Section 9.1(a) would create or increase an Adjusted Capital Account
       Deficit and one or more other Members would have a positive Capital
       Account balance, there shall be allocated to such Member only that amount
       of Net Loss as will not create or increase an Adjusted Capital Account
       Deficit. The Net Loss that would, absent the application of the preceding
       sentence, otherwise be allocated to such Member shall, subject to the
       Adjusted Capital Account Deficit limitations of such sentence, be
       allocated to those Members having positive Capital Account balances up to
       the amount of such positive Capital Account balances in the ratios that
       each such Member's positive Capital Account Balance bears to the sum of
       such positive Capital Account balances. To the extent that allocations of
       Net Losses have been made pursuant to this subsection (b)(iv), future
       allocations of Net Profits, notwithstanding anything to the contrary in
       this Agreement, shall be made first to restore such Net Losses.

              (v) Member Nonrecourse Deductions for any Fiscal Year or other
       period shall be allocated each year to the Member that bears the economic
       risk of loss (within the meaning of section 1.752-2 of the Income Tax
       Regulations) for the


                                      -25-
<PAGE>   98
       Member Nonrecourse Debt to which such Member Nonrecourse Deductions are
       attributable.

              (vi) Nonrecourse Deductions for any Fiscal Year or other period
       shall be allocated to the Members in proportion to their respective
       Percentage Interests.

              (vii) To the extent an adjustment to the adjusted tax basis of any
       Company asset, pursuant to Code Section 734(b) or Code Section 743(b) is
       required, pursuant to section 1.704-1 (b)(2)(iv)(m)(2) or 1.704-1
       (b)(2)(iv)(m)(4) of the Income Tax Regulations, to be taken into account
       in determining Capital Accounts as the result of a distribution to a
       Member in compete liquidation of such Member's interest in the Company,
       the amount of such adjustment to Capital Accounts shall be treated as an
       item of gain (if the adjustment increases the basis of the asset) or loss
       (if the adjustment decreases such basis) and such gain or loss shall be
       specially allocated to the Members in accordance with their interests in
       the Company in the event section 1.704-1 (b)(2)(iv)(m)(2) of the Income
       Tax Regulations applies, or to the Member to whom such distribution was
       made in the event section 1.704-l(b)(2)(iv)(m)(4) of the Income Tax
       Regulations applies

              (viii) The allocations set forth in subsections (b)(i) through
       (b)(vii) (the "Regulatory Allocations") are intended to comply with
       certain requirements of sections 1.704-1(b), 1.704-2(0 and 1.704-2(i) of
       the Income Tax Regulations. Notwithstanding the provisions of Section
       9.1(a), the Regulatory Allocations shall be taken into account in
       allocating other items of income, gain, loss and deduction among the
       Members so that, to the extent possible, the net amount of such
       allocations of other items and the Regulatory Allocations to each Member
       shall be equal to the net amount that would have been allocated to each
       Member if the Regulatory Allocations had not occurred.

       (c) Tax Allocations.

              (i) Except as provided in subsection (c)(ii), for income tax
       purposes under the Code and the Income Tax Regulations, Company taxable
       income and loss shall be allocated to each Member in the same manner that
       Company Net Profit and Net Loss (and items entering into the
       determination thereof) are allocated.

              (ii) Section 704(c). In accordance with section 704(c) of the Code
       and the Income Tax Regulations thereunder, income, gain, loss and
       deduction with respect to any property contributed to the capital of the
       Company shall, solely for income tax purposes, be allocated so as to take
       account of any variation between the adjusted basis of such property to
       the Company for federal income tax purposes and the initial Carrying
       Value of such property. If the Carrying Value of any Company property is
       adjusted as described in the definition of "Carrying Value", subsequent
       allocations of income, gain, loss, and deduction with respect to such
       asset shall take account of any variation between the adjusted basis of
       such asset for federal income tax purposes and the Carrying Value of such
       asset in the manner prescribed under Sections 704(b) and 704(c) of the
       Code and the


                                      -26-
<PAGE>   99
       Income Tax Regulations thereunder. With respect to assets contributed or
       required to be contributed by the Members at the Closing pursuant to the
       Contribution Agreement, for purposes of applying section 704(c) of the
       Code and this Section 9.1(c)(ii), the Company shall use the traditional
       method with curative allocations set forth in section 1.704-3(c) of the
       Income Tax Regulations. Any elections or other decisions relating to such
       allocations shall be made by the Board of Directors.

       (d) Depreciation Recapture. Solely for tax purposes, a Member's share of
the Company's depreciation recapture recognized for tax purposes upon the
disposition of Company property shall be computed in the manner provided for in
sections 1.704-3(a)(11), 1.1245-1(e) and 1.1250-1(0 of the Income Tax
Regulations. The provisions of this Section 9.1(d) are intended to affect only
the character of the items of gain allocated by the Company to the Members. This
Section 9.1(d) shall not affect the aggregate amount of gain (including gain
characterized under this Section 9.1(d) as depreciation recapture) otherwise
allocable to a Member pursuant to this Section 9.1.

       (e) Change in Percentage Interests. Except as otherwise required by law,
if the Percentage Interests of the Members of the Company are changed during any
taxable year, all items to be allocated to the Members for such entire taxable
year shall be prorated on the basis of the portion of such taxable year which
precedes each such change and the portion of such taxable year on and after each
such change according to the number of days in each such portion, and the items
so allocated for each such portion shall be allocated to the Members in the
manner in which such items are allocated as provided in Section 9.1(a) during
each such portion of the taxable year in question.

       (0 Excess Nonrecourse Liabilities. Nonrecourse liabilities of the Company
that constitute "excess nonrecourse liabilities" within the meaning of section 1
 .752-3(a)(3) of the Income Tax Regulations, shall be allocated among the Members
in proportion to their respective Percentage Interests.

       (g) Allocations Relating to Capital Transactions. In connection with the
sale or other disposition of all or substantially all of the assets of the
Company (including upon a liquidation of the Company), items of income, gain,
loss and deduction shall, except as otherwise required by subsections (b)
through (0 above, be allocated to the Members in such amounts as shall cause
their relative Adjusted Capital Account Balances to equal as nearly as possible,
their relative Percentage Interests.

       (ii) State and Local Items. Items of income, gain, loss, deduction,
credit and tax preference for state and local income tax purposes shall be
allocated to and among the Members in a manner consistent with the allocation of
such items for federal income tax purposes in accordance with the foregoing
provisions of this Section 9.1.

       9.2 Distributions.

       (a) The Company shall distribute to each Member as promptly as
practicable (and in any event within forty-five (45) days) after the end of each
of the first three (3) Fiscal Quarters of


                                      -27-
<PAGE>   100
each Fiscal Year of the Company an amount equal to such Member's Quarterly Tax
Distribution for such Fiscal Quarter. In addition, the Company shall distribute
to each Member as promptly as practicable (and in any event within forty-five
(45) days) after the end of each Fiscal Year an amount equal to the excess, if
any, of such Member's Proportionate Tax Share for such Fiscal Year over the
aggregate amount of Quarterly Tax Distributions made to such Member with respect
to such Fiscal Year.

       (b) At the end of each of the second Fiscal Quarter and the fourth Fiscal
Quarter, the Board of Directors shall determine if a Leverage Ratio Deficit
exists. If a Leverage Ratio Deficit exists, the Board of Directors, as promptly
as practicable after the end of such Fiscal Quarter, shall meet and take such
action as the Directors deem necessary to reduce the Leverage Ratio Deficit to
zero. If the Board of Directors fails to reduce the Leverage Ratio Deficit to
zero within forty-five (45) days following the end of the second or fourth
Fiscal Quarter, the Chief Executive Officer shall cause the Company to
distribute to the Members in proportion to their relative Percentage Interests
an amount equal to the Minimum Leverage Distribution for the applicable
six-month period.

       (c) Any distributions by the Company to the Members, other than the Tax
Distribution and the Minimum Leverage Distribution, shall be payable at the
discretion of the Board of Directors.

       (d) To the extent the Company is required by law to withhold or to make
tax payments on behalf of or with respect to any Member, the Company may
withhold such amounts and make such tax payments as so required. For purposes of
this Agreement, any such payments or withholdings shall be treated as a
distribution to the Member on behalf of whom the withholding or payment was
made.

       (e) Notwithstanding anything to the contrary contained in this Section
9.2, the Company shall not make any distribution to the Members which would
render the Company insolvent or which is otherwise prohibited by applicable law.

       (f) Notwithstanding anything to the contrary contained in this Agreement,
in accordance with Section 6.16 of the Contribution Agreement, (i) the Company
shall secure, by the Closing Date or as soon as practicable thereafter, bank
credit facilities or other credit of $1,670,000,000 (or such lesser amount as
would allow the Company to maintain an investment grade debt rating) on
reasonably available commercial terms agreeable to the Members (the "Initial
Financing"); and (ii) upon the funding of the Initial Financing, the Company
shall distribute the net proceeds of the Initial Financing as follows: an
aggregate of 50% of the net proceeds of the Initial Financing to the Class P
Members (to each Class P Member in the ratio of its Percentage Interest to the
sum of the Percentage Interests of all Class P Members as of the Closing Date)
and an aggregate of 50% of the net proceeds of the Initial Financing to the
Class C Members (to each Class C Member in the ratio of its Percentage Interest
to the sum of the Percentage Interests of all Class C Members as of the Closing
Date);provided, however, that if the Percentage Interests of the Class P Members
and the Class C Members have not been determined as of the date of such
distribution, then the Company shall distribute the net proceeds of the Initial
Financing that are distributable to the Class P Members to the Initial Phillips
Member as agent for such Class P Members and shall distribute the net proceeds
of the Initial


                                      -28-
<PAGE>   101
Financing that are distributable to the Class C Members to the Initial Chevron
Member as agent for such Class C Members, and the Initial Phillips Member will
transfer such proceeds to each such Class P Member in the ratio of its
Percentage Interest to the sum of the Percentage Interests of all Class P
Members and the Initial Chevron Member will transfer such proceeds to each such
Class C Member in the ratio of its Percentage Interest to the sum of the
Percentage Interests of all Class C Members when such Percentage Interests are
fixed; provided further, however, that the aggregate amount distributed to the
Class P Members shall be reduced by (A) the sum of any indebtedness of P Chem
(as defined in the Contribution Agreement) as of the Closing Date other than
indebtedness of the entities set forth on Schedule 6.16 of the Phillips
Disclosure Schedule to the Contribution Agreement and other than debt incurred
in the ordinary course of business (pursuant to financial arrangements or plans
previously disclosed to Chevron) by such entities and (B) the SOLP adjustment
amount set forth on Schedule 6.16 of the Phillips Disclosure Schedule to the
Contribution Agreement, and the aggregate amount distributed to the Class C
Members shall be reduced by the sum of any indebtedness of C Chem (as defined in
the Contribution Agreement) as of the Closing Date other than indebtedness of
the entities set forth on Schedule 6.16 of the Chevron Disclosure Schedule to
the Contribution Agreement and other than debt incurred in the ordinary course
of business (pursuant to financial arrangements or plans previously disclosed to
Phillips) by such entities. It is the agreement of the parties that after such
distributions, the aggregate Capital Accounts of the Class C Members will be
equal to the aggregate Capital Accounts of the Class P Members. The Company will
take steps to segregate the proceeds of the Initial Financing so that the
distribution thereof to the Members can be easily traced to such proceeds.

       (g) The Company will use its best efforts to avoid taking any action
that, or failing to take any action the failure of which to take, is likely to
cause all or part of the distribution of the proceeds of the Initial Financing
to be taxable to one or more of the Members and in connection therewith the
Members shall cooperate with the Company and each other. In addition, in the
event that, within two years of the Closing or the contribution of an asset to
the Company, the Members desire for the Company to make a distribution or
payment to any of the Members or pay all or a portion of any liability, and if
such distribution or payment to a Member or such payment of a liability may give
rise to a disguised sale under section 707(a)(2)(B) of the Code or corresponding
provision of state or local law, the Members shall cooperate to avoid such
result without changing the intended economics of the arrangement.

       9.3 Accounting Matters. The Company's tax year shall be the calendar year
unless otherwise required by section 706 of the Code or the Income Tax
Regulations thereunder. The Board of Directors shall cause to be maintained
complete books and records accurately reflecting the accounts, business and
transactions of the Company on a calendar-year basis and using such cash,
accrual, or hybrid method of accounting as in the judgment of the Board of
Directors is most appropriate; provided, however, that books and records with
respect to the Company's Capital Accounts and allocations under this Agreement
of Net Profit and Net Loss (and items entering into the determination thereof)
and income, gain, loss, deduction or credit (or item thereof) shall be kept on
the basis of the Company's Fiscal Year and under United States federal income
tax accounting principles as applied to partnerships.


                                      -29-
<PAGE>   102
       9.4 Tax Status and Returns.

       (a) Any provision hereof to the contrary notwithstanding, solely for
United States federal income tax purposes, each of the Members hereby recognizes
that the Company will be subject to all provisions of Subchapter K of Chapter 1
of Subtitle A of the Code; provided, however, that the filing of U.S.
Partnership Returns of Income shall not be construed to expand the purposes of
the Company or expand the obligations or liabilities of the Members.

       (b) The chief financial officer shall prepare or cause to be prepared all
tax returns and statements, if any, that must be filed on behalf of the Company
with any taxing authority, and shall make timely filing thereof. Within
one-hundred eighty (180) days after the end of each calendar year, the Company
shall cause to be prepared and delivered to each Member a report setting forth
in reasonable detail the information with respect to the Company during such
calendar year reasonably required to enable each Member to prepare its federal,
state and local income tax returns in accordance with applicable law then
prevailing.

       9.5 754 Election and Other Tax Elections. In the event of a distribution
of property to a Member, or a transfer of any interest in the Company permitted
under the Act or this Agreement, the Company, upon the written request of the
transferor or transferee, shall file a timely election under section 754 of the
Code and the Income Tax Regulations thereunder to adjust the basis of the
Company's assets under section 734(b) or 743(b) of the Code and a corre-
sponding election under the applicable provisions of state and local law, and
the person making such request shall pay all costs incurred by the Company in
connection therewith, including reasonable attorneys' and accountants' fees.
Other tax elections and decisions relating to Taxes not specifically governed by
any other express provision of this Agreement shall be made as agreed by the
Board of Directors.

       9.6 Tax Matters Partner. (a) The Initial Phillips Member shall be the
Company's "tax matters partner" for purposes of subchapter C of chapter 63 of
subtitle F of the Code (dealing with the tax treatment of partnership items);
provided, however, that the tax matters partner shall not take any action
without the approval of the Board of Directors or its designee; and provided,
further, that the tax matters partner shall receive no compensation for its
services as tax matters partner but shall be reimbursed for any out-of-pocket
expenses incurred in acting in such capacity.

       (b) The Company shall indemnify the tax matters partner (including the
officers and directors of a corporate tax matters partner) against judgments,
fines, amounts paid in settlement, and expenses (including attorney fees)
reasonably incurred in any civil, criminal, or investigative proceeding in which
they are involved or threatened to be involved by reason of being the tax
matters partner unless the tax matters partner acted in bad faith or with gross
negligence. The indemnification provided hereunder shall not be deemed exclusive
of any other rights to which those indemnified may be entitled under any
applicable statute, agreement, vote of Partners, or otherwise.


                                      -30-
<PAGE>   103
                                   ARTICLE 10

                            Restrictions on Transfer

       10.1 Transfer of Interests. No Member may sell, assign, transfer or
hypothecate ("Transfer") all or any part of its Membership Interest in the
Company, or any interest therein, except in accordance with the terms and
conditions set forth in this Article 10.

       10.2 Conditions of Transfer. No Member may Transfer all or any part of
such Member's Membership Interest, or any interest therein, except in compliance
with Section 10.6, Section 10.7 or Article 11, such compliance to be jointly
determined by the chief executive officer and the chief financial officer and
documented by a certificate evidencing such Transfer. Moreover, no Member may
Transfer all or any part of such Member's Membership Interest, or any interest
therein, unless such Transfer will not (and, upon request of the Board of
Directors, the transferring Member provides an opinion of counsel in form and
substance reasonably satisfactory to the Board of Directors that such Transfer
will not): (A) violate any applicable federal or state securities laws or
regulations, subject the Company to registration as an investment company or
election as a "business development company" under the Investment Company Act of
1940; (B) require any Member or any affiliate of a Member to register as an
investment adviser under the Investment Advisers Act of 1940; (C) violate any
other federal, state or local laws; (D) effect a termination of the Company
under section 708 of the Code; (E) cause the Company to be treated as an
association taxable as a corporation for federal income tax purposes; (F) cause
the Company or any Member to be treated as an ERISA fiduciary; or (G) otherwise
violate this Agreement.

       10.3 Admission of Substitute Member. In the event of a Transfer pursuant
to Section 10.6, 10.7 or Article 11, and the requirements of Section 10.2 and
this Section 10.3 are met, then the transferee of the Member's Membership
Interest shall be entitled to be admitted to the Company as a substitute Member,
and this Agreement (and all exhibits hereto) shall be amended to reflect such
admission, provided that the following conditions are complied with:

       (a) The transferor and transferee shall have executed and acknowledged
such instruments as the Board of Directors may deem necessary or desirable to
effect the substitution;

       (b) The transferee acknowledges all of the terms and provisions of this
Agreement as the same may have been amended and agrees in writing to be bound by
the same;

       (c) The transferee reimburses the Company for all reasonable expenses
connected with such admission including, but not limited to, legal fees and
costs;

       (d) The filing with the Company, if required by the Board of Directors,
of such proof of the investment intent and financial status of the transferee as
the Board of Directors may request; and

       (e) Compliance with all applicable federal and state securities laws.


                                      -31-
<PAGE>   104
       10.4 Effect of Transfer without Approval. Any purported Transfer of all
or any part of a Member's Membership Interest, or any interest therein, which is
not in compliance with this Article 10 shall be void and, except as provided for
in Section 10.5, below, shall be of no effect.

       10.5 Liability for Breach. Notwithstanding anything to the contrary in
this Article 10, any Member purporting to Transfer its Membership Interest, or
any part thereof, in violation of this Article 10 shall be liable to the Company
and the other Members for all liabilities, obligations, damages, losses, costs
and expenses (including reasonable attorneys' fees and court costs) arising as a
direct or consequential result of such non-complying transfer, attempted
transfer or purported transfer, including specifically, any additional cost or
taxes created by non-compliance with any of the requirements and conditions
provided for in Section 10.2.

       10.6 Permitted Transfers Subject to Right of First Refusal.

       (a) At any time after the three (3) year anniversary of the Closing Date,
the Class C Member(s) or the Class P Member(s) (a "Transferring Class") may
Transfer not less than all of their respective Class Membership Interest to a
Person for cash, subject to the Right of First Refusal provided for in this
Section 10.6 and the last sentence of Section 10.2.

       (b) In the event that any Transferring Class has received a bona fide
written cash offer, which such Transferring Class is willing to accept, for the
Transferring Class to sell not less than all of its respective Class Membership
Interest (the "Transferred Interest") to any Person, the Transferring Class
shall deliver a written notice (the "Transfer Notice") to all of the Members,
other than the Members in the Transferring Class, (the "Non-Transferring Class")
stating the Transferring Class's intent to sell the Transferred Interest
pursuant to a bona fide cash offer. The Transfer Notice shall (i) specify the
purchase price for and other material terms with respect to the sale of the
Transferred Interest, (ii) identify the proposed purchaser of the Transferred
Interest, (iii) specify the date scheduled for the transfer (which date shall
not be earlier than one hundred twenty (120) days from the date the Transfer
Notice is delivered), (iv) contain a statement that the offer has been accepted
pending compliance with the right of first refusal set forth herein and receipt
of required regulatory and other approvals, and (v) shall have attached thereto
a copy of the written offer containing all of the terms and conditions on which
the Transferred Interest is to be sold.

       (c) The Non-Transferring Class shall have the exclusive option to
purchase all (but not less than all) of the Transferred Interest on terms and
conditions substantially the same in all material respects as, and at the same
price, set forth in the written offer delivered pursuant to subsection (b)
above. The Non-Transferring Class shall notify the Company and the Transferring
Class of its intention to exercise or not to exercise the right of first refusal
hereunder within forty-five (45) days of receipt by the Non-Transferring Class
of a Transfer Notice.

       (d) In the event that the Non-Transferring Class shall have duly elected
to purchase the Transferred Interest (the "Electing Class"), the Electing Class
and the Transferring Class shall diligently pursue obtaining all regulatory
approvals and use best commercially reasonable efforts to consummate the closing
of the purchase of the Transferred Interest as soon as practicable and in any
event within one year from receipt of the Transfer Notice; provided that, if
such closing does not occur within such one-year period due to the failure to
obtain any required


                                      -32-
<PAGE>   105
regulatory approvals, the Electing Class's right to close such sale may be
extended at the option of the Electing Class, until such regulatory approvals
are obtained, but in no event for a period of greater than one additional year.
In the event of a failure of the Non-Transferring Class to elect to purchase all
of the Transferred Interest or a failure of the Electing Class to consummate
such purchase in accordance herewith, the Transferring Class will be free, at
any time within 120 days from the date the Non-Transferring Class elect not to
exercise their purchase rights hereunder or from the date the time periods
specified in this section for such election have expired, subject, in each case,
to extension for up to an additional eight (8) months to the extent necessary to
achieve any required regulatory approvals, to consummate the sale of the
Transferred Interest to the purchaser at a price and upon terms and conditions
no more favorable to the purchaser than those specified in the Transfer Notice;
provided that the purchaser shall assume all of the liabilities and obligations
of the Transferring Class under this Agreement by a binding written instrument
which shall be enforceable by the Company and the Non-Transferring Class.

       (e) A Transferring Class shall not be relieved of any of its obligations
arising under this Agreement prior to such Transfer. The Transferring Class and
any transferee shall execute such documents as the Non-Transferring Class shall
reasonably request to evidence the Transfer and the assumption and continuing
obligations under this Agreement.

       (0 At the request of a Member, the Company will provide prospective
purchasers of such Member's Class Membership Interest with reasonable access to
financial, operating and other information of the Company, subject to customary
confidentiality agreements which shall include provisions to protect
competitively sensitive information. Each Member shall cooperate with, and shall
not oppose, the closing of any Transfer which is in Compliance with this Section
10.6.

       10.7 Permitted Transfers Among Wholly-Owned Affiliates. Notwithstanding
anything contained herein to the contrary, any Member may Transfer all or any
portion of its Membership Interest to a Wholly-Owned Affiliate of such Member,
and such Transfer shall be deemed automatically approved by the Board of
Directors; provided, however, that such Transfer otherwise meets the conditions
and requirements of Sections 10.2 and 10.3.

       10.8 Transfers of Equity Interests in a Member. A sale, assignment,
transfer or hypothecation of any direct or indirect equity interest in a Member
by a Parent of such Member shall be deemed to be a Transfer by that Member of
its Membership Interest in the Company for purposes of this Article 10 and shall
not be permitted except in accordance with the terms and conditions set forth in
this Article 10. Chevron and Phillips shall comply with this Section 10.8 and
shall take all necessary action to cause their Affiliates to comply with this
Section 10.8. For the purpose of clarification of this Section 10.8, a change of
control of the Ultimate Parent of any Member shall not be considered a Transfer
of such Member's Membership Interest or a Transfer of the equity interest in
such Member.


                                      -33-
<PAGE>   106
                                   ARTICLE 11

                                   Competition

       11.1 General. The Members expect that the Company shall be the primary
vehicle by which each the Members (together with their Affiliates) engage in the
Chemicals Business. If a majority in interest of the Members of one class (the
"Non-Competing Class") concludes in good faith that the Company is no longer the
primary vehicle by which the Members of the other class (together with its
Affiliates) (the "Competing Class") is engaged in the Chemicals Business, then
the Non-Competing Class shall have the right to send written notice of such good
faith conclusion ("Conflict Notice") to the Competing Class. Upon receipt of the
Conflict Notice, the Competing Class shall enter into good faith negotiations
with the Non-Competing Class to resolve any or all substantial conflicts of
interest resulting from the ownership of businesses competing with the
businesses of the Company.

       11.2 Resolution of Competitive Conflicts.

       (a) In the event that:

              (i) A Non-Competing Class exercises its right to require a
       Competing Class to engage in good faith negotiations pursuant to Section
       11.1;

              (ii) The Non-Competing Class and Competing Class are unable to
       resolve the conflicts of interest within 150 days of the delivery of the
       Conflict Notice; and

              (iii) The value (in the opinion of a nationally recognized
       investment bank selected by the Board of Directors) of the Competing
       Class's (including its Affiliates') interests in businesses competing
       with the businesses of the Company exceeds 50% of the enterprise value of
       the Company;

then, in such case, the Non-Competing Class shall have the right, within 30 days
from the later of (x) the expiration of the period in (ii) above or (y) the
determination in (iii) above, to state a single cash price at which it is
prepared to purchase the Class Membership Interest of the Competing Class, which
will constitute a binding offer to purchase (the "Initial Offer"). In the event
of an Initial Offer, the Competing Class shall have 60 days to decide either to
accept the Initial Offer or to make a counter-offer by stating a single cash
price, which is at least 5% higher than the Initial Offer, at which it is
prepared to purchase the Class Membership Interest of the Non-Competing Class (a
"Counter-Offer"). In the event of a Counter-Offer, the Non-Competing Class shall
have 30 days to decide either to accept the Counter-Offer or to make another
offer by stating a single cash price, which is at least 5% higher than the
Counter-Offer, at which it is prepared to purchase the Class Membership Interest
of the Competing Class (a "Subsequent Offer"). In the event of a Subsequent
Offer by the Non-Competing Class, the Competing Class shall have 30 days to
decide either to accept the Subsequent Offer or to make another counter-offer
by stating a single cash price, which is at least 5% higher than the Subsequent
Offer, at which it is prepared to purchase the Class Membership Interest of the
Non-Competing Class. The offering process described in this paragraph shall
continue in this manner until a price is


                                      -34-
<PAGE>   107
reached at which either the Competing Class or the Non-Competing Class is
willing to sell its Class Membership Interest to the other class.
Notwithstanding anything to the contrary in the foregoing, a Member may also
sell its Class Membership Interest pursuant to the right of first refusal
provisions set forth in Section 10.6.

       (b) In the event that a Non-Competing Class has concluded in good faith
that the Company is no longer the primary vehicle by which a Competing Class is
engaged in the Chemicals Business in accordance with Section 11.1, and:

              (i) a sale pursuant to subsection (a) above is not concluded
       (whether or not the condition expressed in subsection (a)(iii) above is
       satisfied); and

              (ii) the Competing Class and Non-Competing Class have not been
       able to resolve, pursuant to Section 11.1 above, all substantial
       conflicts of interest resulting from the ownership by the Competing Class
       of a substantial business competing with the businesses of the Company;

then either the Competing Class or the Non-Competing Class may require the other
class from time to time to enter into good faith negotiations to cause the
Company (and/or the Members) to adopt such reasonable, mutually acceptable
provisions as would mitigate the potential adverse consequences of the conflicts
of interests on the continuing businesses of the Company. Such provisions could
include, for example, restrictions on the dissemination and use of confidential
information, greater delegation of authority to management of the Company, or
modification of minimum distribution requirements or the non-involvement of the
Competing Class in business decisions of the Company potentially affecting such
competing businesses.

                                   ARTICLE 12

                              Term and Dissolution

       12.1 Term. Except as provided in Section 12.2 hereof, the existence of
the Company shall be perpetual.

       12.2 Dissolution. The Company shall be dissolved and its affairs wound up
upon the first to occur of the following:

       (a) The approval of dissolution by the Board of Directors; or

       (b) The bankruptcy or dissolution of either all of the Class C Members or
all of the Class P Members.

       12.3 Liquidation.

       (a) Upon the occurrence of an event of dissolution as defined in the Act
or in Section 12.2 of this Agreement, the Company shall cease to engage in any
further business, except to the extent necessary to perform existing
obligations, and shall wind up its affairs and liquidate its assets. The Board
of Directors, or if there be no Directors then in office the Members, shall
appoint a liquidator (who may, but need not, be a Member) who shall have sole
authority and


                                      -35-
<PAGE>   108
control over the winding up and liquidation of the Company's business and
affairs and shall diligently pursue the winding up and liquidation of the
Company. As soon as practicable after his appointment, the liquidator shall
cause to be filed a statement of intent to dissolve as required by section
18-203 of the Act.

       (b) During the course of liquidation, the Members shall continue to share
profits and losses as provided in Section 9.1 of this Agreement, but there shall
be no cash distributions to the Members until the Distribution Date (as defined
in Section 12.4).

       (c) A Member shall not have any obligation to contribute any amount to
the Company in the event of a negative balance in its Capital Account.

       12.4 Liabilities. Liquidation shall continue until the Company's affairs
are in such condition that there can be a final accounting, showing that all
fixed or liquidated obligations and liabilities of the Company are satisfied or
can be adequately provided for under this Agreement. The assumption or guarantee
in good faith by one or more financially responsible persons shall be deemed to
be an adequate means of providing for such obligations and liabilities. When the
liquidator has determined that there can be a final accounting, the liquidator
shall establish a date (not to be later than the end of the taxable year of the
liquidation, i.e., the time at which the Company ceases to be a going concern as
provided in section 1 .704-l(b)(2)(ii)(g) of the Income Tax Regulations, or, if
later, ninety (90) days after the date of such liquidation) for the distribution
of the proceeds of liquidation of the Company (the "Distribution Date"). The net
proceeds of liquidation of the Company shall be distributed to the Members as
provided in Section 12.6 hereof not later than the Distribution Date.

       12.5 Settling of Accounts. Subject to section 18-804 of the Act, upon the
dissolution and liquidation of the Company, the proceeds of liquidation shall be
applied as follows: (a) first, to pay all expenses of liquidation and winding
up; (b) second, to pay all debts, obligations and liabilities of the Company, in
the order of priority as provided by law, other than debts owing to the Members
or on account of Members' contributions; (c) third, to pay all debts of the
Company owing to a Member; and (d) to establish reasonable reserves for any
remaining contingent or unforeseen liabilities of the Company not otherwise
provided for, which reserves shall be maintained by the liquidator on behalf
of the Company in a regular interest-bearing trust account for a reasonable
period of time as determined by the liquidator. If any excess funds remain in
such reserves at the end of such reasonable time, then such remaining funds
shall be distributed by the Company to the Members pursuant to Section 12.6
hereof.

       12.6 Distribution of Proceeds. Subject to section 18-804 of the Act, upon
final liquidation of the Company but not later than the Distribution Date, the
net proceeds of liquidation remaining following the settling of accounts in
accordance with Section 12.5 hereof shall be distributed to the Members in
proportion to and up to the balance of their respective positive Capital
Accounts as those accounts are determined after all adjustments to such Capital
Accounts for the taxable year of the Company during which the liquidation occurs
as are required by this Agreement and Income Tax Regulations section 1.704-1(b),
such adjustments to be made within the time specified in such Income Tax
Regulations.


                                      -36-
<PAGE>   109
       12.7 Certificate of Cancellation. Upon dissolution and liquidation of the
Company, the liquidator shall cause to be executed and filed with the Secretary
of State of the State of Delaware, a certificate of cancellation in accordance
with section 18-203 of the Act.

                                   ARTICLE 13

                                 Indemnification

       13.1 Indemnification: Proceeding Other Than by Company. The Company shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, except an action by or in the
right of the Company, by reason of the fact that he is or was a Director, Member
or officer of the Company (and may similarly indemnify employees or agents of
the Company), or is or was serving at the request of the Company as a manager,
member, director, officer, employee or agent of another limited liability
company, corporation, partnership, joint venture, trust or other enterprise,
against expenses, including attorneys' fees, judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with the
action, suit or proceeding if he acted in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, does not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Company, and that, with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.

       13.2 Indemnification: Proceeding by Company.

       (a) The Company shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Company to procure a judgment in its favor by
reason of the fact that he is or was an officer of the Company (and may
similarly indemnify employees or agents of the Company), or is or was serving at
the request of the Company as a manager, member, director, officer, employee or
agent of another limited liability company, corporation, partnership, joint
venture, trust or other enterprise against expenses, including amounts paid in
settlement and attorneys' fees actually and reasonably incurred by him in
connection with the defense or settlement of the action or suit if he acted in
good faith and in a manner which he reasonably believed to be in or not opposed
to the best interests of the Company.

       (b) The Company will indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Company to procure a judgment in its favor by
reason of the fact that he is or was a Director of the Company, or is or was a
Director of the Company serving at the request of the Company as a manager,
member, director, officer, employee or agent of another limited liability
company, corporation, partnership, joint venture, trust or other enterprise
against expenses, including amounts paid in settlement and attorneys' fees
actually and reasonably incurred by him in


                                      -37-
<PAGE>   110
connection with the defense or settlement of the action or suit if he acted in
good faith in accordance with Section 4.8 hereof.

       (c) With respect to indemnification pursuant to subsection (a) or (b)
above, such indemnification may not be made for any claim, issue or matter as to
which such a person has been adjudged by a court of competent jurisdiction,
after exhaustion of all appeals therefrom, to be liable to the Company or for
amounts paid in settlement to the Company, unless and only to the extent that
the court in which the action or suit was brought or other court of competent
jurisdiction determines upon application that in view of all the circumstances
of the case, the person is fairly and reasonably entitled to indemnity for such
expenses as the court deems proper.

       13.3 Mandatory Advancement of Expenses. The expenses of Directors,
Members and officers incurred in defending a civil or criminal action, suit or
proceeding must be paid by the Company as they are incurred and in advance of
the final disposition of the action, suit or proceeding, upon receipt of an
undertaking by or on behalf of the Director, Member or officer to repay the
amount if it is ultimately determined by a court of competent jurisdiction that
he is not entitled to be indemnified by the Company. The provisions of this
Section 13.3 do not affect any rights to advancement of expenses to which
personnel of the Company other than Directors, Members or officers may be
entitled under any contract or otherwise.

       13.4 Effect and Continuation. The indemnification and advancement of
expenses authorized in or ordered by a court pursuant to Section 13.1 to Section
13.3, inclusive:

       (a) Does not exclude any other rights to which a person seeking
indemnification or advancement of expenses may be entitled under the Certificate
or any limited liability company agreement, vote of Members or disinterested
Directors, if any, or otherwise, for either an action in his official capacity
or an action in another capacity while holding his office, except that
indemnification, unless ordered by a court pursuant to Section 13.2 or for the
advancement of expenses made pursuant to Section 13.3, may not be made to or on
behalf of any Member, Director or officer if a final adjudication establishes
that his acts or omissions involved intentional misconduct, fraud or a knowing
violation of the law and was material to the cause of action.

       (b) Continues for a person who has ceased to be a Member, Director,
officer, employee or agent and inures to the benefit of his heirs, executors and
administrators.

       13.5 Insurance and Other Financial Arrangements.

       (a) The Board of Directors may cause the Company to purchase and maintain
insurance or make other financial arrangements on behalf of any person who is or
was a Member, Director, officer, employee or agent of the Company, or is or was
serving at the request of the Company as a manager, Member, director, officer,
employee or agent of another limited liability company, corporation,
partnership, joint venture, trust or other enterprise for any liability asserted
against him and liability and expenses incurred by him in his capacity as a
Director, member, director, officer, employee or agent, or arising out of his
status as such, whether or not the Company has the authority to indemnify him
against such liability and expenses.

                                      -38-
<PAGE>   111
      (b) The other financial arrangements made by the Company pursuant to
Section 13.5(a) may include:

            (i) The creation of a trust fund;

            (ii) The establishment of a program of self-insurance;

            (iii) The securing of its obligation of indemnification by granting
      a security interest or other lien on any assets of the Company; or

            (iv) The establishment of a letter of credit, guaranty or surety.

      No financial arrangement made pursuant to this Section 13.5(b) may provide
protection for a person adjudged by a court of competent jurisdiction, after
exhaustion of all appeals therefrom, to be liable for intentional misconduct,
fraud or a knowing violation of law, except with respect to the advancement of
expenses or indemnification ordered by a court.

      (c) In the absence of fraud:

            (i) The decision of the Company as to the propriety of the terms and
      conditions of any insurance or other financial arrangement made pursuant
      to this Section 13.5 and the choice of the person to provide the insurance
      or other financial arrangement is conclusive; and

            (ii) The insurance or other financial arrangement:

                  (A) Is not void or voidable; and

                  (B) Does not subject any Director or Member approving it to
            personal liability for his action,

      even if a Director or Member approving the insurance or other financial
arrangement is a beneficiary of the insurance or other financial arrangement.

      13.6 Notice of Indemnification and Advancement. Any indemnification of, or
advancement of expenses to, a Director, Member or officer in accordance with
this Article 13, if arising out of a proceeding by or on behalf of the Company,
shall be reported in writing to the Members with or before the notice of the
next Members' meeting.

      13.7 Repeal or Modification. Any repeal or modification of this Article 13
by the Members of the Company shall not adversely affect any right of a
Director, Member or officer of the Company existing hereunder at the time of
such repeal or modification.

                                   ARTICLE 14

             Inspection of Company Records; Annual and Other Reports

      14.1 Records to be Kept. The Company shall keep at its registered office:


                                      -39-
<PAGE>   112
      (a) A current list of the full name and last known business, residence or
mailing address of each Member and Director separately identifying the Members
in alphabetical order and the Directors, if any, in alphabetical order;

      (b) A copy of the filed Certificate and all amendments thereto, together
with executed copies of any powers of attorney pursuant to which any document
has been executed;

      (c) Copies of this Agreement, and all amendments hereto;

      (d) Copies of the Company's federal income tax returns and reports, if
any, for, at least, the three most recent years; and

      (e) Copies of any financial statements of the Company for, at least, the
three most recent years.

      14.2 Access to Company Information. The accounting books and records, the
record of Members, and minutes of proceedings of the Members of the Company,
including, without limitation such information necessary to conduct periodic
audits of various kinds (e.g. EHS, financial), shall be open to inspection upon
the reasonable request of any Member at any reasonable time during usual
business hours, for a purpose reasonably related to such Member's interest as a
Member. Such inspection by a Member may be made in person or by agent or
attorney, and the right of inspection includes the right to copy and make
extracts. In addition, the Members shall have reasonable access to the Officers
of the Company in order to discuss the Company's business.

      14.3 Annual and Quarterly Reports.

      (a) The Board of Directors shall within 45 days after the end of the first
three Fiscal Quarters and within 90 days after the close of a Fiscal Year,
deliver or mail to the Members, the quarterly and annual, respectively,
financial statements of the Company.

      (b) The income statements and balance sheets referred to in this Section
14.3 shall be accompanied by the report thereon, if any, of any independent
accountants engaged by the Company or the certificate of an authorized officer
of the Company that such financial statements were prepared without audit from
the books and records of the Company.

      (c) The annual financial statements of the Company shall be audited by
independent accountants, and independent accountants shall participate in the
preparation of quarterly financial statements of the Company, in each case
consistent with the rules of the Securities and Exchange Commission relating to
annual and quarterly financial statements of publicly-traded companies.

                                   ARTICLE 15

                              Defaults and Remedies

      15.1 Defaults. If a Member materially defaults in the performance of its
obligations under this Agreement, and such default is not cured within ten (10)
days after notice of such


                                      -40-
<PAGE>   113
default is given by a Director to the defaulting Member for a default that can
be cured by the payment of money, or within thirty (30) days after notice of
such default is given by a Director to the defaulting Member for any other
default, then the non-defaulting Members shall have the rights and remedies
described in Section 15.2 hereunder in respect of the default.

      15.2 Remedies. If a Member fails to perform its obligations under this
Agreement, any ether Member shall have, in addition to any rights and remedies
provided hereunder, all such rights and remedies as are provided at law or in
equity.

      15.3 No Waiver. No consent or waiver, express or implied, by a Member to
or of any breach or default by another Member in the performance by such other
Member of its obligations under this Agreement shall constitute a consent to or
waiver of any similar breach or default by any other Member. Failure by a Member
to complain of any act or omission to act by another Member, or to declare such
other Member in default, irrespective of how long such failure continues, shall
not constitute a waiver by such Member of its rights under this Agreement.

                                   ARTICLE 16

                                  Miscellaneous

      16.1 Amendments.

      (a) Subject to any contrary provisions of the Act, this Agreement may be
amended only by the affirmative vote of Members owning all of the Class
Membership Interest of both Class C and Class P. Any such amendment shall be in
writing, duly executed by all the Members.

      (b) Subject to any contrary provisions of the Act, the Certificate may
only be amended by the affirmative vote of Members owning one hundred percent
(100%) of all of the Percentage Interests entitled to vote. Any such amendment
shall be in writing, and shall be executed and filed in accordance with section
18-202 of the Act.

      16.2 Representation of Shares of Companies or Interests in Other Entities.
The chief executive officer, any vice president or the secretary or any
assistant secretary of this Company is authorized to vote, represent and
exercise on behalf of this Company all rights incident to any and all shares of
any other company or companies, or any interests in any other entity, standing
in the name of this Company. The authority herein granted to said officers to
vote or represent on behalf of this Company any and all shares held by this
Company in any other company or companies, or any interests in any other entity,
may be exercised either by such officers in person or by any other person
authorized so to do by proxy or power of attorney duly executed by said
officers.

      16.3 Seal. The Members or Board of Directors may adopt a seal of the
Company in such form as the Members or the Board of Directors (as the case may
be) shall decide.

      16.4 Actions by Class P Members and Class C Members. Phillips shall ensure
that each of the Class P Members, and Chevron shall ensure that each of the
Class C Members, takes


                                      -41-
<PAGE>   114
all actions necessary to be taken by such Member in order to fulfill the
obligations of such Member, or of Phillips or Chevron, as the case may be, under
this Agreement.

      16.5 Entire Agreement. This Agreement, including the exhibits and
schedules hereto, constitutes the entire agreement between the Members with
respect to the subject matter hereof, and supersedes all prior and
contemporaneous agreements, representations, and understandings of the parties.
No party hereto shall be liable or bound to the other in any manner by any
warranties, representations or covenants with respect to the subject matter
hereof except as specifically set forth herein.

      16.6 Third Parties. Nothing in this Agreement, express or implied, is
intended to confer upon any party, other than the parties hereto, and their
respective successors and permitted assigns, any rights, remedies, obligations
or liabilities under or by reason of this Agreement, except that the provisions
of Article 13 are for the benefit of the persons to be indemnified by the
Company.

      16.7 Governing Law: Jurisdiction and Forum: Waiver of Jury Trial.

      (a) This Agreement shall be governed by and construed under the
substantive laws of the State of Delaware, without regard to Delaware choice of
law provisions.

      (b) Each party hereto irrevocably submits to the jurisdiction of any
Delaware state court or any federal court sitting in the State of Delaware in
any action arising out of or relating to this Agreement, and hereby irrevocably
agrees that all claims in respect of such action may be heard and determined in
such Delaware state or federal court. Each party hereto hereby irrevocably
waives, to the fullest extent it may effectively do so, the defense of an
inconvenient forum to the maintenance of such action or proceeding. The parties
hereto further agree, to the extent permitted by law, that final and
unappealable judgment against any of them in any action or proceeding
contemplated above shall be conclusive and may be enforced in any other
jurisdiction within or outside the United States by suit on the judgment, a
certified copy of which shall be conclusive evidence of the fact and amount of
such judgment.

      (c) To the extent that any party hereto has or hereafter may acquire any
immunity from jurisdiction of any court or from any legal process (whether
through service or notice, attachment prior to judgment, attachment in aid of
execution, execution or otherwise) with respect to itself or its property, each
party hereto hereby irrevocably waives such immunity in respect of its
obligations with respect to this Agreement.

      (d) Each party hereto waives, to the fullest extent permitted by
applicable laws, any right it may have to a trial by jury in respect of any
action, suit or proceeding arising out of or relating to this Agreement. Each
party hereto certifies that it has been induced to enter into this Agreement by,
among other things, the mutual waivers and certifications set forth above in
this Section 16.7.


      16.8 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the



                                      -42-
<PAGE>   115
same instrument, and shall become effective when there exist copies hereof
which, when taken together, bear the authorized signatures of each of the
parties hereto. Only one such counterpart signed by the party against whom
enforceability is sought needs to be produced to evidence the existence of this
Agreement.

      16.9 Titles and Subtitles: Form of Pronouns: Construction and Definitions.
The titles of the sections and paragraphs of this Agreement are for convenience
only and are not to be considered in construing this Agreement. All pronouns
used in this Agreement shall be deemed to include masculine, feminine and neuter
forms, the singular number includes the plural and the plural number includes
the singular. Unless otherwise specified, references to Sections or Articles are
to the Sections or Articles in this Agreement. Unless the context otherwise
requires, the term "including" shall mean "including, without limitation".

      16.10 Delaware Limited Liability Company Act Prevails. Unless the context
otherwise requires, the general provisions, rules of construction and
definitions contained in the Act and the Delaware General Corporation Law shall
govern the construction of this Agreement; provided, however, that in the event
of any inconsistency between such laws, the provisions of the Act shall prevail.

      16.11 Severability. If one or more provisions of this Agreement are held
by a proper court to be unenforceable under applicable law, portions of such
provisions, or such provisions in their entirety, to the extent necessary and
permitted by law, shall be severed herefrom, and the balance of this Agreement
shall be enforceable in accordance with its terms.



                                      -43-
<PAGE>   116
      IN WITNESS WHEREOF, the undersigned hereby execute this Limited Liability
Company Agreement as of the date first set forth above.


                             CHEVRON U.S.A. INC.


                             By ____________________________________________

                             Name __________________________________________

                             Title _________________________________________


                             CHEVRON CORPORATION


                             By ____________________________________________

                             Name __________________________________________

                             Title _________________________________________


                             CHEVRON OVERSEAS PETROLEUM INC.


                             By ____________________________________________

                             Name __________________________________________

                             Title _________________________________________




                                      -44-
<PAGE>   117
                             CHEVRON PIPE LINE COMPANY


                             By ____________________________________________

                             Name __________________________________________

                             Title _________________________________________




                                      -45-
<PAGE>   118
                             PHILLIPS PETROLEUM COMPANY


                             By ____________________________________________

                             Name __________________________________________

                             Title _________________________________________


                             DRILLING SPECIALTIES CO.

                             By ____________________________________________

                             Name __________________________________________

                             Title _________________________________________


                             WESTTEX 66 PIPELINE CO.

                             By ____________________________________________

                             Name __________________________________________

                             Title _________________________________________


                             PHILLIPS PETROLEUM INTERNATIONAL
                             CORPORATION

                             By ____________________________________________

                             Name __________________________________________

                             Title _________________________________________




                                      -46-
<PAGE>   119
                                   SCHEDULE I

                         NAMES AND ADDRESSES OF MEMBERS






                                      S1-I
<PAGE>   120
                                   SCHEDULE 2

                                INITIAL DIRECTORS

<TABLE>
<CAPTION>
         Name                                   Address

<S>                                             <C>
Class C Directors:

Darry W. Callahan
Martin R. Klitten

Class P Directors:

James Mulva
John E. Lowe

Non-Voting Directors:

James Gallogly
Kent Potter
</TABLE>




                                      S2-1
<PAGE>   121
                                   SCHEDULE 3

           NAMES AND ADDRESSES, CLASS OF MEMBERSHIP INTEREST, CAPITAL
                CONTRIBUTIONS AND PERCENTAGE INTERESTS OF MEMBERS


<TABLE>
<CAPTION>
                               Class of
  Name and Address of         Membership      Date of                       Percentage
       Members                 Interest    Contribution   Capital Account    Interest
<S>                           <C>          <C>            <C>               <C>
Chevron U.S.A. Inc.                C         Closing        $                      %
Chevron Overseas                   C         Closing        $                      %
Petroleum Inc.
Chevron Pipe Line                  C         Closing        $                      %
Company
Phillips Petroleum                 P         Closing        $                      %
Company
Drilling Specialties Co.           P         Closing        $                      %
WesTTex 66 Pipeline Co.            P         Closing        $                      %
Phillips Petroleum                 P         Closing        $                      %
International Corporation

Total Capital Contributions                                 $                 100.0%
</TABLE>



                                      S3-1
<PAGE>   122
                                   SCHEDULE 4

                                INITIAL OFFICERS

<TABLE>
<CAPTION>
       Name                           Office

<S>                     <C>
Jim Gallogly            President & Chief Executive Officer
Kent Potter             Senior Vice President & Chief Financial Officer
Greg Garland            Senior Vice President, Planning & Strategic Transactions
Scott Meyer             Senior Vice President, Styrenics & Specialty Chemicals
Mike Parker             Senior Vice President, Aromatics
Tim Taylor              Senior Vice President, Olefins & Polyolefins
Bob Hunt                Vice President, Health, Environment & Safety
Sherry Richard          Vice President, Human Resources
Mary Jane Hagenson      Vice President, Technology
Jeff Taylor             Vice President, North Americas Polyethylene
Greg Maxwell            Vice President & Controller
Joe McKee               Vice President & Treasurer
Larry Frazier           Chief Information Officer
Bruce Waits             General Tax Counsel
Rick Roberts            Manufacturing Vice President
</TABLE>




                                      S4-1
<PAGE>   123

                                   Appendix B


                           TRADENAME LICENSE AGREEMENT

      THIS AGREEMENT, made as and from the ________ day of __________, 2000,
between PHILLIPS PETROLEUM COMPANY, a corporation organized under the laws of
Delaware, with an office at 232 Patent and Library Building, Bartlesville,
Oklahoma 74004, United States of America (hereinafter referred to as "PHILLIPS")
and CHEVRON CORPORATION, a corporation organized under the laws of Delaware,
with an office at 575 Market Street, San Francisco, California 94105, United
States of America (hereinafter referred to as "CHEVRON") (PHILLIPS and CHEVRON
hereinafter sometimes collectively referred to as "LICENSORS") and CHEVRON
PHILLIPS CHEMICAL COMPANY LLC, a Delaware limited liability company, with an
office at ______________________________________ United States of America,
(hereinafter referred to as "LICENSEE"),

                        W I T N E S E T H:

      WHEREAS, PHILLIPS is the worldwide owner of PHILLIPS 66 and PHILLIPS 66
Shield trademarks and service marks (set forth in the attached Schedule A and
hereinafter referred to as the "Phillips Trademarks"); and

      WHEREAS, CHEVRON is the worldwide owner of the CHEVRON trademarks and
service marks (set forth in the attached Schedule B and hereinafter referred to
as the "Chevron Trademarks"); and

      WHEREAS, PHILLIPS and CHEVRON have entered into a Letter of Intent and
Exclusivity Agreement dated February 4, 2000 (hereinafter referred to as the
Exclusivity Agreement"); and

      WHEREAS, PHILLIPS has adopted the word Phillips and CHEVRON has adopted
the word Chevron which are used alone and/or in combination with other words; in
corporate titles or trading names (hereinafter collectively referred to as "the
Names") in the field of activity in which the parties are engaged; and

      WHEREAS, LICENSEE believes that various commercial advantages could result
if LICENSEE is permitted to include the Names as part of the corporate title of
LICENSEE and the corporate titles of certain of LICENSEE's subsidiaries and
affiliates; and

      WHEREAS, it is the mutual desire of the parties to set forth formally the
terms and conditions under which LICENSEE is permitted to include the Names as
part of LICENSEE's corporate title and the corporate titles of certain of
LICENSEE's subsidiaries and affiliates;

      NOW, THEREFORE, in consideration of the premises and of the mutual
promises hereinafter set forth, the parties hereto agree as follows:


                                        1
<PAGE>   124
1.    Grant of License

      1.1.  LICENSORS hereby grant to LICENSEE a royalty-free, non-exclusive
            right to use the Names, but only in the composition "Chevron
            Phillips" and only as part of the corporate title of LICENSEE and
            its subsidiaries and affiliates to be used in the states and/or
            nations in which LICENSEE is authorized by its formative agreements
            to operate (hereinafter referred to as the "TERRITORY").

      1.2.  Each LICENSOR hereby approves the use of the Names in LICENSEE's
            corporate title as first written above. To the extent that LICENSEE
            desires to use the Names as a part of a title for a corporation,
            partnership or other association that is a subsidiary or affiliate
            of LICENSEE, LICENSEE shall obtain prior written approval from each
            LICENSOR of any such proposed title, which approval shall not be
            withheld unreasonably by either LICENSOR; provided that each
            LICENSOR hereby gives its prior approval for the proposed titles
            listed in Schedule C.

      1.3.  The parties understand and agree that neither LICENSOR grants to
            LICENSEE any license to use the Chevron Trademarks or the Phillips
            Trademarks, or either LICENSOR's logos, hallmarks or trade dress by
            this Agreement. Only the Names are licensed hereunder.

2.    Quality Control

      LICENSEE undertakes to use the Names in the TERRITORY only so long as such
      use is in accordance with the standards, specifications and instructions
      submitted and approved by LICENSORS from time to time.

3.    Inspection

      3.1.  Each LICENSOR and its duly appointed agents shall have the right, at
            all reasonable times, to request and receive free of charge samples
            of stationery, brochures, advertising, promotional materials,
            business cards, office placards and other written materials on which
            the Names appear, to enable each LICENSOR to satisfy itself that the
            use of the Names meets with standards, specifications and
            instructions agreed upon by LICENSORS from time to time. Approval of
            the form of such uses on such materials shall not be unreasonably
            withheld.

      3.2.  LICENSEE undertakes that it will use the Names at all times in an
            ethical and dignified manner consistent with the standing, character
            and reputation of LICENSORS and the Names, recognizing the
            importance of maintaining the high quality and prestige associated
            with the Names.

      3.3.  LICENSEE undertakes that it shall have the present Agreement read,
            in its entirety, into the minutes of the first Shareholders Meeting
            immediately following execution of this Agreement.

                                      2
<PAGE>   125
4.    Ownership of the Names

      4.1.  LICENSEE recognizes LICENSORS' ownership and title in and to their
            respective Names; and it is understood that throughout the term of
            this Agreement and thereafter LICENSEE shall not contest the
            validity of the Names, claim adversely to either LICENSOR any right,
            title or interest in and to the Names, and shall not register or
            apply to register the Names or any confusingly similar names or
            trademarks in the TERRITORY or elsewhere.

      4.2.  LICENSEE agrees that all use of the Names by LICENSEE shall inure to
            the benefit of LICENSORS.

5.    Indemnification

      LICENSEE hereby indemnifies and holds harmless each LICENSOR from and
      against any claims (including product liability claims) which may be made
      or brought against LICENSORS and/or which it may suffer or incur as a
      result of, or in respect of, or arising out of (i) the advertisement,
      promotion, sales, offering for sale, and/or distribution of Chemicals
      Products and Related Services by LICENSEE or its sublicensees, (ii) the
      operation of Manufacturing and Retail Facilities by LICENSEE or its
      sublicensees, or (iii) otherwise in connection herewith, in each case
      after the date hereof.

6.    Infringements

      LICENSEE agrees that LICENSEE shall promptly call to the attention of
      LICENSORS the use of any trademarks or name by any third party that
      LICENSEE considers might be an infringement or passing off of one or both
      of the Names. However, the LICENSOR or LICENSORS affected by such
      infringement or passing off shall have the sole right to decide whether or
      not proceedings shall be brought against such third parties. In the event
      that a LICENSOR decides that action should be taken against such third
      parties, LICENSOR shall take such action in its own name. The parties
      agree to cooperate fully with each other to the extent necessary to
      prosecute such action.

7.    Export Control

      LICENSEE agrees that it will not directly or indirectly deliver products
      or technical data concerning such products to:

      7.1.  Cuba, Iran, Iraq, Libya, North Korea, or any country or territory
            that is prohibited by U.S. Law;

      7.2.  The government or any national of any such country or any vessel or
            aircraft owned or controlled by or chartered to such government or
            national or flying the flag of any such country;

                                       3
<PAGE>   126
      7.3.  National Union for the Total Independence of Angola ("UNITA") and
            related titles;

      7.4.  Any facility or end-use related to the design, development, product,
            stockpiling or use of missiles; nuclear, chemical or biological
            weapons; radioactive materials; or components or material for
            systems using radioactive materials, even if the products from
            LICENSEE will not be used in such activities; or

      7.5.  Any other entity prohibited by U.S. Law.


8.    Term and Termination

      This Agreement shall continue in force for a term while the respective
      LICENSORS' Trademark registrations are in force; provided, however that
      the rights of LICENSEE to use the Names shall terminate forthwith in the
      event of any of the following circumstances:

      8.1.  As to both Names:

            8.1.1. If the LICENSEE goes into voluntary or involuntary
                   liquidation, or takes the benefits of any insolvency law or
                   is judicially or administratively declared bankrupt or
                   insolvent, or if a receiver is appointed for all or any
                   substantial part of the assets or business of LICENSEE;

            8.1.2. Governmental expropriation of a material portion of the
                   assets of LICENSEE that relate to LICENSEE's activities as
                   contemplated by the [Joint Venture Documents];

            8.1.3. Upon thirty (30) days written notice if LICENSEE fails to
                   comply with the standards and specifications submitted and/or
                   approved by LICENSORS;

            8.1.4. Upon twelve (12) months' prior written notice from both
                   LICENSORS of the termination of this Agreement for any
                   reason.

      8.2.  As to one of the Names:

            8.2.1. Governmental expropriation of a material portion of the
                   assets of a LICENSOR relating to LICENSEE's activities as
                   contemplated by the Contribution Agreement;

            8.2.2. Decrease of a LICENSOR's interest in the LICENSEE below fifty
                   percent (50%), at such LICENSOR's option exercisable by
                   thirty (30) days' written notice to the other LICENSOR and to
                   LICENSEE prior to the date of termination.


                                      4
<PAGE>   127
            .8.3. Upon termination of this Agreement in whole or in part for any
                  reason, LICENSEE shall discontinue using the Name or Names to
                  which this Agreement no longer applies, and shall promptly
                  take all steps to refrain from using such Name or Names as
                  part of LICENSEE's corporate title or its subsidiaries' and
                  affiliates' corporate titles in advertising, industry
                  publications, commercial registers and directories, telephone
                  directories and similar listings as promptly as possible.
                  LICENSEE shall not thereafter use the Name or Names as to
                  which this Agreement has terminated, or any colorable
                  imitation of such Name or Names, in any manner or form
                  whatsoever in the conduct of LICENSEE's business, unless
                  specific prior written permission to do so shall have been
                  given to LICENSEE by LICENSOR.

            8.4.  Without limiting the provisions of Section 8.3 of this
                  Agreement, once this Agreement has terminated as to one or
                  both of the Names, LICENSEE hereby agrees to use its best
                  efforts and due diligence to obtain whatever approval is
                  necessary to change its corporate title to delete the Name or
                  Names therefrom.

            8.5.  After termination of this Agreement as to one or both of the
                  Names, LICENSEE may sell existing inventory of products
                  bearing the Name or Names no longer subject to this Agreement
                  until such inventory is depleted, but in no event later than
                  twelve (12) months from the date of termination as to the
                  applicable Name or Names.

9.    Assignments and Sublicenses

      9.1.  LICENSEE shall not have the right to assign the licenses granted
            hereunder to any other entity without the prior written approval of
            each LICENSOR, and then only if the assignee agrees to be bound by
            all the terms and conditions of the licenses granted hereunder.

      9.2.  LICENSEE shall not have the right to grant sublicenses of the Names
            licensed hereunder.

10.   Waiver

      Any waiver by LICENSORS or LICENSEE of a breach or condition of this
      Agreement shall not be considered as a waiver of any subsequent breach of
      the same or any other term or condition hereof.

11.   Invalidity

      If any provision of this Agreement is declared void or unenforceable by
      any judicial or administrative authority, this shall not in and of itself
      nullify the remaining provisions of this Agreement unless LICENSORS, in
      LICENSORS' discretion, decide that such declaration adversely affects the
      original intent of the parties, in which event LICENSORS shall give notice
      in writing to LICENSEE of the basis for their decision. Thereafter,
      LICENSEE shall have fifteen (15) days within which to comment thereon.
      Upon the expiration of said fifteen

                                       5
<PAGE>   128
      (15) day period, LICENSORS, in their sole discretion, may terminate this
      Agreement upon thirty (30) days' written notice to LICENSEE.

12.   Notices

      All notices, claims, requests, and demands hereunder (hereinafter referred
      to as "communications") shall be in writing and shall be deemed to have
      been duly given if mailed (by registered or Certified mail, return receipt
      requested and postage pre-paid) as follows:

           If LICENSOR, to:

           PHILLIPS PETROLEUM COMPANY
           232 Patent and Library Building
           Bartlesville, Oklahoma 74004

           Attention:   Lynda S. Jolly, Esq.
                        Trademark Counsel

           and

           CHEVRON CORPORATION
           2613 Camino Ramon
           San Ramon, California 94583

           Attention:   Trademark Counsel

           If LICENSEE, to:

           CHEVRON PHILLIPS CHEMICAL COMPANY LLC
           ______________________________________
           ______________________________________
           Attention: ___________________________

      or to such other address the party to whom notice is to be given may have
      furnished to the other party in writing in accordance herewith. If mailed
      as aforesaid, any such communication shall be deemed to have been given on
      the tenth (10th) business day following that on which the communication is
      mailed; provided that any communication sent by telecopier or telex and
      confirmed by mail (postage pre-paid) shall be deemed to have been given at
      the time of transmission.


                                     6
<PAGE>   129
13.   Governing Law

      This Agreement shall be deemed to have been made in the State of Delaware,
      United States of America, and shall be governed by and construed in
      accordance with the laws of the State of Delaware, without giving effect
      to the principles of Conflict of Law thereof.

14.   Survival of Obligations

      Sections 4.1, 4.2, 5, 8.3, 8.4 and 8.5 shall survive termination of this
      Agreement.

15.   Parties in Interest; Assignment

      This Agreement shall be binding upon and inure to the benefit of the
      parties hereto and to the successors and assigns of LICENSORS; however,
      this Agreement is not assignable by the LICENSEE and shall not be assigned
      by the LICENSEE without prior written approval of the LICENSORS.

16.   Amendments to Agreement

      Any amendment or modification to this Agreement must be made in writing
      and signed by all parties.

17.   Headings

      The paragraph headings contained in this Agreement are for reference only
      and shall not affect in any way the meaning or interpretation of this
      Agreement.

      IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the day and year first above
written.

                                      PHILLIPS PETROLEUM COMPANY


                                      By___________________________________
                                      Title _______________________________

                                      CHEVRON CORPORATION


                                      By___________________________________
                                      Title _______________________________


                                      7
<PAGE>   130
                                      CHEVRON PHILLIPS CHEMICAL COMPANY LLC


                                       By ___________________________________
                                       Title ________________________________



                                       8
<PAGE>   131
                 Schedule A

Trademarks and Service Marks of Phillips Petroleum Company

                   PHILLIPS 66


                 PHILLIPS 66 Shield


                       10
<PAGE>   132
              Schedule B

Trademarks and Service Marks of Chevron Corporation

                CHEVRON


                   10
<PAGE>   133
                                   Schedule C

           Listing of Approved Titles for Subsidiaries and Affiliates

Chevron Phillips Chemical Company LLC

Chevron Phillips Chemical Company LP

Chevron Phillips Holding Company I LLC

Chevron Phillips Holding Company II LLC

Chevron Phillips K R Copolymer Company, Ltd.

Chevron Phillips Chemical FSC Corporation

Chevron Phillips Chemical Malaysia

Chevron Phillips Chemical International Inc.

Chevron Phillips Chemicals International Corporation

Chevron Phillips Chemical International Ventures Corporation

Shanghai Golden Chevron Phillips Petrochemical Company

Chevron Phillips Singapore Chemicals (Private) Limited

Chevron Phillips Chemicals Asia Re. Limited

Chevron Phillips Chemical Iberica S.L.

Arabian Chevron Phillips Petrochemical Company

Saudi Chevron Phillips Petrochemical Company

Chevron Phillips Plexco International S.A. de C.V.

Chevron Phillips Productos Plasticos Plexco S.A. de C.V.

Chevron Phillips Plexco de Mexico S.A. de C.V.

Chevron Phillips Chemical International Sales Inc.

Chevron Phillips Chemical Zhangjiagang Co. Ltd.

                                 11
<PAGE>   134
Chevron Phillips Chemical Puerto Rico Core Inc.

Chevron Phillips Chemical Drilling Specialties LLC

Chevron Phillips Petrochemical France

N.V. Chevron Phillips Petrochemicals S.A.

Chevron Phillips Chemical S.r.L.

Chevron Phillips Petrochemical N.V.

Chevron Phillips Petrochemical S.A. de C.V.

Chevron Phillips Chemicals (Shanghai) Corporation

Chevron Phillips Driscopipe Mexicana S. de R.L. de C.V.


                                    12
<PAGE>   135
                                                                FINAL


                              Exhibit A-1

                             [P Chem Assets]


                                 Part I

                                [Assets]

Houston Chemical Complex

      Phillips' Polypropylene interests, including its interest in Phillips
Sumika Polypropylene Company, and Phillips' interest in the Polyethylene,
Neohexene, and K- Resin chemical plant facilities located in, or in the vicinity
of Pasadena, Texas, including the land, improvements, information systems,
furniture, fixtures, machinery, mobile equipment, trucks and automobiles which
are associated with such chemical plant facilities, excluding that certain
Gypsum Pile in the Northwest portion of the property.

Sweeny Facilities

      Phillips' interest in the Propylene, DCPD, NGL Fractionation and Ethylene
chemical plant facilities, including Phillips' interest in SOLP, located in, or
in the vicinity of Old Ocean, Texas, including the improvements, information
systems, furniture, fixtures and machinery, and, to the extent dedicated solely
to use at such chemical plant facilities, mobile equipment which are associated
with such chemical plant facilities, together with a 99-year leasehold estate in
the underlying land.

Borger Facilities

      Phillips' interest in the Methyl Mercaptan, Ryton, Mining Chemicals,
Dimethyl Sulfide and Philtex plant facilities located in, or in the vicinity of
Borger, Texas, including the improvements, information systems, furniture,
fixtures and machinery,, and, to the extent dedicated solely to use at such
chemical plant facilities, mobile equipment which are associated with such
chemical plant facilities, together with a 99- year leasehold estate in the
underlying land.

Conroe Plant

      Phillips' interest in the Drilling Specialties plant facilities located
in, or in the vicinity of Conroe, Texas, including the land, improvements,
information systems, furniture, fixtures, machinery, mobile equipment, trucks
and automobiles which are associated with such chemical plant facilities.
<PAGE>   136
Puerto Rico Core Plant

      Phillips' interest in the Core Aromatics Chemicals plant facilities
located in, or in the vicinity of Guayama, Puerto Rico, including the land,
improvements, information systems, furniture, fixtures, machinery, mobile
equipment, trucks and automobiles which are associated with such chemical plant
facilities.

Elkhart Rail Shop

      Phillips' interest in the Rail Maintenance and Repair facilities located
in, or in the vicinity of Elkhart, Texas, including the land, improvements,
information systems, furniture, fixtures, machinery, mobile equipment, trucks
and automobiles which are associated with such facilities.


Phillips Driscopipe Plants and General Office

      Phillips' interest in the Driscopipe plant facilities located in, or in
the vicinity of Watsonville, California, including the land, improvements,
information systems, furniture, fixtures, machinery, mobile equipment, trucks
and automobiles which are associated with such plant facilities.

      Phillips' interest in the Driscopipe plant facilities located in, or in
the vicinity of Brownwood, Texas, including the land, improvements, information
systems, furniture, fixtures, machinery, mobile equipment, trucks and
automobiles which are associated with such plant facilities.

      Phillips' interest in the Driscopipe plant facilities located in, or in
the vicinity of Pryor, Oklahoma, including the land, improvements, information
systems, furniture, fixtures, machinery, mobile equipment, trucks and
automobiles which are associated with such plant facilities.

      Phillips' interest in the Driscopipe plant facilities located in, or in
the vicinity of Williamstown, Kentucky, including the land, improvements,
information systems, furniture, fixtures, machinery, mobile equipment, trucks
and automobiles which are associated with such plant facilities.

      Phillips' interest in the Driscopipe plant facilities located in, or in
the vicinity of Startex, South Carolina, including the land, improvements,
information systems, furniture, fixtures, machinery, mobile equipment, trucks
and automobiles which are associated with such plant facilities.

      Phillips' interest in the Driscopipe plant facilities located in, or in
the vicinity of Hagerstown, Maryland, including the land, improvements,
information systems,
<PAGE>   137
furniture, fixtures, machinery, mobile equipment, trucks and automobiles which
are associated with such plant facilities

      Phillips' interest in the Driscopipe facilities located in, or in the
vicinity of Abilene, Texas, including the land, improvements, information
systems, furniture, fixtures, machinery, mobile equipment, trucks and
automobiles which are associated with such facilities.

      Phillips' interest in the assets associated with the Driscopipe general
office facilities located in, or in the vicinity of Richardson, Texas, including
the information systems, furniture, fixtures, machinery, trucks and automobiles
which are associated with such general office facilities.

China Joint Venture

      Phillips' interest in Shanghai Golden Phillips Petrochemical Company
Limited, a joint venture, with operations in China.

Korean Joint Venture

      Phillips' interest in K R Copolymer Co., Ltd., a joint venture, with
operations in South Korea.

Mexico Joint Venture

      Phillips' interest in Driscopipe Mexicana, S. de R.L. de C.V., a joint
venture, with operations in Mexico.

Qatar Venture

      Phillips' interest in Qatar Chemical Company Ltd., a joint venture, with
operations in Qatar.

Singapore Venture

      Phillips' interest in Phillips Petroleum Singapore Chemicals (Private)
Limited, a joint venture, with operations in Singapore.
<PAGE>   138
Tessenderlo, Belgium

      Phillips' interest in the offices and plant facilities located in, or in
the vicinity of Tessenderlo, Belgium, including the land, improvements,
information systems, furniture, fixtures, machinery, mobile equipment, trucks
and automobiles which are associated with such offices and plant facilities,
used in P Chem.

Kallo, Belgium

      Phillips' interest in the offices and plant facilities located in, or in
the vicinity of Kallo, Belgium, including the land, improvements, information
systems, furniture, fixtures, machinery, mobile equipment, trucks and
automobiles which are associated with such offices and plant facilities, used in
P Chem.

Overuse, Belgium

      Phillips' interest in the offices located in, or in the vicinity of
Overijse, Belgium, including the land, improvements, information systems,
furniture, fixtures, machinery, mobile equipment, trucks and automobiles which
are associated with such offices, used in P Chem.

Pipelines

      The Gulf Coast ethylene, Gulf Coast propylene and Gulf Coast Crude
Butadiene, Gulf Coast 8" LPG, Mt Belvieu-Sweeny E/P, West Texas To Sweeny E-Z
NGL and West Texas, and New Mexico NGL Gathering Lines. A description of the
pipelines is attached.

Caverns

      Phillips' interest in all facilities at the Phillips Petroleum Company
Clemens Terminal, including caverns.


* Note: the assets identified under the heading "Pipelines" are being
contributed to the Company only to the extent of the pipelines themselves and
those related assets and rights necessary to permit the operation of such
pipelines in the ordinary course of the Company's business. Without limiting the
generality of the foregoing, in the case of any pipelines located within
multiple-line rights easements on which one or more lines are currently being
used in the businesses of P Chem and one or more lines are currently being used
in Phillips businesses other than in the businesses of P Chem, Phillips will
assign to the Company the right to continue using those pipelines which are
currently being used in the businesses of P Chem. However, in the case of
pipelines located within (i) single-line rights easements or (ii) multiple-line
rights easements on which each and every line currently being used is being used
in the businesses of P Chem, Phillips will assign such easements, as well as the
pipeline(s) thereon, to the Company.
<PAGE>   139
      Phillips' interest in the NGL underground storage caverns and associated
NGL facilities at Benedum, Gaines and Goldsmith, Texas.


Railcars

      Railcars used by P Chem as of Closing and owned by Phillips Petroleum
Company, as specified in a list to be provided by Phillips Petroleum Company.

      Leasehold interests in railcars used by P Chem as of Closing and held by
Phillips Petroleum Company (leased from unaffiliated third-parties).

Research Center Facilities

      Leasehold interests in those portions of the Phillips Research Center
located at Bartlesville, Oklahoma, used by P Chem, including the Plastics
Technical Center, pursuant to a 10-year lease (see attached).


Other Assets

      Actual Contributed Cash.

      Actual Net Working Capital.

      All rights under contracts, leases or Permits (i) to which any P Chem
Subsidiary is a party and which relate to P Chem, or (ii) which exist at
Closing, are necessary to or utilized in the business of P Chem as conducted on
the Closing Date, and are to be assigned to, or held for the benefit of, the
Company or a Subsidiary thereof at or following the Closing pursuant to Section
6.8 or Section 6.18 of the Contribution Agreement or the Tradename License.
<PAGE>   140
GULF COAST PIPELINES
Ethylene Pipelines

* Route Z - a 10" ethylene pipeline extending from Sweeny Refinery, at Old
Ocean, Texas, to McBeth Junction at McBeth, Texas

* Route Z - a 12" ethylene pipeline extending from McBeth Junction at McBeth,
Texas, to Beasley Station at Liverpool, Texas, together with a 4" lateral
ethylene pipeline to a Dow tie-in at CR 45, Angleton, Texas

* Route A - a 10" ethylene pipeline extending from Clemens Terminal at Brazoria,
Texas, to McBeth Junction at McBeth, Texas

Route S - a 6" ethylene pipeline extending from Sweeny Refinery at Old Ocean,
Texas, to a Union Carbide tie-in at CR 743, Old Ocean, Texas

* Route Z - a 12" ethylene pipeline extending from Beasley Station at Liverpool,
Texas, to Route M at Melody Lane Road in Friendswood, Texas

* Route M - a 12" ethylene pipeline extending from Melody Lane Road in
Friendswood, Texas, to the Route A corridor at Fairmont Parkway in Pasadena,
Texas

* Route A - a 12" ethylene pipeline extending from Fairmont Parkway in Pasadena,
Texas, to HCC at Pasadena, Texas, together with the following laterals:
   * 6" line to USI Equistar/Mobil at Deer Park, Texas
   * 3" line to ARCO at Deer Park, Texas
   * 6" line to Oxy Vinyls at Deer Park, Texas
   * 6" line to Solvay at Deer Park, Texas
   * 4" line to AKZO at Deer Park, Texas
   * 6" line to OxyChem VCM at Deer Park, Texas


* Route Z and M - an idle 6" ethylene pipeline extending from Ellington Junction
at South Houston, Texas, to Route M at Highway 3, Clear Lake, Texas

* Route A - an idle 4" ethylene pipeline lateral to the Ethyl Plant at Pasadena,
Texas

* Route L - approximately 20 miles of idle 4" pipeline (last in ethylene
service) extending from School Junction at Webster, Texas, to Texas City, Texas.

* Route Z - an idle 4" ethylene pipeline extending from Tate Junction at Alvin,
Texas,to Friendswood Junction at Friendswood, Texas.

* Route N - a 6" ethylene pipeline extending from Ellington Junction, Texas, to
a Hunstman Plant at Bayport, Texas, together with the following laterals:
  * 4" line to Celanese at Bayport, Texas
  * 6" line to OxyChem at Highway 3, Clear Lake, Texas

Propylene Pipelines

* Route A - a 6" propylene pipeline extending from Clemens Terminal at Brazoria,
Texas, to McBeth Junction at McBeth, Texas

* Route Z - a 10" propylene pipeline extending from McBeth Junction at McBeth,
Texas, to Beasley Station at Liverpool, Texas
<PAGE>   141
* Route Z - a 10" propylene pipeline extending from Tate Junction at Alvin,
Texas, to HCC, at Pasadena, Texas

* Route Z - a 6" propylene pipeline extending from Beasley Station at Liverpool,
Texas, to Tate Junction at Alvin, Texas, together with a 4" lateral pipeline
extending to Amoco's Chocolate Bayou Plant at Alvin, Texas

* Route A - an idle 6" propylene pipeline extending from School Junction at
Webster, Texas, to Webster Junction at Webster, Texas

* Route A - an idle 4" propylene pipeline extending from School Junction at
Webster, Texas, to Bayport, Texas

* Route Z - an idle 6" propylene pipeline extending from McBeth Junction at
McBeth, Texas, to Beasley Station at Liverpool, Texas


* A 12"/l0" propylene pipeline extending from HCC to the Battleground Monument
Area. The 10" segment of this pipeline extends from HCC to Battleground Road at
Deer Park, Texas, where it reduces to a 4" line that continues to the Montel
Plant at Bayport, Texas, together with the following laterals:
  * 4" line to Englehard Plant at Bayport, Texas
  * 6" line to ITC Plant/Chevron Pipeline at Deer Park, Texas
  * 4" line to Fina Plant at Deer Park, Texas
  * 4"line to an ARCO meter skid at Deer Park, Texas

Butadiene Pipelines

* Route A - a 4" crude butadiene pipeline extending from Clemens Terminal, at
Brazoria, Texas, to Tate Junction, at Alvin, Texas

* Route A - a 6" crude butadiene pipeline extending from Tate Junction, at
Alvin, Texas, to Webster Junction, at Webster, Texas

* Route A - a 4" finished ("pure") butadiene pipeline extending from Shell's
Deer Park Refinery to HCC, at Pasadena, Texas

Natural Gas Liquids Pipelines

* Line EZ - a ten inch (10") natural gas liquids pipeline, consisting of active
and idle sections of pipe, extending from Benedum, in Upton County, Texas, to
Sweeny Refinery, in Brazoria County, Texas, together with the following
laterals:
  * Line EZ-l - a 4" line from Texaco Ozona to Line EZ
  * Line EZ-l Ext. - a 3" line from Ladd Plant to Line EZ-l
  * Line EZ-2 - a 3" line from Sonora to Line EZ
  * Line EZ-3 - a 3" line from Luling to Line EZ
  * Line EZ-4 - a 6" line from Giddings to Line EZ
  * Line 80-1-6-9 - a 3" line from Hullsdale to Line EZ

* Clemens-Pasadena Line - an 8" propane and butane pipeline extending from
Clemens Terminal, in Brazoria County, Texas, to Pasadena Junction, in Harris
County, Texas

* Mont Belvieu-Sweeny E/P Line - an 8" ethane-propane mix pipeline extending
from Mont. Belvieu, in Chamber County, Texas, to Sweeny Refinery, in Brazoria
County, Texas

* Gaines-Hobbs NGL Line - a 4" and 10" natural gas liquids pipeline extending
from Gaines, Texas, to Mapco/Hobbs
<PAGE>   142
* West Texas-New Mexico NGL Lines, consisting of the following: * Interstate:
    * Line 80-I & Loop - a 6"/8"/12" line from Goldsmith to Gaines
    * Line 80-1-6 & Loop 2 - a 6"/8"/l0" line from Goldsmith to Benedum
    * Line 80-1-10 - a 6" line from Eunice to Line 80-1
    * Line 80-1-12 - a 6" line from Goldsmith Station to Goldsmith Cavern
    * Line 80-10 - a 3" line from East Vacuum to Line 80-10-I
    S Line 80-10-I - a 6" line from Hobbs to Line 80-12
    * Line 80-10-2 - a 3" line
    * Line 80-12 - a 4"16"18" line from Lusk to Gaines
    * Line 80-12-I - a 4" line from Artesia to Lusk
    * Line 80-13 - an 8" line from Linam Ranch to Gaines

    * Intrastate:
    * Line 80-1-3 - a 6" line from Fullerton to Drew
    * Line 80-I-I I - a 6" line from Goldsmith to Koch
    * Line 80-1-6-13 - a 6" line from Line 80-1-6 to Headlee
    * Line 80-1-6-13-I - a 6" line from Headlee to Huntsman


Sweeny Pipelines

RAS-2-134 Main Corridor, a six inch (6") Isobutane Pipeline extending from
Sweeny Refinery and Petrochemical Complex Old Ocean, Texas to Clemens Terminal
Brazoria, Texas. Sweeny Refinery Pipeline Number 5 and Bartlesville Pipeline
Number 90.

RAS-2-134 Main Corridor, a six inch (6") Normal Butane Pipeline extending from
Sweeny Refinery and Petrochemical Complex Old Ocean, Texas to Clemens Terminal
Brazoria, Texas. Sweeny Refinery Pipeline Number 6 and Bartlesville Pipeline
Number 88.

RAS-2-134 Main Corridor, a four inch (4") Off-Test Propylene Pipeline extending
from Sweeny Refinery and Petrochemical Complex Old Ocean, Texas to Clemens
Terminal Brazoria, Texas. Sweeny Refinery Pipeline Number 8 and Bartlesville
Pipeline Number 86.

RAS-2-134 Main Corridor, a six inch (6") Propylene Pipeline extending from
Sweeny Refinery and Petrochemical Complex Old Ocean, Texas to Clemens Terminal
Brazoria, Texas. Sweeny Refinery Pipeline Number 9 and Bartlesville Pipeline
Number 85.

RAS-2-134 Main Corridor, a ten inch (10") NGL Pipeline extending from Sweeny
Refinery and Petrochemical Complex Old Ocean, Texas to Clemens Terminal
Brazoria, Texas. Sweeny Refinery Pipeline Number 12 and Bartlesville Pipeline
Number 83.

RAS-2- 134 Main Corridor, an eight inch (8") Propane Pipeline extending from
Sweeny Refinery and Petrochemical Complex Old Ocean, Texas to Clemens Terminal
Brazoria, Texas. Sweeny Refinery Pipeline Number 14 and Bartlesville Pipeline
Number 93.

RAS-2-134 Main Corridor, a ten inch (10") Ethane-Propane Mix Pipeline extending
from Sweeny Refinery and Petrochemical Complex Old Ocean, Texas to Clemens
Terminal Brazoria, Texas. Sweeny Refinery Pipeline Number 20 and Bartlesville
Pipeline Number 77.

RAS-2-134 Main Corridor, a six inch (6") Ethylene Pipeline extending from Sweeny
Refinery and Petrochemical Complex Old Ocean, Texas to Clemens Terminal
Brazoria, Texas. Sweeny Refinery Pipeline Number 22 and Bartlesville Pipeline
Number 76.
<PAGE>   143
RAS-2-134 Alternate Corridor, a ten inch (10") LPG Pipeline extending from
Sweeny Refinery and Petrochemical Complex Old Ocean. Texas to Clemens Terminal
Brazoria, Texas. Sweeny Refinery Pipeline Number 35 and Bartlesville Pipeline
Number 219.

RAS-2-134 Main and Alternate Corridors, a six inch (6") DAC Pipeline extending
from Sweeny Refinery and Petrochemical Complex Old Ocean, Texas to Freeport
Terminal Freeport, Texas. Sweeny Refinery Pipeline Number 36 and Bartlesville
Pipeline Number 220.

RAS-2-134 Alternate Corridor, an eight inch (8") Ethylene Pipeline extending
from Sweeny Refinery and Petrochemical Complex Old Ocean, Texas to Clemens
Terminal Brazoria, Texas. Sweeny Refinery Pipeline Number 37 and Bartlesville
Pipeline Number 221.

RAS-2-134 Main Corridor, a six inch (6") Ethylene Pipeline extending from
Clemens Terminal Brazoria Texas to Oxychem Meter Station Brazoria, Texas. Sweeny
Refinery Pipeline Number 39 and Bartlesville Pipeline Number 224.

RAS-2-134 Alternate Corridor, a four inch (4") Butadiene Pipeline extending from
Sweeny Refinery and Petrochemical Complex Old Ocean, Texas to Clemens Terminal
Brazoria, Texas. Sweeny Refinery Pipeline Number 38 and Bartlesville Pipeline
Number 222.
(This line continues on as a WesTTex 66 line from Clemens to Webster Texas)






<PAGE>   144
                                     Part II

                                   [Entities]

K R Copolymer Company, Ltd. (60% interest)

Qatar Chemical Company Ltd. (49% interest)

Phillips Petroleum FSC Corporation

Phillips Petroleum Company Qatar

Phillips Petroleum Company (Malaysia)

Phillips Petroleum International Inc.

Phillips Petroleum International Ventures Corporation
     Shanghai Golden Phillips Petrochemical Company (40% interest)

Phillips Petroleum Singapore Chemicals (Private) Limited (50% interest)

Phillips Petroleum Chemicals Asia Pte. Limited

Phillips Petroleum Chemicals (Shanghai) Corporation

Phillips Petroleum International, Ltd.

Chevron Phillips International Corporation

N.V. Phillips Petroleum Chemicals S.A. (1.05% interest)


Chevron Phillips Spain Holding Company ( a Spanish ETVE which will hold the
following)
     Phillips Petroleum International Canada Ltd.
     Phillips Petroleum International France
     N.V. Phillips Petroleum Chemicals S.A. (98.95% interest)
     Phillips Petroleum International GmbH.
     Phillips Petroleum International Iberica S.L.
     Phillips Petroleum International S.r.L.
     Phillips Petroleum International N.V.
     Phillips Quimica S.A. de C.V.
     Driscopipe Mexicana S. de R.L. de C.V. (49% interest)
     UK Sales Subsidiary (to be formed and named)

Phillips Puerto Rico Core Inc.
<PAGE>   145
Drilling Specialties LLC

Chevron Phillips Chemical Holdings I LLC

Chevron Phillips Chemical Holdings II LLC

Olefin Chemical Holdings I LLC

Olefin Chemical Holdings II LLC

South Tex Holding LLC

Chevron Phillips Pipeline Company LLC

See Schedule 2.2 of the Phillips Disclosure Schedule
<PAGE>   146
                                   Exhibit A-2

                                 [C Chem Assets]


                                     Part I

                                    [Assets]

Cedar Bayou Plant

     The alphaolefins, ethylene, HDPE, LDPE, LLDPE, acetylene black and
polyalphaolefins chemical plant facilities located in, or in the vicinity of
Baytown, Texas, including the land, land improvements, information systems,
furniture, fixtures, machinery, mobile equipment, trucks and automobiles which
are associated with such chemical plant facilities.

Pascagoula Plant

     The benzene, dilute ethylbenzene, and paraxylene chemical plant facilities
located in, or in the vicinity of Pascagoula, Mississippi, including the land
improvements, information systems, furniture, fixtures, machinery and mobile
equipment which are associated with such chemical plant facilities.

Port Arthur Plant

     The benzene, cumene, cyclohexane, ethylene and propylene chemical plant
facilities located in, or in the vicinity of Port Arthur, Texas, including the
land improvements, information systems, furniture, fixtures, machinery, mobile
equipment, trucks and automobiles which are associated with such chemical plant
facilities.

St. James Plant

     The ethylbenzene and styrene chemical plant facilities located in, or in
the vicinity of St. James, Louisiana, including the land, land improvements,
information systems, furniture, fixtures, machinery, mobile equipment, trucks
and automobiles which are associated with such chemical plant facilities.

Orange Plant

     The chemical plant facilities located in, or in the vicinity of Orange,
Texas, including the land, land improvements, information systems, furniture,
fixtures, machinery, mobile equipment, trucks and automobiles which are
associated with such chemical plant facilities.
<PAGE>   147
   Marietta Plant

        The polystyrene chemical plant facilities located in, or in the vicinity
   of Marietta, Ohio, including the land, land improvements, information
   systems, furniture, fixtures, machinery, mobile equipment, trucks and
   automobiles which are associated with such chemical plant facilities.

   Plexco Plants and General Office

        The Plexco chemical plant facilities located in, or in the vicinity of
   Abbeville, South Carolina, including the land, land improvements, information
   systems, furniture, fixtures, machinery, mobile equipment, trucks and
   automobiles which are associated with such chemical plant facilities.

        The Plexco chemical plant facilities located in, or in the vicinity of
   Knoxville, Tennessee, including the land, land improvements, information
   systems, furniture, fixtures, machinery, mobile equipment, trucks and
   automobiles which are associated with such chemical plant facilities.

        The Plexco chemical plant facilities located in, or in the vicinity of
   Reno, Nevada, including the land, land improvements, information systems,
   furniture, fixtures, machinery, mobile equipment, trucks and automobiles
   which are associated with such chemical plant facilities.

        The Plexco chemical plant facilities located in, or in the vicinity of
   Fairfield, Iowa, including the land, land improvements, information systems,
   furniture, fixtures, machinery, mobile equipment, trucks and automobiles
   which are associated with such chemical plant facilities.

        The Plexco chemical plant facilities located in, or in the vicinity of
   Bloomfield, Iowa, including the land, land improvements, information systems,
   furniture, fixtures, machinery, mobile equipment, trucks and automobiles
   which are associated with such chemical plant facilities.

        The Plexco chemical plant facilities located in, or in the vicinity of
   Colton, California, including the land, land improvements, information
   systems, furniture, fixtures, machinery, mobile equipment, trucks and
   automobiles which are associated with such chemical plant facilities

        The Plexco chemical plant facilities located in, or in the vicinity of
   Waxahachie, Texas, including the land, land improvements, information
   systems, furniture, fixtures, machinery, mobile equipment, trucks and
   automobiles which are associated with such chemical plant facilities.
<PAGE>   148
     The Plexco chemical plant facilities located in, or in the vicinity of
Queretaro, Mexico, including the land, land improvements, information systems,
furniture, fixtures, machinery, mobile equipment, trucks and automobiles which
are associated with such chemical plant facilities.

     The assets associated with the Plexco general office facilities located in,
or in the vicinity of Bensenville, Illinois, including the information systems,
furniture, fixtures, machinery, trucks and automobiles.

Kingwood Technical Center

     The research and development facilities located in, or in the vicinity of
Kingwood, Texas, including the land, land improvements, information systems,
furniture, fixtures, machinery, mobile equipment, trucks and automobiles which
are associated with such facilities.

Saudi Arabia Joint Venture

     The interest in Saudi Chevron Petrochemical, a limited partnership, a joint
venture between Saudi Industrial Venture Capital Group and Arabian Chevron
Petrochemical Company Limited, with operations in, or in the vicinity of Jubail,
Saudi Arabia.

China Venture

     The interest held in the polystyrene chemical plant facilities in, or in
the vicinity of Zhangjiangang, China.

Chevron Chemical Company Pipelines

     The ethylene, propylene and NGL feedstock pipelines owned by Chevron
Chemical Company LLC.

Chevron Pipe Line Company Pipelines

     The Chevron Pipe Line Company shall contribute the following pipelines:

          12" E - P System: The 12" E-P System originates at the Dynegy Mt.
     Belvieu Terminal and extends to CCC's EU-1544 unit in Pt. Arthur. The
     system also has a receipt point located in Mt. Belvieu at the Diamond Koch
     East facility. During normal operations, E-P is transported from the wells
     at Mt. Belvieu into the ethylene unit at Pt. Arthur. The system MOP is 1200
     psig. (57.50 mi, 12.75" o.d., 0.250" w.t., Grade B, Class A, ERW/Smls, C&W,
     laid in 1975).

          6"/8" Hexene System: The Hexene System incorporated a four (4) mile
     segment of the idled CPL HPG System with approximately 2200' of new 8"
<PAGE>   149
     piping. (2.1977 mi (11,604') of 6.625" o.d., 0.280 w.t., Grade B, ERW,Class
     A, C&W, laid 1975. Station 0.00 to station 10+67 is idled, (in place), at
     Cedar Bayou.) (1.8769 mi (9,910') of 8.625"o.d., various w.t., Class A, see
     below: 0.322" w.t., grade unknown, LW, bare, laid 1929; 0.2 19" w.t., x-46,
     ERW, C&W, laid 1971; 0.322" w.t., x-42, ERW, FBE, laid 1995).

          8" St. James Ethylene System: The 8" pipeline system originates at the
     Chevron St. James plant located 3 miles southeast of Donaldsonville, LA
     (MPO.0) and runs westerly to Klotzville, LA, (MP17.27). At Klotzville, LA a
     lateral line, 1.097 miles long, is used to receive deliveries from Union
     Carbide. A connection to Shell is located at (MP16.53). Other connections
     are to Dow Chemical and Exxon at Klotzville. The ethylene transported in
     this system is high purity ethylene. During normal operations ethylene is
     transported from receipt connections near Klotzville, LA to the Chevron St.
     James Chemical Plant. Volumes delivered to the pipeline and volumes
     received at St. James are measured by orifice meters located at the
     respective pipeline connections. (11' of 4.500" o.d., 0.337" w.t., x-52,
     smls, Class A, bare, station piping, laid in 1971) (91,156' (17.26mi) of
     8.625" o.d., 0.188", 0.250" and 0.322 w.t., x-52, smls, Class A, C&W, laid
     in 1971).

          10" CPL Propylene: The Chevron Pipe Line Propylene Segment is
     incorporated within the CCC Propylene System. The 11.4 mile CPL segment
     begins at Sojolander Road bolck valve and terminates at Deer Park Junction.
     (11.4 mi, 10.750"o.d., 0.219"/0.307" w.t., x-42/x52, Class A, EW/Smls, C&W,
     laid 1968).

          8"/l 0" CPL Ethylene: The 10" Chevron Pipe Line segment begins at the
     Deer Park Junction and runs 1.3 miles to the Deer Park Pressure Reduction
     Station. The 8" Chevron Pipe Line segment continues westerly 4.3 miles to
     the Ethyl Corporation facility. (1.3 mi, 10.750"o.d., 0.307"w.t., x-52,
     Class A, EW, C&W, laid 1968) (4.3 mi, 8.625"o.d., 0.312" w.t., x-52, Class
     A, EW, C&W, laid 1968);

benefited from the indemnity set forth in Section 2.2(b)(ix) of Annex C to the
Contribution Agreement and subject to the retained interest to be contained in
the Revenue Growth Sharing Agreement(s) referred to in Schedule 6.1 l(b)(ii) of
the Chevron Disclosure Schedule to the Contribution Agreement (collectively, the
"Chevron Pipe Line Contribution")

Railcars

     All railcars owned by Chevron Chemical Company LLC.

     All leasehold interests in railcars held by Chevron Chemical Company LLC

(leased from Chevron U.S.A., Inc. and unaffiliated third-parties).
<PAGE>   150
Export Terminal and Sales Offices

     The export terminal and all sales offices owned or leased by Chevron
Chemical Company LLC.

Research & Development Facilities

     All Research & Development facilities owned by Chevron Chemical Company LLC
located at Chevron Research & Technology Company Richmond facilities.

Other Assets

     Actual Contributed Cash.

     Actual Net Working Capital

     All rights under contracts, leases or Permits (i) to which any C Chem
Subsidiary is a party and which relates to C Chem, or (ii) which exist at
Closing, are necessary to or utilized in the business of C Chem as conducted on
the Closing Date, and are to be assigned to, or held for the benefit of, the
Company or a Subsidiary thereof at or following the Closing pursuant to Section
6.8 or Section 6.18 of the Contribution Agreement or the Tradename License.
<PAGE>   151
                                     Part II

                                   [Entities]

     Chevron Chemical Company LLC

     Chevron Chemical (Zhangjiagang) Co. Ltd.

     Plexco International S.A. de C.V.

     Plexco de Mexico, S.A. de C.V.

     Productos Plasticos Plexco S.A. de C.V.

     Arabian Chevron Petrochemical Co. Ltd.

     Chevron Chemical International Sales, Inc.
<PAGE>   152
                                   Exhibit B-1

                           [Phillips Excluded Assets]

      Any asset owned by Phillips or a Subsidiary or Affiliate thereof that is
not part of the P Chem business and operations, including any P Chem
Discontinued Business, (except as identified in Part I of Exhibit A-1) (e.g.,
Multiple-User Pipeline Easements), whether or not the asset is owned by a P Chem
Subsidiary.

      The Gypsum Pile at Houston Chemical Complex.

      The assets associated with WestTex 66 Pipeline Company, including the
following:
            (i) Power River pipeline, an NGL pipeline extending from Wyoming to
Borger, Texas;
            (ii) Philroc to Skellytown pipeline, an E/P pipeline extending from
Borger, Texas to Skellytown, Texas;

            (iii) Equity interest in Skelly-Belvieu pipeline, an E/P pipeline
that extends from Skellytown, Texas to Mt. Belvieu, Texas;
            (iv) Odessa, Texas Maintenance Center East;
            (v) Odessa, Texas office; and
            (vi) pumping equipment, metering equipment and other related assets
associated with the foregoing.

      Any benefits of insurance for events occurring prior to December 31, 1999
and paid subsequent to December 31, 1999.

      Tax refund claims for pre-closing under Code section 4081(e) for federal
excise taxes.

      NGL pipeline assets to be retained by Phillips include (i) a raw NGL
trunkline running from Gaines, Texas to Borger, Texas and (ii) the Panhandle
gathering system, a group of gathering lines in the Borger, Texas area that
connect to various gas plants and transport raw NGLs to Borger.

      All receivables arising from indebtedness of Phillips or its Affiliates
(excluding P Chem Subsidiaries) for money borrowed from P Chem Subsidiaries.

      All facilities dedicated to crude oil handling at Benedum and Gaines,
Texas, and a control building at Gaines, Texas housing computerized equipment
and two pumps which serve the operation of both NGL and crude oil facilities.
<PAGE>   153
     Any real property (and any personal property located thereon) utilized by
any P Chem Discontinued Business, except to the extent, if any, such assets are
identified in Part I of Exhibit A-1.


     The existing automotive garage that will be owned by Phillips on that 44,13
 acre tract leased to the Company pursuant to the Sweeny Chemical Land Lease
 With Option To Purchase, referred to in the Additional Tracts section of the
 property description as the Magnolia Petr. Co. & Old Ocean Oil Co. tract, and
 located approximately 540' south and approximately 370' east from the SE corner
 of the most westerly of the intersections of FM 524 and the currently utilized
 SH 35, along with parking to the west of the building.

     The existing electric shop that will be owned by Phillips on property
 referred to as Tract 2 leased to the Company pursuant to the Sweeny Chemical
 Land Lease With Option To Purchase, south of currently utilized SH 35.

     The existing engineering services mobile offices owned by Phillips and/or
 Phillips contractors on the southeastern portion of that 24.07 acre tract
 leased to the Company pursuant to the Sweeny Chemical Land Lease With Option To
 Purchase, referred to in the Additional Tracts section of the property
 description as the M.C. Fantham tract.
<PAGE>   154
                                   Exhibit B-2

                            [Chevron Excluded Assets]


        Any asset owned by Chevron or a Subsidiary or Affiliate thereof that is
   not part of the C Chem business and operations, including any C Chem
   Discontinued Business, (except as identified in Part I of Exhibit A-2),
   whether or not the asset is owned by a C Chem Subsidiary.

        The assets associated with Chevron's Oronite line of business, including
   land, land improvements, information systems, furniture, fixtures, machinery,
   mobile equipment, trucks and automobiles.

        The assets associated with Chevron's Canadian MTBE line of business.

        The assets owned, either directly or indirectly, by Caltex.

        The assets related to the HARP/MX project located in El Segundo,
California.

        The assets related to the olefins project located in Nigeria.

        Any real property (and any personal property located thereon) utilized
   by any C Chem Discontinued Business, except to the extent, if any, such
   assets are identified in Part I of Exhibit A-2.

        Any asset owned, either directly or indirectly, by Dynegy, Inc.

        Any benefits of insurance for events occurring prior to December 31,
1999.

        Any equity interest in Chevron Environmental Management Company.

        The tax refund claims for pre-closing periods relating to (i) U.S.
   Federal Superfund excise tax paid on PP Mix, (ii) Texas state franchise tax
   resulting from an outside consultant applying an alternative method of tax
   calculation for 1987-1999, (iii) Louisiana state income tax resulting from
   the unconstitutional nature of certain taxes imposed under Act 690, and (iv)
   Texas sales and use tax relating to (a) Chevron Chemical Company's contract
   with Brown and Root (temporary employees) regarding the Cedar Bayou Plant,
   (b) Chevron Chemical Company's contracts with Werner Pfleiderer (remodeling
   vs. new construction labor), Brown and Root, and Industrial Technicians
   (temporary employees), and (c) the findings of Gamble, Simmons Company, a
   third party consultant, hired to find Texas sales and use tax overpayments
   for the periods July 1,1992-January 31,1998. The overpayments are for sales
   and use tax paid in error on purchases of services and tangible personal
   property.
<PAGE>   155
     All receivables arising from indebtedness of Chevron or its Affiliates
(excluding C Chem Subsidiaries) for money borrowed from C Chem Subsidiaries.
<PAGE>   156
                                   Exhibit C-1

                         [Phillips Excluded Liabilities]


     All Liabilities of or arising from the ownership or use of Phillips
Excluded Assets, including any payment obligations therefor.

     All Damages resulting from any Third Party Claim arising from or related to
the fire and explosion on March 27, 2000 (the "Accident") at the K-Resin plant
in Pasadena, Texas (the "Plant"), including, but not limited to, as a result of
conditions existing at or around the Plant prior to the Accident that may have
contributed to the Accident, or conditions that may exist at or around the Plant
as a result of the Accident before the Plant starts up again. For the avoidance
of doubt, this includes, but is not necessarily limited to, Damages from Claims
for personal injury, wrongful death, or property damage, and fines, penalties
and other assessments (or settlements in lieu thereof) imposed by regulatory
authorities.

     All Liabilities attributable to the P Chem Discontinued Businesses other
than Environmental Liabilities associated with real property specifically
identified in Part I of Exhibit A-1.

     Liabilities resulting from lawsuit Marshall Coleman, et al. V. ABB Lummus,
et al., No. 94-C-1392, 23rd District Court, Brazoria County, Texas (Phillips
Legal No. 18,522) and other claims arising out of the same facts and
circumstances alleged in this lawsuit [Gulf War veterans' action].

     All indebtedness of P Chem Subsidiaries for money borrowed from Phillips or
any of its Affiliates (excluding P Chem Subsidiaries).

     All Liabilities attributable to Phillips' direct or indirect ownership of,
operations of or other interest in real properties and other assets that are not
transferred or assigned (including by operation of law), leased or subleased to
the Company or for which Phillips or an Affiliate thereof is not acting as an
agent or in a similar capacity for the Company or P Chem as contemplated by
Section 6.8(d) of the Contribution Agreement.

     All Liabilities attributable to the Gypsum Pile in the Northwest portion of
the Houston Chemical Complex.
<PAGE>   157
                                   Exhibit C-2

                         [Chevron Excluded Liabilities]


     All Liabilities of or arising from the ownership or use of Chevron Excluded
Assets, including any payment obligations therefor.

     All Liabilities attributable to the C Chem Discontinued Businesses other
than Environmental Liabilities associated with real property specifically
identified on Part I of Exhibit A-2.

     All Liabilities attributable to Chevron's direct or indirect ownership,
operation or other interest in real properties and other assets which are not
transferred or assigned (including by operation of law), leased or subleased to
the Company or for which Chevron or an Affiliate thereof is not acting as agent
or in a similar capacity for the Company or C Chem as contemplated by Section
6.8(d) of the Contribution Agreement.

     All indebtedness of C Chem Subsidiaries for money borrowed from Chevron or
any of its Affiliates (excluding C Chem Subsidiaries).



<PAGE>   158
                                     ANNEX A

                             EMPLOYEE MATTERS ANNEX

                                    ARTICLE I

                               CERTAIN DEFINITIONS

         Section 1.1 Definitions. (a) Capitalized terms used and not defined in
this Annex shall have the respective meanings ascribed to them in the
Contribution Agreement. Notwithstanding the foregoing, references to
"Subsidiaries" of Phillips or Chevron in this Annex shall not include the
Company, the P Chem Subsidiaries, the C Chem Subsidiaries, or any of their
respective Subsidiaries, except where specifically so provided. (b) As used in
this Annex, the following terms shall have the respective meanings set forth
below:

         "Bonuses" shall have the meaning set forth in Section 3.2.

         "C Chem Employee" shall mean any individual (i) who is, immediately
before the Closing Date, an Employee of Chevron or a Subsidiary of Chevron
(including the C Chem Subsidiaries) principally associated with the businesses
conducted by the C Chem Subsidiaries, including each such Employee who is
seconded to C Chem and each such Employee who is a member of the research and
development staff associated with such businesses, or (ii) who becomes such an
Employee during the period from the Closing Date through the Transfer Date
through hiring in the normal course of such businesses.

         "Chevron DCP" shall mean the Chevron Dependent Care Program.

         "Chevron Savings Plan" shall mean the Chevron Corporation Profit
Sharing/Savings Plan.

         "Chevron Severance Plan" shall mean the Chevron Corporation 2000
Surplus Employee Severance Program for Involuntary Termination and for Demotion
or Transfer.

         "COBRA Coverage" shall mean continuation of health coverage required
pursuant to Section 4980B of the Code or Part 6 of Subtitle B of Title I of
ERISA.

         "Eligible Expenses" shall mean eligible expenses under an Old Welfare
Plan for the plan year in which the Transfer Date occurs that are recorded as
such by the applicable plan administrator as of the 60th day after the Transfer
Date and reported to the Company on or before the 105th day after the Transfer
Date.

         "Employee" shall mean an employee of the relevant entity who is, on the
relevant day, either (i) actively at work or (ii) not actively at work but not
classified as a terminated employee (including without limitation, on vacation,
holiday, sick leave or other approved leave of absence with the right of
reinstatement). Notwithstanding the foregoing, the term "Employee"

<PAGE>   159
shall not include any individual who is on an inactive employee status leave,
unless such individual's absence is designated as covered by the Family and
Medical Leave Act of 1993.

         "Key Employee" shall mean those P Chem Employees whose skills and
experience are critical to the P Chem business and those C Chem Employees whose
skills and experience are critical to the C Chem business, and for whom
replacements are not readily available.

         "New FSP" shall have the meaning set forth in Section 4.5(d).

         "New Welfare Plans" shall have the meaning set forth in Section 4.5(c).

         "Old Welfare Plans" shall have the meaning set forth in Section 4.5(c).

         "Parent Plans" shall mean the Chevron Plans and the Phillips Plans.

         "P Chem Employee" shall mean any individual (i) who is, immediately
before the Closing Date, an Employee of Phillips or a Subsidiary of Phillips
(including the P Chem Subsidiaries) principally associated with the businesses
conducted by P Chem Subsidiaries, including each such Employee who is seconded
to P Chem and each such Employee who is a member of the research and development
staff associated with such businesses, or (ii) who becomes such an Employee
during the period from the Closing Date through the Transfer Date through hiring
in the normal course of such businesses.

         "Phillips FSP" shall mean the Health Care Account and Child Care
Account components of the Phillips Petroleum Company Flexible Spending Plan.

         "Phillips Savings Plans" shall mean the Thrift Plan of Phillips
Petroleum Company and the Long Term Stock Savings Plan of Phillips Petroleum
Company.

         "Release" means (i) in the case of a P Chem Employee, a release of
claims against the Company, Phillips, Chevron and their respective Subsidiaries,
in form and substance acceptable to Phillips, Chevron and the Company, and (ii)
in the case of a C Chem Employee, a release of claims against the Company,
Chevron, Phillips and their respective Subsidiaries, in form and substance
acceptable to Chevron, Phillips and the Company.

         "Required Severance Amount" shall mean any severance benefits, pay in
lieu of notice, or other similar benefits payable to a Transferred Employee by
the Company or any of its Subsidiaries, which becomes payable on account of such
Transferred Employee's termination of employment pursuant to any applicable law,
statute, regulation, court order, or other legal requirement, including without
limitation, the Worker Adjustment and Retraining Notification Act, as amended.

         "Severance Amount" shall mean the amount of cash severance to which a
Transferred Employee would have been entitled under (i) the Phillips Layoff Plan
as in effect on the date of the execution of the Contribution Agreement (in the
case of a Transferred P Chem Employee), or (ii) under the Chevron Severance Plan
as in effect on the date of the execution of the Contribution Agreement (in the
case of a Transferred C Chem Employee), in either case if he
<PAGE>   160
or she had been covered by such plan and terminated employment from Phillips or
Chevron, as applicable, under the same circumstances as his or her termination
from the Company and its Subsidiaries.

         "Severance Costs" shall mean all Liabilities relating to or arising out
of providing severance pay or benefits (including, without limitation, any
benefit plan allowance payable under the terms of the Chevron Severance Plan to
any Transferred Employee), redundancy pay or benefits, pay in lieu of notice, or
other similar pay or benefits under applicable laws, contracts or employee
benefit plans or arrangements.

         "Termination Costs" shall mean all Liabilities incurred in connection
with, arising out of or in connection with the termination of employment of any
Employee (whether actual or constructive), including Liabilities relating to or
arising out of any claim of discrimination or other illegality in connection
with such termination, but excluding Severance Costs.

         "Transfer Date" shall have the meaning set forth in Section 2.1.

         "Transferred Employee" shall mean a Transferred P Chem Employee or a
Transferred C Chem Employee.

         "Transferred C Chem Employee" shall mean a C Chem Employee whose
employment actually transfers pursuant to Section 2.1 below.

         "Transferred P Chem Employee" shall mean a P Chem Employee whose
employment actually transfers pursuant to Section 2.1 below.

         "Welfare Benefit Plans" shall mean "welfare plans" as defined in
Section 3(1) of ERISA.

                                   ARTICLE II

                      TRANSFER OF EMPLOYEES TO THE COMPANY

         Section 2.1 Selection of Employees. The Company shall select its
employees from among the P Chem Employees and the C Chem Employees based upon
their skills and experience, without regard to the severance obligations that
might be due to them if they are not selected. Each P Chem Employee and C Chem
Employee who is so selected shall be offered a transfer of employment to the
Company or one of its Subsidiaries. All such transfers of employment shall take
place on a date determined by mutual agreement of the Company, Phillips and
Chevron, but in any event not later than January 1, 2001. The "Transfer Date"
shall be the day immediately following the Employee's last day of employment
with Phillips or Chevron.

         Section 2.2 No Restrictions on Changes. Nothing in this Annex shall
require or be construed or interpreted as requiring the Company and its
Subsidiaries to continue the employment of any of their employees (including
Transferred Employees). Nothing in this Annex shall require or be construed or
interpreted to prevent the Company or any of its Subsidiaries from changing the
terms and conditions of employment (including compensation
<PAGE>   161
and benefits) of any of their employees (including Transferred Employees)
following the Transfer Date, except as specifically provided in Sections 4.1(c),
4.2, 4.4(b), 4.5(c) and 4.5(d).

         Section 2.3 Severance Costs: Liabilities for Selection: Employee
Liabilities Generally. (a) Severance Costs incurred within 90 days after the
Transfer Date with respect to any P Chem Employee who does not become a
Transferred P Chem Employee and any C Chem Employee who does not become a
Transferred C Chem Employee, and who is eligible for and receives benefits under
the Phillips Layoff Plan or the Chevron Severance Plan, shall be borne equally
by Phillips and Chevron by reimbursement by the Company to Phillips or Chevron,
as applicable, subject to the execution by such Employee of a Release; provided,
that any such Severance Costs shall not be so reimbursed to the extent they are
incurred as a result of any amendment to the Phillips Layoff Plan or the Chevron
Severance Plan after the date hereof.

         (b) In addition, the Company and its Subsidiaries shall be solely
responsible for any and all Termination Costs and other Liabilities relating to
or arising out of the selection process set forth in Section 2.1 above,
including any Termination Costs or Severance Costs with respect to Transferred
Employees arising out of or relating to the transfer of their employment to the
Company and its Subsidiaries or any subsequent action by the Company and its
Subsidiaries.

         (c) Any and all Liabilities arising out of or relating to the
employment of(i) any P Chem Employee by Phillips or any of its Subsidiaries or
(ii) any C Chem Employee by Chevron or any of its Subsidiaries before the
Transfer Date that are not specifically provided for in this Annex shall remain
the responsibility of Phillips and its Subsidiaries, or Chevron and its
Subsidiaries, as applicable. Any and all Liabilities arising out of or relating
to the employment of any Transferred Employee by the Company or any of its
Subsidiaries on or after the Transfer Date that are not specifically provided
for in this Annex shall be the responsibility of the Company and its
Subsidiaries.

         Section 2.4 Availability of C Chem and P Chem Employees. Phillips and
Chevron agree, on behalf of themselves and their respective Subsidiaries, that
from the date hereof through the Transfer Date, they shall not, without first
consulting with the other party, transfer or permit the transfer of employment,
directly or indirectly, of any Key Employees employed by the P Chem Subsidiaries
to Phillips or its Subsidiaries or of any Key Employees employed by the C Chem
Subsidiaries to Chevron and its Subsidiaries; provided, however, the final
discretion for such transfer shall rest with the employer of such Key Employee.

                                   ARTICLE III

                                  COMPENSATION

         Section 3.1 Compensation Generally. Without limiting the scope of
Section 2.3, except as provided in the following sentence and in Section 3.2,
Phillips or Chevron or their respective Subsidiaries, as applicable, shall
retain all liability and responsibility for wages, salary, overtime pay,
bonuses, incentive pay, and other cash compensation of P Chem Employees and C
Chem Employees attributable to periods before the Transfer Date. Effective as of
the Transfer Date, the Company and its Subsidiaries shall assume and be solely
responsible for (a) all accrued but unused vacation and sick leave entitlements
of Transferred Employees
<PAGE>   162
attributable to periods before the Transfer Date and (b) all wages, salary,
overtime pay, bonuses, incentive pay, vacation pay, sick pay and other cash
compensation of Transferred Employees attributable to the period beginning on
the Transfer Date. From and after the Transfer Date, the Company shall provide
to Transferred Employees all wages, salary, overtime pay, bonuses, vacation pay,
sick pay, other cash compensation and cash and equity-based incentive
compensation on such terms as may be determined from time to time by the Company
in its sole discretion.

         Section 3.2 Incentive Compensation. If the Transfer Date is on or
before December 31, 2000, Phillips and Chevron shall determine the amounts of
the annual bonuses (the "Bonuses") earned by Transferred Employees for the year
2000 under its bonus plans, and the Company shall reimburse Phillips (in the
case of Transferred P Chem Employees) and Chevron (in the case of Transferred C
Chem Employees) for a pro-rata portion of the Bonuses, based upon the number of
days in such year after the Transfer Date. Such reimbursement shall be net of
the employer's share of any employment taxes relating to such pro-rata Bonuses
for the period before the Transfer Date and required to be paid by the Company
or any of its Subsidiaries. Nothing contained herein shall preclude Phillips or
Chevron from designating the Company as an "affiliate" under their respective
stock option and incentive plans for purposes of continued vesting, exercise and
payouts under their respective stock option and incentive plans.

         Section 3.3 Indemnification and Reimbursement. Notwithstanding anything
to the contrary in this Annex, the Company shall indemnify Phillips and Chevron,
respectively, for all employment-related liabilities and Termination Costs of P
Chem Employees and C Chem Employees incurred during the period beginning on the
Closing Date and continuing through the Transfer Date, and shall reimburse
Phillips and Chevron, respectively, for all employment- related expenses of P
Chem Employees and C Chem Employees incurred during the period beginning on the
Closing Date and continuing through the Transfer Date, through the provisions of
the Transition Services Agreement.

                                   ARTICLE IV

                                EMPLOYEE BENEFITS

         Section 4.1 Employee Benefits Generally. (a) Effective as of the
Transfer Date, except as provided in Section 4.2(b), the Transferred Employees
shall cease to be active participants in the Parent Plans. Effective as of the
Closing Date, neither the Company nor any of its Subsidiaries shall be a
participating employer in any Parent Plan. Phillips and Chevron shall remain
solely responsible for all liabilities with respect to the Phillips Plans and
the Chevron Plans, respectively, and the Company and its Subsidiaries shall not
assume any Parent Plan and shall have no obligations and shall assume no
liabilities with respect to the Parent Plans, in each case except as
specifically provided in Section 4.2(b) and Section 4.5(d) below.

         (b) From and after the Transfer Date, the Company and its Subsidiaries
shall be solely responsible for providing Transferred Employees with employee
benefits, including without limitation welfare, savings and pension benefits,
which shall be designed by the Company in its sole discretion. Phillips and
Chevron shall provide the Company and its Subsidiaries with all necessary
transition assistance to enable them to develop and implement
<PAGE>   163
their compensation and benefit plans and programs. The Company and its
Subsidiaries shall provide compensation and benefits to Transferred Employees
sufficient such that neither Phillips (and its Subsidiaries), nor Chevron (and
its Subsidiaries), shall incur any Severance Costs with respect to the
Transferred Employees. If the Company (or its Subsidiaries) offers employment to
any Employee whose Severance Costs were reimbursed pursuant to Section 2.3 the
Company (or its Subsidiary) may, as a condition to the acceptance of such offer,
require the Employee to repay the amount of such reimbursement.

         (c) For purposes of eligibility to participate and vesting under all
compensation and benefit plans applicable to Transferred Employees on or after
the Transfer Date, the Company and its Subsidiaries shall give Transferred
Employees credit for all applicable service with Phillips and its Subsidiaries
(including the P Chem Subsidiaries), or Chevron and its Subsidiaries (including
the C Chem Subsidiaries), as applicable, before the Transfer Date. For these
purposes, the applicable service for a Transferred P Chem Employee shall be
determined by the elapsed time since his or her Service Award Entry Date as
recorded in the personnel records of Phillips.

         Section 4.2 Severance Benefits. The Company and its Subsidiaries shall
provide to each Transferred P Chem Employee and each Transferred C Chem Employee
whose employment terminates on or before the first anniversary of the Closing
Date cash severance benefits at least equal to the greater of the applicable
Severance Amount and the applicable Required Severance Amount, subject to the
execution by such Transferred P Chem Employee or Transferred C Chem Employee of
a Release.

         Section 4.3 Pension Benefits. Effective as of the Transfer Date,
Phillips shall cause the Transferred P Chem Employees to be 100% vested in their
accrued benefit under the Retirement Income Plan of Phillips Petroleum Company
and any nonqualified excess plan associated with such plan (collectively, the
"Phillips RIP") as required by the terms thereof, and Chevron shall cause the
Transferred C Chem Employees to be 100% vested in their accrued benefit under
the Chevron Corporation Retirement Plan and any nonqualified excess plan
associated with such plan (collectively, the "Chevron RP"). The Company shall
establish a retirement plan for the Transferred Employees. In no event shall the
benefit provided under the Company's retirement plan (expressed as a life
annuity commencing at age 65), be less than the benefit the Transferred
Employees would have obtained under the Phillips RIP or the Chevron RP, as
applicable, taking into account only service with Phillips or Chevron, as
applicable, prior to the Transfer Date and the final average pay from the
Company and its Subsidiaries, reduced by the benefit actually accrued under the
Phillips RIP or the Chevron RP, as applicable.

         Section 4.4 Savings Plans. (a) Effective as of the Transfer Date,
Phillips shall cause the Transferred P Chem Employees to be 100% vested in their
accrued benefit under the Phillips Savings Plans, and Chevron shall cause the
Transferred C Chem Employees to be 100% vested in their accrued benefits under
the Chevron Savings Plan.

         (b) The Company, Phillips and Chevron shall take all reasonable steps
necessary and appropriate so that Transferred Employees who participated in the
Phillips Savings Plans or the Chevron Savings Plan, as applicable, and who have
loans outstanding from
<PAGE>   164
any such plan as of the Transfer Date may continue to repay such loans using
voluntary payroll deductions from their paychecks from the Company and its
Subsidiaries.

         Section 4.5 Welfare Benefits. Without limiting the generality of the
above provisions, this Section 4.5 contains certain specific provisions
regarding the provision of benefits under Welfare Benefit Plans, unemployment
compensation benefits and workers compensation benefits.

         (a) Effective as of the Transfer Date, the Company shall cause the
Transferred Employees to be eligible to be covered by such Welfare Benefit Plans
sponsored by the Company and/or one or more of its Subsidiaries as the Company
shall determine to implement.

         (b) Except as specifically provided in Section 4.5(d) below: (i)
Phillips and its Subsidiaries shall be solely responsible for (A) claims of
Transferred P Chem Employees and their eligible beneficiaries and dependents for
workers compensation, unemployment compensation and under Welfare Benefit Plans
that are incurred before the Transfer Date, and (B) claims relating to COBRA
Coverage attributable to "qualifying events" occurring on or before the Transfer
Date with respect to any Transferred P Chem Employees and their eligible
beneficiaries and dependents; (ii) Chevron and its Subsidiaries shall be solely
responsible for (I) claims of Transferred C Chem Employees and their eligible
beneficiaries and dependents for workers compensation, unemployment compensation
and under Welfare Benefit Plans that are incurred before the Transfer Date, and
(II) claims relating to COBRA Coverage attributable to "qualifying events"
occurring on or before the Transfer Date with respect to any Transferred C Chem
Employees and their eligible beneficiaries and dependents; and (iii) the Company
and its Subsidiaries shall be solely responsible for (x) claims of Transferred
Employees and their eligible beneficiaries and dependents for workers
compensation and unemployment compensation benefits and claims under Welfare
Benefit Plans that are incurred on or after the Transfer Date, and (y) claims
relating to COBRA Coverage attributable to "qualifying events" occurring after
the Transfer Date with respect to Transferred Employees and their beneficiaries
and dependents. A medical/dental claim shall be considered incurred on the date
when the medical services are rendered or medical supplies are provided, and not
when the condition arose or when the course of treatment began. An unemployment
compensation or workers compensation claim shall be considered incurred before
the Transfer Date if the occurrence leading up to the claim occurs before the
Transfer Date.

         (c) Each Transferred Employee who is employed in an eligible job
classification shall be immediately eligible to participate, without any waiting
time, in any and all Welfare Benefit Plans sponsored by the Company and its
Subsidiaries for the benefit of Transferred Employees (such plans, collectively,
the "New Welfare Plans") to the extent coverage under such New Welfare Plan
replaces coverage under a similar Phillips Plan or Chevron Plan, in which such
Transferred Employee was previously eligible to participate (such plans,
collectively, the "Old Welfare Plans"). For purposes of each New Welfare Plan
providing medical, dental, pharmaceutical and/or vision benefits, the Company
shall cause all pre-existing condition exclusions and actively-at-work
requirements of such New Welfare Plan to be waived for Transferred Employees and
their eligible beneficiaries and dependents, to the extent such exclusions and
restrictions did not apply under the applicable Old Welfare Plan, and the
Company shall cause any Eligible Expenses incurred by any Transferred Employee
and his or
<PAGE>   165
her eligible beneficiaries and dependents during the portion of the plan year of
the Old Welfare Plan ending on the Transfer Date, to be taken into account under
such New Welfare Plan for purposes of satisfying all deductible, coinsurance and
maximum out-of-pocket requirements applicable to such Transferred Employee and
his or her eligible beneficiaries and dependents for the applicable plan year as
if such amounts had been paid in accordance with such New Welfare Plan.

         (d) The Company shall establish one or more flexible spending plans
(collectively, the "New FSP") in which Transferred Employees shall be eligible
to participate following the Transfer Date. Phillips, Chevron and the Company
shall take all reasonable steps necessary or appropriate so that the account
balances under the Phillips FSP or the Chevron DCP, as applicable, of each
Transferred Employee who has elected to participate therein in the year in which
the Transfer Date occurs shall be transferred, as soon as practicable after the
Transfer Date, from the Phillips FSP or the Chevron DCP, as applicable, to the
New FSP, and so that the contribution elections of each such Transferred
Employee as in effect immediately before the Transfer Date remain in effect
under the New FSP immediately after the transfer of such account balance. If the
aggregate amount of the transferred account balances of Transferred P Chem
Employees or Transferred C Chem Employees is negative, then the Company shall
pay Phillips or Chevron, as applicable, the amount of such aggregate negative
balance promptly following such account balance transfer. Notwithstanding the
provisions of Section 4.5(b), from and after the date a Transferred Employee's
FSP account is transferred in accordance with this Section 4.5(d), the Company
shall be solely responsible for, and shall satisfy from the New FSP, all claims,
whether incurred before, on or after the Transfer Date, for which such
Transferred Employee was entitled to seek reimbursement under the Phillips FSP
or the Chevron DCP for the year in which the Transfer Date occurs.

                                    ARTICLE V

                                  TAX BENEFITS

         Section 5.1 Tax Benefits Generally. It is the intention of Phillips,
Chevron and the Company that any tax deductions or other tax benefits associated
with any compensation or benefits payable to P Chem Employees and C Chem
Employees by any of them be enjoyed by the party that bears the economic cost
thereof, whether through direct payment or provision of such compensation or
benefits or through reimbursement, and they agree to cooperate to ensure such
result to the greatest extent possible, through allocation of partnership
deductions, adjustment of the amounts of any reimbursement or otherwise.

                                   ARTICLE VI

                                FOREIGN BENEFITS

         Section 6.1 Foreign Benefits Generally. Notwithstanding anything in
this Annex to the contrary, the Company may adopt or maintain compensation and
benefit plans and programs of Phillips and/or Chevron in Puerto Rico and
locations outside the United States, where appropriate and agreed by both
Phillips and Chevron (but not including any equity-based plans).
<PAGE>   166
                                     ANNEX B

                                TAX MATTERS ANNEX

                                    ARTICLE I

                               CERTAIN DEFINITIONS

         Any capitalized term used in this Annex but not otherwise defined
herein shall have the meaning ascribed to such term in the Contribution
Agreement (including Annex C thereto) or, if not defined in the Contribution
Agreement, the Amended and Restated LLC Agreement. Any Section reference in this
Annex shall refer to such section of this Annex, except as otherwise indicated.
As used in this Annex, the following terms shall have the respective meanings
set forth below:

         Section 1.1 "Chevron Acquired Entity" shall mean (i) any entity
(including but not limited to a corporation, limited liability company or
partnership) Contributed to the Company by Chevron or a Subsidiary of Chevron
and (ii) any entity owned by an entity described in clause (i) at the time the
entity described in said clause (i) is Contributed

         Section 1.2 "Chevron Group" shall mean Chevron and its Subsidiaries
(other than the Company and Subsidiaries of the Company).

         Section 1.3 "Contributed" shall mean transferred (including a transfer
by way of merger into the Company or by other means) to the Company or any
Subsidiary of the Company pursuant to Section 2.2 or 2.3 of the Contribution
Agreement.

         Section 1.4 "Final Determination" shall mean with respect to any Tax
for any period the later of (i) the date on which the statute of limitations for
instituting a claim for refund of such Tax has expired, or if such claim was
filed, the expiration of the time for instituting suit with respect thereto; and
(ii) the date on which all administrative and judicial proceedings with respect
to any such assessments or refunds of such Tax have been finally settled through
agreement of the parties to the proceeding or by an administrative or judicial
decision from which no appeal can be taken or the time for taking any such
appeal has expired.

         Section 1.5 "Income Taxes" shall mean all United States federal, state
and local income and franchise Taxes of any Phillips Acquired Entity and any
Chevron Acquired Entity, as the case may be.

         Section 1.6 "Phillips Acquired Entity" shall mean (i) any entity
(including but not limited to a corporation, limited liability company or
partnership) Contributed to the Company by Phillips or a Subsidiary of Phillips
or (ii) any entity owned by an entity described in clause (i) at the time the
entity described in said clause (i) is Contributed.

         Section 1.7 "Phillips Group" shall mean Phillips and its Subsidiaries
(other than the Company and Subsidiaries of the Company).
<PAGE>   167
         Section 1.8 "Post-Closing Period" shall mean, for any Person, any
taxable period beginning, with respect to such Person, after the Closing Date,
and the portion, beginning after the Closing Date, of any taxable period that
includes, with respect to such Person, but does not end on, the Closing Date.

         Section 1.9 "Pre-Closing Period" shall mean, for any Person, any
taxable period ending, with respect to such Person, on or prior to the Closing
Date, and the portion, ending on the Closing Date, of any taxable period that
includes, with respect to such Person, but does not end on, the Closing Date.

         Section 1.10 "Returns" or "Tax Returns" shall mean returns,
declarations, statements, reports, forms, property tax renditions or other
documents or information required to be filed with or supplied to any Taxing
Authority.

         Section 1.11 "Tax Basket Amount" shall mean $20,000,000.

         Section 1.12 "Tax Indemnified Party" shall have the meaning set forth
in Section 2.4(e).

         Section 1.13 "Tax Indemnifying Party" shall have the meaning set forth
in Section 2.4(e).

         Section 1.14 "Tax Matters Annex" shall mean this Annex B.

         Section 1.15 "Tax Proceeding" means any Tax audit, contest, litigation
or other proceeding with or against a Governmental Entity.

         Section 1.16 "Tax Refund" shall mean a refund of Tax (including any
refund of Tax applied as an offset against a Tax otherwise currently payable)
together with any interest received with respect thereto less all costs
(including reasonable legal, accounting and consulting fees and costs) of
obtaining such refund paid or incurred by the Company or any Subsidiary of the
Company; provided, however, that a Tax Refund (including any refund of Tax
applied as an offset against a Tax otherwise currently payable) shall not
include any refund of Tax for a Pre-Closing Period to the extent such refund is
attributable to a carryback to such Pre-Closing Period from a Post-Closing
Period of the Company or any of its Subsidiaries of items of deduction, loss or
credit of the Company or any Subsidiary of the Company.

                                   ARTICLE II

                               TAX INDEMNIFICATION

         Section 2.1 Indemnification by Chevron. Subject to Section 2.4 and
without duplication, Chevron shall be liable for, shall pay or cause to be paid,
and shall indemnify and hold harmless the Company and each of its Subsidiaries
and each member of the Phillips Group against, the following:

         (a) Any and all (i) Income Taxes for any Pre-Closing Period of any
Chevron Acquired Entity, and (ii) any Income Taxes incurred by the Company or
any of its Subsidiaries

                                   -2-
<PAGE>   168
or any member of the Phillips Group in connection with a breach of any
representation or warranty made by Chevron in Section 6.1, in each case other
than Income Taxes referred to in Section 2.4(f);

         (b) (i) Any and all Taxes, other than Income Taxes, for any Pre-Closing
Period attributable to the assets and operations Contributed by Chevron or any
of its Subsidiaries, (ii) any and all Taxes other than Income Taxes of any
Chevron Acquired Entity for any Pre-Closing Period, and (iii) any Taxes other
than Income Taxes incurred by the Company or any of its Subsidiaries or any
member of the Phillips Group in connection with a breach of any representation
or warranty made by Chevron in Section 6.1; provided, however, in the case of
clauses (i) and (ii), other than Taxes referred to in Section 2.4(f) and except
as provided in Section 12.4(b) of the Contribution Agreement;

         (c) Any and all Taxes with respect to the operations, assets,
investments and activities of Chevron and its Subsidiaries that would not have
arisen but for Treasury Regulation Section 1.1502-6 or any comparable or similar
provisions under state, local or foreign laws or regulations; and

         (d) Except as set forth in Section 12.4 of the Contribution Agreement,
any and all Taxes arising from or relating to the Chevron Excluded Assets and
Liabilities or any transfer thereof by the Company or any of its Subsidiaries
pursuant to Section 2.3 of the Contribution Agreement.

         Section 2.2 Indemnification by Phillips. Subject to Section 2.4 and
without duplication, Phillips shall be liable for, shall pay or cause to be
paid, and shall indemnify and hold harmless the Company and each of its
Subsidiaries and each member of the Chevron Group against, the following:

         (a) Any and all (i) Income Taxes for any Pre-Closing Period of any
Phillips Acquired Entity, and (ii) any Income Taxes incurred by the Company or
any of its Subsidiaries or any member of the Chevron Group in connection with a
breach of any representation or warranty made by Phillips in Section 6.2, in
each case other than Income Taxes referred to in Section 2.4(f);

         (b) (i) Any and all Taxes, other than Income Taxes, for any Pre-Closing
Period attributable to the assets and operations Contributed by Phillips or any
of its Subsidiaries, (ii) any and all Taxes other than Income Taxes of any
Phillips Acquired Entity for any Pre-Closing Period, and (iii) any Taxes other
than Income Taxes incurred by the Company or any of its Subsidiaries or any
member of the Chevron Group in connection with a breach of any representation or
warranty made by Phillips in Section 6.2; provided, however, in the case of
clauses (i) and (ii), other than Taxes referred to in Section 2.4(f) and except
as provided in Section 12.4(b) of the Contribution Agreement;

         (c) Any and all Taxes with respect to the operations, assets,
investments and activities of Phillips and its Subsidiaries that would not have
arisen but for Treasury Regulation Section 1.1502-6 or any comparable or similar
provisions under state, local or foreign laws or regulations; and


                                 -3-
<PAGE>   169
         (d) Except as set forth in Section 12.4 of the Contribution Agreement,
any and all Taxes arising from or relating to the Phillips Excluded Assets and
Liabilities or any transfer thereof by the Company or any of its Subsidiaries
pursuant to Section 2.2 of the Contribution Agreement.

         Section 2.3 Indemnification by the Company. Except for Taxes described
in the indemnifications set forth in Section 2.1 and 2.2, the Company shall be
liable for, shall pay or cause to be paid, and shall indemnify and hold harmless
each member of the Chevron Group and each member of the Phillips Group against
(i) any and all Taxes of the Company and its Subsidiaries (including the Chevron
Acquired Entities and the Phillips Acquired Entities), (ii) any and all Taxes
with respect to any asset transferred to the Company by any member of the
Chevron Group or the Phillips Group pursuant to the Contribution Agreement and
(iii) any Taxes referred to in Section 2.4(f). For the avoidance of doubt, the
Company will not indemnify any member of the Chevron Group or the Phillips Group
for Taxes that arise in a Post-Closing Period as a result of the ownership of
membership interests in the Company.

         Section 2.4 Limitation on Tax Indemnities.

         (a) As provided in Section 9.2(c) of the Contribution Agreement, the
indemnification provided in Sections 2.1, 2.2 and 2.3 shall not be subject to
the limitations set forth in Section 9.5 of the Contribution Agreement except as
otherwise set forth herein.

         (b) Chevron's indemnification obligations under Section 2.1(b) shall
not become effective until, and no claims for indemnification under this Article
II may be asserted unless, the aggregate amount of Taxes subject to
indemnification under Section 2.1(b) (determined without regard to this Section
2.4(b)) exceeds the Tax Basket Amount and, if the aggregate amount of Taxes so
determined exceeds the Tax Basket Amount, then Phillips and the Company shall be
entitled to assert claims under this Article II for indemnification for the
amount in excess of the Tax Basket Amount only; provided, that the obligation
with respect to indemnification under Article II hereof shall be subject to, and
included in determining, the Cap. For the avoidance of doubt, Taxes referred to
in Section 2.4(f) are for the account of the Company and are not subject to
indemnification under Section 2.1.

         (c) Phillip's indemnification obligations under Section 2.2(b) shall
not become effective until, and no claims for indemnification under this Article
II may be asserted unless, the aggregate amount of Taxes subject to
indemnification under Section 2.2(b) (determined without regard to this Section
2.4(c)) exceeds the Tax Basket Amount and, if the aggregate amount of Taxes so
determined exceeds Tax Basket Amount, then Chevron and the Company shall be
entitled to assert claims under this Article II for indemnification for the
amount in excess of the Tax Basket Amount only; provided, that the obligation
with respect to indemnification under Article II hereof shall be subject to, and
included in determining, the Cap. For the avoidance of doubt, Taxes referred to
in Section 2.4(f) are for the account of the Company and are not subject to
indemnification under Section 2.2.

         (d) The amount of any indemnification pursuant to Section 2.1 or 2.2
shall be reduced to the extent both the amount was accrued as a liability for
the indemnified Tax on the C Chem December 31 Balance Sheet or the P Chem
December 31 Balance, as the case may be, and


                                -4-
<PAGE>   170
was taken into account in the calculation of Phillips' Actual Net Working
Capital or Chevron's Actual Net Working Capital under Section 3.3 of the
Contribution Agreement, as the case may be.

         (e) Except as otherwise provided in this Annex B, no party (a "Tax
Indemnifying Party") shall be required to make any indemnity payments to a party
seeking payments (a "Tax Indemnified Party") pursuant to Article II until there
occurs a Final Determination of the liability for which indemnification is
sought. Any such payment to a Tax Indemnified Party shall be made not later than
twenty (20) business days after receipt by the Tax Indemnifying Party of written
notice of such Final Determination together with written notice from the Tax
Indemnified Party stating that any payment for which the Tax Indemnified Party
is to be indemnified pursuant to Article II has been paid by the Tax Indemnified
Party, the payment requested and documentation reasonably establishing payment
of the amount sought to be indemnified. If at any time prior to a Final
Determination a party controlling a Tax Proceeding pursuant to Section 3.1(a) or
(b) hereof elects to pay a Tax and to pursue a claim for refund of such Tax, the
party controlling the Tax Proceeding shall have sole responsibility for the
payment of such Tax and shall be entitled to any refund thereof. The obligations
and rights set forth in the preceding sentence are independent from, and not in
limitation of, the obligations and rights set forth in the first two sentences
of this Section 2.4(e) and the other provisions of Article II.

         (f) Neither Chevron nor Phillips shall have any indemnity obligations
to the Company under this Article II or under the Contribution Agreement with
respect to or arising out of any tax matter disclosed in reasonable detail on
any Schedule of the Phillips Disclosure Schedule or the Chevron Disclosure
Schedule, as the case may be.

         (g) Notwithstanding any other provision of this Article II, (i) in the
case of a breach of a warranty or representation set forth in Section 6.1, the
amount subject to indemnification under Section 2.1(a) or 2.1(b) shall be the
incremental amount of Taxes incurred by the Company, its Subsidiaries and the
Phillips Group in the aggregate that would not have been incurred but for such
breach of warranty or representation, and (ii) in the case of a breach of a
warranty or representation set forth in Section 6.2, the amount subject to
indemnification under Section 2.2(a) or 2.2(b) shall be the incremental amount
of Taxes incurred by the Company, its Subsidiaries and the Chevron Group in the
aggregate that would not have been incurred but for such breach of warranty or
representation.

         (h) To the extent not inconsistent with any provisions of this Tax
Matters Annex, Article III of Annex C to the Contribution Agreement, governing
Dispute Resolution Procedure, shall be incorporated into this Tax Matters Annex.

                                   ARTICLE III

                                 TAX PROCEDURES

         Section 3.1 Procedures for Certain Tax Proceedings. Notwithstanding
Section 9.3 or any other contrary provision of the Contribution Agreement:


                                   -5-
<PAGE>   171
         (a) Chevron shall be entitled to control in all respects, including
with respect to settlement, any Tax Proceeding with respect to any Tax if
Chevron would have an indemnity obligation with respect to such Tax under
Section 2.1 and the resolution of the Tax will not result in any
non-indemnifiable liability for the Company. None of the Company or its
Subsidiaries and Phillips and its Subsidiaries shall be entitled to participate
in any such Tax Proceeding.

         (b) Phillips shall be entitled to control in all respects, including
with respect to settlement, any Tax Proceeding with respect to any Tax if
Phillips would have an indemnity obligation with respect to such Tax under
Section 2.2 and the resolution of the Tax will not result in any
non-indemnifiable liability for the Company. None of the Company or its
Subsidiaries and Chevron and its Subsidiaries shall be entitled to participate
in any such Tax Proceeding.

         (c) if (i) neither Chevron nor Phillips is entitled to control a Tax
Proceeding because the Tax which is the subject of the Tax Proceeding is both an
indemnifiable Tax and a non-indemnifiable Tax or (ii) the party entitled to
control a Tax Proceeding elects not to control such Tax Proceeding or fails to
do so, the Tax Matters Partner, acting in accordance with Section 9.6 of the
Amended LLC Agreement, shall control such Tax Proceeding.

         Section 3.2 Allocation of Certain Taxes.

         (a) If a Chevron Acquired Entity or a Phillips Acquired Entity (each an
"Acquired Entity") is permitted but not required under applicable state, local
or foreign Income Tax laws to treat the Closing Date as the last day of a
taxable period, then the parties shall cause such Acquired Entity to treat that
day as the last day of a taxable period.

         (b) In the case of Income Taxes and other taxes based upon income or
receipts arising in a taxable period of a Chevron Acquired Entity or a Phillips
Acquired Entity that includes but does not end on the Closing Date, except as
provided in Section 3.2(c), the allocation of such Taxes between the Pre-Closing
Period and the Post-Closing Period shall be made on the basis of an interim
closing of the books as of the end of the Closing Date. For the avoidance of
doubt, for purposes of this Section 3.2(b), the taxable year of each Acquired
Entity that is a partnership or "flowthrough" entity, shall be treated as if it
ended at the close of business on the Closing date and Taxes attributable to the
income and gain of such entities through the close of business on the Closing
date shall be treated as Pre-Closing Period Taxes.

         (c) In the case of(i) property Taxes and other taxes that are not based
upon income or receipts and (ii) ad valorem Taxes, in either case attributable
to any taxable period that includes but does not end on the Closing Date, the
portion of such Taxes attributable to the Pre-Closing Period shall be the amount
of such Taxes for the entire taxable period, multiplied by a fraction the
numerator of which is the number of calendar days in such taxable period ending
on and including the Closing Date and the denominator of which is the entire
number of calendar days in such taxable period, and the balance of such Taxes
shall be attributable to the Post-Closing Period.


                                  -6-
<PAGE>   172
         Section 3.3 Filing Responsibility.

         (a) Chevron shall prepare and file, or shall cause to be prepared and
filed, any Tax Return for any Income Tax (which this provision only shall
include foreign income taxes) that includes a member of the Chevron Group.

         (b) Phillips shall prepare and file, or shall cause to be prepared and
filed, any Tax Return for any Income Tax (which this provision only shall
include foreign income taxes) that includes a member of the Phillips Group.

         (c) The Company shall file or cause to be filed all Tax Returns with
respect to the Company or any of its Subsidiaries for which neither Chevron nor
Phillips has filing responsibility pursuant to (a) or (b) above. The Company
shall not, and shall cause its Subsidiaries not to, file any amended Tax Return
for any Pre-Closing Period, without the prior written consent of Chevron, in the
case of any such Tax Return that could affect the indemnification obligations of
Chevron under this Annex or any Taxes for which Chevron is otherwise
responsible, or Phillips, in the case of any such Tax Return that could affect
the indemnification obligations of Phillips under this Annex or any Taxes for
which Phillips is otherwise responsible.

         Section 3.4 Cooperation and Exchange of Information. Chevron, Phillips
and the Company shall (and each shall cause its respective Subsidiaries to)
cooperate with one another with respect to Tax matters. As soon as practicable,
but in any event within 30 days after the request of Chevron, Phillips or the
Company, from and after the Closing Date, the Company shall deliver to Chevron
or Phillips, respectively, and Chevron or Phillips, as the case may be, shall
deliver to the Company, such information and data and make available such
employees as Chevron, Phillips or the Company may reasonably request in order to
enable Chevron, Phillips or the Company to complete and file all Tax Returns
which they each may be required to file with respect to the Company and its
Subsidiaries and the Contributed assets and liabilities or to respond to Tax
Proceedings or other inquiries relating to Taxes by any Governmental Entities
and to otherwise enable Chevron, Phillips and the Company each to satisfy their
respective accounting, Tax and other legitimate business requirements. Such
cooperation and information shall include provision of powers of attorney to
Chevron, Phillips or the Company relating to Tax matters (e.g., for the purpose
of signing Returns and defending Tax Proceedings) and promptly forwarding copies
of appropriate notices and forms or other communications received from or sent
to any Governmental Entity that relate to the Company and its Subsidiaries and
the Contributed assets and liabilities, and providing copies of all relevant Tax
Returns, together with accompanying schedules and related workpapers, documents
relating to rulings or other determinations by any Governmental Entities and
records concerning the ownership and tax basis of property, which Chevron,
Phillips or the Company and its Subsidiaries may possess. Chevron, Phillips and
the Company shall (and each shall cause its respective Subsidiaries to) make its
employees and facilities available on a mutually convenient basis to provide
explanation of any documents or information provided hereunder. Notwithstanding
any other provision, (i) Chevron shall not be required to provide any Person
with any consolidated, combined, affiliated or unitary Income Tax Return or copy
thereof that includes Chevron or any other member of the Chevron Group and (ii)
Phillips shall not be required to provide any Person


                                -7-
<PAGE>   173
with any consolidated, combined, affiliated or unitary Income Tax Return or copy
thereof that includes Phillips or any other member of the Phillips Group.

                                   ARTICLE IV

                                     REFUNDS

         Section 4.1 Chevron Tax Refunds. If the Company or any of its
Subsidiaries or any member of the Phillips Group shall receive (i) a Tax Refund
of an Income Tax of a Chevron Acquired Entity for a Pre-Closing Period or any
Tax the liability for which Chevron indemnified the Company or any of its
Subsidiaries or any member of the Phillips Group or (ii) a Tax Refund identified
on Schedule B-2 as a Chevron Excluded Asset, the recipient shall promptly pay
over to Chevron an amount equal to such Tax Refund.

         Section 4.2 Phillips Tax Refunds. If the Company or any of its
Subsidiaries or any member of the Chevron Group shall receive (i) a Tax Refund
of an Income Tax of a Phillips Acquired Entity for a Pre-Closing Period or any
Tax the liability for which Phillips indemnified the Company or any of its
Subsidiaries or any member of the Chevron Group or (ii) a Tax Refund identified
on Schedule B-l as a Phillips Excluded Asset, the recipient shall promptly pay
over to Phillips an amount equal to such Tax Refund.

         Section 4.3 Company Tax Refunds. The Company shall be entitled to any
Tax Refunds of the Company or any of its Subsidiaries (or with respect to any
asset Contributed by any member of the Phillips Group or the Chevron Group)
other than such Tax Refunds to which Chevron or Phillips is entitled under
Section 4.1 or 4.2 above.

                                    ARTICLE V

                                  MISCELLANEOUS

         Section 5.1 Survival. The provisions of this Tax Matters Annex shall
survive Closing until the tenth anniversary of the Closing Date (the
"Termination Date"), provided, however, (i) in the case of a provision or
provisions of this Tax Matters Annex relating to a breach of warranty or
representation set forth in Article VI, such provision shall survive as to such
representation or warranty until the earlier of such tenth anniversary or 30
days after the expiration of the statute of limitations applicable to such
representation or warranty and (ii) in the case of any provision or provisions
of this Tax Matters Annex relating to a Tax matter involved in an administrative
proceeding or litigation on the Termination Date, such provision shall survive
until there occurs a Final Determination with respect to such matter.

         Section 5.2 Tax Sharing Agreements. Any Tax sharing agreement or
arrangement between Chevron or any member of the Chevron Group, on the one hand,
and any Chevron Acquired Entity, on the other hand, shall be terminated as of
the Closing Date and shall thereafter have no further effect for any taxable
year (whether the current year, a future year, or a past year). Any Tax sharing
agreement or arrangement between Phillips or any member of the Phillips Group,
on the one hand, and any Phillips Acquired Entity, on the other hand, shall be


                                   -8-
<PAGE>   174
terminated as of the Closing Date and shall thereafter have no further effect
for any taxable year (whether the current year, a future year, or a past year).

                                   ARTICLE VI

                               TAX REPRESENTATIONS

         Section 6.1 Chevron Tax Representations. Chevron hereby represents and
warrants to each of Phillips and the Company that, except (i) as disclosed in
Section B-6.1 of the Chevron Disclosure Schedule and (ii) to the extent that
any breach, failure or inaccuracy, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect

         (a) as of the date the assets are Contributed, all Tax Returns that
were or are required to be filed on or prior to such date by or with respect to
any Chevron Acquired Entity have been or will be duly and timely filed and all
such Tax Returns are and will be complete and accurate in all material respects;

         (b) as of the date the assets are Contributed, all Taxes shown to be
due on the Tax Returns referred to in clause (a) have been or will be paid in
full; and

         (c) except that no representations are being made with respect to
Chevron Phillips Chemical Company LP, Chevron Phillips Chemical Company LLC,
Chevron Phillips Chemical Holdings I LLC and Chevron Phillips Chemical Holdings
II LLC and other than those entities (or arrangements treated as entities for
U.S. federal income tax purposes) identified in Section B-6.1 of the Chevron
Disclosure Schedule, each partnership, joint venture, limited liability company
and other entity (or arrangement treated as an entity for U.S. federal income
tax purposes) Contributed by Chevron or any of its Subsidiaries has since the
date of its formation continually qualified and been treated as, and at the time
it is Contributed will qualify and be treated as, a disregarded entity (i.e., an
entity that is not treated as an entity separate from its owners under Section
301.7701-3 of the Income Tax Regulations) or a partnership for U.S. federal
income tax purposes.

         Section 6.2 Phillips Tax Representations. Phillips hereby represents
and warrants to each of Chevron and the Company that, except (i) as disclosed
in Section B-6.2 of the Phillips Disclosure Schedule and (ii) to the extent
that any breach, failure or inaccuracy, individually or in the aggregate, would
not reasonably be expected to have a Material Adverse Effect on any Phillips
Acquired Entity:

         (a) as of the date the assets are Contributed, all Tax Returns that
were or are required to be filed on or prior to such date by or with respect to
any Phillips Acquired Entity have been or will be duly and timely filed and all
such Tax Returns are and will be complete and accurate in all material respects;

         (b) as of the date the assets are Contributed, all Taxes shown to be
due on the Tax Returns referred to in clause (a) have been or will be paid in
full; and
                                      -9-

<PAGE>   175
         (c) except that no representations are being made with respect to
Chevron Phillips Chemical Company LP, Chevron Phillips Chemical Company LLC,
Chevron Phillips Chemical Holdings I LLC and Chevron Phillips Chemical Holdings
II LLC and other than those entities (or arrangements treated as entities for
U.S. federal income tax purposes) identified in Section B-6. I of the Chevron
Disclosure Schedule, each partnership, joint venture, limited liability company
and other entity (or arrangement treated as an entity for U.S. federal income
tax purposes) Contributed by Chevron or any of its Subsidiaries has since the
date of its formation continually qualified and been treated as, and at the time
it is Contributed will qualify and be treated as, a disregarded entity (i.e., an
entity that is not treated as an entity separate from its owners under Section
301.7701-3 of the Income Tax Regulations) or a partnership for U.S. federal
income tax purposes.


                                      -10-

<PAGE>   176
                                                                  FINAL


                                     ANNEX C

                        Continuing Indemnification Annex


                                    ARTICLE 1

                               Certain Definitions

     1.1   Definitions.

     (a) Capitalized terms used and not defined in this Annex shall have the
respective meanings ascribed to them elsewhere in the Contribution Agreement.
Notwithstanding the foregoing, references to "Subsidiaries" or "Affiliates" of
Phillips or Chevron in this Annex C shall not include the Company, the P Chem
Subsidiaries, the C Chem Subsidiaries, or any of their respective Subsidiaries,
except where specifically so provided.

     (b) As used in this Annex C, the following terms shall have the respective
meanings set forth below:

     "Borger Real Property" shall mean the P Chem Real Property located in the
vicinity of Borger, Texas.

     "Borger Refinery" shall mean the real property owned by Phillips located
adjacent to the Borger Real Property.

     "CERCLA" shall mean the federal Comprehensive Environmental Response
Compensation and Liability Act of 1980, as amended.

     "Claims" shall mean any rights, demands, claims, actions and causes of
action (whether for personal injuries or property, consequential, special,
exemplary, punitive or other damages of any kind).

     "Contribution Agreement" shall mean that certain Contribution Agreement,
dated as of May 23, 2000, by and among Phillips, Chevron and the Company, of
which Annex C is a part.

     "Damages" shall mean Claims, Liabilities, damages, penalties, judgments,
assessments, losses, costs and expenses, including reasonable attorneys' fees
and expenses, incurred by the party seeking indemnification under the
Contribution Agreement (including Annex C), (i) net of (a) any insurance
proceeds from independent sources (not affiliated with Phillips or Chevron) that
such 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
<PAGE>   177
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 this 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.

     "Designated Replacement Facilities" shall mean replacement facilities of
the Company at which the production capacity for K-Resin is increased following
the Closing Date in order to restore the production capacity lost at the K-Resin
Plant as a result of the K-Resin Accident, in each case, as approved by the
Board of Directors of the Company.

     "Environmental Liabilities" shall mean all environmental liabilities,
including but not limited to Liabilities (i) under any Environmental Law, (ii)
relating to subsurface contamination, whether soil or groundwater contamination,
and (iii) relating to toxic torts.

     "Groundwater Contamination" shall mean all contamination, caused by
Releases, of groundwater, including contamination dissolved or dispersed in
groundwater, phase separate hydrocarbon in contact with groundwater, and soil
contamination associated with phase separate hydrocarbon that is or has been in
contact with groundwater (i.e. smear zone). Groundwater Contamination does not
include any other contamination associated with soils or former waste disposal
areas.

     "Hazardous Substances" shall have the meaning set forth in CERCLA.

     "K-Resin Accident" shall mean the explosion and fire on March 27, 2000 at
the K-Resin Plant.

     "K-Resin Plant" shall mean the K-Resin plant in Pasadena, Texas.

     "K-Resin Repair" shall mean repairing or replacing any equipment necessary
to achieve sustainable production capacity at the K-Resin Plant and/or
Designated Replacement Facilities equal to 370 million pounds per year in
accordance with all applicable laws and Prudent Industry Practices, and shall
include, but not be limited to, the following actions to be taken by the Company
to assure safe and reliable operations:

           (i) Implementing all changes, modifications or improvements
     pertaining to the K-Resin Plant and surrounding facilities (and/or
     Designated Replacement Facilities) required by the terms of any orders or
     settlements with any governmental body, authority or agency relating to the
     K-Resin Accident or the K-Resin Repair, but excluding the incremental cost
     of compliance with any regulations adopted after the Closing Date of
     general application to existing industrial facilities (unless the K-Resin
     Accident was the primary reason for the adoption of the regulation);


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<PAGE>   178
          (ii) Implementing any changes, modifications or improvements
     pertaining to the K-Resin Plant and surrounding facilities (and/or
     Designated Replacement Facilities) required by the Company's insurance
     carriers; and

          (iii) Conducting a joint process hazards analysis on the K-Resin Plant
     with Chevron and Phillips, and implementing any recommended changes,
     modifications or improvements prior to startup of the K-Resin Plant (and/or
     Designated Replacement Facilities).

     "Liabilities" shall mean liabilities and obligations of any nature, whether
known or unknown, absolute, accrued, contingent or otherwise and whether due or
to become due.

     "Marietta Real Property" shall mean the C Chem Real Property located in the
vicinity of Marietta, Ohio.

     "Orange Real Property" shall mean the C Chem Real Property located in the
vicinity of Orange, Texas.

     "Pascagoula Real Property" shall mean the C Chem Real Property located in
the vicinity of Pascagoula, Mississippi.

     "Pascagoula Refinery" shall mean the real property owned by Chevron located
adjacent to the Pascagoula Real Property.

     "Port Arthur Real Property" shall mean the C Chem Real Property located in
the vicinity of Port Arthur, Texas.

     "Port Arthur Refinery" shall mean the real property owned by Clark Refining
& Marketing, Inc. located adjacent to the Port Arthur Real Property.

     "Pre-Closing Groundwater Contamination" shall mean Groundwater
Contamination caused by Releases occurring prior to Closing.

     "Prudent Industry Practices" shall mean such practices, methods, acts,
techniques and standards as are in effect at the time of performance of a
Party's obligations under this Agreement that are consistent with (i) the
applicable refinery standards generally followed by the United States Gulf Coast
crude oil refinery industry and petrochemical industry or (ii) such higher
standards as may be applied or followed by Phillips or its Affiliates in the
performance of similar tasks in respect of the K-Resin Plant or by the Company
or its Affiliates in the performance of similar tasks in respect of the K-Resin
Plant.

     "Puerto Rico Real Property" shall mean the P Chem Real Property located in
Puerto Rico.

     "Real Property Environmental Liabilities" shall mean all Environmental
Liabilities, whether arising before or after the Closing Date, relating to all C
Chem Real Property and P Chem Real Property which is transferred, assigned,
leased, or subleased (directly or indirectly through the contribution of
beneficial ownership interests in the entities that own fee or leasehold


                                   S3-3
<PAGE>   179
title, as applied to such C Chem Real Property or P Chem Real Property, as the
case may be) to the Company pursuant to the Contribution Agreement.

     "Releases" shall have the meaning set forth in Section 101 of CERCLA.

     "Subsurface Contamination Cleanup Order" shall mean any federal or state
issued cleanup order, directive or regulatory requirement to investigate or
remediate pre-Closing subsurface contamination, including soil and/or
groundwater contamination, and also including without limitation an order or
assertion relating to natural resource damages issued or asserted by any
governmental entity or trustee for such resources.

     "Sweeney Real Property" shall mean the P Chem Real Property located in the
vicinity of Sweeny, Texas.

     "Sweeny Refinery" shall mean the real property owned by Phillips located
adjacent to the Sweeny Real Property.

                                ARTICLE 2

                     Continuing Indemnification Obligations

     2.1 Indemnification by Company. Subject to the provisions of Section 2.2 of
this Annex C, the Company shall indemnify and hold harmless each of Phillips and
its Affiliates (other than the Company and its Subsidiaries) and Chevron and its
Affiliates (other than the Company and its Subsidiaries) from and against any
and all Damages incurred by such Person in connection with:

     (a)    all P Chem Liabilities and C Chem Liabilities;

     (b)    all Liabilities made the responsibility of the Company and/or its
Subsidiaries pursuant to Annex A; and

     (c) all Real Property Environmental Liabilities, unless otherwise provided
for in Section 2.2 below or unless resulting from spills, emissions or releases
occurring after the Closing Date to the extent a different result obtains under
an agreement listed on Schedule 6.11(b) of either the Phillips Disclosure
Schedule or the Chevron Disclosure Schedule.

     2.2    Indemnification by Phillips and Chevron.

     (a) Phillips shall indemnify and hold harmless Chevron and its Affiliates
and the Company and its Affiliates (excluding Phillips, but including the P Chem
Subsidiaries following the Closing) from and against any and all Damages
incurred by Chevron and its Affiliates or the Company or its Affiliates
(excluding Phillips, but including the P Chem Subsidiaries following the
Closing) in connection with:

            (i)   all Liabilities included in the Phillips Excluded Liabilities;


                                   S3-4
<PAGE>   180
          (ii)    all Liabilities made the responsibility of Phillips and/or its
     Subsidiaries pursuant to Annex A;

          (iii) all Environmental Liabilities resulting from the issuance of a
     Subsurface Contamination Cleanup Order relating to Pre-Closing Groundwater
     Contamination associated with either Borger Real Property or Sweeney Real
     Property; provided that:

                  (A) neither the Company nor Chevron (nor their respective
          Affiliates) shall directly or indirectly induce or cause the issuance
          of the Subsurface Contamination Cleanup Order;

                  (B) upon obtaining knowledge that a Subsurface Contamination
          Cleanup Order has been or is likely to be issued, the Company provides
          prompt notice to Phillips;

                  (C) the Company provides Phillips and/or its Affiliates with
          an opportunity to negotiate the terms of the Subsurface Contamination
          Cleanup Order;

                  (D) Phillips and/or its Affiliates are given the opportunity
          to perform the investigation and/or remediation (including the
          necessary access) required by the Subsurface Contamination Cleanup
          Order; and

                  (E) the Company agrees to perform some or all of the work
          required by the Subsurface Contamination Cleanup Order if requested by
          Phillips and/or its Affiliates, subject to reimbursement by Phillips
          and/or its Affiliates for all costs reasonably incurred by the
          Company;

          (iv) all Environmental Liabilities relating to Hazardous Substances
     that, prior to the Closing Date, are transported from any P Chem Real
     Property to an off-site location for purposes of storage, processing
     (including toll processing) or disposal;

          (v) all Environmental Liabilities relating to Hazardous Substances
     that, during the three (3) month period following the Closing Date, are
     transported, stored, processed or disposed of by the Company and/or its
     Affiliates on any property other than P Chem Real Property, if(A) such
     transportation, storage, processing or disposal is a continuation of an
     activity at such off-site property engaged in by P Chem at the Closing
     Date, and (B) the Company permanently discontinues all activities
     associated with such off-site property within three (3) months of the
     Closing Date;

          (vi) all pre-Closing Environmental Liabilities directly related to the
     operation of tanks, lines or equipment which contain materials that are
     owned by the Company following the Closing but where such tanks, lines or
     equipment are owned and operated following the Closing by Phillips and/or
     its Affiliates;


                                   S3-5
<PAGE>   181
           (vii) all Environmental Liabilities directly relating to pre-Closing
     contamination on the Borger Real Property associated with the Ryton
     warehouse and kerosene spheres;

           (viii) fifty percent (50%) of all Environmental Liabilities relating
     to Puerto Rico Real Property which (A) exceed $20,000,000, (B) in expenses
     paid by the Company prior to the fifteen (15) year anniversary of the
     Closing Date, and (C) arise out of Pre-Closing Groundwater Contamination;
     provided, however, that Phillips's liability under this Section
     2.2(a)(viii) shall not exceed $20,000,000; and

           (ix) all physical loss or damage to the K-Resin Plant or other
     property of the Company arising out of the K-Resin Accident, and all costs
     of the K-Resin Repair, 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 370 million pounds per year. To the extent K-Resin Repair
     has not been completed by January 1, 2003, Phillips will on the first
     business day thereafter pay the Company the estimated amount (as reasonably
     determined by the Company and agreed to by Phillips) of any remaining costs
     to complete the K- Resin Repair.

     (b) Chevron shall indemnify and hold harmless Phillips and its Affiliates
and the Company and its Affiliates (excluding Chevron, but including the C Chem
Subsidiaries following the Closing) from and against any and all Damages
incurred by Phillips and its Affiliates or the Company and its Affiliates
(excluding Chevron, but including the C Chem Subsidiaries following the Closing)
in connection with:


                                   S3-6
<PAGE>   182
          (i)     all Liabilities included in the Chevron Excluded Liabilities;

          (ii) all Liabilities made the responsibility of Chevron and/or its
     Subsidiaries (other than the Company and its Subsidiaries) pursuant to
     Annex A;

          (iii) all Environmental Liabilities resulting from the issuance of a
     Subsurface Contamination Cleanup Order relating to Pre-Closing Groundwater
     Contamination associated with either Pascagoula Real Property or Port
     Arthur Real Property; provided that:

                  (A) neither the Company nor Phillips (nor their respective
          Affiliates) shall directly or indirectly induce or cause the issuance
          of the Subsurface Contamination Cleanup Order;

                  (B) upon obtaining knowledge that a Subsurface Contamination
          Cleanup Order has been or is likely to be issued, the Company provides
          prompt notice to Chevron;

                  (C) the Company provides Chevron and/or its Affiliates with an
          opportunity to negotiate the terms of the Subsurface Contamination
          Cleanup Order;

                  (D) Chevron and/or its Affiliates are given the opportunity to
          perform the investigation and/or remediation (including the necessary
          access) required by the Subsurface Contamination Cleanup Order; and

                  (E) the Company agrees to perform some or all of the work
          required by the Subsurface Contamination Cleanup Order if requested by
          Chevron and/or its Affiliates, subject to reimbursement by Chevron
          and/or its Affiliates for all costs reasonably incurred by the
          Company;

          (iv) all Environmental Liabilities relating to Hazardous Substances
     that, prior to the Closing Date, are transported from any C Chem Real
     Property to an off-site location for purposes of storage, processing
     (including toll processing) or disposal;

          (v) all Environmental Liabilities relating to Hazardous Substances
     that, during the three (3) month period following the Closing Date, are
     transported, stored, processed or disposed of by the Company and/or its
     Affiliates on any property other than C Chem Real Property, if (A) such
     transportation, storage, processing or disposal is a continuation of an
     activity engaged in at such off-site property by C Chem at the Closing
     Date, and (B) the Company permanently discontinues all activities
     associated with such off-site property within three (3) months of the
     Closing Date;

          (vi) all pre-Closing Environmental Liabilities directly related to the
     operation of tanks, lines or equipment which contain materials that are
     owned by


                                   S3-7
<PAGE>   183
     the Company following the Closing but where such tanks, lines or equipment
     are owned and operated following the Closing by Chevron and/or its
     Affiliates;

           (vii) all Environmental Liabilities under CERCLA for pre-closing
     contamination relating to the Marietta Real Property; provided that the
     Company (A) diligently pursues all claims for such liabilities against Dow
     Chemical Company, Union Carbide Corporation, and their respective
     successors and assigns, and (B) provides Chevron with sixty (60) days
     advance written notice prior to asserting any claim against Chevron;

           (viii) all costs of dismantling and disposing of the equipment that
     constitutes the abandoned LDPE plant on the Orange Real Property which are
     paid by the Company prior to the one (1) year anniversary of the Closing
     Date for work done prior to such one (1) year anniversary of the Closing
     Date; provided, however, that Chevron's liability under this Section
     2.2(b)(viii) shall not exceed the difference between (A) $20,000,000 and
     (B) the total amount paid by Chevron and its Affiliates to dismantle and
     dispose of such equipment prior to the one (1) year anniversary of the
     Closing Date. The costs incurred after the Closing Date by Chevron in
     providing a Chevron on-site project engineer shall not be included in the
     total amount paid by Chevron in subsection (B) of this Section
     2.2(b)(viii); and

           (ix) all costs of completing the Houston Ship Channel project;
     provided, however, that Chevron's liability under this Section 2.2(b)(ix)
     shall not exceed $1,055,000.

     (c) The indemnification obligations of Phillips and Chevron under Sections
2.2(a)(iii) and 2.2(b)(iii), respectively, (i) shall not apply to any
investigation, excavation or other remediation undertaken for any reason other
than compliance with a Subsurface Contamination Cleanup Order or other agency
requirement, and (ii) shall terminate with respect to any area where Pre-Closing
Groundwater Contamination has been contained through a federal or state agency
approved engineered containment system or institutional control, if the Company
undertakes an action that impairs the integrity of such engineered containment
system or institutional control.

     2.3 Indemnification Procedure. All claims by any Indemnified Party under
this Annex C shall be asserted and resolved as follows:

     (a) In the event that (i) any claim, demand or proceeding is asserted or
instituted in writing by any Person other than the parties to the Agreement or
their Affiliates that could give rise to Damages for which an Indemnifying Party
could be liable to an Indemnified Party under the Agreement (such claim, demand
or proceeding, a "Third Party Claim") or (ii) any Indemnified Party shall have a
claim to be indemnified by any Indemnifying Party under the Agreement that does
not involve a Third Party Claim (such claim, a "Direct Claim"), the Indemnified
Party shall promptly send to the Indemnifying Party a written notice specifying
the nature of such claim, together with information reasonably available to the
Indemnified Party with respect to such claim (a "Claim Notice"); provided,
however, that a delay in notifying the


                                   S3-8
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Indemnifying Party shall not relieve the Indemnifying Party of its obligations
under the Agreement, except to the extent that such failure shall have caused
actual prejudice to the Indemnifying Party. In the case where the Company is the
Indemnified Party, either Phillips or Chevron may assert an indemnity claim on
behalf of the Company and each shall be considered an Indemnified Party for
purposes of this Section 2.3 in connection with any Third Party Claim or Direct
Claim for which the other is the Indemnifying Party.

     (b) In the event of a Third Party Claim, the Indemnifying Party shall have
30 days after receipt of the Claim Notice relating to such Third Party Claim to
elect to undertake, conduct and control, through counsel of its own choosing
(provided that such counsel is reasonably acceptable to the Indemnified Party)
and at its own expense, the settlement or defense of such Third Party Claim (in
which case the Indemnifying Party shall not thereafter be responsible for the
fees and expenses of any separate counsel retained by any Indemnified Party
except as set forth below). If the Indemnifying Party elects to undertake such
defense, it shall promptly assume and hold such Indemnified Party harmless from
and against the full amount of any Damages resulting from such Third Party Claim
to the extent provided herein. If the Indemnifying Party elects to undertake
such defense, (i) the Indemnified Party agrees to cooperate with the
Indemnifying Party and its counsel in contesting such Third Party Claim, and, if
appropriate and related to such Third Party Claim, the parties will reasonably
cooperate with each other in connection with making any counterclaim against the
person asserting the Third Party Claim, or any cross-complaint against any
Person, (ii) such Third Party Claim may not be settled or compromised by the
Indemnified Party without the prior written consent of the Indemnifying Party;
provided, however, that in the event any Indemnified Party settles or
compromises or consents to the entry of any judgment with respect to any Third
Party Claim without the prior written consent of the Indemnifying Party, such
Indemnified Party shall be deemed to have waived all rights against the
Indemnifying Party for indemnification under this Annex C and (iii) the
Indemnifying Party shall not, except with the consent of the Indemnified Party,
enter into any settlement that does not include as an unconditional term thereof
the giving by the third party asserting such claim to all Indemnified Parties
of(A) unconditional release from all Liability with respect to such Third Party
Claim or (B) consent to entry of any judgment. If the Indemnifying Party does
not notify the Indemnified Party of its election to undertake the defense of
such Third Party Claim within 30 days after receipt of the Claim Notice relating
to such Third Party Claim, the Indemnified Party shall have the right to
contest, settle, compromise or consent to the entry of any judgment with respect
to such Third Party Claim, and, in doing so, shall not thereby waive any right
to indemnity therefor pursuant to this Annex C; provided, however, that at any
time thereafter the Indemnifying Party may assume the defense of such Third
Party Claim.

     (c) In the event of a Direct Claim, the Indemnifying Party shall notify the
Indemnified Party within 30 days of receipt of a Claim Notice whether or not the
Indemnifying Party disputes such claim.

     (d) From and after the delivery of a Claim Notice under this Agreement, at
the reasonable request of the Indemnifying Party the Indemnified Party shall
grant the Indemnifying Party and its representatives all reasonable access to
the books, records and properties of such Indemnified Party to the extent
reasonably related to the matters to which the Claim Notice relates. All such
access shall be granted during normal business hours and shall be granted under


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<PAGE>   185
conditions that will not unreasonably interfere with the businesses and
operations of such Indemnified Party. The Indemnifying Party will not, and shall
cause its representatives not to, use (except in connection with such Claim
Notice) or disclose to any third Person other than the Indemnifying Party's
representatives (except as may be required by applicable laws) any information
obtained pursuant to this Section 2.3, which is designated as confidential by
the Indemnified Party.

      2.4   Indemnification Limitation.

      (a) Each Indemnified Party under this Annex C shall use its reasonable
efforts to mitigate Damages for which it seeks indemnification hereunder and
shall assign to the Indemnifying Party all of such Indemnified Party's claims
for recovery against third parties as to Damages, whether by insurance coverage,
contribution claims, subrogation or otherwise; provided, however, that the
failure of such Indemnified Party to successfully mitigate such Damages shall
not affect such Indemnified Party's right to be indemnified with respect to such
Damages so long as such Indemnified Party shall have used its reasonable efforts
to mitigate.

      (b) If the Company experiences a post-Closing Release at the Borger Real
Property, Sweeny Real Property, Pascagoula Real Property, or Port Arthur Real
Property and, in the process of responding to such Release also investigates or
remediates Pre-Closing Groundwater Contamination, then, for the first $1,000,000
in expenses paid by the Company attributable to such Pre-Closing Groundwater
Contamination, the Company shall not be entitled to indemnity under Sections
2.2(a)(iii) or 2.2(b)(iii) hereof and shall release Chevron and Phillips from
liability for such a claim. The $1,000,000 threshold set forth in the foregoing
sentence shall apply separately to each remedial effort.

      (c) If either Chevron or Phillips (or the Company acting at the request of
either Phillips or Chevron), in responding to Pre-Closing Groundwater
Contamination, is required to investigate or remediate any other contamination
on the Borger Real Property, Sweeny Real Property, Pascagoula Real Property or
Port Arthur Real Property, then, for the first $1,000,000 in expenses paid by
Chevron or Phillips, as the case may be, attributable to such other
contamination; Chevron or Phillips, as the case may be, shall not be entitled to
indemnity under Section 2.1 hereof and shall release the Company from liability
for such a claim. The $1,000,000 threshold set forth in the foregoing sentence
shall apply separately to each remedial effort.

      2.5 Indemnification Relating to Negligence and Strict Liability. ALL
INDEMNITIES CONTAINED IN THIS ANNEX C SHALL APPLY WHETHER OR NOT THE INDEMNITEE
WAS OR IS CLAIMED TO BE PASSIVELY, CONCURRENTLY, OR ACTIVELY NEGLIGENT, AND
REGARDLESS OF WHETHER LIABILITY WITHOUT FAULT IS IMPOSED OR SOUGHT TO BE IMPOSED
ON THE INDEMNITEE.


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<PAGE>   186
                                    ARTICLE 3

                          Dispute Resolution Procedure

      3.1 General. Any dispute arising out of or relating to the indemnification
obligations under Article DC of the Contribution Agreement or this Annex C (a
"Dispute") shall be resolved in accordance with the procedures specified in this
Article 3. The procedures provided in this Article 3 shall be the exclusive
remedy for resolution of Disputes.

      3.2    Negotiations Between Executives.

      (a) The parties to a Dispute shall attempt in good faith to resolve any
dispute arising out of or relating to this Annex C promptly by negotiation
between executives who have authority to settle the controversy. Any party may
give the other party written notice of any Dispute not resolved in the normal
course of business. Within 15 days after delivery of the notice, the receiving
party shall submit to the other a written response. The notice and the response
shall include a statement of each party's position and a summary of arguments
supporting that position, and the name and title of the executive who will
represent that party and of any other person who will accompany the executive.
Within 30 days after delivery of the disputing party's notice, the executives of
both parties shall meet at a mutually acceptable time and place, and thereafter
as often as they reasonably deem necessary, to attempt to resolve the dispute.
All reasonable requests for non-privileged and/or non-proprietary information
made by one party to the other will be honored.

      (b) All negotiations pursuant to this Section 3.2 shall be considered
confidential and shall be treated as compromise and settlement negotiations for
purposes of applicable rules of evidence.

      (c) Notwithstanding the foregoing, nothing contained in this Article 3
shall limit or restrict in any way the right or power of a party at any time (A)
to commence and prosecute a proceeding for a preliminary or temporary injunction
or other temporary order pending mediation or arbitration under this Article 3
(i) to restrain a party from breaching this Annex C, or (ii) for specific
enforcement of this Annex C, or (B) to consult with the other party in an
attempt to negotiate a resolution of the dispute.

      (d) The parties agree that any legal remedy available to them with respect
to a breach of this Annex C will not be adequate and that, in addition to all
legal remedies, each party is entitled to an order specifically enforcing this
Annex C.

      3.3 Mediation. Unless the parties mutually agree otherwise, if the dispute
has not been resolved by negotiation described in Section 3.2 of this Annex C
within 45 days after the receipt of the disputing party's notice by the other
party, the parties shall endeavor to settle the dispute by mediation conducted
under the then current Center For Public Resources' CPR Model Mediation
Procedure for Business Disputes. The mediation will be conducted at a site in
Houston, Texas unless the parties mutually agreed otherwise. All mediation costs
are to be borne equally by the parties. Each party shall be responsible for its
own attorney's fees and costs.


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<PAGE>   187
     3.4   Arbitration.

     (a) If a Dispute has not been resolved pursuant to either Sections 3.2 or
3.3 above, any party involved in such Dispute may submit the matter to
arbitration pursuant to the guidelines set forth below. Demand and submission to
arbitration as provided in this Section 3.4 must, unless otherwise agreed, be
made to the other party in writing by the requesting party within the later
of(A) ten (10) days after negotiations and mediation held pursuant to Sections
3.2 and 3.3 above have failed, and (B) 60 days following the effective date of
notice of the Dispute. The failure to timely submit the Dispute to arbitration
shall constitute a waiver of the parties to submit their Dispute to arbitration.
The arbitration shall be binding on the parties and the Dispute shall be settled
in accordance with the guidelines below.

     (b) Any Dispute submitted to arbitration pursuant to Section 3.4(a) of this
Annex C shall be settled by arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association (the "AAA Rules"), and
judgment upon the award rendered by the arbitrators may be entered in any court
having jurisdiction thereof. The arbitration shall be administered by the
American Arbitration Association. The AAA Rules are incorporated into this Annex
C and, as amended from time to time by the American Arbitration Association,
shall establish the procedures for any arbitration brought under this Annex C,
except as modified by the following provisions:

          (i) Monetary Limitations. Any party may initiate arbitration in
     accordance with the terms of this Article 3 and the AAA Rules irrespective
     of the amount in controversy.

           (ii) Number c/Arbitrators. If a Dispute involves an amount in
     controversy of $10,000,000 or less, there shall be one (I) arbitrator. If a
     Dispute involves an amount in controversy in excess of $10,000,000 or a
     request for preliminary injunction, there shall be three (3) arbitrators.

           (iii) Arbitrators' Qualifications and Selection. For disputes
     involving three (3) arbitrators, each party involved in the arbitration
     shall have the right to submit to the other party involved in the
     proceeding a proposed list of five (5) qualified arbitrators. Each party
     must select one of the proposed candidates nominated by the other party
     within ten (10) days after receiving the list of candidates. The
     arbitrators selected by the parties shall then select a third qualified
     arbitrator to act as chairman. Each arbitrator shall be fully active in his
     or her profession or occupation. All arbitration proceedings shall be
     conducted in Houston, Texas. For Disputes involving only one (1)
     arbitrator, the arbitrator shall be selected in the manner prescribed by
     the AAA Rules. Should the parties fail to timely join in the appointment of
     the arbitrators or should more than two (2) parties be involved in the
     arbitration, the arbitrators shall be appointed in accordance with the AAA
     Rules. The arbitrators shall be fully compensated in accordance with their
     normal hourly or per diem rates for all time spent by them in connection
     with the arbitration proceeding, and pending final award, their
     compensation and expenses shall be advanced equally between or among all
     parties participating in the arbitration. Each arbitrator, including those
     nominated


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<PAGE>   188
      by a party, shall conduct himself as a neutral, and once each arbitrator
      has been appointed, there shall be no substantive ex parte communication
      between any party or its representative and any arbitrator regarding the
      arbitration proceeding or its subject matter.

            (iv) Preliminary Hearing. Within 15 days after the arbitrators have
      been appointed, an initial meeting (preliminary hearing) among the
      arbitrators and counsel for the parties shall be held for the purpose of
      developing a plan for the management of the arbitration, which shall then
      be memorialized in an appropriate stipulation and order. If the parties
      cannot agree on the matters to be addressed in such a plan (including what
      evidentiary rules shall apply), such plan shall be developed by the
      arbitrators.

            (v) Discovery. The arbitrators shall permit and facilitate such
      discovery as it shall determine is appropriate under the circumstances,
      taking into account the needs of the parties and the desirability of
      making discovery expeditious and cost-effective. Such discovery may
      include prehearing depositions, particularly depositions of witnesses who
      will not appear personally to testify, if there is a substantial,
      demonstrated need therefor. The arbitrators may issue orders to protect
      the confidentiality of proprietary information, trade secrets, and other
      sensitive information disclosed in discovery.

            (vi) Time Limits and Schedules. The proceedings shall be conducted
      in an expeditious manner, and a final award shall be rendered within the
      following time periods: (i) if the Dispute involves an amount in
      controversy of $10,000,000 or less, within three (3) months after the date
      of the preliminary hearing, (ii) if the Dispute involves an amount in
      controversy in excess of $10,000,000 but less than $20,000,000, within six
      (6) months after the date of the preliminary hearing, and (iii) if the
      Dispute involves an amount in controversy of $20,000,000 or more, within
      one (1) year after the date of the preliminary hearing. The arbitrators
      are empowered to impose time limits they consider reasonable for each
      phase of the proceeding including, without limitation, the time allotted
      to each party for presentation of its case and for rebuttal.

            (vii) Conduct of Evidentiary Proceedings. The arbitrators shall
      actively manage the proceeding as they deem best so as to make the same
      fair, expeditious, economical, and less burdensome and adversarial than
      litigation. The arbitrators may, inter alia and without litigation, limit
      the issues so as to focus on the core of the Dispute, limit the time
      allotted to each party for presentation of its case, and exclude testimony
      and other evidence that they deem irrelevant, cumulative, or inadmissible.

            (viii) Neutral Experts. Whenever expert testimony is required, the
      arbitrators may use their power to designate a neutral expert or experts
      in consultation with the parties and shall explore with the parties
      whether the retention of such neutral experts may render it unnecessary
      for each party to


                                     S3-13
<PAGE>   189
     proffer testimony by its own expert; provided, however, that each party
     retains the right to proffer testimony by its own expert.

           (ix) Governing Law; Limiting Arbitrators' Equitable Discretion. The
     arbitrators shall determine the claims of the parties and render their
     final award in accordance with Delaware law (without reference to the
     choice of law principles thereof).

           (x) Pre-Award Interest; Punitive Damages; Attorney's Fees. The
     arbitrators may, in their discretion, grant pre-award interest and, if so,
     such interest shall be at commercial rates during the relevant period;
     provided, however, that under no circumstances shall the interest rate
     exceed the maximum legal rate as in effect during the relevant period. The
     arbitrators may not independently award special, consequential, exemplary,
     or punitive damages; provided, however, that arbitrators may include
     special, consequential, exemplary, or punitive damages in any award to the
     extent such damages have been awarded or assessed by any Governmental
     Entity. Arbitration costs will be allocated between the parties by the
     arbitrators.

           (xi) Draft of Proposed Award. Prior to rendering their final award,
     the arbitrators shall submit to the parties an unsigned, written draft of
     the proposed award, and each party, within 15 days after receipt of such
     draft, may serve on the other party and file with the arbitrators a written
     statement outlining any alleged errors of fact, computation, law, or
     otherwise in said draft. The arbitrators, in their discretion, may
     disregard and treat as a nullity any party statement if and to the extent
     that the same is in substance an application for re-argument. Within 20
     days after receipt of such party statements, the arbitrators shall render
     their final award, which award shall be supported by a written decision.

     3.5 Confidentiality. The entire dispute resolution process is a compromise
negotiation. All offers, promises, conduct, and statements, whether oral or
written, made in the course of the proceeding by any of the parties, their
agents, employees, experts, and attorneys, and by the mediator or arbitrator are
confidential. Such offers, promises, conduct, and statements are privileged
under any applicable mediation or arbitration privilege, are subject to Rule 408
of the Federal Rules of Evidence and any state counterpart rules or doctrine and
are inadmissible and not discoverable for any purpose, including impeachment, in
litigation between the parties to the mediation or other litigation; provided,
however, that evidence that is otherwise admissible or discoverable shall not be
rendered inadmissible or non-discoverable as a result of its presentation or use
at the mediation or arbitration. Any mediator will be disqualified as a witness,
consultant, or expert for any party, and as arbitrator between the parties, and
his or her oral and written opinions will be inadmissible for all purposes in
this or any other dispute involving the parties hereto.


                                    S3-14