================================================================================

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    Form 8-K

                                 Current Report

     Pursuant to Section 13 of 15(d) of the Securities Exchange Act of 1934

         Date of Report (Date of earliest event reported): May 23, 2000


                               Chevron Corporation
              ----------------------------------------------------
             (Exact name of registrant as specified in its charter)

        Delaware                      1-368-2                   94-0890210
 ---------------------------    ----------------------      -------------------
(State or other jurisdiction   (Commission File Number)    (I.R.S. Employer No.)
   of incorporation )

       575 Market Street, San Francisco, CA                      94105
      --------------------------------------                   --------
     (Address of principal executive offices)                 (Zip Code)

       Registrant's telephone number, including area code: (415) 894-7700


                                      NONE
           -----------------------------------------------------------
          (Former name or former address, if changed since last report)

Item 5. Other Events
- --------------------
     Chevron  Corporation,  a  Delaware  corporation  ("Chevron")  and  Phillips
     Petroleum  Corporation,  a Delaware  corporation  ("Phillips")  and Chevron
     Phillips  Chemical  Company  LLC,  a  Delaware  limited  liability  company
     ("Chevron Phillips Chemicals") entered into a Contribution Agreement, dated
     as of May 23, 2000 ("the Contribution Agreement") pursuant to which Chevron
     and Phillips will combine certain of their chemicals  businesses in Chevron
     Phillips  Chemicals.  Chevron and Phillips,  directly or through  direct or
     indirect wholly owned subsidiaries will each own 50%, respectively,  of the
     voting and economic interests of Chevron Phillips Chemicals.

     The foregoing  summary of the  Contribution  Agreement and the transactions
     contemplated  thereby is  qualified  in its  entirety by  reference  to the
     Contribution Agreement which is  attached  hereto  as  Exhibit  2.1  and
     is incorporated herein by reference.


Item 7. Exhibits
- ----------------
     Exhibit 2.1: Contribution Agreement dated as of May 23, 2000, by
                  and   among   Phillips   Petroleum   Company,    Chevron
                  Corporation and Chevron Phillips Chemical Company LLC.

================================================================================



                                    SIGNATURE

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned hereunto duly authorized.


Dated: June 2, 2000
                                        CHEVRON CORPORATION


                                  By       /s/ S.J. Crowe
                                        ----------------------------------
                                         S. J. Crowe, Comptroller
                                        (Principal Accounting Officer and
                                          Duly Authorized Officer)





                                  EXHIBIT INDEX

Exhibit Number                    Description

2.1                  Contribution  Agreement  dated as of May 23,  2000, by and
                     among  Phillips Petroleum  Company,  Chevron  Corporation
                     and  Chevron  Phillips  Chemical Company LLC.

                             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

                                                                       Page


                                    ARTICLE I
                               CERTAIN DEFINITIONS


                                   ARTICLE II
                           CONTRIBUTION TO THE COMPANY

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...............14

                                   ARTICLE III
                                   THE CLOSING

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

Section 4.1       Corporate Organization.................................17
Section 4.2       Capitalization.........................................17
Section 4.3       Authority; No Violation................................18
Section 4.4       Consents and Approvals.................................18
Section 4.5       Licenses; Compliance with Applicable Law...............18
Section 4.6       Financial Statements; Undisclosed Liabilities..........19
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..........................................22
Section 4.12      Environmental Matters..................................22
Section 4.13      Intellectual Property..................................23
Section 4.14      Employee Benefit Plans.................................23
Section 4.15      Labor Relations........................................24
Section 4.16      Transactions with Affiliates...........................24
Section 4.17      Personal Property......................................24
Section 4.18      Year 2000..............................................24
Section 4.19      Insurance..............................................25
Section 4.20      Acquisition of Company Interests for Investment........25
Section 4.21      Sufficiency of Contribution............................25

                                    ARTICLE V
                    REPRESENTATIONS AND WARRANTIES OF CHEVRON

Section 5.1       Corporate Organization.................................25
Section 5.2       Capitalization.........................................26
Section 5.3       Authority; No Violation................................26
Section 5.4       Consents and Approvals.................................27
Section 5.5       Licenses; Compliance with Applicable Law...............27
Section 5.6       Financial Statements; Undisclosed Liabilities..........27
Section 5.7       Brokers'Fees...........................................28
Section 5.8       Absence of Certain Changes or Events...................28
Section 5.9       Legal Proceedings......................................28
Section 5.10      Contracts..............................................29
Section 5.11      Real Property..........................................30
Section 5.12      Environmental Matters..................................31
Section 5.13      Intellectual Property..................................31
Section 5.14      Employee Benefit Plans.................................32
Section 5.15      Labor Relations........................................32
Section 5.16      Transactions with Affiliates...........................33
Section 5.17      Personal Property......................................33
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............................34

                                   ARTICLE VI
                                    COVENANTS

Section 6.1       Investigation of Business; Access to Properties and
                      Records............................................34
Section 6.2       Consents and Approvals.................................35
Section 6.3       Further Assurances.....................................36
Section 6.4       Conduct of the Phillips Chemicals Business.............36
Section 6.5       Conduct of the Chevron Chemicals Business..............38
Section 6.6       Preservation of Business...............................40
Section 6.7       Public Announcements...................................40
Section 6.8       Assignment of Contracts, Leases, Permits, etc..........40
Section 6.9       Corporate Names........................................41
Section 6.10      D&O Indemnification....................................42
Section 6.11      Additional Agreements..................................42
Section 6.12      Company Integration Expenses...........................44
Section 6.13      Insurance..............................................44
Section 6.14      Guarantees.............................................46
Section 6.15      Actions by Affiliates of Phillips and Chevron..........46
Section 6.16      Financing..............................................46
Section 6.17      Risk Allocation between the Company and the Parties....47
Section 6.18      Intellectual Property..................................47

                                   ARTICLE VII
                              CONDITIONS TO CLOSING

Section 7.1       Conditions to Phillips'Obligation to Close.............53
Section 7.2       Conditions to Chevron's Obligation to Close............54

                                  ARTICLE VIII
                                   TERMINATION

Section 8.1       Termination............................................55
Section 8.2       Procedure and Effect of Termination....................55

                                   ARTICLE IX
                            SURVIVAL; INDEMNIFICATION

Section 9.1       Indemnification by Company.............................56
Section 9.2       Indemnification by Phillips and Chevron................56
Section 9.3       Indemnification Procedure..............................56
Section 9.4       Survival...............................................56
Section 9.5       Indemnification Limitation.............................57
Section 9.6       Materiality Qualifiers.................................58
Section 9.7       Knowledge Qualifiers...................................58

                                    ARTICLE X
                                EMPLOYEE MATTERS


                                   ARTICLE XI
                                   TAX MATTERS


                                   ARTICLE XII
                                  MISCELLANEOUS

Section 12.1      Counterparts...........................................58
Section 12.2      Governing Law; Jurisdiction and Forum; Waiver
                   of Jury Trial.........................................58
Section 12.3      Entire Agreement.......................................59
Section 12.4      Expenses...............................................59
Section 12.5      Notices................................................60
Section 12.6      Successors and Assigns.................................61
Section 12.7      Headings; Definitions..................................61
Section 12.8      Amendments and Waivers.................................61
Section 12.9      Schedules..............................................61
Section 12.10     Severability...........................................62
Section 12.11     Interpretation.........................................62
Section 12.12     Specific Performance...................................62









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










                                                                  -1-
                  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).

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



                                      -1-


                  "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.

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



                                      -2-


                  "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 formulations are comprised of a major portion of normal
alpha  olefins  and  their  derivatives,  and (ii)  shall  specifically  exclude
Fischer-Tropsch gas-to-liquids



                                      -3-


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-


                  "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.



                                      -5-


                  "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 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.



                                      -6-


                  "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.

                  "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


                                      -7-


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  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



                                      -8-


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.

                  "P  Chem   Discontinued   Busi0ness"   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



                                      -9-


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.

                  "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.



                                      -10-


                  "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.

                  "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).



                                      -11-


                  "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.

                  "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



                                      -12-


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.

(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


                                      -13-


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.

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);

                                      -14-


(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:

(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



                                      -15-


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.

(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.



                                      -16-


(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 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.



                                      -17-


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.

(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



                                      -18-


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 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



                                      -19-


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.

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,  theatened 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;



                                      -20-


(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;

(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.



                                      -21-


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
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,



                                      -22-


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 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.



                                      -23-


(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 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



                                      -24-


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 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



                                      -25-


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, 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



                                      -26-


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 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.



                                      -27-


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;

(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


                                      -28-


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,  theatened 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"):

(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.



                                      -29-


(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 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



                                      -30-


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 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.



                                      -31-


(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, 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


                                      -32-


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.

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


                                      -33-


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 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


                                      -34-


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.

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



                                      -35-


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
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




                                      -36-


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 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  Affilitate 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



                                      -37-


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  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;



                                      -38-


(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 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,



                                      -39-


(ii) 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.

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.



                                      -40-


(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  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



                                      -41-


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
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



                                      -42-


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 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



                                      -43-


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 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



                                      -44-


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
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.



                                      -45-


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
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



                                      -46-


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  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



                                      -47-


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 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



                                      -48-


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.

(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



                                      -49-


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 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


                                      -50-


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 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



                                      -51-


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 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



                                      -52-


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.

(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



                                      -53-


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 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)



                                      -54-


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:


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

(c) 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;

(d) 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

(e) 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.

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.



                                      -55-


                                   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 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



                                      -56-


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.

(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



                                      -57-


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.]

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



                                      -58-


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.

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;



                                      -59-


(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):

(b)               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
                           Attention:  Andrew R. Brownstein, Esq.
                           Fax No.:  (212) 403-2000

(c)               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



                                      -60-


(d)               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  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


                                      -61-


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.


                                      -62-



                  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



                                      -63-



                                     ANNEX A

                             EMPLOYEE MATTERS ANNEX



                               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"


                                      -1-


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



                                      -2-


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.



                      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 and benefits) of any
of their  employees  (including  Transferred  Employees)  following the



                                      -3-


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.



                                  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  attributable  to periods before the Transfer Date and
(b) all wages, salary, overtime pay, bonuses,



                                      -4-


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.



                                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  their
compensation  and benefit plans and programs.  The Company and its  Subsidiaries
shall



                                      -5-


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 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.



                                      -6-


                  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 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



                                      -7-


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.



                                  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.



                                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).



                                      -8-


                                     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:

                  "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

                  "Chevron Group" shall mean Chevron and its Subsidiaries (other
than the Company and Subsidiaries of the Company).

                  "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.

                  "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.

                  "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.

                  "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.

                  "Phillips  Group"  shall mean  Phillips  and its  Subsidiaries
(other than the Company and Subsidiaries of the Company).

                  "Post-Closing  Period" shall mean, for any Person, any taxable
period beginning,



                                      -1-


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.

                  "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.

                  "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.

                  "Tax Basket Amount" shall mean $20,000,000.

                  "Tax Indemnified Party" shall have the meaning set forth in
Section 2.4(e).

                  "Tax Indemnifying Party" shall have the meaning set forth
in Section 2.4(e).

                  "Tax Matters Annex" shall mean this Annex B.

                  "Tax Proceeding" means any Tax audit,  contest,  litigation or
other proceeding with or against a Governmental Entity.

                  "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.



                               TAX INDEMNIFICATION

                  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:

                  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 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);



                                      -2-


                  (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;

                  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

                  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.

                  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:

                  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);

                  (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;

                  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

                  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.



                                      -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.

                  Limitation on Tax Indemnities.

                  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.

                  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.

                  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.

                  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 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.



                                      -4-


                  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.

                  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.

                  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.

                  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.



                                 TAX PROCEDURES

                  Procedures for Certain Tax Proceedings.  Notwithstanding
Section 9.3 or any other contrary provision of the Contribution Agreement:

                  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.



                                      -5-


                  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.

                  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.

                  Allocation of Certain Taxes.

                  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.

                  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.

                  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.

                  Filing Responsibility.

                  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.

                  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.



                                      -6-


                  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.

                  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  with any  consolidated,
combined,  affiliated or unitary Income Tax Return or copy thereof that includes
Phillips or any other member of the Phillips Group.



                                     REFUNDS

                  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



                                      -7-


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.

                  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-1 as a Phillips  Excluded Asset,  the recipient shall promptly pay
over to Phillips an amount equal to such Tax Refund.

                  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.



                                  MISCELLANEOUS

                  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.

                  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
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).



                               TAX REPRESENTATIONS

                  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:

                  as of the date the assets  are  Contributed,  all Tax  Returns
that  were or are  required


                                      -8-


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;

                  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

                  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.

                  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:

                  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;

                  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

                  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-6.2 of the Phillips
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 Phillips 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.

                                      -9-