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EXHIBIT 10.1
July 5, 2001
Xxxxxxxx Petroleum Company
0000 Xxxxx Xxxxxxxx
Xxxxxxxxxxxx, Xxxxxxxx 00000
Attn: Xxxxx X. Xxx
Chevron Xxxxxxxx Chemical Company LLC
0000 XxXxxxxx Xxxxxx
Xxxxxxx, Xxxxx 00000
Attn: Xxxxx Xxxxxxxx
Re: Contribution Agreement Amendments - K-Resin Spare Reactor
Gentlemen,
This letter agreement is executed and delivered to confirm certain
matters with respect to the Contribution Agreement, dated as of May 23, 2000
(the "Contribution Agreement"), by and among Chevron Corporation, a Delaware
corporation ("Chevron"), Xxxxxxxx Petroleum Company, a Delaware corporation
("Xxxxxxxx"), and Chevron Xxxxxxxx Chemical Company LLC, a Delaware limited
liability company ("CPCC"), including Annex C thereto ("Annex C"). More
specifically, this letter agreement modifies and clarifies certain provisions of
the Contribution Agreement and Annex C in light of CPCC's current proposed
rebuild plan for the K-Resin Plant. Each capitalized term used and not otherwise
defined herein which is defined in the Contribution Agreement or Annex C shall
have the meaning ascribed to it in the Contribution Agreement or Annex C.
The Contribution Agreement and Annex C contain various provisions which
set forth obligations of Xxxxxxxx which arose out of the K-Resin Accident. In
particular, Section 6.19(b) of the Contribution Agreement ("Section 6.19(b)")
provides that Xxxxxxxx shall make a capital contribution to CPCC equal to the
tax-adjusted shortfall from the Projected K-Resin EBITDA for the period
commencing on the Closing Date and ending on the earlier of (i) December 31,
2002 or (ii) six months after production capacity equal to 370 million pounds
per year has been restored at the K-Resin Plant, subject to a maximum cap of $30
million. Also, Section 2.2(a)(ix) of Annex C ("Section 2.2(a)(ix)") provides
that Xxxxxxxx shall indemnify and hold harmless Chevron, CPCC and each of their
affiliates from and against all physical damage to the K-Resin Plant or other
property of CPCC arising out of the K-Resin Accident, and all costs of the
K-Resin Repair. Moreover, Section 2.2(a)(ix) provides that to the extent that
the K-Resin Repair has not been completed by January 1, 2003, Xxxxxxxx will on
the first day thereafter pay CPCC the estimated amount (as reasonably determined
by CPCC and agreed to by Xxxxxxxx) of any remaining costs to complete the
K-Resin Repair. Annex C defines K-Resin Repair to mean repairing or replacing
any equipment necessary to achieve sustainable production capacity at the
K-Resin Plant and/or Designated Replacement Facilities equal to 370 million
pounds per year in
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accordance with all applicable laws and Prudent Industry Practices, including
certain specified actions to ensure safe and reliable operations.
Section 7.1(a)(xvii) of the Amended and Restated Limited Liability
Company Agreement of CPCC (the "LLC Agreement") vests with CPCC's Board of
Directors (the "CPCC Board") the authority to make all material decisions
regarding the repair, replacement and startup relating the K-Resin Accident.
Pursuant to this authority, the CPCC Board has approved a plan to rebuild the
K-Resin Plant including the spare reactor (the "Spare Reactor"), but has asked
CPCC to work with Xxxxxxxx and Chevron in order to reach an agreement on not
installing the Spare Reactor at the present time. CPCC believes that a rebuild
which does not include the Spare Reactor will result in sustainable production
capacity of the K-Resin Plant equal to approximately 335 million pounds per
year. A rebuild which includes the Spare Reactor will result in sustainable
production capacity of the K-Resin Plant to approximately 370 million pounds per
year.
In light of the CPCC Board's decision and resulting discussions between
representatives of CPCC, Chevron and Xxxxxxxx, the parties have agreed on a
course not to rebuild the Spare Reactor at the present time, and CPCC, Chevron
and Xxxxxxxx have deemed it appropriate:
(i) to amend Section 6.19(b), Section 2.2(a)(ix) and the definition
of K-Resin Repair, in each case to reflect the lower sustainable
production capacity of the K-Resin Plant without the Spare
Reactor; and
(ii) that Xxxxxxxx make a capital contribution of $6,350,000 to CPCC
upon signing this letter agreement, such capital contribution
being the estimated amount of the present cost to rebuild and
install the Spare Reactor, and being a capital contribution which
Xxxxxxxx would have been obligated to make (although not
necessarily at the present time) under the original terms of the
Contribution Agreement and Annex C as it represents a cost of the
K-Resin Repair (as originally defined).
In accordance with the foregoing, CPCC, Chevron and Xxxxxxxx hereby
agree as follows.
1. Amendment of Section 6.19(b). Section 6.19(b) is hereby amended
and restated to read in its entirety as follows:
(b) In addition to the capital contribution set forth
in Section 6.19(a), Xxxxxxxx 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) the later of (A) October 31, 2002 or (B) six
months after production capacity equal to 335 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 Xxxxxxxx' 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
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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).
2. Amendment of Definition of K-Resin Repair. The definition of
K-Resin Repair in Section 1.1(b) of Annex C is hereby amended and restated to
read in its entirety as follows:
"K-Resin Repair" shall mean repairing or replacing any equipment
necessary to achieve sustainable production capacity at the K-Resin
Plant and/or Designated Replacement Facilities equal to 335 million
pounds per year in accordance with all applicable laws and Prudent
Industry Practices, and shall include, but not be limited to, the
following actions to be taken by the Company to assure safe and
reliable operations:
(i) Implementing all changes, modifications or
improvements pertaining to the K-Resin Plant and surrounding
facilities (and/or Designated Replacement Facilities) required by
the terms of any orders or settlements with any governmental
body, authority or agency relating to the K-Resin Accident or the
K-Resin Repair, but excluding the incremental cost of compliance
with any regulations adopted after the Closing Date of general
application to existing industrial facilities (unless the K-Resin
Accident was the primary reason for the adoption of the
regulation);
(ii) Implementing any changes, modifications or
improvements pertaining to the K-Resin Plant and surrounding
facilities (and/or Designated Replacement Facilities) required by
the Company's insurance carriers; and
(iii) Conducting a joint process hazards analysis on the
K-Resin Plant with Chevron and Xxxxxxxx, and implementing any
recommended changes, modifications or improvements prior to
startup of the K-Resin Plant (and/or Designated Replacement
Facilities).
3. Amendment of Section 2.2(a)(ix). Section 2.2(a)(ix) is hereby
amended and restated to read in its entirety as follows:
(ix) all physical loss or damage to the K-Resin Plant or
other property of the Company arising out of the K-Resin Accident, and
all costs of the K-Resin Repair, in all cases, (i) net of (a) any
insurance proceeds from independent sources (not affiliated with
Xxxxxxxx or Chevron) that the Indemnified Party receives in respect of
such matter net of any costs incurred by such party in the
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nature of increased insurance premiums or similar costs related to such
recovery (determined on a reasonable present value basis) and (b) any
indemnity payments (less costs of collection thereof) which such party
receives from parties other than the party against whom such claim is
asserted under the Contribution Agreement (including Annex C), and (ii)
increased on a Net After-Tax Basis for any income or franchise tax
incurred by such party as a result of any insurance proceeds or
indemnity payments described in clause (i) of this sentence (other than
any such insurance proceeds or indemnities payable to reimburse lost or
forgone income) constituting taxable income. For purposes of this
definition, "Net After-Tax Basis" means after any U.S. federal, state
or local income or franchise taxes (assuming the deductibility of such
state and local income and franchise taxes in calculating federal
income tax) incurred as a result of receipt by the Company of any
insurance proceeds or indemnity payments described in clause (i) of the
immediately preceding sentence (other than any such insurance proceeds
or indemnities payable to reimburse lost or forgone income), reduced by
any tax benefit arising as a result of receipt of such insurance
proceeds or such indemnity payments; provided, however, that Xxxxxxxx'
obligations with respect to the foregoing shall be limited to such
changes, modifications or improvements that are identified to Xxxxxxxx
or the Company prior to the K-Resin Plant (and/or Designated
Replacement Facilities) achieving sustainable production capacity equal
to 335 million pounds per year. To the extent the K-Resin Repair has
not been completed by January 1, 2003, Xxxxxxxx will on the first
business day thereafter pay the Company the estimated amount (as
reasonably determined by the Company and agreed to by Xxxxxxxx) of any
remaining costs to complete the K-Resin Repair.
4. Xxxxxxxx Capital Contribution. (a) Xxxxxxxx shall make a capital
contribution in the amount of $6,350,000 to CPCC on the date hereof (the "Spare
Reactor Contribution").
(b) CPCC, Xxxxxxxx and Chevron hereby agree that the Spare
Reactor Contribution represents a reasonable estimate of the present cost to
rebuild and install the Spare Reactor as part of the current K-Resin rebuild
plan.
(c) The Spare Reactor Contribution shall be treated as a
deferred capital contribution in accordance with Section 8.8 of the LLC
Agreement pursuant to which CPCC, Xxxxxxxx and Chevron agree that any such
deferred capital contribution is a capital contribution and will not be reported
by CPCC as income. The Spare Reactor Contribution shall be treated as tax basis
attributed to Xxxxxxxx for purposes of Section 704(c) of the Code and the
regulations thereunder. In the event that CPCC or Chevron incur any income or
franchise tax as a result of CPCC's receipt of the Spare Reactor Contribution
(other than as a result of the preceding sentence), Xxxxxxxx shall indemnify and
hold harmless Chevron and CPCC for any such income or franchise tax and shall
make an additional capital contribution to CPCC for the amount thereof ("Spare
Reactor Tax Contribution"). Any Spare Reactor Tax Contribution shall be treated
as a deferred capital contribution in accordance with Section 8.8 of the LLC
Agreement and will not be reported by CPCC as income.
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(d) No portion of the Spare Reactor Contribution or Spare
Reactor Tax Contribution shall be applied towards the cost of the K-Resin Repair
(as that definition is amended by this letter agreement) for the purpose of
reducing or otherwise affecting Xxxxxxxx' obligations under Section 2.2(a)(ix)
(as amended by this letter agreement).
All other terms and conditions of the Contribution Agreement and Annex
C shall remain in full force and effect and unaffected by the foregoing
amendments and agreements. Section 12.1 (Counterparts), Section 12.2 (Governing
Law; Jurisdiction and Forum; Waiver of Jury Trial), Section 12.8 (Amendments and
Waivers) and Section 12.10 (Severability) of the Contribution Agreement are
incorporated herein by reference.
If you agree with the foregoing, please sign this letter in the space
indicated below and return it to us. This letter constitutes the entire
understanding among you, us and/or any of our respective affiliates, and
supersedes all prior communications, agreements and understandings, written or
oral, with respect to the matters contained in this letter.
Sincerely yours,
CHEVRON CORPORATION
By: /s/ Xxxxxx X. Xxxxxxxx
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Name: Xxxxxx X. Xxxxxxxx
Title: Executive Vice President
Acknowledged and Agreed:
XXXXXXXX PETROLEUM COMPANY
By: /s/ Xxxxxxx X. Xxxxxxx
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Name: Xxxxxxx X. Xxxxxxx
Title: Assistant Treasurer
CHEVRON XXXXXXXX CHEMICAL COMPANY LLC
By: /s/ Xxxxx Xxxxxxx
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Name: Xxxxx Xxxxxxx
Title: Vice President and General Counsel
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