Filing Services Provided by RR Donnelley Financial -- Form 10-Q for the Period Ending September 30, 2002

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, T4ZJ9kq5jj5xDl+MmiZGsIBVa3ZXWk87mTiAvnHfOv1EKCI+VbjBOCJbj+X7WjSP qC2KelJo7mpygh32St38EA== 0000899243-02-002893.txt : 20021113 0000899243-02-002893.hdr.sgml : 20021113 20021113105048 ACCESSION NUMBER: 0000899243-02-002893 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EQUISTAR CHEMICALS LP CENTRAL INDEX KEY: 0001081158 STANDARD INDUSTRIAL CLASSIFICATION: AGRICULTURE CHEMICALS [2870] IRS NUMBER: 76055048 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-76473 FILM NUMBER: 02818760 BUSINESS ADDRESS: STREET 1: ONE HOUSTON CENTER #700 STREET 2: 1221 MCKINNEY ST CITY: HOUSTON STATE: TX ZIP: 77010 BUSINESS PHONE: 7136527300 MAIL ADDRESS: STREET 1: ONE HOUSTON CENTER #700 STREET 2: 1221 MCKINNEY ST CITY: HOUSTON STATE: TX ZIP: 77010 10-Q 1 d10q.htm FORM 10-Q FOR THE PERIOD ENDING SEPTEMBER 30, 2002 Filing Services Provided by RR Donnelley Financial -- Form 10-Q for the Period Ending September 30, 2002

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2002

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission file number 333-76473

EQUISTAR CHEMICALS, LP

(Exact name of registrant as specified in its charter)

Delaware		76-0550481
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

1221 McKinney Street,		77010
Suite 700, Houston, Texas		(Zip Code)
(Address of principal executive offices)

Registrant’s telephone number, including area code: (713) 652-7200

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

PART I. FINANCIAL INFORMATION

EQUISTAR CHEMICALS, LP

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

CONSOLIDATED STATEMENTS OF INCOME

	For the three months ended						For the nine months ended
	September 30,						September 30,
Millions of dollars	2002			2001			2002			2001
Sales and other operating revenues:
Unrelated parties	$	1,222		$	1,074		$	3,228		$	3,626
Related parties		286			277			878			1,098

		1,508			1,351			4,106			4,724
Operating costs and expenses:
Cost of sales		1,386			1,328			3,938			4,573
Selling, general and administrative expenses		41			40			122			131
Research and development expense		10			9			28			29
Amortization of goodwill		—			8			—			25
Facility closing costs		—			—			—			22

		1,437			1,385			4,088			4,780

Operating income (loss)		71			(34	)		18			(56	)
Interest expense		(51	)		(48	)		(154	)		(139	)
Interest income		—			2			1			2
Other income, net		2			1			3			7

Income (loss) before extraordinary item and cumulative effect of accounting change		22			(79	)		(132	)		(186	)
Extraordinary loss on extinguishment of debt		—			(3	)		—			(3	)

Income (loss) before cumulative effect of accounting change		22			(82	)		(132	)		(189	)
Cumulative effect of accounting change		—			—			(1,053	)		—

Net income (loss)	$	22		$	(82	)	$	(1,185	)	$	(189	)

See Notes to the Consolidated Financial Statements.

EQUISTAR CHEMICALS, LP

CONSOLIDATED BALANCE SHEETS

	September 30,			December 31,
Millions of dollars	2002			2001
ASSETS
Current assets:
Cash and cash equivalents	$	19		$	202
Accounts receivable:
Trade, net		619			440
Related parties		89			100
Inventories		507			448
Prepaid expenses and other current assets		37			36

Total current assets		1,271			1,226
Property, plant and equipment, net		3,569			3,705
Investment in PD Glycol		45			47
Goodwill, net		—			1,053
Other assets, net		288			277

Total assets	$	5,173		$	6,308

LIABILITIES AND PARTNERS’ CAPITAL
Current liabilities:
Accounts payable:
Trade	$	409		$	331
Related parties		29			29
Current maturities of long-term debt		32			104
Other accrued liabilities		189			197

Total current liabilities		659			661
Long-term debt		2,288			2,233
Other liabilities		174			177
Commitments and contingencies
Partners’ capital:
Partners’ accounts		2,072			3,257
Accumulated other comprehensive loss		(20	)		(20	)

Total partners’ capital		2,052			3,237

Total liabilities and partners’ capital	$	5,173		$	6,308

See Notes to the Consolidated Financial Statements.

EQUISTAR CHEMICALS, LP

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the nine months ended
	September 30,
Millions of dollars	2002			2001
Cash flows from operating activities:
Net loss	$	(1,185	)	$	(189	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Cumulative effect of accounting change		1,053			—
Depreciation and amortization		226			239
Extraordinary loss on extinguishment of debt		—			3
Net gain on disposition of assets		—			(3	)

Changes in assets and liabilities that provided (used) cash:
Accounts receivable		(133	)		104
Inventories		(59	)		4
Accounts payable		78			(36	)
Other assets and liabilities, net		(98	)		(3	)

Net cash (used in) provided by operating activities		(118	)		119

Cash flows from investing activities:
Expenditures for property, plant and equipment		(43	)		(85	)
Other		(6	)		(3	)

Net cash used in investing activities		(49	)		(88	)

Cash flows from financing activities:
Issuance of long-term debt		—			1,000
Repayment of long-term debt		(103	)		(90	)
Net borrowing (repayment) under lines of credit		89			(820	)
Other		(2	)		(26	)

Net cash (used in) provided by financing activities		(16	)		64

(Decrease) increase in cash and cash equivalents		(183	)		95
Cash and cash equivalents at beginning of period		202			18

Cash and cash equivalents at end of period	$	19		$	113

See Notes to the Consolidated Financial Statements.

EQUISTAR CHEMICALS, LP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Basis of Preparation

The accompanying consolidated financial statements are unaudited and have been prepared from the books and records of Equistar Chemicals, LP (“Equistar” or the “Partnership”) in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X for interim financial information. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting only of normal, recurring adjustments, considered necessary for a fair presentation have been included. For further information, refer to the consolidated financial statements and notes thereto for the year ended December 31, 2001 included in the Equistar 2001 Annual Report on Form 10-K.

2. Company Ownership

Equistar is a Delaware limited partnership, which commenced operations on December 1, 1997. Prior to August 2002, Equistar was owned 41% by Lyondell Chemical Company (“Lyondell”), 29.5% by Millennium Chemicals Inc. (“Millennium”) and 29.5% by Occidental Petroleum Corporation (“Occidental”). On August 22, 2002, Lyondell completed the purchase of Occidental’s interest in Equistar and, as a result, Lyondell’s ownership interest in Equistar increased to 70.5%.

3. Facility Closing Costs

Equistar shut down its Port Arthur, Texas polyethylene facility in February 2001. The asset values of the Port Arthur production units were previously adjusted as part of a $96 million restructuring charge recognized in 1999. During the first quarter 2001, Equistar recorded an additional $22 million charge, which included environmental remediation liabilities of $7 million, severance benefits of $5 million, pension benefits of $2 million and other exit costs of $3 million. The remaining $5 million of the charge related primarily to the write down of certain assets. The severance and pension benefits covered approximately 125 people employed at the Port Arthur facility. Payments of $5 million for severance, $3 million for exit costs and $3 million for environmental remediation were made through September 30, 2002. The pension benefits of $2 million will be paid from the assets of the pension plans. As of September 30, 2002, the remaining liability included $4 million for environmental remediation costs. See Note 9.

4. Accounting Changes

Effective January 1, 2002, Equistar implemented Statement of Financial Accounting Standards (“SFAS”) No. 141, Business Combinations, SFAS No. 142, Goodwill and Other Intangible Assets, and SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. Implementation of SFAS No. 141 and SFAS No. 144 did not have a material effect on the consolidated financial statements of Equistar.

Upon implementation of SFAS No. 142, Equistar reviewed goodwill for impairment and concluded that the entire balance of goodwill was impaired, resulting in a $1.1 billion charge that was reported as the cumulative effect of an accounting change as of January 1, 2002. The conclusion was based on a comparison to Equistar’s indicated fair value, using multiples of EBITDA (earnings before interest, taxes, depreciation and amortization) for comparable companies as an indicator of fair value.

As a result of implementing SFAS No. 142, earnings in 2002 and subsequent years will be favorably affected by $33 million annually because of the elimination of goodwill amortization. The following table presents Equistar’s loss before cumulative effect of accounting change and net loss for all periods presented as adjusted to eliminate goodwill amortization expense.

	For the three months ended					For the nine months ended
	September 30,					September 30,
Millions of dollars	2002		2001			2002			2001
Reported income (loss) before cumulative effect of accounting change	$	22	$	(82	)	$	(132	)	$	(189	)
Add back: goodwill amortization		—		8			—			25

Adjusted income (loss) before cumulative effect of accounting change	$	22	$	(74	)	$	(132	)	$	(164	)


Reported net income (loss)	$	22	$	(82	)	$	(1,185	)	$	(189	)
Add back: goodwill amortization		—		8			—			25

Adjusted net income (loss)	$	22	$	(74	)	$	(1,185	)	$	(164	)

In June 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 143, Accounting for Asset Retirement Obligations, which addresses obligations associated with the retirement of tangible long-lived assets. Adoption of SFAS No. 143 in 2003 is not expected to have a material effect on the consolidated financial statements of Equistar.

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. The primary impact of the statement on Equistar will be the classification of losses that result from the early extinguishment of debt as a charge to income before extraordinary items. Reclassification of prior period losses that were originally reported as extraordinary items also will be required. Application of the statement will be required in 2003.

In July 2002, the FASB issued SFAS No. 146, Accounting for Exit or Disposal Activities. SFAS No. 146 addresses the recognition, measurement, and reporting of costs associated with exit and disposal activities, including restructuring activities and facility closings. SFAS No. 146 will be effective for activities initiated after December 31, 2002. Equistar does not expect adoption of SFAS No. 146 to have a material impact on its consolidated financial statements.

5. Inventories

Inventories consisted of the following components at:

	September 30,		December 31,
Millions of dollars	2002		2001
Finished goods	$	297	$	243
Work-in-process		16		12
Raw materials		110		104
Materials and supplies		84		89

Total inventories	$	507	$	448

6. Property, Plant and Equipment, Net

The components of property, plant and equipment, at cost, and the related accumulated depreciation were as follows at:

	September 30,		December 31,
Millions of dollars	2002		2001
Land	$	79	$	79
Manufacturing facilities and equipment		5,998		5,929
Construction in progress		61		92

Total property, plant and equipment		6,138		6,100
Less accumulated depreciation		2,569		2,395

Property, plant and equipment, net	$	3,569	$	3,705

Depreciation and amortization are summarized as follows:

	For the three months ended				For the nine months ended
	September 30,				September 30,
Millions of dollars	2002		2001		2002		2001
Property, plant and equipment	$	60	$	60	$	179	$	177
Goodwill		—		8		—		25
Turnaround costs		6		4		18		15
Software costs		4		4		12		9
Catalysts		3		2		7		7
Debt issuance costs		2		1		5		1
Other		1		1		5		5

Total depreciation and amortization	$	76	$	80	$	226	$	239

7. Long-Term Debt

In late March 2002, Equistar amended its credit facility making certain financial ratio requirements less restrictive, making the covenant limiting acquisitions more restrictive and adding a covenant limiting certain non-regulatory capital expenditures. See also Notes 8 and 12. As a result of the amendment, the interest rate on the credit facility was increased by 0.5% per annum.

Long-term debt consisted of the following at:

	September 30,		December 31,
Millions of dollars	2002		2001
Bank credit facility:
Revolving credit facility due 2006	$	89	$	—
Term loan due 2007		297		299
Other debt obligations:
Medium-term notes due 2002-2005		30		31
9.125% Notes due 2002		—		100
8.50% Notes due 2004		300		300
6.50% Notes due 2006		150		150
10.125% Senior Notes due 2008		700		700
8.75% Notes due 2009		599		598
7.55% Debentures due 2026		150		150
Other		5		9

Total long-term debt		2,320		2,337
Less current maturities		32		104

Total long-term debt, net	$	2,288	$	2,233

Lyondell remains a guarantor of $300 million of Equistar debt and a co-obligor with Equistar for $30 million of debt. The consolidated financial statements (unaudited) of Lyondell for the period ended September 30, 2002 are filed as an exhibit to this Report on Form 10-Q.

8. Lease Commitments

Equistar’s operating lease commitments as of December 31, 2001 are described in Note 12 to the Consolidated Financial Statements included in the Equistar 2001 Annual Report on Form 10-K.

Equistar leases certain railcars, under three operating leases included in the commitments referred to above, from unaffiliated entities established for the purpose of serving as lessors with respect to these leases. The leases include options for Equistar to purchase the railcars covered by the leases during a lease term. If Equistar does not exercise a purchase option, the affected railcars will be sold upon termination of the lease. In the event the sales proceeds are less than the lessor’s unrecovered investment, Equistar will pay the difference to the lessor, but no more than the guaranteed residual value.

Early in 2002, Equistar’s credit rating was lowered by two rating agencies, allowing the early termination of one of these railcar leases by the lessor. As a result, Equistar renegotiated the lease during the first quarter 2002, resulting in a payment of additional fees and a $17 million prepayment, which is being amortized over the remaining lease term. The prepayment reduced the guaranteed residual value under the lease, and reduced future lease payments. The guaranteed residual value of this lease at September 30, 2002 was $84 million.

Two of the railcar leases contain financial and other covenants that are substantially the same as those contained in Equistar’s credit facility. A breach of these covenants could permit the early termination of the leases by the lessors. Under one of the leases, the covenants were automatically updated with the March 2002 amendment to the credit facility. Under the other lease, Equistar amended the covenants to incorporate the March 2002 amendment to the credit facility. The amendment, which was completed in the second quarter 2002, required the payment of additional fees and a $17 million prepayment, which is being amortized through the end of 2002. With respect to that lease, Equistar plans to enter into a new lease arrangement with another lessor covering the subject railcars prior to December 31, 2002. The $17 million prepayment reduced the guaranteed residual value and the future lease payments. The guaranteed residual value of this lease at September 30, 2002 was $72 million.

The third of these railcar leases, with a guaranteed residual value of $34 million at September 30, 2002, terminates in November 2002. Equistar plans to enter into another lease arrangement with a new lessor covering the railcars, however, as an interim measure, it may need to repurchase the railcars, temporarily drawing on its revolving credit facility for this purpose.

The total guaranteed residual value under these leases at September 30, 2002, after considering the prepayments noted above, was approximately $190 million. Based on indications of lower current market values of the leased railcars, Equistar has estimated a potential loss on these leases, and is accruing this amount ratably over the remaining terms of the respective leases.

9. Commitments and Contingencies

Indemnification Arrangements—Lyondell, Millennium Petrochemicals and Occidental and certain of its subsidiaries have each agreed to provide certain indemnifications to Equistar with respect to the petrochemicals and polymers businesses they each contributed. In addition, Equistar has agreed to assume third party claims that are related to certain pre-closing contingent liabilities that are asserted prior to December 1, 2004 as to Lyondell and Millennium Petrochemicals, and May 15, 2005 as to Occidental, to the extent the aggregate thereof does not exceed $7 million for each entity, subject to certain terms of the respective asset contribution agreements. From formation through September 30, 2002, Equistar had incurred a total of $20 million for these uninsured claims and liabilities. The indemnification arrangements were not materially affected by Lyondell’s acquisition of Occidental’s interest in Equistar.

Environmental Remediation—Equistar’s accrued liability for environmental matters as of September 30, 2002 was $4 million and primarily related to the Port Arthur facility, which was permanently shut down in February 2001. In the opinion of management, there is currently no material estimable range of loss in excess of the amounts recorded for environmental remediation.

Clean Air Act—The eight-county Houston/Galveston region has been designated a severe non-attainment area for ozone by the U.S. Environmental Protection Agency (“EPA”). Emission reduction controls for nitrogen oxides (“NOx”) must be installed at each of Equistar’s six plants located in the Houston/Galveston region during the next several years. Compliance with the proposed regulations will result in increased capital investment, which could be between $200 million and $260 million, before the 2007 deadline, as well as higher annual operating costs for Equistar. The timing and amount of these expenditures are subject to regulatory and other uncertainties, as well as obtaining the necessary permits and approvals. In January 2001, Equistar and an organization composed of industry participants filed a lawsuit to encourage adoption of an alternative plan to achieve the same air quality improvement with less negative economic impact on the region. Adoption of the alternative plan, as sought by the lawsuit, would be expected to reduce Equistar’s estimated capital investments for NOx reductions required to comply with the standards. Recently proposed revisions by the regulatory agencies would change the required NOx reduction levels from 90% to 80%. However, any potential resulting savings from this proposed revision could be offset by the costs of stricter proposed controls over volatile organic compounds, or VOCs. Equistar is still assessing the impact of these proposed regulations and there can be no guarantee as to the ultimate capital cost of implementing any final plan developed to ensure ozone attainment by the 2007 deadline.

In the United States, the Clean Air Act Amendments of 1990 set minimum levels for oxygenates, such as methyl tertiary butyl ether (“MTBE”), in gasoline sold in areas not meeting specified air quality standards. The presence of MTBE in some water supplies in California and other states due to gasoline leaking from underground storage tanks and in surface water from recreational water craft has led to public concern about the use of MTBE. Certain federal and state governmental initiatives in the U.S. have sought either to rescind the oxygen requirement for reformulated gasoline or to restrict or ban the use of MTBE. On April 25, 2002, the U.S. Senate passed its version of an omnibus energy bill, which, among other things, would ban the use of MTBE as a fuel oxygenate. The Senate bill is not law and needs to be reconciled with the U.S. House of Representatives’ omnibus energy bill, which was passed in July 2001 and which would not ban the use of MTBE. At this time, the form and timing of that reconciliation, if any, is unknown. Equistar’s MTBE sales represented approximately 4% of its total 2001 revenues. Equistar does not expect these initiatives to have a significant impact on MTBE margins or volumes in the remainder of 2002. Should it become necessary or desirable to reduce MTBE production, Equistar would need to convert raw materials used in MTBE to production of other products. It may be desirable to make capital expenditures to add the flexibility to produce alternative gasoline blending components. The profit margins on these alternatives could be lower than those historically realized on MTBE.

General—Equistar is involved in various lawsuits and proceedings. Subject to the uncertainty inherent in all litigation, management believes the resolution of these proceedings, or any liability arising from the matters discussed in this note, will not have a material adverse effect on the financial position, liquidity or results of operations of Equistar.

10. Comprehensive Income (Loss)

The components of comprehensive income (loss) were as follows:

	For the three months ended					For the nine months ended
	September 30,					September 30,
	2002		2001			2002			2001
Net income (loss)	$	22	$	(82	)	$	(1,185	)	$	(189	)

Other comprehensive income (loss):
Derivative instruments		—		10			—			8
Available-for-sale securities		—		(2	)		—			(2	)

Total other comprehensive income		—		8			—			6

Comprehensive income (loss)	$	22	$	(74	)	$	(1,185	)	$	(183	)

11. Segment and Related Information

Equistar operates in two reportable segments:

•

Petrochemicals, which include ethylene, propylene, butadiene, oxygenated products and aromatics; and

•

Polymers, which primarily include polyethylene and polypropylene.

Summarized financial information concerning Equistar’s reportable segments is shown in the following table. Intersegment sales between the petrochemicals and polymers segments were based on current market prices.

Millions of dollars	Petrochemicals		Polymers			Unallocated			Eliminations			Total
For the three months ended September 30, 2002:
Sales and other operating revenues:
Customers	$	1,005	$	503		$	—		$	—		$	1,508
Intersegment		357		—			—			(357	)		—

Total sales and operating revenues		1,362		503			—			(357	)		1,508
Operating income (loss)		96		6			(31	)		—			71
Interest expense, net		—		—			(51	)		—			(51	)
Other income, net		—		2			—			—			2
Net income (loss)		96		8			(82	)		—			22

For the three months ended September 30, 2001:
Sales and other operating revenues:
Customers	$	857	$	494		$	—		$	—		$	1,351
Intersegment		324		—			—			(324	)		—

Total sales and operating revenues		1,181		494			—			(324	)		1,351
Operating income (loss)		29		(26	)		(37	)		—			(34	)
Interest expense, net		—		—			(46	)		—			(46	)
Other income, net		—		—			1			—			1
Income (loss) before extraordinary item		29		(26	)		(82	)		—			(79	)

For the nine months ended September 30, 2002:
Sales and other operating revenues:
Customers	$	2,713	$	1,393		$	—		$	—		$	4,106
Intersegment		960		—			—			(960	)		—

Total sales and operating revenues		3,673		1,393			—			(960	)		4,106
Operating income (loss)		151		(41	)		(92	)		—			18
Interest expense, net		—		—			(153	)		—			(153	)
Other income, net		—		3			—			—			3
Income (loss) before cumulative effect of accounting change		151		(38	)		(245	)		—			(132	)

For the nine months ended September 30, 2001:
Sales and other operating revenues:
Customers	$	3,172	$	1,552		$	—		$	—		$	4,724
Intersegment		1,173		—			—			(1,173	)		—

Total sales and operating revenues		4,345		1,552			—			(1,173	)		4,724
Operating income (loss)		225		(138	)		(143	)		—			(56	)
Interest expense, net		—		—			(137	)		—			(137	)
Other income, net		—		—			7			—			7
Income (loss) before extraordinary item		225		(138	)		(273	)		—			(186	)

The following table presents the details of “Operating income (loss)” as presented above in the “Unallocated” column:

	For the three months ended						For the nine months ended
	September 30,						September 30,
Millions of dollars	2002			2001			2002			2001
Expenses not allocated to
petrochemicals and polymers:
Principally general and administrative expenses	$	(31	)	$	(37	)	$	(92	)	$	(121	)
Facility closing costs		—			—			—			(22	)

Operating income (loss)	$	(31	)	$	(37	)	$	(92	)	$	(143	)

During the first quarter of 2002, Equistar wrote off the entire balance of its goodwill, resulting in a $1.1 billion charge that was reported as the cumulative effect of an accounting change. See Note 4.

12. Subsequent Event

During October 2002, Equistar entered into an agreement with an independent issuer of receivables-backed commercial paper under which Equistar sold receivables and received cash proceeds of $100 million. Under the terms of the agreement, Equistar agreed to sell, on an ongoing basis and without recourse, designated accounts receivable. Equistar is obligated to sell new receivables as existing receivables are collected. The agreement has annual renewal provisions for up to three years. Upon entering into the agreement, the commitment under the revolving credit facility was reduced by $50 million, to $450 million, in accordance with the terms of the revolving credit facility. Equistar will use the proceeds to reduce borrowing under the revolving credit facility and for general corporate purposes.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

U.S. industry-wide demand for ethylene in the third quarter 2002 was 5% higher than in the third quarter 2001. For the first nine months of 2002, U.S. ethylene demand was 6% higher compared to the first nine months of 2001. Nonetheless, the 2002 demand growth failed to fully absorb the combined effects of increases in worldwide ethylene industry capacity during 2001 and the effects of a nearly 10% contraction in U.S. ethylene demand in 2001 compared to 2000.

Crude oil and natural gas prices, which are indicators of the direction of raw material and energy costs for Equistar, had generally trended downward since the beginning of 2001, rose rapidly toward the end of the first quarter 2002 and have remained volatile through the third quarter 2002. The volatility in 2002 may have been partly in response to ongoing political uncertainties in the Middle East and elsewhere. As a result of the volatility, crude oil and natural gas prices were higher in the third quarter 2002 compared to the third quarter 2001, but were nonetheless lower in the first nine months of 2002 compared to the first nine months of 2001. The benchmark price of crude oil averaged 7% higher in the third quarter 2002 than in the third quarter 2001, but 8% lower in the first nine months of 2002 than in the comparable 2001 period. Benchmark natural gas prices averaged 8% higher in the third quarter 2002 compared to the third quarter 2001, but 39% lower in the first nine months of 2002 than in the comparable 2001 period. Natural gas prices spiked to historically high levels in January 2001.

Industry product sales prices were influenced by and generally followed a trend similar to that of raw material costs. However, because sales price increases are not implemented as quickly as raw material costs increase, in the third quarter 2002, sales prices generally remained unchanged throughout the quarter, while raw material cost increases later in the quarter negatively impacted profit margins.

RESULTS OF OPERATIONS

In addition to comparisons of current operating results with the comparable period in the prior year, Equistar has included as additional disclosure certain “trailing quarter” comparisons of third quarter 2002 results to second quarter 2002 results. Equistar’s businesses are highly cyclical, in addition to experiencing some less significant seasonal effects. Trailing quarter comparisons may offer important insight into the current business direction of Equistar.

Net Income—Equistar’s net income of $22 million in the third quarter 2002 improved $104 million from a net loss of $82 million in the third quarter 2001. The third quarter 2001 included goodwill amortization of $8 million and a $3 million extraordinary loss due to early debt retirement. The remainder of the improvement in the third quarter 2002 was due to better operating results in both the petrochemicals and polymers segments. Petrochemicals segment operating results in the third quarter 2002 improved $67 million compared to the third quarter 2001 due primarily to higher prices for co-products, such as propylene, benzene and butadiene. Polymers segment operating results in the third quarter 2002 improved $32 million as a result of higher sales prices and margins.

Equistar’s net loss before the cumulative effect of an accounting change was $132 million in the first nine months of 2002 compared to a net loss of $189 million in the first nine months of 2001. The first nine months of 2001 included $25 million of goodwill amortization, $22 million of shutdown costs for Equistar’s Port Arthur polyethylene facility and the $3 million extraordinary loss due to debt retirement. Excluding the effects of the goodwill amortization, shutdown costs and extraordinary loss, the net loss for the first nine months of 2001 would have been $139 million compared to $132 million for the first nine months of 2002. The $7 million improvement reflected a $97 million improvement in polymers segment operating results, offset by a $74 million decrease in petrochemicals segment operating profits and $15 million of higher interest expense. Polymers segment operating results improved as raw material costs decreased more than decreases in average polymers product sales prices, resulting in higher product margins in the first nine months of 2002 compared to the 2001 period. On the other hand, petrochemicals segment operating profit decreased as sales prices decreased more than raw material costs, resulting in lower product margins in the first nine months of 2002 compared to the 2001 period.

Third Quarter 2002 versus Second Quarter 2002

Equistar had net income of $22 million in the third quarter 2002, which is an improvement of $50 million compared to a net loss of $28 million in the second quarter 2002. Equistar’s third quarter 2002 improvement reflected a benefit from sales price increases late in the second quarter. As a result of these price increases, profitability improved early in the third quarter 2002. However, while prices generally remained unchanged throughout the third quarter, raw material cost increases later in the quarter negatively impacted results.

The petrochemicals segment reported operating income of $96 million in the third quarter 2002 compared to operating income of $79 million in the second quarter 2002, a $17 million improvement. Benchmark ethylene sales prices were virtually unchanged over the course of the third quarter 2002, averaging 0.4 cents, or 2%, higher than the second quarter 2002. The third quarter 2002 average benchmark cost of ethylene was only 0.1 cent, or less than 1%, lower than the second quarter 2002 average. Over the course of the third quarter 2002 the benchmark cost of ethylene trended higher, while during the second quarter 2002 the reverse occurred. The average benchmark cost of ethylene increased during the third quarter 2002 from 12.1 cents in July 2002 to 16.4 cents in September 2002, a 35% increase. The cost increase was largely driven by crude oil prices. Benchmark crude oil prices increased $3.75 per barrel, or 15%, from the end of June 2002 to the end of September 2002. Equistar’s profit margin increase was in line with the 0.5 cent per pound improvement indicated by the benchmark data. Segment volumes decreased approximately 4%, comparing the third quarter to the second quarter 2002.

The polymers segment had operating profit of $6 million in the third quarter 2002, a $32 million improvement compared to an operating loss of $26 million in the second quarter 2002. Domestic benchmark polymer sales prices averaged approximately 4 cents per pound higher than in the second quarter 2002, while benchmark export sales prices were slightly lower than in the second quarter. Equistar’s higher mix of domestic polymer sales in the third quarter yielded a 3 cent per pound average price increase in the third quarter 2002 compared to the second quarter 2002. Polymer sales volumes were 4% below second quarter 2002 levels due to fewer export sales.

Segment Data

The following tables reflect selected sales volume data, including intersegment sales, and summarized financial information for Equistar’s business segments.

	For the three months ended						For the nine months ended
	September 30,						September 30,
In millions	2002			2001			2002			2001
Selected petrochemicals products:
Olefins (pounds)		4,259			4,039			12,789			12,352
Aromatics (gallons)		92			86			282			274
Polymers products (pounds)		1,527			1,565			4,628			4,402

Millions of dollars
Sales and other operating revenues:
Petrochemicals segment	$	1,362		$	1,181		$	3,673		$	4,345
Polymers segment		503			494			1,393			1,552
Intersegment eliminations		(357	)		(324	)		(960	)		(1,173	)

Total	$	1,508		$	1,351		$	4,106		$	4,724

Cost of sales:
Petrochemicals segment	$	1,263		$	1,152		$	3,515		$	4,113
Polymers segment		480			500			1,383			1,633
Intersegment eliminations		(357	)		(324	)		(960	)		(1,173	)

Total	$	1,386		$	1,328		$	3,938		$	4,573

Other operating expenses:
Petrochemicals segment	$	3		$	—		$	7		$	7
Polymers segment		17			20			51			57
Unallocated		31			37			92			121
Facility closing costs		—			—			—			22

Total	$	51		$	57		$	150		$	207

Operating income (loss):
Petrochemicals segment	$	96		$	29		$	151		$	225
Polymers segment		6			(26	)		(41	)		(138	)
Unallocated		(31	)		(37	)		(92	)		(121	)
Facility closing costs		—			—			—			(22	)

Total	$	71		$	(34	)	$	18		$	(56	)

Petrochemicals Segment

Revenues—Revenues of $1.4 billion in the third quarter 2002 increased 15% compared to third quarter 2001 revenues of $1.2 billion as a result of higher average sales prices and 6% higher sales volumes. The higher average sales prices in the third quarter 2002 primarily reflect higher sales prices for co-products, such as propylene, benzene and butadiene, whereas ethylene sales prices decreased compared to the third quarter 2001. Benchmark quoted ethylene prices averaged 23 cents per pound in the third quarter 2002, a 4% decrease compared to the third quarter 2001. However, average benchmark prices of co-product propylene increased 35% compared to the third quarter 2001, more than offsetting the ethylene decrease. Propylene sales prices have benefited from higher domestic demand and tighter supplies overseas. Sales volumes increased due to higher industry demand in the third quarter 2002 compared to the third quarter 2001.

Revenues of $3.7 billion for the first nine months of 2002 decreased 16% compared to the first nine months of 2001 as lower 2002 average sales prices were only partly offset by a 4% increase in sales volumes. Sales prices in the first nine months of 2002 averaged 18% lower than in the first nine months of 2001 as a result of the effects of lower raw material costs and excess industry capacity. Benchmark quoted ethylene prices averaged 21.64 cents per pound in the first nine months of 2002, a 23% decrease compared to the first nine months of 2001.

Cost of Sales—Cost of sales of $1.3 billion in the third quarter 2002 increased 10% compared to $1.2 billion in the third quarter 2001, or 5% less than the percentage increase in revenues noted above. The increase was due to higher raw material costs as well as the 6% increase in sales volumes in the third quarter 2002. The raw material cost increase was primarily due to heavy liquids, which reflected the third quarter 2002 increases in crude oil costs, as natural gas liquid (“NGL”) raw material costs were relatively comparable to the third quarter 2001.

Cost of sales of $3.5 billion in the first nine months of 2002 decreased 15% compared to $4.1 billion in the first nine months of 2001, slightly less than the percentage decrease in revenues noted above. While the costs of natural gas and NGL raw materials decreased from the historically high levels experienced in the first nine months of 2001, other raw material costs, such as heavy liquids, did not decrease proportionately to the decrease in sales prices.

Operating Income—The petrochemicals segment had operating income of $96 million in the third quarter 2002 compared to $29 million in the third quarter 2001. The $67 million improvement was primarily due to higher co-product sales prices in the third quarter 2002 compared to the third quarter 2001. The increases in co-product prices more than offset increases in the cost of raw materials, primarily heavy liquids, resulting in higher margins for the petrochemicals segment in the third quarter 2002 compared to the third quarter 2001.

Operating income of $151 million for the first nine months of 2002 decreased from $225 million in the first nine months of 2001. Operating profit decreased $74 million as sales prices decreased more than raw material costs, resulting in lower product margins in the first nine months of 2002 compared to the 2001 period.

Polymers Segment

Revenues—Revenues of $503 million in the third quarter 2002 increased 2% compared to $494 million in the third quarter 2001, reflecting a 4% increase in average sales prices offset by a 2% decrease in sales volumes. Sales prices were at higher levels in the third quarter 2002 due to reductions in lower margin export sales compared to the third quarter 2001.

Revenues of $1.4 billion for the first nine months of 2002 decreased 10% compared to $1.6 billion in the first nine months of 2001 due to a 15% decrease in average sales prices offset by a 5% increase in sales volumes. Lower sales prices for the first nine months of 2002 reflected generally lower raw material costs compared to the first nine months of 2001. Sales volumes increased due to stronger demand in the 2002 period compared to 2001.

Cost of Sales—Cost of sales of $480 million in the third quarter 2002 decreased 4% compared to $500 million in the third quarter 2001. The decrease in the third quarter 2002 reflected net lower raw material costs and lower volumes. Raw material costs decreased on a net basis as lower ethylene costs were only partly offset by higher propylene costs.

Cost of sales of $1.4 billion in the first nine months of 2002 decreased 15% compared to $1.6 billion for the first nine months of 2001, 5% more than the percentage decrease in revenues noted above. The decrease in the first nine months of 2002 reflected lower raw material costs, primarily ethylene, and energy costs, partly offset by the 5% increase in sales volumes. Benchmark ethylene costs were 23% lower and were only partly offset by a 1% increase in benchmark propylene costs in the first nine months of 2002 compared to the first nine months of 2001.

Operating Income—The polymers segment had operating income of $6 million in the third quarter 2002 compared to a $26 million operating loss in the third quarter 2001. Polymers segment operating results improved $32 million as raw material costs decreased while average polymers product sales prices increased, resulting in higher product margins in the third quarter 2002 compared to the third quarter 2001.

For the first nine months of 2002, the polymers segment had an operating loss of $41 million compared to an operating loss of $138 million in the comparable 2001 period. The $97 million improvement was due to higher polymers product margins and, to a lesser extent, higher sales volumes. Margins improved in the first nine months of 2002 compared to the first nine months of 2001, as decreases in sales prices were less than the decreases in polymer raw material costs.

Unallocated Items

The following discusses expenses that were not allocated to the petrochemicals or polymers segments.

Other Operating Expenses—Other operating expenses not allocated to the petrochemicals and polymers segments were $31 million in the third quarter 2002 compared to $37 million in the third quarter 2001 and $92 million in the first nine months of 2002 compared to $121 million in the first nine months of 2001. The decreases were primarily due to goodwill amortization of $8 million and $25 million included in the third quarter 2001 and the first nine months of 2001, respectively. Goodwill amortization ceased effective January 1, 2002. See Note 4 to the Consolidated Financial Statements.

Facility Closing Costs—Equistar discontinued production at its higher-cost Port Arthur, Texas polyethylene facility in February 2001 and shut down the facility. During the first quarter 2001, Equistar recorded a $22 million charge, which included environmental remediation liabilities of $7 million, other exit costs of $3 million and severance and pension benefits of $7 million for approximately 125 people employed at the Port Arthur facility. The remaining $5 million balance primarily related to the write down of certain assets.

Cumulative Effect of Accounting Change—Upon implementation of Statement of Financial Accounting Standards (“SFAS”) No. 142, Equistar reviewed goodwill for impairment and concluded that the entire balance of goodwill was impaired, resulting in a $1.1 billion charge that was reported as the cumulative effect of an accounting change as of January 1, 2002. As a result of implementing SFAS No. 142, earnings in 2002 and subsequent years will be favorably affected by $33 million annually because of the elimination of goodwill amortization.

FINANCIAL CONDITION

Operating Activities—Operating activities used cash of $118 million in the first nine months of 2002 while providing $119 million of cash in the first nine months of 2001. The decrease in operating cash flow in the 2002 period was due to increases in working capital levels and higher payments related to interest, pensions and railcar leases. These were partly offset by a $57 million lower net loss, after adjusting for the $1.1 billion non-cash charge related to the cumulative effect of accounting change, in the 2002 period.

The key components of Equistar’s working capital – receivables, inventory and payables – increased $114 million during the first nine months of 2002 compared to a $72 million decrease during the first nine months of 2001. During the first nine months of 2002, sales prices and raw material costs increased from December 31, 2001 levels, putting upward pressure on working capital levels. In addition, inventory levels were increased in anticipation of a fourth quarter 2002 planned maintenance turnaround. In the first nine months of 2001, sales prices and raw material costs steadily decreased from December 31, 2000 levels, helping to reduce working capital levels.

During the first nine months of 2002, Equistar made $54 million in higher payments than in the first nine months of 2001, primarily related to interest and employee benefits. This included $31 million of higher interest payments in the 2002 period compared to the 2001 period when Equistar refinanced its debt during August 2001. The remaining $23 million related to employee benefits and compensation, including higher contributions to Equistar’s pension plans. In addition, Equistar made certain payments totaling $34 million, discussed below under “Liquidity and Capital Resources – Railcar Leases”, related to its railcar leases. These payments, net of $12 million of amortization related to the railcar payments, are reflected in other assets and liabilities, net in the Consolidated Statements of Cash Flows.

Investing Activities—Equistar’s capital expenditures were $43 million in the first nine months of 2002 and $85 million in the first nine months of 2001. The reduced level of expenditures in 2002 reflects cash conservation efforts due to the continuing poor business environment. Equistar currently estimates that 2002 capital expenditures will be approximately $80 million.

During the second quarter 2002, Equistar contributed $6 million to a mutual insurance company formed by Equistar and other companies in the industry to provide catastrophic business interruption and excess property damage insurance coverage for its members.

Financing Activities—Cash used by financing activities was a net $16 million in the first nine months of 2002. Financing activities in the first nine months of 2002 included net borrowing of $89 million under the revolving credit facility, partly to fund the increase in working capital. See “Liquidity and Capital Resources” discussion below. Financing activities also included the scheduled retirement of $100 million principal amount of the 9.125% notes and the scheduled retirement of $3 million principal amount of Equistar’s term loan and medium-term notes. There were no distributions to partners in the first nine months of 2002.

Liquidity and Capital Resources—At September 30, 2002, Equistar had cash on hand of $19 million. While $411 million of the $500 million revolving credit facility, which matures in August 2006, was undrawn at September 30, 2002, the revolver commitment was reduced in October 2002 to $450 million as a result of entering into the receivables sales agreement. Amounts available under the revolving credit facility are also reduced to the extent of certain outstanding letters of credit provided under the credit facility, which totaled $16 million as of September 30, 2002.

During 2002, Equistar’s credit rating was lowered by two major rating agencies, Moody’s Investors Service (“Moody’s”) and the Standard & Poor’s (“S&P”) rating service of The McGraw-Hill Companies. Moody’s reduced Equistar’s noninvestment grade corporate rating from a Ba1 to a Ba3. S&P reduced Equistar’s corporate rating from an investment grade BBB- to a noninvestment grade BB. Both agencies cited Lyondell’s acquisition of Occidental’s interest in Equistar as the reason for the downgrade. The agencies stated that the acquisition results in a concentration of credit risk with Lyondell, which owns a 70.5% interest in Equistar and whose debt currently has a noninvestment grade credit rating. S&P also cited current trough conditions in the industry and Equistar’s $1.1 billion goodwill write off.

Management believes that conditions will be such that cash balances, cash flow from operations and funding under the credit facility will be adequate to meet anticipated future cash requirements, including scheduled debt repayments, other contractual obligations, necessary capital expenditures and ongoing operations.

Long-Term Debt—The credit facility and the indenture governing Equistar’s senior notes contain covenants that, subject to certain exceptions, restrict sale and leaseback transactions, lien incurrence, debt incurrence, sales of assets, investments, non-regulatory capital expenditures, certain payments, and mergers and consolidations. In addition, the credit facility requires Equistar to maintain specified financial ratios. The breach of these covenants could permit the lenders under Equistar’s credit facility and the indenture governing the senior notes to declare the loans immediately payable and could permit the lenders under Equistar’s credit facility to terminate future lending commitments.

Equistar amended its credit facility in late March 2002, making certain financial ratio requirements less restrictive, making the covenant limiting acquisitions more restrictive and adding a covenant limiting certain non-regulatory capital expenditures. The amendment increased the interest rate on the credit facility by 0.5% per annum. Equistar was in compliance with all covenants under its debt instruments as of September 30, 2002.

Railcar Leases—Equistar leases certain railcars under three operating leases, see Note 8 to the Consolidated Financial Statements, from unaffiliated entities established for the purpose of serving as lessors with respect to these leases. The leases include options for Equistar to purchase the railcars covered by the leases during a lease term. If

Equistar does not exercise a purchase option, the affected railcars will be sold upon termination of the lease. In the event the sales proceeds are less than the lessor’s unrecovered investment, Equistar will pay the difference to the lessor, but no more than the guaranteed residual value.

As discussed above, during 2002, Equistar’s credit rating was lowered by two rating agencies, allowing the early termination of one of these railcar leases by the lessor. As a result, Equistar renegotiated the lease during the first quarter 2002, resulting in a payment of additional fees and a $17 million prepayment, which is being amortized over the remaining lease term. The prepayment reduced the guaranteed residual value under the lease, and reduced future lease payments. The guaranteed residual value of this lease at September 30, 2002 was $84 million.

EQUISTAR’S OWNERSHIP

Prior to August 22, 2002, Equistar was owned 41% by Lyondell Chemical Company (“Lyondell”), 29.5% by Millennium Chemicals Inc. (“Millennium”), and 29.5% by Occidental Petroleum Corporation (“Occidental”). On August 22, 2002, Lyondell completed the purchase of Occidental’s interest in Equistar increasing its ownership interest in Equistar to 70.5%. Equistar’s sales to Occidental of $32 million subsequent to August 22, 2002 are included in sales to unrelated parties in the Consolidated Statements of Income, and Equistar’s receivables from Occidental of $32 million at September 30, 2002 are included in trade receivables in the Consolidated Balance Sheets.

CURRENT BUSINESS OUTLOOK

Equistar’s near-term profitability will be affected by supply/demand balances for ethylene and ethylene derivatives and the stability of raw material and energy costs. The global economic and political environment continues to be uncertain, contributing to low industry operating rates, adding to the volatility of raw material and energy costs and forestalling the industry’s recovery from current trough conditions, all of which has placed pressure on Equistar’s operations, making it difficult to predict near-term performance. Equistar’s ongoing cost-control and cash-management programs continue to address the uncertainties it faces. Through these programs, Equistar is managing the elements that are within its direct control.

RECENT ACCOUNTING STANDARDS

In April 2002, FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. The primary impact of the statement on Equistar will be the classification of losses that result from the early extinguishment of debt as a charge to income before extraordinary items. Reclassification of prior period losses that were originally reported as extraordinary items also will be required. Application of the statement will be required in 2003.

In July 2002, the FASB issued SFAS No. 146, Accounting for Exit or Disposal Activities. SFAS No. 146 addresses the recognition, measurement, and reporting of costs associated with exit and disposal activities, including restructuring activities and facility closings. SFAS No. 146 will be effective for activities initiated after December 31, 2002. Early application is permitted. Equistar does not expect adoption of SFAS No. 146 to have a material impact on its consolidated financial statements.

See “Results of Operations” and Note 4 to the Consolidated Financial Statements.

Item 3. Disclosure of Market and Regulatory Risk.

Equistar’s exposure to market and regulatory risks is described in Item 7a of its Annual Report on Form 10-K for the year ended December 31, 2001. Equistar’s exposure to market and regulatory risks has not changed materially in the quarter ended September 30, 2002, except as noted below.

Certain federal and state governmental initiatives in the U.S. have sought either to rescind the oxygen requirement for reformulated gasoline or to restrict or ban the use of MTBE. On April 25, 2002, the U.S. Senate passed its version of an omnibus energy bill, which, among other things, would ban the use of MTBE as a fuel oxygenate. The Senate bill is not law and needs to be reconciled with the U.S. House of Representatives’ omnibus energy bill, which was passed in July 2001 and which would not ban the use of MTBE. At this time, the form and timing of that reconciliation, if any, is unknown. Equistar’s MTBE sales represented approximately 4% of its total 2001 revenues. Equistar does not expect these initiatives to have a significant impact on MTBE margins and volumes in the remainder of 2002. Should it become necessary or desirable to reduce MTBE production, Equistar would need to convert raw materials used in MTBE to production of other products. It may be desirable to make capital expenditures to add the flexibility to produce alternative gasoline blending components. The profit margins on these alternatives could be lower than those historically realized on MTBE.

New air pollution standards promulgated by federal and state regulatory agencies in the U.S., including those specifically targeting the eight-county Houston/Galveston region, will affect a substantial portion of the operating facilities of Equistar. Compliance with these standards will result in increased capital investment during the next several years and higher annual operating costs for Equistar. Recently proposed revisions by the regulatory agencies would change the required nitrogen oxides, or NOx, reduction levels from 90% to 80%. However, any potential resulting savings from this proposed revision could be offset by the costs of stricter proposed controls over volatile organic compounds, or VOCs. Equistar is still assessing the impact of these proposed regulations and there can be no guarantee as to the ultimate capital cost of implementing any final plan developed to ensure ozone attainment by the 2007 deadline. See Note 9 to the Consolidated Financial Statements.

Item 4. Controls and Procedures

(a)

Evaluation of disclosure controls and procedures. During the 90-day period prior to the filing of this Quarterly Report on Form 10-Q, Equistar performed an evaluation, under the supervision and with the participation of its management, including the Chief Executive Officer (principal executive officer) and Vice President and Controller (principal financial officer), of the effectiveness of the design and operation of Equistar’s disclosure controls and procedures, as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934 (the “Exchange Act”). Based upon that evaluation, the Chief Executive Officer and the Vice President and Controller concluded that Equistar’s disclosure controls and procedures are effective.

(b)

Changes in internal controls. There were no significant changes in Equistar’s internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation.

FORWARD-LOOKING STATEMENTS

Certain of the statements contained in this report are “forward-looking statements” within the meaning of the federal securities laws. Although Equistar believes the expectations reflected in such forward-looking statements are reasonable, they do involve certain assumptions, risks and uncertainties, and Equistar can give no assurance that such expectations will prove to have been correct. Equistar’s actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including:

•

the cyclical nature of the chemical and refining industries,

•

uncertainties associated with the United States and worldwide economies,

•

substantial chemical industry capacity changes resulting in oversupply and declining prices and margins,

•

the availability, cost and volatility of raw materials and utilities,

•

access to capital markets,

•

current and potential governmental regulatory actions or political unrest in the United States and in other countries,

•

potential terrorist acts,

•

operating interruptions (including leaks, explosions, fires, weather-related incidents, mechanical failure, unscheduled downtime, labor difficulties, transportation interruptions, spills and releases and other environmental risks),

•

technological developments, and

•

Equistar’s ability to implement its business strategies, including cost reductions.

Many of such factors are beyond Equistar’s ability to control or predict. Any of the factors, or a combination of these factors, could materially affect Equistar’s future results of operations and the ultimate accuracy of the forward-looking statements. These forward-looking statements are not guarantees of Equistar’s future performance, and Equistar’s actual results and future developments may differ materially from those projected in the forward-looking statements. Management cautions against putting undue reliance on forward-looking statements or projecting any future results based on such statements or present or prior earnings levels.

All forward-looking statements in this Form 10-Q are qualified in their entirety by the cautionary statements contained in this section and in Equistar’s Annual Report on Form 10-K for the year ended December 31, 2001.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

There have been no material developments with respect to Equistar’s legal proceedings previously reported in the Annual Report on Form 10-K for the year ended December 31, 2001.

Item 6. Exhibits and Reports on Form 8-K

(a)

Exhibits


3.3		Amended and Restated Partnership Agreement of Equistar Chemicals, LP, dated as of November 6, 2002

10.14		Amended and Restated Parent Agreement, dated as of November 6, 2002

99.1		Certificate of Principal Executive Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002

99.2		Certificate of Principal Financial Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002

99.3		Consolidated Financial Statements (Unaudited) of Lyondell Chemical Company

(b)

Reports on Form 8-K

The following Current Report on Form 8-K was furnished during the quarter ended September 30, 2002 and through the date hereof:

Date of Report		Item No.		Financial Statements
August 22, 2002		9		No

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 thereunto duly authorized.

Equistar Chemicals, LP

Dated: November 13, 2002

/s/ CHARLES L. HALL

Charles L. Hall

Vice President and Controller

(Duly Authorized Officer,

Principal Financial Officer and

Principal Accounting Officer)

CERTIFICATIONS

I, Dan F. Smith, Chief Executive Officer of Equistar Chemicals, LP, certify that:

I have reviewed this quarterly report on Form 10-Q of Equistar Chemicals, LP;

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

(a)

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

(b)

evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

(c)

presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

(a)

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

(b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 13, 2002		/s/ DAN F. SMITH Dan F. Smith Chief Executive Officer (Principal Executive Officer)

I, Charles L. Hall, Vice President and Controller of Equistar Chemicals, LP, certify that:

I have reviewed this quarterly report on Form 10-Q of Equistar Chemicals, LP;

(a)

(b)

evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

(c)

presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

(a)

(b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

Date: November 13, 2002		/s/ CHARLES L. HALL Charles L. Hall Vice President and Controller (Principal Financial Officer)

EX-3.3 3 dex33.txt AMENDED PARTNERSHIP AGREEMENT EXHIBIT 3.3 AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT OF EQUISTAR CHEMICALS, LP as amended through November 6, 2002 ORGANIZED UNDER THE DELAWARE REVISED UNIFORM LIMITED PARTNERSHIP ACT TABLE OF CONTENTS

ii SECTION 6 MANAGEMENT ............................................................. 15 6.1 Partnership Governance Committee ........................................ 15 6.2 Limitations on Authority of General Partners ............................ 16 6.3 Lack of Authority of Persons Other Than General Partners and Officers ... 16 6.4 Composition of Partnership Governance Committee ......................... 16 6.5 Partnership Governance Committee Meetings ............................... 17 6.6 Partnership Governance Committee Quorum and General Voting Requirement... 18 6.7 Partnership Governance Committee Unanimous Voting Requirements .......... 19 6.8 Control of Interested Partner Issues .................................... 21 6.9 Auxiliary Committees..................................................... 22 6.10 Certain Limitations on Partner Representatives .......................... 22 SECTION 7 OFFICERS AND EMPLOYEES ................................................. 23 7.1 Partnership Officers..................................................... 23 7.2 Selection and Term of Executive Officers ................................ 23 7.3 Removal of Executive Officers ........................................... 24 7.4 Duties .................................................................. 24 7.5 CEO ..................................................................... 25 7.6 Other Officers .......................................................... 25 7.7 Secretary ............................................................... 25 7.8 Salaries ................................................................ 26 7.9 Delegation .............................................................. 26 7.10 Employee Hirings ........................................................ 26 7.11 General Authority ....................................................... 26 SECTION 8 STRATEGIC PLANS, ANNUAL BUDGETS AND LOANS .............................. 27 8.1 Strategic Plan .......................................................... 27 8.2 Annual Budget ........................................................... 27 8.3 Funding of Partnership Expenses ......................................... 28 8.4 Implementation of Budgets and Discretionary Expenditures by CEO ......... 28 8.5 Strategic Plan Deadlock ................................................. 28 8.6 Loans ................................................................... 29 SECTION 9 RIGHTS OF PARTNERS ..................................................... 30 9.1 Delegation and Contracts with Related Parties ........................... 30 9.2 General Authority ....................................................... 30 9.3 Limitation on Fiduciary Duty; Non-Competition; Right of First Opportunity 30 9.4 Limited Partners ........................................................ 32 9.5 Partner Covenants ....................................................... 33 9.6 Special Purpose Entities ................................................ 33 SECTION 10 TRANSFERS AND PLEDGES ................................................. 33 10.1 Restrictions on Transfer and Prohibition on Pledge ...................... 33 10.2 Right of First Option.................................................... 34 10.3 Inclusion of General or Limited Partner Units ........................... 36 10.4 Rights of Transferee..................................................... 36

iii 10.5 Effective Date of Transfer............................................... 36 10.6 Transfer to Wholly Owned Affiliate....................................... 36 10.7 Invalid Transfer ........................................................ 37 SECTION 11 DEFAULT ............................................................... 37 11.1 Default ................................................................. 37 11.2 Remedies for Default..................................................... 37 11.3 Purchase of Defaulting Partners' Units .................................. 38 11.4 Liquidation ............................................................. 38 11.5 Certain Consequences of Default ......................................... 39 SECTION 12 DISSOLUTION, LIQUIDATION AND TERMINATION .............................. 39 12.1 Dissolution and Termination ............................................. 39 12.2 Procedures Upon Dissolution ............................................. 40 12.3 Termination of the Partnership .......................................... 41 12.4 Asset and Liability Statement ........................................... 41 SECTION 13 MISCELLANEOUS ......................................................... 41 13.1 Confidentiality and Use of Information .................................. 41 13.2 Indemnification ......................................................... 43 13.3 Third Party Claim Reimbursement ......................................... 45 13.4 Dispute Resolution ...................................................... 46 13.5 EXTENT OF LIMITATION OF LIABILITY, INDEMNIFICATION, ETC ................. 46 13.6 Further Assurances ...................................................... 46 13.7 Successors and Assigns .................................................. 46 13.8 Benefits of Agreement Restricted to the Parties ......................... 46 13.9 Notices ................................................................. 46 13.10 [Reserved] .............................................................. 47 13.11 Severability............................................................. 47 13.12 Construction............................................................. 47 13.13 Counterparts............................................................. 48 13.14 Waiver of Right to Partition ............................................ 48 13.15 Governing Law ........................................................... 48 13.16 Jurisdiction; Consent to Service of Process; Waiver ..................... 48 13.17 Expenses ................................................................ 48 13.18 Waiver of Jury Trial..................................................... 48 13.19 Payment Terms and Interest Calculations ................................. 49 13.20 Usury Savings Clause..................................................... 49 13.21 Other Waivers ........................................................... 49 13.22 Special Joinder by OCC .................................................. 49 13.23 Amendment ............................................................... 50 SECTION 14 LAKE CHARLES FACILITY ................................................. 50 14.1 Lease Not in Force and Effect ........................................... 50 14.2 LC Partnership Provisions................................................ 50 14.3 No Rebuilding Termination ............................................... 51

iv 14.4 Other Redemption ........................................................ 51 SECTION 15 ADDITIONAL AGREEMENTS REGARDING THE LAKE CHARLES FACILITY ............. 52 15.1 Receipt of Fee Title .................................................... 52 15.2 Authority to Act ........................................................ 52

APPENDICES APPENDIX A - Defined Terms APPENDIX B - Partnership Financial Statements and Reports APPENDIX C - Executive Officers APPENDIX D - Dispute Resolution Procedures APPENDIX E - Division of Partnership Business SCHEDULES Schedule 2.3(e) - Capital Accounts Schedule 8.6(A) - Form of Millennium Indemnity Schedule 8.6(B) - Form of Indemnity Among Partners v AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT OF EQUISTAR CHEMICALS, LP This Amended and Restated Limited Partnership Agreement of Equistar Chemicals, LP dated November 6, 2002 is entered into by and among Lyondell Petrochemical G.P. Inc., a Delaware corporation ("Lyondell GP"), Lyondell Petrochemical L.P. Inc., a Delaware corporation ("Lyondell LP"), Millennium Petrochemicals GP LLC, a Delaware limited liability company ("Millennium GP"), Millennium Petrochemicals LP LLC, a Delaware limited liability company ("Millennium LP"), Lyondell (Pelican) Petrochemical L.P.1, Inc., a Delaware corporation ("Lyondell (Pelican) LP1") (formerly Occidental LP1, as defined below), and Lyondell (Pelican) Petrochemical L.P.2, Inc., a Delaware corporation ("Lyondell (Pelican) LP2") (formerly Occidental LP2, as defined below). The definitions of capitalized terms used in this Agreement, including the appendices hereto, are set forth in Appendix A hereto. WHEREAS, Lyondell GP, Lyondell LP, Millennium GP and Millennium LP (together, the "Initial Partners") entered into the Limited Partnership Agreement of Equistar Chemicals, LP dated October 10, 1997 (the "Initial Agreement"), pursuant to the Initial Master Transaction Agreement between Lyondell Chemical Company, a Delaware corporation ("Lyondell"), the ultimate parent entity of each of Lyondell GP and Lyondell LP, and Millennium Chemicals Inc., a Delaware corporation ("Millennium"), the ultimate parent entity of each of Millennium GP and Millennium LP; WHEREAS, the Initial Partners contributed to the Partnership their Initial Assets on the Initial Closing Date and the Initial Related Agreements relating to the Partnership and their Contributed Businesses were entered into, all as provided in the Initial Master Transaction Agreement; WHEREAS, the Partnership, Occidental Petroleum Corporation, a Delaware corporation ("Occidental"), at that time the ultimate parent entity of each of Occidental Petrochem Partner GP, Inc., a Delaware corporation ("Occidental GP"), PDG Chemical Inc., a Delaware corporation ("PDG GP"), Occidental Petrochem Partner 1, Inc., a Delaware corporation ("Occidental LP1"), and Occidental Petrochem Partner 2, Inc., a Delaware corporation ("Occidental LP2"), Lyondell and Millennium entered into the Master Transaction Agreement dated May 15, 1998 (the "Second Master Transaction Agreement"), which provides, among other things, for the admission of PDG GP as a general partner of the Partnership and of each of Occidental LP1 and Occidental LP2 as a limited partner of the Partnership, subject to and upon the terms and conditions set forth therein; WHEREAS, PDG GP, Occidental LP1 and Occidental LP2 contributed to the Partnership their Initial Assets and Contributed Business and the Additional Related Agreements were entered into, all as provided in the Occidental Contribution Agreement; 1 WHEREAS, PDG GP originally received 295 Units in the Partnership, and pursuant to an amendment to the partnership agreement dated June 30, 1998, PDG GP converted 294 of its Units to LP Units and transferred those units to Occidental LP2, and PDG GP transferred its one remaining GP Unit to Occidental GP, whereupon Occidental GP was admitted as a General Partner and PDG GP withdrew as a General Partner; WHEREAS, Lyondell and Occidental Chemical Holding Corporation, a California corporation, Oxy CH Corporation, a California corporation, and Occidental Chemical Corporation, a New York corporation ("OCC"), entered into the Occidental Partner Sub Purchase Agreement dated July 8, 2002 (the "Oxy Partner Sub Purchase Agreement"), which provides, among other things, for the sale of the stock of each of Occidental GP, Occidental LP1 and Occidental LP2 to Lyondell; WHEREAS, in connection with the closing of the transactions contemplated by the Oxy Partner Sub Purchase Agreement, Lyondell, Millennium, Occidental, certain of their affiliates, and the Partnership entered into a Letter Agreement dated May 31, 2002 (the "Letter Agreement"), which provides, among other things, for certain amendments to the Amended and Restated Limited Partnership Agreement of Equistar Chemicals, LP dated August 24, 2002 and the execution and delivery of an amended and restated limited partnership agreement of the Partnership. WHEREAS, effective as of August 22, 2002, ownership of Occidental GP, Occidental LP1 and Occidental LP2 was sold, assigned and delivered to Lyondell and as of that date Occidental and its Affiliates are no longer the owners of any interest in the Partnership; WHEREAS, on September 6, 2002 Occidental GP was merged with and into Lyondell GP with Lyondell GP the surviving entity; and WHEREAS, on November 6, 2002, a Certificate of Amendment to the Certificate of Incorporation of each of Occidental LP1 and Occidental LP2 was filed with the Secretary of State of the State of Delaware whereby the name of Occidental Petrochem Partner 1, Inc. was changed to "Lyondell (Pelican) Petrochemical L.P.1, Inc." and the name of Occidental Petrochem Partner 2, Inc. was changed to "Lyondell (Pelican) Petrochemical L.P.2, Inc."; NOW, THEREFORE, in consideration of the premises and the mutual covenants of the parties hereto, it is hereby agreed as follows: SECTION 1 ORGANIZATION MATTERS 1.1 Formation of Partnership; Amended and Restated Agreement. The Certificate of Limited Partnership was filed with the Secretary of State of the State of Delaware on October 17, 1997. The Initial Agreement was entered into October 10, 1997. The Partners desire to enter into this Agreement which amends and restates the Initial Agreement and all amendments prior to the date hereof and constitutes the limited partnership agreement of the Partnership as of the date hereof. Except as expressly provided herein to the contrary, the rights and obligations of the Partners and the administration and termination of the Partnership shall be governed by the Act. Subject to the restrictions set forth in this Agreement, the Partnership shall 2 have the power to exercise all the powers and privileges granted by this Agreement and by the Act, together with any powers incidental thereto, so far as such powers and privileges are necessary, appropriate, convenient or incidental for the conduct, promotion or attainment of the purposes of the Partnership. 1.2 Name. The name of the Partnership is "Equistar Chemicals, LP" The Partnership's business may be conducted under such name or any other name or names deemed advisable by the Partnership Governance Committee. The General Partners will comply or cause the Partnership to comply with all applicable laws and other requirements relating to fictitious or assumed names. 1.3 Business Offices. The principal place of business of the Partnership shall be 1221 McKinney Street, Houston, Texas 77010, or such other place as the General Partners may from time to time determine. The registered agent of the Partnership in the State of Delaware is The Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware 19801. 1.4 Purpose and Business. The business of the Partnership shall be to, directly or indirectly, (i) engage in the Specified Petrochemicals Businesses, in the United States and internationally, including research and development, purchasing, processing and disposing of feedstocks, and manufacturing, marketing and distributing products, (ii) acquire and dispose of properties and assets used or useful in connection with the foregoing and (iii) do all things necessary, appropriate, convenient or incidental in connection with the ownership, operation or financing of such business and activities, or otherwise in connection with the foregoing, as are permitted under the Act, including the acquisition and operation of the Contributed Businesses. 1.5 Filings. The General Partners shall, or shall cause the Partnership to, execute, swear to, acknowledge, deliver, file or record in public offices and publish all such certificates, notices, statements or other instruments, and take all such other actions, as may be required by law for the formation, reformation, qualification, registration, operation or continuation of the Partnership in any jurisdiction, to maintain the limited liability of the Limited Partners, to preserve the Partnership's status as a partnership for tax purposes or otherwise to comply with applicable law. Upon request of the General Partners, the Limited Partners shall execute all such certificates and other documents as may be necessary, in the sole judgment of the General Partners, in order for the General Partners to accomplish all such executions, swearings, acknowledgments, deliveries, filings, recordings in public offices, publishings and other acts. Each General Partner hereby agrees and covenants that it will execute any appropriate amendment to the Certificate of Limited Partnership of the Partnership pursuant to Section 17-204 of the Act to reflect any admission of a Substitute General Partner in accordance with this Agreement. 1.6 Power of Attorney. Each Limited Partner hereby irrevocably makes, constitutes and appoints its Affiliated General Partner and any successor thereto permitted as provided herein, with full power of substitution and resubstitution, as the true and lawful agent and attorney-in-fact of such Limited Partner, with full power and authority in the name, place and stead of such Limited Partner to execute, swear, acknowledge, deliver, file or record in public offices and publish: (i) all certificates and other instruments (including counterparts thereof) which such General Partner deems appropriate to reflect any amendment, change or modification 3 of or supplement to this Agreement in accordance with the terms of this Agreement; (ii) all certificates and other instruments and all amendments thereto which such General Partner deems appropriate or necessary to form, qualify or continue the Partnership in any jurisdiction, to maintain the limited liability of such Limited Partner, to preserve the Partnership's status as a partnership for tax purposes or otherwise to comply with applicable law; and (iii) all conveyances and other instruments or documents which such General Partner deems appropriate or necessary to reflect the transfers or assignments of interests in, to or under, this Agreement, including the Units, the dissolution, liquidation and termination of the Partnership, and the distribution of assets of the Partnership in connection therewith, pursuant to the terms of this Agreement. Each Limited Partner hereby agrees to execute and deliver to its Affiliated General Partner within five Business Days after receipt of a written request therefor such other further statements of interest and holdings, designations, powers of attorney and other instruments as such General Partner deems necessary. The power of attorney granted herein is hereby declared irrevocable and a power coupled with an interest, shall survive the bankruptcy, dissolution or termination of such Limited Partner and shall extend to and be binding upon such Limited Partner's successors and permitted assigns. Each Limited Partner hereby (i) agrees to be bound by any representations made by the agent and attorney-in-fact acting in good faith pursuant to such power of attorney; and (ii) waives any and all defenses which may be available to contest, negate, or disaffirm any action of the agent and attorney-in-fact taken in accordance with such power of attorney. 1.7 Term. The term for which the Partnership is to exist as a limited partnership is from the date the Partnership's Certificate of Limited Partnership was filed with the office of the Secretary of State of the State of Delaware through the dissolution of the Partnership in accordance with the provisions of Section 12. SECTION 2 CAPITAL CONTRIBUTIONS 2.1 Acquisition of Units; Holdings of Initial Partners. In exchange for the contributions described in Section 2.3, each Partner has received the number of Units set forth by their names below, and effective on the date hereof, the Units are owned as follows: Partner Units Lyondell GP *821 Millennium GP 590 Lyondell LP 40,180 Millennium LP 28,910 Lyondell (Pelican) LP1 6,623 Lyondell (Pelican) LP2 **22,876 ------ TOTAL 100,000 4 * This number includes the Unit previously held by Occidental GP and originally held by PDG GP. ** This number includes the 294 Units originally held by PDG GP. The Units shall entitle the holder to the distributions set forth in Section 3 and to the allocation of Profits, Losses and other items as set forth in Section 4. Units shall not be represented by certificates. 2.2 Transaction Costs. If the Partnership is entitled to deductions with respect to costs described in either Section 6.10 of the Initial Master Transaction Agreement or Section 6.10 of the Second Master Transaction Agreement to which a Partner is not entitled to reimbursement, the incurrence of such costs shall not increase the Capital Account of such a Partner, and such Partner shall be entitled to any deductions attributable to such costs. 2.3 Property Contributions. (a) Pursuant to its Contribution Agreement, on October 10, 1997, Lyondell LP contributed or caused to be contributed to the Partnership, the Initial Assets contemplated thereby subject to the Assumed Liabilities contemplated thereby. (b) Pursuant to its Contribution Agreement, on October 10, 1997, Millennium LP contributed or caused to be contributed to the Partnership, the Initial Assets contemplated thereby subject to the Assumed Liabilities contemplated thereby. (c) Pursuant to their Contribution Agreement, on May 15, 1998, Occidental LP1, Occidental LP2 and PDG GP contributed or caused to be contributed to the Partnership, the Initial Assets contemplated thereby subject to the Assumed Liabilities contemplated thereby (which involved, in the case of Occidental LP2, the merger of Oxy Petrochemicals and the Partnership, with the Partnership as the surviving entity). (d) The Partners intend that the contribution of assets subject to liabilities heretofore made by the Partners to the Partnership pursuant to Sections 2.3(a) through (c) has qualified as a tax-free contribution under Section 721 of the Code in which no Partner has recognized or will recognize gain or loss. The Partners agree that the Partnership has so filed its tax return, and each Partner agrees to file its tax return on the same basis and to maintain such position consistently at all times thereafter. (e) Immediately after the contributions by PDG GP, Occidental LP1, and Occidental LP2, the Capital Accounts of the Initial Partners were adjusted so that each Partner's Capital Account would be the same per Unit as that of every other Partner on May 15, 1998 if on such date the special capital distributions provided in Sections 3.1(e), (f), and (g) of the Amended and Restated Limited Partnership Agreement of Equistar Chemicals, LP dated May 15, 1998 had been made. Schedule 2.3(e) sets forth the Capital Accounts of the Partners as if the contributions and distributions were made, as has since occurred. 2.4 Other Contributions. From time to time and subject to the limitations of Section 6.7, if applicable, the Partnership Governance Committee (or the CEO acting pursuant to Section 8.3), on behalf of the Partnership, may issue a written notice ("Funding Notice") to the 5 Limited Partners calling for an additional capital contribution to the Partnership. Any Funding Notice will set forth: (a) the use of funds therefor; (b) the aggregate amount of the capital contribution required, which amount shall be apportioned among the Limited Partners Pro Rata; and (c) the date by which the capital contribution must be received by the Partnership, which date will not be earlier than seven Business Days from the date the Funding Notice is issued. Each Limited Partner shall timely wire transfer its Pro Rata share of the amount set forth in the Funding Notice to the Partnership's bank account. Except as expressly set forth in this Agreement, no Partner shall be permitted or required to make any additional capital contribution to the Partnership. 2.5 Capital Accounts. Each Partner's Capital Account shall be determined and maintained in accordance with Regulation ss.1.704-1(b)(2)(iv) as reasonably interpreted by the Tax Matters Partner. The Tax Matters Partner shall have the discretion, after consultation with the other General Partner, to make those determinations, valuations, adjustments and allocations with respect to each Partner's Capital Account as it deems appropriate so that the allocations made pursuant to this Agreement will have substantial economic effect as such term is used in Regulation ss.1.704-1(b). If any Partner transfers all or a portion of its Units in accordance with the terms of this Agreement, the transferee shall succeed to the Capital Account of the transferor to the extent such Capital Account relates to the transferred Units. 2.6 No Return of or on Capital. Except as provided in Section 3 and Section 4, no Partner shall receive any interest or other return on its capital contributions or on the balance in its Capital Account and no return of its capital contributions. 2.7 Partner Loans. A Partner or its Affiliates may loan funds to the Partnership on such terms and conditions as may be approved by the Partnership Governance Committee, and, subject to other applicable law, have the same rights and obligations with respect thereto as a Person who is neither a Partner nor an Affiliate of a Partner. The existence of such a relationship and acting in such a capacity will not result in a Limited Partner being deemed to be participating in the control of the business of the Partnership or otherwise affect the limited liability of a Partner. If a Partner or any Affiliate thereof is a lender, in exercising its rights as a lender, including making its decision whether to foreclose on property of the Partnership, such lender will have no duty to consider (i) its status as a Partner or an Affiliate of a Partner, (ii) the interests of the Partnership, or (iii) any duty it may have to any other Partner or the Partnership. 2.8 Administration and Investment of Funds. The administration and investment of Partnership funds shall be in accordance with the procedures and guidelines as shall be adopted by the Partnership Governance Committee. The Partnership may delegate to a third party (which may be an Affiliate of one of the Partners) the responsibility for administering and investing Partnership funds pursuant to such guidelines. 6 SECTION 3 DISTRIBUTIONS 3.1 Operating Distributions. Subject to Section 17-607 of the Act and other applicable law, Available Net Operating Cash shall be distributed as soon as practicable following the end of each month to the Partners as follows: (a) General. On a cumulative basis, (i) distributions are to be made to the Partners Pro Rata to the extent of cumulative Profits, and (ii) the remaining distributions are to be made to the Limited Partners Pro Rata. For simplicity, however, in the absence of extraordinary transactions, the Partnership may make monthly distributions to the Partners Pro Rata, subject to subsequent adjustments as provided below in this Section 3.1. (b) Return of Excess Distributions. Within 90 days after the end of each year, each General Partner shall return to the Partnership any amount it receives for such year that is in excess of its share of the sum of the cumulative undistributed Profits as of the end of the preceding year and the Profits for such year. (c) Effect of Operating Losses. For any year in which a General Partner's share of a Loss is sustained that exceeds its previously undistributed Profits, no distributions shall be made to such General Partner in any subsequent year until such excess Loss is recouped, and for subsequent years only Profits in excess of such recoupment shall be treated as Profit for purposes of this Section 3.1. (d) Makeup Distributions. If for any reason the Partnership does not make a monthly distribution to all Partners Pro Rata, each General Partner shall be entitled at the end of the year to receive the amount necessary to make its aggregate distributions for the year equal the amount it was entitled to receive and keep pursuant to the preceding criteria. 3.2 Liquidating Distributions. Distributions to the Partners of cash or property arising from a liquidation of the Partnership shall be made in accordance with the Capital Account balances of the Partners as provided in Section 12.2(d). 3.3 Withholding. The Partnership is authorized to withhold from distributions to a Partner and to pay over to a foreign, federal, state or local government, any amounts required to be withheld pursuant to the Code or any provisions of any other foreign, federal, state or local law. Any amounts so withheld shall be treated as distributed to such Partner pursuant to this Section 3 for all purposes of this Agreement, and shall be offset against any amounts otherwise distributable to such Partner. 3.4 Offset. Any amount otherwise distributable to a Partner pursuant to this Section 3 shall, unless otherwise agreed by two Representatives of the Nonconflicted General Partner pursuant to Section 6.8, be applied by the Partnership to satisfy any of the following obligations that are owed by such Partner or its Affiliate to the Partnership and that are not paid when due: (a) Other Notes. In the case of any Partner, the failure to pay any interest or principal when due on any indebtedness for borrowed money of such Partner or any Affiliate of such Partner to the Partnership. 7 (b) Contribution Agreement. In the case of any Partner, the failure of such Partner or any Affiliate of such Partner to make any payment pursuant to Section 6 of its Contribution Agreement that has been Finally Determined to be due. (c) Contribution. In the case of any Partner, the failure to make any capital contribution required pursuant to this Agreement (other than pursuant to its Contribution Agreement). SECTION 4 BOOK AND TAX ALLOCATIONS 4.1 General Book Allocations. This section controls partnership allocations for book purposes. As used herein, "book" means the allocations used to determine debits and credits to the Capital Accounts of the Partners and to determine the amounts distributable to the Partners pursuant to Section 3 and Section 12.2(d). It does not refer to the method in which books are maintained for financial reporting purposes pursuant to Section 5.2. Except as otherwise provided in Section 4.2 and Section 4.3, Profits or Losses for book purposes shall be allocated each year among the Partners Pro Rata, subject to the following: (a) If the tax basis in Partnership assets is increased as a result of the distribution of $75 million to Millennium LP as provided in Section 3.1(f), book deductions equal to the tax deductions resulting from such increase shall be allocated to Millennium LP until such time as gain or income is allocable under (c) below. (b) If the tax basis in Partnership assets is increased as a result of the distribution of 43% of the proceeds of the Lyondell Note to Millennium LP, book deductions equal to the tax deductions resulting from such increase shall be allocated among the Initial Partners in the ratio of the Units owned by each prior to May 15, 1998 until gain or income is allocable under (c) below. (c) If during any 12 month period the Partnership sells, distributes to Partners, or otherwise disposes of more than 50% in value of the assets it owned at the beginning of such period, gain or income recognized in the taxable period of such sale, distribution or other disposition or thereafter recognized from the sale, distribution, or other disposition of property or from the operation of other property shall be allocated to the Partners in the ratio in which the aggregate amount of deductions described in (a) and (b) above were allocated to the Partners until the aggregate amount of such gain and income so allocated equals the aggregate amount of such deductions. (d) [Intentionally Deleted.] (e) The initial agreed value of the Lease will be amortized ratably over the term of the Lease, and the resulting deductions shall be allocated to Lyondell (Pelican) LP1. Any gain recognized on the disposition of the Lease shall be allocated to Lyondell (Pelican) LP1. If, prior to such disposition, the Partnership has made capital improvements to such assets that have been borne by the Partners Pro Rata, then upon the disposition of the Lease with such improvements, gain shall be deemed to be attributable to such improvements to the extent of the excess of its 8 depreciated value for GAAP purposes at the time of the disposition over its Book Value at such time, and such gain shall be allocated to the Partners Pro Rata. (f) Deductions attributable to the Book Value of the assets of the Partnership as they exist immediately after the contributions described in Section 2.3(a) other than the Lease will be allocated among the Partners other than Lyondell (Pelican) LP1 in the ratio of the Units owned by each, and any gain recognized on the disposition of such contributed assets will be allocated to the Partners other than Lyondell (Pelican) LP1 in the ratio of the Units owned by each. If, prior to disposition of such asset sale, the Partnership has made capital improvements to such assets that have been borne by the Partners Pro Rata, then upon the disposition of a contributed asset with such improvements, gain shall be deemed to be attributable to such improvements to the extent of the excess of its depreciated value for GAAP purposes at the time of disposition over its Book Value at such time, and such gain shall be allocated to the Partners Pro Rata. (g) To the extent any contribution is made to the Partnership on behalf of a Partner (the "Beneficiary Partner") pursuant to an indemnity provided under Section 8.6(b), an amount of Book items of loss, expense or deduction (other than Book loss, depreciation or amortization with respect to any property contributed by a Partner to the Partnership) shall be allocated to the Beneficiary Partner. 4.2 Change in Partner's Units. If during a year Units are transferred or new Units issued, allocations among the Partners shall be made in accordance with their interests in the Partnership from time to time during such year in accordance with Section 706 of the Code, using the closing-of-the-books method, except that depreciation and other amortization with respect to each Partnership asset shall be deemed to accrue ratably on a daily basis over the entire period during such year that the asset is owned and in service by the Partnership. 4.3 Deficit Capital Account and Nonrecourse Debt Rules. The special rules in this Section 4.3 apply in the following order to take into account the possibility of the Partners' having deficit Capital Account balances for which they are not economically responsible and the effect of the Partnership's incurring nonrecourse debt, directly or indirectly. (a) Partnership Minimum Gain Chargeback. If there is a net decrease in "partnership minimum gain" during any year, determined in accordance with the tiered partnership rules of Regulation ss.1.704-2(k), each Partner shall be allocated items of income and gain for such year equal to such Partner's share of the net decrease in partnership minimum gain within the meaning of Regulation ss.1.704-2(g)(2), except to the extent not required by Regulation ss.1.704-2(f). To the extent that this subsection (a) is inconsistent with Regulation ss.1.704-2(f) or ss.1.704-2(k) or incomplete with respect to such regulations, the minimum gain chargeback provided for herein shall be applied and interpreted in accordance with such regulations. (b) Partner Minimum Gain Chargeback. If there is a net decrease in "partner nonrecourse debt minimum gain" during any year, within the meaning of Regulation ss. 1.704-2(i)(2), each Partner who has a share of such gain, determined in accordance with Regulation ss. 1.704-2(i)(5), shall be allocated items of income and gain for such year (and, if necessary, subsequent years) equal to such Partner's share of the net decrease in partner nonrecourse debt minimum gain. To the extent that this subsection (b) is inconsistent with 9 Regulation ss. 1.704-2(i) or 1.704-2(k) or incomplete with respect to such regulations, the partner nonrecourse debt minimum gain chargeback provided for herein shall be applied and interpreted in accordance with such regulations. (c) Deficit Account Chargeback and Qualified Income. If any Partner has an Adjusted Capital Account Deficit at the end of any year, including an Adjusted Capital Account Deficit for such Partner caused or increased by an adjustment, allocation or distribution described in Regulation ss.1.704-1(b)(2)(ii)(d)(4), (5) or (6), such Partner shall be allocated items of income and gain (consisting of a pro rata portion of each item of Partnership income, including gross income and gain) in an amount and manner sufficient to eliminate such Adjusted Capital Account Deficit as quickly as possible. This subsection (c) is intended to constitute a "qualified income offset" pursuant to Regulation ss.1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith. (d) Partner Nonrecourse Deductions. Any partner nonrecourse deductions for any year or other period shall be allocated to the Partner who bears the economic risk of loss with respect to the partner nonrecourse debt to which such partner nonrecourse deductions are attributable in accordance with Regulation ss.1.704-2(i) or ss.1.704-2(k). (e) Curative Allocations. The Allocations provided by this Section 4.3 may not be consistent with the manner in which the Partners intend to divide Profits, Losses and similar items. Accordingly, Profits, Losses and other items will be reallocated among the Partners (in the same year and to the extent necessary, in subsequent years) in a manner consistent with Regulation ss.1.704-1(b) and 1.704-2 so as to prevent such allocations from distorting the manner in which Profits, Losses and other items are intended to be allocated among the Partners pursuant to Sections 4.1 and 4.2. (f) Nonrecourse Debt Sharing. For purposes of this Agreement, nonrecourse deductions, within the meaning of Regulation ss.1.704-2(b), shall be deemed to be allocated among the Partners Pro Rata. Solely for purposes of determining a Partner's proportionate share of the "excess nonrecourse liabilities" of the Partnership within the meaning of Regulation ss.1.752-3(a)(3), Partnership Profits are allocated to the Partners Pro Rata. 4.4 Federal Tax Allocations. (a) General Rule. Except as otherwise provided in the following paragraphs of this Section 4.4, allocations for federal income tax purposes of items of income, gain, loss and deduction, and credits and basis therefor, shall be made in the same manner as book allocations are made. (b) Elimination of Book/Tax Disparities. Taxable income and tax deductions shall be shared among the Partners so as to take into account the variation between the Book Value and the adjusted tax basis of each property at the time it is contributed to the Partnership and at each time it is revalued. (i) To account for such variation, effective as of the formation of the Partnership: 10 (A) the depreciation and other deductions attributable to the basis that the contributing Partner had in each property at the time of contribution shall be allocated to such Partner, and (B) upon disposition of a contributed property, the excess of its Book Value at such time over its tax basis at such time shall be allocated to the Partner who contributed the property. (ii) If the Book Value of a Partnership property is revalued as of a date subsequent to the date of its acquisition by the Partnership, the portion of its Book Value at the time of its disposition that is attributable to the increase resulting from such revaluation: (A) shall be disregarded in applying Section 4.4(b)(i)(B) to the partner who contributed such property, and (B) shall be treated for purposes of this Section 4.4(b) as a separate property that was contributed on the revaluation date by the persons who were partners immediately prior to the revaluation date. (iii) The Partners agree that the foregoing allocations constitute a reasonable method for purposes of Reg. 1.704-3(a)(1) and will be so reported and defended by the Partnership and all Partners unless and until the Partners otherwise agree or a court otherwise requires. (c) Allocation of Items Among Partners. Each item of income, gain, loss, deduction and credit and all other items governed by Section 702(a) of the Code shall be allocated among the Partners in proportion to the allocation of Profits, Losses and other items to such Partners hereunder, provided that any gain treated as ordinary income because it is attributable to the recapture of any depreciation or amortization shall be allocated among the Partners in accordance with Prop. Treas. Reg.ss.ss.1.1245-1(e)(2) and 1.1250-1(f), or, upon promulgation of final regulations with respect to the matters covered therein, such final regulations. (d) Section 754 Election Allocations. Income and deductions of the Partnership that are attributable to the Section 754 election shall be allocated to the Partners entitled thereto. 4.5 Other Tax Allocations. Items of income, gain, loss, deduction, credit and tax preference for state, local and foreign income tax purposes shall be allocated among the Partners in a manner consistent with the allocation of such items for federal income tax purposes in accordance with the foregoing provisions of this Section. SECTION 5 ACCOUNTING, FINANCIAL REPORTING AND TAX MATTERS 5.1 Fiscal Year. The fiscal year of the Partnership shall be the calendar year. 5.2 Method of Accounting for Financial Reporting Purposes. For financial reporting purposes, the Partnership shall adopt a standard set of accounting policies and shall maintain 11 separate books of account, all in accordance with GAAP. The Partnership's financial reports shall comply with requirements of the SEC to the extent applicable to the Partnership and any Partner or any controlling Person of such Partner, to the extent such information is necessary, in conjunction with the financial reporting obligations of such Person under applicable SEC requirements. 5.3 Books and Records; Right of Partners to Audit. (a) Proper and complete records and books of account of the Partnership's business, including all such transactions and other matters as are usually entered into records and books of account maintained by businesses of like character or as are required by law, shall be kept by the Partnership at the Partnership's principal place of business. None of the Partnership's funds shall be commingled with the funds of any Partner. (b) Each Partner and its internal and independent auditors, at the expense of such Partner, shall have full and complete access to the internal and independent auditors of the Partnership and shall have the right to inspect such books and records and the physical properties of the Partnership during normal business hours and, at its own expense, to cause an independent audit thereof. The Partnership shall make all books and records of the Partnership available to such Partner and its internal and independent auditors in connection with such audit and shall cooperate with such Partner and auditors and to provide any assistance reasonably necessary in connection with such audit. 5.4 Reports and Financial Statements. The Partnership shall prepare and deliver to the Partners the Partnership financial statements and reports described on Appendix B as soon as reasonably practicable and in any event on or prior to the due date indicated on Appendix B. 5.5 Method of Accounting for Book and Tax Purposes. For purposes of making allocations and distributions hereunder (including distributions in liquidation of the Partnership in accordance with Capital Account balances as required by Section 12.3), Capital Accounts and Profits, Losses and other items described in Section 4.1 shall be determined in accordance with federal income tax accounting principles utilizing the accrual method of accounting, with the adjustments required by Regulation ss.1.704-1(b) to properly maintain Capital Accounts. 5.6 Taxation. (a) Status of the Partnership. The Partners acknowledge that the Partnership is a partnership for federal, foreign and state income tax purposes, and hereby agree not to elect to be excluded from the application of Subchapter K of Chapter 1 of Subtitle A of the Code or any similar state statute. (b) Tax Elections and Reporting. (i) Generally. The Partnership has made or shall make the following elections under the Code and the Regulations and any similar state statutes: (A) Adopt the calendar year as the annual accounting period; 12 (B) Adopt the accrual method of accounting; (C) Elect to deduct organization costs ratably over a 60-month period as provided in Section 709 of the Code; (D) Adopt the LIFO method of accounting for inventory; and (E) Make any other elections available under the Code that the Partnership Governance Committee determine are appropriate, with the determination of whether an election is appropriate to be made pursuant to the principle that each Partner shall be treated equally (i.e., no Partner will receive preferential tax treatment to the disadvantage of another Partner). (ii) Section 754 Election. The Partnership shall, upon the written request of any Partner benefitted thereby, cause the Partnership to file an election under Section 754 of the Code and the Regulations thereunder to adjust the basis of the Partnership assets under Section 734(b) or 743(b) of the Code, and a corresponding election under the applicable sections of state and local law. (c) Tax Returns. The Tax Matters Partner, on behalf of the Partnership, shall prepare and file the necessary tax and information returns. Each Partner shall timely provide such information, if any, as may be needed by the Partnership for purposes of preparing such tax and information returns. At least 75 days before the due date (as extended) for the Partnership's federal income tax return, the Tax Matters Partner shall deliver a draft of such return to each Partner. Each Partner shall have 15 Business Days after receipt of the draft in which to furnish any objections or comments on the draft to the Tax Matters Partner. The Tax Matters Partner shall make its best efforts to finalize the Partnership's federal income tax return at least 30 days before the due date for filing (as extended) of such return A Partner may not report its share of any Partnership tax item in a manner inconsistent with the Partnership's reporting of such item unless the Partner has timely furnished its objection to the Tax Matters Partner as provided in the immediately preceding sentence. If a Partner reports its share of any Partnership tax item in a manner inconsistent with the Partnership's reporting of such item, such Partner shall promptly notify the Partnership in writing at least 20 Business Days prior to the filing of any statement with the IRS in which such inconsistent position is reported. The Partnership shall promptly deliver to each Partner a copy of the federal income tax return for the Partnership as filed with the appropriate taxing authorities and a copy of any material state and local income tax return as filed. (d) Tax Audits. (i) Federal Tax Matters. The Partnership is authorized to make such filings with the IRS as may be required to designate Lyondell GP as the Tax Matters Partner. The Tax Matters Partner, as an authorized representative of the Partnership, shall direct the defense of any claims made by the IRS to the extent that such claims relate to the adjustment of Partnership items at the Partnership level. The Tax Matters Partner shall promptly deliver to each Partner a copy of all notices, communications, reports or writings of any kind (including, without limitation, any notice of beginning of 13 administrative proceedings or any report explaining the reasons for a proposed adjustment) received from the IRS relating to or potentially resulting in an adjustment of Partnership items, as well as any other information requested by a Partner that is commercially reasonable to request. The Tax Matters Partner shall be diligent and act in good faith in deciding whether to contest at the administrative and judicial level any proposed adjustment of a Partnership item and whether to appeal any adverse judicial decision. The Tax Matters Partner shall keep each Partner advised of all material developments with respect to any proposed adjustment that comes to its attention. All costs incurred by the Tax Matters Partner in performing under this subsection (d) shall be paid by the Partnership. The Tax Matters Partner shall have sole authority to represent the Partnership in connection with all tax audits, including the power to extend the statute of limitations, to enter in any settlement, and to litigate any proposed partnership adjustment, subject to the following: (A) No settlement will be entered into with respect to an item that would materially affect any Partner adversely unless each Partner is first notified of the terms of the settlement; and no Partner will be bound by any settlement unless it consents thereto; (B) If a Partner does not consent to a settlement, the settlement will nevertheless be binding on all partners who do consent; and the non-consenting Partner may, at its sole cost, pursue such administrative or judicial remedies as it deems appropriate; (C) If the Tax Matters Partner brings an action in any court, each Partner, at its sole cost, shall have the right to intervene in the preceding to the extent permitted by the court; and (D) If a settlement or litigation causes Partners to be treated differently for tax purposes with respect to certain tax issues of the Partnership, the income and deductions of the Partnership thereafter arising will be allocated among the Partners to reflect the varying manner in which the issues were resolved. (ii) State and Local Tax Matters. The Partnership shall promptly deliver to each Partner a copy of all notices, communications, reports or writings of any kind with respect to income or similar taxes received from any state or local taxing authority relating to the Partnership which might, in the judgment of the Tax Matters Partner, materially and adversely affect any Partner, and shall keep each Partner advised of all material developments with respect to any proposed adjustment of Partnership items which come to its attention. (iii) Continuation of Rights. Each Partner shall continue to have the rights described in this subsection (d) with respect to tax matters relating to any period during which it was a Partner, whether or not it is a Partner at the time of the tax audit or contest. (e) Tax Rulings. No Person other than the Tax Matters Partner shall request an administrative ruling (or similar administrative procedures) from any taxing authority with respect to any tax issue relating to the Partnership or affecting the taxation of any other Partner unless such Person shall have received written authorization from the Tax Matters Partner and any such other Partner to make such request. (f) Tax Information. At the request of any Partner, the Tax Matters Partner shall timely furnish all reasonably obtainable information required to prepare annual earnings and profits computations (as defined in Section 312 of the Code) with respect to that Partner's share of Partnership income. 14 5.7 Delegation. The Partners agree that all of the tasks to be performed under this Section (other than serving as Tax Matters Partner) may be delegated to employees and consultants of the Partnership. SECTION 6 MANAGEMENT 6.1 Partnership Governance Committee. (a) The General Partners hereby establish a committee (the "Partnership Governance Committee") to manage and control the business, property and affairs of the Partnership, including the determination and implementation of the Partnership's strategic direction. The Partnership Governance Committee (on behalf of the Partners) shall have (i) the full authority of the General Partners to exercise all of the powers of the Partnership and (ii) full control over the business, property and affairs of the Partnership. Except to the extent set forth in this Agreement, the Partnership Governance Committee shall have full, exclusive and complete discretion to manage and control the business, property and affairs of the Partnership, to make all decisions affecting the business, property and affairs of the Partnership and to take all such actions as it deems necessary, appropriate, convenient or incidental to accomplish the purpose of the Partnership as set forth in Section 1.4 (as such purpose may be expanded in accordance with Section 6.7(i)). (b) The Partnership Governance Committee shall act exclusively by means of Partnership Governance Committee Action. As used in this Agreement, "Partnership Governance Committee Action" means any action which the Partnership Governance Committee is authorized and empowered to take in accordance with this Agreement and the Act and which is taken by the Partnership Governance Committee either (i) by action taken at a meeting of the Partnership Governance Committee duly called and held in accordance with this Agreement or (ii) by a formal written consent complying with the requirements of Section 6.5(f). In no event shall the Partnership Governance Committee be authorized to act other than by Partnership Governance Committee Action, and any action or purported action by the Partnership Governance Committee (including any authorization, consent, approval, waiver, decision or vote) not constituting a Partnership Governance Committee Action shall be null and void and of no force and effect. Each Partnership Governance Committee Action shall be binding on the Partnership. (c) The Partnership Governance Committee shall adopt policies and procedures, not inconsistent with this Agreement (including Section 6.7) or the Act, governing financial controls and legal compliance, including delegations of authority (and limitations thereon) to the officers of the Partnership as permitted hereby. Such policies and procedures may be revised or revoked (in a manner consistent with this Agreement and the Act) from time to time as determined by the Partnership Governance Committee. To the extent any authority is not delegated to officers of the Partnership in this Agreement or in accordance with Partnership Governance Committee Action, it shall remain with the Partnership Governance Committee. 15 6.2 Limitations on Authority of General Partners. Except as expressly set forth in this Agreement, each General Partner agrees to exercise its authority to manage and control the Partnership only through Partnership Governance Committee Action. Each General Partner agrees not to exercise, or purport or attempt to exercise any authority (i) to act for or incur, create or assume any obligation, liability or responsibility on behalf of the Partnership or any other Partner, (ii) to execute any documents on behalf of, or otherwise bind, or purport or attempt to bind, the Partnership or (iii) to otherwise transact any business in the Partnership's name, in each case except pursuant to Partnership Governance Committee Action. 6.3 Lack of Authority of Persons Other Than General Partners and Officers. Except as expressly set forth in this Agreement, no Person or Persons other than (i) the General Partners, acting through the Partnership Governance Committee, and (ii) the officers of the Partnership appointed in accordance with this Agreement and acting as agents or employees, as applicable, of the Partnership in conformity with this Agreement and any applicable Partnership Governance Committee Action, shall be authorized (a) to exercise the powers of the Partnership, (b) to manage the business, property and affairs of the Partnership or (c) to contract for, or incur on behalf of, the Partnership any debts, liabilities or other obligations. 6.4 Composition of Partnership Governance Committee. (a) The Partnership Governance Committee shall consist of six Representatives and each General Partner shall designate three Representatives (each a "Representative"). All the Representatives of both General Partners shall together constitute the Partnership Governance Committee. (b) Each General Partner may designate one or more individuals (each an "Alternate") who (i) shall be authorized, in the event a Representative is absent from any meeting of the Partnership Governance Committee (and in the order of succession designated by the General Partner so designating the Alternates), to attend such meeting in the place of, and as substitute for, such Representative and (ii) shall be vested with all the powers to take action on behalf of such General Partner which the absent Representative could have exercised at such meeting. The term "Representative," when used herein with reference to any Representative who is absent from a meeting of the Partnership Governance Committee, shall mean and refer to any Alternate attending such meeting in place of such absent Representative. (c) On or before the date hereof, each General Partner shall have delivered to the other General Partner a written notice (i) designating the three persons to serve as such General Partner's initial Representatives and (ii) designating the person or persons, if any, who are to serve as initial Alternates and their order of succession. (d) Each General Partner may, in its sole discretion and by written notice delivered to the other General Partner and the Partnership at any time or from time to time, remove or replace one or more of its Representatives or change one or more of its Alternates. If a Representative or Alternate dies, resigns or becomes disabled or incapacitated, the General Partner that designated such Representative or Alternate, as the case may be, shall promptly designate a replacement. Each Representative and each Alternate shall serve until replaced by the General Partner that designated such Representative or Alternate, as the case may be. 16 (e) Copies of all written notices designating Representatives and Alternates shall be delivered to the Secretary and shall be placed in the Partnership minute books, but the failure to deliver a copy of any such notice to the Secretary shall not affect the validity or effectiveness of such notice or the designation described therein. (f) Each Representative, in his capacity as such, shall be the agent of the General Partner that designated such Representative. Accordingly, (i) each Representative, as such, shall act (or refrain from acting) with respect to the business, property and affairs of the Partnership solely in accordance with the wishes of the General Partner that designated such Representative and (ii) no Representative, as such, shall owe (or be deemed to owe) any duty (fiduciary or otherwise) to the Partnership or to any General Partner other than the General Partner that designated such Representative; provided, however, that nothing in this Agreement is intended to or shall relieve or discharge any Representative or General Partner from liability to the Partnership or the Partners on account of any fraudulent or intentional misconduct of such Representative. Nothing in this Section 6.4(f) shall limit the duty owed to the Partnership by any person acting in his capacity as an officer of the Partnership (including any such officer who is also a Representative). (g) Representatives shall not receive from the Partnership any compensation for their service or any reimbursement of expenses for attendance at meetings of the Partnership Governance Committee. 6.5 Partnership Governance Committee Meetings. (a) Regular meetings of the Partnership Governance Committee shall be held at such times and at such places as shall from time to time be determined in advance and committed to a written schedule by the Partnership Governance Committee. The first regular meeting of the Partnership Governance Committee during January of each fiscal year shall be deemed to be the "Annual Meeting." The Secretary shall deliver by commercial courier service or other hand delivery or transmit by facsimile transmission (with proof of confirmation from the transmitting machine), an agenda for each regular meeting to the Representatives at least five Business Days prior to such meeting. Each agenda for a regular meeting shall specify, to a reasonable degree, the business to be transacted at such meeting. Subject to Section 6.6, at any regular meeting of the Partnership Governance Committee at which a quorum is present, any and all business of the Partnership may be transacted. (b) Special meetings of the Partnership Governance Committee may be called by any Representative by delivering by commercial courier service or other hand delivery or transmitting by facsimile transmission (with proof of confirmation from the transmitting machine), written notice of a special meeting to each of the other Representatives at least two Business Days before such meeting. Each notice of a special meeting shall specify, to a reasonable degree, the business to be transacted at, or the purpose of, such meeting. Notice of any special meeting may be waived before or after the meeting by a written waiver of notice signed by the Representative entitled to notice. A Representative's attendance at a special meeting shall constitute a waiver of notice unless the Representative states at the beginning of the meeting his objection to the transaction of business because the meeting was not lawfully called or convened. Special meetings of the Partnership Governance Committee shall be held at 17 the Partnership's offices (or at such other place or in such other manner as the Representatives shall agree) at such time as may be stated in the notice of such meeting. (c) One Representative of each General Partner shall serve as a co-chair of each meeting (regular and special) of the Partnership Governance Committee. Either co-chair may instruct the Secretary to include one or more items on a meeting agenda and neither co-chair nor the Secretary may delete or exclude an agenda item proposed by either co-chair. (d) Following each meeting of the Partnership Governance Committee, the Secretary shall promptly draft and distribute minutes of such meeting to the Representatives for approval at the next meeting, and after such approval shall retain the minutes in the Partnership minute books. (e) Representatives, at their discretion, may participate in or hold regular or special meetings of the Partnership Governance Committee by means of a telephone conference or any comparable device or technology by which all individuals participating in the meeting may hear each other, and participation in such a meeting shall constitute presence in person at such meeting. (f) Any action required or permitted to be taken at a meeting of the Partnership Governance Committee may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by at least two Representatives of each General Partner, and such consent shall have the same force and effect as a duly conducted vote of the Partnership Governance Committee. A counterpart of each such consent to action shall be delivered promptly to each of the Representatives and to the Secretary for placement in the minute books of the Partnership, but the failure to deliver a counterpart of any such consent to action to the Secretary shall not affect the validity or effectiveness of such consent to action. 6.6 Partnership Governance Committee Quorum and General Voting Requirement. (a) The presence of at least two Representatives (including any duly present Alternates) of Lyondell GP shall constitute a quorum of the Partnership Governance Committee for the transaction of business and the taking of appropriate Partnership Governance Committee Actions at any meeting; provided, however, that the presence at such meeting of at least two Representatives (including any duly present Alternates) from each General Partner shall be necessary for the taking of any action described in Section 6.7; and provided, further, that no Partnership Governance Committee Actions can be taken at any meeting with respect to any matter that was not reflected, with a reasonable level of specificity, on an agenda for such meeting that was delivered in accordance with Section 6.5 unless at least one Representative of each General Partner is present. No Partnership Governance Committee Action may be taken at any meeting at which a quorum is not present. (b) Except as otherwise provided in Section 6.7 or elsewhere in this Agreement, the approval of two or more Representatives acting for Lyondell GP will be sufficient for the Partnership Governance Committee to take any Partnership Governance Committee Action and in such case the Partnership shall be authorized to take such action without the consent of any other Person. 18 6.7 Partnership Governance Committee Unanimous Voting Requirements. Unless and until two or more Representatives of Lyondell GP and two or more Representatives of Millennium GP have given their approval (in which event a Partnership Governance Committee Action is hereby authorized without the need for the consent of any other Person), no Partnership Governance Committee Action will be deemed for any purpose to have been taken at any Partnership Governance Committee meeting that would cause or permit the Partnership or any subsidiary thereof (or any Person acting in the name or on behalf of any of them) directly or indirectly to take (or commit to take), and neither the Partnership nor any subsidiary thereof nor any person acting in the name or on behalf of any of them directly or indirectly may take or commit to take, any of the actions described below in this subsection (whether in a single transaction or series of related transactions): (i) to cause the Partnership, directly or indirectly, to engage, participate or invest in any business outside the scope of its business as described in Section 1.4; (ii) to approve any Strategic Plan, as well as any amendments or updates thereto (including the annual updates provided for in Section 8.1); (iii) to authorize any disposition of assets having a fair market value exceeding $30 million in any one transaction or a series of related transactions not contemplated in an approved Strategic Plan; (iv) to authorize any acquisition of assets or any capital expenditure exceeding $30 million that is not contemplated in an approved Strategic Plan; (v) to require capital contributions to the Partnership (other than contributions contemplated by the Contribution Agreements or an approved Strategic Plan or to achieve or maintain compliance with any HSE Law) within any fiscal year if the total of such contributions required from the Partners within that year would exceed $100 million or the total of such contributions required from the Partners within that year and the immediately preceding four years would exceed $300 million; (vi) to authorize the incurrence of debt for borrowed money unless (x) such debt is contemplated by clause (vii) (b) below, (y) after giving effect to the incurrence of such debt (and any related transactions) and the maximum amount of borrowings permitted under clause (vii) below, the Partnership would be expected to have an "investment grade" debt rating by Moody's Investor Services Inc. and Standard & Poor's Corporation or (z) such debt is incurred to refinance the public, bank or other debt assumed or incurred by the Partnership as contemplated by the Initial Master Transaction Agreement or the Second Master Transaction Agreement or to refinance indebtedness under the 1998 Credit Facility or to refinance any such debt, and in the case of each of (x), (y) and (z), the agreement relating to such debt does not provide that the Transfer by a Partner of its Units (or a change of control with respect to any Partner or any of its Affiliates) would constitute a default thereunder, otherwise accelerate the maturity thereof or give the lender or holder any "put rights" or similar rights with respect thereto; provided, however, that, notwithstanding the foregoing, no consent shall be required under this Section 6.7(vi) to cause the Partnership to incur or refinance any debt for 19 borrowed money, which debt is or was incurred originally for purposes of refinancing all or any part of any of the Partnership's synthetic or capitalized leases in effect on March 31, 2002, and the aggregate principal amount of such debt does not exceed the aggregate amount required to terminate such synthetic or capitalized leases, including related expenses and fees; (vii) (a) to enter into the 1998 Credit Facility or (b) to make borrowings under one or more of the Partnership's bank credit facility or facilities, its uncommitted lines of credit or any credit facility or debt instrument of the Partnership of any kind that refinances all or any portion of the Partnership's credit facility or facilities, at any time, if as a result of any such borrowing the aggregate principal amount of all such borrowings outstanding at such time would exceed the sum of $1.25 billion and the amount which becomes available for borrowing under the 1998 Credit Facility; (viii) to enter into interest rate protection or other hedging agreements (other than hydrocarbon hedging agreements in the ordinary course); (ix) to enter into any capitalized lease or similar off-balance sheet financing arrangements involving payments (individually or in the aggregate) by it in excess of $30 million in any fiscal year; (x) to cause the Partnership or any subsidiary of the Partnership to issue, sell, redeem or acquire any Units or other equity securities (or any rights to acquire, or any securities convertible into or exchangeable for, Units or other equity securities); (xi) to make Partnership cash distributions in excess of Available Net Operating Cash or to make non-cash distributions (except as contemplated by Section 12); (xii) to appoint or discharge Executive Officers (other than the CEO), based on the recommendation of the CEO; (xiii) to approve material compensation and benefit plans and policies, material employee policies and material collective bargaining agreements for the Partnership's employees; (xiv) to initiate or settle any litigation or governmental proceedings if the effect thereof would be material to the financial condition of the Partnership; (xv) to change the independent accountants for the Partnership; (xvi) to change the Partnership's method of accounting as adopted pursuant to Section 5.2 or to change the Partnership's method of accounting as provided in Section 5.5 or to make the elections referred to in Section 5.6(b)(i)(E); (xvii) to create or change the authority of any Auxiliary Committee; 20 (xviii) to merge, consolidate or convert the Partnership or any subsidiary thereof with or into any other entity (other than a Wholly Owned Subsidiary of the Partnership); (xix) to file a petition in bankruptcy or seeking any reorganization, liquidation or similar relief on behalf of the Partnership or any subsidiary; or to consent to the filing of a petition in bankruptcy against the Partnership or any subsidiary; or to consent to the appointment of a receiver, custodian, liquidator or trustee for the Partnership or any subsidiary or for all or any substantial portion of their property; (xx) to exercise any power or right described in Section 6.8(a)(i) or (ii) with respect to a Conflict Circumstance involving (a) LYONDELL-CITGO Refining Company Ltd., its successors or assigns, (b) Lyondell Methanol Company, L.P., its successors or assigns or (c) any other Affiliate of Lyondell GP or Millennium GP if such Affiliate's actions with respect to such Conflict Circumstance are not controlled by Lyondell or Millennium respectively, other than a Conflict Circumstance involving the exercise of any rights and remedies with respect to a default under any agreement that is the subject of such Conflict Circumstance; (xxi) to cause the Partnership to repay either (a) any of its long-term indebtedness (as defined for purposes of GAAP) or (b) any of its long-term synthetic leases that are treated as debt for purposes of federal income tax if, by doing so, the Partnership would reduce the aggregate amount of all such indebtedness below $1.825 billion prior to May 15, 2005, and, thereafter, below $1.5 billion. The Partners hereby acknowledge and confirm that any authorization or approval by the Partnership Governance Committee pursuant to this Section 6.7 of the execution, delivery and performance of any agreement or contract entered into by the Partnership shall be sufficient to authorize and approve any future performance required by the terms of such agreement or contract, with no further action being required under this Article VI at the time of any such performance. 6.8 Control of Interested Partner Issues. (a) Notwithstanding anything to the contrary contained in this Agreement, with respect to any Conflict Circumstance (other than a Conflict Circumstance described in Section 6.7(xx), which shall be governed by Section 6.7), the Nonconflicted General Partner (through its Representatives) shall, subject to Section 6.8(b), have the sole and exclusive power and right for and on behalf, and at the sole expense, of the Partnership (i) to control all decisions, elections, notifications, actions, exercises or nonexercises and waivers of all rights, privileges and remedies provided to, or possessed by, the Partnership with respect to a Conflict Circumstance and (ii) in the event of any potential, threatened or asserted claim, dispute or action with respect to a Conflict Circumstance, to retain and direct legal counsel and to control, assert, enforce, defend, litigate, mediate, arbitrate, settle, compromise or waive any and all such claims, disputes and actions. Accordingly, Partnership Governance Committee Action with respect to a Conflict Circumstance (other than a Conflict Circumstance described in Section 6.7(xx), which shall be governed by Section 6.7) shall require the approval of two Representatives of the Nonconflicted General Partner. Each General Partner shall, and shall cause its Affiliates to, take all such 21 actions, execute all such documents and enter into all such agreements as may be necessary or appropriate to facilitate or further assure the accomplishment of this Section. (b) The Nonconflicted General Partner, in exercising its control, power and rights pursuant to this Section, shall act in good faith and in a manner it believes to be in the best interests of the Partnership; provided that it shall never be deemed to be in the best interests of the Partnership not to pay, perform and observe all of the obligations to be paid, performed or observed by or on the part of the Partnership under the terms of any of the Other Agreements (as defined in the Amended and Restated Parent Agreement). The Nonconflicted General Partner shall act through its Representatives, and the approval of two Representatives acting for the Nonconflicted General Partner will be sufficient for the Nonconflicted General Partner (and therefore the Partnership Governance Committee on behalf of the Partnership) to take any action in respect of the relevant Conflict Circumstance. The Conflicted General Partner (or its Affiliates) shall have the right to deal with the Partnership and with the Nonconflicted General Partner on an arm's-length basis and in a manner it believes to be in its own best interests, but in any event must deal with them in good faith. 6.9 Auxiliary Committees. (a) From time to time, the Partnership Governance Committee may, by Partnership Governance Committee Action, designate one or more committees ("Auxiliary Committees") or disband any Auxiliary Committee. Each Auxiliary Committee shall (i) operate under the specific authority delegated to it by the Partnership Governance Committee (consistent with Section 6.7) for the purpose of assisting the Partnership Governance Committee in managing (on behalf of the General Partners) the business, property and affairs of the Partnership and (ii) report to the Partnership Governance Committee. (b) Each General Partner shall have the right to appoint an equal number of members on each Auxiliary Committee. Auxiliary Committee members may (but need not) be members of the Partnership Governance Committee. No Auxiliary Committee member shall be compensated or reimbursed by the Partnership for service as a member of such Auxiliary Committee. (c) Each Partnership Governance Committee Action designating an Auxiliary Committee shall be in writing and shall set forth (i) the name of such Auxiliary Committee, (ii) the number of members and (iii) in such detail as the Partnership Governance Committee deems appropriate, the purposes, powers and authorities (consistent with Section 6.7) of such Auxiliary Committee; provided, however, that in no event shall any Auxiliary Committee have any powers or authority in reference to amending this Agreement, adopting an agreement of merger, consolidation or conversion of the Partnership, authorizing the sale, lease or exchange of all or substantially all of the property and assets of the Partnership, authorizing a dissolution of the Partnership or declaring a distribution. Each Auxiliary Committee shall keep regular minutes of its meetings and promptly deliver the same to the Partnership Governance Committee. 6.10 Certain Limitations on Partner Representatives. No Representative or Alternate of a Partner who, as an officer, director or employee of such Partner or any of its Affiliates, participates in material operational decisions by such Partner or Affiliate regarding a business or 22 operation of such Partner or Affiliate that competes with a business or operation of the Partnership or of the other Partner or its Affiliates, or that competes with a Business Opportunity offered pursuant to Section 9.3(c) or (d), shall receive or have access to any competitively sensitive information regarding the competing business of the Partnership or of the other Partner or its Affiliates or such Business Opportunity, nor shall such Representative or Affiliate participate in any decision of the Partnership Governance Committee relating to such business or operation of the Partnership or the other Partner or its Affiliates or such Business Opportunity. SECTION 7 OFFICERS AND EMPLOYEES 7.1 Partnership Officers. (a) The Partnership Governance Committee may select natural persons who are (or upon becoming an officer will be) agents or employees of the Partnership to be designated as officers of the Partnership, with such titles as the Partnership Governance Committee shall determine. (b) The executive officers of the Partnership shall consist of a Chief Executive Officer ("CEO"), and others as determined from time to time by Partnership Governance Committee (collectively, the "Executive Officers"). (c) The Partnership Governance Committee also shall appoint a Secretary and may appoint such other officers and assistant officers and agents as may be deemed necessary or desirable and such persons shall perform such duties in the management of the Partnership as may be provided in this Agreement or as may be determined by Partnership Governance Committee Action. (d) The Partnership Governance Committee may leave unfilled any offices except those of CEO and Secretary. Two or more offices may be held by the same person except that the same person may not hold the offices of CEO and Secretary. 7.2 Selection and Term of Executive Officers. (a) The Executive Officers as of the date of this Agreement are listed on Appendix C. (b) The CEO shall hold office for a five-year term, subject to the CEO's earlier death, resignation or removal. Upon the expiration of such term or earlier vacancy, Lyondell GP shall designate the CEO, provided that such person shall be reasonably acceptable to Millennium GP. The CEO shall not be required to be an employee of the Partnership. (c) Each Executive Officer (other than the CEO) shall hold office until his or her death, resignation or removal. Upon the death, resignation or removal of an Executive Officer, or the creation of a new Executive Officer position, the CEO may nominate a person to fill the vacancy, which shall be subject to Partnership Governance Committee approval. Executive Officers shall not be required to be employees of the Partnership. Any Executive Officer also may serve as an officer or employee of any Partner or Affiliate of a Partner. 23 7.3 Removal of Executive Officers. (a) The CEO may be removed, at any time, by Partnership Governance Committee Action taken pursuant to Section 6.6, with or without cause, whenever in the judgment of the Partnership Governance Committee the best interests of the Partnership would be served thereby. (b) Any Executive Officer (other than the CEO), or any other officer or agent may be removed, at any time, by Partnership Governance Committee Action taken pursuant to Section 6.7(xii), with or without cause, upon the recommendation of the CEO, whenever in the judgment of the Partnership Governance Committee the best interests of the Partnership would be served thereby. (c) Notwithstanding anything to the contrary in Sections 6.7(xii), 7.3(a) and 7.3(b), either General Partner may, by action of two or more of its Representatives, remove from office any Executive Officer who takes or causes the Partnership to take any action described in Section 6.7 that has not been approved by two or more Representatives of Lyondell GP and two or more Representatives of Millennium GP as contemplated by Section 6.7. Any such removal shall be effected by delivery by such Representatives of written notice of such removal (i) to such Executive Officer and (ii) to the Representatives of the other General Partner; provided that such removal shall not be effective if such action is rescinded or cured (to the reasonable satisfaction of the General Partner who has delivered such notice) promptly after such notice is delivered. 7.4 Duties. (a) Each officer or employee of the Partnership shall owe to the Partnership, but not to any Partner, all such duties (fiduciary or otherwise) as are imposed upon such an officer or employee of a Delaware corporation. Without limitation of the foregoing, each officer and employee in any dealings with a Partner shall have a duty to act in good faith and to deal fairly; provided, that, no officer shall be liable to the Partnership or to any Partner for his or her good faith reliance on the provisions of this Agreement. Notwithstanding the foregoing, it is understood that any officer or employee of the Partnership who is also a Representative of a General Partner shall, in his capacity as a Representative, owe no duty (fiduciary or otherwise) to any Person other than such General Partner. (b) The policies and procedures of the Partnership adopted by the Partnership Governance Committee may set forth the powers and duties of the officers of the Partnership to the extent not set forth in or inconsistent with this Agreement. The officers of the Partnership shall have such powers and duties, except as modified by the Partnership Governance Committee, as generally pertain to their respective offices in the case of a publicly held Delaware corporation, as well as other such powers and duties as from time to time may be conferred by the Partnership Governance Committee and by this Agreement. The CEO and the other officers and employees of the Partnership shall develop and implement management and other policies and procedures consistent with this Agreement and the general policies and procedures established by the Partnership Governance Committee. 24 (c) Notwithstanding any other provision of this Agreement, no Partner, Representative, officer, employee or agent of the Partnership shall have the power or authority, without specific authorization from the Partnership Governance Committee, to undertake any of the following: (i) to do any act which contravenes (or otherwise is inconsistent with) this Agreement or which would make it impracticable or impossible to carry on the Partnership's business; (ii) to confess a judgment against the Partnership; (iii) to possess Partnership property other than in the ordinary conduct of the Partnership's business; or (iv) to take, or cause to be taken, any of the actions described in Section 6.7. 7.5 CEO. Subject to the terms of this Agreement, the CEO shall have general authority and discretion comparable to that of a chief executive officer of a publicly held Delaware corporation of similar size to direct and control the business and affairs of the Partnership, including without limitation its day-to-day operations in a manner consistent with the Annual Budget and the most recently approved Strategic Plan. The CEO shall take steps to implement all orders and resolutions of the Partnership Governance Committee or, as applicable, any Auxiliary Committee. The CEO shall be authorized to execute and deliver, in the name and on behalf of the Partnership, (i) contracts or other instruments authorized by Partnership Governance Committee Action and (ii) contracts or instruments in the usual and regular course of business (not otherwise requiring Partnership Governance Committee Action), except in cases when the execution and delivery thereof shall be expressly delegated by the Partnership Governance Committee to some other officer or agent of the Partnership, and, in general, shall perform all duties incident to the office of CEO as well as such other duties as from time to time may be assigned to him or her by the Partnership Governance Committee or as are prescribed by this Agreement. 7.6 Other Officers. The President (if any) and the Vice Presidents shall perform such duties as may, from time to time, be assigned to them by the Partnership Governance Committee or by the CEO. In addition, at the request of the CEO, or in the absence or disability of the CEO, the President (if any) or any Vice President, in any order determined by the Partnership Governance Committee, temporarily shall perform all (or if limited through the scope of the delegation, some of) the duties of the CEO, and, when so acting, shall have all the powers of, and be subject to all restrictions upon, the CEO. 7.7 Secretary. The Secretary shall keep the minutes of all meetings (and copies of written records of action taken without a meeting) of the Partnership Governance Committee in minute books provided for such purpose and shall see that all notices are duly given in accordance with the provisions of this Agreement. The Secretary shall be the custodian of the records and of the seal, if any. The Secretary shall have general charge of books and papers of the Partnership as the Partnership Governance Committee may direct and, in general, shall perform all duties and exercise all powers incident to the office of Secretary and such other 25 duties and powers as the Partnership Governance Committee or the CEO from time to time may assign to or confer upon the Secretary. 7.8 Salaries. Salaries or other compensation of the other Executive Officers of the Partnership shall be established by the CEO consistent with plans approved by the Partnership Governance Committee. Except as approved by the Partnership Governance Committee, all fees and compensation of the officers and employees of the Partnership other than the CEO with respect to their services as such officers and employees shall be payable solely by the Partnership and no Partner or its Affiliates shall pay (or offer to pay) any such fees or compensation to any officer or employee, except to the extent that the Partnership shall have agreed with a Partner or one of its Affiliates pursuant to a separate agreement that a portion of the compensation of such officer or employee shall be paid by such Partner or Affiliate. 7.9 Delegation. The Partnership Governance Committee may delegate temporarily the powers and duties of any officer of the Partnership, in case of absence or for any other reason, to any other officer of the Partnership, and may authorize the delegation by any officer of the Partnership of any of such officer's powers and duties to any other officer or employee of the Partnership, subject to the general supervision of such officer. 7.10 Employee Hirings. Without the prior approval of the other General Partner, which approval shall not be unreasonably withheld, a General Partner (or its Affiliates) shall not be entitled to hire employees of the Partnership who at the time of such employment are eligible to participate in the incentive compensation programs available to senior managers or executives or to hire specific individuals who had been employed by the Partnership within the previous year and who prior to the termination of their employment were eligible to participate in the incentive compensation programs available to senior managers or executives. Without the prior approval of the relevant General Partner, which approval shall not be unreasonably withheld, the Partnership shall not be entitled to hire employees of either General Partner (or its Affiliates) who at the time of such employment are eligible to participate in the incentive compensation programs available to senior managers or executives or to hire specific individuals who had been employed by either General Partner (or its Affiliates) within the previous year and who prior to the termination of their employment were eligible to participate in the incentive compensation programs available to senior managers or executives. 7.11 General Authority. Persons dealing with the Partnership are entitled to rely conclusively on the power and authority of each of the officers as set forth in this Agreement. In no event shall any Person dealing with any officer with respect to any business or property of the Partnership be obligated to ascertain that the terms of this Agreement have been complied with, or be obligated to inquire into the necessity or expedience of any act or action of the officer; and every contract, agreement, deed, mortgage, security agreement, promissory note or other instrument or document executed by the officer with respect to any business or property of the Partnership shall be conclusive evidence in favor of any and every Person relying thereon or claiming thereunder that (i) at the time of the execution and/or delivery thereof, this Agreement was in full force and effect, (ii) the instrument or document was duly executed in accordance with the terms and provisions of this Agreement and is binding upon the Partnership, and (iii) the officer was duly authorized and empowered to execute and deliver any and every such instrument or document for and on behalf of the Partnership. 26 SECTION 8 STRATEGIC PLANS, ANNUAL BUDGETS AND LOANS 8.1 Strategic Plan. (a) The Partnership shall be managed in accordance with a five-year strategic business plan (the "Strategic Plan") which shall be updated annually under the direction of the CEO and presented for approval by the Partnership Governance Committee pursuant to Section 6.7 no later than 90 days prior to the start of the first fiscal year covered by the updated plan. (b) The Strategic Plan shall establish the strategic direction of the Partnership, including plans relating to capital maintenance and enhancement, geographic expansion, acquisitions and dispositions, new product lines, technology, long-term supply and customer arrangements, internal and external financing, environmental and legal compliance, and plans, programs and policies relating to compensation and industrial relations. The Strategic Plan shall include projected income statements, balance sheets and cash flow statements, including the expected timing and amounts of capital contributions and cash distributions. The format and level of detail of each Strategic Plan shall be consistent with that of the initial Strategic Plan agreed to by the Initial Partners on or prior to the Initial Closing Date or the Strategic Plan most recently approved pursuant to Section 6.7. 8.2 Annual Budget. (a) The Executive Officers of the Partnership shall prepare an Annual Budget (each, an "Annual Budget") for each fiscal year, including an Operating Budget and Capital Expenditure Budget; provided that each Annual Budget shall be consistent with the information for such fiscal year included in the Strategic Plan most recently approved pursuant to Section 6.7; and provided, further, that unless provided otherwise in the most recently approved Strategic Plan, the Annual Budget (including any Annual Budget prepared under Section 8.2(b)) shall utilize a format and provide a level of detail consistent with the Partnership's initial Annual Budget. The Annual Budget for each year shall be submitted to the Partnership Governance Committee for approval at least 60 days prior to the start of the fiscal year covered by such budget. Each Annual Budget shall incorporate (i) a projected income statement, balance sheet and a cash flow statement, (ii) the amount of any corresponding cash deficiency or surplus and (iii) the estimated amount, if any, and expected timing for all required capital contributions. Each proposed Annual Budget shall be prepared on a basis consistent with the Partnership's financial statements. (b) If for any fiscal year the Partnership Governance Committee has failed to approve an updated Strategic Plan, then, subject to Section 8.5, for such year and each subsequent year prior to approval of an updated Strategic Plan, the Executive Officers of the Partnership shall prepare (and promptly furnish to the Partnership Governance Committee) the Annual Budget consistent with the projections and other information for that year included in the Strategic Plan most recently approved pursuant to Section 6.7; provided, however, that the CEO, acting in good faith, shall be entitled to modify any such Annual Budget in order to satisfy current contractual and compliance obligations and to account for other changes in circumstances resulting from the passage of time or the occurrence of events beyond the control of the Partnership; provided, 27 further, that the CEO shall not be authorized to cause the Partnership to proceed with capital expenditures to accomplish capital enhancement projects except to the extent that such expenditures would enable the Partnership to continue or complete any such capital project reflected in the last Strategic Plan that was approved by the Partnership Governance Committee pursuant to Section 6.7. (c) Each "Operating Budget" shall constitute an estimate for each applicable period of all operating income, which shall include expenses required to maintain, repair and restore to good and usable condition the Partnership's assets. (d) Each "Capital Expenditure Budget" shall constitute an estimate for the applicable period of the capital expenditures required to (i) accomplish capital enhancement projects included in the most recently approved Strategic Plan, (ii) maintain and preserve the Partnership's assets in good operating condition and repair and (iii) achieve or maintain compliance with any HSE Law. 8.3 Funding of Partnership Expenses. All Partnership expenses (both operating and capital expenses), regardless of whether included in any Strategic Plan or Annual Budget, shall be funded from operating cash flows or authorized borrowings under available lines of credit, unless otherwise agreed by the Partnership Governance Committee. Subject to the limitations of Section 2.4 and Section 6.7(v), if applicable, to the extent that the CEO determines at any time that funds are needed to fund Partnership operations, the CEO may issue a Funding Notice to the Limited Partners calling for an additional capital contribution. The Limited Partners will take all steps necessary to cause compliance with such Funding Notice. 8.4 Implementation of Budgets and Discretionary Expenditures by CEO. (a) After a Strategic Plan and an Annual Budget have been approved by the Partnership Governance Committee (or an Annual Budget has been developed in accordance with Section 8.2(b)), the CEO will be authorized, without further action by the Partnership Governance Committee, to cause the Partnership to make expenditures consistent with such Strategic Plan and Annual Budget; provided, however, that all internal control policies and procedures, including those regarding the required authority for certain expenditures, shall have been followed. (b) In any emergency, the CEO or the CEO's designee shall be authorized to take such actions and to make such expenditures as may be reasonably necessary to react to the emergency, regardless of whether such expenditures have been included in an approved Strategic Plan or Annual Budget. Promptly after learning of an emergency, the CEO or such designee shall notify the Representatives of the nature of the emergency and the response that has been made, or is committed or proposed to be made, with respect to the emergency. 8.5 Strategic Plan Deadlock. If the Partnership Governance Committee has not agreed upon and approved an updated Strategic Plan, as contemplated by Sections 6.7 and Section 8.1, by such date as is 12 months after the beginning of the first fiscal year that would have been covered by such plan, then the General Partners shall submit their disagreements to non-binding mediation by a Neutral. If the General Partners are unable to agree upon a mutually 28 acceptable Neutral within 30 days after a nomination of a Neutral is made by one General Partner to the other, then such Neutral shall upon the application of either General Partner be appointed within 70 days of such nomination by the Center for Public Resources, or if such appointment is not so made promptly then promptly thereafter by the American Arbitration Association in Philadelphia, Pennsylvania, or if such appointment is not so made promptly then promptly thereafter by the senior United States District Court judge sitting in Wilmington, Delaware. The fees of the Neutral shall be paid equally by the General Partners. Within 20 days of selection of the Neutral, two persons having decision-making authority on behalf of each General Partner shall meet with the Neutral and agree upon procedures and a schedule for attempting to resolve the differences between the General Partners. They shall continue to meet thereafter on a regular basis until (i) agreement is reached by the General Partners (acting through their Representatives) on an updated Strategic Plan or (ii) at least 24 months have elapsed since the beginning of the first fiscal year that was to be covered by the first updated plan for which agreement was not reached and one General Partner shall determine and notify the other General Partner and the Neutral in writing (a "Deadlock Notice") that no agreement resolving the dispute is likely to be reached. 8.6 Loans. (a) Other Loans. The Partnership Governance Committee may by Partnership Governance Committee Action authorize the CEO to cause the Partnership to borrow funds from third party lenders. No Partner shall be required, and the Partnership Governance Committee shall not be authorized to require any Partner, to guarantee or to provide other credit or financial support for any loan. Except as provided in Section 8.6(b) or with respect to obligations of Lyondell existing as of January 1, 2002 with respect to Lyondell Assumed Debt, no Partner may guarantee or provide other credit or financial support for all or any portion of any debt, including any refinancing of the Bank Credit Agreement or any uncommitted lines of credit of the Partnership. (b) Millennium Indemnity. At any time and from time to time, Millennium America (or Millennium Petrochemicals Inc. or any other Affiliate of Millennium America) may, in its sole discretion, elect to execute in favor of the Partnership and the other Partners an indemnity with respect to any debt of the Partnership substantially in the form of Schedules 8.6(A) and 8.6(B); provided, however, that the conditions for release from such an indemnity shall be as specified by the indemnitor; and provided, further, that the existence of such indemnity shall not prohibit the Partnership from repaying such indemnified debt at any time subject to the other provisions of this Agreement. The aggregate amount of the Millennium Indemnity shall not exceed $300 million. The Millennium Indemnity shall be with respect to any indebtedness of the Partnership that Millennium America (or such Affiliate) may elect. The Partnership and the Partners will cooperate with Millennium America (or such Affiliate) in establishing the Millennium Indemnity, including executing any documents necessary to establish the Millennium Indemnity. 29 SECTION 9 RIGHTS OF PARTNERS 9.1 Delegation and Contracts with Related Parties. (a) The Partners acknowledge that the General Partners (acting through the Partnership Governance Committee) are permitted to delegate responsibility for day-to-day operations of the Partnership to officers and employees of the Partnership. (b) Upon receipt of any required approval by the Partnership Governance Committee (including, as applicable, any approval required by Section 6.8), all contracts and transactions between the Partnership and a Partner or its Affiliates shall be deemed to be entered into on an arm's-length basis and to be subject to ordinary contract and commercial law, without any other duties or rights being implied by reason of a Partner being a Partner or by reason of any provision of this Agreement or the existence of the Partnership. 9.2 General Authority. Persons dealing with the Partnership are entitled to rely conclusively on the power and authority of each of the General Partners as set forth in this Agreement. In no event shall any Person dealing with either General Partner or such General Partner's representatives with respect to any business or property of the Partnership be obligated to ascertain that the terms of this Agreement have been complied with, or be obligated to inquire into the necessity or expedience of any act or action of the General Partner or the General Partner's representatives; and every contract, agreement, deed, mortgage, security agreement, promissory note or other instrument or document executed by the General Partner or the General Partner's representatives with respect to any business or property of the Partnership shall be conclusive evidence in favor of any and every Person relying thereon or claiming thereunder that (i) at the time of the execution and/or delivery thereof, this Agreement was in full force and effect, (ii) the instrument or document was duly executed in accordance with the terms and provisions of this Agreement and is binding upon the Partnership, and (iii) the General Partner or the General Partner's representative was duly authorized and empowered to execute and deliver any and every such instrument or document for and on behalf of the Partnership. Nothing in this Section 9.2 shall be deemed to be a waiver or release of either General Partner's obligations to the other Partners as set forth elsewhere in this Agreement. 9.3 Limitation on Fiduciary Duty; Non-Competition; Right of First Opportunity. (a) Each Partner (directly or through its Affiliates) is a sophisticated party possessing extensive knowledge of and experience relating to, and is actively engaged in, significant businesses in addition to its Contributed Businesses, has been represented by legal counsel, is capable of evaluating and has thoroughly considered the merits, risks and consequences of the provisions of this Section 9.3 and is agreeing to such provision knowingly and advisedly. The liability of each of the General Partners (including any liability of its Affiliates or its and their respective officers, directors, agents and employees) or of any Limited Partner (including any liability of its Affiliates or its and their respective officers, agents, directors and employees), either to the Partnership or to any other Partner, for any act or omission by such Partner in its capacity as a partner of the Partnership that is imposed by such Partner's status as a "general partner" or "limited partner" (as such terms are used in the Act) of a limited partnership is hereby 30 eliminated, waived and limited to the fullest extent permitted by law; provided, however, that each General Partner shall at all times owe to the other General Partner a fiduciary duty in observing the requirement described in Section 6.7 that two or more Representatives of Lyondell GP and two or more Representatives of Millennium GP shall be required to give their approval before the Partnership may undertake any of the actions listed in Section 6.7. Nothing in this subsection shall relieve any Partner from liability for any breach of this Agreement and each General Partner shall at all times owe to the other General Partner a duty to act in good faith with respect to all matters involving the Partnership. (b) Except as set forth in Section 9.3(c), each Partner's Affiliates shall be free to engage in or possess an interest in any other business of any type, including any business in direct competition with the Partnership, and to avail itself of any business opportunity available to it without having to offer the Partnership or any Partner the opportunity to participate in such business. Except as set forth in Section 9.3(c), it is expressly agreed that the legal doctrine of "corporate or business opportunities" sometimes applied to a Person deemed to be subject to fiduciary or other similar duties so as to prevent such Persons from engaging in or enjoying the benefits of certain additional business opportunities shall not be applied in the case of any investment, acquisition, business, activity or operation of any Partner's Affiliates. (i) If a Partner's Affiliate desires to initiate or pursue an opportunity to undertake, engage in, acquire or invest in a Related Business by investing in or acquiring a Person whose business is a Related Business, acquiring assets of a Related Business, or otherwise engaging in or undertaking a Related Business (a "Business Opportunity"), such Partner or its Affiliate (such Partner, together with its Affiliates, being called the "Proposing Partner") shall offer the Partnership the Business Opportunity on the terms set forth in Section 9.3(c)(ii). (ii) When a Proposing Partner offers a Business Opportunity to the Partnership, the Partnership shall elect to do one of the following within a reasonably prompt period: (A) acquire or undertake the Business Opportunity for the benefit of the Partnership as a whole, at the cost, expense and benefit of the Partnership; provided, however, that, if the Partnership ceases to actively pursue such opportunity for any reason, then the Proposing Partner will be entitled to proceed under clause (B) below; or (B) permit the Proposing Partner to acquire or undertake the Business Opportunity for its own benefit and account without any duty to the Partnership or the other Partners with respect thereto; provided, however, that if the Business Opportunity is in direct competition with the then existing business of the Partnership (a "Competing Opportunity"), then the Proposing Partner and the Partnership shall, if either so elects, seek to negotiate and implement an arrangement whereby the Partnership would either (i) acquire or undertake the Competing Opportunity at the sole cost, expense and benefit of the Proposing Partner under a mutually acceptable arrangement whereby the Competing Opportunity is treated as a separate business within the Partnership with the costs, 31 expenses and benefits related thereto being borne and enjoyed solely by the Proposing Partner, or (ii) enter into a management agreement with the Proposing Partner to manage the Competing Opportunity on behalf of the Proposing Partner on terms and conditions mutually acceptable to the Proposing Partner and the Partnership. If the Partnership and the Proposing Partner do not reach agreement as to such arrangement, the Proposing Partner may acquire or undertake the Competing Opportunity for its own benefit and account without any duty to the Partnership or the other Partners with respect thereto. (c) Notwithstanding the provisions of Section 9.3(c)(ii), (i) if the Business Opportunity constitutes less than 25% (based on annual revenues for the most recently completed fiscal year) of an acquisition of or investment in assets, activities, operations or businesses that is not otherwise a Related Business, then a Proposing Partner may acquire or invest in such Business Opportunity without first offering it to the Partnership; provided, that, after completion of the acquisition or investment thereof, such Proposing Partner must offer the Business Opportunity to the Partnership pursuant to the terms of Section 9.3(c)(ii); and if the Partnership elects option (A) of Section 9.3(c)(ii) with respect thereto, the Business Opportunity shall be acquired by the Partnership at its fair market value as of the date of such acquisition and (ii) if the Business Opportunity is (A) part of an integrated project, a substantial element of which is the development, exploration, production and/or sale of oil or gas reserves and (B) located in a country other than the United States, Canada or Mexico then such Partner or its Affiliate may acquire or invest in such Business Opportunity without first offering it to the Partnership; provided, that subject to any requisite consents and approvals from third parties or governmental authorities, the Partner or its Affiliate will use commercially reasonable efforts to include the Partnership to the maximum extent practicable in such integrated project with respect to the Business Opportunity portion of the project. (d) Notwithstanding the provisions of Section 9.3(c), any direct or indirect expansion by LYONDELL-CITGO Refining Company Ltd. of its aromatics business shall not be deemed to constitute a Business Opportunity for purposes of Section 9.3(c). (e) If (i) the Partnership is presented with an opportunity to acquire or undertake a Business Opportunity (other than pursuant to Section 9.3(c)) that it determines not to acquire or undertake and (ii) the Representatives of one General Partner, but not the other General Partner, desire that the Partnership acquire or undertake such Business Opportunity, then the Partnership shall permit such General Partner and its Affiliates to acquire or undertake such Business Opportunity and Section 9.3(c)(ii)(B) shall be deemed to be applicable thereto to the same extent as if such General Partner and its Affiliates were a Proposing Partner with respect to such Business Opportunity. 9.4 Limited Partners. (a) No Limited Partner shall take part in the management or control of the Partnership's business, transact any business in the Partnership's name or have the power to sign documents for or otherwise to bind the Partnership. 32 (b) Each Limited Partner shall have the rights with respect to the Partnership's books and records as set forth in Section 5.3. 9.5 Partner Covenants. Each Partner covenants and agrees with the Partnership and with the other Partners as follows: (i) It shall not exercise, or purport or attempt to exercise, its authority to withdraw, retire, resign, or assert that it has been expelled from the Partnership; (ii) It shall not do any act that would make it impossible or impracticable to carry on the Partnership's business; and (iii) It shall not act or purport or attempt to act in a manner inconsistent with any act of a General Partner acting pursuant to the Partnership Governance Committee or in a manner contrary to the agreements of the Partners set forth in this Agreement; provided, that, nothing in this Section 9.5 shall be deemed to waive its rights under Sections 10, 11 or 12. 9.6 Special Purpose Entities. Each Partner covenants and agrees that (i) its business shall be restricted solely to the holding of its Units and the doing of things necessary or incidental in connection therewith (including, without limitation, the exercise of its rights and powers under this Agreement), and (ii) it shall not own any assets, incur any liabilities or engage, participate or invest in any business outside the scope of such business; provided, however, that this Section 9.6 shall not be binding upon (a) Millennium Petrochemicals Inc., a Virginia corporation, or its successors by operation of law to the extent that any Units shall be Transferred to it in accordance with Section 10.6 or (b) at its option, any Wholly Owned Affiliate of any Partner to whom Units shall be Transferred pursuant to Section 10.6 if, at the date of such Transfer, such Wholly Owned Affiliate shall have a consolidated net worth, as determined in accordance with GAAP, of at least $50 million. Notwithstanding the foregoing provisions of this Section 9.6, this Section 9.6 shall not prohibit any Partner from incurring debt payable to its Parent or an Affiliate so long such debt is permitted under Section 2.4 of the Parent Agreement. 9.7 Notice of Repayment of Debt and Capital Leases. The Partnership shall notify each Partner of its intent to repay any of its long-term debt (as defined for purposes of GAAP but excluding any revolver debt under the Bank Credit Agreement) or capital leases, excluding any regularly scheduled amortization, lease or other payments that are reflected in the applicable lease, that is relevant to the determination of the amount of such indebtedness for purposes of Section 6.7(xxi) at least 30 days prior to the actual repayment of such debt. SECTION 10 TRANSFERS AND PLEDGES 10.1 Restrictions on Transfer and Prohibition on Pledge. Except pursuant to Section 11 or the procedures described below in this Section, a Partner shall not, in any transaction or series of transactions, directly or indirectly Transfer all or any part of its Units. A Partner shall not, in any transaction or series of transactions, directly or indirectly Pledge all or any part of its Units or its interest in the Partnership. Neither the term "Transfer" nor the term 33 "Pledge," however, shall include an assignment by a Partner of such Partner's right to receive distributions from the Partnership so long as such assignment does not purport to assign any right of such Partner to participate in or manage the affairs of the Partnership, to receive any information or accounting of the affairs of the Partnership, or to inspect the books or records of the Partnership or any other right of a Partner pursuant to this Agreement or the Act. Any attempt by a Partner to Transfer or Pledge all or a portion of its Units in violation of this Agreement shall be void ab initio and shall not be effective to Transfer or Pledge such Units or any portion thereof. Subject to any applicable restrictions imposed by the Amended and Restated Parent Agreement, nothing in this Agreement shall prevent the Transfer or Pledge by the owner thereof of any capital stock, equity ownership interests or other security of a Partner or any Affiliate of a Partner. 10.2 Right of First Option. (a) Except as set forth in Section 10.6, without the consent of both of the General Partners, no Partner may Transfer less than all of its Units and no Partner may Transfer its Units for consideration other than cash. Any Limited Partner (or Limited Partners, if there are Affiliated Limited Partners) and its (or their) Affiliated General Partner desiring to Transfer all of their Units (together, the "Selling Partners") shall give written notice (the "Initial Notice") to the Partnership and the other Partners (the "Offeree Partners") stating that the Selling Partners desire to Transfer their Units and stating the cash purchase price and all other terms on which they are willing to sell (the "Offer Terms"). Delivery of an Initial Notice shall constitute the irrevocable offer of the Selling Partners to sell their Units to the Offeree Partners hereunder. (b) The Offeree Partners shall have the option, exercisable by delivering written notice (the "Acceptance Notice") of such exercise to the Selling Partners within 45 days of the date of the Initial Notice, to elect to purchase all of the Units of the Selling Partners on the Offer Terms described in the Initial Notice. If all of the Offeree Partners deliver an Acceptance Notice, then all of the Units shall be transferred to the Offeree Partners on a pro rata basis (based on the ratio of the number of Units owned by each Offeree Partner delivering an Acceptance Notice to the number of Units owned by all Offeree Partners delivering an Acceptance Notice or on any other basis that shall be mutually agreed upon between the Offeree Partners delivering an Acceptance Notice). If less than all of the Offeree Partners deliver an Acceptance Notice, the Selling Partners shall give written notice thereof (the "Additional Notice") to the Offeree Partners electing to purchase, and such Offeree Partners shall have the option, exercisable by delivery of an Acceptance Notice of such exercise to the Selling Partners within 15 days of such Additional Notice, to purchase all of the Units, including the Units it had not previously elected to purchase; provided, however, that any election by an Offeree Partner not to purchase all such Units shall be deemed a rescission of such Offeree Partner's original Acceptance Notice and an election not to purchase any of the Units of the Selling Partners. The Acceptance Notice shall set a date for closing the purchase, such date to be not less than 30 nor more than 90 days after delivery of the Acceptance Notice; provided that such time period shall be subject to extension as reasonably necessary (up to a maximum of an additional 120 days after such 90 day period) in order to comply with any applicable filing and waiting period requirements under the Hart-Scott-Rodino Antitrust Improvements Act. The closing shall be held at the Partnership's offices. The purchase price for the Selling Partners' Units shall be paid in cash delivered at the closing. The purchase shall be consummated by appropriate and customary documentation (including the 34 giving of representations and warranties substantially similar to those set forth in Sections 2.1 through 2.3 of the Second Master Transaction Agreement). (c) If none of the Offeree Partners elect to purchase the Selling Partners' Units within 45 days after the receipt of the Initial Notice, the Selling Partners shall have a further 180 days during which they may, subject to Sections 10.2(d) and (e), consummate the sale of their Units to a third party purchaser at a purchase price and on such other terms that are no more favorable to such purchaser than the Offer Terms. If the sale is not completed within such further 180-day period, the Initial Notice shall be deemed to have expired and a new notice and offer shall be required before the Selling Partners may make any Transfer of their Units. (d) Before the Selling Partners may consummate a Transfer of their Units to a third party in accordance with this Agreement, the Selling Partners shall demonstrate to the Offeree Partners that the Person willing to serve as the proposed purchaser's guarantor under the agreement contemplated by Section 10.2(e)(vi) has outstanding indebtedness that is rated investment grade by Moody's Investors Service, Inc. and Standard & Poor's Corporation, or if such Person has no rated indebtedness outstanding, such Person shall provide an opinion from a nationally recognized investment banking firm that such Person could be reasonably expected to obtain such ratings. (e) Notwithstanding the foregoing provisions of this Section 10.2, a Partner may Transfer its Units (other than pursuant to Section 10.6) only if all of the following occur: (i) The Transfer is accomplished in a non-public offering in compliance with, and exempt from, the registration and qualification requirements of all federal and state securities laws and regulations. (ii) The Transfer does not cause a default under any material contract to which the Partnership is a party or by which the Partnership or any of its properties is bound. (iii) The transferee executes an appropriate agreement to be bound by this Agreement. (iv) The transferor and/or transferee bears all reasonable costs incurred by the Partnership in connection with the Transfer. (v) The business and activities of the transferee comply with Section 9.6. (vi) The guarantor of the transferee satisfies the criteria set forth in Section 10.2(d) and delivers an agreement to the ultimate parent entity of the Offeree Partners and to the Partnership, substantially in the form of the Amended and Restated Parent Agreement. (vii) The proposed transferor is not in default in the timely performance of any of its material obligations to the Partnership. (viii) The provisions of Section 10.3 are satisfied. 35 10.3 Inclusion of General or Limited Partner Units. No Limited Partner may Transfer its Units to any Person (other than in accordance with Section 10.6) unless the Units of its General Partner Affiliate and its Limited Partner Affiliate or Affiliates (if any) are simultaneously transferred to such Person or a Wholly Owned Affiliate of such Person. No General Partner may transfer its Units to any Person (other than a Wholly Owned Affiliate of such Partner) unless the Units of its Affiliated Limited Partner (or Limited Partners, if more than one) are simultaneously transferred to such Person or a Wholly Owned Subsidiary of such Person. 10.4 Rights of Transferee. Upon consummation of a Transfer in accordance with Section 10.2, the transferee or transferees shall immediately, and without any further action of any Person, become (i) a Substitute Limited Partner if and to the extent Limited Partner Units are transferred and (ii) a Substitute General Partner, if and to the extent General Partner Units are transferred. 10.5 Effective Date of Transfer. Each Transfer shall become effective as of the first day of the calendar month following the calendar month during which the Partnership Governance Committee approves such Transfer and receives a copy of the instrument of assignment and all such certificates and documents of the character described in Section 10.2, which the Partnership Governance Committee may reasonably request. 10.6 Transfer to Wholly Owned Affiliate. Without the need for the consent of any Person (subject to the provisions contained in this Section 10.6): (a) any Partner may Transfer its Units to any Wholly Owned Affiliate of such Partner (other than the Partner that is its Affiliate), provided the transferee executes an instrument reasonably satisfactory to all of the General Partners accepting the terms and provisions of this Agreement (except as may be provided in Section 9.6). Upon consummation of a Transfer in accordance with this Section 10.6(a), the transferee shall immediately, and without any further action of any Person, become (i) a Substitute Limited Partner if and to the extent Limited Partner Units are transferred and (ii) a Substitute General Partner, if and to the extent General Partner Units are transferred; and (b) any Limited Partner may, at its option and at any time, (i) Transfer up to 99% of its Limited Partner Units to its Affiliated General Partner, whereupon such Limited Partner Units shall, without any further action, become General Partner Units or (ii) Transfer all of the Limited Partner Units held by such Limited Partner to its Affiliated Limited Partner. Promptly following any Transfer of Limited Partner Units in accordance with this Section 10.6(b), each Partner shall take such actions and execute such instruments or documents (including, without limitation, amendments to this Agreement or supplemental agreements hereto) as may be reasonably necessary to ensure that each Affiliated Partner Group shall, taken as a whole and following such Transfer, maintain all of its rights under this Agreement as in effect immediately prior to such Transfer (including, without limitation, the portion of Available Net Operating Cash distributable to such Affiliated Partner Group). 36 (c) Notwithstanding any of the foregoing provisions of this Section 10.6, provided that such Transfer does not cause a termination of the Partnership under Section 708(b)(1)(B) of the Code, any Limited Partner may Transfer all of its Limited Partner Units to any Affiliate of such Limited Partner that already holds solely Limited Partner Units, and any General Partner may Transfer all of its General Partner Units to any Affiliate of such General Partner that already holds solely General Partner Units. 10.7 Invalid Transfer. No Transfer of Units which is in violation of this Section 10 shall be valid or effective, and the Partnership shall not recognize the same for the purposes of making any allocation or distribution. SECTION 11 DEFAULT 11.1 Default. (a) Each of the following events shall constitute a "Default" and create the rights provided for in this Section 11 in favor of the Partnership and the Non-Defaulting Partners against the Defaulting Partners: (i) the failure by a Partner to make any contribution to the Partnership as required pursuant to this Agreement (other than pursuant to the Contribution Agreement), which failure continues for at least five Business Days from the date that the Partner is notified such contribution is overdue; or (ii) the withdrawal, retirement, resignation or dissolution of a Partner (other than in connection with a Transfer of all of a Partner's Units in accordance with this Agreement); or the Bankruptcy of a Partner or its Guarantor. (b) The day upon which the Default commences or occurs (or if the Default is subject to a cure period and is not timely cured, then the day following the end of the applicable cure period) shall be the "Default Date." Without prejudice to a Partner's (or any of its Affiliates') rights to seek temporary or preliminary judicial relief, prior to any such Default Date all rights and obligations of the Partners under this Agreement shall remain in full force and effect. 11.2 Remedies for Default. Provided that there shall be no duplication of remedies, without prejudice to any right to pursue independently and at any time, including simultaneously, any other remedy it may have under law, including the right to seek to recover Damages, or equity, the Non-Defaulting Affiliated Partner Group in its sole discretion may elect to pursue the following remedies: (a) At any time prior to the expiration of 60 days from the Default Date, the Non-Defaulting Affiliated Partner Group may elect to purchase all, but not less than all, of the Units of the Defaulting Partners as described in Section 11.3; provided, however, that within 10 days after the determination of the Fair Market Value, the Non-Defaulting Affiliated Partner Group may elect not to proceed with a purchase of the Units of the Defaulting Partners, in which case the Non-Defaulting Affiliated Partner Group shall have an additional 30 days from their determination not to proceed to elect an alternative remedy under Section 11.2(b) below; and 37 (b) At any time prior to the expiration of 60 days from the Default Date (or if the Non-Defaulting Affiliated Partner Group initially elected to pursue its remedy under Section 11.2(a) above, then at any time prior to the 30-day extension period), the Non-Defaulting Affiliated Partner Group may elect to effect a liquidation of the Partnership under Section 11.4 and thereby cause the Partnership to dissolve under Section 12.1(iv). 11.3 Purchase of Defaulting Partners' Units. (a) Upon any election pursuant to Section 11.2(a), the purchase price that the Non-Defaulting Partners shall pay, in the aggregate, to the Defaulting Partners for their Units shall be an amount equal to (i) the amount that the Defaulting Partners would receive in a liquidation (assuming that any sale under Section 12.2 were for an amount equal to the Fair Market Value, without giving effect to any Damages) reduced by (ii) the unrecovered Damages attributable to the Default by the Defaulting Partners. (b) If the Non-Defaulting Partners have a right to purchase the Units of the Defaulting Partners, they may first seek a determination of Fair Market Value by delivering notice in writing to the Defaulting Partners. The Non-Defaulting Affiliated Partner Group shall have 10 days from the final determination of Fair Market Value to elect to purchase the Defaulting Partner Units by delivering notice of such election in writing, and the purchase shall be consummated prior to the expiration of 60 days from the date such notice is delivered; provided that, such time period shall be subject to extension as reasonably necessary (up to a maximum of an additional 120 days after such 60 day period) in order to comply with any applicable filing and waiting period requirements under the Hart-Scott-Rodino Antitrust Improvements Act. (c) The purchase price so determined shall be payable in cash at a closing held at the Partnership's offices. The purchase shall be consummated by appropriate and customary documentation (including the giving of representations and warranties substantially similar to those set forth in Sections 2.1 through 2.4 of the Second Master Transaction Agreement) as soon as practicable and in any event within the applicable time period specified in subsection (b). (d) The Non-Defaulting Partners may assign, in whole or in part, their right to purchase the Units of the Defaulting Partners to one or more third parties without the consent of any Partner hereunder. (e) If Units are transferred in accordance with this Section 11.3, whether to the Non-Defaulting Partners or a third party (under subsection (d) above), upon the consummation of such Transfer, each such transferee shall immediately, and without any further action on the part of any Person, become (i) a Substitute Limited Partner if and to the extent that Limited Partner Units were transferred to such Person and (ii) a Substitute General Partner if and to the extent that General Partner Units were transferred to such Person. 11.4 Liquidation. Upon any election pursuant to Section 11.2(b), the Non-Defaulting Partners shall have the right to elect to dissolve and liquidate the Partnership pursuant to the procedures in Section 12.1(iv) (such procedures constituting a "Liquidation"); provided, however, that any amount payable to the Defaulting Partners in such Liquidation pursuant to 38 Section 12.2 shall be reduced by, without duplication, any unrecovered Damages incurred by the Non-Defaulting Partners and the Non-Defaulting Partners' Percentage Interest of any unrecovered Damages incurred by the Partnership in connection with the Default. The Non-Defaulting Partners shall deliver notice of such election to dissolve and liquidate in writing to the Partnership and the other Partners. 11.5 Certain Consequences of Default. Notwithstanding any other provision of this Agreement, commencing on the Default Date and (i) prior to the Non-Defaulting Partners' collection of Damages through the exercise of its legal remedies or otherwise, or (ii) while the Non-Defaulting Partners are pursuing their remedies under Section 11.2(a) or (b), the Representatives of the Defaulting General Partner shall not have any voting or decisional rights with respect to matters requiring Partnership Governance Committee Action, and such matters shall be determined solely by the Representatives of the Non-Defaulting General Partner; provided, however, that the foregoing loss of voting and decisional rights shall not occur as a result of a Default caused solely by the Bankruptcy of a Partner or a Guarantor described in Section 11.1(a)(iii); and provided further, that in the case of a Default under Section 11.1(a)(i) or (ii), the foregoing loss of voting and decisional rights shall not apply to those voting and decisional rights contained in Sections 6.7(i), (x), (xvi) or (xviii) of this Agreement, which rights shall continue in full force and effect at all times. SECTION 12 DISSOLUTION, LIQUIDATION AND TERMINATION 12.1 Dissolution and Termination. As long as there is at least one other General Partner (who is hereby authorized in such event to conduct the business of the Partnership without dissolution), the withdrawal, retirement, resignation, dissolution or Bankruptcy of a General Partner shall not dissolve the Partnership, but rather shall be a Default covered by Section 11. The Partnership shall be dissolved upon the happening of any one of the following events: (i) the written determination of both General Partners to dissolve the Partnership; (ii) the entry of a judicial decree of dissolution; (iii) any other act or event which results in the dissolution of a limited partnership under the Act (except as provided in the first sentence of this Section 12.1); (iv) the election of a Non-Defaulting Affiliated Partner Group to effect a dissolution of the Partnership under Section 11.4; or (v) after the delivery of a Deadlock Notice by a General Partner pursuant to Section 8.5, the written determination by either General Partner to dissolve the Partnership. 39 12.2 Procedures Upon Dissolution. (a) General. If the Partnership dissolves, it shall commence winding up pursuant to the appropriate provisions of the Act and the procedures set forth in this Section 12. Notwithstanding the dissolution of the Partnership, prior to the termination of the Partnership, the business of the Partnership and the affairs of the Partners, as such, shall continue to be governed by this Agreement. (b) Control of Winding Up. The winding up of the Partnership shall be conducted under the direction of the Partnership Governance Committee; provided, however, that if the dissolution is caused by entry of a decree of judicial dissolution, the winding up shall be carried out in accordance with such decree. (c) Manner of Winding Up. Unless the provisions of Section 12.2(e) apply, the Partnership shall attempt to sell all property and apply the proceeds therefrom in accordance with this Section 12.2(c) and Section 12.2(d) below. Upon dissolution of the Partnership, the Partnership Governance Committee shall determine the time, manner and terms of any sale or sales of Partnership property pursuant to such winding up, consistent with its duties and having due regard to the activity and condition of the relevant market and general financial and economic conditions. Except as otherwise agreed by the Partners, no distributions will be made in kind to any Partner without the consent of each Partner. (d) Application of Assets. In the case of a dissolution and winding-up of the Partnership, the Partnership's assets shall be applied as follows: (i) First, to satisfaction of the liabilities of the Partnership owing to creditors (including Partners and Affiliates of Partners who are creditors), whether by payment or reasonable provision for payment. Any reserves created to make any such provision for payment may be paid over by the Partnership to an independent escrow holder or trustee, to be held in escrow or trust for the purpose of paying any such contingent, conditional or unmatured liabilities or obligations, and, at the expiration of such period as the Partnership Governance Committee may deem advisable, such reserves shall be distributed to the Partners or their assigns in the manner set forth in subsection (d)(ii) below. (ii) Second, after all allocations of Profits or Losses and other items pursuant to Section 4, to the Partners in accordance with the balances in their Capital Accounts. Any Partner that then has a deficit in its Capital Account shall contribute cash in the amount necessary to eliminate such deficit. Such contributions shall be made within 90 days after the date in which all undistributed assets of the Partnership have been converted to cash. (iii) Notwithstanding the foregoing, if any Partner shall be indebted to the Partnership, then until payment in full of the principal of and accrued but unpaid interest on such indebtedness, regardless of the stated maturity or maturities thereof, the Partnership shall retain such Partner's distributive share of Partnership property and 40 apply such sums to the liquidation of such indebtedness and the cost of operation of such Partnership property during the period of such liquidation. (e) Division of Assets upon Deadlock. If dissolution occurs pursuant to Section 12.1(v), then the provisions of this Section 12.2(e) shall, if elected by any Partner, apply in lieu of the provisions of Section 12.2(c), but subject to the provisions of Section 12.2(d)(ii). In such event, the Partnership properties shall be divided and distributed in kind to the Partners in accordance with the provisions of Appendix E. 12.3 Termination of the Partnership. Upon the completion of the liquidation of the Partnership and the distribution of all Partnership assets, the Partnership's affairs shall terminate and the Partnership shall cause to be executed and filed a Certificate of Cancellation of the Partnership's Certificate of Limited Partnership pursuant to the Act, as well as any and all other documents required to effectuate the termination of the Partnership. 12.4 Asset and Liability Statement. Within a reasonable time following the completion of the winding-up and liquidation of the Partnership's business, the Partnership Governance Committee shall supply to each of the Partners a statement (which may be unaudited) which shall set forth the assets and the liabilities of the Partnership as of the date of complete liquidation, and each Partner's pro rata portion of distributions pursuant to Section 12.2. SECTION 13 MISCELLANEOUS 13.1 Confidentiality and Use of Information. (a) Except as provided in subsection (c) or (d), each Partner shall, and shall cause each of its Affiliates and its and their respective partners, shareholders, directors, officers, employees and agents (collectively, "Related Persons") to, keep secret, retain in strictest confidence, and not distribute, disseminate or disclose any and all Confidential Information except to (i) the Partnership and its officers and employees, (ii) any lender to the Partnership or (iii) any Partner or any of their respective Affiliates or other Related Persons on a "need to know" basis in connection with the transactions leading up to and contemplated by this Agreement and the operation of the Partnership, and such Partner disclosing Confidential Information pursuant to this Section 13.1(a) shall use, and shall cause its Affiliates and other Related Persons to use, such Confidential Information only for the benefit of the Partnership in conducting the Partnership's business or for any other specific purposes for which it was disclosed to such party; provided that the disclosure of financial statements of, or other information relating to the Partnership shall not be deemed to be the disclosure of Confidential Information (x) to the extent that any Partner (or its ultimate parent entity) deems it necessary to disclose such information in connection with a proposed strategic transaction, (y) to the extent that any Partner (or its ultimate parent entity) deems it necessary, appropriate or customary pursuant to law, regulation or stock exchange rule (in the reasonable good faith judgment of such parent entity) to disclose such information in or in connection with (i) filings with the SEC or a stock exchange, (ii) press releases disseminated to the financial community, (iii) presentations to lenders, (iv) discussions with underwriters for the Partnership's public debt offerings, (v) presentations to ratings agencies or (vi) information disclosed to similar audiences or (z) to the 41 extent that in order to sustain a position taken for tax purposes, any Partner (or former partner in the Partnership if such disclosure is with respect to periods in which such Person was a partner in the Partnership) deems it necessary and appropriate to disclose such financial statements or other information. All Confidential Information disclosed in connection with the Partnership or pursuant to this Agreement shall remain the property of the Person whose property it was prior to such disclosure unless such property has been transferred to the Partnership pursuant to a Contribution Agreement. (b) No Confidential Information regarding the plans or operations of any Partner or any Affiliate thereof received or acquired by or disclosed to any unaffiliated Partner or Affiliate thereof in the course of the conduct of Partnership business, or otherwise as a result of the existence of the Partnership, may be used by such unaffiliated Partner or Affiliate thereof for any purpose other than for the benefit of the Partnership in conducting the Partnership Business. The Partnership and each Partner shall have the affirmative obligation to take all necessary steps to prevent the disclosure to any Partner or Affiliate thereof of information regarding the plans or operations of such Partner and its Affiliates in markets and areas unrelated to the business of the Partnership in which any other Partner and their respective Affiliates compete. (c) In the event that any Partner is legally required (by interrogatories, discovery requests for information or documents, subpoena, civil investigative demand or similar process) to disclose any Confidential Information, it is agreed that such Partner prior to disclosure will provide the Partnership Governance Committee (and, if such Confidential Information concerns another Partner, such Partner) with prompt notice of such request(s) so that the Partnership Governance Committee (or such other Partner) may seek an appropriate protective order or other appropriate remedy and/or waive the Partner's compliance with the provisions of this Section. In the event that such protective order or other remedy is not obtained, or that the Partnership Governance Committee (and, if such Confidential Information concerns another Partner, such Partner) grants a waiver hereunder, the Partner required to furnish Confidential Information may furnish that portion (and only that portion) of the Confidential Information which, in the opinion of such Partner's counsel, such Partner is legally compelled to disclose, and such Partner will exercise its commercially reasonable best efforts to obtain reliable assurance that confidential treatment will be accorded any Confidential Information so furnished. (d) Any Partner may disclose Confidential Information to a third party who requires such Confidential Information for the purpose of evaluating a possible purchase of such Partner's Units in accordance with Section 10; provided, however, that such third party shall be informed by such Partner of the confidential nature of the information and the existence of this Section 13.1 and prior to any disclosure shall execute a written confidentiality agreement with such Partner substantially identical in scope to this Section and providing that such confidentiality agreement is also made for the benefit of the Partnership and each of the other Partners. (e) The Partners and their Affiliates shall consult with each other on an ongoing basis with respect to disclosures regarding the Partnership and its business and affairs permitted under Section 13.1(a)(y). 42 13.2 Indemnification. (a) Indemnification by Partnership. The Partnership agrees, to the fullest extent permitted by applicable law, to indemnify, defend and hold harmless each Partner, its Affiliates and their respective officers, directors and employees from, against and in respect of any Liability which such Indemnified Person may sustain, incur or assume as a result of, or relative to, a Third Party Claim arising out of or in connection with the business, property or affairs of the Partnership, except to the extent that it is Finally Determined that such Third Party Claim arose out of or was related to actions or omissions of the indemnified Partner, its Affiliates or any of their respective officers, directors or employees (acting in their capacities as such) constituting a breach of this Agreement or any Related Agreement. The Partnership shall periodically reimburse or advance to any Person entitled to indemnity under this subsection (a) its legal and other expenses incurred in connection with defending any claim with respect to such Liability if such Person shall agree to reimburse promptly the Partnership for such amounts if it is finally determined that such Person was not entitled to indemnity hereunder. Nothing in this Section 13.2(a) is intended to, nor shall it, affect or take precedence over the indemnity provisions contained in any Related Agreement. (b) Partner's Right of Contribution. Each Partner hereby agrees, to the fullest extent permitted by law, to indemnify, defend and hold harmless the other Partners, their Affiliates and their respective officers, directors and employees from and against the indemnifying Partner's Percentage Interest (calculated at the time any such Liability was incurred) of any Liability that such Indemnified Person may sustain, incur or assume as a result of or relating to any Third Party Claim arising out of or in connection with the business, property or affairs of the Partnership; provided, however, that such indemnified Partner, its Affiliates and their respective officers, directors and employees shall not be entitled to indemnity under this subsection (b) to the extent that it is Finally Determined that such Third Party Claim arose out of or was related to actions or omissions of the indemnified Partner, its Affiliates or any of their respective officers, directors or employees (acting in their capacities as such) constituting a breach of this Agreement or any Related Agreement; provided, further, that such indemnified Partner, its Affiliates and their respective officers, directors and employees shall not be entitled to indemnity under this subsection (b) unless (x) the indemnified Partner shall first make a written demand for indemnification from the Partnership in accordance with subsection (a) above and subsection (c) below and the Partnership shall fail to satisfy such demand in a manner reasonably satisfactory to the indemnified Partner within 60 days of such notice or (y) the Partnership is insolvent or otherwise unable to satisfy its obligations. The indemnifying Partner shall periodically reimburse any Person entitled to indemnity under this subsection (b) for its legal and other expenses incurred in connection with defending any claim with respect to such Liability if such Person shall agree to reimburse promptly the indemnifying Partner for such amounts if it is Finally Determined that such Person was not entitled to indemnity hereunder. (c) Procedures. Promptly after receipt by a Person entitled to indemnification under subsection (a) or (b) (an "Indemnified Party") of notice of any pending or threatened claim against it (a "Claim"), such Indemnified Party shall give prompt written notice (including copies of all papers served with respect to such claim) to the party to whom the Indemnified Party is entitled to look for indemnification (the "Indemnifying Party") of the commencement thereof, which notice shall describe in reasonable detail the nature of the Third Party Claim, an estimate 43 of the amount of damages attributable to the Third Party Claim to the extent feasible and the basis of the Indemnified Party's request for indemnification under this Agreement; provided that the failure to so notify the Indemnifying Party shall not relieve the Indemnifying Party of any liability that it may have to any Indemnified Party except to the extent the Indemnifying Party demonstrates that it is prejudiced thereby. In case any Claim that is subject to indemnification under subsection (a) shall be brought against an Indemnified Party and it shall give notice to the Indemnifying Party of the commencement thereof, the Indemnifying Party may, and at the request of the Indemnified Party shall, participate in and control the defense of the Third Party Claim with counsel of its choice reasonably satisfactory to the Indemnified Party. The Indemnified Party shall have the right to employ separate counsel in any such action and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of the Indemnified Party unless (i) the employment thereof has been specifically authorized in writing by the Indemnifying Party, (ii) the Indemnifying Party failed to assume the defense and employ counsel or failed to diligently prosecute or settle the Third Party Claim or (iii) there shall exist or develop a conflict that would ethically prohibit counsel to the Indemnifying Party from representing the Indemnified Party. If requested by the Indemnifying Party, the Indemnified Party agrees to cooperate with the Indemnifying Party and its counsel in contesting any Third Party Claim that the Indemnifying Party elects to contest, including, without limitation, by making any counterclaim against the Person asserting the Third Party Claim or any cross-complaint against any Person, in each case only if and to the extent that any such counterclaim or cross-complaint arises from the same actions or facts giving rise to the Third Party Claim. The Indemnifying Party shall be the sole judge of the acceptability of any compromise or settlement of any claim, litigation or proceeding in respect of which indemnity may be sought hereunder, provided that the Indemnifying Party will give the Indemnified Party reasonable prior written notice of any such proposed settlement or compromise and will not consent to the entry of any judgment or enter into any settlement with respect to any Third Party Claim without the prior written consent of the Indemnified Party, which shall not be unreasonably withheld. The Indemnifying Party (if the Indemnified Party is entitled to indemnification hereunder) shall reimburse the Indemnified Party for its reasonable out of pocket costs incurred with respect to such cooperation. If the Indemnifying Party fails to assume the defense of a Third Party Claim within a reasonable period after receipt of written notice pursuant to the first sentence of this subparagraph (c), or if the Indemnifying Party assumes the defense of the Indemnified Party pursuant to this subparagraph (c) but fails diligently to prosecute or settle the Third Party Claim, then the Indemnified Party shall have the right to defend, at the sole cost and expense of the Indemnifying Party (if the Indemnified Party is entitled to indemnification hereunder), the Third Party Claim by all appropriate proceedings, which proceedings shall be promptly and vigorously prosecuted by the Indemnified Party to a final conclusion or settled. The Indemnified Party shall have full control of such defense and proceedings; provided that the Indemnified Party shall not settle such Third Party Claim without the written consent of the Indemnifying Party, which consent shall not be unreasonably withheld. The Indemnifying Party may participate in, but not control, any defense or settlement controlled by the Indemnified Party pursuant to this Section, and the Indemnifying Party shall bear its own costs and expenses with respect to such participation. 44 Notwithstanding the other provisions of this Section 13.2, if the Indemnifying Party disputes its potential liability to the Indemnified Party under this Section 13.2 and if such dispute is resolved in favor of the Indemnifying Party, the Indemnifying Party shall not be required to bear the costs and expenses of the Indemnified Party's defense pursuant to this Section 13.2 or of the Indemnifying Party's participation therein at the Indemnified Party's request, and the Indemnified Party shall reimburse the Indemnifying Party in full for all costs and expenses of the litigation concerning such dispute. If a dispute over potential liability is resolved in favor of the Indemnified Party, the Indemnifying Party shall reimburse the Indemnified Party in full for all costs of the litigation concerning such dispute. After it has been determined, by acknowledgment, agreement, or ruling of court of Legal Requirements, that an Indemnifying Party is liable to the Indemnified Party under this Section 13.2(c), the Indemnifying Party shall pay or cause to be paid to the Indemnified Party the amount of the Liability within ten business days of receipt by the Indemnifying Party of a notice reasonably itemizing the amount of the Liability but only to the extent actually paid or suffered by the Indemnified Party. (d) Survival. The indemnities contained in this Section shall survive the termination and liquidation of the Partnership. (e) Subrogation. In the event of any payment by or on behalf of an Indemnifying Party to an Indemnified Party in connection with any Liability, the Indemnifying Party (or any guarantor who made such payment) shall be subrogated to and shall stand in the place of the Indemnified Party as to any events or circumstances in respect of which the Indemnified Party may have any right or claim against any third party (not including the Partnership) relating to such event or indemnification. The Indemnified Party shall cooperate with the Indemnifying Party (or such guarantor) in any reasonable manner in prosecuting any subrogated claim. (f) Nothing in this Agreement shall be deemed to limit the Partnership's power to indemnify its officers, employees, agents or any other person, to the fullest extent permitted by law. 13.3 Third Party Claim Reimbursement. (a) In the case of a Liability relating to a Third Party Claim and caused by the Fault of a General Partner, its Affiliates or any of their respective officers, directors or employees (acting in their capacities as such) against whom reimbursement is being sought, such General Partner hereby agrees to reimburse the Partnership for such Liability to the extent that: (i) the Liability relates to a Third Party Claim that has been finally resolved and that the Partnership has actually paid (an "Expense"); (ii) the Expense is not covered by insurance carried by the Partnership (excluding any amounts relating to insured claims to the extent that they fall within deductibles or self-insured retentions or are above applicable coverage limits); and (iii) the Expense is not offset by third party indemnification or otherwise; 45 provided, however, that such General Partner shall reimburse the Partnership for the Expense only to the extent and in proportion to its Fault. (b) Any claim by the Partnership for reimbursement under this Section may be initiated upon written notice from a Nonconflicted General Partner to the General Partner to whom the Partnership is entitled to look for indemnification, and the General Partners shall have a period of 60 days during which to reach unanimous agreement as to the terms on which any reimbursement shall be made. If the General Partners are unable to agree or there are any disputes over Fault and reimbursement under this Section, such matters shall be resolved pursuant to the Dispute Procedures. 13.4 Dispute Resolution. Except as otherwise provided for herein, all controversies or disputes arising under this Agreement shall be resolved pursuant to the provisions set forth on Appendix D (the "Dispute Procedures"). 13.5 EXTENT OF LIMITATION OF LIABILITY, INDEMNIFICATION, ETC. TO THE FULLEST EXTENT PERMITTED BY LAW AND WITHOUT LIMITING OR ENLARGING THE SCOPE OF THE LIMITATION OF LIABILITY, INDEMNIFICATION, RELEASE AND ASSUMPTION OBLIGATIONS SET FORTH HEREIN, A PARTY SHALL BE ENTITLED TO INDEMNIFICATION OR RELEASE HEREUNDER IN ACCORDANCE WITH THE TERMS HEREOF, REGARDLESS OF WHETHER THE LOSS GIVING RISE TO ANY SUCH INDEMNIFICATION OR RELEASE IS THE RESULT OF THE SOLE, GROSS, ACTIVE, PASSIVE, CONCURRENT OR COMPARATIVE NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT OR VIOLATION OF ANY LAW OF OR BY ANY SUCH PARTY. THE PARTIES AGREE THAT THIS STATEMENT CONSTITUTES A CONSPICUOUS LEGEND. 13.6 Further Assurances. From time to time, each Partner agrees to execute and deliver such additional documents, and will provide such additional information and assistance, as the Partnership may reasonably require to carry out the terms of this Agreement and to accomplish the Partnership's business. 13.7 Successors and Assigns. Except as may be expressly provided herein, this Agreement shall be binding upon and inure to the benefit of the successors of the Partners, but no Partner may assign or delegate any of its rights or obligations under this Agreement. Except as expressly provided herein, any purported assignment or delegation shall be void and ineffective. 13.8 Benefits of Agreement Restricted to the Parties. This Agreement is made solely for the benefit of the Partnership and the Partners, and no other Person, including any officer or employee of the Partnership or any Partner, shall have any right, claim or cause of action under or by virtue of this Agreement. 13.9 Notices. All notices, requests and other communications that are required or may be given under this Agreement shall, unless otherwise provided for elsewhere in this Agreement, be in writing and shall be deemed to have been duly given if and when (i) transmitted by facsimile with proof of confirmation from the transmitting machine or (ii) delivered by commercial courier or other hand delivery, as follows: 46 Lyondell Chemical Company Millennium Chemicals Inc. 1221 McKinney Street, Suite 700 230 Half Mile Road Houston, Texas 77010 Red Bank, New Jersey 07701 Attention: Kerry A. Galvin Attention: William Carmean Facsimile Number: (713) 309-4718 Facsimile Number: (732) 933-5270 Equistar Chemicals, LP 1221 McKinney Street, Suite 700 Houston, Texas 77010 Attention: Gerald A. O'Brien Facsimile Number: (713) 309-7312 All notices, requests and other communications that are required or may be given under Section 14 of this Agreement to OCC shall, unless otherwise provided for elsewhere in this Agreement, be in writing and shall be deemed to have been duly given if and when (i) transmitted by facsimile with proof of confirmation from the transmitting machine or (ii) delivered by commercial courier or other hand delivery, as follows: Occidental Chemical Corporation 5005 LBJ Freeway Dallas, Texas 75244 Attention: General Counsel Facsimile Number: (972) 404-4155 With a copy to: Occidental Petroleum Corporation 10889 Wilshire Boulevard Los Angeles, California 90024 Attention: General Counsel Facsimile Number: (310) 443-6333 13.10 [Reserved] 13.11 Severability. In the event that any provisions of this Agreement shall be Finally Determined to be unenforceable, such provision shall, so long as the economic and legal substance of the transactions contemplated hereby is not affected in any materially adverse manner as to any Partner, be deemed severed from this Agreement and every other provision of this Agreement shall remain in full force and effect. 13.12 Construction. In construing this Agreement, the following principles shall be followed: (i) no consideration shall be given to the captions of the articles, sections, subsections or clauses, which are inserted for convenience in locating the provisions of this Agreement and not as an aid in construction; (ii) no consideration shall be given to the fact or presumption that any Partner had a greater or lesser hand in drafting this Agreement; (iii) examples shall not be construed to limit, expressly or by implication, the matter they illustrate; (iv) the word "includes" 47 and its syntactic variants mean "includes, but is not limited to" and corresponding syntactic variant expressions; (v) the plural shall be deemed to include the singular, and vice versa; (vi) each gender shall be deemed to include the other gender; and (vii) each appendix, exhibit, attachment and schedule to this Agreement is a part of this Agreement. 13.13 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall constitute an original, and all of which when taken together shall constitute one and the same original document. 13.14 Waiver of Right to Partition. Except as provided in Section 12.2(e), each Person who now or hereafter is a party hereto or who has any right herein or hereunder irrevocably waives during the term of the Partnership any right to maintain any action for partition with respect to Partnership property. 13.15 Governing Law. The laws of the State of Delaware shall govern the construction, interpretation and effect of this Agreement without giving effect to any conflicts of law principles. 13.16 Jurisdiction; Consent to Service of Process; Waiver. ANY JUDICIAL PROCEEDING BROUGHT AGAINST ANY PARTY TO THIS AGREEMENT OR ANY DISPUTE UNDER OR ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY MATTER RELATED HERETO SHALL BE BROUGHT IN THE FEDERAL OR STATE COURTS OF THE STATE OF DELAWARE, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE PARTIES TO THIS AGREEMENT ACCEPTS THE EXCLUSIVE JURISDICTION OF SUCH COURTS AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT (AS FINALLY ADJUDICATED) RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT. EACH OF THE PARTIES TO THIS AGREEMENT SHALL APPOINT THE CORPORATION TRUST COMPANY, THE PRENTICE-HALL CORPORATION SYSTEM, INC. OR A SIMILAR ENTITY (THE "AGENT") AS AGENT TO RECEIVE ON ITS BEHALF SERVICE OF PROCESS IN ANY PROCEEDING IN ANY SUCH COURT IN THE STATE OF DELAWARE. THE FOREGOING CONSENTS TO JURISDICTION AND APPOINTMENTS OF AGENT TO RECEIVE SERVICE OF PROCESS SHALL NOT CONSTITUTE GENERAL CONSENTS TO SERVICE OF PROCESS IN THE STATE OF DELAWARE FOR ANY PURPOSE EXCEPT AS PROVIDED ABOVE AND SHALL NOT BE DEEMED TO CONFER RIGHTS ON ANY PERSON OTHER THAN THE PARTIES HERETO. 13.17 Expenses. Except as otherwise provided herein or in the Second Master Transaction Agreement, each party hereto shall be responsible for its own expenses incurred in connection with this Agreement. 13.18 Waiver of Jury Trial. EACH PARTY HEREBY KNOWINGLY AND INTENTIONALLY, IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT AND FOR ANY COUNTERCLAIM THEREIN. 48 13.19 Payment Terms and Interest Calculations. (a) If the payment due date for any payment hereunder (including capital contributions and Damages) falls on a Saturday or a bank or federal holiday, other than a Monday, the payment shall be due on the past preceding business day. If the payment due date falls on a Sunday or Monday bank or federal holiday, the payment shall be due on the following business day. (b) Interest shall accrue on any unpaid and outstanding amount from the time such amount is due and payable through the date upon which such amount, together with accrued interest thereon, is paid in full. Interest shall, subject to the provisions of Section 13.20, accrue at a per annum rate equal to the lesser of (i) the Agreed Rate plus 2%, compounded quarterly, to the extent permitted by law or (ii) the Highest Lawful Rate. (c) A wire transfer or delivery of a check shall not operate to discharge any payment under this Agreement and shall be accepted subject to collection. 13.20 Usury Savings Clause. Notwithstanding any other provision of this Agreement, it is the intention of the parties hereto to conform strictly to Applicable Usury Laws, in each case to the extent they are applicable to this Agreement. Accordingly, if any payment made pursuant to this Agreement results in any Person having paid any interest in excess of the Maximum Amount, or if any transaction contemplated hereby would otherwise be usurious under any Applicable Usury Laws, then, in that event, it is agreed as follows: (i) the provisions of this Section 13.20 shall govern and control; (ii) the aggregate of all interest under Applicable Usury Laws that is contracted for, charged or received under this Agreement shall under no circumstances exceed the Maximum Amount, and any excess shall be promptly refunded to the payor by the recipient hereof; (iii) no Person shall be obligated to pay the amount of such interest to the extent that it is in excess of the Maximum Amount; and (iv) the effective rate of any interest payable under this Agreement shall be ipso facto reduced to the Highest Lawful Rate, as hereinafter defined, and the provisions of this Agreement immediately shall be deemed reformed, without the necessity of the execution of any new document or instrument, so as to comply with all Applicable Usury Laws. All sums paid, or agreed to be paid, to any person pursuant to this Agreement for the use, forbearance or detention of any indebtedness arising hereunder shall, to the fullest extent permitted by the Applicable Usury Laws, be amortized, pro rated, allocated and spread throughout the full term of any such indebtedness so that the actual rate of interest does not exceed the Highest Lawful Rate in effect at any particular time during the full term thereof. 13.21 Other Waivers. EACH PARTY HEREBY WAIVES ANY OBJECTION IT MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON-CONVENIENS. 13.22 Special Joinder by OCC. OCC is a party to this Agreement for the sole purpose of evidencing its agreement to be bound by the provisions set forth in Section 13.9 (Notices) and Section 14 (Lake Charles Facility). OCC is not a partner of the Partnership and shall not have any rights or obligations under this Agreement other than rights and obligations that will apply if Lyondell (Pelican) LP1 and OCC make the election described in Section 14.1. 49 13.23 Amendment. All waivers, modifications, amendments or alterations of this Agreement shall require the written approval of each of the General Partners and each of the Limited Partners. SECTION 14 LAKE CHARLES FACILITY 14.1 Lease Not in Force and Effect. At any such time as the Lease is terminated, expires or is otherwise not in force and effect (other than a No Rebuilding Termination), the following shall occur: (a) The number of Units held by Lyondell (Pelican) LP1 shall be reduced from 6,623 Units to 2,541 Units. (b) If and to the extent Lyondell (Pelican) LP1 and OCC both so elect in writing, OCC and the Partnership shall form a general partnership (the "LC Partnership") by entering into a partnership agreement having the provisions described in Section 14.2 (the "GPA"). Except as provided in Section 15.1, if Lyondell (Pelican) LP1 and OCC do not make the written election referred to in the immediately preceeding sentence and satisfy their obligations under this Section 14, then the provisions of Section 14.4 shall apply as if Lyondell (Pelican) LP1 had breached its obligations under Section 14.1. (c) The Partnership shall distribute to Lyondell (Pelican) LP1 the balance in its Capital Account. (d) OCC shall cause the Lake Charles Facility to be contributed to the LC Partnership, and Lyondell (Pelican) LP1 shall pay to the LC Partnership the amount received pursuant to Section 14.1(c), and OCC shall contribute to the LC Partnership an amount equal to any proceeds of a partial condemnation of the Lake Charles Facility received by OCC under the terms of the Lease, and the Partnership shall contribute to the LC Partnership the amount received pursuant to Section 26(b) of the Lease in connection with such termination of the Lease. (e) Immediately after and as a result of the foregoing transactions, the capital account of OCC and the Partnership in the LC Partnership shall be pro rata in accordance with the partners' equity ownership interests, and Lyondell (Pelican) LP1's Capital Account shall be the same per Unit as the Capital Accounts of the other Partners (determined without regard to the special allocations in Sections 4.1(a) through (c)). (f) Sections 4.1(e) and (f) shall terminate. 14.2 LC Partnership Provisions. (a) If Lyondell (Pelican) LP1 and OCC make the election described in Section 14.1, then (a) the LC Partnership shall be formed under the laws of Delaware, (b) the two partners of the LC Partnership shall be the Partnership and OCC and (c) the Partnership shall have an equity ownership interest of 49.9%, and OCC shall have an equity ownership interest of 50.1%. (b) The term of the GPA shall be the same as the term of this Agreement. 50 (c) All issues relating to the LC Partnership must be decided by mutual agreement of both partners, except that the LC Partnership shall enter into an operating agreement with the Partnership (in its individual capacity), as operator, that shall delegate to the operator the right and obligation to make all day-to-day decisions of the LC Partnership, which day-to-day decisions shall for this purpose be deemed to be all decisions of the LC Partnership other than issues comparable to those issues set forth in Section 6.7 (which issues must be decided by the partners of the LC Partnership). Such operating agreement shall provide for the LC Partnership to pay and reimburse the operator for all costs whatsoever incurred or paid by the operator in performing its obligations under the operating agreement. The term of such operating agreement shall be the same as the term of the LC Partnership. (d) All contributions and distributions will be made, and all book income and deductions will be allocated, in accordance with the partners' equity ownership interests. Tax items will be allocated between the partners in a manner similar to that set forth in this Agreement. (e) No partner in the LC Partnership may transfer (except a transfer to a Wholly Owned Affiliate) or encumber its equity ownership without the consent of the other partner. 14.3 No Rebuilding Termination. Upon a No Rebuilding Termination, OCC, shall have the option to contribute to the Partnership within 30 days following the No Rebuilding Termination an amount (the "Payment Amount") equal to the excess, if any, of (a) the Proceeds plus the book value (determined in accordance with GAAP) as recorded on the books of OCC for that portion and aspect of the Lake Charles Facility that constitutes land, over (b) the payment made pursuant to Section 26(b) of the Lease in connection with such No Rebuilding Termination. If within such 30-day period Lyondell (Pelican) LP1 contributes the Payment Amount to the Partnership, (i) Lyondell (Pelican) LP1's 6,623 Units shall remain outstanding, (ii) its Capital Account shall be credited with the Payment Amount, (iii) the assets of the Partnership shall be revalued so that the Capital Account of each Partner is the same per Unit (determined without regard to the special allocations in Sections 4.1(a) through (c)), and (iv) Sections 4.1(e) and (f) shall terminate. If Lyondell (Pelican) LP1 does not contribute the Payment Amount to the Partnership within such 30-day period, (A) Lyondell (Pelican) LP1's 6,623 Units shall be redeemed and canceled and of no further force and effect and (B) an amount equal to the balance in Lyondell (Pelican) LP1's Capital Account shall be distributed by the Partnership to Lyondell (Pelican) LP1, or if there is a deficit in Lyondell (Pelican) LP1's Capital Account, Lyondell (Pelican) LP1 shall contribute to the Partnership an amount of cash necessary to eliminate such deficit. Upon completion of the steps in clauses (A) and (B), Lyondell (Pelican) LP1's entire interest in the Partnership shall terminate. 14.4 Other Redemption. If Lyondell (Pelican) LP1 breaches any of its obligations under Section 14.1, (a) Lyondell (Pelican) LP1's 6,623 Units shall be redeemed and canceled and of no further force and effect and (b) an amount equal to the balance in Lyondell (Pelican) LP1's Capital Account shall be distributed by the Partnership to Lyondell (Pelican) LP1, or if there is a deficit in Lyondell (Pelican) LP1's Capital Account, Lyondell (Pelican) LP1 shall contribute to the Partnership an amount of cash necessary to eliminate such deficit. Upon completion of the steps in clauses (a) and (b), Lyondell (Pelican) LP1's entire interest in the Partnership shall terminate. In the event of a forfeiture of Lyondell (Pelican) LP1's 6,623 Units 51 pursuant to this Section 14.4, the Capital Accounts of the Partners shall be adjusted in accordance with the procedures contained in the definition of "Book Value" prior to determining any deficit or positive Capital Account balance for purposes of this Section 14.4. For purposes of this adjustment, any unamortized portion of the agreed value of the Lease shall be treated as a loss and deducted from Lyondell (Pelican) LP1's Capital Account. SECTION 15 ADDITIONAL AGREEMENTS REGARDING THE LAKE CHARLES FACILITY 15.1 Receipt of Fee Title. Notwithstanding the provisions of Section 14, if at any time the Partnership receives fee title to the Lake Charles Facility, then (i) Section 14 shall be of no further force or effect, (ii) Lyondell (Pelican) LP1's Capital Account shall be the same per Unit as the Capital Accounts of the other Partners (determined without regard to the special allocations in Sections 4.1(a), 4.1(b) and 4.1(c)) and (iii) Sections 4.1(e) and 4.1(f) shall terminate. 15.2 Authority to Act. Notwithstanding the provisions of this Agreement, if Lyondell GP believes in good faith that it would be in the best interests of the Partnership, Lyondell GP shall have the sole right to direct the Partnership's actions with respect to all matters regarding the Lake Charles Facility that (i) are described in the Occidental Interest Transaction Documents (and Millennium hereby consents, on behalf of itself and its Affiliates, to all such matters notwithstanding any provision of the Occidental Interest Transaction Documents that may contemplate consent by Millennium or its Affiliates to any of such matters) or (ii) relate to any lease of the Lake Charles Facility by the Partnership that is or will be on substantially the same terms as the Lease and any agreements ancillary thereto that are in effect on May 31, 2002; provided, however, that, notwithstanding anything in the foregoing to the contrary, this Section 15.2 shall not otherwise limit Millennium GP's rights under Section 6.8. 52 IN WITNESS WHEREOF, this Agreement has been executed on behalf of each of the parties hereto, by their respective officers thereunto duly authorized, effective as of the date first written above. GENERAL PARTNERS LYONDELL PETROCHEMICAL G.P. INC. By: /s/ GERALD A. O'BRIEN ----------------------------------------------- Name: Gerald A. O'Brien Title: Vice President and General Counsel MILLENNIUM PETROCHEMICALS GP LLC By: Millennium Petrochemicals Inc., its Manager By: /s/ C. WILLIAM CARMEAN ----------------------------------------------- Name: C. William Carmean Title: Senior Vice President [Signature Page for Amended and Restated Limited Partnership Agreement] LIMITED PARTNERS LYONDELL PETROCHEMICAL L.P. INC. By: /s/ FRANCIS P. MCGRAIL -------------------------------------------- Name: Francis P. McGrail Title: Vice President and Assistant Treasurer LYONDELL (PELICAN) PETROCHEMICAL L.P.1, INC. By: /s/ FRANCIS P. MCGRAIL -------------------------------------------- Name: Francis P. McGrail Title: Vice President and Assistant Treasurer LYONDELL (PELICAN) PETROCHEMICAL L.P.2, INC. By: /s/ FRANCIS P. MCGRAIL -------------------------------------------- Name: Francis P. McGrail Title: Vice President and Assistant Treasurer MILLENNIUM PETROCHEMICALS LP LLC By: Millennium Petrochemicals Inc., its Manager By: /s/ C. WILLIAM CARMEAN -------------------------------------------- Name: C. William Carmean Title: Senior Vice President [Signature Page for Amended and Restated Limited Partnership Agreement] SPECIAL JOINDER PURSUANT TO SECTION 13.22 OCCIDENTAL CHEMICAL CORPORATION By: /s/ J.R. HAVERT ------------------------------------------------- Name: J.R. Havert Title: Vice President and Treasurer [Signature Page for Amended and Restated Limited Partnership Agreement] APPENDIX A TO LIMITED PARTNERSHIP AGREEMENT DEFINED TERMS 1998 Credit Facility. See Section 8.6(a). AAA. See Appendix D. Acceptance Notice. See Section 10.2(b). Act. The Delaware Revised Uniform Limited Partnership Act, as amended and in effect from time to time. Additional Related Agreements. The agreements defined as "Related Agreements" in the Second Master Transaction Agreement (other than this Agreement), as such agreements may be amended from time to time after the date hereof. Adjusted Capital Account Deficit. With respect to any Partner, the deficit balance, if any, in such Partner's Capital Account as of the end of the relevant fiscal year, after giving effect to the following adjustments: (i) Such Capital Account shall be deemed to be increased by any amounts which such Partner is obligated to restore to the Partnership (pursuant to this Agreement or otherwise) or is deemed to be obligated to restore pursuant to the second to last sentence of Regulation ss.1.704-2(g)(1) and ss.1.704-2(i)(5) (relating to allocations attributable to nonrecourse debt). (ii) Such Capital Account shall be deemed to be decreased by the items described in Regulation ss.1.704-1(b)(2)(ii)(d)(4), (5) and (6). The foregoing definition of Adjusted Capital Deficit is intended to comply with the provisions of Regulation ss.1.704-1(b)(2)(ii)(d) and shall be interpreted and applied consistently therewith. Additional Notice. See Section 10.2(b). Affiliate. As to any specified Person, any other Person that directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with the specified Person; provided, however, that for purposes of this Agreement such term shall not include (i) the Partnership or any entities controlled by it, and (ii) in the case of Millennium GP and Millennium LP shall not include Suburban Propane Partners, L.P. and any entities controlled by it [and (iii) Occidental and any entities controlled by it]. For purposes of this definition the term "control" shall have the meaning set forth in 17 CFR 230.405, as in effect on the date hereof. A-1 Affiliated General Partner. In the case of Lyondell LP, Lyondell (Pelican) LP1 and Lyondell (Pelican) LP2, the "Affiliated General Partner" shall mean Lyondell GP. In the case of Millennium LP, the "Affiliated General Partner" shall mean Millennium GP. Affiliated Limited Partner. In the case of Lyondell GP, the "Affiliated Limited Partner" shall mean Lyondell LP, Lyondell (Pelican) LP1 and Lyondell (Pelican) LP2. In the case of Millennium GP, the "Affiliated Limited Partner" shall mean Millennium LP. Affiliated Partner Group. A General Partner and its Affiliated Limited Partner or Affiliated Limited Partners, if more than one. Agreed Rate. The base commercial lending rate announced by Citibank, N.A. (or its successor) at its principal office, in effect from time to time, such interest rate to change automatically, effective as of the date of each change in such base rate. Agreement. This Amended and Restated Limited Partnership Agreement of Equistar Chemicals, LP, as amended from time to time. Alternate. See Section 6.4(b). Amended and Restated Parent Agreement. The Amended and Restated Parent Agreement dated as of the date of this Agreement between the Partnership, Lyondell and Millennium. Annual Budget. See Section 8.2. Applicable Usury Laws. Laws regarding the use, forbearance or detention of any indebtedness arising under this Agreement whether such laws are now or hereafter in effect, including the laws of the United States of America or any other jurisdiction whose laws are applicable, and including any subsequent revisions to or judicial interpretations of those laws. Arbitrator. See Appendix D. Asset Fair Market Value. With respect to any asset, as of the date of determination, the cash price at which a willing seller would sell, and a willing buyer would buy, each being apprised of all relevant facts and neither acting under compulsion, such as in an arm's-length negotiated transaction with an unaffiliated third party without time constraints. Assumed Liabilities. In the case of Lyondell LP and Lyondell GP, Assumed Liabilities means the "Assumed Liabilities" as defined in the Contribution Agreement of Lyondell. In the case of Millennium LP and Millennium GP, Assumed Liabilities shall mean the "Assumed Liabilities" as defined in the Contribution Agreement of Millennium Petrochemicals. In the case of Occidental LP1, Occidental LP2 and Occidental GP, Assumed Liabilities means the "Assumed Liabilities" as defined in the Contribution Agreement of Occidental. Auxiliary Committee. See Section 6.9. A-2 Available Net Operating Cash. At the time of determination, (a) all cash and cash equivalents on hand in the Partnership as of the most recent month end, plus the excess, if any, of the Partnership Target Debt over the Partnership's actual indebtedness (as determined in accordance with GAAP) as of such month end, less (b) the Projected Cash Requirements, if any, of the Partnership as of such month end, as determined by the Executive Officers of the Partnership. For purposes of this definition, "Projected Cash Requirements" means, for the 12-month period following any such month end, the excess, if any, of the sum of (a) forecast capital expenditures, plus (b) forecast cash payments for Taxes, debt service including principal and interest requirements and other non-cash credits to income, plus (c) forecast cash reserves for future operations or other requirements, over the sum of (1) forecast net income of the Partnership, plus (2) the sum of forecast depreciation, amortization, other non-cash charges to income, interest expenses, and Tax expenses, in each case to the extent deducted in determining net income, plus or minus (3) forecast decreases or increases, respectively, in working capital, plus (4) the forecast cash proceeds of dispositions of assets (net of expenses). For purposes of this definition, "Partnership Target Debt" means for such month end, the level of indebtedness (as determined in accordance with GAAP) projected for the Partnership in the most recently approved Strategic Plan, except to the extent the Executive Officers of the Partnership determine that changes in the financial condition, results of operations, assets, business or prospects of the Partnership make a change advisable, in which case the Partnership shall advise the General Partners promptly regarding the basis for the change. Projected Cash Requirements shall be calculated consistent with the most recently approved Strategic Plan, except to the extent the Executive Officers of the Partnership determine that changes in the financial condition, results of operations, assets, business or prospects of the Partnership make a change advisable, in which case the Partnership shall advise the General Partners promptly regarding the basis for the change. Bank Credit Agreement. The Credit Agreement dated as of August 24, 2001 among the Partnership, as Borrower, the lenders from time to time party hereto, initially consisting of those listed on Schedule 2.01 thereto, Citicorp USA, Inc. and Credit Suisse First Boston, as Co-Syndication Agents, Bank of America, N.A., as Servicing Agent and administrative agent, and The Chase Manhattan Bank, as Collateral Agent and administrative agent. Bankruptcy. The occurrence of any of the following: (i) a Partner or its Guarantor shall file a voluntary petition in bankruptcy or shall be adjudicated a bankrupt or insolvent, or shall file any petition or answer or consent seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief for itself under any present or future applicable federal, state or other statute or law relating to bankruptcy, insolvency, or other relief for debtors, or shall seek or consent to or acquiesce in the appointment of any trustee, receiver, conservator or liquidator of such Partner or its Guarantor or of all or any substantial part of its properties or its Units (the term "acquiesce," as used in this definition, includes the failure to file a petition or motion to vacate or discharge any order, judgment or decree within ten Business Days after entry of such order, judgment or decree); (ii) a court of competent jurisdiction shall enter an order, judgment or decree approving a petition filed against any Partner or its Guarantor seeking a reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under the present or any future federal bankruptcy act, or any other present or future applicable federal, state or other statute or law relating to bankruptcy, insolvency, or other relief for debtors, and such Partner or its Guarantor shall acquiesce in the entry of such order, A-3 judgment or decree or such other order, judgment or decree shall remain unvacated and unstayed for an aggregate of 60 days (whether or not consecutive) from the date of entry thereof, or any trustee, receiver, conservator or liquidator of such Partner or its Guarantor or of all or any substantial part of its property or its Units shall be appointed without the consent or acquiescence of such Partner or its Guarantor and such appointment shall remain unvacated and unstayed for an aggregate of 60 days (whether or not consecutive); (iii) a Partner or its Guarantor shall admit in writing its inability to pay its debts as they mature; (iv) a Partner or its Guarantor shall give notice to any governmental body of insolvency or pending insolvency, or suspension or pending suspension of operations; or (v) a Partner or its Guarantor shall make an assignment for the benefit of creditors or take any other similar action for the protection or benefit of creditors. Beneficiary Partner. See Section 4.1(g). Book Value. With respect to any asset of the Partnership, the asset's adjusted basis as of the relevant date for federal income tax purposes, except as follows: The initial aggregate Book Value of all of the assets of the Partnership as of the Initial Closing Date shall be equal to the sum of (A) the beginning aggregate Capital Accounts of the Partners immediately after the Initial Closing Date, and (B) the aggregate amount of all liabilities of the Partnership for federal income tax purposes immediately after the Initial Closing Date. The initial Book Value of any asset contributed by a Partner to the Partnership after the Initial Closing Date shall be the gross fair market value of such asset, which shall be equal to the amount credited to such Partner's Capital Account for such contribution (increased by the amount of any liabilities which the Partnership assumes or takes subject to). The Book Values of all Partnership assets (including intangible assets such as goodwill) shall be adjusted (at the election of the Partnership Governance Committee) to equal their respective gross fair market values upon the occurrence of any of the events described in Regulation ss.1.704-1(b)(2)(iv)(f)(5). The Book Value of any asset distributed by the Partnership to a Partner shall be equal to the gross fair market value of such asset on the date of the distribution. The Book Value of any Partnership asset with respect to which an adjustment to tax basis has occurred by reason of the application of Section 734(b) or 754(b) of the Code shall be adjusted to the extent such adjustment to tax basis is taken into account pursuant to Regulation ss.1.704-1(b)(2)(iv)(m). If the Book Value of an asset is not equal to its adjusted tax basis for federal income tax purposes, such Book Value shall be adjusted by the Depreciation taken into account with respect to such asset for purposes of computing Profits and Losses and other items allocated pursuant to Section 4.1. The foregoing definition of Book Value is intended to comply with the provisions of Regulation ss.1.704-1(b)(2)(iv) and shall be interpreted and applied consistently therewith. Any determinations of "gross fair market value" in this definition of Book Value shall be made by the Partnership Governance Committee. A-4 Business Day. Any day other than a Saturday, Sunday or other day on which banks are closed in New York City, New York; provided, however, that for purposes of the definitions of "Interest Period" and "LIBOR Rate," "Business Day" shall mean a day of the year on which banks are not required or authorized to close in Houston, Texas and on which commercial banks are open for international business (including dealings for dollar deposits) in the London interbank market. Business Opportunity. See Section 9.3(c). Capital Account. The separate capital account established and maintained by the Partnership for each Partner, as contemplated by Section 2. Capital Expenditure Budget. See Section 8.2(d). CEO. See Section 7.1(b). Claim. See Section 13.2(c). Code. The Internal Revenue Code of 1986, as amended and in effect from time to time and any successor thereto. Competing Opportunity. See Section 9.3(c). Confidential Information. All confidential documents and information (including, without limitation, confidential commercial information and information with respect to customers, trade secrets and proprietary technologies or processes and the design and development of new products or services) concerning the Partnership, the Partners or their Affiliates, furnished to a Partner in connection with the transactions leading up to and contemplated by this Agreement and the operation of the Partnership, except to the extent that such information (i) is or becomes generally available to and known by the public or the petrochemical industry (other than as a result of an unpermitted disclosure directly or indirectly by the Partnership or a Partner), (ii) is or becomes available to a Partner on a nonconfidential basis from a source other than the Partnership or a Partner; provided, however, that such source is not and was not bound by a confidentiality agreement with, or other obligation of secrecy to, the Partnership or the other Partner, (iii) has already been or is hereafter independently acquired or developed by a Partner without violating any confidentiality agreement with or other obligation of secrecy to the Partnership or another Partner or (iv) is otherwise generated by the Partnership with the intention that it not be held as confidential. Conflict Circumstance. Any transaction or dealing between the Partnership (or any Wholly Owned Subsidiary) and a General Partner (the "Conflicted General Partner") or any of its Affiliates pursuant to any agreement (including this Agreement or any other Related Agreements) or otherwise, including action to be taken by the Partnership pursuant to Section 9.3(c) or (d) or 13.3(b); provided, however, that a Conflict Circumstance shall cease to exist if and when the third party with which the transaction or dealing exists shall cease to be an Affiliate of a General Partner. Conflicted General Partner. As defined in the definition of "Conflict Circumstance." A-5 Contributed Business. As defined in each of the Contribution Agreements. Contribution Agreement. In the case of Lyondell LP and Lyondell GP, the Contribution Agreement shall mean the Asset Contribution Agreement dated December 1, 1997, between the Partnership, Lyondell and Lyondell LP. In the case of Millennium LP and Millennium GP, the Contribution Agreement shall mean the Asset Contribution Agreement dated December 1, 1997, between the Partnership, Millennium Petrochemicals and Millennium LP. In the case of Occidental LP1, Occidental LP2 and Occidental GP, the Contribution Agreement shall mean the Agreement and Plan of Merger and Asset Contribution dated as of the date of this Agreement between the Partnership, Oxy Petrochemicals, Occidental LP1, Occidental LP2 and Occidental GP. Damages. With respect to a Person in connection with a Default, any and all obligations (including all obligations to take an affirmative or curative act), liabilities, damages (including damages arising out of any breach of any representation or warranty, damages related to investigations, proceedings, audits, the interruption of the Partnership's business, restrictions upon the use of, or adverse impact on, the Assets or the Partnership's business, or the interruption, breach or termination of any Related Agreements or other agreements, including any lost profits attributable thereto), fines, penalties, deficiencies, losses, judgments, settlements, costs and expenses (including costs and expenses incurred in connection with performing obligations, bonding and appellate costs and attorneys', accountants', engineers', health, safety, environmental and other consultants' and investigators' fees and disbursements, liquidating, selling or offering for sale the Partnership's business and assets or winding up the Partnership's business, or other payments in respect of such payments) suffered or incurred by such Person that arise out of or relate to such Default, regardless of whether any of the foregoing are foreseeable, unforeseeable, matured or unmatured, existing or contingent as of the date of such Default. "Damages" also shall include, if and to the extent interest is not already included therein under applicable law or other provisions hereof and subject to Section 13.20, interest on amounts actually due until payment thereof is made at a rate per annum equal to the rate set forth in Section 13.19(b). "Damages" shall not include any punitive, exemplary, special or other similar damages. Deadlock Notice. See Section 8.5. Default. See Section 11.1. Default Date. See Section 11.1. Defaulting Partners. Lyondell GP, Lyondell LP, Lyondell (Pelican) LP1 and Lyondell (Pelican) LP2, in the case of a Default by Lyondell GP, Lyondell LP, Lyondell (Pelican) LP1 or Lyondell (Pelican) LP2 or their Guarantor; and Millennium GP and Millennium LP, in the case of a Default by Millennium GP, Millennium LP or their Guarantor. Depreciation. For each fiscal year or part thereof, an amount equal to the depreciation, amortization, or other cost recovery deduction allowable for federal income tax purposes with respect to an asset for such year or other period, except that if the Book Value of an asset differs from its adjusted basis for federal income tax purposes at the beginning of such year, Depreciation shall be (i) an amount which bears the same ratio to such Book Value as the federal income tax depreciation, amortization or other cost recovery deduction for such year bears to such adjusted tax basis, or, (ii) if the federal income tax depreciation, amortization or other cost recovery deduction for such year is equal to zero, an amount determined with reference to such Book Value using a reasonable method selected by the Tax Matters Partner. Dispute Notice. See Appendix D. Disputing Partner. See Appendix D. Executive Officers. See Section 7.1(b). Expense. See Section 13.3(a). Fair Market Value. "Fair Market Value" with respect to the Partnership shall mean the Asset Fair Market Value of all of the Partnership's assets decreased by the fair value of all its liabilities, as of the most recently ended fiscal quarter. "Fair Market Value" with respect to a Related Business shall mean the Asset Fair Market Value of all the assets of such Related Business decreased by the fair value of all its liabilities, as of the most recently ended fiscal quarter. In either case, the following shall apply to the determination of Fair Market Value: The General Partners shall first attempt to agree on such value, which if agreed to shall be the Fair Market Value. If the General Partners are unable to agree within 20 days of the first written notice from one General Partner to the other proposing an amount to be the Fair Market Value (the "Notice"), then if requested by any General Partner, either General Partner shall (at its own cost) cause an independent, qualified appraiser to deliver a written appraisal of its determination of the Fair Market Value within 50 days of the Notice. If both of the two lowest appraised values are greater than or equal to 90% of the highest appraised value, then the middle of the three appraised values shall be the Fair Market Value. If either of the two lowest appraised values are lower than 90% of the highest appraised value, then the General Partners shall jointly appoint a Neutral within 20 days of the delivery of both such appraisals. If the General Partners have been unable to agree upon such appointment within such 20 days, then such Neutral shall upon the application of either General Partner be appointed within 10 days of the filing of such application by the Center for Public Resources, or if such appointment is not so made promptly then promptly thereafter by the American Arbitration Association in Philadelphia, Pennsylvania, or if such appointment is not so made promptly then promptly thereafter by the senior United States District Court judge sitting in Wilmington, Delaware. The fees and expenses of the Neutral shall be paid equally by the Partners. The Neutral shall, within 30 days of the appointment of the Neutral, determine which of the two appraised values (without in any way modifying or compromising between the two appraised values) is closest to the fair market value of the enterprise's assets as determined by the Neutral, and that appraised value shall be the Fair Market Value. A-7 Fault. Any act or omission of a Partner, its Affiliates or any of their respective officers, directors or employees (acting in their capacities as such) that constitutes or results from intentional misconduct, criminal intent or gross negligence. Finally Determined. Determined by any final, nonappealable judicial order or pursuant to a binding alternative dispute resolution procedure. Funding Notice. See Section 2.4. GAAP. United States generally accepted accounting principles, as in effect from time to time. General Partners. Each Person who executes this Agreement and who is hereby admitted to the Partnership as a general partner of the Partnership, unless such General Partner ceases to be a General Partner hereunder or sells, transfers, forfeits or otherwise disposes of its Units and is replaced by a Substitute General Partner in accordance with this Agreement and the Act, and each Person that becomes a Substitute General Partner, if any, of the Partnership as provided herein, in such Person's capacity as a general partner of the Partnership. GPA. See Section 14.1(b). Guarantor. Lyondell Chemical Company, with respect to Lyondell GP, Lyondell LP, Lyondell (Pelican) LP1 and Lyondell (Pelican) LP2; Millennium Chemicals Inc., with respect to Millennium GP and Millennium LP; and any successor or additional guarantor party to an agreement substantially in the form of the Amended and Restated Parent Agreement and entered into in accordance with Section 10. Highest Lawful Rate. The maximum rate of interest, if any, that may be charged to any person under all Applicable Usury Laws on any principal balance from time to time outstanding pursuant to this Agreement. HSE Law. "HSE Law," as defined in Section 1 of the Contribution Agreement. Indemnified Party. See Section 13.2(c). Indemnifying Party. See Section 13.2(c). Interest Period. The period commencing on the date of this Agreement and ending one month thereafter and, thereafter, each subsequent period commencing on the last day of the immediately preceding Interest Period and ending one month thereafter; provided, however, that whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding Business Day. Initial Agreement. See first WHEREAS clause. Initial Assets. "Assets," as defined in Section 1 of the applicable Contribution Agreement. A-8 Initial Closing Date. December 1, 1997, the date the closing under the Initial Master Transaction Agreement took place. Initial Master Transaction Agreement. The Master Transaction Agreement, dated July 25, 1997, as amended, between Lyondell and Millennium, providing for the execution of various agreements concerning the Partnership and the Initial Assets. Initial Notice. See Section 10.2(a). Initial Partners. See first WHEREAS clause. Initial Related Agreements. The agreements defined as "Related Agreements" in the Initial Master Transaction Agreement (other than the Partnership Agreement), as such agreements may be amended from time to time after the Initial Closing Date. IRS. Internal Revenue Service. Lake Charles Facility. The property that is the subject of and leased pursuant to the Lease. LC Partnership. See Section 14.1(b). Lease. The Lease Agreement, dated May 15, 1998, between OCC, as lessor, and Occidental LP1 (now Lyondell (Pelican) LP1), as lessee. Letter Agreement. See seventh WHEREAS clause. Liability. Any loss, claim, damages, fine, penalty, assessment by public agencies, settlement, cost or expense (including costs of investigation, defense and attorneys' fees) or other liability. LIBOR Rate. For any Interest Period, the rate per annum (rounded upwards, if necessary, to the nearest 1/16th of 1%) published in the Wall Street Journal as the London Interbank Offered Rate for a one month period as of two Business Days prior to the first day of such Interest Period; provided that if no such rate appears the rate shall be as shown on page 3750 of the Dow Jones & Company Telerate screen or any successor page as the composite offered rate for London interbank deposits with a period equal to one month, as shown under the heading "USD" as of 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period; provided that if no such rate appears, the rate shall be the rate per annum equal to the arithmetic mean (which shall be rounded upward to the nearest 1/16 of 1% per annum) of which U.S. dollar deposits with an Interest Period equal to one month are displayed on page "LIBO" of the Reuters Monitor Money Rates Service or such other page as may replace the LIBO page on that service for the purpose of displaying London interbank offered rates of major banks at or about 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period. Limited Partner. Each Person who executes this Agreement and who is hereby admitted to the Partnership as a limited partner of the Partnership, unless such Limited Partner ceases to be a Limited Partner hereunder or sells, transfers, forfeits or otherwise disposes of its Units and is replaced by a Substitute Limited Partner in accordance with this Agreement and the Act, and each Person that becomes a Substitute Limited Partner, if any, of the Partnership as provided herein, in such Person's capacity as a limited partner of the Partnership. Limited Partners Pro Rata. From or to the Limited Partners in the ratio of the Units owned by each. Liquidation. See Section 11.4. Losses. See definition of "Profits and Losses." Lyondell. See first WHEREAS clause. Lyondell Assumed Debt. Debt issued by Lyondell having an aggregate principal amount of $745 million, as specified in the Contribution Agreement with respect to Lyondell. Lyondell GP. See introductory paragraph to this Agreement. Lyondell LP. See introductory paragraph to this Agreement. Lyondell (Pelican) LP1. See introductory paragraph to this Agreement. Lyondell (Pelican) LP2. See introductory paragraph to this Agreement. Lyondell Note. The promissory note dated December 1, 1997, in the amount of $345 million payable by Lyondell LP to the Partnership. Maximum Amount. The maximum nonusurious amount of interest that may be lawfully contracted for, charged or received by any person in connection with any indebtedness arising under this Agreement under all Applicable Usury Laws. Millennium. See first WHEREAS clause. Millennium America. Millennium America Inc., a Delaware corporation. Millennium GP. See introductory paragraph to this Agreement. Millennium LP. See introductory paragraph to this Agreement. Neutral. A neutral Person acceptable to all of the appointing Partners and not affiliated with any of the Partners, except where otherwise specifically provided. No Rebuilding Termination. A total termination of the Lease pursuant to Section 12(b) or 13 thereof. Nonconflicted General Partner. With respect to any Conflict Circumstance, any General Partner that is not the Conflicted General Partner with respect thereto. Non-Defaulting Partners. The Partners other than the Defaulting Partners. A-10 OCC. See sixth WHEREAS clause. Occidental. See third WHEREAS clause. Occidental GP. See third WHEREAS clause. Occidental Interest Transaction Documents Shall mean the Oxy Partner Sub Purchase Agreement, and all exhibits attached thereto. Occidental LP1. See third WHEREAS clause. Occidental LP2. See third WHEREAS clause. Occidental Partners. See third WHEREAS clause. Offeree Partners. See Section 10.2(a). Operating Budget. See Section 8.2(c). Oxy Partner Sub Purchase Agreement. See sixth WHEREAS clause. Oxy Petrochemicals. Oxy Petrochemicals Inc., a Delaware corporation. Partners. The General Partners and the Limited Partners on the date of this Agreement until such Person ceases to be a partner of the Partnership. Partners Pro Rata. From or to all Partners in the ratio of the Units owned by each. Partnership. Equistar Chemicals, LP, a Delaware limited partnership, the limited partnership formed and continued under the Act and this Agreement. Partnership Governance Committee. See Section 6.1. Partnership Governance Committee Action. See Section 6.1. Payment Amount. See Section 14.3. PDG GP. See third WHEREAS clause. Proceeds. The Insurance Proceeds, the Self-Insurance Proceeds and the Condemnation Proceeds (each as defined in the Lease), to the extent actually received by the lessor under the Lease pursuant to the Lease. Profits and Losses. For each applicable period, the Partnership's taxable income or loss for such period determined in accordance with Section 703(a) of the Code (for this purpose, all items of income, gain, loss or deduction required to be stated separately pursuant to Section 703(a)(1) of the Code shall be included in taxable income or loss) with the following adjustments: (i) Any income of the Partnership that is exempt from federal income tax and not otherwise taken in account in computing Profits or Losses pursuant to this definition shall be added to such taxable income or loss. (ii) Any expenditures of the Partnership described in Section 705(a)(2)(B) of the Code or treated as such pursuant to Regulation ss.1.704-1(b)(2)(iv)(i) and not otherwise taken in account in computing Profits or Losses pursuant to this definition shall be subtracted from such taxable income or loss. (iii) Depreciation for such period shall be taken into account in lieu of the depreciation, amortization and other cost recovery deductions taken into account in computing such taxable income or loss. (iv) Gain or loss resulting from any disposition of Partnership property with respect to which gain or loss is recognized for federal income tax purposes shall be computed with reference to the Book Value of the property disposed of, rather than the adjusted tax basis of such property. (v) If any property is distributed in kind to any Partner, the difference between its fair market value and its Book Value at the time of distribution shall be treated as Profit or Loss, as the case may be, recognized by the Partnership. (vi) The amount of any adjustment to the Book Value of any Partnership asset pursuant to clause (iii) of the definition of Book Value herein shall be taken into account as Profit or Loss from the disposition of such asset. Percentage Interest. The percentage determined by dividing the number of Units owned by a Partner by the total number of outstanding Units. Person. Any natural person or any corporation, limited liability company, partnership, joint venture, association, trust or other entity. Pledge. To mortgage, pledge, encumber or create or suffer to exist any pledge, lien or encumbrance upon or security interest in. Such defined term is used in this Agreement as both a noun and a verb. Pro Rata. In the ratio of the Units owned by a Partner to the total number of applicable Units. Proposing Partner. See Section 9.3(c). Reconstituted Basis. As to each Partnership property, the Partnership's basis in such property immediately after it is contributed to the Partnership reduced by any depreciation and other deductions allocated to a Partner pursuant to Section 4.4(b)(i)(a). Regulations. The income tax regulations promulgated by Department of the Treasury and in effect from time to time. A-12 Related Agreements. The Initial Related Agreements and the Occidental Related Agreements. Related Business. Any business related to (i) the manufacturing, marketing and distribution of Specified Petrochemicals; (ii) the purchasing, processing and disposing of feedstocks in connection with the manufacturing, marketing and distributing of Specified Petrochemicals; and (iii) any research and development in connection with the foregoing. Related Persons. See Section 13.1. Representative. See Section 6.4(a). SEC. Securities and Exchange Commission. Second Master Transaction Agreement. See third WHEREAS clause. Selling Partners. See Section 10.2(a). Specified Petrochemicals. (i) Olefins and olefins co-products consisting of: ethylene, propylene, butadiene, and mixed butylenes; aromatics and gasoline blending components (benzene, toluene, MTBE, alkylate, pyrolysis gasolines); mixed C5 hydrocarbons; resin formers (dicyclopentadiene, isoprene, piperylenes, resin oil); pyrolysis liquid fuel products (pyrolysis gas oil, pyrolysis fuel oil); (ii) Polyolefins consisting of: low-density, linear low-density, and high-density polyethylene; polypropylene; ethylene/propylene copolymers; rotomolding and polymeric powders; wire and cable resins; adhesive tie layers; hot melt adhesive resins; colors and concentrates; fuel additives; (iii) Ethyl alcohol and ethyl ether; and (iv) Ethylene oxide, ethylene glycol and derivatives thereof. provided, however that the definition of Specified Petrochemicals shall in no event include polyvinyl chloride or resins derived from phenol compounds or dicyclopentadiene. Specified Petrochemicals Businesses. The businesses related to Specified Petrochemicals. Strategic Plan. See Section 8.1. Substitute General Partner. A Person who is admitted as a General Partner to the Partnership in place of and with all the rights of a General Partner. Substitute Limited Partner. A Person who is admitted as a Limited Partner to the Partnership in place of and with all the rights of a Limited Partner. A-13 Taxes. All taxes, charges, fees, levies or other assessments imposed by any taxing authority, including, but not limited to, income, gross receipts, excise, property, sales, use, transfer, payroll, license, ad valorem, value added, withholding, social security, national insurance (or other similar contributions or payments), franchise, severance and stamp taxes (including any interest, fines, penalties or additions attributable to, or imposed on or with respect to, any such taxes, charges, fees, levies or other assessments) and "Tax Return" means any return, report, information return or other document (including any related or supporting information) with respect to Taxes. Tax Matters Partner. Lyondell GP. Third Party Claim. Any allegation, claim, civil, criminal or other action, proceeding, charge or prosecution brought by any Person other than the Partnership, any Partner or any Affiliate of a Partner. Transfer. To sell, assign or otherwise in any manner dispose of, whether by act, deed, merger, consolidation, conversion or otherwise. Such defined term is used in this Agreement as both a noun and a verb. Unit. A unit representing a partnership interest in the Partnership. Wholly Owned Affiliate. As to any Person, an Affiliate of such Person all of the equity interests of which are owned, directly or indirectly, by a Partner, by another Wholly Owned Affiliate of such Person or by the ultimate parent entity thereof. Wholly Owned Subsidiary. As to any Person, a subsidiary of such Person all of the equity interests of which are owned, directly or indirectly, by such Person. A-14 APPENDIX B TO LIMITED PARTNERSHIP AGREEMENT PARTNERSHIP FINANCIAL STATEMENTS AND REPORTS
Item & Frequency Due Dates - ---------------- --------- Monthly: Income Statement - current period and year-to-date 10th work day following month-end Balance Sheet - current period 10th work day following month-end Cash Flow Statement - current period and year-to-date 10th work day following month-end Schedule of Income Allocation - preliminary 5th work day following month-end Schedule of Income Allocation - final 10th work day following month-end Calculation of Distribution of Available Net Operating Cash - final 15th work day following month-end Results of Operations Analysis 10th work day following month-end Quarterly Analysis for Investor Relations and Form 10-Q disclosures: - Results of Operations 15th work day following quarter-end - Cash Flow 15th work day following quarter-end - Sales Variances 15th work day following quarter-end - Capital Expenditures 15th work day following quarter-end - Intercompany Transactions 15th work day following quarter-end - Volumes 15th work day following quarter-end - Prices 15th work day following quarter-end - Unusual Items 15th work day following quarter-end Income Statement - current quarter and year-to-date 10th work day following quarter-end Balance Sheet - current period 10th work day following quarter-end Cash Flow Statement - current quarter and year-to-date 10th work day following quarter-end Estimate of Each Partner's Regular Taxable Income and Alternative Minimum Taxable Income 10th work day following quarter-end Annual Analysis for Investor Relations and Form 10-K disclosures - Same as quarterly requirements - Plant Capacities 15th work day following year-end Audited Financial Statements 60 days following year-end
B-1 APPENDIX C TO LIMITED PARTNERSHIP AGREEMENT EXECUTIVE OFFICERS Dan F. Smith Chief Executive Officer Morris Gelb Chief Operating Officer James W. Bayer Senior Vice President, Manufacturing W. Norman Phillips, Jr. Senior Vice President, Fuels and Raw Material Ed J. Dineen Senior Vice President, Chemicals and Polymers Charles L. Hall Vice President and Controller J. R. Fontenot Vice President, Research and Development Jeffrey L. Hemmer Vice President, Materials Management and Supply Chain John A. Hollinshead Vice President, Human Resources Gerald A. O'Brien Vice President, General Counsel and Secretary Jose L. Rodriguez Vice President, Raw Materials, Optimization, Risk Management and Refining Investment Eric Silva Vice President, Information Technology

C-1 APPENDIX D TO LIMITED PARTNERSHIP AGREEMENT DISPUTE RESOLUTION PROCEDURES (1) Binding and Exclusive Means. Except as otherwise provided in the Partnership Agreement, the dispute resolution provisions set forth in this Appendix shall be the binding and exclusive means to resolve all disputes arising under the Agreement (each a "Dispute"). (2) Standards and Criteria. In resolving any Dispute, the standards and criteria for resolving such Dispute shall, unless the Partners involved in the Dispute in their discretion jointly stipulate otherwise, be as set forth in Appendix 1 to this Appendix. (3) ADR and Binding Arbitration Procedures. If a Dispute arises, the following procedures shall be implemented (with references to "Partners" meaning the Partners involved in the Dispute): (a) Any Partner may at any time invoke the dispute resolution procedures set forth in this Appendix as to any Dispute by providing written notice of such action to the Secretary of the Partnership, who within five Business Days after such notice shall schedule a meeting to be held in Houston, Texas between the Partners. The Partners' meeting shall occur within 10 Business Days after notice of the meeting is delivered to the Partners. The meeting shall be attended by representatives of each Partner having decision-making authority regarding the Dispute as well as the dispute resolution process and who shall attempt in a commercially reasonable manner to negotiate a resolution of the Dispute. (b) The representatives of the Partners shall cooperate in a commercially reasonable manner and shall explore whether techniques such as mediation, minitrials, mock trials or other techniques of alternative dispute resolution might be useful. In the event that a technique of alternative dispute resolution is so agreed upon, a specific timetable and completion date for its implementation shall also be agreed upon. The representatives will continue to meet and discuss settlement until the date (the "Interim Decision Date") that is the earliest to occur of the following events: (i) an agreement shall be reached by the Partners resolving the Dispute; (ii) one of the Partners shall determine and notify the other Partners in writing that no agreement resolving the Dispute is likely to be reached; (iii) if a technique of alternative dispute resolution is agreed upon, the completion date therefor shall occur without the Partners having resolved the Dispute; or (iv) if another technique of alternative dispute resolution is not agreed upon, two full meeting days (or such other time period as may be agreed upon) shall expire without the Partners having resolved the Dispute. (c) If, as of the Interim Decision Date, the Partners have not succeeded in negotiating a resolution of the Dispute pursuant to subsection (b), the Partners shall proceed under subsections (d), (e) and (f). (d) After satisfying the requirements above, such Dispute shall be submitted to mandatory and binding arbitration at the election of any Partner involved in the Dispute (the "Disputing Partner"). The arbitration shall be subject to the Federal Arbitration Act as supplemented by the conditions set forth in this Appendix. The arbitration shall be conducted in D-1 accordance with the Commercial Arbitration Rules of the American Arbitration Association in effect on the date the notice of arbitration is served, other than as specifically modified herein. In the absence of an agreement to the contrary, the arbitration shall be held in Houston, Texas. The Arbitrator (as defined below) will allow reasonable discovery in the forms permitted by the Federal Rules of Civil Procedure, to the extent consistent with the purpose of the arbitration. During the pendency of the Dispute, each Partner shall make available to the Arbitrator and the other Partners all books, records and other information within its control requested by the other Partners or the Arbitrator subject to the confidentiality provisions contained herein, and provided that no such access shall waive or preclude any objection to such production based on any privilege recognized by law. Recognizing the express desire of the Partners for an expeditious means of dispute resolution, the Arbitrator may limit the scope of discovery between the Partners as may be reasonable under the circumstances. In deciding the substance of the Partners' claims, the laws of the State of Delaware shall govern the construction, interpretation and effect of this Agreement (including this Appendix) without giving effect to any conflict of law principles. The arbitration hearing shall be commenced promptly and conducted expeditiously, with each Partner involved in the Dispute being allocated an equal amount of time for the presentation of its case. Unless otherwise agreed to by the Partners, the arbitration hearing shall be conducted on consecutive days. Time is of the essence in the arbitration proceeding, and the Arbitrator shall have the right and authority to issue monetary sanctions against any of the Partners if, upon a showing of good cause, that Partner is unreasonably delaying the proceeding. To the fullest extent permitted by law, the arbitration proceedings and award shall be maintained in confidence by the Arbitrator and the Partners. (e) The Disputing Partner shall notify the American Arbitration Association ("AAA") and the other Partners in writing describing in reasonable detail the nature of the Dispute (the "Dispute Notice"). The arbitrator (the "Arbitrator") shall be selected within 15 days of the date of the Dispute Notice by all of the Partners from the members of a panel of arbitrators of the AAA or, if the AAA fails or refuses to provide a list of potential arbitrators, of the Center for Public Resources and shall be experienced in commercial arbitration. In the event that the Partners are unable to agree on the selection of the Arbitrator, the AAA shall select the Arbitrator, using the criteria set forth in this Appendix, within 30 days of the date of the Dispute Notice. In the event that the Arbitrator is unable to serve, his or her replacement will be selected in the same manner as the Arbitrator to be replaced. The Arbitrator shall be neutral. The Arbitrator shall have the authority to assess the costs and expenses of the arbitration proceeding (including the arbitrators', and attorneys' fees and expenses) against any or all Partners. (f) The Arbitrator shall decide all Disputes and all substantive and procedural issues related thereto, and shall enforce this Agreement in accordance with its terms. Without limiting the generality of the previous sentence, the Arbitrator shall have the authority to issue injunctive relief; however, the Arbitrator shall not have any power or authority to (i) award consequential, incidental, indirect or punitive damages or (ii) amend this Agreement. The Arbitrator shall render the arbitration award, in writing, within 20 days following the completion of the arbitration hearing, and shall set forth the reasons for the award. In the event that the Arbitrator awards monetary damages in favor of either party, the Arbitrator must certify in the award that no indirect, consequential, incidental, indirect or punitive damages are included in such award. If the Arbitrator's decision results in a monetary award, the interest to be granted on such award, if any, and the rate of such interest shall be determined by the Arbitrator in his or her discretion. D-2 The arbitration award shall be final and binding on the Partners, and judgment thereon may be entered in any court of competent jurisdiction, and may not be appealed except to the extent permitted by the Federal Arbitration Act. (4) Continuation of Business. Notwithstanding the existence of any Dispute or the pendency of any procedures pursuant to this Appendix, the Partners agree and undertake that all payments not in dispute shall continue to be made and all obligations not in dispute shall continue to be performed. D-3 APPENDIX 1 TO Appendix D (a) First priority shall be given to maximizing the consistency of the resolution of the Dispute with the satisfaction of all express obligations of the Partners and their Affiliates as set forth in the Partnership Agreement. (b) Second priority shall be given to resolution of the Dispute in a manner which best achieves the objectives of the business activities and arrangements under the Partnership Agreement and the Related Agreements and permits the Partners to realize the benefits intended to be afforded thereby. (c) Third priority shall be given to such other matters, if any, as the Partners or the Arbitrator shall determine to be appropriate under the circumstances. D-4 APPENDIX E TO LIMITED PARTNERSHIP AGREEMENT DIVISION OF PARTNERSHIP BUSINESS If the Partnership is dissolved and Section 12.2(e) applies to the winding up of the affairs of the Partnership, the Partnership properties shall, to the extent legally and contractually feasible and, after satisfaction of the liabilities of the Partnership (whether by payment or reasonable provision for payment), be distributed in kind to the Partners in accordance with a division (the "Division") of the properties. The Division shall be implemented by dividing the properties, to the extent feasible, in accordance with the following priorities and principles: A. First priority shall be given to maximizing the consistency of the Division with a division of the Partnership properties that allocates to each Partner (subject to such Partner's Percentage Interest of the Partnership's liabilities) Partnership properties in proportion to the value of such Partner's Percentage Interest in the Partnership's business taking into account the aggregate Asset Fair Market Value of the Partnership's properties and the value and benefits afforded to such Partner under the Partnership Agreement and the other Related Agreements. B. Second priority shall be given to the allocation of the Partner. SCHEDULE 2.3(e) Effective Date Capital Account Balances Column I reflects Capital Accounts after the contributions of the Occidental Partners on May 15, 1998 (the "Effective Date") and the Effective Date adjustments to the Capital Accounts of the Initial Partners, but before the other contributions and distributions described in Section 2.3(e). Column II indicates the amount of the contributions and distributions described in 2.3(e) other than accrued interest. Column III reflects the Capital Accounts if such contributions and distributions were made (and accrued interest was paid and distributed) on the Effective Date. Column IV reflects the number of Units owned by each Partner as of the Effective Date.
Partner I II III IV - -------- ---------- ----------- ---------- ------- Lyondell GP $ 42,451,400 $ 42,451,400 820 Lyondell GP 1,942,768,600 $ 148,350,000 2,080,118,600 40,180 ------ 41,000 Millennium GP 30,544,300 30,544,300 590 Millennium GP 1,720,020,000 (223,350,000) 1,496,670,000 28,910 ------ 29,500 Occidental GP 15,272,150 15,272,150 295 Occidental LP1 ** 342,872,650 342,872,650 6,623 Occidental LP2 *** 1,588,770,000 (419,700,000) 1,169,070,000 22,582 ------------- ----------- ------------- ------ 29,500 $5,671,699,100 $(494,700,000) $5,176,999,100 ============= =========== =============
* The difference between Lyondell LP's contribution of $345 million to satisfy the Lyondell Note and the distribution to it of $196,650,000 (57%) of the proceeds from such note. ** Now Lyondell (Pelican LP1). *** Now Lyondell (Pelican LP2). SCHEDULE 8.6(A) FORM OF INDEMNITY THIS INDEMNITY (this "Indemnity") by [insert name of Millennium indemnitor], a [insert state] corporation ("Millennium Indemnitor"), is in favor of EQUISTAR CHEMICALS, LP, a Delaware limited partnership (the "Partnership"). RECITALS: A. The indemnity provided in this Indemnity reasonably may be expected to benefit, directly or indirectly, Millennium Indemnitor. Further, it is in the best interests of Millennium Indemnitor to provide the indemnity set forth hereunder, and such indemnity is necessary or convenient to the conduct, promotion or attainment of the business of Millennium Indemnitor. B. This Indemnity is issued pursuant to Section 8.6(b) of the Amended and Restated Limited Partnership Agreement of the Partnership, dated as of November 6, 2002, among Lyondell Petrochemical G.P. Inc., Lyondell Petrochemical L.P. Inc., Millennium Petrochemicals GP LLC ("Millennium GP"), Millennium Petrochemicals LP LLC ("Millennium LP"), Occidental Petrochem Partner GP, Inc., Occidental Petrochem Partner 1, Inc., Occidental Petrochem Partner 2, Inc. and PDG Chemical Inc., as amended as of the date of this Indemnity (the "Partnership Agreement"). AGREEMENTS: NOW, THEREFORE, Millennium Indemnitor hereby agrees as follows: 1. Notwithstanding any other provision of this Indemnity but subject to paragraph 6 below, Millennium Indemnitor shall be obligated to the Partnership to pay the Contribution Obligation to the Partnership only after the holders of the Debt shall have pursued their remedies to compel payment of the Referenced Obligation by the Issuers, and if, after exhaustion of all available remedies, including, without limitation, the liquidation of assets, payment cannot be obtained from the Issuers. For purposes of this Indemnity, the term "Issuers" shall have the meaning set forth in the Debt. 2. The obligations of Millennium Indemnitor hereunder to the Partnership shall not be subject to any reduction, limitation, impairment or termination for any reason, and shall not be subject to any defense or setoff, counterclaim, recoupment or termination whatsoever, by reason of the invalidity, illegality or unenforceability of the Referenced Obligation, any impossibility in the performance of the Referenced Obligation or otherwise, subject to paragraph 6 below. Without limiting the generality of the foregoing, except as aforesaid, the obligations of Millennium Indemnitor hereunder shall not be discharged or impaired or otherwise affected by any waiver or modification of any of the Referenced Obligation, by any default, failure or delay, willful or otherwise, in the performance of the Referenced Obligation, or by any other act or omission which may or might in any manner or to any extent vary the risk of Millennium Indemnitor or otherwise operate as a discharge of Millennium Indemnitor as a matter of law or equity. 3. Millennium Indemnitor further agrees that its obligations hereunder shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of any of the Referenced Obligation is rescinded or must otherwise be restored by the Partnership upon the bankruptcy or reorganization of an Issuer or otherwise, unless those obligations of Millennium Indemnitor have otherwise been terminated in accordance with the terms of this Indemnity. 4. The Partnership agrees that it shall not assign any of its right, title and interest in and to this Indemnity. This Indemnity shall not be construed to create any right in the holders of the Debt or any other person (other than Millennium Indemnitor, the Partnership, [insert the names of the non-Millennium partners], and, in each case, their respective successors and permitted assigns), or to be a contract in whole or in part for the benefit of the holders of the Debt, or any other person except the Partnership. Accordingly, the holders of the Debt shall not, by reason of this Indemnity, have a greater or superior claim compared to other obligees of the Partnership, to or as a result of any amounts contributed by Millennium Indemnitor to the Partnership pursuant to this Indemnity. 5. Notwithstanding any other provision of this Indemnity, this Indemnity shall terminate on [insert the termination date or mechanism]. 6. This Indemnity shall be construed and interpreted in accordance with and governed by the laws of the State of [insert state]. 7. This Indemnity may be executed in one or more counterparts, each of which shall constitute an original and all of which when taken together shall constitute one and the same original document. 8. The existence of this Indemnity shall not prohibit the Partnership from refinancing or repaying any Debt at any time, subject to the other provisions of the Partnership Agreement. 9. Nothing in this Indemnity shall be construed or interpreted to amend the Partnership Agreement in any respect. 10. All notices, requests and other communications that are required or may be given under this Indemnity shall be in writing and shall be deemed to have been duly given if and when (i) transmitted by facsimile with proof of confirmation from the transmitting machine or (ii) delivered by commercial courier or other hand delivery as follows: If to the Partnership: Equistar Chemicals, LP 1221 McKinney Street Houston, Texas 77252-2583 Attention: Gerald A. O'Brien Facsimile Number: (713) 309-4718 If to Indemnitor: -------------------------------- -------------------------------- -------------------------------- -------------------------------- Attention: --------------------- Facsimile Number: -------------- with a copy to: -------------------------------- -------------------------------- -------------------------------- Attention: --------------------- Facsimile Number: -------------- Dated As Of: [insert date] [MILLENNIUM INDEMNITOR] By: ------------------------------- Name: ----------------------------- Title: ---------------------------- ACCEPTED AND AGREED EQUISTAR CHEMICALS, LP By: ------------------------------- Name: ----------------------------- Title: ---------------------------- SCHEDULE 8.6(B) Form of Indemnity Agreement Among Partners This Indemnity Agreement Among Partners (this "Agreement"), dated as of [insert date], is entered into among [insert name of Millennium indemnitor] ("Millennium Indemnitor"), [list all the partners in the Partnership]. WHEREAS, Equistar Chemicals, LP, a Delaware limited partnership (the "Partnership"), is governed by the Amended and Restated Limited Partnership Agreement of Equistar Chemicals, LP, as amended through [insert date] (the "Partnership Agreement"), among [insert names of partners] (such partnership agreement as so amended, the "Partnership Agreement"); WHEREAS, the purpose of this Agreement is to carry out the intention of the parties hereto that, if the assets of the Partnership are insufficient to discharge the Partnership's liabilities, then to the extent and in the amount provided in the Millennium Indemnity, Millennium Indemnitor shall be ultimately responsible for any liabilities of the Partnership that remain unpaid; NOW, THEREFORE, the parties to this Agreement agree as follows: 1. Millennium Indemnity. If any Partner, former Partner or a Related Person of any Partner or former Partner is required to pay any portion of the Referenced Obligation (whether paid directly, as a result of the Partner's deficit restoration obligation set forth in Section 12.2(d)(ii) of the Partnership Agreement or the Partner's right of contribution or otherwise) and, as a result, the amount Millennium Indemnitor would otherwise be required to pay pursuant to the Millennium Indemnity is reduced, then Millennium Indemnitor shall pay to such Partner, former Partner or Related Person an amount equal to such reduction. For purposes of the Partnership Agreement, any payment made pursuant to this Section 1 shall be treated as a contribution by the Millennium Indemnitor to the Partnership for the benefit of the Millennium partner named in the Millennium Indemnity, and a distribution by the Partnership to the Partner to which any such payment is made. 2. Duration of Obligations. Except with respect to any amount then owing, the obligations of Millennium Indemnitor under Section 1 hereof shall terminate immediately upon the termination of the Millennium Indemnity. 3. Definitions. For purposes of this Agreement, (a) the assets of the Partnership do not include (i) the obligation of any Partner to make contributions to the Partnership (including as a result of the Partner's deficit restoration obligation set forth in Section 12.2(d)(ii) of the Partnership Agreement); (ii) the obligations of [identify parties to the Parent Agreement] under the [identify the then current version of the Parent Agreement]; (iii) the obligations of Millennium Indemnitor under the Millennium Indemnity; and (iv) the obligations of any Partner or Related Person to perform under any other guarantee or similar obligation; (b) "Millennium Indemnity" means that indemnity provided to the Partnership by [insert name of Millennium indemnitor] pursuant to the Indemnity dated as of [insert date]; (c) "Partner" has the meaning set forth in the Partnership Agreement; (d) "Referenced Obligation" has the meaning set forth in the Millennium Indemnity; and (e) "Related Person" with respect to any Partner, has the meaning set forth in Treasury Regulationss.1.752-4(b). 4. No Third Party Beneficiaries. This Agreement is made solely for the benefit of the parties hereto and the Related Persons and any former partner referred to herein, and no other person, including the Partnership or any creditor of the Partnership, shall have any right, claim, or cause of action under or by virtue of this Agreement. 5. Counterparts. This Agreement may be executed in one or more counterparts, each of which when taken together shall constitute one and the same original document. 6. Governing Law. The laws of the State of Delaware shall govern the construction, interpretation and effect of this Agreement without giving effect to any conflicts of law principles. 7. Refinancing or Repaying Debt. The existence of this Agreement shall not prohibit the Partnership from refinancing or repaying any Debt (as defined in the Millennium Indemnity) at any time, subject to the other provisions of the Partnership Agreement. 8. No Amendment to the Partnership Agreement. Nothing in this Agreement shall be construed or interpreted to amend the Partnership Agreement in any respect. 9. Notices. All notices, requests and other communications that are required or may be given under this Agreement shall be in writing and shall be deemed to have been duly given if and when (i) transmitted by facsimile with proof of confirmation from the transmitting machine or (ii) delivered by commercial courier or other hand delivery as follows: If to a Partner: that Partner, care of: ---------------------------------- ---------------------------------- ---------------------------------- Attention: ----------------------- Facsimile Number: ---------------- with a copy to: ---------------------------------- ---------------------------------- ---------------------------------- Attention: ----------------------- Facsimile Number: ---------------- If to Millennium Indemnitor: ---------------------------------- ---------------------------------- ---------------------------------- Attention: ----------------------- Facsimile Number: ---------------- with a copy to: ---------------------------------- ---------------------------------- ---------------------------------- Attention: ----------------------- Facsimile Number: ---------------- Executed as of the date first above written. [Insert name of Millennium Indemnitor] [Insert names of all the Partners in Equistar] EX-10.14 4 dex1014.txt AMENDED PARENT AGREEMENT EXHIBIT 10.14 AMENDED AND RESTATED PARENT AGREEMENT among LYONDELL CHEMICAL COMPANY, MILLENNIUM CHEMICALS INC. AND EQUISTAR CHEMICALS, LP as amended through November 6, 2002 TABLE OF CONTENTS
Page ---- SECTION 1 GUARANTEE OF OBLIGATIONS .................................... 4 1.1 Guarantee .................................................... 4 1.2 Guarantee Regarding Interested Owner Agreements .............. 4 1.3 No Demand or Notice .......................................... 5 1.4 Waiver of Resort to Security ................................. 5 1.5 No Discharge ................................................. 5 1.6 Waivers by the Parent ........................................ 5 1.7 No Reduction ................................................. 5 1.8 Enforcement .................................................. 6 1.9 Continued Effectiveness ...................................... 6 1.10 Certain Defenses ............................................. 6 1.11 Parties in Interest .......................................... 6 1.12 Parent Net Worth ............................................. 6 SECTION 2 OWNERSHIP AND BUSINESS OF PARTNER SUBS ...................... 7 2.1 Restrictions on Transfer and Pledge of Partner Sub Stock ..... 7 2.2 Right of First Option ........................................ 9 2.3 Prohibition on Affiliated Obligor Bankruptcy, Etc ............ 11 2.4 Special Purpose Subsidiaries ................................. 11 SECTION 3 STANDSTILL AGREEMENT AND CERTAIN OTHER MATTERS .............. 12 3.1 Standstill ................................................... 12 3.2 Exceptions ................................................... 12 3.3 [Intentionally Omitted] ...................................... 13 3.4 [Intentionally Omitted] ...................................... 13 SECTION 4 MISCELLANEOUS ............................................... 13 4.1 No Waivers ................................................... 13 4.2 Expenses in Connection with Exercise ......................... 13 4.3 Subordination and Subrogation ................................ 13 4.4 Confidentiality and Use of Information ....................... 14 4.5 Competing Businesses ......................................... 14 4.6 Further Assurances ........................................... 14 4.7 Assignment; Successors and Assigns............................ 14 4.8 Benefits of Agreement Restricted to the Parties .............. 14 4.9 Notices ...................................................... 15 4.10 Severability ................................................. 15 4.11 Termination .................................................. 15 4.12 Construction and Certain Definitions ......................... 16 4.13 Counterparts ................................................. 16 4.14 Governing Law ................................................ 16 4.15 Jurisdiction; Consent to Service of Process; Waiver .......... 16

4.16 Waiver of Jury Trial ......................................... 17 4.17 Dispute Resolution ........................................... 17 4.18 Obligations Regarding Affiliates ............................. 17 4.19 Amendment .................................................... 17
APPENDICES Appendix A List of Related Agreements Appendix B Dispute Resolution Procedures ii AMENDED AND RESTATED PARENT AGREEMENT This Amended and Restated Parent Agreement (this "Agreement") is made as of this 6th day of November, 2002 among Lyondell Chemical Company, a Delaware corporation ("Lyondell"), Millennium Chemicals Inc., a Delaware corporation ("Millennium"), and Equistar Chemicals, LP, a Delaware limited partnership (the "Partnership," and together with Lyondell and Millennium, the "Parties"). WHEREAS, pursuant to the terms of the Master Transaction Agreement dated as of July 25, 1997 between Lyondell and Millennium (the "Initial Master Transaction Agreement"), the Partnership was formed under the laws of the State of Delaware pursuant to the Limited Partnership Agreement dated October 10, 1997 (the "Old Partnership Agreement"), with Lyondell Petrochemical G.P. Inc., a Delaware corporation ("Lyondell GP"), and Millennium Petrochemicals GP LLC, a Delaware limited liability company ("Millennium GP"), as the general partners and Lyondell Petrochemical L.P. Inc., a Delaware corporation ("Lyondell LP"), and Millennium Petrochemicals LP LLC, a Delaware limited liability company ("Millennium LP" and together with Millennium GP, the "Millennium Partner Subs"), as the limited partners of the Partnership. WHEREAS, in connection with the closing of the transactions contemplated by the Initial Master Transaction Agreement, Lyondell and Millennium entered into the Parent Agreement with the Partnership dated as of December 1, 1997 (the "Initial Parent Agreement"), providing for, among other things, certain guarantees of performance by their respective Affiliated Obligors (as defined therein) and for certain restrictions on the transfer of their respective Partner Sub Stock (as defined therein). WHEREAS, the Partnership, Occidental Petroleum Corporation, a Delaware corporation ("OPC"), Lyondell and Millennium entered into a Master Transaction Agreement dated May 15, 1998 (the "Second Master Transaction Agreement"), providing for, among other things, the admission of Occidental Petrochem Partner GP, Inc., a Delaware corporation ("Occidental GP"), Occidental Petrochem Partner 1, Inc., a Delaware corporation ("Occidental LP1"), and Occidental Petrochem Partner 2, Inc., a Delaware corporation ("Occidental LP2"), as partners in the Partnership. WHEREAS, in connection with the closing of the transactions contemplated by the Second Master Transaction Agreement, Lyondell, Occidental Chemical Corporation, a New York corporation ("OCC"), Oxy CH Corporation, a California corporation ("Oxy CH"), OPC and Millennium entered into the Amended and Restated Parent Agreement with the Partnership dated as of May 15, 1998, as amended by a First Amendment to Amended and Restated Parent Agreement dated June 30, 1998 and modified by an Assignment and Assumption Agreement dated June 19, 1998 among OCC, Oxy CH and Occidental Chemical Holding Corporation, a California corporation ("OCHC") (the "Second Parent Agreement"), providing for, among other things, certain guarantees of performance by their respective Affiliated Obligors (as defined therein) and for certain restrictions on the transfer of their respective Partner Sub Stock (as defined therein). 1 WHEREAS, Lyondell, OCHC, OCC and Oxy CH entered into an Occidental Partner Sub Purchase Agreement dated July 8, 2002 (the "Oxy Partner Sub Purchase Agreement"), providing for, among other things, the purchase by Lyondell (i) from OCC of all of the outstanding common stock of Occidental LP1 and (ii) from Oxy CH of all of the outstanding common stock of Occidental GP and Occidental LP2. WHEREAS, in connection with the transactions contemplated by the Oxy Partner Sub Purchase Agreement, Lyondell, Millennium, OPC, certain of their affiliates, and the Partnership entered into a Letter Agreement dated May 31, 2002 (the "Letter Agreement"), providing for, among other things, (i) certain amendments to the Second Parent Agreement effective as of the closing of the transactions contemplated by the Oxy Partner Sub Purchase Agreement, (ii) the execution and delivery of an amended and restated parent agreement and (iii) an acknowledgement and agreement about termination of the Second Parent Agreement with respect to OPC, OCC, OCHC and Oxy CH effective from and after the closing of the transactions contemplated by the Oxy Partner Sub Purchase Agreement. WHEREAS, the closing of the transactions contemplated by the Oxy Partner Sub Purchase Agreement occurred on August 22, 2002 and effective as of that date ownership of Occidental GP, Occidental LP1 and Occidental LP2 was sold, assigned and delivered to Lyondell and as of that date Occidental and its Affiliates are no longer the owners of any interest in the Partnership. WHEREAS, on September 6, 2002 Occidental GP was merged with and into Lyondell GP with Lyondell GP the surviving entity. WHEREAS, on November 6, 2002, a Certificate of Amendment to the Certificate of Incorporation of each of Occidental LP1 and Occidental LP2 was filed with the Secretary of State of the State of Delaware whereby the name of Occidental Petrochem Partner 1, Inc. was changed to Lyondell (Pelican) Petrochemical L.P.1, Inc. ("Lyondell (Pelican) LP1") and the name of Occidental Petrochem Partner 2, Inc. was changed to Lyondell (Pelican) Petrochemical L.P.2, Inc. ("Lyondell (Pelican) LP2"). WHEREAS, Lyondell and Millennium are each a "Parent" for purposes of this Agreement. WHEREAS, Lyondell GP, Lyondell LP, Lyondell (Pelican) LP1 and Lyondell (Pelican) LP2 are referred to herein as the "Lyondell Partner Subs." WHEREAS, Lyondell GP, Lyondell LP and, effective from and after August 22, 2002, Occidental GP (now Lyondell GP), Lyondell (Pelican) LP1 and Lyondell (Pelican) LP2, together with any other Affiliate of Lyondell that is a party to any of the Related Agreements, are referred to herein as the "Lyondell Affiliated Obligors." The Millennium Partner Subs, together with any other Affiliate of Millennium that is a party to any of the Related Agreements, are referred to herein as the "Millennium Affiliated Obligors." 2 WHEREAS, the Lyondell Affiliated Obligors and the Millennium Affiliated Obligors, collectively or individually as the context may require, are referred to herein as the "Affiliated Obligors." The Lyondell Partner Subs and the Millennium Partner Subs, collectively or individually as the context may require, are referred to herein as the "Partner Subs." WHEREAS, (i) in connection with the closing of the transactions effected pursuant to the Initial Master Transaction Agreement and the Second Master Transaction Agreement, the Lyondell Parent, Millennium Parent, Oxy CH, OCC and OCHC and certain of their respective Affiliates, have entered into various agreements and other legal documents, including the Amended and Restated Limited Partnership Agreement of the Partnership dated as of May 15, 1998, the Agreement and Plan of Merger and Asset Contribution dated May 15, 1998 the "Occidental Contribution Agreement") among the Partnership, Occidental GP (now Lyondell GP), Occidental LP1 (now Lyondell (Pelican) LP1), Occidental LP2 (now Lyondell (Pelican) LP2) and Oxy Petrochemicals Inc. ("OPI"), services agreements and other asset contribution agreements, as applicable, (ii) the Lyondell Parent, Millennium Parent, Oxy CH, OCC and OCHC and certain of their respective Affiliates have entered into the Amended and Restated Limited Partnership Agreement of the Partnership dated as of August 24, 2001 and (iii) the Lyondell Parent, Millennium Parent, Oxy CH, OCC and OCHC, certain of their respective Affiliates and the Partnership have entered into the Letter Agreement, and (iv) in connection with the closing of the transactions effected pursuant to the Oxy Partner Sub Purchase Agreement, the Lyondell Parent, Millennium Parent and, by special joinder, OCC, are entering into an Amended and Restated Limited Partnership Agreement of the Partnership dated as of the date hereof (the "Partnership Agreement") (collectively and including this Agreement, the "Related Agreements"), each of which is integrally related to the capitalization or operations of the Partnership and is listed on Appendix A hereto. The Related Agreements (other than this Agreement) and any additional agreements that may from time to time be added to Appendix A hereto by agreement of the Lyondell Parent and Millennium Parent, as they may in the future be amended, supplemented, restated or otherwise modified, are referred to herein as the "Other Agreements." WHEREAS, this Agreement provides for the continuation of obligations and restrictions set forth in (i) the Initial Parent Agreement and the Second Parent Agreement which were essential to the consummation of the closing pursuant to the Initial Master Transaction Agreement, the Second Master Transaction Agreement and the entering into and effectiveness of the Other Agreements entered into in connection therewith, and (ii) the Letter Agreement. WHEREAS, the Lyondell Parent and Millennium Parent is each willing, solely for the benefit of the Beneficiaries (as defined below in Section 1.11) and their successors and assigns, to guarantee the performance by its Affiliated Obligors of certain of the obligations of such Affiliated Obligors as set forth in this Agreement. WHEREAS, the Lyondell Parent and the Millennium Parent is each willing to subject the Partner Sub Stock (as defined herein) to certain restrictions on transfer, as set forth in this Agreement. NOW THEREFORE, in consideration of the foregoing and the mutual promises and covenants of the Parties hereto, the Parties hereby agree as follows: 3 SECTION 1 GUARANTEE OF OBLIGATIONS 1.1 Guarantee. Each Parent hereby unconditionally, absolutely and irrevocably guarantees, undertakes and promises to cause, as herein provided, the due and punctual payment and the full and prompt performance by its Affiliated Obligors of all of the amounts to be paid and all of the terms and provisions to be performed or observed by or on the part of its Affiliated Obligors under the Other Agreements in accordance with the terms thereof (all such terms and provisions as now or hereafter in existence being collectively called the "Obligations") as follows: in the event that its Affiliated Obligors shall fail in any manner whatsoever to pay, perform or observe any of their Obligations, when and as the same shall be required to be paid, performed or observed under the terms of the Other Agreements, such Parent will itself duly and punctually pay, or fully and promptly perform or observe, as the case may be, such Obligations, or cause the same to be duly and punctually paid, or fully and promptly performed or observed, in each case as if such Parent were itself the obligor with respect to such Obligations under the Other Agreements. Insofar as this Section 1.1 relates to the obligations of an Affiliated Obligor under the Partnership Agreement, no Parent shall be required to make, or cause a Partner Sub to make, any contribution to the Partnership that such Partner Sub is not otherwise required to make pursuant to the terms of Section 2.3, 2.4, or 12.2(d)(ii) of the Partnership Agreement. Insofar as this Section 1.1 applies to Other Agreements other than the Partnership Agreement, the term "Affiliated Obligors" will not include the Partnership nor any partner in the Partnership in its capacity as such. Notwithstanding the foregoing, this Section 1.1 shall not apply to Obligations that are within the scope of Section 1.2. 1.2 Guarantee Regarding Interested Owner Agreements. Each Parent acknowledges that the Partnership Agreement sets forth definitions of "Conflicted General Partner" and "Nonconflicted General Partner," and provides that the Nonconflicted General Partners (whether one or more) have certain exclusive rights to control the Partnership with respect to any Conflict Circumstance (as defined in the Partnership Agreement); and accordingly, without limiting the rights of its Partner Subs under Section 6.8 of the Partnership Agreement, and without prejudice to any rights, remedies or defenses the Partnership may have in respect of any such Other Agreement or Conflict Circumstance, each Parent hereby agrees to cause its respective Partner Subs (i) to cause the Partnership to pay, perform and observe all of the Obligations to be paid, performed or observed by or on the part of the Partnership under the Other Agreements, in accordance with the terms thereof, to the extent that such Partner Sub is a Nonconflicted General Partner and is thereby entitled to cause the payment, performance and observance of such Obligations and (ii) except to the extent inconsistent with its obligations under Section 1.2(i), to abide by its obligations as a Nonconflicted General Partner with respect to any Conflict Circumstance arising in connection with any Other Agreement in accordance with the terms of the Partnership Agreement applicable thereto; provided, however, that each Parent's responsibility under this Section 1.2 for a failure of the Partnership to pay, perform or observe its Obligations under the Other Agreements shall be limited to the circumstances in which the Partnership's failure to so pay, perform or observe its obligations under the Other Agreements was directly caused by an act or failure to act of its Partner Sub; provided, further, that nothing in this Section 1.2 shall require a Parent to make or cause such Partner Sub (i) to cure or mitigate any inability of the Partnership to make any payment or to perform or observe any Obligations under any Other Agreements, (ii) to cause the Partnership to require from the Partner Subs any 4 cash contributions in respect of any payment, performance or observance involved in such Conflict Circumstance, or (iii) to make any contribution to the Partnership that such Partner Sub is not otherwise required to make pursuant to Section 2.3, 2.4, or 12.2(d)(ii) of the Partnership Agreement. 1.3 No Demand or Notice. It shall not be a condition to the guarantees and agreements set forth in Sections 1.1 and 1.2 above (together, the "Guarantee") that a Beneficiary shall have first made any request of or demand upon, or given any notice of the occurrence of a default under the Other Agreements or any other notice whatsoever to, a Parent or its Affiliated Obligors or any other Person, or shall have instituted any action or proceeding against any Affiliated Obligor or any other Person in respect thereof, or shall have joined any Affiliated Obligor or the Partnership in any such action or proceeding. A Beneficiary in asserting the benefit of the Guarantee shall give prompt notice to a Parent of any failure by its Affiliated Obligors or the Partnership to pay, perform or observe any Obligation; provided, however, that any failure, delay or defect in the giving of such notice shall not alter or affect the Guarantee under this Agreement. 1.4 Waiver of Resort to Security. Each Parent further agrees that this Agreement, insofar as it constitutes a guarantee of monetary Obligations, constitutes a guarantee of payment when due and not of collection, and each Parent waives any right to require as a condition to its Guarantee that any resort be had by a Beneficiary to any security held for the payment of any Obligations. 1.5 No Discharge. The Guarantee is and shall remain absolute and unconditional irrespective of any circumstance that might otherwise constitute a legal or equitable discharge of a surety or guarantor, as the case may be, with respect to its Guarantee. 1.6 Waivers by the Parent. Each Parent hereby waives, with respect to the Guarantee but without prejudice to the rights of the parties to the Other Agreements, any notice of acceptance of this Agreement, grace, presentment, demand, protest, notice of the occurrence of a default under the Other Agreements and any other notice of any kind whatsoever and promptness in making any claim or demand hereunder. The Guarantee shall not be affected by (i) the failure of a Beneficiary to assert any claim or demand or to enforce any right or remedy under the provisions of any of the Other Agreements or any agreement related thereto or otherwise, (ii) any extension or renewal of any of the Other Agreements or any agreement related thereto, (iii) any rescission, waiver, amendment or modification of any of the terms or provisions of any of the Other Agreements or of any agreement related thereto, including, without limitation, any change in the time, manner or place of payment or performance of any of the obligations under the Other Agreements, or (iv) the release of any security held for payment of any Obligations. 1.7 No Reduction. The Guarantee shall not be subject to any reduction, limitation, impairment or termination for any reason, including, without limitation, any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to any defense or set-off, counterclaim, recoupment or termination whatsoever, except as provided in Section 1.10. 5 1.8 Enforcement. Notwithstanding anything herein to the contrary, a Beneficiary may proceed to enforce the Guarantee without first pursuing or exhausting any right or remedy that it or any of its successors or assigns may have against any Affiliated Obligor or a Parent or any other Person. 1.9 Continued Effectiveness. The Guarantee shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of any Obligation of an Affiliated Obligor is rescinded or must otherwise be restored or returned by the Person receiving such payment upon the insolvency, bankruptcy or reorganization of an Affiliated Obligor, all as though such payment or part thereof had not been made. 1.10 Certain Defenses. Nothing herein is intended to deny to a Parent, and it is expressly agreed that each Parent shall have and may assert, any and all of the defenses, set-offs, counterclaims and other rights (other than those relating to insolvency, bankruptcy or reorganization as described in Section 1.9) with regard to any Obligations that its Affiliated Obligors may possess except any defense its Affiliated Obligors may possess relating to lack of validity or enforceability of the Other Agreements or any other agreement or instrument relating thereto as against its Affiliated Obligors arising from the defective incorporation or other defective organization of its Affiliated Obligors, their lack of qualification to do business in any applicable jurisdiction or their defective corporate or other organizational authority to enter into, deliver or perform the Other Agreements. 1.11 Parties in Interest. Section 1 of this Agreement shall inure solely to the benefit of the Beneficiaries, each of whom has the right to enforce the Guarantee against the Parents, and nothing in this Agreement, express or implied, is intended to or shall confer upon any other Person any rights, benefits or remedies of any nature whatsoever under or by reason of this Agreement. As used in this Agreement, "Beneficiaries" shall mean (i) as to any obligations of Millennium, except for its obligations pursuant to Section 1.1 hereof with respect to the Partnership Agreement, the Partnership, Lyondell and the Lyondell Affiliated Obligors, (ii) as to any obligations of Lyondell, except for its obligations pursuant to Section 1.1 hereof with respect to the Partnership Agreement, the Partnership, Millennium and the Millennium Affiliated Obligors, and (iii) as to any obligations of a Parent pursuant to Section 1.1 hereof with respect to the Partnership Agreement, the other Parent. As used in this Agreement, the term Parent includes any successor or transferee of the Parent, and the term Affiliated Obligors includes any successor to or transferee of the Affiliated Obligors' interest in the Partnership permitted pursuant to the Partnership Agreement. 1.12 Parent Net Worth. (a) Each Parent shall at all times maintain a GAAP Net Worth in an amount sufficient to satisfy its known and potential obligations under this Agreement. (b) Each Parent agrees that, as of the end of each fiscal quarter, either (i) the excess of its GAAP Net Worth at such time over its Partnership Investment at such time or (ii) the excess of its Equity Market Capitalization at such time over its Adjusted Partnership Investment at such time, shall be at least $250 million. 6 (c) The term "GAAP Net Worth" means, for a Parent at any time, such Parent's consolidated stockholders equity, determined in accordance with generally accepted accounting principles ("GAAP"), as of the end of its most recent fiscal quarter. The term "Equity Market Capitalization" means, for a Parent at any time, (x) the aggregate market value of such Parent's outstanding publicly traded equity securities, as of the end of its most recent fiscal quarter (based on the average closing price for the most recent 20 trading days on the principal stock exchange on which such securities are traded) plus (y) the amount of stockholders equity, determined in accordance with GAAP, attributable at such time to any equity securities of such Parent that are not publicly traded. The term "Partnership Investment" means, for a Parent at any time, its investment in the Partnership, determined in accordance with GAAP as of the end of the most recent fiscal quarter. The term "Adjusted Partnership Investment" means, for a Parent at any time, (A) Lyondell's investment in the Partnership, determined in accordance with GAAP as of the end of the most recent fiscal quarter, multiplied by (B) a fraction the numerator of which is the aggregate Percentage Interest at such time of the Partner Subs owned by the Parent whose Partnership Investment is being determined and the denominator of which is the aggregate Percentage Interest at such time of the Partner Subs owned by Lyondell. The term "Percentage Interest" is used as defined in the Partnership Agreement. (d) The provisions of Section 1.12(b) shall expire as to a Parent at such time after November 30, 2004 at which no material Seven Year PCCL Claim (as defined in the Asset Contribution Agreement (as defined in the Partnership Agreement) applicable to such Parent, its Affiliated Obligors or, if applicable, its predecessor Parent or its Affiliated Obligors) is outstanding against such Parent, any of its Affiliated Obligors or, if applicable, its predecessor Parent or its Affiliated Obligors. SECTION 2 OWNERSHIP AND BUSINESS OF PARTNER SUBS 2.1 Restrictions on Transfer and Pledge of Partner Sub Stock. (a) Each Parent agrees that except as otherwise provided below in this Section 2.1 or Section 2.2 or with the written consent of the other Parent, which consent may be granted or withheld in such Parent's sole discretion, it will not, in any transaction or series of transactions, directly or indirectly, (i) sell, assign or otherwise in any manner dispose of, whether by act, deed, merger or otherwise ("Transfer") or (ii) mortgage, pledge, encumber or create or suffer to exist any pledge, lien or encumbrance upon or security interest in ("Pledge"), all or any part of the capital stock (including any securities convertible into or exchangeable for or carrying any rights to purchase, subscribe for or otherwise acquire any such capital stock) of its Partner Subs (collectively, the "Partner Sub Stock"). (Each of the defined terms "Transfer" and "Pledge" is used herein both as a noun and as a verb.) Any attempt by a Parent to Transfer or Pledge all or a portion of its Partner Sub Stock in violation of this Agreement shall be void ab initio and shall not be effective to Transfer such Partner Sub Stock or any portion thereof. The Partnership Agreement contains provisions relating to the Transfer and Pledge of the Partner Subs' direct interests in the Partnership. 7 (b) Each Parent agrees that all certificates representing shares of Partner Sub Stock, whether currently owned or hereafter acquired, shall carry the following legend, which legend each Parent agrees to cause to be placed thereon and to cause to remain thereon as long as such shares are subject to the restrictions of this Agreement: THE SALE, ASSIGNMENT, PLEDGE OR OTHER TRANSFER OR HYPOTHECATION OF THE STOCK REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO CERTAIN RESTRICTIONS PURSUANT TO AND MAY NOT BE EFFECTED EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF AN AGREEMENT BINDING UPON THE OWNER OF THE STOCK REPRESENTED HEREBY. THE OWNER OR ISSUER WILL FURNISH A COPY OF SUCH AGREEMENT TO ANY PROPOSED TRANSFEREE OR PLEDGEE WITHOUT CHARGE UPON REQUEST. (c) Without the need for the consent of any Person, either Parent may Transfer its Partner Sub Stock to any wholly-owned Affiliate of such Parent or of a common parent. (d) Without the need for the consent of any Person, each Parent may Transfer all (but not less than all) of its Partner Sub Stock, if such Transfer is in connection with (i) a merger, consolidation, conversion or share exchange of such Parent or (ii) a sale or other disposition of (x) the Partner Sub Stock plus (y) other assets representing at least fifty-percent (50%) of the book value of such Parent's assets excluding the Partner Sub Stock, as reflected on its most recent audited consolidated (or combined) financial statements; provided, however, that the Successor Parent, if any, (A) shall succeed to and be substituted for such Parent, with the same effect as if it had been named herein and (B) shall execute an instrument wherein such Successor Parent shall agree to be bound by the obligations of such Parent under this Agreement, with the same effect as if it had been named herein, whereupon, unless such Parent shall become a direct or indirect subsidiary of such Successor Parent, such Parent shall thereupon be released from all obligations under Sections 1, 2 and 4 of this Agreement. (e) Nothing in this Agreement shall prevent or restrict the Transfer or Pledge of the capital stock, equity ownership interests or other securities of a Parent and no such Transfer or Pledge of securities issued by a Parent shall be deemed to constitute a Transfer or Pledge of Partner Sub Stock hereunder; provided that, (i) in the event of a Transfer in the form of a transaction described in clause (i) of Section 2.1(d) the Successor Parent, if any, shall execute an instrument to the effect described in clause (B) of Section 2.1(d) and (ii) following the consummation of any such Transfer or Pledge of securities of a Parent, all the Partner Sub Stock of such Parent shall be held by the same transferee or one or more transferees that are wholly-owned Affiliates of each other or of a common parent entity or shall be Pledged to the same pledgee or pledgees. (f) For purposes of this Section 2.1, the term "Successor Parent" shall mean the acquiring, succeeding or surviving entity in any transaction contemplated by Section 2.1 (d) that owns the applicable Partner Sub Stock following such transaction, if other than a Parent. 8 (g) Each Parent may Pledge all (but not less than all) of its Partner Sub Stock to any one or more Approved Lenders; provided that the Pledge shall be evidenced by an instrument, reasonably satisfactory to the Partnership, wherein the Approved Lender receiving such Pledge shall agree that in the event such Approved Lender obtains a right of foreclosure on such Parent's Partner Sub Stock, such Approved Lender will foreclose on the Partner Sub Stock of each of such Parent's Partner Subs equally so that such Approved Lender will in all events hold equal portions of Partner Sub Stock of (i) Lyondell GP, Lyondell LP, Lyondell (Pelican) LP1 and Lyondell (Pelican) LP2 or (ii) Millennium GP and Millennium LP, as the case may be. An "Approved Lender" shall be any bank, insurance company, investment bank or other financial institution that is regularly engaged in the business of making loans. (h) Without the need for the consent of any Person, provided that such merger does not cause a termination of the Partnership under Section 708(b)(1)(B) of the Code, (i) if Lyondell GP and Occidental GP are both Affiliates of Lyondell, Lyondell GP and Occidental GP may be merged with either Lyondell GP or Occidental GP as the surviving entity and (ii) if two or more Partner Subs are both Limited Partners and such Partner Subs are Affiliates of Lyondell, such Partner Subs may be merged together at any time. 2.2 Right of First Option. (a) Without the consent of the other Parent, no Parent may Transfer less than all of its Partner Sub Stock. Unless such Transfer is otherwise permitted by Section 2.1, no Parent may Transfer its Partner Sub Stock for consideration other than cash. Unless such Transfer is otherwise permitted by Section 2.1, a Parent (the "Selling Parent") desiring to Transfer all of its Partner Sub Stock to any Person (including the other Parent or any Affiliate thereof) shall give written notice (the "Initial Notice") to the Partnership and the other Parent (the "Offeree Parent") stating that the Selling Parent desires to Transfer its Partner Sub Stock and stating the cash purchase price and all other terms on which it is willing to sell (the "Offer Terms"). Delivery of an Initial Notice shall constitute the irrevocable offer of the Selling Parent to sell its Partner Sub Stock to the Offeree Parent hereunder. (b) The Offeree Parent shall have the option, exercisable by delivering written notice (the "Acceptance Notice") of such exercise to the Selling Parent within 45 days of the date of the Initial Notice, to elect to purchase all of the Partner Sub Stock of the Selling Parent on the Offer Terms described in the Initial Notice. The Acceptance Notice shall set a date for closing the purchase, such date to be not less than 30 nor more than 90 days after delivery of the Acceptance Notice; provided that such time period shall be subject to extension as reasonably necessary (up to a maximum of an additional 120 days after such 90 day period) in order to comply with any applicable filing and waiting period requirements under the Hart-Scott-Rodino Antitrust Improvements Act. The closing shall be held at the Partnership's offices. The purchase price for the Selling Parent's Partner Sub Stock shall be paid in cash delivered at the closing. The purchase shall be consummated by appropriate and customary documentation (including the giving of representations and warranties substantially similar to (i) those set forth in Sections 2.1 through 2.4 of the Initial Master Transaction Agreement and (ii) customary representations and warranties regarding the Selling Parent's title to its Partner Sub Stock). 9 (c) If the Offeree Parent does not elect to purchase all of the Selling Parent's Partner Sub Stock within 45 days after the receipt of the Initial Notice, the Selling Parent shall have a further 180 days during which it may, subject to Sections 2.2(d) and (e), consummate the sale of its Partner Sub Stock to a third party purchaser at a purchase price and on such other terms that are no more favorable to such purchaser than the Offer Terms. If the sale is not completed within such further 180-day period, the Initial Notice shall be deemed to have expired and a new notice and offer shall be required before the Selling Parent may make any Transfer of its Partner Sub Stock. (d) Before the Selling Parent may consummate a Transfer of its Partner Sub Stock to a third party in accordance with this Agreement, the Selling Parent shall demonstrate to the other Parent that such proposed purchaser (or the Person willing to serve as its guarantor as contemplated by Section 2.2(e)) has outstanding indebtedness that is rated investment grade by either Moody's Investor Services Inc. or Standard & Poor's Ltd., or if such proposed purchaser (or such other Person) has no rated indebtedness outstanding, such Person shall provide an opinion from one of such entities or from a nationally recognized investment banking firm that it could be reasonably expected to obtain such a rating. (e) Notwithstanding the foregoing provisions of this Section 2.2, a Parent may Transfer its Partner Sub Stock (other than pursuant to Section 2.1) only if all of the following occur: (i) The Transfer is accomplished in a non-public offering in compliance with, and exempt from, the registration and qualification requirements of all federal and state securities laws and regulations. (ii) The Transfer does not cause a default under any material contract which has been approved unanimously by the Partnership Governance Committee (as defined in the Partnership Agreement) and to which the Partnership is a party or by which the Partnership or any of its properties is bound. (iii) The transferee executes an appropriate agreement to be bound by this Agreement. (iv) The transferor and/or transferee bears all reasonable costs incurred by the Partnership in connection with the Transfer. (v) The transferee (or the guarantor of the obligations of the transferee) satisfies the criteria set forth in Section 2.2(d) and delivers an agreement to the other Parent and the Partnership substantially in the form of this Agreement. (vi) The proposed transferor is not in default in the timely performance of any of its material obligations to the Partnership. (vii) The provisions of Section 2.2(f) are satisfied. 10 (f) No Parent may Transfer the Partner Sub Stock of any of its Partner Subs to any Person unless such Parent simultaneously Transfers the Partner Sub Stock of its other Partner Sub or Partner Subs (if the Parent has more than one Partner Sub), to such Person or a wholly owned Affiliate of such Person or of a common parent. 2.3 Prohibition on Affiliated Obligor Bankruptcy, Etc. Each Parent hereby agrees that it will not, without the written consent of the other Parent, permit any of its Affiliated Obligors (or their successors or assigns) (i) to commence a voluntary action under the Federal bankruptcy laws, as now or hereafter constituted, or any other applicable Federal or State bankruptcy, insolvency or other similar law, (ii) to institute a proceeding to be adjudicated a voluntary bankrupt, (iii) to consent to the filing of a bankruptcy proceeding against it, (iv) to fail to contest a bankruptcy proceeding against it, (v) to consent to the appointment of a receiver, custodian, liquidator or trustee for it or for all or any substantial portion of its property, (vi) in the case of its Partner Subs, to issue or sell other than to such Parent any of its own Partner Sub Stock or (vii) to effect, recognize or permit any transfer of any of its own Partner Sub Stock other than in accordance with the provisions of Section 2 of this Agreement. 2.4 Special Purpose Subsidiaries. Each Parent agrees that (i) the business of its Partner Subs shall be restricted solely to the holding of the respective interests in the Partnership and the doing of things necessary or incidental in connection therewith, and (ii) it will cause its Partner Subs not to own any assets, incur any liabilities or engage, participate or invest in any business outside the scope of their businesses as described in clause (i); provided, however, that this Section 2.4 shall not apply with respect to any wholly owned Affiliates to whom such Partner Subs shall transfer their respective interests in the Partnership if such wholly owned Affiliates are not bound by Section 9.6 of the Partnership Agreement. Notwithstanding the foregoing provisions of this Section 2.4, this Section 2.4 shall not prohibit any Partner Sub from incurring debt payable to its Parent or an Affiliate as long as: (i) such debt is not transferable (by contract or operation of law) to any Person other than its Parent or an Affiliate of its Parent; (ii) no payment on such debt is permitted or required to be made if at the time of such payment such Partner Sub is in Default under (and as defined in) the Partnership Agreement or by making such payment such Partner Sub would not be able to perform its obligations under the Partnership Agreement. Each Parent hereby agrees that it and its Affiliates shall not be entitled to, and that the Partner Sub shall not be required to make, any payments on any such debt payable by its Partner Sub if: (i) at the time of such payment such Partner Sub is in Default under the Partnership Agreement, (ii) by making such payment such Partner Sub would not be able to perform its obligations under the Partnership Agreement, or (iii) such Parent is in default of its obligations under Section 1.12 of this Agreement. 11 SECTION 3 STANDSTILL AGREEMENT AND CERTAIN OTHER MATTERS 3.1 Standstill. Each Parent agrees that until the expiration of 24 months after the date on which such Parent and its Affiliates no longer hold an interest in the Partnership, neither it, nor any of its Affiliates shall, without prior written invitation or request of the other Parent: (i) in any manner acquire, agree to acquire or make any proposal to acquire, directly or indirectly, any securities, assets or property of the other Parent, whether such agreement or proposal is made with or to the other Parent or a third party; (ii) make any unsolicited proposal to enter into, directly or indirectly, any merger or other business combination involving the other Parent; (iii) make, or in any way participate, directly or indirectly, in any "solicitation" of "proxies" (as such terms are used in the proxy rules of the Securities and Exchange Commission) to vote, or seek to advise or influence any person with respect to the voting of, any voting securities of the other Parent; (iv) form, join or in any way participate in a "group" (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934) with respect to any voting securities of the other Parent; (v) otherwise act, alone or in concert with others, to seek to control the management, Board of Directors or policies of the other Parent; (vi) disclose any intention, plan or arrangement inconsistent with the foregoing; or (vii) advise, encourage, provide assistance (including financial assistance) to or hold discussions with any other persons in connection with any of the foregoing. Each Parent also agrees during such period not to: (i) request that the other Parent (or its respective directors, officers, employees or agents), directly or indirectly, amend or waive any provision of this Section 3.1 (including this sentence); or (ii) take any action which might reasonably be expected to require that the other Parent to make a public announcement regarding the possibility of a business combination or merger. 3.2 Exceptions. Notwithstanding the provisions of Section 3.1: (a) Either Parent may, by notice to the other Parent, terminate the provisions of Section 3.1 (as applied to both Parents) at any time within 30 days after the occurrence of any of the following events with respect to the other Parent: (i) a Change of Control (as defined below) of such other Parent shall have occurred, (ii) such other Parent shall have entered into a definitive agreement providing for, or publicly announced its intention to effect, any transaction involving a Change of Control of such other Parent or (iii) a tender offer or exchange offer shall have been commenced or publicly announced that, if consummated, would have the effect with respect to such other Parent described in clause (c) of the definition of "Change of Control." A "Change of Control" of a Parent shall mean the occurrence of any of the following events: (a) there shall be consummated any consolidation, merger or share exchange of such Parent (i) in which such Parent is not the continuing or surviving Person (other than a consolidation, merger or share exchange with a wholly owned subsidiary of such Parent in which all shares of common stock of such Parent outstanding immediately prior to the effectiveness thereof are changed into or exchanged for the same number of shares of common stock of such subsidiary) or (ii) pursuant to which the common stock of such Parent is converted into cash, securities or other property, other than, in each case, a consolidation, merger or share exchange of such Parent in which the holders of the common stock immediately prior to the consolidation, merger or share exchange hold, directly or indirectly, at least a majority of the voting power and common equity of the continuing or surviving Person immediately after such consolidation, merger or share exchange; (b) such Parent's properties and assets are sold or otherwise disposed of substantially as an 12 entirety on a consolidated basis to any Person or group of Persons in any one transaction or a series of related transactions, other than as contemplated by the Initial Master Transaction Agreement or the Second Master Transaction Agreement; or (c) any Person or any Persons acting together which would constitute a "group" (as defined in Section 3.1) (other than such Parent, any subsidiary of such Parent, any employee stock purchase plan, stock option plan or other stock incentive plan or program, retirement plan or automatic dividend reinvestment plan or any substantially similar plan of such Parent or any subsidiary of such Parent or any Person holding securities of such Parent for or pursuant to the terms of any such employee benefit plan), together with any Affiliates thereof, shall acquire beneficial ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934) of 50% or more of the voting stock of such Parent. (b) The terms of the first sentence of Section 3.1 shall not be applicable to the purchase and sale of any securities of a Parent by independent third-party managers of any pension or other related employee benefit plans who are acting as passive investors in such Parent. 3.3 [Intentionally Omitted]. 3.4 [Intentionally Omitted]. SECTION 4 MISCELLANEOUS 4.1 No Waivers. No failure or delay by a Beneficiary or a Party in exercising any right or power under this Agreement, or any single or partial exercise of any such right or power, shall preclude any other or further exercise thereof or the exercise of any other right or power. Such single or partial exercise of any right or power shall be cumulative and not exclusive of any rights or remedies provided by law. 4.2 Expenses in Connection with Exercise. In the event of a dispute between Parties regarding the exercise or enforcement of any of the rights of a Beneficiary under this Agreement or the failure by a Party to perform or observe any of the provisions of this Agreement, the Party that does not ultimately prevail in such dispute shall be liable, and hereby agrees, to reimburse, on demand, each other such Party for any and all costs and expenses, including the fees and expenses of legal counsel and of any other counsel, experts, consultants or agents, that such other Party may incur in connection therewith. 4.3 Subordination and Subrogation. The rights of a Parent against its Affiliated Obligors arising from any payment or performance by a Parent hereunder shall be subordinate in all respects to the rights of the Beneficiaries against such Affiliated Obligors, and such Parent shall not compete in any way with a Beneficiary in any winding-up or dissolution of such Affiliated Obligors unless and until all sums due and to become due from such Affiliated Obligors to the Beneficiaries have been paid in full. If any amount shall be paid to a Parent in violation of this Section, such amount shall be held in trust for the benefit of the Beneficiaries and shall forthwith be paid to the Beneficiaries to be credited and applied to any sums owed or to be owed by such Parent's Affiliated Obligors. Subject to the foregoing, upon payment of all sums due or to become due by Affiliated Obligors to the Beneficiaries, the Parent of such Affiliated 13 Obligors shall be subrogated to the rights of the Beneficiary against such Affiliated Obligors, and the Beneficiaries agree to take at such Parent's expense such steps as such Parent may reasonably request to implement such subrogation. 4.4 Confidentiality and Use of Information. (a) Each Parent agrees that it and its Affiliates shall be bound by the terms and conditions of Section 13.1 of the Partnership Agreement as if such Person was a "Partner" as defined in such agreement. (b) Lyondell and Millennium shall consult with each other on an ongoing basis with respect to disclosures regarding the Partnership and its business and affairs that each is required to make in reports filed from time to time with the Securities and Exchange Commission. 4.5 Competing Businesses. If a Parent or an Affiliate thereof desires to initiate or pursue any opportunity to undertake, engage in, acquire or invest in a Business Opportunity (as such term is defined in the Partnership Agreement), such Person shall offer such Business Opportunity to the Partnership under the terms and conditions set forth in Sections 9.3(c) and (d) of the Partnership Agreement as if such Person were the "Proposing Partner" (as defined in the Partnership Agreement) with respect thereto, and in such event the Partnership shall have the rights and obligations with respect thereto set forth in such Sections 9.3(c) and (d). 4.6 Further Assurances. From time to time, each Party agrees to execute and deliver such additional documents and provide such additional information and assistance as the Beneficiaries may reasonably require to carry out the terms of this Agreement. 4.7 Assignment; Successors and Assigns. (a) Except as provided in this Agreement and except that a Parent may assign its rights or obligations under this Agreement to a third party in connection with a transfer of direct interests in the Partnership owned by its Partner Subs if such transfer is permitted and consummated in accordance with the Partnership Agreement, no Parent may assign or delegate any of its rights or obligations under this Agreement without the prior written consent of all the Beneficiaries, which consent shall be in the sole and absolute discretion of such Beneficiaries. Any purported assignment or delegation without such consent shall be void and ineffective. (b) Except as may be expressly provided herein, this Agreement shall be binding upon and inure to the benefit of the successors of the Beneficiaries. 4.8 Benefits of Agreement Restricted to the Parties. This Agreement is made solely for the benefit of the Parties and, with respect to Sections 1 and 4 (excluding Sections 4.4 and 4.5), the Beneficiaries (as defined in Section 1.11), and no other Person shall have any right, claim or cause of action under or by virtue of this Agreement. 14 4.9 Notices. (a) All notices, requests, demands and other communications (collectively, "notices") required or may be given under this Agreement to a Parent or its Partner Subs shall be in writing and shall be deemed to have been duly given if and when (i) transmitted by facsimile with proof of confirmation from the transmitting machine or (ii) delivered by commercial courier or other hand delivery, as follows: If to Lyondell If to the Lyondell Partner Subs Lyondell Chemical Company Lyondell Chemical Company 1221 McKinney Street, Suite 700 1221 McKinney Street, Suite 700 Houston, Texas 77010 Houston, Texas 77010 Attention: Kerry A. Galvin Attention: Kerry A. Galvin Facsimile Number: (713) 309-4718 Facsimile Number: (713) 309-4718 If to Millennium If to the Millennium Partner Subs Millennium Chemicals Inc. Millennium Chemicals Inc. 230 Half Mile Road 230 Half Mile Road Red Bank, New Jersey 07701 Red Bank, New Jersey 07701 Attention: William Carmean Attention: William Carmean Facsimile Number: (732) 933-5270 Facsimile Number: (732) 933-5270 If to the Partnership Equistar Chemicals, LP 1221 McKinney Street, Suite 700 Houston, Texas 77010 Attention: Gerald A. O'Brien Facsimile Number: (713) 309-7312 or to such other address as such Party or Beneficiary shall have specified by notice to the other Party. 4.10 Severability. In the event that any provisions of this Agreement shall finally be determined to be unlawful, such provision shall, so long as the economic and legal substance of the transactions contemplated hereby is not affected in any materially adverse manner as to any Party, be deemed severed from this Agreement and every other provision of this Agreement shall remain in full force and effect. 4.11 Termination. Except for Sections 3.1, 3.2 and 3.4 (which sections shall terminate only as provided therein), this Agreement shall terminate and be of no further force and effect as to a Parent (i) as and when provided in Section 2.1(d) or (ii) if and when such Parent Transfers all of its Partner Sub Stock in a transaction permitted by Section 2.2; provided, however, that such termination shall not discharge (x) any accrued Obligations owed by such Parent as of the date of such termination or (y) any Obligations, whether arising before or after such termination, under such Parent's Asset Contribution Agreement (as such term is defined in the Partnership 15 Agreement) or any Related Agreement executed pursuant to such Asset Contribution Agreement. In addition, the Guarantee by such Parent of Obligations of an Affiliated Obligor other than a Partner Sub shall terminate as and when such Parent ceases to be an Affiliate of such Affiliated Obligor, insofar as such Guarantee relates to Obligations arising thereafter. 4.12 Construction and Certain Definitions. (a) In construing this Agreement, the following principles shall be followed: (i) no consideration shall be given to the captions of the articles, sections, subsections or clauses, which are inserted for convenience in locating the provisions of this Agreement and not as an aid in construction; (ii) no consideration shall be given to the fact or presumption that any Party had a greater or lesser hand in drafting this Agreement; (iii) examples shall not be construed to limit, expressly or by implication, the matter they illustrate; (iv) the word "includes" and its syntactic variants mean "includes, but is not limited to" and corresponding syntactic variant expressions; (v) the plural shall be deemed to include the singular, and vice versa; (vi) each gender shall be deemed to include the other gender; and (vii) each exhibit, attachment and schedule to this Agreement is a part of this Agreement. (b) The term "Affiliate" shall mean any Person that directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with the Person specified. For purposes of this definition, the term "control" shall have the meaning set forth in 17 CFR 230.405 as in effect on the date hereof. (c) The term "Person" shall mean any natural person or any corporation, partnership, limited liability company, joint venture, association, trust or other entity or organization. 4.13 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall constitute an original, and all of which when taken together shall constitute one and the same original document. 4.14 Governing Law. The laws of the State of Delaware shall govern the construction, interpretation and effect of this Agreement without giving effect to any conflicts of law principles. 4.15 Jurisdiction; Consent to Service of Process; Waiver. ANY JUDICIAL PROCEEDING BROUGHT AGAINST ANY PARTY TO THIS AGREEMENT OR ANY DISPUTE UNDER OR ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY MATTER RELATED HERETO SHALL BE BROUGHT IN THE FEDERAL OR STATE COURTS OF THE STATE OF DELAWARE, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE PARTIES TO THIS AGREEMENT ACCEPTS THE EXCLUSIVE JURISDICTION OF SUCH COURTS AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT (AS FINALLY ADJUDICATED) RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT. EACH OF THE PARTIES TO THIS AGREEMENT SHALL APPOINT THE CORPORATION TRUST COMPANY, THE PRENTICE-HALL CORPORATION SYSTEM, INC. OR A SIMILAR ENTITY (THE "AGENT") AS AGENT TO RECEIVE ON ITS BEHALF SERVICE 16 OF PROCESS IN ANY PROCEEDING IN ANY SUCH COURT IN THE STATE OF DELAWARE. THE FOREGOING CONSENTS TO JURISDICTION AND APPOINTMENTS OF AGENT TO RECEIVE SERVICE OF PROCESS SHALL NOT CONSTITUTE GENERAL CONSENTS TO SERVICE OF PROCESS IN THE STATE OF DELAWARE FOR ANY PURPOSE EXCEPT AS PROVIDED ABOVE AND SHALL NOT BE DEEMED TO CONFER RIGHTS ON ANY PERSON OTHER THAN THE PARTIES HERETO. EACH PARENT HEREBY WAIVES ANY OBJECTION IT MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON-CONVENIENS. 4.16 Waiver of Jury Trial. EACH PARTY HEREBY KNOWINGLY AND INTENTIONALLY, IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT AND FOR ANY COUNTERCLAIM THEREIN. 4.17 Dispute Resolution. All disputes under this Agreement shall be resolved in accordance with the Dispute Resolution Procedures set forth in Appendix B. 4.18 Obligations Regarding Affiliates. Each Parent shall cause its Affiliates (including any person controlling such Parent) to comply with all provisions of this Agreement that apply to Affiliates of such Parent, and each Parent shall be responsible for any failure of any such Affiliate to comply with any such provision. 4.19 Amendment. All waivers, modifications, amendments or alterations of this Agreement shall require the execution of a written instrument signed by each of the Parties. 17 IN WITNESS WHEREOF, the Parties have executed and delivered this Amended and Restated Parent Agreement as of the date first above written. LYONDELL CHEMICAL COMPANY By: /s/ KERRY A. GALVIN ------------------------------------------------ Name: Kerry A. Galvin Title: Senior Vice President, General Counsel and Secretary MILLENNIUM CHEMICALS INC. By: /s/ C. WILLIAM CARMEAN ------------------------------------------------ Name: C. William Carmean Title: Senior Vice President EQUISTAR CHEMICALS, LP By: /s/ GERALD A. O'BRIEN ------------------------------------------------ Name: Gerald A. O'Brien Title: Vice President, Deputy General Counsel and Assistant Secretary [Signature Page to Amended and Restated Parent Agreement 18 APPENDIX A TO PARENT AGREEMENT LIST OF RELATED AGREEMENTS 1. Old Partnership Agreement. 2. $345 million promissory note dated December 1, 1997, of Lyondell LP payable to the Partnership. 3. Asset Contribution Agreement dated as of December 1, 1997, between Lyondell, Lyondell LP and the Partnership. 4. Asset Contribution Agreement dated as of December 1, 1997, between Millennium Petrochemicals, Millennium LP and the Partnership. 5. Bill of Sale and Assignment dated December 1, 1997 from Lyondell to the Partnership with respect to property specified on attached schedule. 6. Assignment of Trademarks dated November 25, 1997 from Lyondell to the Partnership with respect to certain O&P Trademarks as listed on attached schedule. 7. Assignment of Patents dated November 25, 1997 from Lyondell to the Partnership with respect to certain O&P Patents as listed on attached schedule. 8. Assumption Agreement dated December 1, 1997 between Lyondell as Assignor and the Partnership as Assignee pursuant to the Asset Contribution Agreement with respect to the assumption by Assignee of certain liabilities. 9. Master Intellectual Property Agreement dated December 1, 1997 by and between Lyondell and the Partnership. 10. Assignment dated December 1, 1997 between Lyondell as "Assignor" and the Partnership as "Assignee" with respect to the contribution by Assignor of LCR Agreements. 11. Assignment dated December 1, 1997 between Lyondell and the Partnership, of Ground Lease (LMC) with respect to certain real property specified therein. 12. Assignment dated December 1, 1997 between Lyondell and the Partnership, of Operating Agreement, Natural Gas Sales and Methanol Supply with respect to Lyondell Methanol Company. 13. Administrative Services Agreement (as amended or otherwise modified from time to time) effective as of December 1, 1997 between the Partnership and Lyondell with respect to the provision of services as described in Appendix A attached. A-1 14. Letter Agreement dated December 1, 1997 between Lyondell and the Partnership with respect to the net payment by the Partnership to Lyondell for certain Administrative Services as described in Attachment 1 thereto. 15. Assignment dated November 25, 1997, but effective December 1, 1997, from Lyondell to the Partnership, of leases specified therein (Channelview, Texas Golf Courses). 16. Assignment dated November 25, 1997, but effective December 1, 1997, from Lyondell to the Partnership, of leases specified therein (Alvin, Texas). 17. Assignment dated November 25, 1997, but effective as of December 1, 1997, from Lyondell to the Partnership, of leases specified therein (Plano, Texas). 18. Assignment dated November 25, 1997, but effective as of December 1, 1997, from Lyondell to the Partnership, of leases specified therein (Chicago, Illinois - CALPERS Lease). 19. Assignment of Sublease dated November 25, 1997, but effective as of December 1, 1997, from Lyondell to the Partnership, of leases specified therein (Chicago, Illinois - MATRIX Partners Sublease). 20. Assignment dated November 25, 1997, but effective as of December 1, 1997, from Lyondell to the Partnership, of leases specified therein (Philadelphia, Pennsylvania). 21. Assignment dated November 25, 1997, but effective December 1, 1997, from Lyondell to the Partnership, of leases specified therein (Victoria, Texas). 22. Sublease Agreement dated November 25, 1997, but effective December 1, 1997, by and between Lyondell and the Partnership with respect to Office Lease Agreement dated December 31, 1985 and amended by 19 Amendments as described on Exhibit A as attached thereto (Administrative Office Space, OHC). 23. General Warranty Deed dated November 25, 1997, but effective as of December 1, 1997, from Lyondell to the Partnership with respect to certain real property specified therein (Channelview, Texas). 24. General Warranty Deed dated November 25, 1997, but effective as of December 1, 1997, from Lyondell to the Partnership, with respect to certain real property specified therein (Mount Belvieu, Texas). 25. General Warranty Deed dated, November 25, 1997, but effective December 1, 1997, from Lyondell to the Partnership with respect to certain real property specified therein (Bayport, Texas). 26. General Warranty Deed dated November 25, 1997, but effective December 1, 1997, from Lyondell to the Partnership with respect to certain real property specified therein (Matagorda, Texas). A-2 27. Conveyance and Assignment of Easements, Rights of Way, and Licenses dated November 25, 1997, but effective as of December 1, 1997, from Lyondell to the Partnership with respect to certain real property specified therein (Pipeline Right of Way). 28. Bill of Sale and Assignment dated December 1, 1997 from Millennium Petrochemicals to the Partnership with respect to the property set forth on Schedule A attached. 29. Assignment of Trademarks dated November 21, 1997 between Millennium Petrochemicals as Assignor and the Partnership as Assignee with respect to the transfer of O&P Trademarks as set forth in the schedule attached. 30. Assignment of Patents dated November 21, 1997 between Millennium Petrochemicals as Assignor and the Partnership as Assignee with respect to the transfer of O&P Patents as set forth in the schedule attached. 31. Assumption Agreement effective as of December 1, 1997 between Millennium Petrochemicals as Assignor and the Partnership as Assignee pursuant to the Asset Contribution Agreement with respect to the assumption by the assignee of certain liabilities. 32. Master Intellectual Property Agreement dated December 1, 1997 by and between Millennium Petrochemicals and the Partnership. 33. Shared Services Agreement for Wastewater effective as of December 1, 1997 by and between Millennium Petrochemicals and the Partnership. 34. Shared Services Agreement for the LaPorte Complex effective as of December 1, 1997 by and between Millennium Petrochemicals and the Partnership with respect to the services as specified therein and on the attachments and appendix. 35. Shared Services Agreement for Water and Utility Instrument Air effective as of December 1, 1997 by and between Millennium Petrochemicals and the Partnership with respect to the services as specified therein and on the attachments, exhibits and appendix. 36. Shared Services Agreement for the Northlake Office Complex effective as of December 1, 1997 by and between Millennium Petrochemicals and the Partnership with respect to services as specified therein and on attachments and appendix. 37. Agreement for Interim Study at the LaPorte Complex effective as of December 1, 1997 by and between Millennium Petrochemicals and the Partnership. 38. Fuel Stream Agreement effective as of December 1, 1997 by and between Millennium Petrochemicals and the Partnership. 39. Electricity Service Agreement effective as of December 1, 1997 by and between Millennium Petrochemicals and the Partnership. A-3 40. Sales Agreement (Vinyl Acetate Monomer), effective December 1, 1997 between Millennium Petrochemicals as "Seller" and the Partnership as "Buyer". 41. Sales Agreement (Ethylene), effective December 1, 1997 between the Partnership as "Seller" and Millennium Petrochemicals as "Buyer". 42. Sales Agreement (Purified Hydrogen), between the Partnership as "Seller" and Millennium Petrochemicals as "Buyer" effective December 1, 1997. 43. Sales Agreement (Natural Gas), effective December 1, 1997 between the Partnership as "Seller" and Millennium Petrochemicals as "Buyer". 44. Letter Agreement dated December 1, 1997 between Millennium Petrochemicals and the Partnership regarding interim distribution logistics support. 45. Letter Agreement dated December 1, 1997 between Millennium Petrochemicals and the Partnership with respect to the net payment for various shared services. 46. Assignment of Railcar Lease dated December 3, 1997 by and between Millennium Petrochemicals Inc. as "Assignor" and the Partnership as "Assignee" (The Sumitomo Bank Leasing and Finance, Inc. Lease). 47. Assignment of Leasehold dated November 25, 1997 by and between Millennium Petrochemicals and the Partnership with respect to certain real property specified therein (Tuscola, Illinois). 48. Assignment of Leasehold dated December 1, 1997 by and between Millennium Petrochemicals and the Partnership with respect to certain real property specified therein (Fairport Harbor, Ohio). 49. Assignment dated December 1, 1997 between Millennium Petrochemicals and the Partnership of lease specified therein (Clinton, Iowa). 50. Quit Claim Deed dated December 1, 1997 from Millennium Petrochemicals to the Partnership with respect to certain real property specified therein (Clinton, Iowa). 51. Assignment dated December 1, 1997 between Millennium Petrochemicals and the Partnership of Credit Union Sublease (Clinton, Iowa). 52. Assignment dated December 1, 1997 between Millennium Petrochemicals and the Partnership of Appurtenant Easements (Clinton, Iowa). 53. Assignment dated December 1, 1997 between Millennium Petrochemicals and the Partnership of Dock Lease and Agreement (Clinton, Iowa). 54. Assignment dated December 1, 1997 between Millennium Petrochemicals and the Partnership of Sub-lease Option to Purchase Agreement (Clinton, Iowa). A-4 55. Assignment dated December 1, 1997 between Millennium Petrochemicals and the Partnership of Cellular Telephone Sublease (Clinton, Iowa). 56. Assignment dated December 1, 1997 between Millennium Petrochemicals and the Partnership of Farm Leases (Clinton, Iowa). 57. Assignment dated December 1, 1997 between Millennium Petrochemicals and the Partnership of Eastern Iowa Propane Lease (Clinton, Iowa). 58. Lease Agreement dated December 1, 1997 between Millennium Petrochemicals and the Partnership with respect to certain real property specified therein (Lease for Cincinnati Research Laboratory). 59. Warranty Deed dated December 1, 1997 from Millennium Petrochemicals to the Partnership with respect to certain Real Property specified therein (Clinton, Iowa). 60. General Warranty Deed dated December 1, 1997 from Millennium Petrochemicals to the Partnership with respect to certain real property specified therein (LaPorte, Texas). 61. Letter agreement dated December 1, 1997 from Millennium Petrochemicals to the Partnership with respect to Millennium Petrochemicals agreement to provide the Partnership an option on approximately 20+ acres of land (LaPorte Expansion Land). 62. Warranty Deed dated November 25, 1997 from Millennium Petrochemicals to the Partnership with respect to certain real property specified therein (Morris, Illinois). 63. General Warranty Deed dated November 25, 1997 from Millennium Petrochemicals to the Partnership with respect to certain real property specified therein (Port Arthur, Texas). 64. General Warranty Deed dated November 25, 1997 from Millennium Petrochemicals to the Partnership with respect to certain real property specified therein (Chocolate Bayou, Texas). 65. Warranty Deed dated December 1, 1997 from Millennium Petrochemicals to the Partnership with respect to certain real property specified therein (Tuscola, Illinois). 66. General Warranty Deed dated December 1, 1997 from Millennium Petrochemicals to the Partnership with respect to certain real property specified therein (Heath, Ohio) 67. General Warranty Deed dated November 25, 1997 from Millennium Petrochemicals to the Partnership with respect to certain real property specified therein (Crockett, Texas) 68. Deed dated November 24, 1997 from Millennium Petrochemicals to the Partnership with respect to certain real property specified therein (Newark, New Jersey). 69. Grant Deed dated December 1, 1997 from Millennium Petrochemicals to the Partnership with respect to certain real property specified therein (Anaheim, California). A-5 70. Limited Warranty Deed dated December 1, 1997 from the Partnership to Millennium Petrochemicals with respect to certain real property specified therein (the Northlake Drive 0.1553 Acre Parcel Cincinnati-Research Center-Northlake, Ohio). 71. General Warranty Deed (Conveyance between Adjoining Lot Owners) dated December 1, 1997 from Millennium Petrochemicals to the Partnership with respect to certain real property specified therein (Cincinnati-Research Center-Northlake, Ohio). 72. General Warranty Deed (Conveyance between Adjoining Lot Owners) dated December 1, 1997 from Millennium Petrochemicals to the Partnership with respect to certain real property specified therein, the Northlake Drive 0.0987 Acre Parcel (Cincinnati-Research Center-Northlake, Ohio). 73. General Warranty Deed dated December 1, 1997 from Millennium Petrochemicals to the Partnership with respect to certain real property specified therein, the East Kemper Road and Northlake Drive 25.0864 Acre Parcel (Cincinnati-Research Center-Northlake). 74. Declaration of Easements and Restrictive Covenants dated December 1, 1997 by Millennium Petrochemicals and the Partnership with respect to certain real property specified therein (Cincinnati-Research Center-Northlake, Ohio). 75. Assignment and Assumption dated December 1, 1997 by and between Millennium Petrochemicals and the Partnership, of Service Agreement (Cincinnati-Research Center-Northlake, Ohio). 76. Letter Agreement dated November 20, 1997 from Millennium Petrochemicals to the Partnership with respect to Fiber-Optic Cable System, Northlake Drive Property, Cincinnati, Ohio (Cincinnati-Research Center-Northlake, Ohio). 77. Parking Agreement dated December 1, 1997 between Millennium Petrochemicals and the Partnership with respect to additional parking at the Northlake Facility (Cincinnati-Research Center-Northlake, Ohio). 78. General Warranty Deed dated December 1, 1997 from Millennium Petrochemicals to the Partnership with respect to certain real property specified therein (Fairport Harbor, Ohio). 79. Assignment of Easements dated November 25, 1997 from Millennium Petrochemicals to the Partnership with respect to certain real property specified therein (Chocolate Bayou, Texas). 80. Easement Agreement dated December 1, 1997 to Millennium Petrochemicals from the Partnership with respect to certain real property specified therein (LaPorte, Texas). 81. Easement Agreement dated December 1, 1997 to the Partnership from Millennium Petrochemicals with respect to certain real property specified therein (LaPorte, Texas). A-6 82. Assignment (Mont Belvieu Pipeline Easements) dated November 25, 1997 from Millennium Petrochemicals to the Partnership with respect to certain real property specified therein. 83. General Warranty (Mont Belvieu Pipeline Fee Parcels) dated November 25, 1997 from Millennium Petrochemicals to the Partnership with respect to certain real property specified therein. 84. Partnership Agreement. 85. Agreement and Plan of Merger and Asset Contribution dated as of May 15, 1998, among Occidental GP, Occidental LP1, Occidental LP2, OPI and the Partnership. 86. Sales Agreement (Ethylene) dated as of May 15, 1998 by and between the Partnership and OCC with respect to the sale of Ethylene by the Partnership to OCC. 87. Operating Agreement dated as of May 15, 1998 by and between the Partnership and OCC with respect to OCC providing certain services to the Partnership after May 15, 1998. 88. Toll Processing Agreement dated May 15, 1998 between the Partnership and OCC with respect to Ashtabula EO/EG tolling. 89. Amended and Restated Indemnity Agreement among OCC, Occidental GP, Occidental LP1, Occidental LP2, Lyondell GP, Lyondell LP, Millennium GP, Millennium LP and Millennium America Inc. 90. Letter Agreement dated May 15, 1998 between OCC and the Partnership with respect to OCC providing a guarantee for the collection of $419,700,000 of Partnership debt. 91. Letter Agreement dated May 15, 1998 between OCC and the Partnership with respect to the prepayment or restructuring of the Occidental Assumed Debt. 92. Promissory Note for $419,700,000 dated May 15, 1998 of the Partnership payable to Occidental LP2. 93. Promissory Note for $75 million dated May 15, 1998 of the Partnership payable to Millennium LP. 94. Bill of Sale and Assignment dated May 15, 1998 from OCC to Occidental LP1 with respect to property specified on attached schedule. 95. Bill of Sale and Assignment dated May 15, 1998 from Occidental LP1 to the Partnership with respect to property specified on attached schedule. 96. Patent Assignment dated May 15, 1998 from OCC to the Partnership with respect to patents as listed on attached schedule. A-7 97. Assumption Agreement dated May 15, 1998 between Occidental LP1, Occidental LP2 and Occidental GP, as Assignors, and the Partnership, as Assignee, pursuant to the Agreement and Plan of Merger and Asset Contribution with respect to the assumption by Assignee of certain liabilities. 98. Master Intellectual Property Agreement dated May 15, 1998 by and between the Partnership and OCC. 99. Assignment of Partnership Interests dated May 15, 1998 from Occidental GP to the Partnership with respect to interests in PD Glycol, a Texas limited partnership. 100. Assignment of Leases dated May 15, 1998 from OCC to the Occidental LP1 with respect to leases specified therein. 101. Assignment of Lease and Act of Exchange dated May 15, 1998 from Occidental LP1 to the Partnership with respect to the lease specified therein, together with such lease. 102. Assignment of Leases dated May 15, 1998 from Occidental LP1 to the Partnership with respect to leases specified therein. 103. Assumption Agreement dated May 15, 1998 between OPI as Assignor and the Partnership as Assignee with respect to Lease Intended for Security dated December 18, 1991 ($205 million). 104. Termination and Release of Guaranty dated May 15, 1998 between Lyondell and OCC with respect to the termination of Lyondell guaranty of certain Partnership railcar leases. 105. Sublease dated May 15, 1998 from OCC to the Partnership with respect to 1990 railcar lease. 106. Sublease dated May 15, 1998 from OPI to the Partnership with respect to 1995 railcar lease. 107. Tax Indemnity Agreement dated May 15, 1998 between OCC and the Partnership with respect to Sublease of 1990 railcar lease. 108. Tax Indemnity Agreement dated May 15, 1998 between OPI and the Partnership with respect to Sublease of 1998 railcar lease. 109. Master Arbitration Amendment to Related Agreements dated May 15, 1998 between the Partnership, Lyondell and Millennium. 110. First Amendment to Lyondell Asset Contribution Agreement dated May 15, 1998 between the Partnership, Lyondell and Lyondell LP. 111. First Amendment to Millennium Asset Contribution Agreement dated May 15, 1998 between the Partnership, Millennium Petrochemicals and Millennium LP. A-8 112. Transition Services Agreement between the Partnership and OCC to be entered into pursuant to the Operating Agreement with respect to OCC providing certain services to the Partnership. 113. Pipeline Acquisition Agreement dated as of May 15, 1998 between OCC and the Partnership with respect to the Cyclohexane pipeline. 114. Trademark License Agreement dated as of May 15, 1998 among OCC, Occidental and the Partnership with respect to the trademarks as set forth on the schedule attached. 115. Assignment of Excluded Assets dated May 14, 1998 between OPI as Assignor and OCC as Assignee with respect to certain assets described therein. 116. Assumption Agreement dated May 14, 1998 between OPI as Assignor and OCC as Assignee with respect to certain liabilities described therein. 117. Termination Agreement and General Release dated May 15, 1998 among Occidental, OPI, Occidental LP2 and Occidental Holding Company with respect to certain intercompany debts. 118. Assumption Agreement dated May 15, 1998 between OPI as Assignor and Occidental LP2 as Assignee with respect to certain intercompany debts. 119. Assignment and Assumption Agreement dated May 15, 1998 between OCC as Assignor and the Partnership as Assignee with respect to Lease intended for security dated March 28, 1994 by and between OCC and Pitney Bowes Credit Corporation. 120. Letter from Lyondell to OCC and the Partnership regarding PVC technology. 121. Agreement regarding provision by the Partnership of certain support facilities associated with the Lake Charles propylene fractionation unit to be entered into pursuant to the Operating Agreement. 122. First Amendment to Amended and Restated Limited Partnership Agreement of Equistar Chemicals, LP, dated as of June 30, 1998, by and among Lyondell LP, Lyondell GP, Millenium LP, Millennium GP, Occidental GP, Occidental LP1 and Occidental LP2. 123. Amended and Restated Limited Partnership Agreement of Equistar Chemicals, LP dated as of August 24, 2001, by and among by and among Lyondell LP, Lyondell GP, Millenium LP, Millennium GP, Occidental GP, Occidental LP1 and Occidental LP2. 124. Letter Agreement dated May 31, 2002, by and among Lyondell, Millennium, OPC, certain of their respective affiliates and the Partnership. 125. Amended and Restated Limited Partnership Agreement of Equistar Chemicals, LP dated as of November 6, 2002, by and among Lyondell GP, Lyondell LP, Lyondell (Pelican) LP1, Lyondell (Pelican) LP2, Millennium GP and Millennium LP. A-9 APPENDIX B TO PARENT AGREEMENT DISPUTE RESOLUTION PROCEDURES (1) Binding and Exclusive Means. The dispute resolution provisions set forth in this Appendix B shall be the binding and exclusive means to resolve all disputes arising under this Agreement (each a "Dispute"). (2) Standards and Criteria. In resolving any Dispute, the standards and criteria for resolving such dispute shall, unless the Parties involved in the Dispute in their discretion jointly stipulate otherwise, be as set forth in Appendix 1 to this Appendix B. (3) ADR and Binding Arbitration Procedures. If a Dispute arises, the following procedures shall be implemented (with references to "Parties" meaning the Parties involved in the Dispute): (a) Any Party may at any time invoke the dispute resolution procedures set forth in this Appendix B as to any Dispute by providing written notice of such action to the other Parties, and all Parties within five Business Days after such notice shall schedule a meeting to be held in Houston, Texas between the Parties. The meeting shall occur within 10 Business Days after notice of the meeting is delivered to the other Parties. The meeting shall be attended by representatives of each Party having decision-making authority regarding the Dispute as well as the dispute resolution process and who shall attempt in a commercially reasonable manner to negotiate a resolution of the Dispute. (b) The representatives of the Parties shall cooperate in a commercially reasonable manner and shall explore whether techniques such as mediation, minitrials, mock trials or other techniques of alternative dispute resolution might be useful. In the event that a technique of alternative dispute resolution is so agreed upon, a specific timetable and completion date for its implementation shall also be agreed upon. The representatives will continue to meet and discuss settlement until the date (the "Interim Decision Date") that is the earliest to occur of the following events: (i) an agreement shall be reached by the Parties resolving the Dispute; (ii) one of the Parties shall determine and notify the other Parties in writing that no agreement resolving the Dispute is likely to be reached; (iii) if a technique of alternative dispute resolution is agreed upon, the completion date therefor shall occur without the Parties having resolved the Dispute; or (iv) if another technique of alternative dispute resolution is not agreed upon, two full meeting days (or such other time period as may be agreed upon) shall expire without the Parties having resolved the Dispute. (c) If, as of the Interim Decision Date, the Parties have not succeeded in negotiating a resolution of the dispute pursuant to subsection (b), the Parties shall proceed under subsections (d), (e) and (f). B-1 (d) After satisfying the requirements above, such Dispute shall be submitted to mandatory and binding arbitration at the election of any Party involved in the Dispute (the "Disputing Party"). The arbitration shall be subject to the Federal Arbitration Act as supplemented by the conditions set forth in this Appendix B. The arbitration shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association in effect on the date the notice of arbitration is served, other than as specifically modified herein. In the absence of an agreement to the contrary, the arbitration shall be held in Houston, Texas. The Arbitrator (as defined below) will allow reasonable discovery in the forms permitted by the Federal Rules of Civil Procedure, to the extent consistent with the purpose of the arbitration. During the pendency of the Dispute, each Party shall make available to the Arbitrator and the other Parties all books, records and other information within its control requested by the other Parties or the Arbitrator subject to the confidentiality provisions contained herein, and provided that no such access shall waive or preclude any objection to such production based on any privilege recognized by law. Recognizing the express desire of the Parties for an expeditious means of dispute resolution, the Arbitrator may limit the scope of discovery between the Parties as may be reasonable under the circumstances. In deciding the substance of the Parties' claims, the laws of the State of Delaware shall govern the construction, interpretation and effect of this Agreement (including this Appendix B) without giving effect to any conflict of law principles. The arbitration hearing shall be commenced promptly and conducted expeditiously, with each Party involved in the Dispute being allocated an equal amount of time for the presentation of its case. Unless otherwise agreed to by the Parties, the arbitration hearing shall be conducted on consecutive days. Time is of the essence in the arbitration proceeding, and the Arbitrator shall have the right and authority to issue monetary sanctions against any of the Parties if, upon a showing of good cause, that Party is unreasonably delaying the proceeding. To the fullest extent permitted by law, the arbitration proceedings and award shall be maintained in confidence by the Arbitrator and the Parties. (e) The Disputing Party shall notify the American Arbitration Association ("AAA") and the other Parties in writing describing in reasonable detail the nature of the Dispute (the "Dispute Notice"). The arbitrator (the "Arbitrator") shall be selected within 15 days of the date of the Dispute Notice by all of the Parties from the members of a panel of arbitrators of the AAA or, if the AAA fails or refuses to provide a list of potential arbitrators, of the Center for Public Resources and shall be experienced in commercial arbitration. In the event that the Parties are unable to agree on the selection of the Arbitrator, the AAA shall select the Arbitrator, using the criteria set forth in this Appendix B, within 30 days of the date of the Dispute Notice. In the event that the Arbitrator is unable to serve, his or her replacement will be selected in the same manner as the Arbitrator to be replaced. The Arbitrator shall be neutral. The Arbitrator shall have the authority to assess the costs and expenses of the arbitration proceeding (including the arbitrators', and attorneys' fees and expenses) against any or all Parties. B-2 (f) The Arbitrator shall decide all Disputes and all substantive and procedural issues related thereto, and shall enforce this Agreement in accordance with its terms. Without limiting the generality of the previous sentence, the Arbitrator shall have the authority to issue injunctive relief; however, the Arbitrator shall not have any power or authority to (i) award consequential, incidental, indirect or punitive damages or (ii) amend this Agreement. The Arbitrator shall render the arbitration award, in writing, within 20 days following the completion of the arbitration hearing, and shall set forth the reasons for the award. In the event that the Arbitrator awards monetary damages in favor of any Party, the Arbitrator must certify in the award that no indirect, consequential, incidental, indirect or punitive damages are included in such award. If the Arbitrator's decision results in a monetary award, the interest to be granted on such award, if any, and the rate of such interest shall be determined by the Arbitrator in his or her discretion. The arbitration award shall be final and binding on the Parties, and judgment thereon may be entered in any court of competent jurisdiction, and may not be appealed except to the extent permitted by the Federal Arbitration Act. (4) Continuation of Business. Notwithstanding the existence of any Dispute or the pendency of any procedures pursuant to this Appendix B, the Parties agree and undertake that all payments not in dispute shall continue to be made and all obligations not in dispute shall continue to be performed. B-3 Appendix 1 (a) First priority shall be given to maximizing the consistency of the resolution of the Dispute with the satisfaction of all express obligations of the Parties and their Affiliates as set forth in the Agreement. (b) Second priority shall be given to resolution of the Dispute in a manner which best achieves the objectives of the business activities and arrangements under the Agreement and permits the Parties to realize the benefits intended to be afforded thereby. (c) Third priority shall be given to such other matters, if any, as the Parties or the Arbitrator determine to be appropriate under the circumstances. 1 EX-99.1 5 dex991.txt CERTIFICATE OF PRINCIPAL EXECUTIVE OFFICER EXHIBIT 99.1 CERTIFICATE OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350 In connection with the accompanying Quarterly Report on Form 10-Q for the quarter ended September 30, 2002 (the "Periodic Report"), I, Dan F. Smith, Chief Executive Officer of Equistar Chemicals, LP, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) the Periodic Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. Section 78m or 78o(d)); and (2) the information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of Equistar Chemicals, LP. Date: November 13, 2002 /s/ Dan F. Smith ------------------------ Dan F. Smith Chief Executive Officer EX-99.2 6 dex992.txt CERTIFICATE OF PRINCIPAL FINANCIAL OFFICER EXHIBIT 99.2 CERTIFICATE OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350 In connection with the accompanying Quarterly Report on Form 10-Q for the quarter ended September 30, 2002 (the "Periodic Report"), I, Charles L. Hall, Vice President, Controller and Chief Accounting Officer of Equistar Chemicals, LP, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) the Periodic Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. Section 78m or 78o(d)); and (2) the information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of Equistar Chemicals, LP. Date: November 13, 2002 /s/ Charles L. Hall --------------------------- Charles L. Hall Vice President, Controller and Chief Accounting Officer (Principal Financial Officer) EX-99.3 7 dex993.htm LYONDELL CONSOLIDATED FINANCIAL STATEMENTS Filing Services Provided by RR Donnelley Financial -- Lyondell Consolidated Financial Statements

EXHIBIT 99.3

LYONDELL CHEMICAL COMPANY

CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

CONSOLIDATED STATEMENTS OF INCOME


For the three months ended September 30,


For the nine

months ended

September 30,

Millions of dollars, except per share data


2002


2001


2002


2001

Sales and other operating revenues

$

855


$

742


$

2,372


$

2,484

Operating costs and expenses:


Cost of sales


749



640



2,062



2,171

Selling, general and administrative expenses


40



34



126



117

Research and development expense


7



8



22



24

Amortization of goodwill


—



8



—



23

Restructuring charges


—



78



—



78











796



768



2,210



2,413









Operating income (loss)


59



(26

)


162



71

Interest expense


(98

)


(95

)


(285

)


(292

)

Interest income


3



4



8



15

Other expense, net


(5

)


(4

)


(8

)


(2

)









Loss before equity investments, income taxes and extraordinary item


(41

)


(121

)


(123

)


(208

)









Income (loss) from equity investments:


Equistar Chemicals, LP


11



(24

)


(39

)


(48

)

LYONDELL-CITGO Refining LP


32



48



98



116

Other


1



(7

)


(4

)


(7

)











44



17



55



61









Income (loss) before income taxes and extraordinary item


3



(104

)


(68

)


(147

)

Benefit from income taxes


(2

)


(37

)


(20

)


(50

)









Income (loss) before extraordinary item


5



(67

)


(48

)


(97

)

Extraordinary loss on extinguishment of debt, net of income taxes


(7

)


-—



(7

)


-—









Net loss

$

(2

)

$

(67

)

$

(55

)

$

(97

)









Basic and diluted loss per share:


Income (loss) before extraordinary item

$

.04


$

(.57

)

$

(.38

)

$

(.82

)

Extraordinary loss


(.06

)


-—



(.06

)


-—









Net loss

$

(.02

)

$

(.57

)

$

(.44

)

$

(.82

)









See Notes to the Consolidated Financial Statements.

1

LYONDELL CHEMICAL COMPANY

CONSOLIDATED BALANCE SHEETS

Millions of dollars, except par value data


September 30, 2002


December 31, 2001

ASSETS


Current assets:


Cash and cash equivalents

$

463


$

146

Accounts receivable, net


367



352

Inventories


344



316

Prepaid expenses and other current assets


53



116

Deferred tax assets


35



277





Total current assets


1,262



1,207





Property, plant and equipment, net


2,347



2,293

Investments and long-term receivables:


Investment in Equistar Chemicals, LP


1,275



522

Investment in PO joint ventures


746



717

Receivable from LYONDELL-CITGO Refining LP


229



229

Investment in LYONDELL-CITGO Refining LP


54



29

Other investments and long-term receivables


95



122

Goodwill, net


1,119



1,102

Other assets, net


430



482





Total assets

$

7,557


$

6,703





LIABILITIES AND STOCKHOLDERS’ EQUITY


Current liabilities:


Accounts payable

$

332


$

319

Current maturities of long-term debt


4



7

Other accrued liabilities


358



233





Total current liabilities


694



559





Long-term debt


3,908



3,846

Other liabilities


583



583

Deferred income taxes


914



790

Commitments and contingencies


Minority interest


162



176

Stockholders’ equity:


Common stock, $1.00 par value, 340,000,000 shares authorized, 128,530,000 and 120,250,000 shares issued, respectively


128



120

Series B common stock, $1.00 par value, 80,000,000 shares authorized, 34,000,000 shares issued


34



-—

Additional paid-in capital


1,372



854

Retained earnings


111



247

Accumulated other comprehensive loss


(274

)


(397

)

Treasury stock, at cost, 2,685,080 and 2,687,080 shares, respectively


(75

)


(75

)





Total stockholders’ equity


1,296



749





Total liabilities and stockholders’ equity

$

7,557


$

6,703





See Notes to the Consolidated Financial Statements.

2

LYONDELL CHEMICAL COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS


For the nine months ended September 30,

Millions of dollars


2002


2001

Cash flows from operating activities:


Net loss

$

(55

)

$

(97

)

Adjustments to reconcile net loss to net cash provided by operating activities:


Depreciation and amortization


189



199

Losses from equity investments


43



55

Restructuring charges


—



78

Deferred income taxes


1



(15

)

Extraordinary item


7



—

Changes in assets and liabilities that provided (used) cash:


Accounts receivable


36



127

Inventories


(22

)


22

Accounts payable


(10

)


(101

)

Prepaid expenses and other current assets


64



(45

)

Other assets and liabilities, net


91



(37

)





Net cash provided by operating activities


344



186





Cash flows from investing activities:


Purchase of equity investment in Equistar


(440

)


—

Contributions and advances to affiliates


(85

)


(108

)

Expenditures for property, plant and equipment


(20

)


(52

)

Distributions from affiliates in excess of earnings


16



30

Other


(3

)


—





Net cash used in investing activities


(532

)


(130

)





Cash flows from financing activities:


Issuance of Series B common stock, warrants and right


440



-—

Issuance of common stock


110



-—

Issuance of long-term debt


276



-—

Repayment of long-term debt


(217

)


(8

)

Dividends paid


(81

)


(79

)

Other


(25

)


(7

)





Net cash provided by (used) in financing activities


503



(94

)





Effect of exchange rate changes on cash


2



-—





Increase (decrease) in cash and cash equivalents


317



(38

)

Cash and cash equivalents at beginning of period


146



260





Cash and cash equivalents at end of period

$

463


$

222





See Notes to the Consolidated Financial Statements.

3

LYONDELL CHEMICAL COMPANY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.    Basis of Preparation

The accompanying consolidated financial statements are unaudited and have been prepared from the books and records of Lyondell Chemical Company (“Lyondell”) in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X for interim financial information. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation have been included. For further information, refer to the consolidated financial statements and notes thereto for the year ended December 31, 2001 included in the Lyondell 2001 Annual Report on Form 10-K. Certain amounts from prior periods have been reclassified to conform to the current period presentation.

2.    Accounting Changes

Effective January 1, 2002, Lyondell implemented Statement of Financial Accounting Standards (“SFAS”) No. 141, Business Combinations, SFAS No. 142, Goodwill and Other Intangible Assets, and SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. Implementation of SFAS No. 141 and SFAS No. 144 did not have a material effect on the consolidated financial statements of Lyondell.

Upon implementation of SFAS No. 142, Lyondell reviewed its goodwill for impairment and concluded that goodwill is not impaired. However, Equistar Chemicals, LP (“Equistar”) (see Note 5) reviewed its goodwill for impairment and concluded that the entire balance was impaired, resulting in a $1.1 billion charge to Equistar’s earnings as of January 1, 2002. The conclusion was based on a comparison to Equistar’s indicated fair value, using multiples of EBITDA (earnings before interest, taxes, depreciation and amortization) for comparable companies as an indicator of fair value. Lyondell’s 41% share of the Equistar charge was offset by a corresponding reduction in the excess of Lyondell’s 41% share of Equistar’s partners’ capital over the carrying value of Lyondell’s investment in Equistar. Consequently, there was no net effect of the impairment on Lyondell’s earnings or investment in Equistar.

As a result of implementing SFAS No. 142, Lyondell’s pretax earnings in 2002 and subsequent years will be favorably affected by $30 million annually because of the elimination of Lyondell’s goodwill amortization. The following table presents Lyondell’s reported net income (loss) for all periods presented as adjusted to eliminate goodwill amortization expense.


For the three months ended September 30,


For the nine months ended September 30,

Millions of dollars


2002


2001


2002


2001

Reported income (loss) before extraordinary item

$

5

$

(67

)

$

(48

)

$

(97

)

Add back: goodwill amortization, net of tax


—


6



—



17









Adjusted income (loss) before extraordinary item

$

5

$

(61

)

$

(48

)

$

(80

)









Basic and diluted earnings per share:


Reported income (loss) before extraordinary item

$

  .04

$

(.57

)

$

(.38

)

$

(.82

)

Add back: goodwill amortization, net of tax


—


.05



—



14









Adjusted income (loss) before extraordinary item

$

.04

$

(.52

)

$

(.38

)

$

(.68

)









4


For the three months ended September 30,


For the nine months ended September 30,

Millions of dollars


2002


2001


2002


2001

Reported net loss

$

(2

)

$

(67

)

$

(55

)

$

(97

)

Add back: goodwill amortization, net of tax


—



6



—



17









Adjusted net loss

$

(2

)

$

(61

)

$

(55

)

$

(80

)









Basic and diluted earnings per share:


Reported net loss

$

(.02

)

$

(.57

)

$

(.44

)

$

(.82

)

Add back: goodwill amortization, net of tax


—



.05



—



.14









Adjusted net loss

$

(.02

)

$

(.52

)

$

(.44

)

$

(.68

)









In June 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 143, Accounting for Asset Retirement Obligations, which addresses obligations associated with the retirement of tangible long-lived assets. Adoption of SFAS No. 143 in 2003 is not expected to have a material effect on the consolidated financial statements of Lyondell, Equistar or LYONDELL-CITGO Refining LP (“LCR”).

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. The primary impact of the statement on Lyondell will be the classification of losses that result from the early extinguishment of debt as a charge to income before extraordinary items. Reclassification of prior period losses that were originally reported as extraordinary items also will be required. Application of the statement will be required in 2003. See Note 4.

In July 2002, the FASB issued SFAS No. 146, Accounting for Exit or Disposal Activities. SFAS No. 146 addresses the recognition, measurement, and reporting of costs associated with exit and disposal activities, including restructuring activities and facility closings. SFAS No. 146 will be effective for activities initiated after December 31, 2002. Lyondell does not expect adoption of SFAS No. 146 to have a material impact on the consolidated financial statements of Lyondell, Equistar or LCR.

3.    Restructuring Charges

During the third quarter 2001, Lyondell recorded a pretax charge of $78 million associated with its decision to exit the aliphatic diisocyanates (“ADI”) business. Subsequently, in the fourth quarter 2001, portions of the accruals totaling $15 million were reversed as a result of favorable negotiations of exit terms from certain contracts. The resulting $63 million charge included $45 million to adjust the carrying values of the ADI assets to their net realizable value, $15 million of accrued liabilities for exit costs and $3 million for severance and other employee-related costs for nearly 100 employee positions that were eliminated. Payments of $8 million for exit costs and $3 million for severance and other employee-related costs were made through September 30, 2002, resulting in a remaining accrued liability of $7 million.

4.    Extraordinary Item

During the third quarter 2002, Lyondell retired a portion of a term loan in the principal amount of $200 million and amended and restated its credit facility. See Note 9. As a result, Lyondell recognized a $4 million prepayment premium and the writeoff of unamortized debt issuance costs of $7 million, or a total of $11 million, less a tax benefit of $4 million, as an extraordinary loss on extinguishment of debt. See also Note 2.

5

5.    Investment in Equistar Chemicals, LP

Lyondell’s operations in the petrochemicals and polymers segments are conducted through its joint venture ownership interest in Equistar. Prior to August 22, 2002, Lyondell had a 41% interest in Equistar, while Millennium Chemicals Inc. (“Millennium”) and Occidental Petroleum Corporation (“Occidental”) each had a 29.5% interest. On August 22, 2002, Lyondell acquired Occidental’s 29.5% interest in Equistar. See also Note 12.

Following the acquisition, Lyondell has a 70.5% interest in Equistar. Because the partners jointly control certain key management decisions, including approval of the strategic plan, capital expenditures and annual budget, issuance of additional debt and the appointment of executive management of the partnership, Lyondell accounts for its investment in Equistar using the equity method of accounting. As a partnership, Equistar is not subject to federal income taxes. Summarized financial information for Equistar follows:

Millions of dollars


September 30, 2002


December 31, 2001

BALANCE SHEETS


Total current assets

$

1,271

$

1,226

Property, plant and equipment, net


3,569


3,705

Goodwill, net


—


1,053

Other assets


333


324





Total assets

$

5,173

$

6,308





Current maturities of long-term debt

$

32

$

104

Other current liabilities


627


557

Long-term debt


2,288


2,233

Other liabilities


174


177

Partners’ capital


2,052


3,237





Total liabilities and partners’ capital

$

5,173

$

6,308






For the three months ended September 30,


For the nine months ended September 30,


2002


2001


2002


2001

STATEMENTS OF INCOME


Sales and other operating revenues

$

1,508


$

1,351


$

4,106


$

4,724

Cost of sales


1,386



1,328



3,938



4,573

Selling, general and administrative expenses


41



40



122



131

Research and development expense


10



9



28



29

Amortization of goodwill


—



8



—



25

Facility closing costs


—



—



—



22









Operating income (loss)


71



(34

)


18



(56

)

Interest expense, net


(51

)


(46

)


(153

)


(137

)

Other income, net


2



1



3



7









Income (loss) before extraordinary item and cumulative effect of accounting change


22



(79

)


(132

)


(186

)

Extraordinary loss on extinguishment of debt


—



(3

)


—



(3

)

Cumulative effect of accounting change


—



—



(1,053

)


—









Net income (loss)

$

22


$

(82

)

$

(1,185

)

$

(189

)









OTHER INFORMATION


Depreciation and amortization

$

226


$

239

Expenditures for property, plant and equipment


43



85

As discussed in Note 2, as part of the implementation of SFAS No. 142 as of January 1, 2002, the entire unamortized balance of Equistar’s goodwill was determined to be impaired. Accordingly, Equistar’s earnings in the

6

first quarter 2002 were reduced by $1.1 billion. Lyondell’s 41% share of the charge for impairment of Equistar’s goodwill was offset by a corresponding reduction in the difference between Lyondell’s investment in Equistar and its underlying equity in Equistar’s net assets.

At September 30, 2002, Lyondell’s underlying equity in Equistar’s net assets exceeded its investment in Equistar by approximately $172 million. This difference is being amortized over 15 years. Lyondell’s income (loss) from its investment in Equistar consists of Lyondell’s share of Equistar’s income (loss) before the cumulative effect of the accounting change and the accretion of the difference between Lyondell’s investment and its underlying equity in Equistar’s net assets.

6.    Investment in LYONDELL-CITGO Refining LP

Lyondell’s refining segment operations are conducted through its joint venture ownership interest in LCR. Lyondell has a 58.75% interest in LCR, while CITGO Petroleum Corporation (“CITGO”) has a 41.25% interest. Because the partners jointly control certain key management decisions, including approval of the strategic plan, capital expenditures and annual budget, issuance of debt and the appointment of the executive management of the partnership, Lyondell accounts for its investment in LCR using the equity method of accounting. As a partnership, LCR is not subject to federal income taxes. Summarized financial information for LCR follows:

Millions of dollars


September 30, 2002


December 31, 2001

BALANCE SHEETS


Total current assets

$

258

$

230

Property, plant and equipment, net


1,321


1,343

Other assets


83


97





Total assets

$

1,662

$

1,670





Notes payable

$

13

$

50

Current maturities of long-term debt


450


—

Current loans payable to partners


264


—

Other current liabilities


370


335

Long-term debt


—


450

Loans payable to partners


—


264

Other liabilities


68


79

Partners’ capital


497


492





Total liabilities and partners’ capital

$

1,662

$

1,670






For the three

months ended

September 30,


For the nine months ended September 30,


2002


2001


2002


2001

STATEMENTS OF INCOME


Sales and other operating revenues

$

891


$

850


$

2,436


$

2,692

Cost of sales


820



744



2,220



2,419

Selling, general and administrative expenses


13



16



39



44









Operating income


58



90



177



229

Interest expense, net


(8

)


(10

)


(23

)


(41

)









Income before extraordinary item


50



80



154



188

Extraordinary loss on extinguishment of debt


—



(2

)


—



(2

)









Net income

$

50


$

78


$

154


$

186









OTHER INFORMATION


Depreciation and amortization

$

87


$

81

Expenditures for property, plant and equipment


53



59

7

LCR’s $450 million term loan and $70 million revolving credit facility mature in January 2003. Based on the current status of the refinancing process, management anticipates that this debt will be refinanced during the fourth quarter 2002. Management expects that the financing will be similar to the current structure, but will be secured by substantially all of LCR’s assets.

Loans payable to partners include $229 million payable to Lyondell and $35 million payable to CITGO. These loans mature July 1, 2003 and, accordingly have been classified as current. Management currently anticipates that the maturities of these loans will be extended by mutual agreement of the partners and consistent with the refinancing terms of LCR’s term loan and revolving credit facility.

Lyondell’s income from its investment in LCR consists of Lyondell’s share of LCR’s net income and the accretion of the difference between Lyondell’s investment and its underlying equity in LCR’s net assets.

7.    Inventories

Inventories consisted of the following components at:

Millions of dollars


September 30,

2002


December 31,

2001

Finished goods

$

265

$

262

Work-in-process


6


5

Raw materials


39


19

Materials and supplies


34


30





Total inventories

$

344

$

316





8.    Property, Plant and Equipment, Net

The components of property, plant and equipment, at cost, and the related accumulated depreciation were as follows at:

Millions of dollars


September 30,

2002


December 31,

2001

Land

$

12

$

10

Manufacturing facilities and equipment


2,793


2,529

Construction in progress


126


113





Total property, plant and equipment


2,931


2,652

Less accumulated depreciation


584


359





Property, plant and equipment, net

$

2,347

$

2,293





Depreciation and amortization are summarized as follows:


For the three months ended September 30,


For the nine

months ended

September 30,


2002


2001


2002


2001

Millions of dollars



Property, plant and equipment

$

  35

$

  30

$

98

$

90

Investment in PO joint venture


8


8


23


23

Goodwill


—


8


—


23

Debt issuance costs


4


4


12


11

Turnaround costs


3


4


11


12

Software costs


2


1


7


4

Other


14


12


38


36









Total depreciation and amortization

$

66

$

67

$

189

$

199









8

9.    Long-Term Debt

In early July 2002, Lyondell completed debt and equity offerings, as well as amendments to its credit facility, to the transaction documents related to the BDO-2 facility (see Note 10) and to the indentures related to its senior notes. Lyondell issued $278 million principal amount of 11.125% senior secured notes due 2012, using proceeds of $204 million to prepay $200 million of the principal amount outstanding under Term Loan E of the credit facility and to pay a $4 million prepayment premium. The remaining net proceeds, after discount and fees, of approximately $65 million will be used for working capital and general corporate purposes. As discussed in Note 12, Lyondell also issued equity securities for net proceeds of $110 million that also will be used for working capital and general corporate purposes.

The amended and restated credit facility extended the maturity of the revolving credit facility from July 2003 to June 2005, reduced the size of the revolving credit facility from $500 million to $350 million, made certain financial ratio requirements less restrictive, made the covenant limiting acquisitions more restrictive and added a covenant limiting certain non-regulatory capital expenditures. The BDO-2 transaction documents were also amended to incorporate the revised covenants from the credit facility. Also, after receiving consents from the holders of the senior secured and senior subordinated notes, Lyondell amended the indentures related to those notes. The principal indenture amendment revised a limitation that had restricted payment of Lyondell’s current $0.90 per share annual cash dividend to a specified number of shares. As a result of the amendment, the number of shares with respect to which an annual cash dividend of up to $0.90 per share may be paid is no longer restricted by the covenants. Lyondell paid fees totaling $17 million related to the amendments.

Long-term debt consisted of the following at:

Millions of dollars


September 30,

2002


December 31,

2001

Term Loan E due 2006

$

418

$

634

Senior Secured Notes, Series A due 2007, 9.625%


900


900

Senior Secured Notes, Series B due 2007, 9.875%


1,000


1,000

Senior Secured Notes due 2008, 9.5%


393


393

Senior Secured Notes due 2012, 11.125%


276


-—

Senior Subordinated Notes due 2009, 10.875%


500


500

Debentures due 2005, 9.375%


100


100

Debentures due 2010, 10.25%


100


100

Debentures due 2020, 9.8%


224


224

Other


1


2





Total long-term debt


3,912


3,853

Less current maturities


4


7





Long-term debt, net

$

3,908

$

3,846





10.    Lease Commitments

Lyondell’s operating lease commitments as of December 31, 2001 are described in Note 15 to the Consolidated Financial Statements included in the Lyondell 2001 Annual Report on Form 10-K. In addition, in July 2002, Lyondell began leasing a new butanediol (“BDO”) production facility in The Netherlands, known as BDO-2, under an operating lease with an initial term of 5 years. Construction of the facility, completed in June 2002, was financed by an unaffiliated entity that had been established for the purpose of serving as lessor with respect to this facility. Future minimum annual lease payments under the operating lease, amounting to $14 million per year using September 30, 2002 exchange rates and interest rates, are equivalent to interest on the lessor’s cost of construction, including interest incurred by the lessor during construction. The interest rate specified in the lease is based on EURIBOR plus 3.75%.

9

Lyondell may, at its option, renew the lease for four additional five-year terms or may purchase the facility at any time during the lease terms at the lessor’s cost of construction. If Lyondell does not exercise the purchase option before the end of the last renewal period, the facility will be sold. In the event the sales proceeds are less than the lessor’s cost of construction, Lyondell will pay the difference to the lessor, but not more than the guaranteed residual value. The guaranteed residual value is 160 million euros, or $157 million, using September 30, 2002 exchange rates. Under the transaction documents related to BDO-2, Lyondell is subject to certain financial and other covenants that are substantially the same as those contained in Lyondell’s credit facility. See Note 9.

11.    Commitments and Contingencies

Bayer Claim—On April 30, 2002, Lyondell and Bayer settled the claims of Bayer in relation to its March 2000 purchase of Lyondell’s polyols business. Lyondell had received notice of these claims in June 2001, which had alleged various breaches of representations and warranties related to the condition of the business and assets and which had sought damages in excess of $100 million. The settlement included new or amended commercial agreements between the parties, generally relating to the existing propylene oxide (“PO”) partnership between Bayer and Lyondell. As a whole, the new or amended agreements provide new business opportunities and value for both parties over the next five to ten years. Concurrent with the settlement, Lyondell made a $5 million indemnification payment to Bayer. The settlement, including the indemnification payment, had no net effect on Lyondell’s financial position or results of operations.

Capital Commitments—Lyondell has various commitments related to capital expenditures, all made in the normal course of business. At September 30, 2002, major capital commitments primarily consisted of Lyondell’s 50% share of those related to the construction of a world-scale PO facility, known as PO-11, in The Netherlands. Lyondell’s share of the outstanding commitments, which are funded through contributions and advances to affiliates, totaled $88 million as of September 30, 2002.

Construction Lease—In June 2002, construction was completed on the BDO-2 production facility, and Lyondell leased the facility under an operating lease beginning in July 2002. See Note 10.

Crude Supply Agreement—Under the Crude Supply Agreement (“CSA”), PDVSA Petróleo, S.A. (“PDVSA Oil”) is required to sell, and LCR is required to purchase, 230,000 barrels per day of extra heavy crude oil. This constitutes approximately 86% of LCR’s refinery capacity of 268,000 barrels per day of crude oil. In April 1998, PDVSA Oil informed LCR that the Venezuelan government, through the Ministry of Energy and Mines, had instructed that production of certain grades of crude oil be reduced. PDVSA Oil declared itself in a force majeure situation and subsequently reduced deliveries of crude oil. Such reductions in deliveries were purportedly based on announced OPEC production cuts. LCR began receiving reduced deliveries of crude oil from PDVSA Oil in August 1998.

On several occasions since then, PDVSA Oil further reduced crude oil deliveries, although it made payments under a different provision of the CSA in partial compensation for such further reductions. Subsequently, PDVSA Oil unilaterally began increasing deliveries of crude oil to LCR in April 2000, and ultimately returned to the contract level of 230,000 barrels per day effective October 2000.

During 2001, PDVSA Oil declared itself in a force majeure situation, but did not reduce crude oil deliveries to LCR in 2001. In January 2002, PDVSA Oil again declared itself in a force majeure situation and stated that crude oil deliveries could be reduced by up to 20.3% beginning March 1, 2002. Beginning in March 2002, deliveries of crude oil to LCR were reduced to approximately 198,000 barrels per day, reaching a level of 190,000 barrels per day during the second quarter 2002. Although crude oil deliveries to LCR under the CSA increased to contract levels during the third quarter 2002, PDVSA Oil has not revoked its declared force majeure situation. The recent political uncertainty in Venezuela has not affected crude oil deliveries, the CSA or related matters to date, and the long-term effects of these events, if any, are not yet clear.

LCR has consistently contested the validity of the reductions in deliveries under the CSA. The parties have different interpretations of the provisions of the contracts concerning the delivery of crude oil. The contracts do not contain dispute resolution procedures, and the parties have been unable to resolve their commercial dispute. As a result, on

10

February 1, 2002, LCR filed a lawsuit against PDVSA Oil and its parent company, Petróleos de Venezuela, S.A. (“PDVSA”), in connection with the January 2002 force majeure declaration, as well as the claimed force majeure from April 1998 to September 2000.

In 1999, PDVSA announced its intention to renegotiate its crude supply agreements with all third parties, including LCR. In light of PDVSA’s announced intent, there can be no assurance that PDVSA Oil will continue to perform its obligations under the CSA. However, it has confirmed that it expects to honor its commitments if a mutually acceptable restructuring of the CSA is not achieved. From time to time, the Company and PDVSA have had discussions covering both a restructuring of the CSA and a broader restructuring of the LCR partnership. Lyondell is unable to predict whether changes in either arrangement will occur. The breach or termination of the CSA, or reduction in supply thereunder, would require LCR to purchase all or a portion of its crude oil feedstocks in the merchant market, could subject LCR to significant volatility and price fluctuations and could adversely affect LCR and, therefore, Lyondell.

Cross Indemnity Agreement—In connection with the transfer of assets and liabilities from Atlantic Richfield Company (“ARCO”), now wholly owned by BP p.l.c., Lyondell agreed to assume certain liabilities arising out of the operation of Lyondell’s integrated petrochemicals and refining business prior to July 1, 1988. In connection with the transfer of such liabilities, Lyondell and ARCO entered into an agreement, updated in 1997 (“Revised Cross-Indemnity Agreement”), whereby Lyondell agreed to defend and indemnify ARCO against certain uninsured claims and liabilities which ARCO may incur relating to the operation of Lyondell prior to July 1, 1988, including certain liabilities which may arise out of pending and future lawsuits. For current and future cases related to Lyondell’s products and operations, ARCO and Lyondell bear a proportionate share of judgment and settlement costs according to a formula that allocates responsibility based upon years of ownership during the relevant time period. Under the Revised Cross-Indemnity Agreement, Lyondell will assume responsibility for its proportionate share of future costs for waste site matters not covered by ARCO insurance.

In connection with the acquisition of ARCO Chemical Company (“ARCO Chemical”), Lyondell succeeded, indirectly, to a cross indemnity agreement with ARCO whereby ARCO Chemical indemnified ARCO against certain claims or liabilities that ARCO may incur relating to ARCO’s former ownership and operation of the businesses of ARCO Chemical, including liabilities under laws relating to the protection of the environment and the workplace, and liabilities arising out of certain litigation. As part of the agreement, ARCO indemnified ARCO Chemical with respect to claims or liabilities and other matters of litigation not related to the ARCO Chemical business.

Indemnification Arrangements Relating to Equistar—Lyondell, Millennium Petrochemicals and Occidental and certain of its subsidiaries have each agreed to provide certain indemnifications to Equistar with respect to the petrochemicals and polymers businesses they each contributed. In addition, Equistar has agreed to assume third party claims that are related to certain pre-closing contingent liabilities that are asserted prior to December 1, 2004 as to Lyondell and Millennium Petrochemicals, and May 15, 2005 as to Occidental, to the extent the aggregate thereof does not exceed $7 million for each entity, subject to certain terms of the respective asset contribution agreements. As of September 30, 2002, Equistar had incurred nearly $7 million with respect to the indemnification basket for the business contributed by Lyondell. The indemnification arrangements were not materially affected by Lyondell’s acquisition of Occidental’s interest in Equistar. See Note 5.

Environmental Remediation—As of September 30, 2002, Lyondell’s environmental liability for future remediation costs at its plant sites and a limited number of Superfund sites totaled $21 million. The liabilities range from less than $1 million to $6 million per site and are expected to be incurred over the next two to seven years. In the opinion of management, there is currently no material estimable range of loss in excess of the amount recorded for these sites. However, it is possible that new information about the sites for which the accrual has been established, new technology or future developments such as involvement in investigations by regulatory agencies, could require Lyondell to reassess its potential exposure related to environmental matters.

Clean Air Act—The eight-county Houston/Galveston region has been designated a severe non-attainment area for ozone by the U.S. Environmental Protection Agency (“EPA”). Emission reduction controls for nitrogen oxides (“NOx”) must be installed at LCR’s refinery and each of Lyondell’s two facilities and Equistar’s six facilities in the Houston/Galveston region during the next several years. Lyondell estimates that aggregate related capital

11

expenditures could total between $400 million and $500 million for Lyondell, Equistar and LCR before the 2007 deadline. Lyondell’s direct share of such expenditures could total between $65 million and $80 million. Lyondell’s current 70.5% proportionate share of Equistar’s expenditures could total between $140 million and $180 million, and Lyondell’s proportionate share of LCR’s expenditures could total between $75 million and $95 million. The timing and amount of these expenditures are subject to regulatory and other uncertainties, as well as obtaining the necessary permits and approvals. In January 2001, Lyondell and an organization composed of industry participants filed a lawsuit to encourage adoption of an alternative plan to achieve the same air quality improvement with less negative economic impact on the region. Adoption of the alternative plan, as sought by the lawsuit, would be expected to reduce the estimated capital investments for NOx reductions required by Lyondell, Equistar and LCR to comply with the standards. Recently proposed revisions by the regulatory agencies would change the required NOx reduction levels from 90% to 80%. However, any potential resulting savings from this proposed revision could be offset by the costs of stricter proposed controls over volatile organic compounds, or VOCs. Lyondell, Equistar and LCR are still assessing the impact of these proposed revisions and there can be no guarantee as to the ultimate capital cost of implementing any final plan developed to ensure ozone attainment by the 2007 deadline.

In the United States, the Clean Air Act Amendments of 1990 set minimum levels for oxygenates, such as methyl tertiary butyl ether (“MTBE”), in gasoline sold in areas not meeting specified air quality standards. The presence of MTBE in some water supplies in California and other states due to gasoline leaking from underground storage tanks and in surface water from recreational water craft has led to public concern about the use of MTBE. Certain federal and state governmental initiatives in the U.S. have sought either to rescind the oxygen requirement for reformulated gasoline or to restrict or ban the use of MTBE. In April 2002, the U.S. Senate passed its version of an omnibus energy bill, which, among other things, would ban the use of MTBE as a fuel oxygenate. The Senate bill is not law and needs to be reconciled with the U.S. House of Representatives’ omnibus energy bill, which was passed in July 2001 and which would not ban the use of MTBE. At this time, the form and timing of that reconciliation, if any, is unknown. Lyondell’s North American MTBE sales represented approximately 27% of its total 2001 revenues. Lyondell does not expect these initiatives to have a significant impact on MTBE margins or volumes in the remainder of 2002. Should it become necessary or desirable to significantly reduce MTBE production, Lyondell would need to make capital expenditures to add the flexibility to produce alternative gasoline blending components at its U.S.-based MTBE plants. The cost of converting its U.S.-based MTBE plant to iso-octane production could be as high as $65 million to $75 million. The profit margins on such alternative gasoline blending components could be lower than those historically realized on MTBE.

The Clean Air Act specified certain emissions standards for vehicles beginning in the 1994 model year and required the EPA to study whether further emissions reductions from vehicles were necessary. In 1998, the EPA concluded that additional controls on gasoline and diesel fuel were necessary to meet these emission standards. New standards for gasoline were finalized in 1999 and will require refiners to produce a low sulfur gasoline by 2004, with final compliance by 2006. A new “on-road” diesel standard was adopted in January 2001 and will require refiners to produce ultra low sulfur diesel by June 2006, with some allowance for a conditional phase-in period that could extend final compliance until 2009. Lyondell estimates that these standards will result in increased capital investment for LCR, totaling between $175 million and $225 million for the new gasoline standards and between $250 million and $300 million for the new diesel standard, between now and the implementation dates. Lyondell’s proportionate share of LCR’s capital expenditures would be between $250 million and $300 million. In addition, these standards could result in higher operating costs for LCR. Equistar’s business may also be impacted if these standards increase the cost for processing fuel components.

General—Lyondell is involved in various lawsuits and proceedings. Subject to the uncertainty inherent in all litigation, management believes the resolution of these proceedings will not have a material adverse effect on the financial position, liquidity or results of operations of Lyondell.

In the opinion of management, any liability arising from the matters discussed in this note is not expected to have a material adverse effect on the financial position or liquidity of Lyondell. However, the adverse resolution in any reporting period of one or more of the matters discussed in this note could have a material impact on Lyondell’s results of operations for that period without giving effect to contribution or indemnification obligations of co-defendants or others, or to the effect of any insurance coverage that may be available to offset the effects of any such award.

12

12.    Stockholders’ Equity

In early July 2002, Lyondell issued 8.28 million shares of common stock, receiving net proceeds of $110 million that will be used for working capital and general corporate purposes. As a result of debt amendments (see Note 9) certain covenants restricting dividends were revised to allow an annual cash dividend of up to $0.90 per share on all current common shares outstanding and any additional common shares that may be issued from time to time in the future.

On August 22, 2002, Lyondell completed certain transactions with Occidental. See Note 5. As a result of these transactions, Occidental received an equity interest in Lyondell, including:

•

34 million shares of newly issued Lyondell Series B common stock. These shares have the same rights as Lyondell’s original common stock with the exception of the dividend. The Series B common stock pays a dividend at the same rate as the original common stock but, at Lyondell’s option, the dividend may be paid in additional shares of Series B common stock or in cash. These new Series B shares also include provisions for conversion to original common stock two years after issuance or earlier in certain circumstances;

•

five-year warrants to acquire five million shares of Lyondell original common stock at $25 per share, subject to adjustment upon the occurrence of certain events; and

•

a right to receive contingent payments equivalent in value to 7.38% of Equistar’s cash distributions related to 2002 and 2003, up to a total of $35 million, payable in cash, Series B common stock or original common stock, as determined by Lyondell.

The $439 million recognized fair value of the 34.0 million shares of Series B common stock issued was determined based on an average of the high and low per-share stock prices for original common stock for 10 consecutive business days, beginning 4 business days prior to and ending 5 business days after August 8, 2002, the first date that the number of shares of Series B common stock to be issued became fixed without subsequent revision. The warrants were valued at $1.60 per share, based upon a value estimated using the Black-Sholes option pricing model. The right to receive contingent payments was valued at $3 million, based on the estimated amount and likelihood of payment in light of Lyondell’s expectations for Equistar’s business results for 2002 and 2003. The total value of the Series B common stock, the warrants and the right as well as $2 million of transaction expenses was $452 million.

As a result of these transactions, Occidental has an approximate 21% equity interest in Lyondell.

13.    Earnings Per Share

Basic earnings per share for the periods presented are computed based upon the weighted average number of shares of original common stock and Series B common stock outstanding during the periods. Diluted earnings per share include the effect of outstanding warrants (see Note 12) and stock options issued under the 1999 Long-Term Incentive Plan and the Executive Long-Term Incentive Plan. These warrants and stock options were antidilutive for all periods presented.

13

Income (loss) per share data is as follows:


For the three months ended September 30,


For the nine months ended September 30,

Basic and Diluted EPS


2002


2001


2002


2001

Weighted average shares, in thousands


140,258



117,563



125,212



117,563

Income (loss) before extraordinary item per share

$

.04


$

(.57

)

$

(.38

)

$

(.82

)

Net loss per share

$

(.02

)

$

(.57

)

$

(.44

)

$

(.82

)

See Note 12 for discussion of common stock and warrants issued during the third quarter 2002.

14.    Supplemental Cash Flow Information

As described in Notes 5 and 12, during August 2002, Lyondell issued certain equity securities and a right to Occidental, and received Occidental’s 29.5% interest in Equistar. The transactions included concurrent payments between the parties of agreed amounts of approximately $440 million. The agreed amounts exchanged are included in cash used for investing activities and cash from financing activities. The securities issued, and the additional investment in Equistar, have been recorded at the estimated fair value of the consideration issued totaling $452 million (see Note 12) plus the recognition of $340 million of deferred tax liabilities, for a total additional investment in Equistar of $792 million.

15.    Comprehensive Income (Loss)

The components of comprehensive income (loss) were as follows:


For the three months ended September 30,


For the nine months ended September 30,

Millions of dollars


2002


2001


2002


2001

Net loss

$

    (2

)

$

  (67

)

$

(55

)

$

(97

)









Other comprehensive income (loss):


Foreign currency translation


  (5

)


79



118



(19

)

Derivative instruments


—



9



1



5

Minimum pension liability


—



—



4



—









Total other comprehensive income (loss)


(5

)


88



123



(14

)









Comprehensive income (loss)

$

(7

)

$

21


$

68


$

(111

)









14

16.    Segment and Related Information

Lyondell operates in four reportable segments:

•

Intermediate chemicals and derivatives (“IC&D”), which include propylene oxide, propylene glycol, propylene glycol ethers, butanediol, toluene diisocyanate, styrene monomer, and tertiary butyl alcohol and its derivative, MTBE;

•

Petrochemicals, which include ethylene, propylene, butadiene, oxygenated products and aromatics;

•

Polymers, which primarily include polyethylene, and polypropylene; and

•

Refining of crude oil.

Lyondell’s entire $1.1 billion balance of goodwill is allocated to the IC&D segment. Summarized financial information concerning reportable segments is shown in the following table:

Millions of dollars


IC&D


Petrochemicals


Polymers


Refining


Other


Total

For the three months ended September 30, 2002:


Sales and other operating revenues

$

855


$

—

$

—


$

—

$

—


$

855

Operating income


59



—


—



—


—



59

Interest expense


—



—


—



—


(98

)


(98

)

Interest income


—



—


—



—


3



3

Other expense, net


—



—


—



—


(5

)


(5

)

Income (loss) from equity investments


—



46


5



32


(39

)


44

Income before income taxes and extraordinary items


3

For the three months ended September 30, 2001:


Sales and other operating revenues

$

742


$

—

$

—


$

—

$

—


$

742

Operating loss


(26

)


—


—



—


—



(26

)

Interest expense


—



—


—



—


(95

)


(95

)

Interest income


—



—


—



—


4



4

Other expense, net


—



—


—



—


(4

)


(4

)

Income (loss) from equity investments


(1

)


12


(11

)


48


(31

)


17

Loss before income taxes


(104

)

For the nine months ended September 30, 2002:


Sales and other operating revenues

$

2,372


$

—

$

—


$

—

$

—


$

2,372

Operating income


162



—


—



—


—



162

Interest expense


—



—


—



—


(285

)


(285

)

Interest income


—



—


—



—


8



8

Other expense, net


—



—


—



—


(8

)


(8

)

Income (loss) from equity investments


—



68


(13

)


98


(98

)


55

Loss before income taxes and extraordinary items


(68

)

For the nine months ended September 30, 2001:


Sales and other operating revenues

$

2,484


$

—

$

—


$

—

$

—


$

2,484

Operating income


71



—


—



—


—



71

Interest expense


—



—


—



—


(292

)


(292

)

Interest income


—



—


—



—


15



15

Other expense, net


—



—


—



—


(2

)


(2

)

Income (loss) from equity investments


—



92


(57

)


116


(90

)


61

Loss before income taxes


(147

)

15

The following table presents the details of “Income (loss) from equity investments” as presented above in the “Other” column for the periods indicated:


For the three months ended September 30,


For the nine months ended September 30,

Millions of dollars


2002


2001


2002


2001

Equistar items not allocated to segments:


Principally general and administrative expenses and interest expense, net

$

(41

)

$

(25

)

$

(94

)

$

(74

)

Facility closing costs


—



—



—



(9

)

Other


2



(6

)


(4

)


(7

)









Income (loss) from equity investments

$

(39

)

$

(31

)

$

(98

)

$

(90

)









Through April 30, 2002, the methanol operations of Lyondell Methanol Company, L.P. (“LMC”) were included in the “Other” column. Effective May 1, 2002, LMC became a wholly owned subsidiary of Lyondell and the methanol results are included in the IC&D segment from that date. The effects of consolidating the LMC operations, which previously had been accounted for using the equity method, and of including the methanol operations in the IC&D segment were not material.

17.    Deferred Tax Assets

The deferred tax assets classified as current assets decreased by $242 million from December 31, 2001. The reduction primarily represented a change in the timing of anticipated realization of the tax benefits of domestic net operating loss carryforwards. These benefits, which are expected to be realized within the next few years, have been reclassified from current assets to net long-term liabilities on the consolidated balance sheet. There was no change in management’s expectation that these deferred tax assets will be fully realized.

18.    Supplemental Guarantor Information

ARCO Chemical Technology Inc. (“ACTI”), ARCO Chemical Technology L.P. (“ACTLP”) and Lyondell Chemical Nederland, Ltd. (“LCNL”) are guarantors, jointly and severally, (collectively “Guarantors”) of the $278 million senior secured notes issued in July 2002 (see Note 9) the $393 million senior secured notes, the $500 million senior subordinated notes and the $1.9 billion senior secured notes. LCNL, a Delaware corporation, is a wholly owned subsidiary of Lyondell that owns a Dutch subsidiary that operates a chemical production facility near Rotterdam, The Netherlands. ACTI is a Delaware corporation, which holds the investment in ACTLP. ACTLP is a Delaware limited partnership, which holds and licenses technology to other Lyondell affiliates and to third parties. Separate financial statements of the Guarantors are not considered to be material to the holders of the senior secured notes and senior subordinated notes. The following condensed consolidating financial information present supplemental information for the Guarantors as of September 30, 2002 and December 31, 2001 and for the three-month and nine-month periods ended September 30, 2002 and 2001.

16

CONDENSED CONSOLIDATING FINANCIAL INFORMATION (UNAUDITED)

BALANCE SHEET

As of September 30, 2002

Millions of dollars


Lyondell


Guarantors


Non-Guarantors


Eliminations


Consolidated Lyondell

Total current assets

$

777

$

172


$

313


$

—


$

1,262

Property, plant and equipment, net


888


555



904



—



2,347

Investments and long-term receivables


8,334


480



2,272



(8,687

)


2,399

Goodwill, net


453


418



248



—



1,119

Other assets


333


86



11



—



430











Total assets

$

10,785

$

1,711


$

3,748


$

(8,687

)

$

7,557











Current maturities of long-term debt

$

4

$

—


$

—


$

—


$

4

Other current liabilities


452


113



125



—



690

Long-term debt


3,906


—



2



—



3,908

Other liabilities


519


45



19



—



583

Deferred income taxes


698


146



70



—



914

Intercompany liabilities (assets)


3,910


(1,168

)


(2,739

)


(3

)


—

Minority interest


—


—



162



—



162

Stockholders’ equity


1,296


2,575



6,109



(8,684

)


1,296











Total liabilities and stockholders’ equity

$

10,785

$

1,711


$

3,748


$

(8,687

)

$

7,557











BALANCE SHEET

As of December 31, 2001

Millions of dollars


Lyondell


Guarantors


Non-Guarantors


Eliminations


Consolidated Lyondell

Total current assets

$

781

$

132


$

294


$

—


$

1,207

Property, plant and equipment, net


915


516



862



—



2,293

Investments and long-term receivables


7,007


461



1,537



(7,386

)


1,619

Goodwill, net


453


389



260



—



1,102

Other assets


344


88



50



—



482











Total assets

$

9,500

$

1,586


$

3,003


$

(7,386

)

$

6,703











Current maturities of long-term debt

$

7

$

—


$

—


$

—


$

7

Other current liabilities


391


73



88



—



552

Long-term debt


3,844


—



2



—



3,846

Other liabilities


515


55



13



—



583

Deferred income taxes


611


133



46



—



790

Intercompany liabilities (assets)


3,383


(1,101

)


(2,282

)


—



—

Minority interest


—


—



176



—



176

Stockholders’ equity


749


2,426



4,960



(7,386

)


749











Total liabilities and stockholders’ equity

$

9,500

$

1,586


$

3,003


$

(7,386

)

$

6,703











17

CONDENSED CONSOLIDATING FINANCIAL INFORMATION (UNAUDITED)—(Continued)

STATEMENTS OF INCOME

For the Three Months Ended September 30, 2002

Millions of dollars


Lyondell


Guarantors


Non-Guarantors


Eliminations


Consolidated Lyondell

Sales and other operating revenues

$

559


$

208


$

510

$

(422

)

$

855

Cost of sales


578



187



406


(422

)


749

Selling, general and administrative expenses


22



5



13


—



40

Research and development expense


7



—



—


—



7











Operating income (loss)


(48

)


16



91


—



59

Interest income (expense), net


(100

)


4



1


—



(95

)

Other income (expense), net


(13

)


(1

)


9


—



(5

)

Income (loss) from equity investments


132



(1

)


45


(132

)


44

Intercompany income (expense)


(39

)


13



26


—



—

Provision for (benefit from) income taxes


(24

)


13



58


(49

)


(2

)











Income (loss) before extraordinary item


(44

)


18



114


(83

)


5

Extraordinary item, net of taxes


(7

)


—



—


—



(7

)











Net income (loss)

$

(51

)

$

18


$

114

$

(83

)

$

(2

)











STATEMENTS OF INCOME

For the Three Months Ended September 30, 2001

Millions of dollars


Lyondell


Guarantors


Non-Guarantors


Eliminations


Consolidated Lyondell

Sales and other operating revenues

$

480


$

196


$

385

$

(319

)

$

742

Cost of sales


504



133



322


(319

)


640

Selling, general and administrative expenses


20



2



12


—



34

Research and development expense


7



—



1


—



8

Amortization of goodwill


3



4



1


—



8

Restructuring charges


78



—



—


—



78











Operating income (loss)


(132

)


57



49


—



(26

)

Interest income (expense), net


(95

)


1



3


—



(91

)

Other income (expense), net


(64

)


17



43


—



(4

)

Income (loss) from equity investments


147



(1

)


18


(147

)


17

Intercompany income (expense)


(50

)


18



33


(1

)


—

Provision for (benefit from) income taxes


(69

)


33



58


(59

)


(37

)











Net income (loss)

$

(125

)

$

59


$

88

$

(89

)

$

(67

)











18

CONDENSED CONSOLIDATING FINANCIAL INFORMATION (UNAUDITED)—(Continued)

STATEMENTS OF INCOME

For the Nine Months Ended September 30, 2002

Millions of dollars


Lyondell


Guarantors


Non-Guarantors


Eliminations


Consolidated Lyondell

Sales and other operating revenues

$

1,612


$

583


$

1,323

$

(1,146

)

$

2,372

Cost of sales


1,637



523



1,048


(1,146

)


2,062

Selling, general and administrative expenses


77



13



36


—



126

Research and development expense


22



—



—


—



22











Operating income (loss)


(124

)


47



239


—



162

Interest income (expense), net


(289

)


8



4


—



(277

)

Other income (expense), net


(41

)


18



15


—



(8

)

Income (loss) from equity investments


350



(1

)


56


(350

)


55

Intercompany income (expense)


(68

)


33



75


(40

)


—

Provision for (benefit from) income taxes


(50

)


31



113


(114

)


(20

)











Income (loss) before extraordinary item


(122

)


74



276


(276

)


(48

)

Extraordinary item, net of taxes


(7

)


—



—


—



(7

)











Net income (loss)

$

(129

)

$

74


$

276

$

(276

)

$

(55

)











STATEMENTS OF INCOME

For the Nine Months Ended September 30, 2001

Millions of dollars


Lyondell


Guarantors


Non-Guarantors


Eliminations


Consolidated Lyondell

Sales and other operating revenues

$

1,692


$

633


$

1,226

$

(1,067

)

$

2,484

Cost of sales


1,691



423



1,124


(1,067

)


2,171

Selling, general and administrative expenses


71



9



37


—



117

Research and development expense


23



—



1


—



24

Amortization of goodwill


9



9



5


—



23

Restructuring charges


78



—



—


—



78











Operating income (loss)


(180

)


192



59


—



71

Interest income (expense), net


(289

)


2



10


—



(277

)

Other income (expense), net


(104

)


(88

)


190


—



(2

)

Income (loss) from equity investments


389



(1

)


62


(389

)


61

Intercompany income (expense)


(123

)


62



102


(41

)


—

Provision for (benefit from) income taxes


(104

)


57



144


(147

)


(50

)











Net income (loss)

$

(203

)

$

110


$

279

$

(283

)

$

(97

)











19

CONDENSED CONSOLIDATING FINANCIAL INFORMATION (UNAUDITED)—(Continued)

STATEMENTS OF CASH FLOWS

For the Nine Months Ended September 30, 2002

Millions of dollars


Lyondell


Guarantors


Non-Guarantors


Eliminations


Consolidated Lyondell

Net income (loss)

$

(129

)

$

74


$

276


$

(276

)

$

(55

)

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:


Depreciation and amortization


94



30



65



—



189

Extraordinary item


7



—



—



—



7

Net changes in working capital and other


290



(47

)


(276

)


236



203











Net cash provided by operating activities


262



57



65



(40

)


344











Purchase of equity investment in Equistar


(440

)


—



—



—



(440

)

Contributions and advances to affiliates


—



(38

)


(47

)


—



(85

)

Expenditures for property, plant and equipment


(12

)


(3

)


(5

)


—



(20

)

Distributions from affiliates in excess of earnings


—



—



16



—



16

Other


(3

)


—



—



—



(3

)











Net cash used in investing activities


(455

)


(41

)


(36

)


—



(532

)











Issuance of Series B common stock, warrants, and right


440



—



—



—



440

Issuance of common stock


110



—



—



—



110

Issuance of long-term debt


276



—



—



—



276

Repayment of long-term debt


(217

)


—



—



—



(217

)

Dividends paid


(81

)


(1

)


(39

)


40



(81

)

Other


(25

)


—



—



—



(25

)











Net cash provided by financing activities


503



(1

)


(39

)


40



503











Effect of exchange rate changes on cash


—



(6

)


8



—



2











Increase (decrease) in cash and cash equivalents

$

310


$

9


$

(2

)

$

—


$

317











20

CONDENSED CONSOLIDATING FINANCIAL INFORMATION (UNAUDITED)—(Continued)

STATEMENTS OF CASH FLOWS

For the Nine Months Ended September 30, 2001

Millions of dollars


Lyondell


Guarantors


Non-Guarantors


Eliminations


Consolidated Lyondell

Net income (loss)

$

(203

)

$

110


$

279


$

(283

)

$

(97

)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:


Depreciation and amortization


102



33



64



—



199

Net changes in working capital and other


255



(70

)


(343

)


242



84











Net cash provided by operating activities


154



73



—



(41

)


186











Expenditures for property, plant and equipment


(15

)


(6

)


(31

)


—



(52

)

Contributions and advances to affiliates


—



(71

)


(37

)


—



(108

)

Distributions from affiliates in excess of earnings


—



—



30



—



30











Net cash used in investing activities


(15

)


(77

)


(38

)


—



(130

)











Dividends paid


(79

)


—



(41

)


41



(79

)

Repayment of long-term debt


(8

)


—



—



—



(8

)

Other


(7

)


—



—



—



(7

)











Net cash used in financing activities


(94

)


—



(41

)


41



(94

)











Effect of exchange rate changes on cash


—



4



(4

)


—



—











Increase (decrease) in cash and cash equivalents

$

45


$

—


$

(83

)

$

—


$

(38

)











21
~~-----END PRIVACY-ENHANCED MESSAGE-----~~

	For the three months ended September 30,						For the nine months ended September 30,
Millions of dollars, except per share data	2002			2001			2002			2001
Sales and other operating revenues	$	855		$	742		$	2,372		$	2,484

Operating costs and expenses:
Cost of sales		749			640			2,062			2,171
Selling, general and administrative expenses		40			34			126			117
Research and development expense		7			8			22			24
Amortization of goodwill		—			8			—			23
Restructuring charges		—			78			—			78

		796			768			2,210			2,413

Operating income (loss)		59			(26	)		162			71
Interest expense		(98	)		(95	)		(285	)		(292	)
Interest income		3			4			8			15
Other expense, net		(5	)		(4	)		(8	)		(2	)

Loss before equity investments, income taxes and extraordinary item		(41	)		(121	)		(123	)		(208	)

Income (loss) from equity investments:
Equistar Chemicals, LP		11			(24	)		(39	)		(48	)
LYONDELL-CITGO Refining LP		32			48			98			116
Other		1			(7	)		(4	)		(7	)

		44			17			55			61

Income (loss) before income taxes and extraordinary item		3			(104	)		(68	)		(147	)
Benefit from income taxes		(2	)		(37	)		(20	)		(50	)

Income (loss) before extraordinary item		5			(67	)		(48	)		(97	)
Extraordinary loss on extinguishment of debt, net of income taxes		(7	)		-—			(7	)		-—

Net loss	$	(2	)	$	(67	)	$	(55	)	$	(97	)

Basic and diluted loss per share:
Income (loss) before extraordinary item	$	.04		$	(.57	)	$	(.38	)	$	(.82	)
Extraordinary loss		(.06	)		-—			(.06	)		-—

Net loss	$	(.02	)	$	(.57	)	$	(.44	)	$	(.82	)

Millions of dollars, except par value data	September 30, 2002			December 31, 2001
ASSETS
Current assets:
Cash and cash equivalents	$	463		$	146
Accounts receivable, net		367			352
Inventories		344			316
Prepaid expenses and other current assets		53			116
Deferred tax assets		35			277

Total current assets		1,262			1,207

Property, plant and equipment, net		2,347			2,293
Investments and long-term receivables:
Investment in Equistar Chemicals, LP		1,275			522
Investment in PO joint ventures		746			717
Receivable from LYONDELL-CITGO Refining LP		229			229
Investment in LYONDELL-CITGO Refining LP		54			29
Other investments and long-term receivables		95			122
Goodwill, net		1,119			1,102
Other assets, net		430			482

Total assets	$	7,557		$	6,703

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	332		$	319
Current maturities of long-term debt		4			7
Other accrued liabilities		358			233

Total current liabilities		694			559

Long-term debt		3,908			3,846
Other liabilities		583			583
Deferred income taxes		914			790
Commitments and contingencies
Minority interest		162			176
Stockholders’ equity:
Common stock, $1.00 par value, 340,000,000 shares authorized, 128,530,000 and 120,250,000 shares issued, respectively		128			120
Series B common stock, $1.00 par value, 80,000,000 shares authorized, 34,000,000 shares issued		34			-—
Additional paid-in capital		1,372			854
Retained earnings		111			247
Accumulated other comprehensive loss		(274	)		(397	)
Treasury stock, at cost, 2,685,080 and 2,687,080 shares, respectively		(75	)		(75	)

Total stockholders’ equity		1,296			749

Total liabilities and stockholders’ equity	$	7,557		$	6,703

	For the three months ended September 30,						For the nine months ended September 30,
	2002			2001			2002			2001
STATEMENTS OF INCOME
Sales and other operating revenues	$	891		$	850		$	2,436		$	2,692
Cost of sales		820			744			2,220			2,419
Selling, general and administrative expenses		13			16			39			44

Operating income		58			90			177			229
Interest expense, net		(8	)		(10	)		(23	)		(41	)

Income before extraordinary item		50			80			154			188
Extraordinary loss on extinguishment of debt		—			(2	)		—			(2	)

Net income	$	50		$	78		$	154		$	186

OTHER INFORMATION
Depreciation and amortization							$	87		$	81
Expenditures for property, plant and equipment								53			59

Millions of dollars	September 30, 2002		December 31, 2001
Finished goods	$	265	$	262
Work-in-process		6		5
Raw materials		39		19
Materials and supplies		34		30

Total inventories	$	344	$	316

	For the three months ended September 30,						For the nine months ended September 30,
Basic and Diluted EPS	2002			2001			2002			2001
Weighted average shares, in thousands		140,258			117,563			125,212			117,563
Income (loss) before extraordinary item per share	$	.04		$	(.57	)	$	(.38	)	$	(.82	)
Net loss per share	$	(.02	)	$	(.57	)	$	(.44	)	$	(.82	)

Millions of dollars	IC&D			Petrochemicals		Polymers			Refining		Other			Total
For the three months ended September 30, 2002:
Sales and other operating revenues	$	855		$	—	$	—		$	—	$	—		$	855
Operating income		59			—		—			—		—			59
Interest expense		—			—		—			—		(98	)		(98	)
Interest income		—			—		—			—		3			3
Other expense, net		—			—		—			—		(5	)		(5	)
Income (loss) from equity investments		—			46		5			32		(39	)		44
Income before income taxes and extraordinary items															3

For the three months ended September 30, 2001:
Sales and other operating revenues	$	742		$	—	$	—		$	—	$	—		$	742
Operating loss		(26	)		—		—			—		—			(26	)
Interest expense		—			—		—			—		(95	)		(95	)
Interest income		—			—		—			—		4			4
Other expense, net		—			—		—			—		(4	)		(4	)
Income (loss) from equity investments		(1	)		12		(11	)		48		(31	)		17
Loss before income taxes															(104	)

For the nine months ended September 30, 2002:
Sales and other operating revenues	$	2,372		$	—	$	—		$	—	$	—		$	2,372
Operating income		162			—		—			—		—			162
Interest expense		—			—		—			—		(285	)		(285	)
Interest income		—			—		—			—		8			8
Other expense, net		—			—		—			—		(8	)		(8	)
Income (loss) from equity investments		—			68		(13	)		98		(98	)		55
Loss before income taxes and extraordinary items															(68	)

For the nine months ended September 30, 2001:
Sales and other operating revenues	$	2,484		$	—	$	—		$	—	$	—		$	2,484
Operating income		71			—		—			—		—			71
Interest expense		—			—		—			—		(292	)		(292	)
Interest income		—			—		—			—		15			15
Other expense, net		—			—		—			—		(2	)		(2	)
Income (loss) from equity investments		—			92		(57	)		116		(90	)		61
Loss before income taxes															(147	)

Millions of dollars	Lyondell		Guarantors			Non-Guarantors			Eliminations			Consolidated Lyondell
Total current assets	$	777	$	172		$	313		$	—		$	1,262
Property, plant and equipment, net		888		555			904			—			2,347
Investments and long-term receivables		8,334		480			2,272			(8,687	)		2,399
Goodwill, net		453		418			248			—			1,119
Other assets		333		86			11			—			430

Total assets	$	10,785	$	1,711		$	3,748		$	(8,687	)	$	7,557

Current maturities of long-term debt	$	4	$	—		$	—		$	—		$	4
Other current liabilities		452		113			125			—			690
Long-term debt		3,906		—			2			—			3,908
Other liabilities		519		45			19			—			583
Deferred income taxes		698		146			70			—			914
Intercompany liabilities (assets)		3,910		(1,168	)		(2,739	)		(3	)		—
Minority interest		—		—			162			—			162
Stockholders’ equity		1,296		2,575			6,109			(8,684	)		1,296

Total liabilities and stockholders’ equity	$	10,785	$	1,711		$	3,748		$	(8,687	)	$	7,557