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<SEC-DOCUMENT>/in/edgar/work/0000093410-00-000014/0000093410-00-000014.txt : 20001017
<SEC-HEADER>0000093410-00-000014.hdr.sgml : 20001017
ACCESSION NUMBER:		0000093410-00-000014
CONFORMED SUBMISSION TYPE:	8-K
PUBLIC DOCUMENT COUNT:		5
CONFORMED PERIOD OF REPORT:	20001015
ITEM INFORMATION:		
ITEM INFORMATION:		
FILED AS OF DATE:		20001016

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			CHEVRON CORP
		CENTRAL INDEX KEY:			0000093410
		STANDARD INDUSTRIAL CLASSIFICATION:	 [2911
]		IRS NUMBER:				940890210
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			1231
</COMPANY-DATA>

		FILING VALUES:
			FORM TYPE:		8-K
			SEC ACT:		
			SEC FILE NUMBER:	001-00368
			FILM NUMBER:		740692
</FILING-VALUES>

			BUSINESS ADDRESS:	
				STREET 1:		575 MARKET STREET
				CITY:			SAN FRANCISCO
				STATE:			CA
				ZIP:			94105
				BUSINESS PHONE:		4158947700
</BUSINESS-ADDRESS>

				MAIL ADDRESS:	
					STREET 1:		575 MARKET STREET
					CITY:			SAN FRANCISCO
					STATE:			CA
					ZIP:			94105
</MAIL-ADDRESS>

					FORMER COMPANY:	
						FORMER CONFORMED NAME:	STANDARD OIL CO OF CALIFORNIA
						DATE OF NAME CHANGE:	19840705
</FORMER-COMPANY>
</FILER>
</SEC-HEADER>
<DOCUMENT>
<TYPE>8-K
<SEQUENCE>1
<FILENAME>0001.txt
<DESCRIPTION>CHEVRON TEXACO JOINT PRESS RELEASE 10/16/00
<TEXT>



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

                                    Form 8-K

                                 Current Report

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

       Date of Report (Date of earliest event reported): October 15, 2000


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

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

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

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


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



Item 5.        Other Events

        On October 16, 2000,  Chevron  Corporation and Texaco Inc. issued a
        joint press release announcing an agreement to merge.  The press release
        is attached hereto as Exhibit 99.1 and incorporated herein by reference.


Item 7. (c)   Exhibits.
              --------

         Exhibit 2.1       Agreement  and Plan of Merger dated as of October 15,
                           2000 among  Texaco  Inc., Chevron Corporation and
                           Keepep Inc. (Schedules and Exhibits omitted)

         Exhibit 2.2       Stock  Option  Agreement  dated as of October 15,
                           2000, between Chevron Corporation and Texaco Inc.

         Exhibit 2.3       Stock  Option  Agreement  dated as of October 15,
                           2000, between Chevron Corporation and Texaco Inc.

         Exhibit 99.1      Joint Press Release, "CHEVRON AND TEXACO AGREE TO
                           $100 BILLION MERGER CREATING TOP-TIER INTEGRATED
                           ENERGY COMPANY," dated October 16, 2000.

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

<PAGE>


                                    SIGNATURE

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


Dated: October 16, 2000


                                               CHEVRON CORPORATION




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



                                  EXHIBIT INDEX
                                  -------------
Exhibit No.                        Description
- -----------                        -----------

Exhibit 2.1           Agreement and Plan of Merger dated as of October 15, 2000
                      among Texaco Inc., Chevron Corporation and Keepep Inc.
                      (Schedules and Exhibits omitted)

Exhibit 2.2           Stock Option Agreement dated as of October 15, 2000,
                      between Chevron Corporation and Texaco Inc.

Exhibit 2.3           Stock Option Agreement dated as of October 15, 2000,
                      between Chevron Corporation and Texaco Inc.

Exhibit 99.1          Joint Press Release dated October 16, 2000.

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-2.1
<SEQUENCE>2
<FILENAME>0002.txt
<DESCRIPTION>EXHIBIT 2.1 AGREEMENT AND PLAN OF MERGER
<TEXT>


                                                                     Exhibit 2.1
                                                                     -----------

                          AGREEMENT AND PLAN OF MERGER

                                   dated as of

                                October 15, 2000

                                      among

                                    TEXACO INC.

                               CHEVRON CORPORATION

                                       and

                                   KEEPEP INC.



<PAGE>


                                TABLE OF CONTENTS

                                                                            Page


ARTICLE 1 THE MERGER...........................................................2
  SECTION 1.1  The Merger......................................................2
  SECTION 1.2  Conversion of Shares............................................2
  SECTION 1.3  Surrender and Payment...........................................3
  SECTION 1.4  Stock Options and Equity Awards.................................5
  SECTION 1.5  Adjustments.....................................................6
  SECTION 1.6  Fractional Shares...............................................7
  SECTION 1.7  Withholding Rights..............................................8
  SECTION 1.8  Lost Certificates...............................................8
  SECTION 1.9  Shares Held by Company Affiliates...............................8
  SECTION 1.10  Appraisal Rights...............................................8
ARTICLE 2 CERTAIN GOVERNANCE MATTERS...........................................9
  SECTION 2.1  Name; Trade Name................................................9
  SECTION 2.2  Parent Board of Directors.......................................9
  SECTION 2.3  Transition Committee............................................9
  SECTION 2.4  Certificate of Incorporation of the Surviving Corporation......10
  SECTION 2.5  By-laws of the Surviving Corporation...........................10
  SECTION 2.6  Directors and Officers of the Surviving Corporation............10
ARTICLE 3 REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY............10
  SECTION 3.1  Corporate Existence and Power..................................10
  SECTION 3.2  Corporate Authorization........................................11
  SECTION 3.3  Governmental Authorization.....................................12
  SECTION 3.4  Non-Contravention..............................................12
  SECTION 3.5  Capitalization.................................................13
  SECTION 3.6  Subsidiaries...................................................14
  SECTION 3.7  Commission Filings.............................................15
  SECTION 3.8  Financial Statements...........................................16
  SECTION 3.9  Disclosure Documents...........................................16
  SECTION 3.10  Absence of Certain Changes....................................17
  SECTION 3.11  No Undisclosed Material Liabilities...........................18
  SECTION 3.12  Litigation....................................................18
  SECTION 3.13  Taxes.........................................................18
  SECTION 3.14  Employee Benefit Plans........................................19
  SECTION 3.15  Compliance with Laws..........................................21
  SECTION 3.16  Finders' or Advisors' Fees....................................22

                                      -i-
<PAGE>

  SECTION 3.17  Environmental Matters.........................................22
  SECTION 3.18  Opinion of Financial Advisor..................................22
  SECTION 3.19  Pooling; Tax Treatment........................................23
  SECTION 3.20  Pooling Letter................................................23
  SECTION 3.21  Takeover Statutes.............................................23
  SECTION 3.22  Stockholder Rights Plan.......................................23
  SECTION 3.23  Joint Ventures................................................24
ARTICLE 4 REPRESENTATIONS, WARRANTIES AND COVENANTS OF PARENT.................24
  SECTION 4.1  Corporate Existence and Power..................................24
  SECTION 4.2  Corporate Authorization........................................25
  SECTION 4.3  Governmental Authorization.....................................26
  SECTION 4.4  Non-Contravention..............................................26
  SECTION 4.5  Capitalization.................................................26
  SECTION 4.6  Subsidiaries...................................................27
  SECTION 4.7  Commission Filings.............................................28
  SECTION 4.8  Financial Statements...........................................29
  SECTION 4.9  Disclosure Documents...........................................29
  SECTION 4.10  Absence of Certain Changes....................................30
  SECTION 4.11  No Undisclosed Material Liabilities...........................31
  SECTION 4.12  Litigation....................................................31
  SECTION 4.13  Taxes.........................................................31
  SECTION 4.14  Employee Benefit Plans........................................32
  SECTION 4.15  Compliance with Laws..........................................33
  SECTION 4.16  Finders' or Advisors' Fees....................................33
  SECTION 4.17  Environmental Matters.........................................34
  SECTION 4.18  Opinion of Financial Advisor..................................34
  SECTION 4.19  Pooling; Tax Treatment........................................34
  SECTION 4.20  Pooling Letter................................................34
  SECTION 4.21  Takeover Statutes.............................................35
  SECTION 4.22  Stockholder Rights Plan.......................................35
ARTICLE 5 COVENANTS OF THE COMPANY............................................35
  SECTION 5.1  Conduct of the Company.........................................35
  SECTION 5.2  Company Stockholder Meeting; Proxy Material....................38
  SECTION 5.3  Equity Conversion..............................................40
  SECTION 5.4  Resignation of Company Directors...............................40
ARTICLE 6 COVENANTS OF PARENT.................................................40
  SECTION 6.1  Conduct of Parent..............................................40
  SECTION 6.2  Obligations of Merger Subsidiary...............................42
  SECTION 6.3  Director and Officer Liability.................................42

                                      -ii-
<PAGE>

  SECTION 6.4  Parent Stockholder Meeting; Form S-4...........................43
  SECTION 6.5  Stock Exchange Listing.........................................44
  SECTION 6.6  Employee Benefits..............................................44
ARTICLE 7 COVENANTS OF PARENT AND THE COMPANY.................................45
  SECTION 7.1  Best Efforts...................................................45
  SECTION 7.2  Certain Filings................................................47
  SECTION 7.3  Access to Information..........................................48
  SECTION 7.4  Tax and Accounting Treatment...................................48
  SECTION 7.5  Public Announcements...........................................48
  SECTION 7.6  Further Assurances.............................................48
  SECTION 7.7  Notices of Certain Events......................................49
  SECTION 7.8  Affiliates.....................................................49
  SECTION 7.9  Payment of Dividends...........................................50
  SECTION 7.10  No Solicitation...............................................50
  SECTION 7.11  Letters from Accountants......................................52
  SECTION 7.12  Takeover Statutes.............................................53
  SECTION 7.13  Headquarters..................................................53
  SECTION 7.14  Section 16(b).................................................54
ARTICLE 8 CONDITIONS TO THE MERGER............................................54
  SECTION 8.1  Conditions to the Obligations of Each Party....................54
  SECTION 8.2  Conditions to the Obligations of Parent and Merger Subsidiary..55
  SECTION 8.3  Conditions to the Obligations of the Company...................56
ARTICLE 9 TERMINATION.........................................................57
  SECTION 9.1  Termination....................................................57
  SECTION 9.2  Effect of Termination..........................................58
ARTICLE 10 MISCELLANEOUS......................................................59
  SECTION 10.1  Notices.......................................................59
  SECTION 10.2  Non-Survival of Representations and Warranties................60
  SECTION 10.3  Amendments; No Waivers........................................60
  SECTION 10.4  Expenses......................................................61
  SECTION 10.5  Company Termination Fee.......................................61
  SECTION 10.6  Parent Termination Fee........................................61
  SECTION 10.7  Successors and Assigns........................................62
  SECTION 10.8  Governing Law.................................................62
  SECTION 10.9  Jurisdiction..................................................62
  SECTION 10.10  Waiver of Jury Trial.........................................63
  SECTION 10.11  Counterparts; Effectiveness..................................63
  SECTION 10.12  Entire Agreement.............................................63
  SECTION 10.13  Captions.....................................................63

                                     -iii-
<PAGE>

  SECTION 10.14  Severability.................................................63

                                      -iv-
<PAGE>


                              EXHIBITS AND ANNEXES

Exhibit A.........--       Company Stock Option Agreement
Exhibit B.........--       Parent Stock Option Agreement
Exhibit C-1.......--       Affiliate's Pooling Letter (for Parent Affiliates)
Exhibit C-2.......--       Affiliate's Pooling Letter (for Company Affiliates)
Exhibit C-3.......--       Affiliate's Rule 145 Letter (for Company Affiliates)

Annex 7.1.........--        Form of Agreement and Declaration of Trust

                                      -v-

<PAGE>


                                  DEFINED TERMS
                                                                      Section

368 Reorganization.....................................................3.19(b)
Acquisition Proposal...................................................7.10(b)
Affected Employees......................................................6.6(b)
Affected Retirees.......................................................6.6(b)
Agreement.............................................................Preamble
Alliance Interests...................................................7.1(d)(i)
Alliance Transaction Agreement.......................................7.1(d)(i)
Anti-Discrimination Laws...............................................3.14(h)
Benefit Triggers.......................................................3.14(e)
Certificates............................................................1.3(a)
Closing.................................................................1.1(d)
Closing Date............................................................1.1(d)
Code..................................................................Recitals
Commission............................................................Recitals
Common Shares Trust.....................................................1.6(b)
Common Stock Issuance......................................................4.2
Common Stock Issuance Approval.............................................4.2
Company...............................................................Preamble
Company 10-K...............................................................3.7
Company 2000 Capital Expenditure Budget.................................5.1(g)
Company 2001 Permitted Capital Expenditure Budget.......................5.1(g)
Company 2002 Permitted Capital Expenditure Budget.......................5.1(g)
Company Award...........................................................1.4(c)
Company Balance Sheet......................................................3.8
Company Balance Sheet Date.................................................3.8
Company Benefit Plans..................................................3.14(a)
Company Board Designees.................................................2.2(a)
Company Commission Documents...............................................3.7
Company Common Stock..................................................Recitals
Company Disclosure Schedules.........................................Article 3
Company Non-U.S. Employees.................................................3.7
Company Option Agreement..............................................Recitals
Company Proxy Statement....................................................3.9
Company Rights.............................................................3.5
Company Rights Agreement...................................................3.5
Company Securities.........................................................3.5
Company Stock Option....................................................1.4(a)
Company Stock Option Plans..............................................1.4(a)
Company Stockholder Approval...............................................3.2
Company Stockholder Meeting................................................5.2
Company Subsidiary Securities...........................................3.6(b)
Company U.S. Employees.................................................3.14(e)
Condition Satisfaction Time................................................5.2

                                      -vi-
<PAGE>

Confidentiality Agreement..................................................7.3
Delaware Law............................................................1.1(a)
downstream..............................................................5.1(l)
EC Merger Regulation.......................................................3.3
Effective Time..........................................................1.1(b)
employee benefit plan..................................................3.14(a)
End Date.............................................................9.1(b)(i)
Environmental Laws.....................................................3.17(b)
Equity Conversion..........................................................5.3
ERISA..................................................................3.14(a)
Excess Shares...........................................................1.6(a)
Exchange Act...............................................................3.3
Exchange Agent..........................................................1.3(a)
Exchange Ratio.....................................................1.2(a)(iii)
Foreign Company Benefit Plan...........................................3.14(a)
Foreign Parent Benefit Plan............................................4.14(a)
Form S-4................................................................4.9(a)
GAAP..................................................................Recitals
HSR Act....................................................................3.3
Indemnitees.............................................................6.3(a)
Joint Ventures............................................................3.23
Lien.......................................................................3.4
Market Auction Preferred Stock.............................................3.5
Material Adverse Effect....................................................3.1
Merger..................................................................1.1(a)
Merger Consideration....................................................1.2(b)
Merger Subsidiary.....................................................Preamble
mid-stream..............................................................5.1(l)
multiemployer plan.....................................................3.14(a)
Name Change Amendment...................................................2.1(a)
Name Change Amendment Approval..........................................4.2(a)
NYSE....................................................................1.6(a)
Option Agreements.....................................................Recitals
Parent................................................................Preamble
Parent 10-K.............................................................4.7(a)
Parent Balance Sheet.......................................................4.8
Parent Balance Sheet Date..................................................4.8
Parent Benefit Plans...................................................4.14(a)
Parent Commission Documents.............................................4.7(a)
Parent Common Stock...................................................Recitals
Parent Disclosure Schedules..........................................Article 4
Parent Option Agreement...............................................Recitals
Parent Proxy Statement..................................................4.9(a)
Parent Rights......................................................1.2(a)(iii)
Parent Rights Agreement............................................1.2(a)(iii)
Parent Securities..........................................................4.5

                                     -vii-
<PAGE>

Parent Stockholder Approvals............................................4.2(a)
Parent Stockholder Meeting.................................................6.4
Parent Subsidiary Securities............................................4.6(b)
Person..................................................................1.3(c)
Rabbi Trust Shares...................................................1.2(a)(i)
Securities Act..........................................................1.4(d)
Significant Subsidiary..................................................3.6(a)
Subsidiary..............................................................3.6(a)
Superior Proposal......................................................7.10(b)
Surviving Corporation...................................................1.1(a)
Tax Returns...............................................................3.13
Taxes.....................................................................3.13
Transition Committee......................................................2.3
Trust Agreement....................................................7.1(d)(iii)
Trustees...........................................................7.1(d)(iii)
upstream................................................................5.1(l)

                                     -viii-


<PAGE>


                          AGREEMENT AND PLAN OF MERGER
                          ----------------------------

         THIS  AGREEMENT  AND  PLAN OF  MERGER  (this  "Agreement")  dated as of
October  15,  2000  by and  among  TEXACO  INC.,  a  Delaware  corporation  (the
"Company"),  CHEVRON CORPORATION,  a Delaware corporation ("Parent"), and KEEPEP
INC., a newly formed  Delaware  corporation  and a wholly  owned  subsidiary  of
Parent ("Merger Subsidiary").

                              W I T N E S S E T H:

         WHEREAS,   the  respective  Boards  of  Directors  of  Parent,   Merger
Subsidiary and the Company have approved this  Agreement,  and deem it advisable
and in the best  interests of their  respective  stockholders  to consummate the
merger  of  Merger  Subsidiary  with and  into  the  Company  on the  terms  and
conditions set forth herein;

         WHEREAS, for United States federal income tax purposes,  it is intended
that the Merger  contemplated  by this Agreement  qualify as a  "reorganization"
within the  meaning of Section  368 of the  Internal  Revenue  Code of 1986,  as
amended, and the rules and regulations promulgated thereunder (the "Code");

         WHEREAS,  for  accounting  purposes,  it is intended that the Merger be
accounted for as a "pooling of interests" under United States generally accepted
accounting  principles  ("GAAP") and the rules and regulations of the Securities
and Exchange Commission (the "Commission");

         WHEREAS,  (i) as a condition and inducement to Parent's  willingness to
enter into this Agreement,  concurrently with the execution and delivery of this
Agreement,  Parent and the Company are entering  into a Stock  Option  Agreement
dated as of the date of this  Agreement  in the form  attached as Exhibit A (the
"Company Option Agreement"), pursuant to which the Company shall grant to Parent
an option to purchase shares of common stock, par value $3.125 per share, of the
Company   ("Company   Common   Stock")  at  $53.71  per  share,   under  certain
circumstances,  and  (ii)  as  a  condition  and  inducement  to  the  Company's
willingness to enter into this  Agreement,  concurrently  with the execution and
delivery of this  Agreement,  Parent and the Company are  entering  into a Stock
Option  Agreement dated as of the date of this Agreement in the form attached as
Exhibit B (the "Parent Option  Agreement" and,  together with the Company Option
Agreement, the "Option Agreements"), pursuant to which Parent shall grant to the
Company an option to purchase shares of common stock, par value $0.75 per share,
of  Parent  ("Parent  Common  Stock"),   at  $85.96  per  share,  under  certain
circumstances.

         NOW,  THEREFORE,  in  consideration  of the promises and the respective
representations,  warranties,  covenants,  and agreements set forth herein,  the
parties hereto agree as follows:



                                      -1-
<PAGE>

                                    ARTICLE 1
                                   -----------
                                   THE MERGER
                                   -----------

         SECTION 1.1  The Merger.
                      ----------

         (a)......At the Effective Time,  Merger Subsidiary shall be merged (the
"Merger") with and into the Company in accordance  with the  requirements of the
General Corporation Law of the State of Delaware (the "Delaware Law"), whereupon
the separate  existence of Merger  Subsidiary shall cease, and the Company shall
be the surviving corporation in the Merger (the "Surviving Corporation").

         (b)......On  the  Closing  Date,  immediately  after the  Closing,  the
Company  will file a  certificate  of merger with the  Secretary of State of the
State of Delaware and make all other filings or recordings  required by Delaware
Law in  connection  with the Merger.  The Merger shall become  effective at such
time as the  certificate  of merger is duly filed with the Secretary of State of
the State of Delaware or at such later time as is specified  in the  certificate
of merger (the "Effective Time").

         (c)......From  and after the Effective Time, the Surviving  Corporation
shall possess all the rights,  privileges,  powers and franchises and be subject
to all of the  restrictions,  disabilities  and duties of the Company and Merger
Subsidiary, all as provided under Delaware Law.

         (d)......The closing of the Merger (the "Closing") shall take place (i)
at the  offices  of  Pillsbury  Madison & Sutro  LLP,  50  Fremont  Street,  San
Francisco, California, as soon as practicable on the day on which the last to be
fulfilled or waived of the  conditions  set forth in Article 8 (other than those
conditions that by their nature are to be fulfilled at the Closing,  but subject
to the fulfillment or waiver of such conditions) shall be fulfilled or waived in
accordance with this Agreement,  including  pursuant to Sections 5.2 and 7.1, or
(ii) at such  other  place and time or on such  other  date as the  Company  and
Parent may agree in writing (the date of the Closing, the "Closing Date").

         SECTION 1.2  Conversion of Shares.
                      --------------------

         (a)......At  the Effective Time by virtue of the Merger and without any
action on the part of the holder thereof:

                  (i) each share of the Company Common Stock held by the Company
         as treasury stock or owned by Parent or any subsidiary of Parent or the
         Company (excluding shares, if any, held in any "Rabbi trust" identified
         on  Section  3.14 of the  Company  Disclosure  Schedule,  which  may be
         accounted for as treasury  stock ("Rabbi  Trust  Shares"))  immediately
         prior to the Effective Time (together with the associated Company Right
         (as defined in Section 3.5), if any) shall be canceled,  and no payment
         shall be made with respect thereto;

                                      -2-
<PAGE>

                  (ii)  each  share  of  common   stock  of  Merger   Subsidiary
         outstanding  immediately prior to the Effective Time shall be converted
         into and become one share of common stock of the Surviving  Corporation
         with the same rights,  powers and privileges as the shares so converted
         and shall  constitute the only  outstanding  shares of capital stock of
         the Surviving Corporation; and

                  (iii) each share of Company Common Stock (including each Rabbi
         Trust Share) (together with the associated  Company Right)  outstanding
         immediately  prior to the  Effective  Time shall,  except as  otherwise
         provided in Section  1.2(a)(i),  be converted into the right to receive
         0.77  of a  share  of  Parent  Common  Stock  (the  "Exchange  Ratio"),
         including the  corresponding  fraction of a right to purchase shares of
         Series A Participating  Preferred Stock of Parent (the "Parent Rights")
         in accordance with the Rights Agreement (the "Parent Rights Agreement")
         dated  as  of  November  23,  1998  between   Parent  and   ChaseMellon
         Shareholder  Services,  L.L.C.,  as Rights Agent.  References herein to
         shares of Parent  Common  Stock  issuable  pursuant to the Merger shall
         also be deemed to include the associated Parent Rights.

         (b) All Parent  Common  Stock  issued as provided  in this  Section 1.2
shall be of the same  class  and  shall  have  the same  terms as the  currently
outstanding  Parent  Common  Stock.  The  shares  of Parent  Common  Stock to be
received  as  consideration  pursuant  to the Merger  with  respect to shares of
Company Common Stock (together with cash in lieu of fractional  shares of Parent
Common  Stock  as  specified  below)  are  referred  to  herein  as the  "Merger
Consideration."

         (c) From and after the  Effective  Time,  all shares of Company  Common
Stock (together with the associated Company Rights) converted in accordance with
Section  1.2(a)(iii)  shall no longer be outstanding and shall  automatically be
canceled and retired and shall cease to exist,  and each holder of a certificate
representing  any  such  shares  shall  cease to have any  rights  with  respect
thereto,  except the right to receive the Merger Consideration and any dividends
payable  pursuant to Section  1.3(f).  From and after the  Effective  Time,  all
certificates  representing the common stock of Merger Subsidiary shall be deemed
for all  purposes  to  represent  the  number of  shares of common  stock of the
Surviving  Corporation into which they were converted in accordance with Section
1.2(a)(ii).

         SECTION 1.3  Surrender and Payment.
                      ---------------------

         (a) Prior to the  Effective  Time,  Parent  shall  appoint  ChaseMellon
Shareholder Services,  L.L.C. or such other exchange agent reasonably acceptable
to the Company (the "Exchange Agent") for the purpose of exchanging certificates
representing  shares of Company  Common  Stock  ("Certificates")  for the Merger
Consideration.  Parent will make available to the Exchange Agent, as needed, the
Merger  Consideration to be delivered in respect of the shares of Company Common
Stock.  Promptly after the Effective  Time,  Parent will send, or will cause the
Exchange  Agent to send,  to each  holder of record of shares of Company  Common
Stock as of the Effective Time, a letter of transmittal for use in such exchange
(which shall specify that the delivery  shall be effected,  and risk of loss and
title shall pass, only upon proper delivery of the  Certificates to the Exchange
Agent) in such form as the Company and Parent may reasonably



                                      -3-
<PAGE>

agree,  for use in effecting  delivery of shares of Company  Common Stock to the
Exchange Agent.

         (b) Each  holder of  shares  of  Company  Common  Stock  that have been
converted  into a right to receive the Merger  Consideration,  upon surrender to
the Exchange Agent of a Certificate,  together with a properly  completed letter
of transmittal,  will be entitled to receive the Merger Consideration in respect
of the shares of Company Common Stock represented by such Certificate.  Until so
surrendered,  each such Certificate shall,  after the Effective Time,  represent
for all purposes only the right to receive such Merger Consideration.

         (c) If any portion of the Merger  Consideration  is to be registered in
the name of a  Person  other  than  the  Person  in  whose  name the  applicable
surrendered  Certificate  is  registered,   it  shall  be  a  condition  to  the
registration thereof that the surrendered Certificate shall be properly endorsed
or otherwise be in proper form for transfer and that the Person  requesting such
delivery  of the  Merger  Consideration  shall  pay to the  Exchange  Agent  any
transfer or other taxes required as a result of such registration in the name of
a Person other than the  registered  holder of such  Certificate or establish to
the  satisfaction  of the  Exchange  Agent that such tax has been paid or is not
payable.  For  purposes  of this  Agreement,  "Person"  means an  individual,  a
corporation, a limited liability company, a partnership, an association, a trust
or any  other  entity or  organization,  including  a  government  or  political
subdivision or any agency or instrumentality thereof.

         (d) After the Effective Time, there shall be no further registration of
transfers  of shares of Company  Common  Stock.  If, after the  Effective  Time,
Certificates are presented to the Exchange Agent,  the Surviving  Corporation or
the Parent, they shall be canceled and exchanged for the consideration  provided
for, and in accordance with the procedures set forth, in this Article 1.

         (e) Any  portion  of the Merger  Consideration  made  available  to the
Exchange Agent pursuant to Section 1.3(a) that remains  unclaimed by the holders
of shares of Company  Common  Stock one year after the  Effective  Time shall be
returned to Parent,  upon demand,  and any such holder who has not exchanged his
shares of Company Common Stock for the Merger  Consideration  in accordance with
this  Section  1.3 prior to that time shall  thereafter  look only to Parent for
delivery  of the  Merger  Consideration  in  respect  of such  holder's  shares.
Notwithstanding  the  foregoing,  Parent  shall not be  liable to any  holder of
shares for any Merger  Consideration  delivered to a public official pursuant to
applicable abandoned property laws. Any Merger Consideration remaining unclaimed
by holders of shares of Company  Common  Stock three  years after the  Effective
Time (or such earlier date immediately  prior to such time as such amounts would
otherwise  escheat to or become property of any  governmental  entity) shall, to
the extent  permitted by applicable  law, become the property of Parent free and
clear of any claims or interest of any Person previously entitled thereto.

         (f) No  dividends  or other  distributions  with  respect  to shares of
Parent  Common  Stock  issued in the  Merger  shall be paid to the holder of any
unsurrendered  Certificates  until such Certificates are surrendered as provided
in this Section 1.3.  Subject to the effect of applicable  laws,  following such
surrender,  there shall be paid,  without interest,  to the record



                                      -4-
<PAGE>

holder of the shares of Parent  Common Stock issued in exchange  therefor (i) at
the time of such  surrender,  all dividends and other  distributions  payable in
respect  of such  shares of Parent  Common  Stock  with a record  date after the
Effective  Time and a payment date on or prior to the date of such surrender and
not previously paid and (ii) at the  appropriate  payment date, the dividends or
other  distributions  payable with respect to such shares of Parent Common Stock
with a record date after the Effective  Time but with a payment date  subsequent
to such surrender.  For purposes of dividends or other  distributions in respect
of shares of Parent Common Stock, all shares of Parent Common Stock to be issued
pursuant to the Merger (but not options therefor described in Section 1.4 unless
actually  exercised  at the  Effective  Time)  shall be  entitled  to  dividends
pursuant to the immediately  preceding  sentence as if issued and outstanding as
of the Effective Time.

         SECTION 1.4 Stock Options and Equity Awards.
                     -------------------------------

         (a) The Board of Directors of the Company  shall take such action as is
necessary so that at the Effective  Time,  each  outstanding  option to purchase
shares of Company  Common Stock (a "Company  Stock  Option")  granted  under the
Company's plans or agreements identified in Company Disclosure Schedule (defined
in the introductory  clause to Article 3) 1.4 as being the only  compensation or
benefit plans or agreements pursuant to which shares of Company Common Stock may
be issued  (collectively,  the "Company Stock Option Plans"),  whether vested or
not vested, shall cease to represent a right to acquire shares of Company Common
Stock and shall  thereafter  constitute an option to acquire,  on the same terms
and  conditions as were  applicable  under such Company Stock Option  (including
without  limitation the stock option  restoration  feature  applicable  thereto)
pursuant to the relevant Company Stock Option Plan under which it was issued and
the agreement  evidencing  the grant thereof  prior to the Effective  Time,  the
number  (rounded to the nearest  whole  number) of shares of Parent Common Stock
determined  by  multiplying  (x) the  number of shares of Company  Common  Stock
subject to such Company Stock Option  immediately prior to the Effective Time by
(y) the  Exchange  Ratio.  The exercise  price per share of Parent  Common Stock
subject to any such Company Stock Option at and after the  Effective  Time shall
be an amount (rounded to the nearest  one-hundredth  of a cent) equal to (x) the
exercise  price per share of Company  Common Stock subject to such Company Stock
Option  prior  to the  Effective  Time,  divided  by  (y)  the  Exchange  Ratio.
Notwithstanding any other provisions of this Section 1.4(a), if use of the above
methods would  disqualify  the Merger as a "pooling of interests"  for financial
accounting purposes,  then such methods will be adjusted to the extent necessary
to preserve such accounting treatment. In addition, prior to the Effective Time,
the Company will make any  amendments  to the terms of such Company Stock Option
Plans that are necessary to give effect to the transactions contemplated by this
Section 1.4. The Company represents and warrants that no consents are or will be
necessary to give effect to the transactions contemplated by this Section 1.4.

         (b) Parent shall take all  corporate  action  necessary to assume as of
the Effective Time the Company's obligations under the Company Stock Options and
reserve for  issuance a sufficient  number of shares of Parent  Common Stock for
delivery pursuant to the terms set forth in this Section 1.4.



                                      -5-
<PAGE>

         (c) At the Effective Time, each award or account (including  restricted
stock,  stock  equivalents and stock units, but excluding Company Stock Options)
outstanding  as  of  the  Effective   Time  ("Company   Award")  that  has  been
established,  made or granted  under any employee  incentive  or benefit  plans,
programs or  arrangements  and  non-employee  director  plans  maintained by the
Company on or prior to the date hereof that  provide for grants of  equity-based
awards or equity-based accounts and which are identified in Company Schedule 1.4
shall  to the  extent  practicable  be  amended  or  converted  into  a  similar
instrument  of  Parent,  in each  case with  such  adjustments  to the terms and
conditions  of such  Company  Awards as are  appropriate  to preserve  the value
inherent  in such  Company  Awards  with no  detrimental  effects on the holders
thereof.  The other terms and conditions of each Company Award, and the plans or
agreements  under which they were issued,  shall continue to apply in accordance
with their terms and conditions,  including any provisions for  acceleration (as
such terms and conditions  have been  interpreted  and applied by the Company in
accordance with its past practice), but with such adjustments, if any, as may be
necessary or appropriate in light of the  transactions  contemplated  hereby and
which do not materially  affect the intended value of such awards,  in each case
to the extent  consistent with Section 7.4. The Company  represents and warrants
that (i) there are as of the date  hereof no  Company  Awards or  Company  Stock
Options  other  than  those  reflected  in  Section  3.5 and (ii)  all  employee
incentive or benefit plans,  programs or arrangements and non-employee  director
plans under which any Company  Award has been  established,  made or granted and
all Company Stock Option Plans are disclosed in Company Disclosure Schedule 1.4.

         (d) As soon as practicable  after the Effective Time, Parent shall file
with  the  Commission  a  registration  statement  on an  appropriate  form or a
post-effective  amendment to a previously filed registration statement under the
Securities Act of 1933, as amended (the "Securities  Act"),  with respect to the
Parent Common Stock  subject to options and other equity based awards  described
in this Section 1.4, and shall use its  reasonable  best efforts to maintain the
current status of the prospectus  contained therein,  as well as comply with any
applicable  state  securities or "blue sky" laws, for so long as such options or
other equity based awards remain outstanding.

         SECTION 1.5  Adjustments.
                      -----------
     If at any time during the period between the date of this Agreement and the
Effective Time, any change in the outstanding  shares of capital stock of Parent
or the Company shall occur by reason of any reclassification,  recapitalization,
stock split or combination,  exchange or  readjustment  of shares,  or any stock
dividend thereon with a record date during such period, the Merger Consideration
shall be  appropriately  adjusted  to provide  the  holders of shares of Company
Common Stock the same economic effect as contemplated by this Agreement prior to
such event.

         SECTION 1.6  Fractional Shares.
                      -----------------

         (a) No fractional  shares of Parent Common Stock shall be issued in the
Merger,  but in lieu  thereof  each  holder of shares of  Company  Common  Stock
otherwise entitled to a fractional share of Parent Common Stock will be entitled
to receive,  from the Exchange  Agent in accordance  with the provisions of this
Section 1.6, a cash payment in lieu of such  fractional  shares of Parent Common
Stock representing such holder's proportionate interest, if any, in the



                                      -6-
<PAGE>

proceeds  from the sale by the  Exchange  Agent in one or more  transactions  of
shares of Parent Common Stock equal to the excess of (x) the aggregate number of
shares of Parent  Common Stock to be  delivered to the Exchange  Agent by Parent
pursuant to Section  1.3(a)  over (y) the  aggregate  number of whole  shares of
Parent Common Stock to be distributed to the holders of Certificates pursuant to
Section  1.3(b)  (such  excess being  herein  called the "Excess  Shares").  The
parties  acknowledge  that payment of the cash  consideration in lieu of issuing
fractional  shares was not  separately  bargained for  consideration  but merely
represents a mechanical  rounding off for purposes of simplifying  the corporate
and  accounting  problems  that would  otherwise  be caused by the  issuance  of
fractional shares. As soon as practicable after the Effective Time, the Exchange
Agent,  as agent for the  holders  of the  certificates  representing  shares of
Company Common Stock,  shall sell the Excess Shares at then prevailing prices on
the New York Stock Exchange (the "NYSE") in the manner provided in the following
paragraph.

         (b) The sale of the Excess Shares by the Exchange  Agent,  as agent for
the holders that would otherwise receive fractional shares, shall be executed on
the NYSE  through one or more member  firms of the NYSE and shall be executed in
round lots to the extent practicable.  The compensation  payable to the Exchange
Agent  and the  expenses  incurred  by the  Exchange  Agent,  in each  case,  in
connection  with  such  sale or  sales of the  Excess  Shares,  and all  related
commissions,  transfer taxes and other out-of-pocket  transaction costs, will be
paid by the  Surviving  Corporation  out of its own  funds  and will not be paid
directly or indirectly by Parent.  Until the proceeds of such sale or sales have
been  distributed to the holders of shares of Company Common Stock, the Exchange
Agent  shall hold such  proceeds  in trust for the  holders of shares of Company
Common Stock (the "Common Shares Trust"). The Exchange Agent shall determine the
portion of the  Common  Shares  Trust to which each  holder of shares of Company
Common  Stock  shall be  entitled,  if any,  by  multiplying  the  amount of the
aggregate  proceeds  comprising  the  Common  Shares  Trust by a  fraction,  the
numerator of which is the amount of the fractional  share interest to which such
holder of shares of Company  Common  Stock would  otherwise  be entitled and the
denominator of which is the aggregate  amount of fractional  share  interests to
which all holders of shares of Company Common Stock would otherwise be entitled.

         (c) As soon as  practicable  after the  determination  of the amount of
cash, if any, to be paid to holders of shares of Company Common Stock in lieu of
any  fractional  shares of Parent  Common Stock,  the Exchange  Agent shall make
available such amounts to such holders of shares of Company Common Stock without
interest.

         SECTION 1.7 Withholding Rights.
                     ------------------
     Each of the  Surviving  Corporation  and Parent shall be entitled to deduct
and withhold from the consideration  otherwise payable to any Person pursuant to
this  Article 1 such  amounts  as it is  required  to deduct and  withhold  with
respect to the making of such payment  under any  provision  of federal,  state,
local or foreign  tax law.  To the extent  that  amounts  are so withheld by the
Surviving Corporation or Parent, as the case may be, such withheld amounts shall
be treated for all purposes of this  Agreement as having been paid to the holder
of the shares of Company  Common  Stock in respect of which such  deduction  and
withholding was made by the Surviving Corporation or Parent, as the case may be.

                                      -7-
<PAGE>

         SECTION 1.8 Lost Certificates.
                     -----------------
     If any  Certificate  shall have been lost,  stolen or  destroyed,  upon the
making of an affidavit of that fact by the Person  claiming such  Certificate to
be lost,  stolen or  destroyed  and,  if  required  by  Parent or the  Surviving
Corporation,  the posting by such Person of a bond, in such reasonable amount as
the Surviving Corporation may direct, as indemnity against any claim that may be
made against it with respect to such Certificate,  the Exchange Agent will issue
in  exchange  for  such  lost,  stolen  or  destroyed   Certificate  the  Merger
Consideration  to be paid in  respect  of the  shares of  Company  Common  Stock
represented by such Certificate as contemplated by this Article 1.

         SECTION 1.9 Shares Held by Company Affiliates.
                     ---------------------------------
     Anything to the contrary herein notwithstanding, no shares of Parent Common
Stock (or certificates therefor) shall be issued in exchange for any Certificate
to any Person who may be an "affiliate" of the Company  (identified  pursuant to
Section  7.8) until such Person  shall have  delivered  to Parent duly  executed
letters as  contemplated  by Section  7.8.  Such Person  shall be subject to the
restrictions  described  in such  letters,  and  such  shares  (or  certificates
therefor) shall bear a legend describing such restrictions.

         SECTION 1.10 Appraisal  Rights.
                      -----------------
     In  accordance  with Section 262 of the Delaware  Law, no appraisal  rights
shall be  available to holders of shares of Company  Common Stock in  connection
with the Merger.

                                    ARTICLE 2
                                    ---------
                           CERTAIN GOVERNANCE MATTERS
                           --------------------------

         SECTION 2.1 Name; Trade Name.
                     ----------------
         (a) Parent  shall take all such  action as is  necessary  to change its
name to  "ChevronTexaco  Corporation"  effective as of the Effective Time, which
action shall include, without limitation,  seeking stockholder approval to amend
Parent's  Restated  Certificate of Incorporation to effect such name change (the
"Name Change Amendment") as provided in Section 6.4. Subject to Parent obtaining
the  necessary  approval of its  stockholders  under  Delaware  Law for the Name
Change  Amendment,  simultaneously  with the filing of the certificate of merger
contemplated by Section 1.1(b),  Parent shall file a certificate of amendment to
its Restated  Certificate  of  Incorporation  with the Secretary of State of the
State of Delaware  and make all other  filings and records  required by Delaware
Law in  connection  with  the  amendment  of the  certificate  of  incorporation
contemplated  hereby.  This  amendment  shall become  effective at the Effective
Time.

         (b) It is  the  intention  of  Parent  that  the  marketing  operations
currently  conducted  by the  Company  and its  Subsidiaries  outside the United
States will continue to be conducted under the "Texaco" trademark.

         SECTION 2.2 Parent Board of Directors.
                     -------------------------
         (a) At the  Effective  Time,  the Board of  Directors  of Parent  shall
consist of fifteen



                                      -8-
<PAGE>

(15) directors,  of whom six (6) directors shall be persons who are directors of
the Company designated prior to the Effective Time by the Company and reasonably
acceptable to Parent (the "Company Board Designees"),  and the remainder of whom
shall be directors of Parent prior to the Effective Time. Prior to the Effective
Time,  the Board of  Directors  of Parent  shall  take all action  necessary  to
increase the size of the Board of Directors of Parent as necessary  and to elect
the Company Board Designees to the Board of Directors of Parent, in each case as
of the Effective Time.

         (b) The Board of Directors of Parent shall take all action necessary to
cause Peter I. Bijur to be elected as Vice Chairman of the Board of Directors of
Parent as of the Effective Time.

         (c) Parent shall cause, as of the Effective Time, each Committee of the
Board of Directors of Parent to include at least one Company Board Designee.

         SECTION 2.3  Transition  Committee.
                      ---------------------
     The parties  agree to establish a  transition  committee  (the  "Transition
Committee") which will have a consultative role and which will be in effect from
the date hereof until the earlier of the  termination  hereof and the  Effective
Time. The Transition Committee shall be comprised of Peter I. Bijur and David J.
O'Reilly.  The Transition  Committee will be concerned with matters  relating to
planning the  integration  after the  Effective  Time of Parent and the Company,
including  organization and staffing.  Notwithstanding  anything in this Section
2.3,  Parent  shall not be deemed to control the business or  operations  of the
Company and,  likewise,  the Company shall not be deemed to control the business
or operations of Parent.  The members of the  Transition  Committee may delegate
specific  tasks to others and  otherwise  will draw upon the resources of Parent
and the Company as necessary or appropriate.

         SECTION 2.4 Certificate of Incorporation of the Surviving  Corporation.
                     ----------------------------------------------------------
     The certificate of  incorporation of the Company in effect at the Effective
Time shall be the  certificate  of  incorporation  of the Surviving  Corporation
until subsequently amended in accordance with applicable law.

         SECTION 2.5 By-laws of the  Surviving  Corporation.
                     --------------------------------------
     The  by-laws of the  Company in effect at the  Effective  Time shall be the
by-laws of the Surviving  Corporation until  subsequently  amended in accordance
with applicable law.

         SECTION 2.6 Directors and Officers of the Surviving  Corporation.
                     ----------------------------------------------------
     From and after the Effective  Time,  until  successors  are duly elected or
appointed and qualified in accordance  with applicable law, (a) the directors of
Merger  Subsidiary at the Effective Time shall be the directors of the Surviving
Corporation,  and (b) the officers of the Company at the Effective Time shall be
the officers of the Surviving Corporation.

                                      -9-
<PAGE>



                                    ARTICLE 3
                                    ---------
            REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY
            --------------------------------------------------------
         The Company represents and warrants to Parent that (except as set forth
in the disclosure  schedules  delivered by the Company to Parent  simultaneously
with the execution of this Agreement (the "Company Disclosure Schedules")):

         SECTION 3.1 Corporate Existence and Power.
                     -----------------------------
     The Company is a corporation  duly  incorporated,  validly  existing and in
good  standing  under the laws of the State of Delaware,  and has all  corporate
powers and all  governmental  licenses,  authorizations,  consents and approvals
required to carry on its business as now conducted, except for those the absence
of which would not,  individually  or in the  aggregate,  have, or be reasonably
likely to have, a Material  Adverse  Effect on the Company.  The Company is duly
qualified  to do business as a foreign  corporation  and is in good  standing in
each  jurisdiction  where the character of the property owned or leased by it or
the nature of its  activities  makes such  qualification  necessary,  except for
those jurisdictions where the failure to be so qualified would not, individually
or in the aggregate,  have, or be reasonably  likely to have, a Material Adverse
Effect on the  Company.  For  purposes of this  Agreement,  a "Material  Adverse
Effect"  with  respect to any  Person  means a  material  adverse  effect on the
financial condition,  business,  liabilities,  properties,  assets or results of
operations of such Person and its Subsidiaries, taken as a whole, except, to the
extent  resulting  from (x) any  changes  in  general  United  States  or global
economic  conditions,  (y) any  changes  affecting  the oil and gas  industry in
general  (including  changes  to  commodity  prices)  except,  other  than where
referring to a Material  Adverse  Effect on Parent after the Effective  Time, to
the extent that the changes  disproportionately affect Parent or the Company, as
applicable,  compared to the manner in which the changes  affect the other party
or (z) any disposition of the Alliance  Interests (as defined in Section 7.1) in
accordance  with the terms of Section 7.1. The Company has heretofore  delivered
to Parent true and complete copies of the Company's certificate of incorporation
and by-laws as currently in effect.

         SECTION 3.2  Corporate Authorization.
                      -----------------------

         (a) The  execution,  delivery  and  performance  by the Company of this
Agreement and the Option  Agreements and the  consummation by the Company of the
transactions  contemplated hereby and thereby are within the Company's corporate
powers and, except for any required approval by the Company's  stockholders (the
"Company  Stockholder  Approval") in  connection  with the  consummation  of the
Merger,  have  been duly  authorized  by all  necessary  corporate  action.  The
affirmative  vote of holders of a majority of the outstanding  shares of Company
Common Stock in favor of the approval  and  adoption of this  Agreement  and the
Merger is the only vote of the  holders of any of the  Company's  capital  stock
necessary  in  connection  with   consummation  of  the  Merger.   Assuming  due
authorization,   execution  and  delivery  of  this  Agreement  and  the  Option
Agreements by Parent  and/or  Merger  Subsidiary,  as  applicable,  each of this
Agreement and each Option Agreement constitutes a valid and binding agreement of
the  Company  enforceable  against  the  Company in  accordance  with its terms,
subject  to  bankruptcy,


                                      -10-
<PAGE>

insolvency, fraudulent transfer, reorganization,  moratorium and similar laws of
general applicability relating to or affecting creditors' rights, and to general
equity principles.

         (b) The Company's Board of Directors, at a meeting duly called and held
on or prior to the date hereof,  has (i) determined  that this Agreement and the
Option  Agreements  and  the  transactions   contemplated   hereby  and  thereby
(including the Merger) are  advisable,  fair to and in the best interests of the
Company's stockholders,  (ii) approved and adopted this Agreement and the Option
Agreements and the transactions  contemplated  hereby and thereby (including the
Merger),  and (iii) resolved  (subject to Section 5.2) to recommend the approval
and adoption of this Agreement and the Merger by its stockholders.

         SECTION 3.3  Governmental  Authorization.
                      ---------------------------
     The  execution,  delivery and  performance by the Company of this Agreement
and  the  Option   Agreements  and  the  consummation  by  the  Company  of  the
transactions  contemplated hereby and thereby require no action by or in respect
of, or filing with, any governmental body,  agency,  official or authority other
than (a) the filing of a certificate of merger in accordance  with Delaware Law,
(b)  compliance  with  any  applicable  requirements  of  the  Hart-Scott-Rodino
Antitrust  Improvements  Act of 1976 (the "HSR Act"),  (c)  compliance  with any
applicable  requirements  of Council  Regulation  No.  4064/89  of the  European
Community,  as amended (the "EC Merger  Regulation"),  (d)  compliance  with any
applicable  requirements  of  laws,  rules  and  regulations  in  other  foreign
jurisdictions governing antitrust or merger control matters, (e) compliance with
any applicable  requirements of the Securities Exchange Act of 1934, as amended,
and the rules and regulations  promulgated  thereunder (the "Exchange Act"), (f)
compliance with any applicable  requirements of the Securities Act and (g) other
actions or filings which if not taken or made would not,  individually or in the
aggregate,  have, or be reasonably  likely to have, a Material Adverse Effect on
the Company or prevent or  materially  delay the Company's  consummation  of the
Merger.

         SECTION 3.4 Non-Contravention.
                     -----------------
     The  execution,  delivery and  performance by the Company of this Agreement
and  the  Option   Agreements  and  the  consummation  by  the  Company  of  the
transactions  contemplated  hereby  and  thereby  do not and will not,  assuming
compliance with the matters  referred to in Sections 3.2 and 3.3, (a) contravene
or conflict with the certificate of incorporation or by-laws of the Company, (b)
contravene  or conflict  with or  constitute a violation of any provision of any
law,  regulation,   judgment,  injunction,  order  or  decree  binding  upon  or
applicable to the Company or any of its  Subsidiaries,  (c) constitute a default
under or give rise to a right of  termination,  cancellation  or acceleration of
any right or obligation of the Company or any of its  Subsidiaries  or to a loss
of any benefit to which the Company or any of its Subsidiaries is entitled under
any provision of any agreement,  contract or other  instrument  binding upon the
Company or any of its  Subsidiaries or any license,  franchise,  permit or other
similar  authorization  held by the Company or any of its  Subsidiaries,  or (d)
result in the creation or  imposition of any Lien on any asset of the Company or
any of its Subsidiaries, except for such contraventions, conflicts or violations
referred to in clause (b) or defaults,  rights of  termination,  cancellation or
acceleration,  or losses or Liens  referred  to in clause  (c) or (d) that would
not, individually or in the aggregate,  have, or be reasonably likely to have, a
Material Adverse Effect on the Company.  For purposes of this Agreement,  "Lien"
means, with respect to any asset, any mortgage,  lien, pledge, charge,  security
interest or encumbrance of any kind in respect of such



                                      -11-
<PAGE>

asset other than any such mortgage,  lien, pledge, charge,  security interest or
encumbrance  (i) for Taxes (as  defined  in  Section  3.13) not yet due or being
contested in good faith (and for which  adequate  accruals or reserves have been
established  on the Parent Balance Sheet or the Company  Balance  Sheet,  as the
case  may  be)  or  (ii)  which  is  a  carriers',  warehousemen's,  mechanics',
materialmen's,  repairmen's or other like lien arising in the ordinary course of
business.  Neither the Company nor any  Subsidiary  of the  Company,  nor to the
knowledge  of the  Company,  neither  Joint  Venture (as defined in Section 3.23
herein) nor any of its Subsidiaries,  is a party to any agreement that expressly
limits the ability of the Company or any  Subsidiary  of the  Company,  or would
limit Parent or any Subsidiary of Parent after the Effective Time, to compete in
or conduct any line of business or compete with any Person or in any  geographic
area or during any period of time except to the extent that any such limitation,
individually  or in the  aggregate,  would not have, or be reasonably  likely to
have, a Material Adverse Effect on the Company.

         SECTION 3.5 Capitalization.
                     --------------
     The authorized  capital stock of the Company consists of 850,000,000 shares
of Company  Common Stock and  30,000,000  shares of preferred  stock,  par value
$1.00 per share (of which 3,000,000 are designated Series D Junior Participating
Preferred Stock, 300 are designated Market Auction Preferred Shares,  Series G-1
through G-300, 300 are designated Market Auction  Preferred  Shares,  Series H-1
through H-300, 300 are designated Market Auction  Preferred  Shares,  Series I-1
through I-300 and 300 are designated Market Auction Preferred Shares, Series J-1
through J-300,  and the remaining shares of such preferred stock are not subject
to any  designation).  As of the close of business on September 30, 2000,  there
were  outstanding,  (i)  550,182,530  shares of Company Common Stock,  including
9,200,000  Rabbi Trust Shares,  (ii) no shares of Series D Junior  Participating
Preferred  Stock (all of which are reserved for issuance in accordance  with the
Amended Rights Agreement (the "Company Rights Agreement"), dated as of March 16,
1989, by and between the Company and ChaseMellon  Shareholder Services,  L.L.C.,
as Rights Agent,  as amended  April 28, 1998,  pursuant to which the Company has
issued  rights  to  purchase  Series  D  Junior  Participating  Preferred  Stock
("Company  Rights")),  and (iii) 300 shares of Market Auction  Preferred Shares,
Series G-1 through G-300, 300 shares of Market Auction Preferred Shares,  Series
H-1 through H-300,  300 shares of Market Auction  Preferred  Shares,  Series I-1
through I-300, 300 shares of Market Auction Preferred Shares, Series J-1 through
J-300  (collectively,  the "Market Auction Preferred Stock") and no other shares
of  capital  stock  or  other  voting   securities  of  the  Company  were  then
outstanding.  All  outstanding  shares of capital stock of the Company have been
duly authorized and validly issued and are fully paid and  nonassessable.  As of
September 30, 2000, there were outstanding (i) Company Awards (other than shares
of restricted  stock or other awards included in the number of shares of Company
Common Stock  outstanding  set forth above) with respect to 2,558,307  shares of
Company  Common  Stock and (ii)  Company  Stock  Options to purchase  13,683,804
shares of Company  Common  Stock.  Except as set forth in this  Section  3.5 and
except for changes since the close of business on September  30, 2000  resulting
from the exercise of employee stock options outstanding on such date, or options
or other  stock-based  awards granted or other securities issued as permitted by
Section  5.1,  there are  outstanding  (a) no shares of  capital  stock or other
voting securities of the Company,  (b) no Company Awards, and (c) except for the
Company Rights, and the option granted pursuant to the Company Option Agreement,
(i) no options, warrants or other rights to acquire from the Company any capital
stock,  voting  securities or securities  convertible  into or exchangeable  for
capital stock or voting


                                      -12-
<PAGE>

securities  of  the  Company,   and  (ii)  no  preemptive  or  similar   rights,
subscription or other rights, convertible securities,  agreements,  arrangements
or commitments  of any character,  relating to the capital stock of the Company,
obligating  the Company to issue,  transfer or sell any  capital  stock,  voting
securities or securities  convertible  into or exchangeable for capital stock or
voting  securities of the Company or obligating the Company to grant,  extend or
enter into any such option,  warrant,  subscription or other right,  convertible
security,  agreement,  arrangement or commitment  (the items in clauses  3.5(a),
3.5(b) and 3.5(c) being referred to collectively  as the "Company  Securities").
Except as  required by the terms of any series of the Market  Auction  Preferred
Stock or any Company Stock Options or as permitted by Section 5.1(e),  there are
no  outstanding  obligations  of the  Company  or any  of  its  Subsidiaries  to
repurchase, redeem or otherwise acquire any Company Securities.

         SECTION 3.6  Subsidiaries.
                      ------------

         (a) Each Subsidiary of the Company is duly organized,  validly existing
and in good standing under the laws of its jurisdiction of organization, has all
powers and all  governmental  licenses,  authorizations,  consents and approvals
required to carry on its business as now conducted, except for those the absence
of which would not,  individually  or in the  aggregate,  have, or be reasonably
likely to have, a Material  Adverse Effect on the Company.  For purposes of this
Agreement,  the word "Subsidiary" when used with respect to any Person means any
other Person,  whether  incorporated or  unincorporated,  of which (i) more than
fifty percent of the securities or other ownership  interests or (ii) securities
or other  interests  having by their terms  ordinary  voting power to elect more
than  fifty  percent  of the board of  directors  or others  performing  similar
functions with respect to such  corporation or other  organization,  is directly
owned or  controlled  by such Person or by any one or more of its  subsidiaries.
Each  Subsidiary of the Company is duly  qualified to do business and is in good
standing in each  jurisdiction  where the  character  of the  property  owned or
leased by it or the nature of its activities makes such qualification necessary,
except  for those  jurisdictions  where  failure to be so  qualified  would not,
individually  or in the  aggregate,  have,  or be  reasonably  likely to have, a
Material Adverse Effect on the Company. All "significant  subsidiaries," as such
term is defined in Section 1-02 of Regulation  S-X under the Exchange Act (each,
a "Significant Subsidiary") of the Company and their respective jurisdictions of
incorporation  are  identified  in  Section  3.6(a)  of the  Company  Disclosure
Schedule.

         (b) Except for directors'  qualifying shares and except as set forth in
the Company 10-K, all of the  outstanding  capital stock of, or other  ownership
interests  in,  each  Significant  Subsidiary  of the  Company  is  owned by the
Company, directly or indirectly, free and clear of any material Lien and free of
any other material  limitation or restriction  (including any restriction on the
right  to  vote,  sell or  otherwise  dispose  of such  capital  stock  or other
ownership interests).  There are no outstanding (i) securities of the Company or
any of its  Subsidiaries  convertible into or exchangeable for shares of capital
stock or other  voting  securities  or ownership  interests  in any  Significant
Subsidiary of the Company or (ii)  options,  warrants or other rights to acquire
from the  Company or any of its  Significant  Subsidiaries  any  capital  stock,
voting securities or other ownership interests in, or any securities convertible
into or  exchangeable  for any capital  stock,  voting  securities  or ownership
interests in, any  Significant  Subsidiary of the Company,  and no



                                      -13-
<PAGE>

preemptive  or  similar  rights,   subscription  or  other  rights,  convertible
securities,  agreements,  arrangements or commitments of any character, relating
to the capital stock of any  Significant  Subsidiary of the Company,  obligating
the Company or any of its Significant  Subsidiaries to issue,  transfer or sell,
any capital stock,  voting  securities or other  ownership  interests in, or any
securities  convertible  into or  exchangeable  for any  capital  stock,  voting
securities or ownership interests in, any Significant  Subsidiary of the Company
or obligating the Company or any Significant Subsidiary of the Company to grant,
extend or enter into any such  option,  warrant,  subscription  or other  right,
convertible security, agreement, arrangement or commitment (the items in clauses
3.6(b)(i)  and  3.6(b)(ii)  being  referred  to  collectively  as  the  "Company
Subsidiary Securities").  There are no outstanding obligations of the Company or
any  of  its  Subsidiaries  to  repurchase,  redeem  or  otherwise  acquire  any
outstanding  Company Subsidiary  Securities.  As of the date hereof, the Company
indirectly owns a 44% limited liability company interest in Equilon  Enterprises
LLC and a 30.6% limited liability company interest in Motiva Enterprises LLC.

         SECTION 3.7  Commission Filings.
                      ------------------

         (a) The Company has made  available to Parent (i) its annual reports on
Form 10-K for its fiscal years ended December 31, 1997,  1998 and 1999, (ii) its
quarterly  reports on Form 10-Q for its fiscal quarters ended after December 31,
1999,  (iii) its proxy or  information  statements  relating to meetings  of, or
actions taken without a meeting by, the  stockholders  of the Company held since
December 31, 1999, and (iv) all of its other reports, statements,  schedules and
registration  statements  filed with the Commission since December 31, 1999 (the
documents  referred to in this Section 3.7(a) being referred to  collectively as
the "Company  Commission  Documents").  The Company's annual report on Form 10-K
for its  fiscal  year  ended  December  31,  1999 is  referred  to herein as the
"Company 10-K".

         (b) As of its filing date, each Company Commission Document complied as
to form  in all  material  respects  with  the  applicable  requirements  of the
Exchange Act and the Securities Act.

         (c) As of its filing  date,  each  Company  Commission  Document  filed
pursuant to the Exchange Act did not contain any untrue  statement of a material
fact  or omit to  state  any  material  fact  necessary  in  order  to make  the
statements made therein, in the light of the circumstances under which they were
made, not misleading.

         (d)  Each  registration  statement,  as  amended  or  supplemented,  if
applicable,  filed  by  the  Company  since  January  1,  1997  pursuant  to the
Securities Act as of the date such statement or amendment  became  effective did
not  contain  any  untrue  statement  of a  material  fact or omit to state  any
material fact required to be stated  therein or necessary to make the statements
therein not misleading.

         SECTION 3.8 Financial  Statements.
                     ---------------------
     The audited consolidated  financial  statements and unaudited  consolidated
interim  financial  statements of the Company  (including  any related notes and
schedules) included in its annual reports on Form 10-K and the quarterly reports
on Form  10-Q  referred  to in  Section  3.7  present  fairly,  in all  material
respects,   the  consolidated   financial   position  of  the  Company  and  its
consolidated Subsidiaries as of the dates thereof and the



                                      -14-
<PAGE>

consolidated  results of their  operations  and their cash flows for the periods
then ended (subject to normal  year-end  adjustments and the absence of notes in
the  case of any  unaudited  interim  financial  statements),  in  each  case in
conformity  with GAAP applied on a consistent  basis (except as may be indicated
in the notes thereto).  For purposes of this Agreement,  "Company Balance Sheet"
means the consolidated  balance sheet of the Company as of December 31, 1999 set
forth in the Company 10-K and "Company  Balance  Sheet Date" means  December 31,
1999.

         SECTION 3.9  Disclosure Documents.
                      --------------------

         (a) Neither the proxy  statement  of the Company  (the  "Company  Proxy
Statement") to be filed with the Commission in connection  with the Merger,  nor
any  amendment  or  supplement  thereto,  will,  at the date the  Company  Proxy
Statement or any such amendment or supplement is first mailed to stockholders of
the Company or at the time such  stockholders  vote on the adoption and approval
of this Agreement and the transactions  contemplated hereby,  contain any untrue
statement  of a material  fact or omit to state any material  fact  necessary in
order to make the statements  therein, in light of the circumstances under which
they were made,  not  misleading.  The Company  Proxy  Statement,  including all
amendments or supplements,  will, when filed,  comply as to form in all material
respects  with the  requirements  of the  Exchange  Act.  No  representation  or
warranty is made by the Company in this Section 3.9 with  respect to  statements
made or  incorporated  by reference  therein  based on  information  supplied by
Parent or Merger  Subsidiary for inclusion or  incorporation by reference in the
Company Proxy Statement.

         (b) None of the  information  supplied or to be supplied by the Company
for inclusion or  incorporation  by reference in the Parent Proxy  Statement (as
defined in Section  4.9) or in the Form S-4 (as  defined in Section  4.9) or any
amendment or supplement  thereto will, at the time the Parent Proxy Statement or
any such supplement or amendment  thereto is first mailed to the stockholders of
Parent or at the time such  stockholders  vote on the matters  constituting  the
Parent Stockholder Approvals (as defined in Section 4.2) or at the time the Form
S-4 or any such amendment or supplement  becomes  effective under the Securities
Act or at the Effective  Time, as the case may be, contain any untrue  statement
of a material fact or omit to state a material  fact  necessary in order to make
the  statements  therein,  in light of the  circumstances  under which they were
made, not misleading.

         SECTION  3.10  Absence of Certain  Changes.
                        ---------------------------
     Except as disclosed in the Company Commission  Documents filed prior to the
date of this Agreement,  or except as is not prohibited after the date hereof by
Section 5.1 (or as is  otherwise  permitted by Section  5.1),  since the Company
Balance  Sheet Date,  the  Company and its  Subsidiaries  have  conducted  their
business in the ordinary  course,  consistent with past practice,  and there has
not been:

         (a) any event, occurrence or development of a state of circumstances or
facts which,  individually or in the aggregate,  has had, or would be reasonably
likely to have, a Material Adverse Effect on the Company;

         (b) any declaration,  setting aside or payment of any dividend or other
distribution  with respect to any shares of capital stock of the Company  (other
than (i) regular  quarterly cash dividends payable by the Company (x) consistent
with past practice (including  periodic dividend



                                      -15-
<PAGE>

increases consistent with past practice) and (y) that are not special dividends,
or (ii)  required  dividends  on the Market  Auction  Preferred  Stock),  or any
repurchase,  redemption or other acquisition by the Company or any of its wholly
owned  Subsidiaries  of  any  outstanding  shares  of  capital  stock  or  other
securities  of, or other  ownership  interests  in,  the  Company  or any of its
Significant  Subsidiaries  (other  than any such  repurchases  prior to the date
hereof  pursuant to the Company's  publicly  announced stock buyback program or,
after the date  hereof,  as  permitted  under  Section  5.1(e) or Section 5.3 or
pursuant to the terms of Company Stock Options and Company Awards,  in each case
subject to Section 7.4);

         (c)      any amendment of any material term of any outstanding security
of the Company or any of its Significant Subsidiaries;

         (d) any transaction or commitment  made, or any contract,  agreement or
settlement entered into, by (or judgment, order or decree affecting) the Company
or any of its  Subsidiaries  relating to its assets or business  (including  the
acquisition or disposition of any assets) or any  relinquishment  by the Company
or any of its  Subsidiaries  of any  contract or other  right,  in either  case,
material  to the  Company  and its  Subsidiaries  taken as a whole,  other  than
transactions,  commitments,  contracts,  agreements  or  settlements  (including
without  limitation  settlements  of  litigation  and  tax  proceedings)  in the
ordinary course of business consistent with past practice, those contemplated by
this Agreement, or as agreed to in writing by Parent;

         (e) any  change in any  method of  accounting  or  accounting  practice
(other  than  any  change  for  tax  purposes)  by  the  Company  or  any of its
Subsidiaries,  except  for any such  change  which is not  material  or which is
required by reason of a concurrent change in GAAP;

         (f) any (i) grant of any severance or termination  pay to (or amendment
to any such existing arrangement with) any director,  officer or employee of the
Company  or any of its  Subsidiaries,  (ii)  entering  into  of any  employment,
deferred  compensation or other similar  agreement (or any amendment to any such
existing agreement) with any director, officer or employee of the Company or any
of its  Subsidiaries,  (iii)  increase in benefits  payable  under any  existing
severance or termination  pay policies or (iv) increase in (or amendments to the
terms of) compensation,  bonus or other benefits payable to directors,  officers
or employees of the Company or any of its Subsidiaries, other than, in each case
(x) in the ordinary  course of business  consistent  with past practice,  (y) as
permitted by this Agreement, or (z) required by applicable law; or

         (g) any (i) Tax election made or changed,  (ii) audit settled, or (iii)
amended Tax return filed, in each case, that is reasonably likely to result in a
Tax liability material to the Company and its Subsidiaries, taken as a whole.

         SECTION  3.11  No  Undisclosed  Material  Liabilities.
                        --------------------------------------
     There are no liabilities of the Company or any Subsidiary of the Company of
any  kind  whatsoever,   whether  accrued,  contingent,   absolute,  determined,
determinable or otherwise, other than:

         (a)      liabilities disclosed or provided for in the Company Balance
Sheet or in the notes thereto;

                                      -16-
<PAGE>

         (b)      liabilities which, individually or in the aggregate, would not
have, or be reasonably likely to have, a Material Adverse Effect on the Company;

         (c)      liabilities disclosed in the Company Commission Documents
filed prior to the date of this Agreement; and

         (d)      liabilities under this Agreement.

         SECTION 3.12 Litigation.
                      ----------
     Except as disclosed in the Company Commission  Documents filed prior to the
date of this Agreement,  there is no action,  suit,  investigation or proceeding
pending  against,  or to the  knowledge  of the  Company  threatened  against or
affecting,  the Company or any of its  Subsidiaries  or any of their  respective
properties or any of their respective  officers or directors before any court or
arbitrator or any  governmental  body,  agency or official  except as would not,
individually  or in the  aggregate,  have,  or be  reasonably  likely to have, a
Material Adverse Effect on the Company.

         SECTION 3.13  Taxes.
                       -----

         (a) Except as set forth in the Company  Balance  Sheet  (including  the
notes thereto) and except as would not, individually or in the aggregate,  have,
or be reasonably  likely to have, a Material Adverse Effect on the Company,  (i)
all Company Tax Returns  required to be filed with any taxing  authority  by, or
with respect to, the Company and its Subsidiaries  have been filed in accordance
with all applicable laws; (ii) the Company and its Subsidiaries have timely paid
all Taxes shown as due and payable on the Company Tax Returns  that have been so
filed,  and,  as of the  time of  filing,  the  Company  Tax  Returns  correctly
reflected  the  facts  regarding  the  income,  business,   assets,  operations,
activities and the status of the Company and its Subsidiaries  (other than Taxes
which are being  contested  in good faith and for which  adequate  reserves  are
reflected on the Company Balance Sheet);  (iii) the Company and its Subsidiaries
have made  provision for all Taxes  payable by the Company and its  Subsidiaries
for which no Company Tax Return has yet been filed;  (iv) the charges,  accruals
and  reserves  for  Taxes  with  respect  to the  Company  and its  Subsidiaries
reflected on the Company  Balance Sheet are adequate under GAAP to cover the Tax
liabilities  accruing  through the date thereof;  (v) there is no action,  suit,
proceeding,  audit or claim now  proposed or pending  against or with respect to
the  Company or any of its  Subsidiaries  in respect of any Tax where there is a
reasonable possibility of an adverse determination;  and (vi) to the best of the
Company's knowledge and belief,  neither the Company nor any of its Subsidiaries
is liable for any Tax imposed on any entity  other than such  Person,  except as
the  result  of the  application  of  Treas.  Reg.  section  1.1502-6  (and  any
comparable   provision  of  the  tax  laws  of  any  state,   local  or  foreign
jurisdiction) to the affiliated group of which the Company is the common parent.
For purposes of this Agreement,  "Taxes" shall mean any and all taxes,  charges,
fees,  levies  or other  assessments,  including,  without  limitation,  all net
income, gross income, gross receipts,  excise, stamp, real or personal property,
ad valorem, withholding, social security (or similar), unemployment, occupation,
use, production,  service, service use, license, net worth, payroll,  franchise,
severance,   transfer,   recording,   employment,   premium,  windfall  profits,
environmental  (including taxes under Section 59A of the Code),  customs duties,
capital  stock,  profits,   disability,   sales,   registration,   value  added,
alternative or add-on minimum,



                                      -17-
<PAGE>

estimated or other taxes,  assessments or charges imposed by any federal, state,
local or foreign governmental entity and any interest,  penalties,  or additions
to tax attributable thereto. For purposes of this Agreement, "Tax Returns" shall
mean any return,  report,  form or similar  statement  required to be filed with
respect  to any Tax  (including  any  attached  schedules),  including,  without
limitation,  any  information  return,  claim  for  refund,  amended  return  or
declaration of estimated Tax.

         (b) Neither the Company  nor any  Company  Subsidiary  has  constituted
either a "distributing  corporation" or a "controlled  corporation"  (within the
meaning  of  Section  355(a)(1)(A)  of the  Code)  in a  distribution  of  stock
qualifying  or intended to qualify for tax-free  treatment  under Section 355 of
the Code (i) in the two years prior to the date of this  Agreement  or (ii) in a
distribution  that  could  otherwise  constitute  part of a "plan" or "series of
related  transactions"  (within  the  meaning of Section  355(e) of the Code) in
conjunction with the Merger.

         SECTION 3.14 Employee Benefit Plans.
                      -----------------------
         (a) The Company has  provided  Parent with a list (set forth in Section
3.14(a) of the Company Disclosure Schedule)  identifying each material "employee
benefit  plan",  as defined in section  3(3) of the Employee  Retirement  Income
Security Act of 1974, as amended ("ERISA"), each material employment,  severance
or similar  contract,  plan,  arrangement or policy  applicable to any director,
former  director,  employee or former  employee of the Company and each material
plan or  arrangement  (written or oral),  providing for  compensation,  bonuses,
profit-sharing,  stock  option or other stock  related  rights or other forms of
incentive  or  deferred  compensation,  vacation  benefits,  insurance  coverage
(including  any  self-insured   arrangements),   health  or  medical   benefits,
disability benefits, workers' compensation,  supplemental unemployment benefits,
severance  benefits  and   post-employment  or  retirement  benefits  (including
compensation,  pension,  health,  medical or life insurance  benefits)  which is
maintained,  administered or contributed to by the Company or any Subsidiary and
covers any employee or director or former employee or director of the Company or
any Subsidiary, or under which the Company has any liability;  provided however,
that such list need not include  any Company  Benefit  Plan that  constitutes  a
Foreign Company Benefit Plan (as defined below). The material plans,  agreements
or  arrangements  of the Company and its  Subsidiaries  referred to in the first
sentence of this paragraph (a) (excluding any such plan that is a "multiemployer
plan",  as defined in section  3(37) of ERISA,  but  including  Foreign  Company
Benefit  Plans) are  referred to  collectively  herein as the  "Company  Benefit
Plans."  "Foreign  Company  Benefit Plan" means any Company  Benefit Plan of the
Company  or any  of its  Subsidiaries  that  is  governed  by  the  laws  of any
jurisdiction  other  than the United  States.  To the  extent  practicable,  the
Company  shall provide and deliver to Parent a list of Foreign  Company  Benefit
Plans as soon as practicable.

         (b) Each Company  Benefit Plan has been  established  and maintained in
compliance  with its terms and with the  requirements  prescribed by any and all
statutes,  orders,  rules and regulations  (including but not limited to, to the
extent applicable, ERISA and the Code) which are applicable to such Plan, except
where failure to so comply would not, individually or in the aggregate, have, or
be reasonably likely to have, a Material Adverse Effect on the Company.



                                      -18-
<PAGE>

         (c) Neither the Company nor any affiliate of the Company has incurred a
liability  under Title IV of ERISA that has not been  satisfied in full,  and no
condition  exists that  presents a material risk to the Company or any affiliate
of the Company of incurring any such liability other than liability for premiums
due the Pension Benefit Guaranty Corporation (which premiums have been paid when
due).

         (d) Each Company  Benefit Plan which is intended to be qualified  under
section 401(a) of the Code is so qualified and has been so qualified  during the
period  from its  adoption  to date,  and each trust  forming a part  thereof is
exempt from federal  income tax  pursuant to section  501(a) of the Code and, to
the knowledge of the Company, no circumstances exist which will adversely affect
such qualification or exemption.

         (e) Section 3.14(e) of the Company  Disclosure  Schedule sets forth (a)
with respect to directors and officers of the Company as a group,  the aggregate
amount of all severance and similar benefits,  including enhanced or accelerated
benefits,  to which such officers and directors will become entitled  (including
any  acceleration of vesting or lapse of repurchase  rights or obligations  with
respect  to  any  Company   Stock  Option  Plans  or  other  benefit  under  any
compensation  plan or arrangement of the Company),  and (b) the aggregate amount
of all  severance  and  similar  benefits,  including  enhanced  or  accelerated
benefits,  payable  in cash or stock to which all other  United  States  payroll
employees of the Company and its  Subsidiaries  (the "Company  U.S.  Employees")
will become  entitled,  in each case,  (i) solely as a result of  obtaining  the
Company Stockholder Approval or the transactions contemplated hereby and (ii) if
a "second"  trigger,  including,  but not  limited to, a  termination  for "good
reason"  or  without   "cause,"  is   applicable,   assuming  it  has   occurred
(collectively,  (i) and (ii) are hereinafter defined as the "Benefit Triggers").
With regard to  employees  of the Company  and its  Subsidiaries  other than the
Company U.S. Employees (the "Company Non-U.S.  Employees"),  there are severance
pay plans (some legally mandated and others Company  designed) in many countries
around the world which provide  severance  payments in the event of termination.
To the knowledge of the Company,  there are no severance agreements with respect
to the Company Non-U.S. Employees which provide enhanced severance on account of
a change in control  which would be triggered by the  transactions  contemplated
hereby. The Company Disclosure Schedule sets forth the aggregate amounts for the
Retirement  Plan which will become vested upon a Change of Control.  This amount
is based on the 1999 Actuarial Reports. In addition,  the comparable amounts for
Supplement #1 and Supplement #3, calculated as of July 2000, are also disclosed.
To the Company's  knowledge,  there are no other  retirement plans which require
accelerated vesting solely due to the transactions contemplated hereunder.

         (f) Except as reflected in the Company Commission Documents filed prior
to the date hereof, no Company Benefit Plan provides  post-retirement health and
medical,  life or other insurance  benefits for retired employees of the Company
or any of its Subsidiaries.

         (g)  There  has  been  no  amendment  to,  written   interpretation  or
announcement  (whether or not written) by the Company or any of its Subsidiaries
relating to, or change in, employee participation or coverage under, any Company
Benefit Plan (other than a Foreign  Company  Benefit Plan) which would  increase
materially the expense of maintaining  such



                                      -19-
<PAGE>

Company Benefit Plan above the level of the expense  incurred in respect thereof
for the 12 months ended on the Company Balance Sheet Date.

         (h) The Company and its  Subsidiaries are in compliance in all material
respects with all applicable  material federal,  state and local laws, rules and
regulations  respecting  employment,  employment  practices,  labor,  terms  and
conditions  of  employment  and wages and hours,  including all civil rights and
anti-discrimination     laws,     rules    and    regulations     (collectively,
"Anti-Discrimination  Laws"), and no material work stoppage or slowdown or labor
strike against the Company or any of its  Subsidiaries is pending or threatened,
nor is the Company or any of its  Subsidiaries  involved in or  threatened  with
labor disputes,  grievances, or litigation relating to labor matters,  including
with respect to  Anti-Discrimination  Laws, involving classes or alleged classes
of persons.

         SECTION 3.15 Compliance  with Laws.
                      ---------------------
     Neither the Company nor any of its  Subsidiaries is in violation of, or has
since January 1, 1998 violated, any applicable provisions of any laws, statutes,
ordinances or regulations except for any violations that, individually or in the
aggregate,  would not have, or be reasonably  likely to have, a Material Adverse
Effect on the Company.

         SECTION 3.16 Finders' or Advisors' Fees.
                      --------------------------
     Except for Credit Suisse First Boston  Corporation and Morgan Stanley & Co.
Incorporated,  copies  of whose  engagement  agreements  have been  provided  to
Parent,  there is no investment  banker,  broker,  finder or other  intermediary
which has been  retained by or is  authorized to act on behalf of the Company or
any of its  Subsidiaries  who  might be  entitled  to any fee or  commission  in
connection with the transactions contemplated by this Agreement.

         SECTION 3.17  Environmental Matters.
                       ---------------------

         (a) Except as set forth in the Company Commission Documents filed prior
to  the  date  hereof  and  with  such  exceptions  as,  individually  or in the
aggregate,  would not have, or be reasonably  likely to have, a Material Adverse
Effect  on the  Company,  (i)  no  notice,  notification,  demand,  request  for
information,  citation, summons, complaint or order has been received by, and no
investigation,  action,  claim, suit, proceeding or review is pending or, to the
knowledge of the Company or any of its  Subsidiaries,  threatened  by any Person
against,  the  Company  or any of its  Subsidiaries,  and no  penalty  has  been
assessed  against the  Company or any of its  Subsidiaries,  in each case,  with
respect to any matters relating to or arising out of any Environmental Law; (ii)
the  Company  and its  Subsidiaries  are and have  been in  compliance  with all
Environmental Laws; (iii) there are no liabilities of or relating to the Company
or any of its Subsidiaries  relating to or arising out of any  Environmental Law
of any kind  whatsoever,  whether  accrued,  contingent,  absolute,  determined,
determinable or otherwise, and there is no existing condition,  situation or set
of  circumstances  which  could  reasonably  be  expected  to  result  in such a
liability; and (iv) there has been no environmental investigation, study, audit,
test,  review or other analysis  conducted of which the Company has knowledge in
relation  to  any  current  or  prior  business  of  the  Company  or any of its
Subsidiaries  or any property or facility  now or  previously  owned,  leased or
operated by the Company or any of its Subsidiaries  which has not been delivered
to



                                      -20-
<PAGE>

Parent prior to the date hereof.

         (b) For  purposes  of this  Section  3.17 and  Section  4.17,  the term
"Environmental  Laws" means federal,  state,  local and foreign  statutes,  laws
(including,  without limitation,  common law), judicial decisions,  regulations,
ordinances, rules, judgments, orders, codes, injunctions,  permits, governmental
agreements or governmental restrictions relating to human health and safety, the
environment or to pollutants, contaminants, wastes, or chemicals.

         SECTION 3.18 Opinion of Financial Advisor.
                      ----------------------------
     The  Company  has  received  the  opinion  of Credit  Suisse  First  Boston
Corporation  to the effect that,  as of the date of such  opinion,  the Exchange
Ratio is fair from a financial point of view to the holders of shares of Company
Common Stock, and as of the date hereof such opinion has not been withdrawn.

         SECTION 3.19 Pooling; Tax Treatment.
                      -----------------------

         (a) The  Company  intends  that the Merger be  accounted  for under the
"pooling of interests" method under the requirements of Opinion No. 16 (Business
Combinations) of the Accounting  Principles  Board of the American  Institute of
Certified Public Accountants,  the Financial Accounting Standards Board, and the
rules and regulations of the Commission.

         (b) Neither the Company nor any of its  affiliates  has taken or agreed
to take any action or is aware of any fact or  circumstance  with respect to the
Company  that would  prevent  the Merger  from  qualifying  (i) for  "pooling of
interests"  accounting  treatment  as  described  in  (a)  above  or  (ii)  as a
reorganization   within  the  meaning  of  Section  368  of  the  Code  (a  "368
Reorganization").

         (c) Immediately after the execution of this Agreement, the Company will
terminate  all stock  repurchase  programs  (provided  that the Company shall be
permitted to effect the redemption contemplated by Section 5.3).

         SECTION  3.20  Pooling  Letter.
                        ---------------
     The Company has  received a letter  from  Arthur  Andersen  LLP dated as of
October  15,  2000  and  addressed  to the  Company,  a copy of  which  has been
delivered to Parent,  stating that Arthur  Andersen LLP concurs with the Company
management's conclusion that, as of October 15, 2000, the Company is eligible to
participate  in a transaction  accounted  for as a "pooling of interests"  under
Opinion 16 (Business  Combination)  of the  Accounting  Principles  Board of the
American Institute of Certified Public Accountants and the rules and regulations
of the Commission.

         SECTION 3.21 Takeover  Statutes.
                      ------------------
     The Board of  Directors  of the Company has taken the  necessary  action to
render  section  203 of the  Delaware  Law,  any  other  potentially  applicable
antitakeover  or similar  statute or  regulation  and the  supermajority  voting
provisions of Article XIII of the Company's  certificate  of  incorporation  and
Article VII of the  Company's  by-laws  inapplicable  to this  Agreement and the
Company Option Agreement and the transactions contemplated hereby and thereby.



                                      -21-
<PAGE>

         SECTION 3.22  Stockholder  Rights  Plan.
                       -------------------------
     The Board of  Directors  of the  Company has  resolved  to, and the Company
promptly after execution of this Agreement  will,  take all action  necessary to
render the rights issued  pursuant to the terms of the Company Rights  Agreement
inapplicable to the Merger, this Agreement, the Company Option Agreement and the
other transactions contemplated hereby and thereby.

         SECTION 3.23 Joint  Ventures.
                      ---------------
     To the  knowledge  of  the  Company,  the  audited  consolidated  financial
statements of each of Equilon  Enterprises  LLC and Motiva  Enterprises LLC (the
"Joint  Ventures")  for the  years  ended  and at  December  31,  1999  and 1998
(including  the notes  thereto)  previously  furnished  by the Company to Parent
present fairly, in all material respects, the consolidated financial position of
the  applicable  Joint  Venture  as of the dates  thereof  and the  consolidated
results of operations  and their cash flows for the periods then ended,  in each
case in  conformity  with GAAP applied on a consistent  basis  (except as may be
indicated in the notes thereto). To the knowledge of the Company,  neither Joint
Venture nor any of its  Subsidiaries  is subject to any  liabilities of any kind
whatsoever, whether accrued, contingent,  absolute, determined,  determinable or
otherwise,  other  than:  (a)  liabilities  disclosed  or  provided  for  in the
respective  consolidated  balance  sheets at December 31, 1999 of the applicable
Joint Venture included in the audited consolidated financial statements referred
to above,  (b) liabilities  which,  individually or in the aggregate,  would not
have, or be reasonably likely to have, a Material Adverse Effect on the Company,
and (c) liabilities disclosed in the Company Commission Documents filed prior to
the date of this Agreement.  To the knowledge of the Company, since December 31,
1999,  the Joint  Ventures have  conducted  their  respective  businesses in the
ordinary course.



                                    ARTICLE 4
                                    ---------

               REPRESENTATIONS, WARRANTIES AND COVENANTS OF PARENT
               ---------------------------------------------------

         Parent represents and warrants to the Company that (except as set forth
in the disclosure  schedules  delivered by Parent to the Company  simultaneously
with the execution of this Agreement (the "Parent Disclosure Schedules")):

         SECTION 4.1 Corporate  Existence  and Power.
                     -------------------------------
     Each of Parent and Merger  Subsidiary is a corporation  duly  incorporated,
validly  existing and in good  standing  under the laws of the State of Delaware
and has all  corporate  powers and all  governmental  licenses,  authorizations,
consents  and  approvals  required to carry on its  business  as now  conducted,
except  for  those  the  absence  of which  would  not,  individually  or in the
aggregate,  have, or be reasonably  likely to have, a Material Adverse Effect on
Parent.  Parent is duly qualified to do business as a foreign corporation and is
in good standing in each jurisdiction  where the character of the property owned
or  leased  by it or the  nature  of its  activities  makes  such  qualification
necessary,  except for those  jurisdictions where the failure to be so qualified
would not,  individually or in the aggregate,  have, or be reasonably  likely to
have, a Material Adverse Effect on Parent. Since the



                                      -22-
<PAGE>

date of its  incorporation,  Merger Subsidiary has not engaged in any activities
other than in connection with or as  contemplated by this Agreement.  Parent has
heretofore  delivered to the Company  true and  complete  copies of Parent's and
Merger  Subsidiary's  certificate of  incorporation  and by-laws as currently in
effect.

         SECTION 4.2  Corporate Authorization.
                      -----------------------

         (a) The  execution,  delivery  and  performance  by Parent  and  Merger
Subsidiary of this Agreement,  and by Parent of the Option  Agreements,  and the
consummation by Parent and Merger  Subsidiary of the  transactions  contemplated
hereby  and  thereby  are  within  the  corporate  powers of Parent  and  Merger
Subsidiary  and have been duly  authorized  by all necessary  corporate  action,
except for the required approval of Parent's stockholders of (i) the Name Change
Amendment (the "Name Change Amendment Approval") and (ii) the issuance of Parent
Common Stock (the "Common  Stock  Issuance")  in  accordance  with the rules and
regulations of the NYSE (the "Common Stock Issuance Approval", together with the
Name Change Amendment  Approval,  the "Parent  Stockholder  Approvals")) in each
case, in connection with the Merger. The affirmative vote of holders of at least
a majority of the outstanding shares of Parent Common Stock in favor of the Name
Change  Amendment is the only vote of the holders of any of the Parent's capital
stock  necessary in connection  with  obtaining the Name Change  Amendment.  The
affirmative  vote in favor of the Common  Stock  Issuance  of a majority  of the
votes cast with  respect to the Common  Stock  Issuance by the holders of Parent
Common  Stock  (provided  that the total number of the votes cast in favor of or
against  the  Common  Stock  Issuance  represents  at  least a  majority  of the
outstanding  shares of Parent  Common  Stock) is the only vote of the holders of
any of Parent's  capital stock necessary in connection with obtaining the Common
Stock Issuance Approval.  Assuming due authorization,  execution and delivery of
this  Agreement  and  the  Option  Agreements  by the  Company,  this  Agreement
constitutes  a  valid  and  binding  agreement  of  each of  Parent  and  Merger
Subsidiary and each Option Agreement  constitutes a valid and binding  agreement
of Parent,  in each case  enforceable  against such party in accordance with its
terms, subject to bankruptcy,  insolvency, fraudulent transfer,  reorganization,
moratorium  and similar laws of general  applicability  relating to or affecting
creditors' rights and to general equity principles.  The shares of Parent Common
Stock issued  pursuant to the Merger,  when issued in accordance  with the terms
hereof,  will be duly authorized,  validly issued,  fully paid and nonassessable
and not subject to preemptive rights.

         (b) Parent's  Board of Directors,  at a meeting duly called and held on
or prior to the date hereof,  has (i)  determined  that this  Agreement  and the
Option  Agreements  and  the  transactions   contemplated   hereby  and  thereby
(including  the  Merger)  are  fair to and in the  best  interests  of  Parent's
stockholders  (and,  in the case of the Name  Change  Amendment,  declaring  its
advisability),  (ii) approved this  Agreement and the Option  Agreements and the
transactions  contemplated  hereby  and  thereby  (including  the Merger and the
Common Stock Issuance), and (iii) resolved (subject to Section 6.4) to recommend
approval  by  Parent's  stockholders  of the  matters  constituting  the  Parent
Stockholder Approvals.

         SECTION 4.3  Governmental  Authorization.
                      ---------------------------
     The execution,  delivery and performance by Parent and Merger Subsidiary of
this Agreement, and by Parent of the Option Agreements,



                                      -23-
<PAGE>

and the  consummation  by  Parent  and  Merger  Subsidiary  of the  transactions
contemplated hereby and thereby require no action by or in respect of, or filing
with, any governmental  body,  agency,  official or authority other than (a) the
filing of a  certificate  of merger and a  certificate  of amendment to Parent's
certificate of incorporation,  in each case in accordance with Delaware Law, (b)
compliance with any applicable  requirements of the HSR Act, (c) compliance with
any applicable requirements of the EC Merger Regulation, (d) compliance with any
applicable  requirements  of  laws,  rules  and  regulations  in  other  foreign
jurisdictions governing antitrust or merger control matters, (e) compliance with
any  applicable  requirements  of the  Exchange  Act,  (f)  compliance  with any
applicable  requirements  of the Securities Act and (g) other actions or filings
which if not taken or made would not, individually or in the aggregate, have, or
be reasonably  likely to have, a Material Adverse Effect on Parent or prevent or
materially delay Parent's and Merger Subsidiary's consummation of the Merger.

         SECTION 4.4 Non-Contravention.
                     -----------------
     The execution,  delivery and performance by Parent and Merger Subsidiary of
this Agreement, and by Parent of the Option Agreements,  and the consummation by
Parent and Merger Subsidiary of the transactions contemplated hereby and thereby
do not and will  not,  assuming  compliance  with  the  matters  referred  to in
Sections  4.2 and 4.3,  (a)  contravene  or  conflict  with the  certificate  of
incorporation  or  by-laws of Parent or Merger  Subsidiary,  (b)  contravene  or
conflict with or constitute a violation of any provision of any law, regulation,
judgment,  injunction,  order or decree  binding upon or applicable to Parent or
any of its  Subsidiaries,  (c)  constitute  a default  under or give rise to any
right of termination, cancellation or acceleration of any right or obligation of
Parent or any of its Subsidiaries or to a loss of any benefit to which Parent or
any of its  Subsidiaries  is  entitled  under any  provision  of any  agreement,
contract or other  instrument  binding upon Parent or any of its Subsidiaries or
any license,  franchise, permit or other similar authorization held by Parent or
any of its  Subsidiaries or (d) result in the creation or imposition of any Lien
on  any  asset  of  Parent  or  any  of  its   Subsidiaries,   except  for  such
contraventions,  conflicts or violations  referred to in clause (b) or defaults,
rights of termination, cancellation or acceleration, or losses or Liens referred
to in clause (c) or (d) that would not, individually or in the aggregate,  have,
or be reasonably  likely to have, a Material  Adverse Effect on Parent.  Neither
Parent nor any  Subsidiary of Parent is a party to any agreement  that expressly
limits  the  ability  of Parent or any  Subsidiary  of Parent to  compete  in or
conduct  any line of business  or compete  with any Person or in any  geographic
area or during any period of time except to the extent that any such limitation,
individually  or in the  aggregate,  would not have, or be reasonably  likely to
have, a Material Adverse Effect on Parent.

         SECTION 4.5  Capitalization.
                      --------------
     The authorized capital stock of Parent consists of 2,000,000,000  shares of
Parent Common Stock, and 100,000,000  shares of preferred stock, par value $1.00
per share (of which 5,000,000 are designated  Series A  Participating  Preferred
Stock,  and the remaining  shares of such preferred stock are not subject to any
designation).  As of the close of business on  September  30,  2000,  there were
outstanding  642,411,517  shares of Parent Common  Stock,  no shares of Series A
Participating  Preferred  Stock  (all of which  are  reserved  for  issuance  in
accordance with the Parent Rights Agreement  pursuant to which Parent has issued
Parent Rights),  and no other shares of capital stock or other voting securities
of Parent.  All  outstanding  shares of capital  stock of Parent  have been duly
authorized  and  validly  issued  and are fully  paid and  nonassessable.  As of
September 30, 2000, there were outstanding (i) options



                                      -24-
<PAGE>

to purchase  11,320,461 shares of Parent Common Stock and (ii) other stock-based
awards  (other  than shares of  restricted  stock or other  equity-based  awards
included in the number of shares of Parent  Common Stock  outstanding  set forth
above) with respect to 1,475,291  shares of Parent Common  Stock.  Except as set
forth in this Section 4.5 and except for changes  since the close of business on
September  30,  2000  resulting  from the  exercise of  employee  stock  options
outstanding  on such date or  options  or other  stock-based  awards  granted or
securities  issued as  permitted  by Section 6.1 and except for the shares to be
issued in connection  with the Merger,  there are  outstanding  (a) no shares of
capital  stock  or  other  voting  securities  of  Parent,  and (b)  except  for
securities  issuable pursuant to compensation  plans or arrangements,  including
options issued  pursuant to Parent stock option plans and  performance  units of
Parent  convertible  into Parent Common Stock and the option granted pursuant to
the Parent Option Agreement, (i) no options, warrants or other rights to acquire
from Parent any capital stock, voting securities or securities  convertible into
or exchangeable  for capital stock or voting  securities of Parent,  and (ii) no
preemptive  or  similar  rights,   subscription  or  other  rights,  convertible
securities, agreements,  arrangements, or commitments of any character, relating
to the capital stock of Parent, obligating Parent to issue, transfer or sell any
capital stock,  voting security or securities  convertible  into or exchangeable
for capital stock or voting  securities of Parent or obligating Parent to grant,
extend or enter into any such  option,  warrant,  subscription  or other  right,
convertible security, agreement, arrangement or commitment (the items in clauses
4.5(a),  4.5(b)  and  4.5(c)  being  referred  to  collectively  as the  "Parent
Securities").  Except as  required  by the  terms of any  employee  or  director
options or other stock based awards and or as permitted by 6.1(e),  there are no
outstanding  obligations  of Parent or any of its  Subsidiaries  to  repurchase,
redeem or otherwise acquire any Parent Securities.

         SECTION 4.6  Subsidiaries.
                      ------------

         (a) Each Subsidiary of Parent is duly organized,  validly  existing and
in good standing under the laws of its  jurisdiction  of  organization,  has all
powers and all  governmental  licenses,  authorizations,  permits,  consents and
approvals  required to carry on its business as now conducted,  except for those
the absence of which would not,  individually  or in the aggregate,  have, or be
reasonably likely to have, a Material Adverse Effect on Parent.  Each Subsidiary
of Parent is duly  qualified  to do  business  and is in good  standing  in each
jurisdiction  where the  character of the property  owned or leased by it or the
nature of its activities makes such qualifications  necessary,  except for those
jurisdictions where failure to be so qualified would not, individually or in the
aggregate,  have, or be reasonably  likely to have, a Material Adverse Effect on
Parent.   All   Significant   Subsidiaries   of  Parent  and  their   respective
jurisdictions  of  incorporation  are identified in Section 4.6(a) of the Parent
Disclosure Schedule.

         (b) Except for directors'  qualifying shares and except as set forth in
the Parent 10-K,  all of the  outstanding  capital stock of, or other  ownership
interests in, each Significant Subsidiary of Parent is owned by Parent, directly
or  indirectly,  free and  clear  of any  material  Lien  and free of any  other
material  limitation or restriction  (including any  restriction on the right to
vote,  sell or  otherwise  dispose  of such  capital  stock or  other  ownership
interests).  There are no  outstanding  (i)  securities  of Parent or any of its
Subsidiaries  convertible  into or  exchangeable  for shares of capital stock or
other voting securities or ownership interests in any Significant



                                      -25-
<PAGE>

Subsidiary of Parent, or (ii) options,  warrants or other rights to acquire from
Parent  or  any  of its  Significant  Subsidiaries  any  capital  stock,  voting
securities or other ownership  interests in, or any securities  convertible into
or exchangeable for any capital stock,  voting securities or ownership interests
in, any Significant  Subsidiary of Parent,  and no preemptive or similar rights,
subscriptions or other rights, convertible securities, agreements,  arrangements
or  commitments  of  any  character,  relating  to  the  capital  stock  of  any
Significant  Subsidiary of Parent,  obligating  Parent or any of its Significant
Subsidiaries to issue, transfer or sell, any capital stock, voting securities or
other ownership interests in, or any securities convertible into or exchangeable
for any  capital  stock,  voting  securities  or  ownership  interests  in,  any
Significant  Subsidiary  of  Parent  or  obligating  Parent  or any  Significant
Subsidiary  of Parent to grant,  extend or enter into any such option,  warrant,
subscription or other right,  convertible  security,  agreement,  arrangement or
commitment  (items  in  clauses  4.6(b)(i)  and  4.6(b)(ii)  being  referred  to
collectively as the "Parent  Subsidiary  Securities").  There are no outstanding
obligations  of  Parent  or any of its  Subsidiaries  to  repurchase,  redeem or
otherwise acquire any outstanding Parent Subsidiary Securities.

         SECTION 4.7  Commission Filings.
                      ------------------

         (a) Parent has made  available to the Company (i) its annual reports on
Form 10-K for its fiscal years ended December 31, 1997,  1998 and 1999, (ii) its
quarterly  reports on Form 10-Q for its fiscal quarters ended after December 31,
1999,  (iii) its proxy or  information  statements  relating to meetings  of, or
actions  taken  without a meeting  by,  the  stockholders  of Parent  held since
December 31, 1999, and (iv) all of its other reports, statements,  schedules and
registration  statements  filed with the Commission since December 31, 1999 (the
documents  referred to in this Section 4.7(a) being referred to  collectively as
the "Parent Commission Documents").  Parent's annual report on Form 10-K for its
fiscal year ended December 31, 1999 is referred to herein as the "Parent 10-K".

         (b) As of its filing date, each Parent Commission  Document complied as
to form  in all  material  respects  with  the  applicable  requirements  of the
Exchange Act and the Securities Act.

         (c) As of its  filing  date,  each  Parent  Commission  Document  filed
pursuant to the Exchange Act did not contain any untrue  statement of a material
fact  or omit to  state  any  material  fact  necessary  in  order  to make  the
statements made therein, in the light of the circumstances under which they were
made, not misleading.

         (d)  Each  registration  statement,  as  amended  or  supplemented,  if
applicable, filed by Parent since January 1, 1997 pursuant to the Securities Act
as of the date such statement or amendment  became effective did not contain any
untrue  statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading.

         SECTION 4.8 Financial  Statements.
                     ---------------------
     The audited consolidated  financial  statements and unaudited  consolidated
interim  financial  statements  of  Parent  (including  any  related  notes  and
schedules) included in the annual reports on Form 10-K and the quarterly reports
on Form  10-Q  referred  to in  Section  4.7  present  fairly,  in all  material
respects,  the consolidated financial position of Parent and its Subsidiaries as
of the dates thereof and the consolidated results of their



                                      -26-
<PAGE>

operations  and their cash flows for the periods  then ended  (subject to normal
year-end  adjustments  and the  absence  of notes  in the case of any  unaudited
interim financial statements), in each case in conformity with GAAP applied on a
consistent basis (except as may be indicated in the notes thereto). For purposes
of this Agreement,  "Parent Balance Sheet" means the consolidated  balance sheet
of Parent as of  December  31,  1999 set forth in the  Parent  10-K and  "Parent
Balance Sheet Date" means December 31, 1999.

         SECTION 4.9  Disclosure Documents.
                      --------------------

         (a) The proxy statement of Parent (the "Parent Proxy  Statement") to be
filed with the  Commission  in connection  with the Merger and the  Registration
Statement  on Form  S-4 of  Parent  (the  "Form  S-4")  to be  filed  under  the
Securities  Act relating to the  issuance of Parent  Common Stock in the Merger,
and any amendments or supplements thereto, will, when filed, subject to the last
sentence of Section 4.9(b),  comply as to form in all material respects with the
applicable requirements of the Securities Act and the Exchange Act.

         (b) Neither the Parent Proxy  Statement nor any amendment or supplement
thereto,  will, at the date the Parent Proxy  Statement or any such amendment or
supplement  is first  mailed  to  stockholders  of  Parent  or at the time  such
stockholders vote on the matters  constituting the Parent Stockholder  Approval,
contain any untrue  statement  of a material  fact or omit to state any material
fact  necessary  in  order  to make  the  statements  therein,  in  light of the
circumstances  under which they were made, not misleading.  Neither the Form S-4
nor any  amendment or supplement  thereto will at the time it becomes  effective
under the Securities  Act or at the Effective Time contain any untrue  statement
of a  material  fact or omit to state a  material  fact  required  to be  stated
therein  or  necessary  to  make  the  statements  therein  not  misleading.  No
representation or warranty is made by Parent in this Section 4.9 with respect to
statements  made or  incorporated  by  reference  therein  based on  information
supplied by the Company for  inclusion  or  incorporation  by  reference  in the
Parent Proxy Statement or the Form S-4.

         (c) None of the  information  supplied  or to be supplied by Parent for
inclusion or  incorporation  by reference in the Company Proxy  Statement or any
amendment or supplement thereto will, at the date the Company Proxy Statement or
any amendment or supplement  thereto is first mailed to  stockholders of Company
or at the time such  stockholders  vote on the  adoption  and  approval  of this
Agreement and the transactions contemplated hereby, contain any untrue statement
of a material fact or omit to state any material fact necessary in order to make
the  statements  therein,  in light of the  circumstances  under which they were
made, not misleading.

         SECTION  4.10  Absence of Certain  Changes.
                        ---------------------------
     Except as disclosed in the Parent  Commission  Documents filed prior to the
date of this Agreement,  or except as is not prohibited after the date hereof by
Section 6.1 (or as is  otherwise  permitted  by Section  6.1),  since the Parent
Balance Sheet Date, Parent and its Subsidiaries have conducted their business in
the ordinary course consistent with past practice and there has not been:

         (a) any event, occurrence or development of a state of circumstances or
facts which,  individually or in the aggregate,  has had, or would be reasonably
likely to have, a Material Adverse Effect on Parent; or



                                      -27-
<PAGE>

         (b) any declaration,  setting aside or payment of any dividend or other
distribution  with respect to any shares of capital  stock of Parent (other than
regular  quarterly  cash dividends  payable by Parent (x)  consistent  with past
practice (including  periodic dividend increases  consistent with past practice)
and (y) that are not special dividends), or any repurchase,  redemption or other
acquisition by Parent or any of its wholly owned Subsidiaries of any outstanding
shares of  capital  stock or other  equity  securities  of,  or other  ownership
interests in, Parent or any of its Significant Subsidiaries (other than any such
repurchases  prior to the date hereof  pursuant to Parent's  publicly  announced
stock  buyback  program or, after the date hereof,  as permitted  under  Section
6.1(e), or pursuant to the terms of employee and director stock options); or

         (c) any change prior to the date hereof in any method of  accounting or
accounting practice (other than any change for tax purposes) by Parent or any of
its  Subsidiaries,  except for any such change which is not material or which is
required by reason of a concurrent change in GAAP; or

         (d) any transaction or commitment  made, or any contract,  agreement or
settlement  entered into, by (or judgment,  order or decree affecting) Parent or
any of its  Subsidiaries  relating  to its  assets or  business  (including  the
acquisition or disposition of any assets) or any relinquishment by Parent or any
of its Subsidiaries of any contract or other right, in either case,  material to
Parent  and  its  Subsidiaries  taken  as  a  whole,  other  than  transactions,
commitments,  contracts, agreements or settlements (including without limitation
settlements  of  litigation  and tax  proceedings)  in the  ordinary  course  of
business consistent with past practice, those contemplated by this Agreement, or
as agreed to in writing by the Company;

         (e) any amendment of any material term of any outstanding security of
Parent or any of its Significant Subsidiaries; or

         (f) any (i) Tax election made or changed,  (ii) audit settled, or (iii)
amended Tax return filed, in each case, that is reasonably likely to result in a
Tax liability material to Parent and its Subsidiaries, taken as a whole.

         SECTION  4.11  No  Undisclosed  Material  Liabilities.
                        --------------------------------------
     There are no  liabilities  of the Parent or any Subsidiary of the Parent of
any  kind  whatsoever,   whether  accrued,  contingent,   absolute,  determined,
determinable or otherwise, other than:

         (a)      liabilities disclosed or provided for in the Parent Balance
                  Sheet or in the notes thereto;

         (b)      liabilities which, individually or in the aggregate, would not
                  have, or be reasonably likely to have, a Material Adverse
                  Effect on Parent;

         (c)      liabilities disclosed in the Parent Commission Documents filed
                  prior to the date of this Agreement; and

         (d)      liabilities under this Agreement.



                                      -28-
<PAGE>

         SECTION 4.12 Litigation.
                      ----------
     Except as disclosed in the Parent  Commission  Documents filed prior to the
date of this Agreement,  there is no action,  suit,  investigation or proceeding
pending against,  or to the knowledge of Parent threatened against or affecting,
Parent or any of its Subsidiaries or any of their  respective  properties or any
of their respective  officers or directors before any court or arbitrator or any
governmental  body,  agency or official except as would not,  individually or in
the aggregate,  have, or be reasonably likely to have, a Material Adverse Effect
on Parent.

         SECTION  4.13 Taxes.
                       -----
     Except  as set  forth in the  Parent  Balance  Sheet  (including  the notes
thereto) and except as would not, individually or in the aggregate,  have, or be
reasonably  likely to have, a Material Adverse Effect on Parent,  (i) all Parent
Tax Returns  required to be filed with any taxing  authority by, or with respect
to,  Parent  and its  Subsidiaries  have  been  filed  in  accordance  with  all
applicable  laws;  (ii) Parent and its  Subsidiaries  have timely paid all Taxes
shown as due and payable on Parent Tax Returns that have been so filed,  and, as
of the time of filing,  the Parent Tax  Returns  correctly  reflected  the facts
regarding the income, business, assets, operations, activities and the status of
Parent and its Subsidiaries  (other than Taxes which are being contested in good
faith and for which  adequate  reserves  are  reflected  on the  Parent  Balance
Sheet);  (iii) Parent and its  Subsidiaries  have made  provision  for all Taxes
payable  by Parent and its  Subsidiaries  for which no Parent Tax Return has yet
been filed;  (iv) the  charges,  accruals and reserves for Taxes with respect to
Parent and its  Subsidiaries  reflected on the Parent Balance Sheet are adequate
under GAAP to cover the Tax liabilities  accruing through the date thereof;  (v)
there is no action,  suit,  proceeding,  audit or claim now  proposed or pending
against or with respect to Parent or any of its  Subsidiaries  in respect of any
Tax where there is a reasonable  possibility  of an adverse  determination;  and
(vi) to the best of Parent's knowledge and belief, neither Parent nor any of its
Subsidiaries is liable for any Tax imposed on any entity other than such Person,
except as the result of the application of Treas. Reg. section 1.1502-6 (and any
comparable   provision  of  the  tax  laws  of  any  state,   local  or  foreign
jurisdiction) to the affiliated group of which Parent is the common parent.


         SECTION 4.14 Employee Benefit Plans.
                      ----------------------

         (a) Parent has  provided  the Company with a list (set forth in Section
4.14(c) of the Parent  Disclosure)  identifying each material  "employee benefit
plan,"  as  defined  in  section  3(3)  of  ERISA,  each  material   management,
consulting,  non-compete,  employment,  severance  or  similar  contract,  plan,
arrangement or policy applicable to any director,  former director,  employee or
former employee of Parent and each material plan, program,  policy, agreement or
arrangement   (written   or  oral),   providing   for   compensation,   bonuses,
profit-sharing,  stock  option or other stock  related  rights or other forms of
incentive  or  deferred  compensation,  vacation  benefits,  insurance  coverage
(including  any  self-insured   arrangements),   health  or  medical   benefits,
disability benefits, workers' compensation,  supplemental unemployment benefits,
severance  benefits  and   post-employment  or  retirement  benefits  (including
compensation,  pension,  health,  medical or life  insurance  benefits) or other
employee  benefits of any kind,  whether funded or unfunded which is maintained,
administered  or  contributed  to by Parent or any  Subsidiary  and  covers  any
employee or director  or former  employee or director of Parent,  or under which
Parent or any Subsidiary has any  liability,  contingent or otherwise;  provided



                                      -29-
<PAGE>

however,  that  such  list  need  not  include  any  Parent  Benefit  Plan  that
constitutes  a Foreign  Parent  Benefit  Plan (as defined  below).  The material
plans,  agreement or arrangements of the Parent and its Subsidiaries referred to
in the first  sentence of this  paragraph (a) (excluding any such plan that is a
"multiemployer  plan," as  defined  in  section  3(37) of ERISA,  but  including
Foreign Parent Benefit Plans) are referred to collectively herein as the "Parent
Benefit  Plans."  "Foreign Parent Benefit Plan" means any Parent Benefit Plan of
Parent  or any  of  its  Subsidiaries  that  is  governed  by  the  laws  of any
jurisdiction  other than the United States.  To the extent  practicable,  Parent
shall provide and deliver to the Company a list of Foreign  Parent Benefit Plans
as soon as practicable.

         (b) Each Parent  Benefit Plan has been  established  and  maintained in
compliance  with its terms and with the  requirements  prescribed by any and all
statutes,  orders,  rules and regulations  (including but not limited to, to the
extent applicable, ERISA and the Code) which are applicable to such Plan, except
where failure to so comply would not, individually or in the aggregate, have, or
be reasonably likely to have, a Material Adverse Effect on Parent.

         (c) Neither Parent nor any affiliate of Parent has incurred a liability
under Title IV of ERISA that has not been  satisfied  in full,  and no condition
exists that  presents a material  risk to Parent or any  affiliate  of Parent of
incurring any such  liability  other than liability for premiums due the Pension
Benefit Guaranty Corporation (which premiums have been paid when due).

         (d) Each Parent  Benefit Plan which is intended to be  qualified  under
section 401(a) of the Code is so qualified and has been so qualified  during the
period  from its  adoption  to date,  and each trust  forming a part  thereof is
exempt from federal  income tax  pursuant to section  501(a) of the Code and, to
the knowledge of Parent, no circumstances exist which will adversely affect such
qualification or exemption.

         (e) No  director,  officer  or other  employee  of Parent  will  become
entitled to any severance or similar benefit or enhanced or accelerated  benefit
solely as a result of obtaining the Parent Stockholder  Approval or otherwise as
a result of the transactions contemplated hereby.

         (f) Except as reflected in the Parent Commission  Documents filed prior
to the date hereof, no Parent Benefit Plan provides  post-retirement  health and
medical, life or other insurance benefits for retired employees of Parent or any
of its Subsidiaries.

         (g)  There  has  been  no  amendment  to,  written   interpretation  or
announcement  (whether or not written) by Parent,  any  Subsidiary or any of its
affiliates  relating to, or change in employee  participation or coverage under,
any Parent  Benefit Plan (other than a Foreign  Parent Benefit Plan) which would
increase  materially the expense of  maintaining  such Parent Benefit Plan above
the level of the expense  incurred in respect thereof for the 12 months ended on
the Parent Balance Sheet Date.

         (h) Parent  and its  Subsidiaries  are in  compliance  in all  material
respects with all applicable  material federal,  state and local laws, rules and
regulations  respecting  employment,  employment  practices,  labor,  terms  and
conditions  of  employment  and wages and hours,  including  Anti-Discrimination
Laws,  and no material work stoppage or slowdown or labor strike



                                      -30-
<PAGE>

against  Parent or any of its  Subsidiaries  is  pending or  threatened,  nor is
Parent or any of its Subsidiaries involved in or threatened with labor disputes,
grievances or  litigation  relating to labor  matters  involving any  employees,
including with respect to Anti-Discrimination Laws, involving classes or alleged
classes of persons.

         SECTION  4.15  Compliance  with  Laws.
                        ----------------------
     Neither Parent nor any of its Subsidiaries is in violation of, or has since
January 1, 1998  violated,  any  applicable  provisions  of any laws,  statutes,
ordinances or regulations except for any violations that, individually or in the
aggregate,  would not have, or be reasonably  likely to have, a Material Adverse
Effect on Parent.

         SECTION 4.16  Finders' or Advisors'  Fees.
                       ---------------------------
     Except for Lehman Brothers Inc.,  whose fees will be paid by Parent,  there
is no investment  banker,  broker,  finder or other  intermediary which has been
retained  by or is  authorized  to  act  on  behalf  of  Parent  or  any  of its
Subsidiaries  who might be entitled to any fee or commission in connection  with
the transactions contemplated by this Agreement.

         SECTION 4.17 Environmental  Matters.
                      ----------------------

     Except as set forth in the Parent  Commission  Documents filed prior to the
date hereof and with such exceptions as, individually or in the aggregate, would
not have, or be reasonably  likely to have, a Material Adverse Effect on Parent,
(i) no notice, notification, demand, request for information, citation, summons,
complaint or order has been received by, and no  investigation,  action,  claim,
suit,  proceeding  or review is pending or, to the knowledge of Parent or any of
its  Subsidiaries,  threatened  by  any  Person  against,  Parent  or any of its
Subsidiaries,  and no penalty  has been  assessed  against  Parent or any of its
Subsidiaries,  in each case, with respect to any matters  relating to or arising
out of any Environmental Law; (ii) Parent and its Subsidiaries are and have been
in compliance with all Environmental  Laws; (iii) there are no liabilities of or
relating to Parent or any of its Subsidiaries  relating to or arising out of any
Environmental Law of any kind whatsoever, whether accrued, contingent, absolute,
determined,  determinable  or  otherwise,  and there is no  existing  condition,
situation or set of  circumstances  which could reasonably be expected to result
in such a  liability;  and (iv) there has been no  environmental  investigation,
study,  audit,  test,  review or other  analysis  conducted  of which Parent has
knowledge  in relation to any current or prior  business of Parent or any of its
Subsidiaries  or any property or facility  now or  previously  owned,  leased or
operated by Parent or any of its  Subsidiaries  which has not been  delivered to
the Company prior to the date hereof.

         SECTION  4.18  Opinion of  Financial  Advisor.
                        ------------------------------
     Parent has received the opinion of Lehman Brothers Inc. to the effect that,
as of the date of such opinion,  the exchange  ratio to be paid by Parent in the
Merger is fair, from a financial  point of view, to Parent,  and, as of the date
hereof, such opinion has not been withdrawn.

         SECTION 4.19 Pooling; Tax Treatment.
                      ----------------------

         (a)  Parent intends that the Merger be accounted for as a "pooling of
interests" as described in Section 3.19(a).

         (b)  Neither  Parent nor any of its  affiliates  has taken or agreed to
take any action or is



                                      -31-
<PAGE>

aware of any fact or circumstance  that would prevent the Merger from qualifying
(i) for  "pooling of  interests"  accounting  treatment  as described in Section
3.19(a) or (ii) as a 368 Reorganization.

         (c) Immediately after execution of this Agreement, Parent will
terminate all stock repurchase programs.

         SECTION  4.20  Pooling  Letter.
                        ---------------

     Parent has  received a letter from  PricewaterhouseCoopers  LLP dated as of
October 15, 2000 and addressed to Parent,  a copy of which has been delivered to
the   Company,   stating   that   based   on  the   information   furnished   to
PricewaterhouseCoopers LLP in the related certificate of Parent's management and
based on the letter  from  Arthur  Andersen  LLP  referenced  in  Section  3.20,
PricewaterhouseCoopers  LLP concurs with Parent management's conclusion that, as
of October 15, 2000, no conditions exist that would preclude Parent's accounting
for the Merger as a pooling of interests, and such letter has not been withdrawn
or modified in any material respect as of the date hereof.

         SECTION 4.21  Takeover  Statutes.
                       ------------------

     The Board of  Directors  of Parent  has (i) taken the  necessary  action to
render  section 203 of the  Delaware  Law and any other  potentially  applicable
antitakeover or similar statute or regulation inapplicable to this Agreement and
the Parent Option Agreement and the transactions contemplated hereby and thereby
and (ii) has  resolved to, and promptly  after the  execution of this  Agreement
will, take the necessary action to render the supermajority voting provisions of
Article  VII of  Parent's  Certificate  of  Incorporation  inapplicable  to this
Agreement and the Parent  Option  Agreement  and the  transactions  contemplated
hereby and thereby.

         SECTION 4.22 Stockholder  Rights Plan.
                      ------------------------

     The Board of Directors of Parent has resolved to, and Parent promptly after
execution of this Agreement will, take all action necessary to render the rights
issued pursuant to the terms of the Parent Rights Agreement  inapplicable to the
Merger,  this Agreement,  the Parent Option Agreement and the other transactions
contemplated hereby and thereby.

                                    ARTICLE 5
                                    ---------
                            COVENANTS OF THE COMPANY
                            ------------------------

         The Company agrees that:

         SECTION 5.1  Conduct of the  Company.
                      -----------------------
     From the date of this Agreement  until the Effective  Time, the Company and
its Subsidiaries  shall conduct their business in the ordinary course consistent
with past practice and in a manner not  representing  a new strategic  direction
for the Company and its Subsidiaries and shall use their reasonable best efforts
to preserve intact their business  organizations  and  relationships  with third
parties. Without limiting the generality of the foregoing, except with the prior
written  consent of Parent or as  contemplated by this Agreement or as set forth
in the Company  Disclosure  Schedule,  from the date hereof until the  Effective
Time:

                                      -32-
<PAGE>

         (a) the Company  will not,  and will not permit any of its  Significant
Subsidiaries to, adopt or propose any change in its certificate of incorporation
or by-laws,  except that any  Significant  Subsidiary  may make any changes that
would not adversely affect the rights of the Company, Parent or its stockholders
under this Agreement,  the transactions  contemplated by this Agreement,  or the
rights of holders of Company Common Stock;

         (b)  the  Company  will  not,  and  will  not  permit  any  Significant
Subsidiary  of the Company to,  adopt a plan or agreement of complete or partial
liquidation, dissolution, merger, consolidation, restructuring, recapitalization
or  other  material  reorganization  of the  Company  or any of its  Significant
Subsidiaries  (other than a merger or  consolidation  between  its wholly  owned
Subsidiaries, and immaterial recapitalizations of Significant Subsidiaries);

         (c) the Company  will not,  and will not permit any  Subsidiary  of the
Company to, issue, sell, transfer, pledge, dispose of or encumber any shares of,
or securities convertible into or exchangeable for, or options, warrants, calls,
commitments or rights of any kind to acquire, any shares of capital stock of any
class or series of the  Company or its  Subsidiaries  other  than (i)  issuances
pursuant  to the  exercise of  convertible  securities  outstanding  on the date
hereof  or  issuances  pursuant  to  stock  based  awards  or  options  that are
outstanding  on the date hereof and are  reflected in Section 3.5 or are granted
in accordance with clause  5.1(c)(ii),  (ii)  additional  options or stock-based
awards to acquire  shares of Company Common Stock granted under the terms of any
Company Stock Option Plan as in effect on the date hereof in the ordinary course
consistent   with  past  practice,   (iii)   issuances  of  such  securities  as
consideration  in  acquisition  transactions  permitted  by  Section  5.1(i) and
Section 5.1(l),  provided that the aggregate value of all such securities issued
pursuant  to this  clause  5.1(c)(iii)  in any period of any twelve  consecutive
months  following  the date of this  Agreement  shall in no  event  exceed  $100
million,  and that the value of any  securities  issued in  connection  with any
acquisition  transaction  or  a  series  of  related  acquisition   transactions
permitted  by Section  5.1(i) and Section  5.1(l)  shall in no event  exceed $25
million (valued, in each case, at the fair market value of such securities as of
the date of the agreement to issue such securities) and such securities shall be
issued  only to the extent  consistent  with  Section  7.4,  (iv)  transfers  or
issuances  of shares of any  Subsidiary  of the Company to the Company or any of
its  wholly-owned  Subsidiaries,  and (v)  where  required  by  applicable  law,
issuances of director  qualifying shares in jurisdictions  other than the United
States;

         (d) the Company  will not,  and will not permit any  Subsidiary  of the
Company to, (i) split,  combine,  subdivide or reclassify its outstanding shares
of  capital  stock,  or (ii)  declare,  set aside or pay any  dividend  or other
distribution  payable in cash,  stock or  property  with  respect to its capital
stock other than,  subject to Section 7.9, (x) regular  quarterly cash dividends
payable by the Company,  or regular  periodic cash or other  required  dividends
payable by any Subsidiary of the Company,  in each case (1) consistent with past
practice (including  periodic dividend increases  consistent with past practice)
and (2) that are not special dividends,  unless, in either case,  required to be
paid under an applicable  agreement in effect as of the date of this  Agreement,
(y)  any  required  dividends  on the  Market  Auction  Preferred  Stock  or (z)
dividends  paid by any  Subsidiary  of the  Company to the Company or any wholly
owned Subsidiary of the Company;



                                      -33-
<PAGE>

         (e) the Company  will not,  and will not permit any  Subsidiary  of the
Company to, redeem,  purchase or otherwise acquire directly or indirectly any of
the  Company's  or any  Subsidiary's  capital  stock,  except  for  repurchases,
redemptions  or  acquisitions  (x) required by the terms of its capital stock or
any securities outstanding on the date hereof or required under Section 5.3, (y)
required by or in connection  with the respective  terms, as of the date hereof,
of any Company Stock Option Plan or any dividend  reinvestment plan as in effect
on the date  hereof  in the  ordinary  course  of the  operations  of such  plan
consistent with past practice and only to the extent consistent with Section 7.4
or (z) effected in the ordinary course consistent with past practice and only to
the extent consistent with Section 7.4;

         (f) the Company will not amend the terms  (including the terms relating
to accelerating the vesting or lapse of repurchase rights or obligations) of any
outstanding  options to purchase  shares of Company  Common Stock (which,  it is
understood,  will  not  limit  the  administration  of  the  relevant  plans  in
accordance  with past practices and  interpretations  of the Company's Board and
the Company's Compensation Committee to the extent consistent with Section 7.4);

         (g) the Company  will not,  and will not permit any  Subsidiary  of the
Company  to, (x) make or commit to make any capital  expenditure  in 2000 except
within  the  aggregate  amount  of  the  capital  expenditure  budget  for  2000
heretofore furnished to Parent (the "Company 2000 Capital Expenditure  Budget"),
(y) make or commit  to make any  capital  expenditure  in 2001  except  within a
Company 2001 Permitted Capital  Expenditure Budget or (z) make or commit to make
any capital  expenditure in 2002 except within a Company 2002 Permitted  Capital
Expenditure  Budget. A "Company 2001 Permitted Capital Expenditure Budget" means
any capital  expenditure  budget of the Company for 2001 adopted by the board of
directors  of the  Company in the  ordinary  course of  business  so long as the
aggregate amount of capital  expenditures for 2001 provided for therein does not
exceed 120% of the aggregate amount of capital expenditures  provided for in the
Company  2000  Capital  Expenditure  Budget.  "Company  2002  Permitted  Capital
Expenditure Budget" means any capital expenditure budget of the Company for 2002
adopted  by the board of  directors  of the  Company in the  ordinary  course of
business  so long as the  aggregate  amount  of  capital  expenditures  for 2002
provided  for therein  does not exceed 120% of the  aggregate  amount of capital
expenditures provided for in the Company 2001 Capital Expenditure Budget;

         (h) the Company  will not,  and will not permit any  Subsidiary  of the
Company to, (1) increase the  compensation or benefits of any director,  officer
or employee,  except for normal  increases  in the  ordinary  course of business
consistent  with  past  practice  or as  required  under  applicable  law or any
existing agreement or commitment, or (2) enter into (or adopt) any employment or
severance  agreement or arrangement  except, with respect to individual non-U.S.
payroll  employees,  in the  ordinary  course of business  consistent  with past
practice or as required by applicable law;

         (i) the Company will not,  and will not permit any of its  Subsidiaries
to, acquire a material amount of assets or property (as measured with respect to
the consolidated assets of the Company and its Subsidiaries taken as a whole) of
any other Person, except in the ordinary



                                      -34-
<PAGE>

course of business consistent with past practice;

         (j) except as contemplated by Section 7.1 hereof, the Company will not,
and will not permit any of its Subsidiaries to, sell, lease,  license,  encumber
(including  by the grant of any  option  thereon)  or  otherwise  dispose of any
material assets or property (as measured with respect to the consolidated assets
of the  Company  and its  Subsidiaries  taken as a  whole)  except  pursuant  to
existing  contracts or commitments or except in the ordinary  course of business
consistent with past practice;

         (k)  except  for any  such  change  which is not  material  or which is
required by reason of a  concurrent  change in GAAP,  the Company  will not, and
will not  permit  any  Subsidiary  of the  Company  to,  change  any  method  of
accounting or accounting  practice (other than any change for tax purposes) used
by it;

         (l) the Company  will not,  and will not permit any  Subsidiary  of the
Company to, enter into any material joint venture,  partnership or other similar
arrangement  except  in the  ordinary  course of  business,  and so long as such
arrangements  do not obligate the Company or any  Subsidiary to invest assets or
resources,  or to assume or incur a liability or loss, in excess of $250 million
with  respect to any  individual  mid-stream  or  downstream  (including  power)
arrangement  or  $500  million,   with  respect  to  any   individual   upstream
arrangement. The terms "downstream",  "mid-stream" and "upstream" shall have the
meanings commonly assigned to them in the oil and gas industry.

         (m) the Company will not,  and will not permit any of its  Subsidiaries
to,  take any action  that  would make any  representation  or  warranty  of the
Company hereunder inaccurate in any material respect at, or as of any time prior
to, the Effective Time;

         (n) the Company will not amend or waive any provisions of any
standstill agreement;

         (o) the  Company  will not (i) make or change  any Tax  election,  (ii)
settle any audit or (iii) file any  amended Tax  Return,  in each case,  that is
reasonably  likely to result in a Tax liability  material to the Company and its
Subsidiaries, taken as a whole;

         (p) the Company will not,  and will not permit any of its  Subsidiaries
to, enter into any agreement that limits (other than in an insignificant manner)
the  ability of the Company or any  Subsidiary  of the  Company,  or would limit
(other than in an insignificant  manner) the ability of Parent or any Subsidiary
of Parent  after the  Effective  Time,  to  compete  in or  conduct  any line of
business or compete with any Person in any geographic area or during any period;
and

         (q) the Company will not,  and will not permit any of its  Subsidiaries
to, take any action that would prevent,  materially  delay or materially  impede
the consummation of the Merger; and

         (r) the Company will not, and will not permit any of its Subsidiaries
to, agree or commit to do any of the foregoing.

                                      -35-
<PAGE>

         SECTION 5.2 Company Stockholder  Meeting;  Proxy Material.
                     ---------------------------------------------
     Even if the Board of Directors of Parent shall take any action permitted by
the third  sentence of Section 6.4, at such time at which Parent and the Company
determine in their  reasonable  judgment  that,  within 60 days,  the  Condition
Satisfaction  Time  will  occur,  the  Company  shall  cause  a  meeting  of its
stockholders (the "Company Stockholder  Meeting") to be duly called and held for
the purpose of voting on the  approval and  adoption of this  Agreement  and the
Merger;  provided  that the  Company  shall  not hold  the  Company  Stockholder
Meeting,  and if the Company  Stockholder  Meeting has been called,  the Company
shall adjourn the Company Stockholder  Meeting,  until such time (the "Condition
Satisfaction  Time") at which,  in the  reasonable  judgment  of Parent  and the
Company,  all  conditions to the Closing  (other than the condition set forth in
Section  8.1(a))  have been  satisfied  or (to the extent  legally  permissible)
waived  (by the  applicable  party)  or are then  capable  of  being  satisfied,
including  by  placing  the  Alliance  Interests  into an  irrevocable  trust as
contemplated  by  Section  7.1(d)(iii),  (assuming  that all  references  to the
Closing Date contained in Sections 8.2(a) and 8.3(a) are deemed to be references
to the date of the Condition  Satisfaction Time). Except as provided in the next
sentence,  the Board of Directors of the Company  shall  recommend  approval and
adoption of this  Agreement  and the Merger by the Company's  stockholders.  The
Board of Directors of the Company shall be permitted (i) not to recommend to the
Company's  stockholders that they give the Company Stockholder  Approval or (ii)
to withdraw or modify in a manner  adverse to Parent its  recommendation  to the
Company's stockholders that they give the Company Stockholder Approval,  only if
(v) the Company has received a Superior  Proposal (defined in Section 7.10), (w)
the Board of Directors  of the Company  determines  in its good faith  judgment,
after  receiving  the advice of outside  legal  counsel,  that,  in light of the
Superior Proposal,  failure to so withdraw or modify its recommendation would be
reasonably  likely to be  inconsistent  with  fulfilling  its fiduciary  duty to
stockholders under applicable law, (x) five business days have elapsed following
delivery by the  Company to Parent of written  notice  advising  Parent that the
Board of  Directors  of the  Company  has  resolved to so withdraw or modify its
recommendation,  specifying  the material  terms and  conditions of the Superior
Proposal  and  identifying  the Person  making the  Superior  Proposal,  (y) the
Company has given Parent the  opportunity  to propose  revisions to the terms of
this Agreement in response to the Superior Proposal and negotiated in good faith
with Parent with respect to the proposed revisions,  if any, and (z) the Company
has  complied  with its  obligations  set forth in Section  7.10 in all material
respects; provided, however, that in the case of (i) and (ii) above, the Company
shall nevertheless submit this Agreement and the Merger to the holders of shares
of Company Common Stock for approval at the Company  Stockholder  Meeting unless
this Agreement  shall have been terminated in accordance with its terms prior to
the date of the Company  Stockholder  Meeting.  In  connection  with the Company
Stockholder  Meeting, the Company (i) will prepare and file with the Commission,
will use its  reasonable  best  efforts to have  cleared by the  Commission  the
Company  Proxy  Statement and all other  materials  for the Company  Stockholder
Meeting,  and (ii) will mail to its stockholders the Company Proxy Statement and
all other proxy materials for the Company  Stockholder Meeting a sufficient time
prior  to the  Company  Stockholder  Meeting  as is  necessary  to  comply  with
applicable law,  including  applicable  rules and regulations of the Commission,
(iii) will use its reasonable best efforts, subject to the immediately preceding
sentence,  to obtain the Company  Stockholder  Approval and (iv) will  otherwise
comply  with  all  legal  requirements  applicable  to the  Company  Stockholder
Meeting.



                                      -36-
<PAGE>

         SECTION 5.3 Equity  Conversion.
                     ------------------
     Prior to the  Closing  Date,  the  Company  shall  cause  each  issued  and
outstanding  share of the Market Auction Preferred Stock to be redeemed for cash
(the "Equity Conversion").

         SECTION 5.4 Resignation of Company  Directors.
                     ---------------------------------
     In order to fulfill the  requirements  of Section  2.6 hereof,  the Company
shall (i) cause each director of the Company to deliver a written resignation to
the  Company  effective  at the  Effective  Time and (ii)  cause  the  vacancies
resulting  from such  resignations  to be filled by persons who are directors of
Merger Subsidiary immediately prior to the Effective Time.

                                    ARTICLE 6
                                    ---------
                               COVENANTS OF PARENT
                               -------------------

         Parent agrees that:

         SECTION 6.1 Conduct of Parent.
                     -----------------
     From the date of this Agreement  until the Effective  Time,  Parent and its
Subsidiaries shall conduct their business in the ordinary course consistent with
past practice and in a manner not  representing  a new  strategic  direction for
Parent  and its  Subsidiaries  and shall use their  reasonable  best  efforts to
preserve  intact  their  business  organizations  and  relationships  with third
parties.  Without limiting the generality of the foregoing,  and except with the
prior written  consent of the Company or as contemplated by this Agreement or as
set forth in the Parent  Disclosure  Schedule,  from the date  hereof  until the
Effective Time:

         (a)  Parent  will  not,  and will  not  permit  any of its  Significant
Subsidiaries to, adopt or propose any change in its certificate of incorporation
or by-laws,  except as  contemplated  hereby,  and except  that any  Significant
Subsidiary  may make any changes that would not  adversely  affect the rights of
Parent, the Company or its stockholders  under this Agreement,  the transactions
contemplated by this Agreement, or the rights of holders of Parent Common Stock;

         (b)  Parent  will  not,  and will  not  permit  any of its  Significant
Subsidiaries  to, adopt a plan or agreement of complete or partial  liquidation,
dissolution,  merger,  consolidation,  restructuring,  recapitalization or other
material reorganization of Parent or any of its Significant  Subsidiaries (other
than a merger  or  consolidation  between  its  wholly-owned  Subsidiaries,  and
immaterial recapitalizations of Significant Subsidiaries);

         (c)  Parent  will not  issue,  sell,  transfer,  pledge,  dispose of or
encumber any shares of, or securities  convertible into or exchangeable  for, or
options,  warrants,  calls,  commitments  or rights of any kind to acquire,  any
shares  of  capital  stock of any  class or series  of  Parent,  other  than (i)
issuances pursuant to the exercise of convertible  securities outstanding on the
date hereof or issuances pursuant to stock-based  awards or options  outstanding
on the date hereof or that are  granted in  accordance  with clause  6.1(c)(ii),
(ii)  additional  options or  stock-based  awards to acquire Parent Common Stock
granted under the terms of any employee or director stock option or compensation
plan or arrangement of Parent as in effect as of the date hereof in the ordinary


                                      -37-
<PAGE>

course consistent with past practice, (iii) issuances of such securities for any
other  purpose,  provided that the  aggregate  number of shares of Parent Common
Stock issued  (which shall  include,  for  purposes of this  paragraph  (c), the
number of shares of Parent Common Stock  issuable upon the exercise,  conversion
or exchange  of  convertible  securities,  options,  warrants  or other  similar
rights)  pursuant  to  this  clause  6.1(c)(iii)  in any  period  of any  twelve
consecutive months following the date of this Agreement shall in no event exceed
more than 2% of the total number of shares of Parent Common Stock outstanding as
of the close of business on  September  30, 2000 as set forth in Section 4.5 and
such shares and securities  shall be issued only to the extent  consistent  with
Section 7.4, and (iv)  transfers  or  issuances of shares of any  Subsidiary  of
Parent to Parent or any of its wholly owned Subsidiaries;

         (d) Parent will not (i) split,  combine,  subdivide or  reclassify  its
outstanding  shares  of  capital  stock or (ii)  declare,  set  aside or pay any
dividend or other  distribution  payable in cash, stock or property with respect
to its capital stock other than,  subject to Section 7.9, (a) regular  quarterly
cash  dividends  payable by Parent in  respect  of the  shares of Parent  Common
Stock,  or regular  periodic  cash or other  required  dividends  payable by any
Subsidiary of Parent, in each case (x) consistent with past practice  (including
periodic dividend increases  consistent with past practice) and (y) that are not
special  dividends,  unless,  in  either  case,  required  to be paid  under  an
applicable  agreement  in  effect  as of the  date  of  this  Agreement,  or (b)
dividends  paid by any  Subsidiary  of  Parent to  Parent  or any  wholly  owned
Subsidiary of Parent;

         (e) Parent will not, and will not permit any  Subsidiary  of Parent to,
redeem,  purchase or otherwise  acquire  directly or indirectly  any of Parent's
capital stock, except for repurchases,  redemptions or acquisitions (x) required
by the terms of capital stock or any securities  outstanding on the date hereof,
(y)  required by or in  connection  with the  respective  terms,  as of the date
hereof, of any employee stock option plan or compensation plan or arrangement of
Parent or any dividend  reinvestment  plan as in effect as of the date hereof in
the ordinary course of operations of such plan consistent with past practice and
only to the extent  consistent  with Section 7.4 or (z) effected in the ordinary
course  consistent  with past  practice and only to the extent  consistent  with
Section 7.4;

         (f) except for any such  change  which is not  significant  or which is
required by reason of a concurrent change in GAAP, Parent will not, and will not
permit  any  Subsidiary  of  Parent  to,  change  any  method of  accounting  or
accounting practice (other than any change for tax purposes) used by it;

         (g) Parent  will not (i) make or change any Tax  election,  (ii) settle
any audit or (iii) file any amended Tax Return, in each case, that is reasonably
likely to result in a Tax  liability  material  to Parent and its  Subsidiaries,
taken as a whole;

         (h) Parent will not,  and will not permit any of its  Subsidiaries  to,
take any  action  that  would  make any  representation  or  warranty  of Parent
hereunder inaccurate in any material respect at, or as of any time prior to, the
Effective Time; and

         (i) Parent will not,  and will not permit any of its  Subsidiaries  to,
take any action which would prevent,  materially delay or materially  impede the
consummation of the Merger.



                                      -38-
<PAGE>

         (j) Parent will not,  and will not permit any of its  Subsidiaries  to,
sell, lease, license, encumber (including by the grant of any option thereon) or
otherwise  dispose of any of its assets or properties which would be material to
Parent and its Subsidiaries, taken as a whole.

         (k) Parent will not, and will not permit any of its Subsidiaries to,
agree or commit to do any of the foregoing.

         SECTION  6.2  Obligations  of Merger  Subsidiary.
                       ----------------------------------
     Parent will take all action necessary to cause Merger Subsidiary to perform
its  obligations  under this Agreement and to consummate the Merger on the terms
and conditions set forth in this Agreement.

         SECTION 6.3 Director and Officer Liability.
                     ------------------------------

         (a) Parent shall  indemnify and hold harmless the individuals who on or
prior to the  Effective  Time were  officers,  directors  and  employees  of the
Company or its Subsidiaries  (collectively,  the "Indemnitees")  with respect to
all  acts or  omissions  by them in  their  capacities  as such or  taken at the
request  of the  Company  or any of its  Subsidiaries  at any time  prior to the
Effective  Time to the  extent  provided  under  the  Company's  certificate  of
incorporation  and by-laws in effect on the date hereof.  Parent shall cause the
Surviving  Corporation to honor all indemnification  agreements with Indemnitees
(including  under the  Company's  by-laws)  in  effect as of the date  hereof in
accordance with the terms thereof.  The Company has disclosed to Parent all such
indemnification agreements prior to the date hereof.

         (b) For six years after the  Effective  Time,  Parent shall procure the
provision of officers' and directors'  liability insurance in respect of acts or
omissions  occurring  prior to the  Effective  Time  covering  each such  Person
currently covered by the Company's officers' and directors'  liability insurance
policy on terms with respect to coverage and in amounts no less  favorable  than
those of such  policy  in  effect  on the  date  hereof;  provided,  that if the
aggregate  annual  premiums  for such  insurance  at any time during such period
shall  exceed 300% of the per annum rate of premium  paid by the Company and its
Subsidiaries  as of the date hereof for such  insurance,  then Parent shall,  or
shall cause its  Subsidiaries  to,  provide only such  coverage as shall then be
available at an annual premium equal to 300% of such rate.

         (c) The  obligations  of Parent  under  this  Section  6.3 shall not be
terminated or modified in such a manner as to adversely affect any Indemnitee to
whom this Section 6.3 applies  without the consent of such  affected  Indemnitee
(it being expressly agreed that the Indemnitees to whom this Section 6.3 applies
shall be third party beneficiaries of this Section 6.3).

         SECTION 6.4 Parent Stockholder Meeting;
                     --------------------------
     Form S-4.  Even if the Board of  Directors  of the  Company  shall take any
action  permitted  by the third  sentence of Section  5.2,  Parent shall cause a
meeting of its stockholders (the "Parent Stockholder Meeting") to be duly called
and held for the  purpose  of  approving  the  matters  constituting  the Parent
Stockholder  Approvals;  provided  that the  Parent  Stockholder  Meeting  shall
conclude  prior to the Company  Stockholder  Meeting and may be held on the same
date  as the  Company  Stockholder  Meeting.  Except  as  provided  in the  next
sentence,  the Board of  Directors  of Parent  shall  recommend  approval of the
matters


                                      -39-
<PAGE>

constituting the Parent Stockholder Approvals.  The Board of Directors of Parent
shall be permitted (i) not to recommend to Parent's  stockholders that they give
the  Parent  Stockholder  Approvals  or (ii) to  withdraw  or modify in a manner
adverse to the Company its recommendation to the Parent's stockholders that they
give the Parent Stockholder Approval, only if (v) Parent has received a Superior
Proposal,  (w) the Board of Directors of Parent determines,  after receiving the
advice of outside legal  counsel,  in its good faith  judgment that, in light of
the Superior Proposal, failure to so withdraw or modify its recommendation would
be reasonably  likely to be  inconsistent  with fulfilling its fiduciary duty to
stockholders under applicable law, (x) five business days have elapsed following
delivery by Parent to the Company of written  notice  advising  the Company that
the Board of  Directors  of Parent has  resolved  to so  withdraw  or modify its
recommendation,  specifying  the material  terms and  conditions of the Superior
Proposal and identifying the Person making the Superior Proposal, (y) Parent has
given the  Company the  opportunity  to propose  revisions  to the terms of this
Agreement in response to the Superior Proposal and negotiated in good faith with
the Company with respect to the proposed  revisions,  if any, and (z) Parent has
complied with its obligations set forth in Section 7.10; provided, however, that
in the case of (i) and (ii) above,  Parent shall nevertheless submit the matters
constituting  the Parent  Stockholder  Approvals  to Parent's  stockholders  for
approval at the Parent Stockholder Meeting unless this Agreement shall have been
terminated  in  accordance  with  its  terms  prior  to the  date of the  Parent
Stockholder Meeting. In connection with the Parent Stockholder  Meeting,  Parent
(i) will promptly prepare and file with the Commission,  will use its reasonable
best  efforts  to  have  cleared  by  the  Commission,  (ii)  will  mail  to its
stockholders  the Parent Proxy  Statement and all other proxy materials for such
meeting  a  sufficient  time  prior  to the  Parent  Stockholder  Meeting  as is
necessary to comply with  applicable laws including the rules and regulations of
the  Commission,  (iii) will use its  reasonable  best  efforts,  subject to the
immediately preceding sentence, to obtain the Parent Stockholder Approvals,  and
(iv) will otherwise comply with all legal requirements  applicable to the Parent
Stockholder  Meeting.  Subject to the terms and  conditions  of this  Agreement,
Parent shall prepare and file with the  Commission  under the Securities Act the
Form S-4, and shall use its reasonable  best efforts to cause the Form S-4 to be
declared  effective  by the  Commission  a  sufficient  time prior to the Parent
Stockholder  Meeting to allow the Company  and Parent to mail the Company  Proxy
Statement  or  Parent  Proxy  Statement,  as  applicable,  to  their  respective
stockholders,   as  required  by  applicable  laws,   including  the  rules  and
regulations  of  the  Commission,  prior  to the  meeting  of  their  respective
stockholders. Parent shall take any action required to be taken under foreign or
state  securities  or Blue Sky laws in  connection  with the  issuance of Parent
Common Stock in connection with the Merger.

         SECTION 6.5 Stock  Exchange  Listing.
                     ------------------------
     Parent shall use its reasonable  best efforts to cause the shares of Parent
Common  Stock to be issued  in  connection  with the  Merger to be listed on the
NYSE, subject to official notice of issuance.

         SECTION 6.6  Employee Benefits.
                      -----------------

         (a) From and after the Effective Time, Parent shall cause the Surviving
Corporation   to  honor  in  accordance   with  their  terms  all  benefits  and
obligations,  subject to Section 6.6(b) hereof, under the Company Benefit Plans,
each as in effect  on the date  hereof  (or as  amended



                                      -40-
<PAGE>

with the prior written  consent of Parent),  to the extent that  entitlements or
rights,  actual or contingent (whether such entitlements or rights are vested as
of the Effective  Time or become vested or payable only upon the occurrence of a
further event, including a discretionary determination) exist in respect thereof
as of the  Effective  Time.  Parent  and  the  Company  hereby  agree  that  the
consummation of the Merger shall constitute a "Change in Control" for purpose of
any employee  arrangement and all other Company  Benefit Plans,  pursuant to the
terms of such  plans in effect on the date  hereof,  provided,  however,  to the
extent  consistent  with Section 7.4, that the Board of Directors of the Company
will take all  actions  necessary  so that the  consummation  of the  Merger and
related transactions hereunder will not create additional funding obligations on
behalf of Parent,  the Company or the Surviving  Corporation with respect to the
Company  Stock  Grantor  Trust.  No provision  of this  Section  6.6(a) shall be
construed  as a  limitation  on the right of Parent  to amend or  terminate  any
Company  Benefit Plans which the Company would otherwise have under the terms of
such Company  Benefit  Plan,  and no  provision of this Section  6.6(a) shall be
construed  to create a right in any  employee or  beneficiary  of such  employee
under a Company  Benefit  Plan  that  such  employee  or  beneficiary  would not
otherwise have under the terms of such Company Benefit Plan; provided,  however,
the Parent  agrees  that it will  respect  deferrals  of salary,  bonus or other
compensation  in place  prior to the  Effective  Time  pursuant  to the  Company
Benefit Plans. Parent acknowledges that the Company's Separation Pay Plan by its
terms provides that benefits  thereunder are vested on the day immediately prior
to a change of control.

         (b) Following the Effective  Time,  Parent shall continue to provide to
individuals  who are  employed  by the Company  and its  Subsidiaries  as of the
Effective  Time who remain  employed  with  Parent or any  Subsidiary  of Parent
("Affected  Employees"),  for so long as such Affected Employees remain employed
by Parent or any  Subsidiary  of Parent,  employee  benefits (i) pursuant to the
Company's or its Subsidiaries'  employee benefit plans,  programs,  policies and
arrangements  as provided to such employees  immediately  prior to the Effective
Time  or  (ii)  pursuant  to  employee  benefit  plans,  programs,  policies  or
arrangements maintained by Parent or any Subsidiary of Parent providing coverage
and benefits which, in the aggregate,  are no less favorable than those provided
to  employees of Parent in positions  comparable  to positions  held by Affected
Employees with Parent or its Subsidiaries  from time to time after the Effective
Time.  Following the Effective Time,  Parent shall continue to provide to former
employees of the Company or its Subsidiaries (and to employees of the Company or
its  Subsidiaries  whose  employment  terminates  prior to the  Effective  Time)
("Affected  Retirees")   post-retirement  benefits  (other  than  pensions)  (i)
pursuant to the Company Benefit Plans applicable to such Affected Retirees, each
as in effect on the date of this Agreement, or (ii) pursuant to employee benefit
plans, programs, policies or arrangements maintained by Parent or any Subsidiary
of Parent providing  post-retirement coverage and benefits (other than pensions)
which,  in the  aggregate,  are no less  favorable than those provided to former
employees of Parent.

         (c) Parent  will,  or will cause the  Surviving  Corporation  to,  give
Affected Employees full credit for purposes of eligibility,  vesting and benefit
accrual  (including  benefit  accrual under any defined  benefit  pension plans,
provided that a  participant's  benefit under any such defined  benefit  pension
plan may be offset  by such  participant's  accrued  benefit  under the  Company
defined benefit  pension plan) under any employee  benefit plans or arrangements
maintained by



                                      -41-
<PAGE>

Parent or any Subsidiary of Parent for such Affected Employees' service with the
Company or any  Subsidiary  of the Company to the same extent  recognized by the
Company immediately prior to the Effective Time.

         (d) Parent will, or will cause the Surviving  Corporation to, (i) waive
all  limitations as to preexisting  conditions,  exclusions and waiting  periods
with  respect to  participation  and  coverage  requirements  applicable  to the
Affected  Employees  under any welfare  benefit plans that such employees may be
eligible to participate in after the Effective Time,  other than  limitations or
waiting  periods that are already in effect with respect to such  employees  and
that have not been  satisfied  as of the  Effective  Time under any welfare plan
maintained for the Affected  Employees  immediately prior to the Effective Time,
and (ii) provide each  Affected  Employee  with credit for any  co-payments  and
deductibles  paid  prior to the  Effective  Time in  satisfying  any  applicable
deductible  or  out-of-pocket  requirements  under any  welfare  plans that such
employees are eligible to participate in after the Effective Time.


                                    ARTICLE 7
                                    ---------
                       COVENANTS OF PARENT AND THE COMPANY
                       -----------------------------------

         The parties hereto agree that:

         SECTION 7.1  Best Efforts.
                      ------------

         (a) Subject to Sections 5.2, 6.4,  7.1(b),  7.1(c) and 7.1(d),  Company
and Parent  shall each  cooperate  with the other and use (and shall cause their
respective  Subsidiaries  to use) their  respective best efforts to promptly (i)
take or cause to be taken all necessary actions,  and do or cause to be done all
things, necessary,  proper or advisable under this Agreement and applicable laws
to  consummate  and  make  effective  the  Merger  and  the  other  transactions
contemplated  by  this  Agreement  as soon as  practicable,  including,  without
limitation,  preparing and filing promptly and fully all documentation to effect
all  necessary   filings,   notices,   petitions,   statements,   registrations,
submissions of information, applications and other documents and (ii) obtain all
approvals,   consents,   registrations,   permits,   authorizations   and  other
confirmations required to be obtained from any third party necessary,  proper or
advisable to consummate the Merger and the other  transactions  contemplated  by
this  Agreement.  Subject  to  applicable  laws  relating  to  the  exchange  of
information,  the Company and Parent  shall have the right to review in advance,
and  to the  extent  practicable  each  will  consult  the  other  on,  all  the
information  relating  to the  Company  and its  Subsidiaries  or Parent and its
Subsidiaries,  as the case may be,  that  appears  in any filing  made with,  or
written  materials  submitted  to,  any  third  party  and/or  any  governmental
authority in connection with the Merger and the other transactions  contemplated
by this Agreement.

         (b) Without limiting Section 7.1(a), Parent and the Company shall
subject to Sections 7.1(c) and 7.1(d), as applicable:



                                      -42-
<PAGE>

                  (i) Each use its best  efforts  to avoid  the  entry of, or to
         have vacated or terminated,  any decree,  order, or judgment that would
         restrain,  prevent or delay the Closing,  on or before the End Date (as
         defined in Section 9.1(b)(i)),  including without limitation  defending
         through litigation on the merits any claim asserted in any court by any
         Person; and

                  (ii) each use its best efforts to avoid or eliminate  each and
         every impediment  under any antitrust,  competition or trade regulation
         law that may be asserted by any governmental  authority with respect to
         the Merger so as to enable the  Closing to occur as soon as  reasonably
         possible  (and in any  event no later  than the End  Date),  including,
         without  limitation,  (x)  proposing,  negotiating,  committing  to and
         effecting,  by consent decree,  hold separate order, or otherwise,  the
         sale, divestiture or disposition of such assets or businesses of Parent
         or the  Company  (or  any of  their  respective  Subsidiaries)  and (y)
         otherwise  taking or  committing to take actions that after the Closing
         Date would  limit  Parent or its  Subsidiaries'  freedom of action with
         respect  to,  or its  ability  to  retain,  one or  more  of its or its
         Subsidiaries' businesses,  product lines or assets, in each case as may
         be  required  in  order  to  avoid  the  entry  of,  or to  effect  the
         dissolution of, any injunction,  temporary  restraining order, or other
         order in any suit or proceeding,  which would otherwise have the effect
         of preventing or materially delaying the Closing.

         (c)  Notwithstanding  anything else contained herein, the provisions of
this Section 7.1 shall not be construed to require either party to undertake any
efforts  or to take  any  action  if such  efforts  or  action  would,  or would
reasonably be expected to, result in a Material Adverse Effect on Parent and its
Subsidiaries  (including the Surviving Corporation and its Subsidiaries),  taken
as a  whole,  at or  after  the  Effective  Time;  provided,  further,  that any
requirement  to divest or hold  separate,  or limit in any material  respect the
operations  of the  business of Parent and its  Subsidiaries  (prior to Closing)
involving the refining, marketing or transportation of petroleum products in the
Western United States,  other than with respect to  insignificant  operations of
such business  shall be deemed for purposes of this Section  7.1(c) and Sections
8.1(d),  8.1(i),  8.1(j),  8.1(k)  and  8.1(l) to result in a  Material  Adverse
Effect.

         (d)      (i) The parties  anticipate that there will be objections
         raised by the United  States  Federal Trade  Commission  or the
         Antitrust Division of the United States Department of Justice to the
         combination of Parent's United States downstream  operations
         with  the  Company's  interests  in the  Joint  Ventures
         (collectively, the "Alliance Interests"). The parties will
         jointly determine how to address any objections  promptly and
         the Company will, subject to Section 7.4 and in  consultation
         on an ongoing  basis with  Parent,  negotiate  one or more
         definitive  agreements  responsive  to the  regulatory
         requirements  (each,  an "Alliance  Transaction  Agreement")
         and  shall  promptly  inform  Parent of all material
         developments  in the  negotiations.  The Company shall be
         permitted to enter  into any  Alliance  Transaction  Agreement
         only with the  prior  written consent of Parent, which consent
         shall not be unreasonably withheld.

                  (ii) In the event the Company  shall not have  entered into an
         Alliance Transaction Agreement fifteen days prior to the scheduled date
         of the  Company


                                      -43-
<PAGE>

         Stockholder  Meeting,  the  Chairman of Parent and the
         Chairman  of the  Company  shall  meet to  discuss  the  status of such
         efforts by the Company.

                  (iii)  If the  stockholders  of the  Company,  at the  Company
         Stockholder  Meeting (which shall not take place prior to the Condition
         Satisfaction  Time),  approve  and  adopt  the  Merger  and the  Merger
         Agreement in accordance with Delaware Law, then,  immediately  upon the
         conclusion of such meeting,  the parties shall  consummate the Closing.
         If the utilization of the Trust Agreement, described below, is required
         in order to meet immediately any remaining  conditions to Closing,  the
         Company  shall cause all of the then  outstanding  capital stock of the
         Subsidiary  or the  Subsidiaries  of the Company which own the Alliance
         Interests, and such other assets as Parent and the Company shall agree,
         to be placed into an  irrevocable  trust  pursuant to an Agreement  and
         Declaration of Trust (the "Trust Agreement")  substantially in the form
         of Annex  7.1 to this  Agreement,  with only  such  changes  as are (x)
         required by any governmental body, agency, official or authority or (y)
         mutually agreed by Parent,  the Company and the Trustees.  For purposes
         of this Section 7.1(d),  "Trustees"  shall mean those Persons  selected
         jointly by Parent and the  Company to serve as the  trustees  under the
         Trust Agreement.

         SECTION 7.2 Certain  Filings.
                     ----------------
     The Company and Parent shall  cooperate  with one another (a) in connection
with the preparation of the Company Proxy Statement,  the Parent Proxy Statement
and the Form S-4, (b) in determining  whether any action by or in respect of, or
filing  with,  any  governmental  body,  agency or  official,  or  authority  is
required,  or any  actions,  consents,  approvals  or waivers are required to be
obtained  from  parties  to any  material  contracts,  in  connection  with  the
consummation  of the  transactions  contemplated  by this  Agreement  and (c) in
seeking  any such  actions,  consents,  approvals  or waivers or making any such
filings,  furnishing  information  required in connection  therewith or with the
Company Proxy Statement,  the Parent Proxy Statement or the Form S-4 and seeking
timely to obtain any such actions, consents, approvals or waivers.

         SECTION  7.3  Access to  Information.
                       ----------------------
     From the date of this  Agreement  until the  Effective  Time, to the extent
permitted by applicable law, the Company and Parent will upon reasonable request
give the other  party,  its  counsel,  financial  advisors,  auditors  and other
authorized representatives reasonable access to the offices,  properties,  books
and records of such party and its  Subsidiaries  during normal  business  hours,
furnish to the other party, its counsel, financial advisors,  auditors and other
authorized   representatives   such  financial  and  operating  data  and  other
information  as such Persons may  reasonably  request and will  instruct its own
employees,  counsel and financial  advisors to cooperate with the other party in
its  investigation of the business of the Company or Parent, as the case may be;
provided that no  investigation  of the other party's  business shall affect any
representation  or warranty  given by either party  hereunder.  All  information
obtained  by Parent or the Company  pursuant  to this  Section 7.3 shall be kept
confidential in accordance with, and shall otherwise be subject to the terms of,
the  Confidentiality  Agreement  dated  February 5, 1999 between  Parent and the
Company (the "Confidentiality Agreement").



                                      -44-
<PAGE>

         SECTION  7.4 Tax  and  Accounting  Treatment.
                      -------------------------------
     Neither  Parent  nor  the  Company  shall,  nor  shall  they  permit  their
Subsidiaries  to take,  any action,  and Parent and the Company  shall not,  and
shall ensure that its  Subsidiaries do not, fail to take any action which action
or failure to act would prevent,  or would be reasonably likely to prevent,  the
Merger from  qualifying (a) for "pooling of interests"  accounting  treatment as
described in Section 3.19(a) or (b) as a 368 Reorganization.

         SECTION 7.5 Public  Announcements.
                     ---------------------
     Parent and the Company  will  consult  with each other  before  issuing any
press release or making any public  statement with respect to this Agreement and
the  transactions  contemplated  hereby and shall not issue any press release or
make any public  statement  without the prior consent of the other party,  which
consent shall not be unreasonably withheld.  Notwithstanding the foregoing,  any
press release or public  statement as may be required by  applicable  law or any
listing agreement with any national  securities  exchange may be issued prior to
such  consultation,  if the party making the release or  statement  has used its
reasonable best efforts to consult with the other party.

         SECTION 7.6 Further  Assurances.
                     -------------------
     At and  after  the  Effective  Time,  the  officers  and  directors  of the
Surviving Corporation will be authorized to execute and deliver, in the name and
on behalf  of the  Company  or  Merger  Subsidiary,  any  deeds,  bills of sale,
assignments or assurances and to take any other actions and do any other things,
in the name and on  behalf  of the  Company  or  Merger  Subsidiary,  reasonably
necessary to vest,  perfect or confirm of record or  otherwise in the  Surviving
Corporation  any and all right,  title and  interest in, to and under any of the
rights,  properties  or assets of the Company  acquired or to be acquired by the
Surviving Corporation as a result of, or in connection with, the Merger.

         SECTION 7.7 Notices of Certain Events.
                     -------------------------

         (a) Each of the Company and Parent shall promptly notify the other
party of:

                  (i) any notice or other communication from any Person alleging
         that the consent of such  Person is or may be  required  in  connection
         with the transactions contemplated by this Agreement; and

                  (ii) any notice or other  communication  from any governmental
         or regulatory  agency or authority in connection with the  transactions
         contemplated by this Agreement.

         (b) The Company and Parent shall promptly notify the other party of any
actions, suits, claims,  investigations or proceedings commenced or, to the best
of its  knowledge  threatened  against,  relating to or  involving  or otherwise
affecting such party or any of its Subsidiaries which relate to the consummation
of the transactions contemplated by this Agreement.

         SECTION 7.8  Affiliates.
                      ----------

         (a) Not less than 45 days prior to the Effective  Time,  each of Parent
and the Company (i) shall have delivered to the other party a letter identifying
all Persons who, in the opinion of


                                      -45-
<PAGE>

the  party  delivering  the  letter,  may  be,  as of the  date  of the  Company
Stockholder  Meeting  or  Parent  Stockholder   Meeting,   as  applicable,   its
"affiliates" for purposes of SEC Accounting  Series Releases 130 and 135 and/or,
in the case of the Company,  for purposes of Rule 145 under the Securities  Act,
and (ii) shall use its  reasonable  best  efforts  to cause  each  Person who is
identified  as an  "affiliate"  of it in such letter to deliver,  as promptly as
practicable  but in no event  later than 30 days prior to the  Closing (or after
such later date as the Parent and the  Company  may agree) to Parent in the case
of affiliates of Parent, a signed  agreement  substantially in the form attached
as Exhibit C-1, and in the case of affiliates of the Company,  substantially  in
the forms attached as Exhibits C-2 and C-3. Each of Parent and the Company shall
notify  the other  party  from time to time  after the  delivery  of the  letter
described in Section  7.8(a)(i) of any Person not  identified on such letter who
then is, or may be, such an "affiliate"  and use its reasonable  best efforts to
cause each  additional  Person who is identified as an  "affiliate" to execute a
signed agreement or agreements as set forth in this Section 7.8(a).

         (b) Shares of Parent  Common  Stock and shares of Company  Common Stock
beneficially  owned by each such  "affiliate"  of Parent or Company  who has not
provided a signed  agreement or agreements,  as applicable,  in accordance  with
Section  7.8(a) shall not be  transferable  during any period prior to and after
the  Effective  Time if, as a result of this  transfer  during any such  period,
taking into account the nature,  extent and timing of this  transfer and similar
transfers by all other  "affiliates"  of Parent and the Company,  this  transfer
will, in the reasonable  judgment of accountants of Parent,  interfere  with, or
prevent the Merger from being accounted for, as a  "pooling-of-interests"  under
GAAP and/or the rules and regulations of the SEC.  Neither Parent or the Company
shall  register,  or allow its  transfer  agent to register,  on its books,  any
transfer of any shares of Parent  Common  Stock or Company  Common  Stock of any
affiliate  of Parent or the Company who has not  provided a signed  agreement in
accordance  with Section  7.8(a) unless the transfer is made in compliance  with
the foregoing.

         SECTION  7.9  Payment  of  Dividends.
                       ----------------------
     From the date hereof until the Effective Time,  Parent and the Company will
coordinate  with each other regarding the declaration of dividends in respect of
the shares of Parent Common Stock and the shares of Company Common Stock and the
record dates and payment dates relating  thereto,  it being the intention of the
parties  that  holders of shares of Company  Common  Stock will not  receive two
dividends, or fail to receive one dividend, for any single calendar quarter with
respect to their shares of Company  Common Stock and the shares of Parent Common
Stock any holder of shares of Company Common Stock receives in exchange therefor
in connection with the Merger.

         SECTION 7.10  No Solicitation.
                       ---------------

         (a) Each of Parent and the  Company and their  respective  Subsidiaries
will not, and Parent and the Company will direct and use their  respective  best
efforts to cause their and their Subsidiaries'  respective officers,  directors,
employees, investment bankers, consultants,  attorneys,  accountants, agents and
other  representatives  not to,  directly  or  indirectly,  take any  action  to
solicit,  initiate,  encourage  or  facilitate  the  making  of any  Acquisition
Proposal  (including  without  limitation  by  amending,  or granting any waiver
under,  the  Parent  Rights  Agreement  or  the  Company  Rights  Agreement,  as
applicable)  or any inquiry with  respect  thereto


                                      -46-
<PAGE>

or engage in discussions or negotiations  with any Person with respect  thereto,
or disclose any nonpublic  information or afford access to properties,  books or
records  to,  any  Person  that  has  made,  or to such  party's  knowledge,  is
considering  making,  any  Acquisition  Proposal.   Nothing  contained  in  this
Agreement  shall  prevent the Board of  Directors  of Parent or the Company from
complying  with Rule 14e-2 under the Exchange Act with regard to an  Acquisition
Proposal; provided that the Board of Directors of such party shall not recommend
that the  stockholders  of such party tender their shares in  connection  with a
tender  offer or exchange  offer except to the extent  that,  after  receiving a
Superior Proposal,  such Board of Directors of such party determines in its good
faith judgment,  after  receiving the advice of outside legal counsel,  that, in
light of such Superior Proposal,  failure to make such a recommendation would be
reasonably likely to be inconsistent with fulfilling the fiduciary duties of the
Board of Directors to such party's  stockholders  under  applicable law and such
party shall have complied with the procedure set forth in Section 5.2 or 6.4, to
the  extent  applicable.  Notwithstanding  anything  to  the  contrary  in  this
Agreement, prior to the date of approval of this Agreement and the Merger by the
stockholders of Parent or the Company, as applicable,  Parent or the Company may
(A) furnish  information and access to a third party,  but only in response to a
request for information or access, to any Person making an Acquisition  Proposal
to the board of  directors of Parent or the Company,  as  applicable,  after the
date hereof which was not knowingly encouraged, solicited or initiated by Parent
or the  Company,  as  applicable,  or any of  its  affiliates  or any  director,
employee,  representative or agent of Parent or the Company,  as applicable,  or
any  of  its  respective  Subsidiaries  (including,   without  limitation,   any
investment banker,  attorney or accountant  retained by Parent or the Company or
any of its  Subsidiaries) on or after the date hereof and (B) may participate in
discussions  and  negotiate  with such Person  concerning  any such  Acquisition
Proposal,  if and only if,  in any such  case set forth in clause A or B of this
paragraph,  (i) the Board of  Directors  of Parent or  Company,  as  applicable,
concludes in good faith,  after receipt of the advice of a financial  advisor of
nationally   recognized   reputation  and  outside  legal  counsel,   that  such
Acquisition  Proposal is reasonably likely to result in a Superior Proposal with
respect to Parent or the Company, as applicable,  (ii) the Company or Parent, as
applicable, complies with all of its obligations under this Agreement, and (iii)
the board of directors of Parent or the Company,  as  applicable,  receives from
the Person  making such an  Acquisition  Proposal  an  executed  confidentiality
agreement the material  terms of which are (without  regard to the terms of such
Acquisition  Proposal)  in all material  respects  (x) no less  favorable to the
Company or Parent,  as  applicable,  and (y) no less  restrictive  to the Person
making such  Acquisition  Proposal than those  contained in the  Confidentiality
Agreement.

         (b) Any party receiving an Acquisition  Proposal will (A) promptly (and
in no event  later  than 48 hours  after  receipt of any  Acquisition  Proposal)
notify (which notice shall be provided  orally and in writing and shall identify
the Person  making such  Acquisition  Proposal and set forth the material  terms
thereof)  the other party to this  Agreement  after  receipt of any  Acquisition
Proposal,  any  indication of which such party has knowledge  that any Person is
considering  making  an  Acquisition  Proposal,  or any  request  for  nonpublic
information relating to such party or any Subsidiary of such party or for access
to the  properties,  books or records of such  party or any  Subsidiary  of such
party  by any  Person  that  has  made,  or to  such  party's  knowledge  may be
considering making, an Acquisition  Proposal,  and (B) will keep the other party
to this  Agreement  informed of the status and material  terms of (including all
changes to the


                                      -47-
<PAGE>

status or material terms of) any such Acquisition  Proposal or request.  Each of
Parent and the Company (x) shall, and shall cause their respective  Subsidiaries
to,  immediately  cease and cause to be terminated and shall use reasonable best
efforts  to cause  its and  their  officers,  directors,  employees,  investment
bankers, consultants,  attorneys,  accountants, agents and other representatives
to,  immediately  cease  and  cause  to  be  terminated,   all  discussions  and
negotiations,  if any,  that have taken  place prior to the date hereof with any
Persons with respect to any Acquisition  Proposal and (y) shall promptly request
each Person, if any, that has executed a confidentiality  agreement within the 9
months  prior to the date hereof in  connection  with its  consideration  of any
Acquisition   Proposal  to  return  or  destroy  all  confidential   information
heretofore  furnished  to  such  Person  by or on  behalf  of it or  any  of its
Subsidiaries.

         For purposes of this Agreement,  "Acquisition  Proposal" means any bona
fide written  offer or proposal  for, or any written  indication of interest in,
any (i) direct or indirect  acquisition or purchase of any business or assets of
Parent or the Company or any of their respective Subsidiaries that, individually
or in the aggregate,  constitutes 20% or more of the net revenues, net income or
assets of such  party and its  Subsidiaries,  taken as a whole,  (ii)  direct or
indirect  acquisition  or  purchase  of  20% or  more  of any  class  of  equity
securities  of Parent or the  Company  or any of their  respective  Subsidiaries
whose business constitutes 20% or more of the net revenues, net income or assets
of such party and its  Subsidiaries,  taken as a whole,  (iii)  tender  offer or
exchange  offer that, if  consummated,  would result in any Person  beneficially
owning 20% or more of any class of equity securities of Parent or the Company or
any of their respective  Subsidiaries whose business constitutes 20% or more the
net revenues, net income or assets of such party and its Subsidiaries,  taken as
a whole, or (iv) merger,  consolidation,  business  combination,  joint venture,
partnership,  recapitalization,  liquidation, dissolution or similar transaction
involving  Parent or the Company or any of their respective  Subsidiaries  whose
business  constitutes  20% or more of the net  revenue,  net income or assets of
such party and its Subsidiaries,  taken as a whole,  other than the transactions
contemplated  by this  Agreement;  provided,  however,  that (a) with respect to
Parent, an offer or proposal shall not be deemed an Acquisition  Proposal if (x)
the execution of agreement with respect to, and consummation of, the transaction
contemplated  thereby would not be  reasonably  likely to prevent the Parent and
Merger  Subsidiary from  consummating the Merger or to materially delay Parent's
or Merger Subsidiary's  ability to consummate the Merger and (y) execution of an
agreement with respect to the transaction contemplated thereby is not prohibited
by Section 6.1, or, if the  execution of such  agreement  would be prohibited by
Section  6.1,  such an  agreement  will not be  entered  into  until  after  the
provisions contained in Section 6.1 are no longer in effect and (b) with respect
to the Company,  any offer or proposal for the disposition by the Company of the
Alliance  Interests  shall  not be  deemed to be an  Acquisition  Proposal.  For
purposes of this  Agreement,  "Superior  Proposal"  means any bona fide  written
Acquisition Proposal for or in respect of at least a majority of the outstanding
shares of Company  Common Stock,  or Parent Common Stock,  as applicable  (i) on
terms  that the Board of  Directors  of Parent or the  Company,  as  applicable,
determines in its good faith judgment (after  consultation with, and taking into
account the advice of, a financial advisor of nationally recognized  reputation,
taking into account all the terms and  conditions of the  Acquisition  Proposal,
including any break-up fees, expense reimbursement  provisions and conditions to
consummation)  are  more  favorable  from  a  financial  point  of  view  to its
stockholders than the Merger and the other transactions  contemplated hereby and
(ii) that


                                      -48-
<PAGE>

constitutes a transaction  that is reasonably  likely to be  consummated  on the
terms set forth, taking into account all legal, financial,  regulatory and other
aspects of such proposal.

         (c)  Each of the  Company  and  Parent  agrees  that it will  take  the
necessary steps promptly to inform its Subsidiaries and its officers, directors,
investment  bankers,  consultants,  attorneys,  accountants,  agents  and  other
representatives of the obligations undertaken in this Section 7.10.

         SECTION 7.11 Letters from Accountants.
                      ------------------------

         (a) Parent shall use  reasonable  best efforts to cause to be delivered
to Parent and the Company two letters from PricewaterhouseCoopers LLP, one dated
the date on which the Form S-4 shall become  effective and one dated the Closing
Date,  each  addressed to the Boards of Directors of Parent and the Company,  in
form and substance reasonably satisfactory to the Company and customary in scope
and substance for comfort letters delivered by independent public accountants in
connection with registration statements similar to the Form S-4.

         (b) Parent shall use  reasonable  best efforts to cause to be delivered
to Parent and the Company a letter from  PricewaterhouseCoopers LLP, dated as of
the  Closing  Date,  addressed  to the  Boards of  Directors  of Parent  and the
Company,   stating  that   PricewaterhouseCoopers   LLP  concurs  with  Parent's
management's  conclusion  that  accounting  for  the  Merger  as a  "pooling  of
interests"  under  Opinion  No.  16  (Business  Combination)  of the  Accounting
Principles Board of the American  Institute of Certified Public  Accountants and
the rules and  regulations  of the  Commission is  appropriate  if the Merger is
closed and consummated in accordance with the terms hereof.

         (c) The  Company  shall  use  reasonable  best  efforts  to cause to be
delivered  to the Company and Parent two letters from Arthur  Andersen  LLP, one
dated the date on which the Form S-4 shall  become  effective  and one dated the
Closing  Date,  each  addressed  to the Boards of  Directors  of the Company and
Parent, in form and substance reasonably satisfactory to Parent and customary in
scope  and  substance  for  comfort  letters  delivered  by  independent  public
accountants in connection with registration statement similar to the Form S-4.

         (d) The  Company  shall  use  reasonable  best  efforts  to cause to be
delivered  to the  Company a letter from Arthur  Andersen  LLP,  dated as of the
Closing Date,  addressed to the Board of Directors of the Company,  stating that
Arthur Andersen LLP concurs with the Company's management's  conclusion that the
Company is eligible to participate in a transaction  accounted for as a "pooling
of interests"  under  Opinion No. 16 (Business  Combination)  of the  Accounting
Principles Board of the American  Institute of Certified Public  Accountants and
the rules and regulations of the Commission.

         SECTION 7.12 Takeover Statutes.
                      -----------------
     If any  anti-takeover  or similar  statute or  regulation  is or may become
applicable to the transactions  contemplated hereby, each of the parties and its
Board of Directors  shall grant such  approvals and take all such actions as are
legally  permissible  so  that  the  transactions  contemplated  hereby  may  be
consummated as promptly as practicable on


                                      -49-
<PAGE>

the terms  contemplated  hereby and  otherwise  act to eliminate or minimize the
effects  of any such  statute or  regulation  on the  transactions  contemplated
hereby.

         SECTION 7.13  Headquarters.
                       ------------
     After the Effective  Time, the  headquarters of Parent shall continue to be
located in San Francisco, California.

         SECTION 7.14 Section 16(b).
                      -------------
     Parent  shall  take all  such  steps  reasonably  necessary  to  cause  the
transactions contemplated hereby and any other dispositions of equity securities
of the Company  (including  derivative  securities)  or  acquisitions  of Parent
equity  securities  (including  derivative  securities) in connection  with this
Agreement by each  individual who (a) is a director or officer of the Company or
(b) at the Effective  Time,  will become a director or officer of Parent,  to be
exempt under Rule 16b-3 promulgated under the Exchange Act.

                                    ARTICLE 8
                                    ---------
                            CONDITIONS TO THE MERGER
                            ------------------------

         SECTION  8.1  Conditions  to  the   Obligations  of  Each  Party.
                       --------------------------------------------------
     The obligations of the Company,  Parent and Merger Subsidiary to consummate
the  Merger  are  subject  to  the  satisfaction  (or,  to  the  extent  legally
permissible, waiver) of the following conditions:

         (a) this Agreement and the Merger shall have been approved and
adopted by the stockholders of the Company in accordance with Delaware Law;

         (b) any applicable waiting period under the HSR Act relating to
the Merger shall have expired;

         (c) the approval by the European Commission of the transactions
contemplated by this Agreement shall have been obtained pursuant to the EC
Merger Regulation;

         (d) no provision of any  applicable  law or regulation and no judgment,
injunction, order or decree (i) shall prohibit or enjoin the consummation of the
Merger or (ii) if not complied with, shall have or be reasonably  likely to have
a Material Adverse Effect on Parent (including the Surviving  Corporation) after
the Effective Time;

         (e) the Common Stock Issuance shall have been approved by the
stockholders of Parent in accordance with the rules and regulations of the NYSE;

         (f) the  Form  S-4  shall  have  been  declared  effective  under  the
Securities Act and such Form S-4 shall indicate that Parent will account for the
Merger  as  a  "pooling  of  interests,"  and  no  stop  order   suspending  the
effectiveness  of the Form S-4 shall be in effect  and no  proceedings  for such
purpose shall be pending before or threatened by the Commission;

         (g) the shares of Parent Common Stock to be issued in the Merger shall
have been approved for listing on the NYSE, subject to official notice of
issuance;



                                      -50-
<PAGE>

         (h) Parent shall have received letters of PricewaterhouseCoopers LLP
and Arthur Andersen LLP as contemplated by paragraphs (b) and (d) of
Section 7.11;

         (i) neither the Federal Trade Commission nor the Antitrust  Division of
the Department of Justice, as the case may be, shall have, as a condition to its
approval  of  the  Merger  and  the  other  transactions  contemplated  by  this
Agreement,  required  Parent to take any action  which,  individually  or in the
aggregate,  would  result in, or be  reasonably  likely to result in, a Material
Adverse  Effect  on  Parent  (including  the  Surviving  Corporation)  after the
Effective Time;

         (j) there shall not be  instituted  or pending any action or proceeding
by any  governmental  authority  (whether  domestic,  foreign or  supranational)
before  any court or  governmental  authority  or agency,  domestic,  foreign or
supranational, seeking to (i) restrain, prohibit or otherwise interfere with the
ownership  or  operation  by  Parent or any  Subsidiary  of Parent of all or any
portion of the business of the Company or any of its  Subsidiaries  or of Parent
or any of its  Subsidiaries  or to compel Parent or any  Subsidiary of Parent to
dispose of or hold  separate all or any portion of the business or assets of the
Company or any of its Subsidiaries or of Parent or any of its Subsidiaries, (ii)
to impose or confirm  limitations  on the ability of Parent or any Subsidiary of
Parent effectively to exercise full rights of ownership of the shares of Company
Common  Stock  (or  shares  of stock of the  Surviving  Corporation)  including,
without  limitation,  the right to vote any shares of Company  Common  Stock (or
shares of stock of the Surviving  Corporation) on any matters properly presented
to  stockholders  or (iii)  seeking  to  require  divestiture  by  Parent or any
Subsidiary  of Parent of any shares of Company  Common Stock (or shares of stock
of the Surviving Corporation), if any such matter referred to in subclauses (i),
(ii) and (iii) hereof,  individually  or in the  aggregate,  would result in, or
would be  reasonably  likely to result in, a Material  Adverse  Effect on Parent
(including the Surviving Corporation) after the Effective Time;

         (k) there shall not be any statute, rule, regulation, injunction, order
or decree, enacted, enforced, promulgated,  entered, issued or deemed applicable
to the Merger and the other transactions  contemplated hereby (or in the case of
any statute,  rule or regulation,  awaiting signature or reasonably  expected to
become law),  by any court,  government or  governmental  authority or agency or
legislative body, domestic, foreign or supranational,  which, individually or in
the  aggregate,  would result in, or would be reasonably  likely to result in, a
Material Adverse Effect on Parent  (including the Surviving  Corporation)  after
the Effective Time; and

         (l) all required  approvals or consents of any  governmental  authority
(whether  domestic,  foreign or supranational) in connection with the Merger and
the consummation of the other transactions  contemplated  hereby shall have been
obtained (and all relevant statutory,  regulatory or other governmental  waiting
periods, whether domestic, foreign or supranational,  shall have expired) unless
the failure to receive any such  approval or consent  would not and would not be
reasonably  expected to result in a Material Adverse Effect on Parent (including
the Surviving  Corporation) after the Effective Time and (ii) all such approvals
and consents which have been obtained shall be on terms which,  individually  or
in the  aggregate,  would not  result in, or would not be  reasonably  likely to
result  in, a  Material  Adverse  Effect  on  Parent  (including  the



                                      -51-
<PAGE>

Surviving Corporation) after the Effective Time;

         SECTION  8.2  Conditions  to  the  Obligations  of  Parent  and  Merger
                       ---------------------------------------------------------
Subsidiary.
- ----------

     The  obligations  of Parent and Merger  Subsidiary to consummate the Merger
are subject to the satisfaction (or, to the extent legally permissible,  waiver)
of the following further conditions:

         (a) (i) the Company shall have  performed in all material  respects all
of its  obligations  hereunder  required to be performed by it as of or prior to
the  Closing  Date,  (ii) the  representations  and  warranties  of the  Company
contained in this Agreement and in any certificate or other writing delivered by
the Company  pursuant hereto shall be true and correct (without giving effect to
any  limitation  as to  "materiality"  or  "Material  Adverse  Effect" set forth
therein) when made and at and as of the  Effective  Time as if made at and as of
such time (except to the extent  expressly  made as of an earlier date, in which
case as of such earlier date), except where the failure of such  representations
and warranties to be true and correct  (without  giving effect to any limitation
as to "materiality"  or "Material  Adverse Effect" set forth therein) would not,
individually  or in the  aggregate,  have,  or be  reasonably  likely to have, a
Material  Adverse Effect on the Company,  and (iii) Parent shall have received a
certificate  signed by an  executive  officer of the  Company  to the  foregoing
effect;

         (b) Parent shall have  received an opinion of  McDermott,  Will & Emery
(or such  other  counsel  reasonably  acceptable  to  Parent),  on the  basis of
customary  representations and assumptions set forth in such opinion,  dated the
Effective Time, to the effect that the Merger will be treated for federal income
tax purposes as a  reorganization  qualifying  under the  provisions  of Section
368(a) of the Code. In rendering such opinion, such counsel shall be entitled to
rely upon  customary  representations  of  officers  of Parent  and the  Company
reasonably requested by counsel; and

         (c) since  the date of this  Agreement,  there  shall not have been any
event, occurrence,  development or state of circumstances which, individually or
in the aggregate,  would have, or would be reasonably likely to have, a Material
Adverse Effect on the Company.

         SECTION  8.3  Conditions  to  the  Obligations  of  the  Company.
                       --------------------------------------------------
     The  obligation of the Company to  consummate  the Merger is subject to the
satisfaction  (or, to the extent legally  permissible,  waiver) of the following
further conditions:

         (a) (i) Parent shall have performed in all material respects all of its
obligations  hereunder  required  to be  performed  by it as of or  prior to the
Closing Date,  (ii) the  representations  and warranties of Parent  contained in
this  Agreement  and in any  certificate  or other  writing  delivered by Parent
pursuant  hereto  shall  be true  and  correct  (without  giving  effect  to any
limitation as to  "materiality"  or "Material  Adverse Effect" set forth herein)
when made and at and as of the Effective  Time as if made at and as of such time
(except to the extent  expressly made as of an earlier date, in which case as of
such earlier date, except where the failure of such  representations  to be true
and correct  (without  giving effect to any  limitation as to  "materiality"  or
"Material  Adverse  Effect" set forth herein) would not,  individually or in the
aggregate,  have, or be reasonably  likely to have, a Material Adverse Effect on
Parent and (iii) the  Company  shall have  received a  certificate  signed by an
executive officer of Parent to the



                                      -52-
<PAGE>

foregoing effect;

         (b) the Company shall have received an opinion of Davis Polk & Wardwell
(or such other counsel  reasonably  acceptable to the Company),  on the basis of
customary  representations and assumptions set forth in such opinion,  dated the
Effective Time, to the effect that the Merger will be treated for federal income
tax purposes as a  reorganization  qualifying  under the  provisions  of Section
368(a) of the Code. In rendering such opinion, such counsel shall be entitled to
rely upon  customary  representations  of  officers  of Parent  and the  Company
reasonably requested by counsel; and

         (c) since  the date of this  Agreement,  there  shall not have been any
event, occurrence,  development or state of circumstances which, individually or
in the aggregate,  would have, or would be reasonably likely to have, a Material
Adverse Effect on Parent.

                                    ARTICLE 9
                                    ---------
                                   TERMINATION
                                   -----------

         SECTION 9.1  Termination.
                      -----------
     This  Agreement  may be  terminated  and the Merger may be abandoned at any
time prior to the Effective Time  (notwithstanding  the obtaining of the Company
Stockholder Approval or the Parent Stockholder Approval);

         (a)      by mutual written consent of the Company and Parent;

         (b)      by either the Company or Parent;

                  (i) if the Merger has not been consummated by October 15, 2001
         (the "End Date"); provided, however, that if (x) the Effective Time has
         not  occurred by such date by reason of  nonsatisfaction  of any of the
         conditions  set  forth in  Sections  8.1(b),  8.1(c),  8.1(i),  8.1(j),
         8.1(k),  8.1(l)  and  (y)  all  other  conditions  in  Article  8  have
         theretofore  been  satisfied  or (to the  extent  legally  permissible)
         waived or are then  capable  of being  satisfied,  the End Date will be
         April 15,  2002;  provided  further  that the right to  terminate  this
         Agreement  under this Section  9.1(b)(i)  shall not be available to any
         party whose failure to fulfill in any material  respect any  obligation
         under this  Agreement  has  caused or  resulted  in the  failure of the
         Effective Time to occur on or before the End Date;

                  (ii) if the Company  Stockholder  Approval shall not have been
         obtained by reason of the failure to obtain the required vote at a duly
         held meeting of stockholders or any adjournment thereof; or

                  (iii) if the Common  Stock  Issuance  Approval  shall not have
         been obtained by reason of the failure to obtain the required vote at a
         duly held meeting of stockholders or any adjournment thereof;

         (c) by either  the  Company  or  Parent,  if there  shall be any law or
regulation that makes



                                      -53-
<PAGE>

consummation  of the Merger illegal or otherwise  prohibited or if any judgment,
injunction,  order or decree enjoining  Parent or the Company from  consummating
the Merger is  entered  and such  judgment,  injunction,  order or decree  shall
become final and nonappealable;

         (d) by Parent,  if the Board of  Directors  of the  Company  shall have
failed to recommend  or withdrawn or modified or changed in a manner  adverse to
Parent its approval or recommendation  of this Agreement or the Merger,  whether
or not permitted by the terms hereof,  or shall have failed to call and hold the
Company  Stockholder  Meeting in  accordance  with  Section  5.2,  or shall have
recommended a Superior  Proposal (or the Board of Directors of the Company shall
resolve to do any of the foregoing);

         (e) by the  Company,  if the Board of  Directors  of Parent  shall have
failed to recommend  or shall have  withdrawn or modified or changed in a manner
adverse to the Company  its  approval  and  recommendation  of the Common  Stock
Issuance or the Name Change  Amendment,  whether or not  permitted  by the terms
hereof, or shall have failed to call and hold the Parent Stockholder  Meeting in
accordance  with Section 6.4 or shall have  recommended a Superior  Proposal (or
the Board of Directors of Parent resolves to do any of the foregoing);

         (f) by either Parent or the Company,  if there shall have been a breach
by the other of any of its representations, warranties, covenants or obligations
contained in this Agreement, which breach would result in the failure to satisfy
one or more of the  conditions  set forth in  Section  8.2(a)  (in the case of a
breach by the  Company)  or Section  8.3(a) (in the case of a breach by Parent),
and in any such  case  such  breach  shall be  incapable  of being  cured or, if
capable of being cured,  shall not have been cured within 30 days after  written
notice thereof shall have been received by the party alleged to be in breach;

         The party desiring to terminate this Agreement  pursuant to clause (b),
(c),  (d),  (e) or (f) of this  Section  9.1 shall give  written  notice of such
termination to the other party in accordance  with Section 10.1,  specifying the
provision hereof pursuant to which such termination is effected.

         SECTION 9.2 Effect of  Termination.
                     ----------------------
     If this  Agreement is terminated  pursuant to Section 9.1,  this  Agreement
shall  become void and of no effect with no  liability  on the part of any party
hereto, except that (a) the agreements contained in this Section 9.2, in Section
10.4,   10.5  and  10.6  hereof  or  in  the  Option   Agreements   and  in  the
Confidentiality  Agreement,  and the representations and warranties with respect
to the Option  Agreements,  shall survive the termination hereof and (b) no such
termination  shall relieve any party of any liability or damages  resulting from
any willful breach by that party of this Agreement or the Option Agreements.



                                      -54-
<PAGE>

                                   ARTICLE 10
                                   ----------
                                  MISCELLANEOUS
                                  -------------

         SECTION 10.1 Notices.
                      -------
     All notices, requests and other communications to any party hereunder shall
be in writing (including facsimile or similar writing) and shall be given,

         if to Parent or Merger Subsidiary, to:

               Harvey D. Hinman, Esq.
               Vice President and General Counsel
               Chevron Corporation
               575 Market Street
               San Francisco, California  94105
               Facsimile No.: (415) 894-6017

        with copies to:

               Alfred L. Pepin, Esq.
               1156 Mee Lane
               St. Helena, California  94574
               Facsimile No.: (707) 967-0551

         and

               Arthur Fleischer, Jr., Esq.
               Gary P. Cooperstein, Esq.
               Fried, Frank, Harris, Shriver & Jacobson
               One New York Plaza
               New York, New York  10004-1980
               Facsimile No.: (212) 859-4000

         and

               Terry M. Kee, Esq.
               Rodney R. Peck, Esq.
               Pillsbury Madison & Sutro LLP
               50 Fremont Street
               San Francisco, California  94105
               Facsimile No.: (415) 983-1200




                                      -55-
<PAGE>

         if to the Company, to:

               William M. Wicker
               Senior Vice President
               Texaco Inc.
               2000 Westchester Avenue
               White Plains, New York  10650
               Facsimile No.: (914) 253-4280

         with copies to:

               Deval Patrick, Esq.
               General Counsel and Vice President
               Texaco Inc.
               2000 Westchester Avenue
               White Plains, New York  10650
               Facsimile No.: (914) 253-4477

         and

               Dennis S. Hersch, Esq.
               Ulrika Ekman, Esq.
               Davis Polk & Wardwell
               450 Lexington Avenue
               New York, New York  10017
               Facsimile No.: (212) 450-4800


or such other address or facsimile  number as such party may  hereafter  specify
for the purpose by notice to the other parties hereto. Each such notice, request
or other communication  shall be effective (a) if given by facsimile,  when such
facsimile is transmitted to the facsimile  number  specified in this Section and
the appropriate facsimile  confirmation is received or (b) if given by any other
means, when delivered at the address specified in this Section.

         SECTION  10.2  Non-Survival  of  Representations  and  Warranties.
                        --------------------------------------------------
     The representations and warranties  contained herein and in any certificate
or other writing delivered  pursuant hereto shall not survive the Effective Time
or the termination of this Agreement.

         SECTION 10.3 Amendments; No Waivers.
                      -----------------------

         (a) Any  provision  of  this  Agreement  (including  the  Exhibits  and
Schedules  hereto) may be amended or waived prior to the Effective  Time if, and
only if, such  amendment  or waiver is in writing and signed,  in the case of an
amendment,  by the Company,  Parent and Merger  Subsidiary,  or in the case of a
waiver,  by the party against whom the waiver is to be effective;  provided that
after the adoption of this Agreement by the stockholders of the Company, no such
amendment or waiver shall,  without the further  approval of such  stockholders,
alter or  change



                                      -56-
<PAGE>

(i) the amount or kind of  consideration  to be  received  in  exchange  for any
shares of capital  stock of the Company or (ii) any term of the  certificate  of
incorporation of Parent.

         (b) No failure or delay by any party in exercising any right,  power or
privilege  hereunder  shall operate as a waiver  thereof nor shall any single or
partial  exercise  thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege.  The rights and remedies herein
provided  shall be  cumulative  and not  exclusive  of any  rights  or  remedies
provided by law.

         SECTION 10.4  Expenses.
                       --------

         (a)  Except as  otherwise  specified  in Section  10.5 or 10.6,  or the
Option Agreements or as otherwise agreed to in writing by the parties, all costs
and expenses  incurred in connection  with this  Agreement and the  transactions
contemplated by this Agreement shall be paid by the party incurring such cost or
expense.

         SECTION 10.5  Company Termination Fee.  If:
                       -----------------------

                  (i)   Parent shall terminate this Agreement pursuant to
         Section 9.1(d), or

                  (ii)  either  the  Company  or  Parent  shall  terminate  this
         Agreement  pursuant  to  Section  9.1(b)(ii)  and prior to the  Company
         Stockholder Meeting an Acquisition Proposal relating to the Company has
         been made to the Company or to the  stockholders  of the Company by any
         Person; or

                  (iii) any  Person  shall  have made to the  Company  or to the
         stockholders  of the Company an  Acquisition  Proposal  relating to the
         Company and thereafter this Agreement is terminated pursuant to Section
         9.1(b)(i);

then in any case as described in clause (i),  (ii),  or (iii) the Company  shall
pay to Parent (by wire transfer of immediately available funds) (x) $500,000,000
not later than the date of  termination  of this Agreement and (y) an additional
$500,000,000,  if and not  later  than  the  date  an  Acquisition  Proposal  is
consummated  or a  definitive  agreement  is  entered  into  by the  Company  in
connection with any Acquisition  Proposal,  as long as such Acquisition Proposal
is consummated or such  definitive  agreement is executed within 12 months after
the date of termination of this Agreement.

         SECTION 10.6  Parent Termination Fee.  If:
                       ----------------------

                  (i)   The Company shall terminate this Agreement pursuant to
         Section 9.1(e); or

                  (ii)  either  the  Company  or  Parent  shall  terminate  this
         Agreement  pursuant  to  Section  9.1(b)(iii)  and prior to the  Parent
         Stockholder Meeting an Acquisition Proposal relating to Parent has been
         made by any Person to the Parent or the  stockholders  of Parent by any
         Person; or

                                      -57-
<PAGE>

                  (iii) any Person shall have made to Parent or its stockholders
         an  Acquisition   Proposal  relating  to  Parent  and  thereafter  this
         Agreement is terminated pursuant to Section 9.1(b)(i);

then in any case as described  in clause (i),  (ii) or (iii) Parent shall pay to
the Company (by wire transfer of immediately  available  funds) (x) $500,000,000
not later than the date of  termination  of this Agreement and (y) an additional
$500,000,000,  if and not  later  than  the  date  an  Acquisition  Proposal  is
consummated  or a definitive  agreement is entered into by Parent in  connection
with  any  Acquisition  Proposal,  as  long  as  such  Acquisition  Proposal  is
consummated or such definitive  agreement is executed within 12 months after the
date of termination of this Agreement.

         SECTION 10.7  Successors and Assigns.
                       ----------------------
     The  provisions  of this  Agreement  shall be binding upon and inure to the
benefit of the  parties  hereto and their  respective  successors  and  assigns;
provided  that no party may assign,  delegate or  otherwise  transfer any of its
rights or  obligations  under this  Agreement  without  the consent of the other
parties hereto except that Merger Subsidiary may transfer or assign, in whole or
from time to time in part,  to one or more of its  affiliates,  its rights under
this  Agreement,  but any such  transfer or assignment  will not relieve  Merger
Subsidiary of its obligations hereunder.

         SECTION  10.8  Governing  Law.
                        --------------
     This  Agreement  shall be construed in accordance  with and governed by the
law of the State of Delaware, without regard to principles of conflicts of law.

         SECTION 10.9  Jurisdiction.
                       ------------
     Any suit,  action or  proceeding  seeking to enforce any  provision  of, or
based on any matter arising out of or in connection  with, this  Agreement,  the
Option  Agreements  or the  transactions  contemplated  hereby or thereby may be
brought in any federal or state court located in the State of Delaware, and each
of the parties hereby  consents to the  jurisdiction  of such courts (and of the
appropriate  appellate courts  therefrom) in any such suit, action or proceeding
and irrevocably  waives,  to the fullest extent  permitted by law, any objection
which it may now or hereafter  have to the laying of the venue of any such suit,
action  or  proceeding  in any  such  court or that any  such  suit,  action  or
proceeding  which  is  brought  in  any  such  court  has  been  brought  in  an
inconvenient forum. Process in any such suit, action or proceeding may be served
on any party anywhere in the world,  whether within or without the  jurisdiction
of any such  court.  Without  limiting  the  foregoing,  each party  agrees that
service of process on such  party as  provided  in Section  10.1 shall be deemed
effective service of process on such party.

         SECTION 10.10 Waiver of Jury Trial.
                       --------------------
     EACH OF THE PARTIES HERETO HEREBY  IRREVOCABLY  WAIVES ANY AND ALL RIGHT TO
TRIAL  BY  JURY  IN ANY  LEGAL  PROCEEDING  ARISING  OUT OF OR  RELATED  TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

         SECTION 10.11 Counterparts; Effectiveness.
                       ---------------------------
     This Agreement may be signed in any number of  counterparts,  each of which
shall be an  original,  with the same  effect as if the  signatures  thereto and
hereto were upon the same instrument. This Agreement shall become



                                      -58-
<PAGE>

effective when each party hereto shall have received  counterparts hereof signed
by all of the other parties hereto.

         SECTION 10.12 Entire Agreement.
                       ----------------
     This Agreement  (including the Exhibits and Schedules  hereto),  the Option
Agreements and the  Confidentiality  Agreement  constitute the entire  agreement
between the parties with  respect to the subject  matter of this  Agreement  and
supersede  all prior  agreements  and  understandings,  both  oral and  written,
between  the parties  with  respect to the subject  matter  hereof and  thereof.
Except as provided in Section  6.3(c),  no  provision  of this  Agreement or any
other  agreement  contemplated  hereby is intended to confer on any Person other
than the parties hereto any rights or remedies.

         SECTION  10.13   Captions.
                          --------
     The  captions  herein are included for  convenience  of reference  only and
shall be ignored in the construction or interpretation hereof.

         SECTION  10.14  Severability.
                         ------------
     If any term,  provision,  covenant or restriction of this Agreement is held
by a court of competent  jurisdiction or other authority to be invalid,  void or
unenforceable,   the   remainder  of  the  terms,   provisions,   covenants  and
restrictions  of this Agreement  shall remain in full force and effect and shall
in no way be affected,  impaired or invalidated so long as the economic or legal
substance of the transactions  contemplated hereby is not affected in any manner
materially  adverse to any party.  Upon such a determination,  the parties shall
negotiate  in good faith to modify this  Agreement  so as to effect the original
intent of the parties as closely as possible  in an  acceptable  manner in order
that  the  transactions   contemplated   hereby  be  consummated  as  originally
contemplated to the fullest extent possible.



                                      -59-
<PAGE>

         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly  executed by their  respective  authorized  officers as of the day and year
first above written.

                                TEXACO INC.



                                By:              /s/ PETER I. BIJUR
                                        ----------------------------------
                                Name:             Peter I. Bijur
                                Title:        Chairman of the Board and
                                              Chief Executive Officer


                                CHEVRON CORPORATION



                                By:             /s/ DAVID J. O'REILLY
                                        ----------------------------------
                                Name:            David J. O'Reilly
                                Title:        Chairman of the Board and
                                              Chief Executive Officer

                                KEEPEP INC.



                                By:             /s/ DAVID J. O'REILLY
                                        ----------------------------------
                                Name:           David J. O'Reilly
                                Title:             President




                                      -60-

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-2.2
<SEQUENCE>3
<FILENAME>0003.txt
<DESCRIPTION>STOCK OPTION AGREEMENT
<TEXT>



                                                                     Exhibit 2.2
                                                                     -----------
                             STOCK OPTION AGREEMENT
                             ----------------------

         THIS STOCK OPTION AGREEMENT (this "Agreement"), dated as of October 15,
2000, between Chevron Corporation, a Delaware corporation ("Parent"), and Texaco
Inc., a Delaware corporation (the "Company").

                                               W I T N E S S E T H :

         WHEREAS, Parent and the Company are concurrently with the execution and
delivery of this  Agreement  entering  into an Agreement and Plan of Merger (the
"Merger  Agreement")  pursuant to which,  among other things,  Merger Subsidiary
will merge with and into the Company on the terms and subject to the  conditions
stated therein; and

         WHEREAS,  in order to induce Parent to enter into the Merger  Agreement
and as a condition  for  Parent's  agreeing so to do, the Company has granted to
Parent the Stock Option (as  hereinafter  defined),  on the terms and conditions
set forth herein;

         NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth  herein and in the Merger  Agreement,  and for other good and valuable
consideration,  the adequacy of which is hereby acknowledged, the parties hereto
agree as follows:

         Section 1.  Definitions.  Capitalized terms used and not defined herein
have the respective meanings assigned to them in the Merger Agreement.

         Section 2.  Grant of Stock Option.
                     ---------------------

         (a) The  Company  hereby  grants to Parent an  irrevocable  option (the
"Stock Option") to purchase,  on the terms and subject to the conditions hereof,
for $53.71 per share (the  "Exercise  Price") in cash, up to  107,000,000  fully
paid and  non-assessable  shares (the "Option  Shares") of the Company's  common
stock, par value $3.125 per share (the "Common  Stock").  The Exercise Price and
number of Option  Shares shall be subject to  adjustment as provided in Sections
2(b) and 6 below.

         (b) In the event  that any (i)  additional  shares of Common  Stock are
issued or otherwise  become  outstanding  after the date of the Agreement (other
than  pursuant to this  Agreement)  or (ii) shares of Common Stock are redeemed,
repurchased,  retired or otherwise cease to be outstanding after the date of the
Agreement,  the number of shares of Common  Stock  subject  to the Stock  Option
shall be increased or decreased, as appropriate,  so that after such issuance or
redemption,  such number  equals  19.9% of the number of shares of Common  Stock
then issued and  outstanding  (without  giving  effect to any shares  subject or
issued pursuant to the Stock Option).  Nothing contained in this Section 2(b) or
elsewhere in this Agreement  shall be deemed to authorize  Parent or the Company
to breach any provision of the Merger Agreement.



                                      -1-
<PAGE>

         Section 3.  Exercise of Stock Option.
                     ------------------------

         (a) Parent may, subject to the provisions of this Section, exercise the
Stock Option,  in whole or in part, at any time or from time to time,  after the
occurrence  of a  Company  Trigger  Event  (defined  below)  and  prior  to  the
Termination  Date.  "Termination  Date"  shall  mean  the  earliest  of (i)  the
Effective  Time  of the  Merger,  (ii) 90  days  after  the  date  full  payment
contemplated  by Section 10.5 of the Merger  Agreement is made by the Company to
Parent  thereunder  or (iii) one day after  the date of the  termination  of the
Merger  Agreement  so long as,  in the case of this  clause  (iii),  no  Company
Trigger Event has occurred or could still occur  pursuant to Section 10.5 of the
Merger Agreement. Notwithstanding the occurrence of the Termination Date, Parent
shall be entitled  to purchase  Option  Shares  pursuant to any  exercise of the
Stock Option,  on the terms and subject to the conditions  hereof, to the extent
Parent  exercised the Stock Option prior to the  occurrence  of the  Termination
Date. A "Company  Trigger Event" shall mean an event the result of which is that
the Company becomes obligated to pay a fee to Parent pursuant to Section 10.5 of
the Merger Agreement.

         (b) Parent may purchase Option Shares pursuant to the Stock Option only
if all  of the  following  conditions  are  satisfied:  (i)  no  preliminary  or
permanent  injunction  or other  order  issued by any  federal or state court of
competent  jurisdiction  in the  United  States  shall be in effect  prohibiting
delivery of the Option Shares,  (ii) any applicable waiting period under the HSR
Act shall have expired or been terminated,  and (iii) any prior  notification to
or approval of any other regulatory  authority in the United States or elsewhere
required in  connection  with such  purchase  shall have been made or  obtained,
other than those which if not made or obtained  would not reasonably be expected
to result in a Material  Adverse  Effect on the  Company  and its  Subsidiaries,
taken as a whole.

         (c) If Parent  shall be entitled  to and wishes to  exercise  the Stock
Option, it shall do so by giving the Company written notice (the "Stock Exercise
Notice") to such effect,  specifying the number of Option Shares to be purchased
and a place and closing date not earlier than three business days nor later than
10 business  days from the date of such Stock  Exercise  Notice.  If the closing
cannot be  consummated  on such date  because any  condition  to the purchase of
Option Shares set forth in Section 3(b) has not been satisfied or as a result of
any  restriction  arising under any applicable  law or  regulation,  the closing
shall  occur  five days (or such  earlier  time as  Parent  may  specify)  after
satisfaction of all such conditions and the cessation of all such  restrictions;
provided that in no event shall the closing of the purchase be postponed by more
than nine months after the Termination Date as a result of this clause (c).

         (d) So long as the Stock Option is exercisable pursuant to the terms of
Section 3(a) Parent may elect to send a written notice to the Company (the "Cash
Exercise  Notice")  specifying  a date not later than 20  business  days and not
earlier than 10 business  days  following the date such notice is given on which
date the Company  shall pay to Parent in exchange  for the  cancellation  of the
relevant  portion of the Stock  Option an amount in cash equal to the Spread (as
hereinafter  defined)  multiplied  by all or such  portion of the Option  Shares
subject to the Stock Option as Parent shall  specify.  As used herein,  "Spread"
shall mean the excess,  if any, over the Exercise  Price of the higher of (x) if
applicable,  the highest  price per share of Common Stock



                                      -2-
<PAGE>

paid or proposed to be paid by any Person pursuant to any  Acquisition  Proposal
relating to the Company (the "Alternative Exercise Price") or (y) the average of
the  closing  price of the shares of Common  Stock on the NYSE at the end of the
regular session,  as reported on the Consolidated  Tape,  Network A for the five
consecutive  trading days ending on and including  the trading date  immediately
preceding  the date on which the Cash  Exercise  Notice is given  (the  "Average
Market Price").  If the  Alternative  Exercise Price includes any property other
than cash, the Alternative Exercise Price shall be the sum of (i) the fixed cash
amount,  if any,  included in the Alternative  Exercise Price plus (ii) the fair
market  value  of such  other  property.  If such  other  property  consists  of
securities with an existing  public trading  market,  the average of the closing
prices (or the average of the closing bid and asked prices if closing prices are
unavailable) for such securities in their principal public trading market on the
five trading days ending five days prior to the date on which the Cash  Exercise
Notice is given shall be deemed to equal the fair market value of such property.
If such other property  includes  anything other than cash or securities with an
existing public trading market,  the Alternative  Exercise Price shall be deemed
to equal the Average  Market Price.  Upon exercise of its right pursuant to this
Section  3(d) and the  receipt  by Parent of the  applicable  cash  amount  with
respect to the Option Shares or the applicable portion thereof,  the obligations
of the  Company to  deliver  Option  Shares  pursuant  to Section  3(e) shall be
terminated  with  respect to the number of Option  Shares  specified in the Cash
Exercise Notice. The Spread shall be appropriately  adjusted, if applicable,  to
give effect to Section 6.

         (e) (i) At any closing  pursuant to Section 3(c)  hereof,  Parent shall
make  payment to the  Company  of the  aggregate  purchase  price for the Option
Shares to be purchased  and the Company  shall  deliver to Parent a  certificate
representing  the purchased  Option Shares,  registered in the name of Parent or
its  designee  and (ii) at any closing  pursuant  to Section  3(d)  hereof,  the
Company will deliver to Parent cash in an amount determined  pursuant to Section
3(d) hereof.  Any payment  made by Parent to the  Company,  or by the Company to
Parent, pursuant to this Agreement shall be made by wire transfer of immediately
available funds to a bank designated by the party receiving such funds, provided
that the  failure or refusal by the  Company to  designate  such a bank  account
shall not preclude  Parent from  exercising the Stock Option.  If at the time of
the  issuance of Option  Shares  pursuant to the  exercise of the Stock  Option,
Company Rights or any similar securities are outstanding, then the Option Shares
issued pursuant to such exercise shall be accompanied by  corresponding  Company
Rights or such similar securities.

         (f) Certificates for Common Stock delivered at the closing described in
Section 3(c) hereof shall be endorsed with a restrictive legend which shall read
substantially as follows:

         "The transfer of the shares  represented by this certificate is subject
         to resale  restrictions  arising under the  Securities  Act of 1933, as
         amended. The shares represented by this certificate are also subject to
         repurchase by the Issuer  pursuant to the Stock Option  Agreement dated
         as of October 15, 2000, a copy of which  agreement may be obtained upon
         request from the Issuer."

                                      -3-
<PAGE>

         It is  understood  and agreed that the above legend shall be removed by
delivery of substitute certificate(s) without this reference (i) if Parent shall
have delivered to the Company a copy of a no-action letter from the staff of the
Securities and Exchange Commission, or a written opinion of counsel, in form and
substance reasonably satisfactory to the Company, to the effect that such legend
is not  required  for  purposes  of, or resale may be  effected  pursuant  to an
exemption from registration under, the Securities Act or (ii) in connection with
any sale registered  under the Securities Act. In addition,  these  certificates
shall bear any other legend as may be required by applicable law.

         (g) At any time  following  the exercise by Parent of the Stock Option,
the Company shall have the right, within 5 business days after written notice to
Parent,  to  purchase  for cash all of the  Option  Shares  received  by  Parent
pursuant to this  Agreement at a purchase price per share equal to the higher of
(x) the  Alternative  Exercise  Price or (y) the Average  Market  Price.  At any
closing  pursuant to this Section 3(g), the Company shall make payment to Parent
of the aggregate purchase price for the Option Shares to be purchased and Parent
shall deliver to the Company a  certificate  representing  the purchased  Option
Shares.

         Section 4.  Representations and Warranties of the Company.  The Company
hereby represents and warrants to Parent as follows:

         (a) The Company is a corporation  duly  incorporated,  validly existing
and in good  standing  under the laws of the State of Delaware.  The  execution,
delivery and  performance by the Company of this Agreement and the  consummation
by the  Company  of the  transactions  contemplated  hereby  (i) are  within the
Company's  corporate  powers,  (ii) have been duly  authorized  by all necessary
corporate  action,  (iii) require no action by or in respect of, or filing with,
any  governmental  body,  agency or  official,  except for  compliance  with any
applicable  requirements  of the HSR Act, the Exchange Act, the Securities  Act,
and laws, rules and regulations in foreign jurisdictions  governing antitrust or
merger control matters (iv) assuming  compliance with the matters referred to in
clause (iii), do not contravene,  or constitute a violation of, any provision of
applicable law or regulation or of the certificate of  incorporation  or by-laws
of the Company or of any judgment,  injunction, order or decree binding upon the
Company or any of its Subsidiaries, (v) do not and will not constitute a default
under or give rise to a right of  termination,  cancellation  or acceleration of
any right or obligation of the Company or any of its  Subsidiaries  or to a loss
of any benefit to which the Company or any of its Subsidiaries is entitled under
any provision of any agreement,  contract or other  instrument  binding upon the
Company or any of its  Subsidiaries or any license,  franchise,  permit or other
similar  authorization held by the Company or any of its Subsidiaries,  and (vi)
do not and will not  result in the  creation  or  imposition  of any Lien on any
asset of the Company or any of its Subsidiaries, except for such contraventions,
conflicts  or  violations  referred  to in clause  (iv) or  defaults,  rights of
termination,  cancellation  or  acceleration,  or losses or Liens referred to in
clauses (v) and (vi) that would not,  individually  or in the aggregate,  have a
Material  Adverse  Effect on the Company.  This Agreement has been duly executed
and delivered by the Company and  constitutes  a valid and binding  agreement of
the Company.



                                      -4-
<PAGE>

         (b) The Company has taken all necessary  corporate  action to authorize
and  reserve  and to permit it to issue,  and at all times from the date  hereof
until such time as the  obligation to deliver Option Shares upon the exercise of
the Stock Option  terminates,  will have reserved for issuance upon any exercise
of the Stock  Option,  the number of Option  Shares  subject to the Stock Option
(less the number of Option Shares previously issued upon any partial exercise of
the Stock Option).  All of the Option Shares to be issued  pursuant to the Stock
Option  have been duly  authorized  and,  upon  issuance  and  delivery  thereof
pursuant to this Agreement, will be duly authorized,  validly issued, fully paid
and  nonassessable,  and will be delivered free and clear of all claims,  liens,
charges,  encumbrances and security  interests (other than those created by this
Agreement).  Option  Shares issued upon exercise of the Stock Option will not be
subject to any  preemptive  or similar  rights.  The Board of  Directors  of the
Company  has  resolved  to, and the Company  promptly  after  execution  of this
Agreement will, take all necessary action to render the Company Rights Agreement
inapplicable  to the grant or exercise of the Stock Option and the  transactions
contemplated  hereby.  The  Board of  Directors  of the  Company  has  taken all
necessary  action  to  render  section  203 of the  Delaware  Law,  or any other
antitakeover  statute or similar  statute or regulation,  and the  supermajority
voting provisions of Article XIII of the Company's  certificate of incorporation
and Article VII of the Company's by-laws  inapplicable to the acquisition of the
Option Shares pursuant to this Agreement.

         Section 5.  Representations  and  Warranties  of Parent.  Parent hereby
represents and warrants to the Company as follows:  Parent is a corporation duly
incorporated,  validly existing and in good standing under the laws of the State
of Delaware. The execution, delivery and performance by Parent of this Agreement
and the  consummation  of the  transactions  contemplated  hereby (i) are within
Parent's  corporate  powers and (ii) have been duly  authorized by all necessary
corporate action.  The Option Shares acquired by Parent upon the exercise of the
Stock Option will not be, and the Stock Option is not being,  acquired by Parent
with the intention of making a public  distribution  thereof.  Neither the Stock
Option nor the Option Shares  acquired upon exercise of the Stock Option will be
sold or otherwise disposed of by Parent except in compliance with the Securities
Act.  This  agreement  has been  duly  executed  and  delivered  by  Parent  and
constitutes a valid and binding agreement of Parent.

         Section 6. Adjustment upon Changes in Capitalization or Merger.

         (a) In the  event of any  change  in the  outstanding  shares of Common
Stock by reason of a stock dividend, stock split, reverse stock split, split-up,
merger, consolidation,  recapitalization,  combination,  conversion, exchange of
shares, extraordinary or liquidating dividend or similar transaction which would
affect  Parent's rights  hereunder,  the type and number of shares or securities
purchasable  upon the exercise of the Stock Option and the Exercise  Price shall
be adjusted  appropriately,  and proper provision will be made in the agreements
governing  such  transaction,  as shall fully  preserve  the  economic  benefits
provided  hereunder  to  Parent  and  the  full  satisfaction  of the  Company's
obligations  hereunder.  In no event shall the number of shares of Common  Stock
subject to the Stock Option exceed 19.9% of the number of shares of Common Stock
issued and  outstanding  at the time of exercise  (without  giving effect to any
shares subject or issued pursuant to the Stock Option).



                                      -5-
<PAGE>

         (b)  Without  limiting  the  foregoing,  whenever  the number of Option
Shares  purchasable upon exercise of the Stock Option is adjusted as provided in
this Section 6, the Exercise Price shall be adjusted by multiplying the Exercise
Price by a  fraction,  the  numerator  of which is equal to the number of Option
Shares purchasable prior to the adjustment and the denominator of which is equal
to the number of Option Shares purchasable after the adjustment.

         (c) Without  limiting or altering the parties'  rights and  obligations
under  the  Merger  Agreement,  in the event  that the  Company  enters  into an
agreement (i) to consolidate with or merge into any Person, other than Parent or
one of its Subsidiaries, and the Company will not be the continuing or surviving
corporation in such  consolidation or merger,  (ii) to permit any Person,  other
than  Parent  or one of its  Subsidiaries,  to merge  into the  Company  and the
Company will be the continuing or surviving corporation,  but in connection with
such merger,  the shares of Common Stock  outstanding  immediately  prior to the
consummation of such merger will be changed into or exchanged for stock or other
securities of the Company or any other Person or cash or any other property,  or
the shares of Common Stock outstanding  immediately prior to the consummation of
such merger will, after such merger,  represent less than 50% of the outstanding
voting securities of the merged company,  or (iii) to sell or otherwise transfer
all or substantially  all of its assets to any Person,  other than Parent or one
of its Subsidiaries,  then, and in each such case, the agreement  governing such
transaction  will make proper  provision so that the Stock Option will, upon the
consummation of any such transaction and upon the terms and conditions set forth
herein,  be converted  into, or exchanged  for, an option with  identical  terms
appropriately  adjusted  to  acquire  the  number  and  class of shares or other
securities  or  property  that Parent  would have  received in respect of Option
Shares  had  the  Stock  Option  been  exercised   immediately   prior  to  such
consolidation,  merger,  sale  or  transfer  or the  record  date  therefor,  as
applicable,  and shall make any other necessary  adjustments.  The Company shall
take such steps in connection with such  consolidation,  merger,  liquidation or
other  such  transaction  as may be  reasonably  necessary  to  assure  that the
provisions hereof shall thereafter apply as nearly as possible to any securities
or property thereafter deliverable upon exercise of the Stock Option.

         Section 7.  Further Assurances; Remedies.
                     ----------------------------

         (a) The  Company  agrees  to  maintain,  free from  preemptive  rights,
sufficient  authorized  but unissued or treasury  shares of Common Stock so that
the Stock Option may be fully  exercised  without  additional  authorization  of
Common Stock after giving  effect to all other  options,  warrants,  convertible
securities and other rights of third parties to purchase  shares of Common Stock
from the Company,  and to issue the appropriate number of shares of Common Stock
pursuant to the terms of this  Agreement.  All of the Option Shares to be issued
pursuant to the Stock  Option,  upon issuance and delivery  thereof  pursuant to
this  Agreement,  will  be duly  authorized,  validly  issued,  fully  paid  and
non-assessable,  and will be  delivered  free and  clear of all  claims,  liens,
charges,  encumbrances and security  interests (other than those created by this
Agreement).

         (b) The  Company  agrees  not to  avoid or seek to  avoid  (whether  by
charter amendment or through reorganization,  consolidation, merger, issuance of
rights,  dissolution  or



                                      -6-
<PAGE>

sale of assets,  or by any other voluntary act) the observance or performance of
any of the  covenants,  agreements  or  conditions  to be observed or  performed
hereunder by the Company.

         (c) The Company  agrees that promptly after the occurrence of a Company
Trigger  Event it shall take all  actions  as may from time to time be  required
(including (i) complying with all applicable premerger  notification,  reporting
and  waiting  period  requirements  under the HSR Act and (ii) in the event that
prior  notification  to or approval  of any other  regulatory  authority  in the
United  States  or  elsewhere  is  necessary  before  the  Stock  Option  may be
exercised, complying with its obligations thereunder and cooperating with Parent
in preparing and processing the required  notices or  applications)  in order to
permit Parent to exercise the Stock Option and purchase  Option Shares  pursuant
to such exercise.

         (d) The parties agree that Parent would be  irreparably  damaged if for
any  reason  the  Company  failed to issue any of the  Option  Shares  (or other
securities or property  deliverable  pursuant to Section 6 hereof) upon exercise
of the  Stock  Option or to  perform  any of its other  obligations  under  this
Agreement,  and that Parent  would not have an adequate  remedy at law for money
damages  in such  event.  Accordingly,  Parent  shall be  entitled  to  specific
performance and injunctive and other equitable relief to enforce the performance
of this  Agreement by the Company.  Accordingly,  if Parent should  institute an
action or proceeding seeking specific  enforcement of the provisions hereof, the
Company hereby waives the claim or defense that Parent has an adequate remedy at
law and hereby agrees not to assert in any such action or  proceeding  the claim
or defense that such a remedy at law exists. The Company further agrees to waive
any  requirements  for the  securing or posting of any bond in  connection  with
obtaining any such equitable relief.  This provision is without prejudice to any
other rights that Parent may have against the Company for any failure to perform
its obligations under this Agreement.

         Section 8. Listing of Option Shares. Promptly after the occurrence of a
Company Trigger Event and from time to time thereafter if necessary, the Company
will apply to list all of the Option  Shares  subject to the Stock Option on the
NYSE and will use its reasonable best efforts to obtain approval of such listing
as soon as practicable.

         Section 9. Registration of the Option Shares.
                    ---------------------------------

         (a) If,  within two years of the exercise of the Stock  Option,  Parent
requests the Company in writing to register  under the Securities Act any of the
Option Shares received by Parent hereunder,  the Company will use its reasonable
best  efforts to cause the  offering of the Option  Shares so  specified in such
request  to be  registered  as soon as  practicable  so as to permit the sale or
other  distribution by Parent of the Option Shares specified in its request (and
to keep such  registration  in effect for a period of at least 90 days),  and in
connection  therewith  the  Company  shall  prepare  and  file  as  promptly  as
reasonably possible (but in no event later than 60 days from receipt of Parent's
request)  a  registration  statement  under the  Securities  Act to effect  such
registration on an appropriate  form,  which would permit the sale of the Option
Shares by Parent in accordance with the plan of disposition  specified by Parent
in its request.  The Company shall not be obligated to make  effective more than
two  registration  statements  pursuant  to the  foregoing  sentence;  provided,
however,  that the Company may postpone the filing of a


                                      -7-
<PAGE>

registration  statement relating to a registration  request by Parent under this
Section 9 for a period  of time  (not in excess of 90 days) if in the  Company's
reasonable,  good faith judgment (i) such filing would require the disclosure of
material  information  that the  Company  has a bona fide  business  purpose for
preserving  as  confidential  or (ii) the sale of Option  Shares by Parent would
materially interfere with any pending or anticipated  acquisition,  financing or
transaction involving the Company or its Subsidiaries (but in no event shall the
Company  exercise  such  postponement  right more than once in any  twelve-month
period).

         (b) The Company  shall  notify  Parent in writing not less than 10 days
prior to filing a registration  statement under the Securities Act (other than a
filing on Form S-4 or S-8 or any  successor  form) with respect to any shares of
Common Stock. If Parent wishes to have any portion of its Option Shares included
in such  registration,  it shall  advise the  Company in writing to that  effect
within two business days following receipt of such notice,  and the Company will
thereupon  include  the  number of  Option  Shares  indicated  by Parent in such
registration;  provided  that if the  managing  underwriter(s)  of the  offering
pursuant to such registration statement advise the Company that in their opinion
the  number  of  shares  of  Common  Stock  requested  to be  included  in  such
registration exceeds the number which can be sold in such offering,  the Company
shall only include in such  registration  such number or dollar amount of Option
Shares which, in the good faith opinion of the managing  underwriter(s),  can be
sold without materially and adversely affecting such offering.

         (c) All expenses  relating to or in  connection  with any  registration
contemplated  under this  Section 9 and the  transactions  contemplated  thereby
(including all filing,  printing,  reasonable  professional,  roadshow and other
fees and expenses  relating thereto) will be at the Company's expense except for
underwriting  discounts or commissions and brokers' fees. The Company and Parent
agree to enter into a customary  underwriting  agreement with  underwriters upon
such  terms  and  conditions  as  are  customarily   contained  in  underwriting
agreements with respect to secondary distributions.  The Company shall indemnify
Parent,  its officers,  directors,  agents,  other  controlling  persons and any
underwriters  retained  by Parent in  connection  with such sale of such  Option
Shares  in  the  customary  way,  and  shall  agree  to  customary  contribution
provisions  with such  persons,  with  respect  to claims,  damages,  losses and
liabilities (and any expenses relating thereto) arising (or to which Parent, its
officers,  directors,  agents,  other controlling persons or underwriters may be
subject) in connection with any such offer or sale under the federal  securities
laws or otherwise,  except for information furnished in writing by Parent or its
underwriters to the Company.  Parent and its underwriters,  respectively,  shall
indemnify the Company to the same extent with respect to  information  furnished
in writing to the Company by Parent and such underwriters, respectively.

         Section 10.  Miscellaneous.
                      -------------

         (a) Extension of Exercise Periods.  The periods during which Parent may
exercise its rights under  Sections 2 and 3 hereof,  or the Company may exercise
its  rights  under  Section  2(g),  shall be  extended  in each such case at the
request of Parent to the extent  necessary  to avoid  liability  by Parent under
Section 16(b) of the Exchange Act by reason of such exercise.

                                      -8-
<PAGE>

         (b) Amendments;  Entire Agreement.  This Agreement may not be modified,
amended,  altered or  supplemented,  except upon the execution and delivery of a
written agreement executed by the parties hereto. This Agreement,  together with
the Merger Agreement  (including any exhibits and schedules  thereto),  contains
the entire  agreement  between  the parties  hereto with  respect to the subject
matter  hereof  and  supersedes  all prior and  contemporaneous  agreements  and
understandings, oral or written, with respect to such transactions.

         (c) Notices.  All notices, requests and other communications to either
             -------
party hereunder shall be inwriting (including facsimile or similar writing) and
shall be given,

         if to Parent, to:

                  Harvey D. Hinman, Esq.
                  Vice President and General Counsel
                  Chevron Corporation
                  575 Market Street
                  San Francisco, California  94105
                  Facsimile No.: (415) 894-6017

         with copies to:

                  Alfred L. Pepin, Esq.
                  1156 Mee Lane
                  St. Helena, California 94574
                  Facsimile No.: (707) 967-0551

         and

                  Arthur Fleischer, Jr., Esq.
                  Gary P. Cooperstein, Esq.
                  Fried, Frank, Harris, Shriver & Jacobson
                  One New York Plaza
                  New York, NY 10004-1980
                  Facsimile No.: (212) 859-4000

         and

                  Terry M. Kee, Esq.
                  Rodney R. Peck, Esq.
                  Pillsbury Madison & Sutro LLP
                  50 Fremont Street
                  San Francisco, California 94105
                  Facsimile No.: (415) 983-1200




                                      -9-
<PAGE>

         if to the Company, to:

                  William M. Wicker
                  Senior Vice President
                  Texaco Inc.
                  2000 Westchester Avenue
                  White Plains, New York  10650
                  Facsimile No.: (914) 253-4280

         with copies to:

                  Deval Patrick, Esq.
                  General Counsel and Vice President
                  Texaco Inc.
                  2000 Westchester Avenue
                  White Plains, New York  10650
                  Facsimile No.: (914) 253-4477

         and

                  Dennis S. Hersch, Esq.
                  Ulrika Ekman, Esq.
                  Davis Polk & Wardwell
                  450 Lexington Avenue
                  New York, NY  10017
                  Facsimile No.: (212) 450-4800


or to such  other  address or  facsimile  number as either  party may  hereafter
specify for the purpose by notice to the other party  hereto.  Each such notice,
request or other  communication  shall be effective  (i) if given by  facsimile,
when such  facsimile is transmitted  to the facsimile  number  specified in this
Section and the appropriate facsimile  confirmation is received or (ii) if given
by any other means, when delivered at the address specified in this Section.

         (d) Expenses.  Each party hereto shall pay its own expenses incurred in
connection with this Agreement, except as otherwise specifically provided herein
and without limiting anything contained in the Merger Agreement.

         (e) Severability.  If any term,  provision,  covenant or restriction of
this Agreement is held to be invalid,  void or  unenforceable,  the remainder of
the terms, provisions, covenants and restrictions of this Agreement shall remain
in  full  force  and  effect  and  shall  in no way  be  affected,  impaired  or
invalidated.

         (f) Governing Law;  Jurisdiction.  This Agreement  shall be governed by
and  construed  in  accordance  with the laws of the State of  Delaware  without
regard to principles of conflicts of law. Any suit, action or proceeding seeking
to  enforce  any  provision  of,  or based on



                                      -10-
<PAGE>

any  matter  arising  out  of or in  connection  with,  this  Agreement  or  the
transactions  contemplated  hereby may be brought in any  federal or state court
located in the State of Delaware, and each of the parties hereby consents to the
jurisdiction of such courts (and of the appropriate  appellate courts therefrom)
in any such suit,  action or proceeding and irrevocably  waives,  to the fullest
extent permitted by law, any objection which it may now or hereafter have to the
laying of the venue of any such suit,  action or proceeding in any such court or
that any such suit,  action or proceeding which is brought in any such court has
been  brought in an  inconvenient  forum.  Process  in any such suit,  action or
proceeding may be served on any party  anywhere in the world,  whether within or
without the jurisdiction of any such court. Without limiting the foregoing, each
party agrees that service of process on such party as provided in Section  10(c)
hereof shall be deemed effective service of process on such party.

         (g) Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY
WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF
OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

         (h) Counterparts.  This Agreement may be executed in two or more
             ------------
counterparts, each of which shallbe an original, but all of which together shall
constitute one and the same agreement.

         (i) Headings.  The section headings herein are for convenience only and
             --------
 shall not affect the construction hereof.

         (j) Assignment.  This Agreement shall be binding upon each party hereto
and such party's successors and assigns.  This Agreement shall not be assignable
by the Company,  but may be assigned by Parent in whole or in part to any direct
or indirect wholly-owned subsidiary of Parent, provided that Parent shall remain
liable for any obligations so assigned.

         (k) Survival.  All representations,  warranties and covenants contained
herein  shall  survive the  execution  and  delivery of this  Agreement  and the
consummation of the transactions contemplated hereby.

         (l) Time of the Essence.  The parties agree that time shall be of the
             -------------------
essence in the performance of obligations hereunder.

         (m) Public Announcement.  Parent and the Company will consult with each
other  before  issuing  any press  release or making any public  statement  with
respect to this Agreement and the transactions contemplated hereby and shall not
issue any such press release or make any such public statement without the prior
consent  of  the  other  party,  which  shall  not  be  unreasonably   withheld.
Notwithstanding the foregoing, any such press release or public statement as may
be  required  by  applicable  law or any  listing  agreement  with any  national
securities  exchange,  may be issued  prior to such  consultation,  if the party
making such release or statement has used its reasonable efforts to consult with
the other party.



                                      -11-
<PAGE>

         Section 11.  Profit Limitation.
                      -----------------

         (a) Notwithstanding any other provision of this Agreement or the Merger
Agreement,  in no event shall  Parent's  Total Profit (as defined  below) exceed
$1,100,000,000  (the "Maximum  Amount")  and, if it otherwise  would exceed such
Maximum  Amount,  Parent at its sole  election  may (i) pay cash to the Company,
(ii) deliver to the Company for cancellation Option Shares previously  purchased
by Parent, or (iii) any combination  thereof, so that Parent's actually realized
Total Profit (as defined below) shall not exceed the Maximum Amount after taking
into account the foregoing actions.

         (b)  Notwithstanding  any other provision of this Agreement,  the Stock
Option may not be exercised  for a number of Option  Shares as would,  as of the
date of the Stock Exercise Notice or Cash Exercise Notice, as applicable, result
in a Notional  Total Profit (as defined  below) of more than the Maximum  Amount
and, if exercise of the Stock  Option  otherwise  would  result in the  Notional
Total Profit exceeding such amount, Parent, at its discretion,  may (in addition
to any of the actions  specified in Section  11(a) above)  increase the Exercise
Price for that number of Option Shares set forth in the Stock Exercise Notice or
Cash Exercise Notice, as applicable, so that the Notional Total Profit shall not
exceed  the  Maximum  Amount;  provided,  that  nothing in this  sentence  shall
restrict  any exercise of the Stock Option  permitted  hereby on any  subsequent
date at the Exercise Price set forth in Section 2 hereof.

         (c) As used herein,  the term "Total  Profit"  shall mean the aggregate
amount (before taxes) of the following: (i) the cash amount actually received by
Parent  pursuant to Section 10.5 of the Merger  Agreement  less any repayment by
Parent to the Company pursuant to Section 11(a)(i) hereof, (ii) (x) the net cash
amounts or the fair market value of any property  received by Parent pursuant to
the sale of Option  Shares  (or of any other  securities  into or for which such
Option Shares are converted or exchanged),  less (y) Parent's purchase price for
such  Option  Shares  (or other  securities)  plus (iii) the  aggregate  amounts
received by Parent pursuant to Section 3(d).

         (d) As used herein,  the term  "Notional  Total Profit" with respect to
any number of Option Shares as to which Parent may propose to exercise the Stock
Option  shall  mean the  Total  Profit  determined  as of the date of the  Stock
Exercise Notice or Cash Exercise Notice, as applicable,  assuming that the Stock
Option was  exercised on such date for such number of Option Shares and assuming
that such  Option  Shares,  together  with all other  Option  Shares  previously
acquired upon exercise of the Stock Option and held by Parent and its affiliates
as of such  date,  were sold for cash at the  closing  price on the NYSE for the
Common  Stock as of the close of  business  on the  preceding  trading day (less
customary brokerage commissions).



                                      -12-
<PAGE>

         IN WITNESS  WHEREOF,  the Company and Parent have caused this Agreement
to be duly executed as of the day and year first above written.


                     TEXACO INC.


                     By:             /s/ PETER I. BIJUR
                           -------------------------------------------
                           Name:         Peter I. Bijur
                           Title       Chairman of the Board and
                                       Chief Executive Officer

                     CHEVRON CORPORATION


                     By:             /s/ DAVID J. O'REILLY
                           -------------------------------------------
                           Name:         David J. O'Reilly
                           Title:      Chairman of the Board and
                                       Chief Executive Officer

                                      -13-


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-2.3
<SEQUENCE>4
<FILENAME>0004.txt
<DESCRIPTION>STOCK OPTION AGREEMENT
<TEXT>


                                                                     Exhibit 2.3
                                                                     -----------

                             STOCK OPTION AGREEMENT
                             ----------------------

         THIS STOCK OPTION AGREEMENT (this "Agreement"), dated as of October 15,
2000, between Chevron Corporation, a Delaware corporation ("Parent"), and Texaco
Inc., a Delaware corporation (the "Company").

                              W I T N E S S E T H :

         WHEREAS, Parent and the Company are concurrently with the execution and
delivery of this  Agreement  entering  into an Agreement and Plan of Merger (the
"Merger  Agreement")  pursuant to which,  among other things,  Merger Subsidiary
will merge with and into the Company on the terms and subject to the  conditions
stated therein; and

         WHEREAS,  in order to  induce  the  Company  to enter  into the  Merger
Agreement  and as a condition  for the  Company's  agreeing so to do, Parent has
granted to the Company the Stock Option (as hereinafter  defined),  on the terms
and conditions set forth herein;

         NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth  herein and in the Merger  Agreement,  and for other good and valuable
consideration,  the adequacy of which is hereby acknowledged, the parties hereto
agree as follows:

         Section 1.  Definitions.  Capitalized terms used and not defined herein
have the respective meanings assigned to them in the Merger Agreement.

         Section 2.  Grant of Stock Option.
                     ---------------------

         (a) Parent  hereby  grants to the  Company an  irrevocable  option (the
"Stock Option") to purchase,  on the terms and subject to the conditions hereof,
for $85.96 per share (the  "Exercise  Price") in cash, up to  127,000,000  fully
paid and  non-assessable  shares (the "Option Shares") of Parent's common stock,
par value $0.75 per share (the "Common Stock"). The Exercise Price and number of
Option  Shares shall be subject to adjustment as provided in Sections 2(b) and 6
below.

         (b) In the event  that any (i)  additional  shares of Common  Stock are
issued or otherwise  become  outstanding  after the date of the Agreement (other
than  pursuant to this  Agreement)  or (ii) shares of Common Stock are redeemed,
repurchased,  retired or otherwise cease to be outstanding after the date of the
Agreement,  the number of shares of Common  Stock  subject  to the Stock  Option
shall be increased or decreased, as appropriate,  so that after such issuance or
redemption,  such number  equals  19.9% of the number of shares of Common  Stock
then issued and  outstanding  (without  giving  effect to any shares  subject or
issued pursuant to the Stock Option).  Nothing contained in this Section 2(b) or
elsewhere in this Agreement  shall be deemed to authorize  Parent or the Company
to breach any provision of the Merger Agreement.



                                      -1-
<PAGE>

         Section 3.  Exercise of Stock Option.
                     ------------------------

         (a) The  Company  may,  subject  to the  provisions  of  this  Section,
exercise  the  Stock  Option,  in whole or in part,  at any time or from time to
time,  after the occurrence of a Parent Trigger Event (defined  below) and prior
to the Termination Date.  "Termination  Date" shall mean the earliest of (i) the
Effective  Time  of the  Merger,  (ii) 90  days  after  the  date  full  payment
contemplated  by Section  10.6 of the Merger  Agreement is made by Parent to the
Company  thereunder  or (iii) one day after the date of the  termination  of the
Merger Agreement so long as, in the case of this clause (iii), no Parent Trigger
Event has  occurred or could still occur  pursuant to Section 10.6 of the Merger
Agreement.  Notwithstanding  the occurrence of the Termination Date, the Company
shall be entitled  to purchase  Option  Shares  pursuant to any  exercise of the
Stock Option,  on the terms and subject to the conditions  hereof, to the extent
the  Company  exercised  the  Stock  Option  prior  to  the  occurrence  of  the
Termination  Date.  A "Parent  Trigger  Event" shall mean an event the result of
which is that Parent becomes  obligated to pay a fee to the Company  pursuant to
Section 10.6 of the Merger Agreement.

         (b) The Company may purchase Option Shares pursuant to the Stock Option
only if all of the following  conditions  are  satisfied:  (i) no preliminary or
permanent  injunction  or other  order  issued by any  federal or state court of
competent  jurisdiction  in the  United  States  shall be in effect  prohibiting
delivery of the Option Shares,  (ii) any applicable waiting period under the HSR
Act shall have expired or been terminated,  and (iii) any prior  notification to
or approval of any other regulatory  authority in the United States or elsewhere
required in  connection  with such  purchase  shall have been made or  obtained,
other than those which if not made or obtained  would not reasonably be expected
to result in a Material Adverse Effect on Parent and its Subsidiaries,  taken as
a whole.

         (c) If the Company  shall be  entitled  to and wishes to  exercise  the
Stock  Option,  it shall do so by  giving  Parent  written  notice  (the  "Stock
Exercise  Notice") to such effect,  specifying the number of Option Shares to be
purchased and a place and closing date not earlier than three  business days nor
later than 10 business days from the date of such Stock Exercise Notice.  If the
closing cannot be consummated on such date because any condition to the purchase
of Option Shares set forth in Section 3(b) has not been satisfied or as a result
of any restriction  arising under any applicable law or regulation,  the closing
shall occur five days (or such earlier  time as the Company may  specify)  after
satisfaction of all such conditions and the cessation of all such  restrictions;
provided that in no event shall the closing of the purchase be postponed by more
than nine months after the Termination Date as a result of this clause (c).

         (d) So long as the Stock Option is exercisable pursuant to the terms of
Section 3(a) the Company may elect to send a written notice to Parent (the "Cash
Exercise  Notice")  specifying  a date not later than 20  business  days and not
earlier than 10 business  days  following the date such notice is given on which
date Parent  shall pay to the Company in exchange  for the  cancellation  of the
relevant  portion of the Stock  Option an amount in cash equal to the Spread (as
hereinafter  defined)  multiplied  by all or such  portion of the Option  Shares
subject  to the Stock  Option as the  Company  shall  specify.  As used  herein,
"Spread" shall mean the excess, if any, over the Exercise Price of the higher of
(x) if applicable,  the highest price per share of Common


                                      -2-
<PAGE>

Stock paid or  proposed  to be paid by any Person  pursuant  to any  Acquisition
Proposal  relating  to Parent  (the  "Alternative  Exercise  Price")  or (y) the
average of the  closing  price of the shares of Common  Stock on the NYSE at the
end of the regular session,  as reported on the Consolidated Tape, Network A for
the five  consecutive  trading  days ending on and  including  the trading  date
immediately  preceding the date on which the Cash Exercise  Notice is given (the
"Average Market Price"). If the Alternative Exercise Price includes any property
other than cash,  the  Alternative  Exercise  Price  shall be the sum of (i) the
fixed cash amount, if any, included in the Alternative  Exercise Price plus (ii)
the fair market value of such other property. If such other property consists of
securities with an existing  public trading  market,  the average of the closing
prices (or the average of the closing bid and asked prices if closing prices are
unavailable) for such securities in their principal public trading market on the
five trading days ending five days prior to the date on which the Cash  Exercise
Notice is given shall be deemed to equal the fair market value of such property.
If such other property  includes  anything other than cash or securities with an
existing public trading market,  the Alternative  Exercise Price shall be deemed
to equal the Average  Market Price.  Upon exercise of its right pursuant to this
Section 3(d) and the receipt by the Company of the  applicable  cash amount with
respect to the Option Shares or the applicable portion thereof,  the obligations
of Parent to deliver Option Shares  pursuant to Section 3(e) shall be terminated
with  respect  to the number of Option  Shares  specified  in the Cash  Exercise
Notice.  The Spread shall be  appropriately  adjusted,  if  applicable,  to give
effect to Section 6.

         (e) (i) At any closing  pursuant to Section  3(c)  hereof,  the Company
shall make  payment  to Parent of the  aggregate  purchase  price for the Option
Shares to be  purchased  and Parent shall  deliver to the Company a  certificate
representing the purchased Option Shares,  registered in the name of the Company
or its designee and (ii) at any closing pursuant to Section 3(d) hereof,  Parent
will  deliver to the Company  cash in an amount  determined  pursuant to Section
3(d)  hereof.  Any payment  made by the  Company to Parent,  or by Parent to the
Company,  pursuant  to  this  Agreement  shall  be  made  by  wire  transfer  of
immediately  available  funds to a bank  designated by the party  receiving such
funds,  provided that the failure or refusal by Parent to designate  such a bank
account shall not preclude the Company from  exercising the Stock Option.  If at
the time of the issuance of Option Shares  pursuant to the exercise of the Stock
Option, Parent Rights or any similar securities are outstanding, then the Option
Shares issued  pursuant to such exercise shall be  accompanied by  corresponding
Parent Rights or such similar securities.

         (f) Certificates for Common Stock delivered at the closing described in
Section 3(c) hereof shall be endorsed with a restrictive legend which shall read
substantially as follows:

         "The transfer of the shares  represented by this certificate is subject
         to resale  restrictions  arising under the  Securities  Act of 1933, as
         amended. The shares represented by this certificate are also subject to
         repurchase by the Issuer  pursuant to the Stock Option  Agreement dated
         as of October 15, 2000, a copy of which  agreement may be obtained upon
         request from the Issuer."



                                      -3-
<PAGE>

         It is  understood  and agreed that the above legend shall be removed by
delivery of substitute  certificate(s) without this reference (i) if the Company
shall have  delivered  to Parent a copy of a no-action  letter from the staff of
the Securities and Exchange Commission, or a written opinion of counsel, in form
and substance reasonably  satisfactory to Parent, to the effect that such legend
is not  required  for  purposes  of, or resale may be  effected  pursuant  to an
exemption from registration under, the Securities Act or (ii) in connection with
any sale registered  under the Securities Act. In addition,  these  certificates
shall bear any other legend as may be required by applicable law.

         (g) At any time  following  the  exercise  by the  Company of the Stock
Option, Parent shall have the right, within 5 business days after written notice
to the Company,  to purchase for cash all of the Option  Shares  received by the
Company  pursuant to this  Agreement at a purchase  price per share equal to the
higher of (x) the Alternative Exercise Price or (y) the Average Market Price. At
any closing  pursuant to this  Section  3(g),  Parent  shall make payment to the
Company of the  aggregate  purchase  price for the Option Shares to be purchased
and the Company shall deliver to Parent a certificate representing the purchased
Option Shares.

         Section 4.  Representations  and  Warranties  of Parent.  Parent hereby
represents and warrants to the Company as follows:

         (a) Parent is a corporation duly incorporated,  validly existing and in
good standing under the laws of the State of Delaware.  The execution,  delivery
and  performance by Parent of this Agreement and the  consummation  by Parent of
the transactions  contemplated  hereby (i) are within Parent's corporate powers,
(ii) have been duly authorized by all necessary corporate action,  (iii) require
no action by or in respect of, or filing with, any governmental  body, agency or
official, except for compliance with any applicable requirements of the HSR Act,
the Exchange Act, the Securities Act, and laws, rules and regulations in foreign
jurisdictions  governing  antitrust  or merger  control  matters  (iv)  assuming
compliance with the matters  referred to in clause (iii), do not contravene,  or
constitute a violation of, any  provision of applicable  law or regulation or of
the  certificate  of  incorporation  or  by-laws  of Parent or of any  judgment,
injunction, order or decree binding upon Parent or any of its Subsidiaries,  (v)
do not and will  not  constitute  a  default  under  or give  rise to a right of
termination,  cancellation  or acceleration of any right or obligation of Parent
or any of its Subsidiaries or to a loss of any benefit to which Parent or any of
its  Subsidiaries is entitled under any provision of any agreement,  contract or
other instrument  binding upon Parent or any of its Subsidiaries or any license,
franchise,  permit or other similar  authorization  held by Parent or any of its
Subsidiaries,  and (vi) do not and will not result in the creation or imposition
of any Lien on any asset of Parent or any of its  Subsidiaries,  except for such
contraventions,  conflicts or violations referred to in clause (iv) or defaults,
rights of termination, cancellation or acceleration, or losses or Liens referred
to in clauses  (v) and (vi) that would not,  individually  or in the  aggregate,
have a Material Adverse Effect on Parent.  This Agreement has been duly executed
and delivered by Parent and constitutes a valid and binding agreement of Parent.

         (b) Parent has taken all  necessary  corporate  action to authorize and
reserve and to permit it to issue,  and at all times from the date hereof  until
such time as the  obligation  to deliver



                                      -4-
<PAGE>

Option  Shares  upon the  exercise  of the Stock  Option  terminates,  will have
reserved  for  issuance  upon any  exercise of the Stock  Option,  the number of
Option  Shares  subject to the Stock  Option  (less the number of Option  Shares
previously  issued upon any partial  exercise of the Stock  Option).  All of the
Option  Shares  to be  issued  pursuant  to the  Stock  Option  have  been  duly
authorized and, upon issuance and delivery  thereof  pursuant to this Agreement,
will be duly authorized, validly issued, fully paid and nonassessable,  and will
be delivered  free and clear of all claims,  liens,  charges,  encumbrances  and
security  interests (other than those created by this Agreement).  Option Shares
issued upon  exercise of the Stock Option will not be subject to any  preemptive
or similar rights.  The Board of Directors of Parent has resolved to, and Parent
promptly after execution of this Agreement  will,  take all necessary  action to
render the Parent Rights Agreement  inapplicable to the grant or exercise of the
Stock Option and the transactions contemplated hereby. The Board of Directors of
Parent has (i) taken all necessary  action to render section 203 of the Delaware
Law,  or any  other  antitakeover  statute  or  similar  statute  or  regulation
inapplicable to the acquisition of the Option Shares pursuant to this Agreement,
and (ii) has  resolved to, and promptly  after the  execution of this  Agreement
will, take all necessary action to render the supermajority voting provisions of
Article  VII  of  Parent's  Certificate  of  Incorporation  inapplicable  to the
acquisition of the Option Shares pursuant to this Agreement.

         Section 5.  Representations and Warranties of the Company.  The Company
hereby  represents  and  warrants  to  Parent  as  follows:  The  Company  is  a
corporation duly  incorporated,  validly existing and in good standing under the
laws of the State of Delaware.  The execution,  delivery and  performance by the
Company of this Agreement and the consummation of the transactions  contemplated
hereby  (i) are within the  Company's  corporate  powers and (ii) have been duly
authorized by all necessary  corporate action. The Option Shares acquired by the
Company  upon the exercise of the Stock Option will not be, and the Stock Option
is not being,  acquired by the  Company  with the  intention  of making a public
distribution  thereof.  Neither the Stock Option nor the Option Shares  acquired
upon  exercise of the Stock Option will be sold or otherwise  disposed of by the
Company except in compliance  with the  Securities  Act. This agreement has been
duly executed and  delivered by the Company and  constitutes a valid and binding
agreement of the Company.

         Section 6. Adjustment upon Changes in Capitalization or Merger.
                    ---------------------------------------------------
         (a) In the  event of any  change  in the  outstanding  shares of Common
Stock by reason of a stock dividend, stock split, reverse stock split, split-up,
merger, consolidation,  recapitalization,  combination,  conversion, exchange of
shares, extraordinary or liquidating dividend or similar transaction which would
affect  the  Company's  rights  hereunder,  the type and  number  of  shares  or
securities  purchasable  upon the  exercise of the Stock Option and the Exercise
Price shall be adjusted appropriately,  and proper provision will be made in the
agreements  governing  such  transaction,  as shall fully  preserve the economic
benefits provided hereunder to the Company and the full satisfaction of Parent's
obligations  hereunder.  In no event shall the number of shares of Common  Stock
subject to the Stock Option exceed 19.9% of the number of shares of Common Stock
issued and  outstanding  at the time of exercise  (without  giving effect to any
shares subject or issued pursuant to the Stock Option).



                                      -5-
<PAGE>

         (b)  Without  limiting  the  foregoing,  whenever  the number of Option
Shares  purchasable upon exercise of the Stock Option is adjusted as provided in
this Section 6, the Exercise Price shall be adjusted by multiplying the Exercise
Price by a  fraction,  the  numerator  of which is equal to the number of Option
Shares purchasable prior to the adjustment and the denominator of which is equal
to the number of Option Shares purchasable after the adjustment.

         (c) Without  limiting or altering the parties'  rights and  obligations
under the Merger  Agreement,  in the event that Parent  enters into an agreement
(i) to consolidate with or merge into any Person,  other than the Company or one
of  its  Subsidiaries,  and  Parent  will  not be the  continuing  or  surviving
corporation in such  consolidation or merger,  (ii) to permit any Person,  other
than the  Company or one of its  Subsidiaries,  to merge into  Parent and Parent
will be the  continuing or surviving  corporation,  but in connection  with such
merger,  the  shares  of  Common  Stock  outstanding  immediately  prior  to the
consummation of such merger will be changed into or exchanged for stock or other
securities of Parent or any other Person or cash or any other  property,  or the
shares of Common Stock outstanding immediately prior to the consummation of such
merger  will,  after such  merger,  represent  less than 50% of the  outstanding
voting securities of the merged company,  or (iii) to sell or otherwise transfer
all or substantially all of its assets to any Person,  other than the Company or
one of its  Subsidiaries,  then, and in each such case, the agreement  governing
such  transaction will make proper provision so that the Stock Option will, upon
the  consummation of any such  transaction and upon the terms and conditions set
forth  herein,  be converted  into, or exchanged  for, an option with  identical
terms appropriately  adjusted to acquire the number and class of shares or other
securities or property that the Company would have received in respect of Option
Shares  had  the  Stock  Option  been  exercised   immediately   prior  to  such
consolidation,  merger,  sale  or  transfer  or the  record  date  therefor,  as
applicable,  and shall make any other necessary  adjustments.  Parent shall take
such steps in connection with such consolidation,  merger,  liquidation or other
such  transaction  as may be reasonably  necessary to assure that the provisions
hereof  shall  thereafter  apply as  nearly as  possible  to any  securities  or
property thereafter deliverable upon exercise of the Stock Option.

         Section 7.  Further Assurances; Remedies.
                     ----------------------------

         (a) Parent agrees to maintain, free from preemptive rights,  sufficient
authorized  but  unissued or treasury  shares of Common  Stock so that the Stock
Option may be fully exercised without  additional  authorization of Common Stock
after giving effect to all other options,  warrants,  convertible securities and
other  rights of third  parties to purchase  shares of Common Stock from Parent,
and to issue the  appropriate  number of shares of Common Stock  pursuant to the
terms of this  Agreement.  All of the Option Shares to be issued pursuant to the
Stock Option,  upon issuance and delivery  thereof  pursuant to this  Agreement,
will be duly authorized, validly issued, fully paid and non-assessable, and will
be delivered  free and clear of all claims,  liens,  charges,  encumbrances  and
security interests (other than those created by this Agreement).

         (b)  Parent  agrees not to avoid or seek to avoid  (whether  by charter
amendment or through reorganization,  consolidation, merger, issuance of rights,
dissolution or sale of assets,  or by any other voluntary act) the observance or
performance of any of the covenants,  agreements or conditions to be observed or
performed hereunder by Parent.



                                      -6-
<PAGE>

         (c)  Parent  agrees  that  promptly  after the  occurrence  of a Parent
Trigger  Event it shall take all  actions  as may from time to time be  required
(including (i) complying with all applicable premerger  notification,  reporting
and  waiting  period  requirements  under the HSR Act and (ii) in the event that
prior  notification  to or approval  of any other  regulatory  authority  in the
United  States  or  elsewhere  is  necessary  before  the  Stock  Option  may be
exercised,  complying with its obligations  thereunder and cooperating  with the
Company in preparing and processing  the required  notices or  applications)  in
order to permit the Company to exercise  the Stock  Option and  purchase  Option
Shares pursuant to such exercise.

         (d) The parties agree that the Company would be irreparably  damaged if
for any  reason  Parent  failed  to issue  any of the  Option  Shares  (or other
securities or property  deliverable  pursuant to Section 6 hereof) upon exercise
of the  Stock  Option or to  perform  any of its other  obligations  under  this
Agreement,  and that the Company  would not have an  adequate  remedy at law for
money  damages in such  event.  Accordingly,  the  Company  shall be entitled to
specific  performance and injunctive and other  equitable  relief to enforce the
performance  of this  Agreement by Parent.  Accordingly,  if the Company  should
institute an action or proceeding seeking specific enforcement of the provisions
hereof,  Parent  hereby  waives the claim or defense that Parent has an adequate
remedy at law and hereby  agrees not to assert in any such action or  proceeding
the claim or defense that such a remedy at law exists.  Parent further agrees to
waive any  requirements  for the  securing or posting of any bond in  connection
with obtaining any such equitable relief. This provision is without prejudice to
any other  rights that the Company  may have  against  Parent for any failure to
perform its obligations under this Agreement.

         Section 8. Listing of Option Shares. Promptly after the occurrence of a
Parent Trigger Event and from time to time thereafter if necessary,  Parent will
apply to list all of the Option  Shares  subject to the Stock Option on the NYSE
and will use its reasonable  best efforts to obtain  approval of such listing as
soon as practicable.

         Section 9. Registration of the Option Shares.
                    ---------------------------------

         (a) If,  within  two years of the  exercise  of the Stock  Option,  the
Company  requests  Parent in writing to register under the Securities Act any of
the  Option  Shares  received  by the  Company  hereunder,  Parent  will use its
reasonable  best efforts to cause the offering of the Option Shares so specified
in such request to be registered as soon as practicable so as to permit the sale
or other  distribution  by the  Company of the Option  Shares  specified  in its
request  (and to keep such  registration  in effect  for a period of at least 90
days), and in connection  therewith Parent shall prepare and file as promptly as
reasonably  possible  (but in no event  later  than 60 days from  receipt of the
Company's  request) a registration  statement under the Securities Act to effect
such  registration  on an appropriate  form,  which would permit the sale of the
Option  Shares  by the  Company  in  accordance  with  the  plan of  disposition
specified by the Company in its  request.  Parent shall not be obligated to make
effective  more  than two  registration  statements  pursuant  to the  foregoing
sentence;   provided,  however,  that  Parent  may  postpone  the  filing  of  a
registration  statement relating to a registration  request by the Company under
this  Section 9 for a period  of time (not in excess of 90 days) if in  Parent's
reasonable,  good faith judgment (i) such filing would require the disclosure of
material information that Parent has a bona fide business purpose



                                      -7-
<PAGE>

for preserving as  confidential or (ii) the sale of Option Shares by the Company
would  materially  interfere  with  any  pending  or  anticipated   acquisition,
financing or transaction  involving Parent or its Subsidiaries  (but in no event
shall Parent exercise such postponement right more than once in any twelve-month
period).

         (b) Parent  shall  notify the  Company in writing not less than 10 days
prior to filing a registration  statement under the Securities Act (other than a
filing on Form S-4 or S-8 or any  successor  form) with respect to any shares of
Common  Stock.  If the Company  wishes to have any portion of its Option  Shares
included in such registration,  it shall advise Parent in writing to that effect
within two  business  days  following  receipt of such  notice,  and Parent will
thereupon  include the number of Option Shares  indicated by the Company in such
registration;  provided  that if the  managing  underwriter(s)  of the  offering
pursuant to such registration  statement advise Parent that in their opinion the
number of shares of Common Stock  requested to be included in such  registration
exceeds the number which can be sold in such offering, Parent shall only include
in such registration such number or dollar amount of Option Shares which, in the
good  faith  opinion  of  the  managing  underwriter(s),  can  be  sold  without
materially and adversely affecting such offering.

         (c) All expenses  relating to or in  connection  with any  registration
contemplated  under this  Section 9 and the  transactions  contemplated  thereby
(including all filing,  printing,  reasonable  professional,  roadshow and other
fees and  expenses  relating  thereto)  will be at Parent's  expense  except for
underwriting  discounts or commissions and brokers' fees. The Company and Parent
agree to enter into a customary  underwriting  agreement with  underwriters upon
such  terms  and  conditions  as  are  customarily   contained  in  underwriting
agreements with respect to secondary  distributions.  Parent shall indemnify the
Company,  its officers,  directors,  agents,  other controlling  persons and any
underwriters retained by the Company in connection with such sale of such Option
Shares  in  the  customary  way,  and  shall  agree  to  customary  contribution
provisions  with such  persons,  with  respect  to claims,  damages,  losses and
liabilities  (and any  expenses  relating  thereto)  arising  (or to  which  the
Company,  its  officers,   directors,   agents,  other  controlling  persons  or
underwriters may be subject) in connection with any such offer or sale under the
federal  securities  laws or  otherwise,  except for  information  furnished  in
writing  by the  Company or its  underwriters  to Parent.  The  Company  and its
underwriters,  respectively,  shall  indemnify  Parent to the same  extent  with
respect to  information  furnished  in writing to Parent by the Company and such
underwriters, respectively.

         Section 10.  Miscellaneous.
                      -------------

         (a) Extension of Exercise Periods. The periods during which the Company
may exercise its rights  under  Sections 2 and 3 hereof,  or Parent may exercise
its  rights  under  Section  2(g),  shall be  extended  in each such case at the
request of the Company to the extent necessary to avoid liability by the Company
under Section 16(b) of the Exchange Act by reason of such exercise.

         (b) Amendments;  Entire Agreement.  This Agreement may not be modified,
amended,  altered or  supplemented,  except upon the execution and delivery of a
written



                                      -8-
<PAGE>

agreement  executed by the parties  hereto.  This  Agreement,  together with the
Merger Agreement  (including any exhibits and schedules  thereto),  contains the
entire  agreement  between the parties hereto with respect to the subject matter
hereof   and   supersedes   all  prior  and   contemporaneous   agreements   and
understandings, oral or written, with respect to such transactions.

         (c)      Notices.  All notices, requests and other communications to
                  -------
 either party hereunder shall be in writing (including facsimile or similar
 writing) and shall be given,

         if to Parent, to:

                  Harvey D. Hinman, Esq.
                  Vice President and General Counsel
                  Chevron Corporation
                  575 Market Street
                  San Francisco, California  94105
                  Facsimile No.: (415) 894-6017

         with copies to:

                  Alfred L. Pepin, Esq.
                  1156 Mee Lane
                  St. Helena, California  94574
                  Facsimile No.: (707) 967-0551

         and

                  Arthur Fleischer, Jr., Esq.
                  Gary P. Cooperstein, Esq.
                  Fried, Frank, Harris, Shriver & Jacobson
                  One New York Plaza
                  New York, New York  10004-1980
                  Facsimile No.: (212) 859-4000


         and


                  Terry M. Kee, Esq.
                  Rodney R. Peck, Esq.
                  Pillsbury Madison & Sutro LLP
                  50 Fremont Street
                  San Francisco, California  94105
                  Facsimile No.: (415) 983-1200


                                      -9-
<PAGE>



         if to the Company, to:

                  William M. Wicker
                  Senior Vice President
                  Texaco Inc.
                  2000 Westchester Avenue
                  White Plains, New York  10650
                  Facsimile No.: (914) 253-4280

         with copies to:

                  Deval Patrick, Esq.
                  General Counsel and Vice President
                  Texaco Inc.
                  2000 Westchester Avenue
                  White Plains, New York  10650
                  Facsimile No.: (914) 253-4477

         and

                  Dennis S. Hersch, Esq.
                  Ulrika Ekman, Esq.
                  Davis Polk & Wardwell
                  450 Lexington Avenue
                  New York, New York  10017
                  Facsimile No.: (212) 450-4800


or to such  other  address or  facsimile  number as either  party may  hereafter
specify for the purpose by notice to the other party  hereto.  Each such notice,
request or other  communication  shall be effective  (i) if given by  facsimile,
when such  facsimile is transmitted  to the facsimile  number  specified in this
Section and the appropriate facsimile  confirmation is received or (ii) if given
by any other means, when delivered at the address specified in this Section.

         (d) Expenses.  Each party hereto shall pay its own expenses incurred in
connection with this Agreement, except as otherwise specifically provided herein
and without limiting anything contained in the Merger Agreement.

         (e) Severability.  If any term,  provision,  covenant or restriction of
this Agreement is held to be invalid,  void or  unenforceable,  the remainder of
the terms, provisions, covenants and restrictions of this Agreement shall remain
in  full  force  and  effect  and  shall  in no way  be  affected,  impaired  or
invalidated.

         (f) Governing Law;  Jurisdiction.  This Agreement  shall be governed by
and  construed  in  accordance  with the laws of the State of  Delaware  without
regard to principles of conflicts of law. Any suit, action or proceeding seeking
to  enforce  any  provision  of,  or based on any  matter  arising  out of or in
connection with, this Agreement or the transactions  contemplated



                                      -10-
<PAGE>

hereby  may be brought in any  federal  or state  court  located in the State of
Delaware,  and each of the parties hereby  consents to the  jurisdiction of such
courts (and of the  appropriate  appellate  courts  therefrom) in any such suit,
action or proceeding and irrevocably  waives, to the fullest extent permitted by
law, any objection which it may now or hereafter have to the laying of the venue
of any such suit,  action or proceeding in any such court or that any such suit,
action or  proceeding  which is brought in any such court has been brought in an
inconvenient forum. Process in any such suit, action or proceeding may be served
on any party anywhere in the world,  whether within or without the  jurisdiction
of any such  court.  Without  limiting  the  foregoing,  each party  agrees that
service of process on such party as provided in Section  10(c)  hereof  shall be
deemed effective service of process on such party.

         (g) Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY
WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF
OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

         (h) Counterparts.  This Agreement may be executed in two or more
             ------------
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.

         (i) Headings.  The section headings herein are for convenience
             --------
only and shall not affect the construction hereof.

         (j) Assignment.  This Agreement shall be binding upon each party hereto
and such party's successors and assigns.  This Agreement shall not be assignable
by Parent,  but may be assigned by the Company in whole or in part to any direct
or indirect  wholly-owned  subsidiary of the Company,  provided that the Company
shall remain liable for any obligations so assigned.

         (k) Survival.  All representations,  warranties and covenants contained
herein  shall  survive the  execution  and  delivery of this  Agreement  and the
consummation of the transactions contemplated hereby.

         (l) Time of the Essence.  The parties agree that time shall be of the
             -------------------
 essence in the performance of obligations hereunder.

         (m) Public Announcement.  Parent and the Company will consult with each
other  before  issuing  any press  release or making any public  statement  with
respect to this Agreement and the transactions contemplated hereby and shall not
issue any such press release or make any such public statement without the prior
consent  of  the  other  party,  which  shall  not  be  unreasonably   withheld.
Notwithstanding the foregoing, any such press release or public statement as may
be  required  by  applicable  law or any  listing  agreement  with any  national
securities  exchange,  may be issued  prior to such  consultation,  if the party
making such release or statement has used its reasonable efforts to consult with
the other party.



                                      -11-
<PAGE>

         Section 11.  Profit Limitation.
                      -----------------

         (a) Notwithstanding any other provision of this Agreement or the Merger
Agreement,  in no event shall the  Company's  Total  Profit (as  defined  below)
exceed  $1,100,000,000  (the "Maximum Amount") and, if it otherwise would exceed
such  Maximum  Amount,  the  Company  at its sole  election  may (i) pay cash to
Parent,  (ii)  deliver  to Parent  for  cancellation  Option  Shares  previously
purchased  by the  Company,  or  (iii)  any  combination  thereof,  so that  the
Company's actually realized Total Profit (as defined below) shall not exceed the
Maximum Amount after taking into account the foregoing actions.

         (b)  Notwithstanding  any other provision of this Agreement,  the Stock
Option may not be exercised  for a number of Option  Shares as would,  as of the
date of the Stock Exercise Notice or Cash Exercise Notice, as applicable, result
in a Notional  Total Profit (as defined  below) of more than the Maximum  Amount
and, if exercise of the Stock  Option  otherwise  would  result in the  Notional
Total Profit  exceeding such amount,  the Company,  at its  discretion,  may (in
addition to any of the actions  specified in Section  11(a) above)  increase the
Exercise  Price for that number of Option Shares set forth in the Stock Exercise
Notice or Cash Exercise Notice, as applicable, so that the Notional Total Profit
shall not exceed the Maximum  Amount;  provided,  that nothing in this  sentence
shall  restrict  any  exercise  of the  Stock  Option  permitted  hereby  on any
subsequent date at the Exercise Price set forth in Section 2 hereof.

         (c) As used herein,  the term "Total  Profit"  shall mean the aggregate
amount (before taxes) of the following: (i) the cash amount actually received by
the Company  pursuant to Section 10.6 of the Merger Agreement less any repayment
by the Company to Parent pursuant to Section 11(a)(i)  hereof,  (ii) (x) the net
cash amounts or the fair market  value of any  property  received by the Company
pursuant to the sale of Option  Shares (or of any other  securities  into or for
which such Option  Shares are  converted or  exchanged),  less (y) the Company's
purchase  price for such  Option  Shares  (or other  securities)  plus (iii) the
aggregate amounts received by the Company pursuant to Section 3(d).

         (d) As used herein,  the term  "Notional  Total Profit" with respect to
any number of Option  Shares as to which the Company may propose to exercise the
Stock Option shall mean the Total Profit  determined as of the date of the Stock
Exercise Notice or Cash Exercise Notice, as applicable,  assuming that the Stock
Option was  exercised on such date for such number of Option Shares and assuming
that such  Option  Shares,  together  with all other  Option  Shares  previously
acquired  upon  exercise  of the Stock  Option and held by the  Company  and its
affiliates as of such date,  were sold for cash at the closing price on the NYSE
for the Common  Stock as of the close of business on the  preceding  trading day
(less customary brokerage commissions).



                                      -12-
<PAGE>

         IN WITNESS  WHEREOF,  the Company and Parent have caused this Agreement
to be duly executed as of the day and year first above written.


                                    TEXACO INC.



                                    By:           /s/ PETER I. BIJUR
                                          ------------------------------------
                                           Name:      Peter I. Bijur
                                           Title:  Chairman of the Board and
                                                   Chief Executive Officer


                                    CHEVRON CORPORATION


                                    By:           /s/ DAVID J. O'REILLY.
                                          ------------------------------------
                                           Name:     David J. O'Reilly
                                           Title:  Chairman of the Board and
                                                   Chief Executive Officer




                                      -13-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99
<SEQUENCE>5
<FILENAME>0005.txt
<DESCRIPTION>JOINT PRESS RELEASE DATED OCTOBER 16, 2000
<TEXT>




                                                                    Exhibit 99.1
                                                                    ------------
                 CHEVRON AND TEXACO AGREE TO $100 BILLION MERGER
                   CREATING TOP-TIER INTEGRATED ENERGY COMPANY

     ChevronTexaco Corp. to achieve annual savings of at least $1.2 billion
                  and create stronger, more competitive company

SAN FRANCISCO and NEW YORK (October 16, 2000) - Chevron  Corporation [NYSE: CHV]
and Texaco Inc. [NYSE: TX] today announced a merger that will create a company -
ChevronTexaco  Corporation  - that  ranks  with  the  world's  largest  and most
competitive international energy companies.

The merger joins two leading energy companies and long-time partners to create a
U.S.-based,  global  enterprise  that is highly  competitive  across  all energy
sectors.  ChevronTexaco  will have world-class  upstream  positions in reserves,
production and exploration opportunities; an integrated,  worldwide refining and
marketing business; a global chemicals business; significant growth platforms in
natural gas and power; and industry leading skills in technology innovation.

The combined  company expects to achieve annual savings of at least $1.2 billion
within  six to  nine  months  of the  merger's  completion.  The  merger,  to be
accounted for as a pooling of interests,  is expected to become accretive to the
new company's  earnings and cash flow per share upon realization of the savings.
The  company  also  expects to improve  capital  efficiency  by funding the best
growth  opportunities  of Chevron and Texaco,  resulting  in improved  return on
capital employed over time.

The new company  will have  reserves of 11.2 billion  barrels of oil  equivalent
(BOE),  daily  production  of  2.7  million  BOE,  assets  of $77  billion,  and
operations throughout the world. In the United States, ChevronTexaco will be the
nation's third largest  producer of oil and gas, with  production of 1.1 million
BOE per day, and will hold the nation's third largest reserve position, with 4.2
billion BOE of proved reserves.

In the merger,  Texaco  shareholders  will receive .77 shares of Chevron  common
stock for each share of Texaco  common stock they own, and Chevron  shareholders
will retain their existing shares.  The exchange ratio represents  approximately
$64.87 per Texaco  share  based on  Chevron's  closing  stock price of $84.25 on
October 13,  2000.  The  exchange  ratio  represents  an 18% premium  based upon
Texaco's closing share price on October 13, and a 25% premium based upon the two
companies'  average  relative  share  prices  during the 30-day  period  through
October  13.  As  a  result  of  the  merger,   Chevron  shareholders  will  own
approximately 61 percent of the combined equity,  and Texaco  shareholders  will
own about 39 percent.  The combined  company would have an  enterprise  value of
more than $100 billion.



                                    - more -


<PAGE>


                                      - 2 -

Dave  O'Reilly,  Chevron  chairman and chief  executive  officer,  will serve as
chairman and CEO of ChevronTexaco, which will be headquartered in San Francisco.
Peter  Bijur,  Texaco  chairman  and CEO,  will  become a vice  chairman  of the
combined  company  with  responsibility  for  downstream,  power  and  chemicals
operations.  Richard Matzke, Chevron vice chairman for upstream operations, will
retain those  responsibilities  in the combined company.  The composition of the
ChevronTexaco  Board of  Directors  will be  approximately  proportional  to the
equity  split and will be drawn from  current  members of the Chevron and Texaco
boards.  Chevron  Vice  President  and Chief  Financial  Officer John Watson and
Texaco Senior Vice President and Chief Financial Officer Patrick Lynch will lead
the integration process.

"This merger positions ChevronTexaco as a much stronger U.S.-based global energy
producer better able to contribute to the nation's energy needs," said O'Reilly.
"That's  good  news for the  country  because  the  United  States  will have an
additional top-tier energy company better positioned to compete effectively with
the international majors.

"ChevronTexaco,"  O'Reilly  continued,   "will  create  greater  value  for  the
shareholders  of both  companies.  We'll be  positioned  for stronger  financial
returns  than could be achieved by either  company  separately,  partly  through
significant cost reductions, but mainly because we'll have a much broader mix of
quality assets,  skills,  and technology.  We're committed to being first in our
industry  in  total  shareholder  return,  and  this  transaction  will  help us
accomplish that objective."

Bijur said: "These two companies form a powerful  combination that will have the
strength  and  resources  to compete  and succeed  around the globe.  Texaco and
Chevron are natural  partners,  whose historic  relationship and operational fit
are highly  complementary.  We know each other well,  and we already  have long,
highly  productive   experience  working  together  in  both  the  upstream  and
downstream, giving us an advantage in integrating the companies.

"We also share common values  including  protection of the  environment,  active
support  for the  communities  where we operate,  and  promoting  diversity  and
opportunity in our workforce and among our business partners," Bijur continued.

ChevronTexaco will be much stronger in several important respects:

o        Significant cost savings: The new company expects to reduce costs by at
         least $1.2  billion per year within six to nine months of the  merger's
         completion.  The historic  associations and strategic  compatibility of
         Chevron and Texaco will enable rapid  integration of the two companies.
         The most  significant  savings  (approximately  $700 million) will come
         from more efficient  exploration and production  activities,  but other
         areas will  contribute  as well,  including  some $300 million from the
         consolidation  of  corporate  functions  and $200  million  from  other
         operations.  The companies  anticipate  that the combined  workforce of
         about  57,000  will be reduced by  approximately  7 percent  worldwide.
         Anticipated  cost savings  build on both  companies'  track  records of
         successfully achieving cost reductions.


                                    - more -


<PAGE>


                                      - 3 -

o        Leadership position in upstream: The combined company will be a premier
         global upstream  competitor,  with a significantly  enhanced leadership
         position  in most of the world's  major and  emerging  exploration  and
         producing  areas.  ChevronTexaco  will have  world-class  reserves  and
         growth opportunities in both west Africa and the Caspian region, where,
         in the latter case,  the new company will  solidify its position as the
         largest  producer.  In  addition,  the  combined  company  will  have a
         superior  exploration  acreage position in the most promising deepwater
         areas  in  west  Africa,  Brazil  and the  U.S.  Gulf  of  Mexico.  The
         combination will significantly  strengthen  positions in core producing
         areas in North America and the North Sea. Further, the combination will
         create  an  outstanding  portfolio  of  growth  opportunities  in Latin
         America and the Asia-Pacific region.

o        Worldwide  downstream  platform:  ChevronTexaco  will  create  a
         worldwide business built around the well-recognized, international
         brands:  Chevron, Texaco and Caltex.  By  integrating  the  operations
         of Caltex,  a 65-year international  refining and  marketing  joint
         venture  between  Chevron and Texaco,  the  combined  company will be
         able to realize  efficiencies  from streamlined  decision-making  and
         management.  The merger  also  allows an enterprise  approach  to
         lubricants   (including  the  well-known  quality lubricants brands
         Havoline and Delo),  trading,  international  markets and customers,
         and will expand on the existing fuels and marine marketing joint
         venture.  In addition,  the merger enables the new company to use its
         brand presence to help facilitate activities and new entries in the
         upstream, and in gas and power businesses in Asia, Latin America and
         Europe.

o        Strength and scale in chemicals: The chemicals business of the combined
         company  consists of Chevron's  recently  formed  50/50 joint  venture,
         Chevron  Phillips  Chemical Co. With more than $6 billion in assets and
         $6 billion in  revenues,  Chevron  Phillips  Chemical Co. has a strong,
         global position in olefins, polyolefins and aromatics.

o        Leadership   position   in  power   generation:   Texaco's   power  and
         gasification  business,  with equity  interests  in 3,500  megawatts of
         power operating or under  construction,  and Chevron's 26 percent stake
         in  Dynegy,  Inc.,  give  the  combined  company  more  options  in the
         fast-growing power and energy convergence businesses.

o        Broad  technology  portfolio:   The  merger  will  strengthen  the  new
         company's  leading  technologies  in its core  businesses  by  bringing
         together  specialized  expertise from the two  companies.  The combined
         company will also have a broader  portfolio  in advanced  technologies,
         e-business  ventures  and  alternate  energy,  such as fuel  cells  and
         gas-to-liquids conversion.

o        Superior organizational capability: The capabilities of the new company
         will be strengthened by the combination of people from both Chevron and
         Texaco  who have the  diverse  skills,  talent and vast  experience  to
         compete  successfully  in an  increasingly  competitive  industry.  The
         merged company also gains an advantage  with proven  leadership in many
         facets of the global,  integrated energy business and a track record of
         success in executing key strategies.

                                    - more -
<PAGE>

                                      - 4 -

The merger is conditioned,  among other things, on shareholder approval for both
companies,  pooling accounting treatment for the merger and regulatory approvals
of government  agencies such as the U.S. Federal Trade  Commission.  Chevron and
Texaco  anticipate  that the FTC will require  certain  divestitures in the U.S.
downstream in order to address market  concentration  issues,  and the companies
intend to cooperate with the FTC in this process.  In that regard,  Texaco is in
discussions with its partners in the U.S. downstream.

Lehman Brothers Inc. is acting as financial advisor to Chevron. Al Pepin; Fried,
Frank, Harris,  Shriver & Jacobson;  and Pillsbury Madison & Sutro are acting as
legal  advisors to Chevron.  Credit Suisse First Boston and Morgan  Stanley Dean
Witter are acting as  financial  advisors;  and Davis Polk &  Wardwell;  Howrey,
Simon, Arnold & White; and Weil Gotshal & Manges are acting as legal advisors to
Texaco.

Chevron  Corp.  is involved in every  aspect of the oil and gas  industry,  from
exploration and production to transportation,  refining and retail marketing, as
well as chemicals  manufacturing and sales. It is active in nearly 100 countries
and employs about 31,000 people worldwide.

Texaco Inc. is a fully  integrated  energy company  engaged in exploring for and
producing oil and natural gas;  manufacturing and marketing  high-quality  fuels
and lubricant  products;  operating  trading,  transportation  and  distribution
facilities;  and  producing  power.  Directly  and  through  affiliates,  Texaco
operates in more than 150 countries.

Private Securities Litigation Reform Act Safe Harbor Statement
Except for the historical and present factual information  contained herein, the
matters set forth in this press release, including statements as to the expected
benefits of the merger such as  efficiencies,  cost savings,  market profile and
financial  strength,  and the  competitive  ability and position of the combined
company, and other statements identified by words such as "expects," "projects,"
"plans,"  and similar  expressions  are  forward-looking  statements  within the
meaning of the "safe  harbor"  provisions of the Private  Securities  Litigation
Reform Act of 1995.  These  forward-looking  statements are subject to risks and
uncertainties that may cause actual results to differ materially,  including the
possibility  that the  anticipated  benefits  from the  merger  cannot  be fully
realized,  the possibility that costs or difficulties related to the integration
of our businesses  will be greater than expected,  the impact of competition and
other risk  factors  relating to our  industry as detailed  from time to time in
each of Chevron's and Texaco's  reports  filed with the SEC.  Chevron and Texaco
disclaim any responsibility to update these forward-looking statements.

Additional Information
Chevron and Texaco  will file a proxy  statement/prospectus  and other  relevant
documents concerning the proposed merger transaction with the SEC. Investors are
urged to read the proxy  statement/prospectus  when it becomes available and any
other relevant  documents filed with the SEC because they will contain important
information.  You will be able to  obtain  the  documents  free of charge at the
website  maintained  by the SEC at  www.sec.gov.  In  addition,  you may  obtain
documents  filed with the SEC by Chevron  free of charge by  requesting  them in
writing from Chevron  Corporation,  575 Market Street, San Francisco,  CA 94105,
Attention:  Corporate  Secretary,  or by  telephone at (415)  894-7700.  You may
obtain  documents filed with the SEC by Texaco free of charge by requesting them
in writing from Texaco Inc., 2000  Westchester  Avenue,  White Plains,  New York
10650, Attention: Secretary, or by telephone at (914) 253-4000.




                                    - more -


<PAGE>


                                      - 5 -

Chevron and Texaco, and their respective  directors and executive officers,  may
be  deemed  to  be  participants  in  the   solicitation  of  proxies  from  the
stockholders  of Chevron and Texaco in connection  with the merger.  Information
about the  directors and  executive  officers of Chevron and their  ownership of
Chevron  stock is set forth in the proxy  statement  for  Chevron's  2000 Annual
Meeting of stockholders.  Information about the directors and executive officers
of  Texaco  and  their  ownership  of  Texaco  stock is set  forth in the  proxy
statement for Texaco's 2000 Annual Meeting of stockholders. Investors may obtain
additional  information  regarding the interests of such participants by reading
the proxy statement / prospectus when it becomes available.

Investors should read the proxy  statement/prospectus  carefully when it becomes
available before making any voting or investment decisions.

Press Teleconference Note to Editors:

You  are  cordially  invited  to  participate  in the  Chevron  /  Texaco  press
teleconference  on  Monday,  October  16,  2000 at  12:15  p.m.  (EDT).  You can
participate   by  dialing   1-888-793-1751   (within  the  United   States)  and
1-212-231-6010 (internationally).

You may also listen to the analyst briefing via the Internet at  www.chevron.com
and  www.texaco.com  at 10:00 a.m. EDT.  Real  Network's  RealPlayer,  Microsoft
Windows  Media  Player or Apple's  Quicktime  Player is  required  to access the
webcast.

Satellite Uplink for Chevron and Texaco B-Roll:

Monday, October 16, 2000                    Monday, October 16, 2000
9:00 a.m. - 9:30 a.m. (EDT)                 2:30 p.m. - 3:00 p.m. (EDT)
C band; Telstar 6; Transponder 12           C band; Telstar 6; Transponder 9
Downlink frequency: 3940                    Downlink frequency: 3880

If you have any technical  questions or problems with the B-Roll satellite feed,
please call Quicklink at (212) 947-4475.

Today's  news  release,  along  with other news about  Chevron  and  Texaco,  is
available on the Internet at www.chevron.com and www.texaco.com.

                                                                 # # #

Media Contacts:              Chevron              Texaco
                             Mike Libbey          Chris Gidez
                             (415) 894-4440       (914) 253-4177


Investor Contacts:           Chevron              Texaco
                             Pierre Breber        Liz Smith
                             (415) 894-9376       (914) 253-4478



</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
