-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Odk8qc3PplNJmdLJ1wet9nN5N1auNdU+U8q/vxncYTIWIJJD8nJZ9p2WTuBbzSDW LooDAWM2zMbfIgXznISGaA== 0000898430-99-004155.txt : 19991115 0000898430-99-004155.hdr.sgml : 19991115 ACCESSION NUMBER: 0000898430-99-004155 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ATLANTIC RICHFIELD CO /DE CENTRAL INDEX KEY: 0000775483 STANDARD INDUSTRIAL CLASSIFICATION: PETROLEUM REFINING [2911] IRS NUMBER: 230371610 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-01196 FILM NUMBER: 99746719 BUSINESS ADDRESS: STREET 1: 333 S HOPE STREET CITY: LOS ANGELES STATE: CA ZIP: 90071 BUSINESS PHONE: 2134863511 10-Q 1 QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ________________ FORM 10-Q ________________ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ________________ For the quarterly period ended September 30, 1999 Commission file number 1-1196
________________ ATLANTIC RICHFIELD COMPANY (Exact name of registrant as specified in its charter) _________________ Delaware 23-0371610 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 333 South Hope Street Los Angeles, California 90071 (Address of principal executive offices) (Zip code) _________________ (213) 486-3511 (Registrant's telephone number, including area code) __________________ Not Applicable (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Number of shares of Common Stock, $2.50 par value, outstanding as of September 30, 1999: 322,731,860. PART I. FINANCIAL INFORMATION ATLANTIC RICHFIELD COMPANY AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) CONSOLIDATED STATEMENT OF INCOME
Three Months Ended Nine Months Ended September 30, September 30, ------------------- ------------------ 1999 1998 1999 1998 ------- --------- ------- -------- (Millions except per share amounts) Revenues Sales and other operating revenues................... $3,423 $2,655 $8,885 $7,755 Other revenues....................................... 119 146 428 346 ------- ------ ------ ------ 3,542 2,801 9,313 8,101 ------- ------ ------ ------ Expenses Trade purchases...................................... 1,418 1,039 3,397 3,096 Operating expenses................................... 593 919 1,753 2,013 Selling, general and administrative expenses......... 168 187 496 572 Depreciation, depletion and amortization............. 423 399 1,334 1,077 Impairment of oil and gas properties................. - 147 - 257 Exploration expenses (including undeveloped leasehold amortization)............................ 100 135 282 410 Taxes other than income taxes........................ 117 121 353 397 Interest............................................. 98 123 288 326 Loss on disposition of Algeria assets................ 175 - 175 - Restructuring cost adjustments....................... 20 - 20 - ------- ------ ------ ------ 3,112 3,070 8,098 8,148 ------- ------ ------ ------ Income (loss) from continuing operations before income taxes and minority interest................... 430 (269) 1,215 (47) Provision (benefit) for taxes on income................ 87 (138) 382 (128) Minority interest in earnings of subsidiaries.......... 13 7 25 21 ------- ------ ------ ------ Income (loss) from continuing operations............... 330 (138) 808 60 Income from discontinued operations, net of income taxes of $7 and $93 (1998).................... - 12 - 188 Gain on disposition of discontinued operations, net of income taxes (benefit) of $(38) (1999, both periods) and $1,612 (1998, both periods)............. 42 998 42 998 ------- ------ ------ ------ Net income............................................. $ 372 $ 872 $ 850 $1,246 ======= ====== ====== ====== Earned per Share Basic Continuing operations.............................. $ 1.03 $(0.43) $ 2.51 $ 0.18 Discontinued operations............................ .13 3.14 .13 3.70 ------- ------ ------- ------- Net income......................................... $ 1.16 $ 2.71 $ 2.64 $ 3.88 ======= ====== ======= ======= Diluted Continuing operations.............................. $ 1.00 $(0.43) $ 2.46 $ .18 Discontinued operations............................ .13 3.14 .13 3.63 ------- ------ ------- ------- Net income......................................... $ 1.13 $ 2.71 $ 2.59 $ 3.81 ======= ====== ======= ======= Cash Dividends Paid per Share of Common Stock.......... $ .7125 $.7125 $2.1375 $2.1375 ======= ====== ======= =======
The accompanying notes are an integral part of these statements. 1 ATLANTIC RICHFIELD COMPANY CONSOLIDATED BALANCE SHEET
September 30, December 31, 1999 1998 ------------- ------------ (Millions) Assets Current assets: Cash and cash equivalents........................ $ 745 $ 657 Short-term investments........................... 246 260 Accounts receivable.............................. 1,504 1,002 Inventories...................................... 427 475 Prepaid expenses and other current assets........ 224 317 ------- ------- Total current assets............................. 3,146 2,711 ------- ------- Investments and long-term receivables: Investments accounted for on the equity method... 1,291 1,235 Other investments and long-term receivables...... 1,322 831 ------- ------- 2,613 2,066 ------- ------- Net property, plant and equipment.................. 18,563 18,762 Net assets of discontinued operations.............. 67 339 Deferred charges and other assets.................. 1,438 1,321 ------- ------- Total assets....................................... $25,827 $25,199 ======= =======
The accompanying notes are an integral part of these statements. 2 ATLANTIC RICHFIELD COMPANY CONSOLIDATED BALANCE SHEET
September 30, December 31, 1999 1998 -------------- ------------- (Millions) Liabilities and Stockholders' Equity Current liabilities: Notes payable................................... $ 1,958 $ 2,403 Accounts payable................................ 717 976 Long-term debt due within one year.............. 105 399 Taxes payable................................... 509 634 Other........................................... 1,007 1,285 ------ ------ Total current liabilities....................... 4,296 5,697 Long-term debt.................................... 5,691 4,332 Deferred income taxes............................. 3,468 3,318 Dismantlement, restoration and reclamation........ 1,138 1,058 Other deferred liabilities and credits............ 2,845 2,955 Minority interest................................. 285 259 ------ ------ Total liabilities............................... 17,723 17,619 ------ ------- Stockholders' equity: Preference stocks............................... 1 1 Common stock.................................... 816 815 Capital in excess of par value of stock......... 859 863 Retained earnings............................... 6,749 6,589 Treasury stock.................................. (285) (344) Accumulated other comprehensive income (loss)... (36) (344) ------ ------ Total stockholders' equity...................... 8,104 7,580 ------ ------ Total liabilities and stockholders' equity........ $25,827 $25,199 ====== ======
The accompanying notes are an integral part of these statements. 3 ATLANTIC RICHFIELD COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS
Nine Months Ended September 30, ------------- 1999 1998 ---- ---- (Millions) Cash flows from operating activities: Income from continuing operations................................. $ 808 $ 60 Adjustments to reconcile income to net cash provided by operating activities: Depreciation, depletion and amortization........................ 1,334 1,077 Impairment of oil and gas properties............................ - 257 Dry hole expense and undeveloped leasehold amortization......... 150 194 Loss on disposition of Algeria assets........................... 175 - Net gain on asset sales......................................... (70) (56) Income from equity investments.................................. (31) (53) Dividends from equity investments............................... 50 9 Minority interest in earnings of subsidiaries................... 25 21 Cash payments (greater) less than noncash provisions............ (347) 85 Changes in working capital accounts............................. (811) (217) Deferred income taxes........................................... 184 (103) Other........................................................... 48 108 ----- ------ Net cash provided by operating activities..................... 1,515 1,382 ----- ------ Cash flows from investing activities: Union Texas Petroleum acquisition............................... - (2,707) Additions to fixed assets (including dry hole costs)............ (1,988) (2,477) Net cash used by short-term investments......................... (1) (7) Proceeds from sale of ARCO Chemical stock....................... - 4,593 Proceeds from asset sales....................................... 732 1,169 Investments and long-term receivables........................... (168) (149) Other........................................................... 38 (166) ----- ------ Net cash (used) provided by investing activities.............. (1,387) 256 ------ ------ Cash flows from financing activities: Repayments of long-term debt.................................... (826) (235) Proceeds from issuance of long-term debt........................ 1,891 215 Net cash used by notes payable.................................. (439) (347) Dividends paid.................................................. (690) (688) Treasury stock purchases........................................ (2) (31) Other........................................................... 37 48 ----- ------ Net cash used by financing activities......................... (29) (1,038) ----- ----- Cash flows from discontinued operations........................... (8) 37 Effect of exchange rate changes on cash........................... (3) (1) ----- ------ Net increase in cash and cash equivalents......................... 88 636 Cash and cash equivalents at beginning of period.................. 657 434 ----- ------ Cash and cash equivalents at end of period........................ $ 745 $ 1,070 ===== ======
The accompanying notes are an integral part of these statements. 4 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED NOTE A. Accounting Policies. Basis of Presentation. The foregoing financial information is unaudited and has been prepared from the books and records of the Company. Certain previously reported amounts have been restated to conform to classifications adopted in 1999. In the opinion of the Company, the financial information reflects all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the financial position and results of operations in conformity with generally accepted accounting principles. NOTE B. Comprehensive Income. Comprehensive income comprises net income plus all other changes in equity from nonowner sources. ARCO's comprehensive income for the three- and nine- month periods ended September 30, 1999 and 1998 was as follows:
Three Months Ended Nine Months Ended September 30, September 30, -------------------- ------------------ 1999 1998 1999 1998 --------- -------- ------- -------- (Millions) Net income........................................ $ 372 $ 872 $ 850 $1,246 Other comprehensive income: Net unrealized gain (loss) on investments (a) (114) (198) 101 (717) Foreign currency translation adjustment......... 23 38 207 (12) Minimum pension liability....................... - 7 - 7 ----- ----- ------ ------ Comprehensive income.............................. $ 281 $ 719 $1,158 $ 524 ===== ===== ====== ======
(a) Primarily consists of tax-effected changes in the fair value of ARCO's investment in LUKOIL, which had a fair value of approximately $382 million at September 30, 1999, compared to a fair value of approximately $225 million at December 31, 1998. The unrealized pretax gain on the LUKOIL investment at September 30, 1999, was $40 million. Accumulated nonowner changes in equity (accumulated other comprehensive income) at September 30, 1999 and December 31, 1998 were as follows:
September 30, December 31, 1999 1998 ------------- ------------- (Millions) Net unrealized gain (loss) on investments......... $ 26 $ (75) Foreign currency translation adjustment........... (15) (222) Minimum pension liability......................... (47) (47) ----- ----- Accumulated other comprehensive income (loss)... $ (36) $(344) ===== =====
5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED NOTE C. Interim Segment Information. Three Months Ended September 30, 1999 - -------------------------------------
Exploration Refining & Other Unallocated (Millions) & Production Marketing Operations Items Total ------------ --------- ---------- ----------- ----- Sales and other operating revenues . . $ 1,882 $1,959 $ 8 $ 2 $ 3,851 Intersegment revenues. . (424) - (1) (3) (428) ------ ----- ----- ----- ------- Total. . . . . . . . . . $ 1,458 $1,959 $ 7 $ (1) $ 3,423 ====== ===== ===== ====== ====== Income (loss) from continuing operations $ 183 $ 182 $ 25 $ (60) $ 330 Income from discontinued operations* . . . . . - - - 42 42 ------- ------ ------ ------ ----- Net income (loss). . . . $ 183 $ 182 $ 25 $ (18) $ 372 ====== ===== ===== ====== ====== Segment assets . . . . . $18,428 $4,270 $ 929 $2,200 $25,827 ====== ===== ===== ====== ====== December 31, 1998 - ----------------- Segment assets . . . . . $18,203 $3,826 $1,119 $2,051 $25,199 ====== ===== ===== ====== ====== Three Months Ended September 30, 1998 - ------------------------------------- Exploration Refining & Other Unallocated (Millions) & Production Marketing Operations Items Total ------------ --------- ---------- ----------- ----- Sales and other operating revenues . . $ 1,518 $1,386 $ 39 $ 3 $ 2,946 Intersegment revenues. . (268) - (20) (3) (291) ------ ----- ----- ------ ------ Total. . . . . . . . . . $ 1,250 $1,386 $ 19 $ - $ 2,655 ====== ===== ===== ====== ====== Income (loss) from continuing operations $ (56) $ 108 $ 45 $ (235) $ (138) Income from discontinued operations* . . . . . - - - 1,010 1,010 ------ ----- ----- ------ ------ Net income (loss). . . . $ (56) $ 108 $ 45 $ 775 $ 872 ====== ===== ===== ====== ======
_______________ * Includes gains on disposition of discontinued operations of $42 million and $998 million for the periods, ended September 30, 1999 and 1998, respectively. 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED NOTE C. Interim Segment Information (Continued).
Nine Months Ended September 30, 1999 - ------------------------------------ Exploration Refining & Other Unallocated (Millions) & Production Marketing Operations Items Total ------------ --------- ---------- ----------- ----- Sales and other operating revenues . . $ 4,735 $ 5,084 $ 37 $ 7 $ 9,863 Intersegment revenues. . (968) - (3) (7) (978) ------ ------ ----- ----- ------ Total. . . . . . . . . . $ 3,767 $ 5,084 $ 34 $ - $ 8,885 ====== ====== ===== ===== ====== Income from continuing operations . . . . . . $ 446 $ 517 $ 73 $ (228) $ 808 Income from discontinued operations* . . . . . - - - 42 42 ------ ------ ----- ----- ------ Net income (loss). . . . $ 446 $ 517 $ 73 $ (186) $ 850 ====== ====== ===== ===== ====== Nine Months Ended September 30, 1998 - ------------------------------------ Exploration Refining & Other Unallocated (Millions) & Production Marketing Operations Items Total ------------ --------- ---------- ----------- ----- Sales and other operating revenues . . $ 4,424 $ 4,170 $ 118 $ 19 $ 8,731 Intersegment revenues. . (892) (12) (60) (12) (976) ------ ------ ----- ----- ------ Total. . . . . . . . . . $ 3,532 $ 4,158 $ 58 $ 7 $ 7,755 ====== ====== ===== ===== ====== Income from continuing operations . . . . . . $ 143 $ 224 $ 98 $ (405) $ 60 Income from discontinued operations* . . . . . - - - 1,186 1,186 ------ ------ ----- ----- ------ Net income . . . . . . . $ 143 $ 224 $ 98 $ 781 $ 1,246 ====== ====== ===== ===== ======
_______________ * Includes gains on disposition of discontinued operations of $42 million and $998 million for the periods, ended September 30, 1999 and 1998, respectively. The Company's coal and chemical operations have been reported as discontinued operations since March 31, 1998 and June 30, 1998, respectively. Accordingly, at December 31, 1998 and September 30, 1999, the income from and net assets of discontinued operations are included with unallocated items in the segment presentation above. The amortization (and recognition of imputed interest) associated with a gain deferred in conjunction with the sale of the chemicals operations had a favorable impact of approximately $11 million and $38 million after tax on Refining and Marketing earnings in the third quarter and first nine months of 1999, respectively. The amortization, which began in the third quarter of 1998, had a favorable impact of approximately $9 million after tax in the third quarter of 1998. 7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED NOTE D. Investments. At September 30, 1999 and 1998, investments in debt securities were primarily composed of U.S. Treasury securities and corporate debt instruments. Maturities generally ranged from one day to ten years. ARCO's investments in LUKOIL common stock and Zhenhai Refining and Chemical Company convertible bonds were included in other investments and long-term receivables. At September 30, 1999, all investments were classified as available-for-sale and were reported at fair value, with unrealized holding gains and losses, net of tax, reported in accumulated other comprehensive income (loss). The following summarizes investments in securities at September 30:
1999 1998 -------- -------- (Millions) Aggregate fair value........................................................... $ 1,142 $ 951 Gross unrealized holding losses................................................ 6 200 Gross unrealized holding gains................................................. (45) (19) ------- ------- Amortized cost................................................................. $ 1,103 $ 1,132 ======= =======
Investment activity for the nine-month periods ended September 30 was as follows:
1999 1998 ------- ------- (Millions) Gross purchases................................................................ $16,330 $14,493 Gross sales.................................................................... 708 339 Gross maturities............................................................... 15,567 13,935
Gross realized gains and losses were determined by the specific identification method and for the three- and nine-month periods ended September 30, 1999 and 1998, were insignificant. NOTE E. Inventories. Inventories at September 30, 1999 and December 31, 1998 comprised the following:
September 30, December 31, 1999 1998 ------------ ------------ (Millions) Crude oil and petroleum products... $ 187 $ 220 Other products..................... 26 24 Materials and supplies............. 214 231 ----- ----- Total............................ $ 427 $ 475 ===== =====
8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED NOTE F. Capital Stock. Detail of the Company's capital stock was as follows:
September 30, December 31, 1999 1998 ------------ ------------ (Thousands) $3.00 Cumulative convertible preference stock, par $1... $ 43 $ 52 $2.80 Cumulative convertible preference stock, par $1... 509 573 Common stock, par $2.50................................. 815,881 814,673 -------- -------- Total................................................. $816,433 $815,298 ======== ========
NOTE G. Capitalization of Interest. Interest expense excluded capitalized interest of $45 million and $29 million, respectively, for the three-month periods ended September 30, 1999 and 1998, and $133 million and $66 million, respectively, for the nine-month periods ended September 30, 1999 and 1998. NOTE H. Restructuring Programs. During 1998, ARCO recorded pretax charges of $229 million for the costs of eliminating over 1,200 positions, primarily exploration and production technical support, international exploration and production support operations and the corporate headquarters. During the third quarter of 1999 ARCO increased the provision by $12 million primarily to reflect approximately 75 additional terminations. The following table summarizes the liabilities related to the 1998 restructuring program, including $10.5 million transferred from the 1997 program to cover those people who had not yet terminated under the 1997 program and became eligible for the 1998 program:
($ Millions) Funded Unfunded Short-term Long-term Long-term Terminations Benefits (a) Benefits (b) Benefits (c) Total ------------ ------------ ------------ ------------ ----- 1,285 $103 $90 $58 $251
(a) Severance payments and ancillary benefits such as relocation and outplacement. (b) Net increase in pension benefits to be paid from assets of qualified plans. (c) Net increase in non-qualified pension benefits and other postretirement benefits to be paid from Company funds. Through September 30, 1999, approximately 1,045 employees have been terminated and approximately $64 million ($14 million in the third quarter of 1999) of severance and ancillary benefits have been paid and charged against the accrual. Payments made do not necessarily correlate to the number of terminations due to the ability of terminees to defer receipt of certain payments. The remaining severance and ancillary benefits are expected to be paid by first quarter 2001. 9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED NOTE H. Restructuring Programs (continued). Union Texas Petroleum Holdings, Inc. (UTP) Restructure. As part of the purchase price allocation for the purchase of UTP in 1998, the company established a $78 million reserve for the termination of 357 employees resulting from the integration of UTP into ARCO's operations. In September 1999, the reserve was increased to $86 million. At September 30, 1999, 352 employees have been terminated and a total of $80 million in severance benefits has been paid. The remaining severance benefits are expected to be paid by second quarter 2000. The group of employees terminated included U.S. citizens employed in exploration and production operations and corporate headquarters personnel. NOTE I. Income Taxes. Provision (benefit) for taxes on income:
Three Months Ended Nine Months Ended September 30, September 30, -------------------- ------------------- 1999 1998 1999 1998 --------- -------- -------- -------- (Millions) Federal: Current..... $(128) $ (41) $ 37 $ (86) Deferred.... 197 (66) 228 (17) ----- ----- ----- ----- 69 (107) 265 (103) ----- ----- ----- ----- Foreign: Current..... 32 19 144 44 Deferred.... (5) (40) (55) (76) ----- ----- ----- ----- 27 (21) 89 (32) ----- ----- ----- ----- State: Current..... (18) 6 17 17 Deferred.... 9 (16) 11 (10) ----- ----- ----- ----- (9) (10) 28 7 ----- ----- ----- ----- Total..... $ 87 $(138) $ 382 $(128) ===== ===== ===== =====
10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED Note I. Income Taxes (continued). Reconciliation of provision for taxes on income with tax at federal statutory rate:
Three Months Ended September 30, -------------- 1999 1998 ---- ---- Percent Percent of of Pretax Pretax Amount Income Amount Income -------- -------- ------ -------- (Millions) Income (loss) from continuing operations before income taxes and minority interest...... $ 430 100.0 $(269) 100.0 ====== ===== ===== ====== Tax at federal statutory rate................... $ 150 35.0 $ (94) (35.0) Increase (reduction) in taxes resulting from: Subsidiary stock transactions.................. (22) (5.1) (7) (2.6) Taxes on foreign income in excess of statutory rate................................ 3 0.7 4 1.5 State income taxes (net of federal effect)..... (6) (1.4) (6) (2.2) Tax credits.................................... (42) (9.8) (28) (10.4) Other.......................................... 4 0.8 (7) (2.6) ------ ----- ----- ------ Provision (benefit) for taxes on income......... $ 87 20.2 $(138) (51.3) ====== ===== ===== ====== Nine Months Ended September 30, ------------- 1999 1998 ---- ---- Percent Percent of of Pretax Pretax Amount Income Amount Income ------ ------- ------ ------- (Millions) Income (loss) from continuing operations before income taxes and minority interest ..... $1,215 100.0 $ (47) 100.0 ====== ===== ===== ====== Tax at federal statutory rate................... $ 425 35.0 $ (16) (35.0) Increase (reduction) in taxes resulting from: Subsidiary stock transactions.................. (22) (1.8) (64) (136.2) Taxes on foreign income in excess of statutory rate................................ 46 3.8 44 93.6 State income taxes (net of federal effect)..... 18 1.5 5 10.6 Tax credits.................................... (92) (7.6) (87) (185.1) Other.......................................... 7 0.5 (10) (20.2) ------ ----- ----- ------ Provision (benefit) for taxes on income......... $ 382 31.4 $(128) (272.3) ====== ===== ===== ======
11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED NOTE J. Discontinued Operations. In the first quarter 1999, ARCO disposed of its interests in two Australian coal mines. ARCO disposed of its 80% interest in the Gordonstone coal mine and its 31.4% interest in the Blair Athol Joint Venture. At September 30, 1999, the carrying value of the remaining Australian assets was $67 million and was included in net assets of discontinued operations on the balance sheet. Beginning in January 1999, ARCO suspended depreciation on the Australian coal assets (1998 annual depreciation was $23 million). In 1998, ARCO recorded a $92 million provision for the estimated loss on the disposal of the U.S. and Australian coal assets. As part of the acquisition of UTP, ARCO determined it would sell UTP's petrochemical business. In March 1999, ARCO sold the UTP petrochemical business to Williams Energy Services. In the third quarter of 1999, the gain or loss recorded on the disposition of ARCO Chemical, the ARCO coal operations and UTP's petrochemical business was adjusted to reflect an additional net gain of $42 million. Revenues and income from discontinued operations for the three months and nine months ended September 30, 1999 and 1998 were:
Three Months Ended Nine Months Ended September 30, September 30, ------------------ ----------------- 1999 1998 1999 1998 ------- -------- ------ -------- Revenues: ARCO Chemical....... $ - $ 290 $ - $1,990 Coal operations..... 20 61 63 293 UTP petrochemical... - 23 24 23 ------- ----- ----- ------ $ 20 $ 374 $ 87 $2,306 ======= ===== ===== ====== Net income: ARCO Chemical....... $ - $ 12 $ - $ 178 Coal operations..... - - - 10 UTP petrochemical... - - - - ------- ----- ----- ------ $ - $ 12 $ - $ 188 ======= ===== ===== ======
_______________ 12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED NOTE K. Earned Per Share. The information necessary for the calculation of earned per share is as follows:
Three Months Ended Three Months Ended September 30, 1999 September 30, 1998 -------------------------- ----------------------- Income Shares Per share Income Shares Per share -------------------------- ---------------------- (Millions, except per share amounts) Income (loss) from continuing operations.......................... $330 $ (138) Less: Preference stock dividends* . - - ---- ----- Income (loss) from continuing operations available to common stockholders - basic EPS............ 330 322.5 $1.03 (138) 321.2 $(0.43) ===== ===== Income from discontinued operations 42 322.5 .13 1,010 321.2 3.14 ---- ===== ----- ------- ===== ------ Net income available to common stockholders - basic EPS............ 372 322.5 $1.16 $ 872 321.2 $ 2.71 ===== ======= ===== ====== Effect of dilutive securities**: Contingently issuable shares (primarily options)................. 3.8 Convertible preference stock.......... - 3.2 ---- ----- Net income available to common stockholders and assumed conversions - diluted EPS........... 372 329.5 $1.13 ===== Less: income from discontinued operations.......................... 42 329.5 .13 ---- ===== ----- Income from continuing operations available to common stockholders and assumed conversions - diluted EPS......................... $330 329.5 $1.00 ==== ===== ===== - ---------------
* Dividend rounds to zero for the three-month periods presented. ** No dilution assumed for three months ended September 30, 1998 due to loss from continuing operations. 13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED NOTE K. Earned Per Share (continued).
Nine Months Ended Nine Months Ended September 30, 1999 September 30, 1998 ------------------ ------------------ Income Shares Per share Income Shares Per share ------ ------ --------- ------ ------ --------- (Millions, except per share amounts) Income from continuing operations...... $ 808 $ 60 Less: Preference stock dividends....... (1) (2) --- ----- Income from continuing operations available to common stockholders - basic EPS............................ 807 322.1 $2.51 58 320.9 $0.18 ===== ===== Income from discontinued operations 42 322.1 .13 1,186 320.9 3.70 ===== ---- ------ ===== ----- Net income available to common stockholders - basic EPS............. 849 322.1 $2.64 1,244 320.9 $3.88 ==== ==== Effect of dilutive securities: Contingently issuable shares (primarily options).................. 3.1 2.8 Convertible preference stock........... 1 3.3 2 3.6 --- ----- ----- ----- Net income available to common stockholders and assumed conversions - diluted EPS............ 850 328.5 $2.59 1,246 327.3 $3.81 ===== ===== Less: Income from discontinued operations........................... 42 328.5 .13 1,186 327.3 3.63 --- ===== --- ----- ===== ---- Income from continuing operations available to common stockholders and assumed conversions - diluted EPS........................... $ 808 328.5 $2.46 $ 60 327.3 $0.18 ===== ===== ==== ===== ===== ====
14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED NOTE L. Supplemental Income Statement Information. Taxes other than income taxes comprised the following:
Three Months Ended Nine Months Ended September 30, September 30, ------------- ------------- 1999 1998 1999 1998 ---- ---- ---- ---- (Millions) Production/severance... $ 64 $ 54 $ 156 $ 173 Property............... 32 39 101 109 Other.................. 21 28 96 115 ----- ----- ----- ----- Total................ $ 117 $ 121 $ 353 $ 397 ===== ===== ===== =====
NOTE M. Supplemental Cash Flow Information. Following is supplemental cash flow information for the nine months ended September 30, 1999 and 1998:
Nine Months Ended September 30, ------------- 1999 1998 ---- ---- (Millions) Gross sales and maturities of short-term investments... $ 153 $ 171 Gross purchases of short-term investments.............. (154) (178) ------ ------- Net cash used by short-term investments................ $ (1) $ (7) ====== ======= Gross proceeds from issuance of notes payable.......... $ 9,526 $ 12,096 Gross repayments of notes payable...................... (9,965) (12,443) ------ ------- Net cash used by notes payable......................... $ (439) $ (347) ====== ======= Gross noncash provisions charged to income............. $ 168 $ 416 Cash payments of previously accrued items.............. (515) (331) ------ ------- Cash payments (greater) less than noncash provisions... $ (347) $ 85 ====== ======= Interest paid.......................................... $ 258 $ 318(a) ====== ======= Income taxes paid...................................... $ 472 $ 169(a) ====== ======
(a) Includes amounts paid related to discontinued operations. 15 s NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED NOTE M. Supplemental Cash Flow Information (continued). Excluded from the Consolidated Statement of Cash Flows for the nine months ended September 30, 1998 was the issuance of 2,725,030 shares of ARCO common stock to a consolidated subsidiary in exchange for certain property, plant and equipment owned by the subsidiary. The transaction was recorded at fair market value. In conjunction with the acquisition of UTP in 1998, liabilities were assumed as follows: (Millions) Fair value of assets acquired . . . . . . $3,745 Cash paid . . . . . . . . . . . . . . . . 2,707 ----- Liabilities assumed. . . . . . . . . . $1,038 ===== Changes in working capital accounts for the nine-month periods ended September 30, 1999 and 1998 were as follows: Nine Months Ended September 30, --------------- 1999 1998 ---- ---- (Millions) Changes in working capital - Increase (decrease) to cash: Accounts receivable.................................. $(232) $ 71 Inventories.......................................... 38 (18) Accounts payable..................................... (259) 22 Other working capital................................ (358) (292) ------ ------ Total.............................................. $(811) $(217) ====== ====== NOTE N. Other Commitments and Contingencies. ARCO has commitments, including those related to the acquisition, construction and development of facilities, all made in the normal course of business. ARCO has guaranteed all of LUKARCO's obligations associated with the Caspian Pipeline project, which amount to 25% of all funding requirements for this project. The current estimates of total project funding requirements are between $2.2 to $2.4 billion. Following the March 1989 EXXON VALDEZ oil spill, numerous federal, state and private plaintiff lawsuits were brought against Exxon, Alyeska Pipeline Service Company (Alyeska) and Alyeska's owner companies including ARCO, which owns approximately 22%. While all of the federal, state and private plaintiff lawsuits have been settled, certain issues relating to the liability for the spill remain unresolved between Exxon and Alyeska (including its owner companies). 16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED NOTE N. Other Commitments and Contingencies (continued). Lawsuits, including purported class actions and actions by governmental entities, are pending or threatened against ARCO and others seeking damages, abatement of housing units, and compensation for medical problems arising out of the presence of lead-based paint in certain housing units. ARCO is unable to predict the scope or amount of any such liability. The State of Montana, along with the United States and the Salish and Kootenai Tribes, have been seeking recovery from ARCO of alleged injuries to natural resources resulting from mining and mineral processing businesses formerly operated by Anaconda. In April 1999 the United States District Court for the District of Montana approved two consent decrees. Under the terms of these decrees, ARCO has paid $135 million, plus interest, for settlement of $561 million of the State's $767 million natural resource damage claim relating to the Clark Fork River Basin, $86 million for clean-up and related liabilities at Silver Bow Creek, and $20 million to resolve claims by the Tribes and the United States. ARCO is subject to other loss contingencies pursuant to federal, state and local environmental laws and regulations that require ARCO to do some or all of the following: . Remove or mitigate the effects on the environment at various sites from the disposal or release of certain substances; . Perform restoration work at such sites; and . Pay damages for loss of use and non-use values. The federal agencies involved with the sites include the Department of the Interior, Department of Justice and Environmental Protection Agency. Environmental liabilities include personal injury claims allegedly caused by exposure to toxic materials manufactured or used by ARCO. ARCO is currently involved in assessments and cleanups under these laws at federal- and state-managed sites, as well as other clean-up sites including service stations, refineries, terminals, third-party landfills, former nuclear processing facilities, sites associated with discontinued operations and sites previously owned by ARCO or predecessors. This comprised 125 sites for which ARCO has been named a potentially responsible party (PRP), along with other sites for which no claims have been asserted. The number of PRP sites in and of itself is not a relevant measure of liability because the nature and extent of environmental concerns varies by site and ARCO's share of responsibility varies from sole responsibility to very little responsibility. ARCO may in the future be involved in additional environmental assessments and cleanups. Future costs depend on unknown factors such as: . Nature and extent of contamination; . Timing, extent and method of the remedial action; . ARCO's proportional share of costs; and . Financial condition of other responsible parties. The environmental remediation accrual is updated annually, at a minimum, and at September 30, 1999, was $702 million. As these costs become more clearly defined, they may require future charges against earnings. Applying Monte Carlo analysis to estimated site maximums on a portfolio basis, ARCO estimates that future costs could exceed the amount accrued by as much as $500 million. 17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED NOTE N. Other Commitments and Contingencies (continued). Approximately 54% of the reserve related to sites associated with ARCO's discontinued operations, primarily mining activities in the states of Montana, Utah and New Mexico. Another significant component related to currently and formerly owned chemical, nuclear processing, and refining and marketing facilities, and other sites which received wastes from these facilities. The remainder related to other sites with reserves ranging from $1 million to $10 million per site. No one site represents more than 10% of the total reserve. Substantially all amounts accrued are expected to be paid out over the next five to six years. Claims for recovery of remediation costs already incurred and to be incurred in the future have been filed against various third parties. Many of these claims have been resolved. ARCO has neither recorded any asset nor reduced any liability in connection with unresolved claims. Although any ultimate liability arising from any of the matters described herein could result in significant expenses or judgments that, if aggregated and assumed to occur within a single fiscal period, would be material to ARCO's results of operations, the likelihood of such occurrence is considered remote. On the basis of management's best assessment of the ultimate amount and timing of these events, such expenses or judgments are not expected to have a material adverse effect on ARCO's consolidated financial statements. The operations and consolidated financial position of ARCO continue to be affected by domestic and foreign political developments as well as legislation, regulations and litigation pertaining to restrictions on production, imports and exports, tax increases, environmental regulations, cancellation of contract rights and expropriation of property. Both the likelihood of such occurrences and their overall effect on ARCO vary greatly and are not predictable. These uncertainties are part of a number of items that ARCO has taken and will continue to take into account in periodically establishing reserves. Note O. Merger Agreement between ARCO and BP Amoco. On March 31, 1999, BP Amoco and ARCO reached agreement to combine with each other in an all-share transaction. Following the stock split of BP Amoco Ordinary Shares effective in October 1999, shareholders of ARCO will receive 1.64 BP Amoco American Depositary Shares for each share of ARCO stock exchanged or, subject to election by the shareholder, Ordinary Shares. One BP Amoco American Depositary Share represents 6 BP Amoco Ordinary Shares. The merger was approved initially by both boards of directors, and in the third quarter of 1999 by the shareholders of both BP Amoco and ARCO. In addition, on September 29, 1999, the European Commission announced approval of the combination conditioned upon some North Sea asset sales. The combination is subject to the review of various state and regulatory authorities, including the Federal Trade Commission. Both companies are currently working to close the transaction later in the year; however, there can be no assurance that the transaction will be completed by year end. 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Third Quarter 1999 vs. Third Quarter 1998 Income from Continuing Operations ARCO's income from continuing operations improved to $330 million in the third quarter of 1999, compared to a loss of $138 million in the third quarter of 1998. The improvement primarily was the result of higher crude oil and natural gas prices, higher refined products margins and lower operating, exploration and interest expenses. Special Items included in Net Income The 1999 third quarter net income included net after-tax charges of $139 million for special items, consisting of a loss on the disposition of Algeria assets, an increase in the restructuring cost reserves, charges for future environmental remediation and merger costs, partially offset by tax adjustments. The 1998 third quarter net income included a net after-tax benefit of $799 million from special items, consisting of a gain of $1,088 million from the sale of ARCO's interest in ARCO Chemical Company ("ARCO Chemical"), partially offset by various charges. The charges were for future environmental remediation and reclamation related to both current operations and to natural resource damage liabilities in the state of Montana associated with previously discontinued mining operations; a provision for estimated net loss on divestment of coal operations; and an impairment writedown of California heavy crude oil properties.
After-tax Segment Earnings 1999 1998 ---- ---- Less: Less: Special Special Items Items (Millions) Net (Charge) Operating Net (Charge) Operating Income Benefit Results Income Benefit Results ----- -------- ------- ------ -------- ------- Exploration and production....... $183 $(177) $360 $ (56) $ (94) $ 38 Refining and marketing........... 182 (2) 184 108 - 108 Other operations................. 25 5 20 45 17 28 Interest expense................. (70) - (70) (92) - (92) Other unallocated expenses....... 10 (7) 17 (143) (122) (21) ---- ----- ---- ----- ----- ---- Income (loss) from continuing operations.......... 330 (181) 511 (138) (199) 61 Income from discontinued operations..................... - - - 12 - 12 Gain on disposition of discontinued operations........ 42 42 - 998 998 - ---- ----- ---- ----- ----- ---- Net income..................... $372 $(139) $511 $ 872 $799 $ 73 ==== ===== ==== ===== ==== ====
19 Exploration and Production ARCO's operating results from worldwide oil and gas exploration and production operations in 1999 were impacted by significantly higher crude oil prices and, to a lesser extent, higher domestic natural gas prices and lower petroleum liquids production. In addition, combined operating, exploration, and selling, general and administrative ("SG&A") expenses before tax were more than $100 million lower in the 1999 third quarter, compared to third quarter 1998. The 1999 third quarter included a special item charge of $175 million after tax for the loss on the sale of a portion of ARCO's interest in the Rhourde El Baguel field in Algeria. The 1998 third quarter included special items totaling $94 million after tax, primarily related to the writedown of the California heavy oil holdings.
Average Oil and Gas Prices 1999 1998 ------ ------ U.S. Petroleum liquids - per barrel (bbl) Alaska......................................... $13.32 $ 7.84 Lower 48, including Vastar..................... $16.85 $10.47 Composite average price........................ $14.49 $ 8.76 Natural gas - per thousand cubic feet (mcf)...... $ 2.25 $ 1.75 International Petroleum liquids - per bbl...................... $16.68 $10.96 Venezuela crude oil - per bbl.................... $ 8.47 $ 7.94 Natural gas (excluding LNG) - per mcf............ $ 2.09 $ 2.29 Indonesia liquefied natural gas (LNG)- per mcf... $ 3.53 $ 2.29
Petroleum Liquids and Natural Gas Production
Net Production* 1999 1998 ---- ---- U.S. Petroleum liquids - bbl/day Alaska............................................ 291,200 334,600 Vastar............................................ 62,500 44,800 Other Lower 48.................................... 82,700 136,400 ------- --------- Total........................................... 436,400 515,800 Natural gas - mcf/day............................... 1,222,000 1,163,500 Barrels of oil equivalent - (BOE)/day............... 640,100 709,700 International Petroleum liquids - bbl/day......................... 163,600 178,400 Natural gas - mcf/day............................... 997,600 883,500 BOE/day............................................. 329,800 325,700 Total net production - BOE/day...................... 969,900 1,035,400
* Includes ARCO's share of production from equity affiliates. For BOE calculation, natural gas is converted at the ratio of 6 mcf to 1 barrel of liquid. 20 In 1999, the reduction in U.S. petroleum liquids production primarily resulted from natural field declines in Alaska and the absence of production from California properties (other Lower 48), producing exclusively heavy crude oil. The California properties were exchanged for Gulf of Mexico exploration acreage and properties producing both crude oil and natural gas that were ultimately transferred to Vastar. The lower Alaska petroleum liquids production primarily reflected natural field decline at the Prudhoe Bay, Kuparuk River and Greater Point McIntyre fields partially offset by increases in satellite field production. The decline in international petroleum liquids production primarily reflected a decrease of approximately 16,000 barrels per day in Indonesia production resulting from the impact of higher crude oil prices on production sharing contracts. Most of the growth in international natural gas production came from the United Kingdom North Sea, while the increase in U.S. natural gas production reflected Vastar's 7% growth in production, compared to the third quarter 1998. Vastar's increased production resulted from the Gulf of Mexico properties transferred to Vastar late in 1998, successful exploitation programs and the addition of last year's African Swallow discovery. Refining and Marketing The higher earnings in 1999 primarily resulted from improved light product margins. The effect of the West Coast refinery outages in the second quarter of 1999 continued to impact supply in the first two months of the third quarter 1999 resulting in higher product realizations. The higher product sales prices were partially offset by higher crude oil costs. The 3% increase in gasoline sales volumes reflected increased volumes at existing ARCO retail outlets. The increase in jet fuel sales in 1999 reflected the timing on jet fuel military contract takes in 1999 versus 1998. In 1998, the military took more of the fixed contract amount earlier in the year. West Coast Petroleum Products Sales
Volumes (Barrels/day) 1999 1998 ------- ------- Gasoline.................................. 314,600 304,900 Jet....................................... 104,700 97,100 Distillate................................ 77,000 83,500 Other..................................... 74,200 75,400 ------- ------- Total..................................... 570,500 560,900 ======= =======
Other Operations Other operations comprise earnings from Lower 48 pipeline and aluminum operations. The 1999 and 1998 earnings included special items of $5 million and $17 million, respectively, primarily from the sale of pipeline assets. Excluding the special items, the decline in operating results in 1999 reflected decreased earnings from the pipeline operations, primarily as a result of the transfer of certain pipeline operations to the refining and marketing segment. Discontinued Operations In the first quarter of 1999, ARCO sold its interests in two Australian coal mines, Gordonstone and the Blair Athol Joint Venture, and sold Union Texas Petrochemicals Corporation, which ARCO had acquired as part of its purchase of Union Texas Petroleum Holdings, Inc. in June 1998. 21 After-tax earnings from discontinued operations in the 1998 third quarter totaled $12 million. Discontinued operations in the third quarter 1998 included ARCO's interest in ARCO Chemical for part of the quarter and Australian coal operations. Gain on Disposition of ARCO Chemical Stock In the third quarter of 1998, ARCO sold its entire interest in ARCO Chemical (80,000,001 shares of common stock) to Lyondell, an unrelated third party, for $4.6 billion and recorded a net after-tax gain of $1,088 million. Previously, the Company entered into a ten-year purchase agreement with ARCO Chemical providing for the delivery of fixed quantities of methyl tertiary butyl ether ("MTBE") at a fixed price approximating the then-market price. Over the last several years the spot market price of MTBE has declined; however, provision for loss on the contract was not necessary since ARCO Chemical was a consolidated, majority-owned subsidiary of the Company. The above-market MTBE contract value was reflected in the sale price of the Company's interest in ARCO Chemical. As a result, ARCO has deferred $313 million of the pre-tax gain on sale of the ARCO Chemical interest. This deferral represents the estimated discounted present value of the difference over the remaining term of the contract between the contract price and the spot market price for MTBE. The deferral will be amortized over the remaining term of the contract on a unit-of-production basis. The amortization and recognition of imputed interest associated with the deferral of part of the pre-tax gain on the sale of the ARCO Chemical interest is expected to have a net favorable impact of approximately $40 million after tax on earnings of the refining and marketing segment for the full year 1999.
Consolidated Revenues 1999 1998 ------ ------ (Millions) Sales and other operating revenues Exploration and production......... $1,882 $1,518 Refining and marketing............. 1,959 1,386 Other.............................. 10 42 Intersegment eliminations.......... (428) (291) ------ ------ Total............................ $3,423 $2,655 ====== ======
The increase in exploration and production sales revenues resulted primarily from higher petroleum liquids and natural gas prices, partially offset by lower crude oil marketing volumes. Refining and marketing sales revenues primarily increased because of higher light product prices. 22 Consolidated Expenses Trade purchases were higher in 1999 primarily as a result of an increase in purchases of finished refined product from third parties and higher crude oil costs, partially offset by lower crude oil marketing volumes. Operating expenses were lower in 1999 primarily as a result of the absence of $213 million before tax in special item charges for future environmental remediation and reclamation related to both current operations and to natural resource damage liabilities in the state of Montana associated with previously discontinued mining operations. In addition, exploration and production operating costs were more than $50 million before tax lower than in the third quarter of 1998. Selling, general and administrative expenses in 1999 primarily reflected lower expenses associated with international exploration and production operations. The lower exploration expenses in 1999 primarily resulted from reduced geological and geophysical ("G&G") expenses including staff-related G&G for international exploration and production. The lower interest expense in 1999 primarily resulted from the impact of capitalized interest. Income Taxes The Company had an effective tax rate of 20.2% in the 1999 third quarter. An effective tax rate in 1999 lower than the statutory rate primarily reflected various tax credits and other benefits. The Company had a tax benefit in the 1998 third quarter reflecting the Company's loss from continuing operations in that period. Nine-Month Period Ended September 30, 1999 vs. Same Nine-Month Period 1998 Income from Continuing Operations The improvement in income from continuing operations for the first nine months of 1999, compared to the same period in 1998, primarily reflected higher crude oil prices and natural gas volumes, increased refined products margins and lower operating and SG&A expenses. Special Items included in Net Income Special items for the first nine months of 1999 primarily included the net after-tax charges of $139 million reported in the third quarter 1999 results. Special items for the first nine months of 1998 included the net after-tax benefit of $799 million included in the third quarter 1998 results, as well as net charges of $58 million for special items in the first two quarters of 1998. 23 After-tax Segment Earnings
1999 1998 ---- ----- Less: Less: Special Special Items Items (Millions) Net (Charge) Operating Net (Charge) Operating Income Benefit Results Income Benefit Results ------ ------- ------- ------ ------- ------- Exploration and production $ 446 $ (172) $618 $ 143 $ (169) $ 312 Refining and marketing . . 517 (4) 521 224 - 224 Other operations . . . . . 73 5 68 98 17 81 Interest expense . . . . . (211) - (211) (236) - (236) Other unallocated expenses (17) (6) (11) (169) (117) (52) ------ ------ ----- ------ ------ ------ Income from continuing operations . . . . . . 808 (177) 985 60 (269) 329 Income from discontinued operations . . . . . . . - - - 188 12 176 Gain on disposition of discontinued operations 42 42 - 998 998 - ------ ------ ----- ------ ------ ------ Net income . . . . . . . . $ 850 $ (135) $985 $1,246 $ 741 $ 505 ====== ====== ===== ====== ====== ======
Consolidated Revenues 1999 1998 ---- ---- (Millions) Sales and other operating revenues Exploration and production................... $4,735 $4,424 Refining and marketing....................... 5,084 4,170 Other........................................ 44 137 Intersegment eliminations.................... (978) (976) ------ ------ Total...................................... $8,885 $7,755 ====== ======
The increase in exploration and production sales revenues for the first nine months of 1999 primarily resulted from higher petroleum liquids prices and natural gas production volumes. For the first nine months of 1999 refining and marketing sales revenues primarily increased because of higher refined products prices, and to a much lesser extent increased sales volumes. 24 Consolidated Expenses Trade purchases for the nine months ended September 30, 1999 were higher primarily as a result of increased purchases of finished and unfinished refined product from third parties. Operating expenses declined during the first nine months of 1999, compared to the same period in 1998 primarily as a result of the absence of $213 million before tax in special item charges for future environmental remediation and reclamation related to both current operations and to natural resource damage liabilities in the state of Montana associated with previously discontinued mining operations. In addition, exploration and production operating costs decreased approximately $40 million before tax, compared to the nine months ended September 30, 1998. Depreciation, depletion and amortization expense for the first nine months of 1999 was higher as a result of DD&A of the former UTP operations, which became a part of ARCO's operations in the third quarter of 1998, and increased crude oil and natural gas production and higher average depletive writeoff rates associated with Vastar's operations. The lower exploration expense for the first nine months of 1999 reflected a decline in geological and geophysical and dryhole expense in ARCO's international exploration operations and Vastar's exploration operations. For the nine months ended September 30, 1999, the lower interest expense resulted from the impact of capitalized interest, partially offset by an increase in long-term debt outstanding during the first nine months of 1999, compared to the same period in 1998. Income Taxes The Company had an effective tax rate of 31.4% for the first nine months of 1999. An effective tax rate in 1999 lower than the statutory rate primarily reflected various tax credits and other benefits, partially offset by taxes on foreign income in excess of statutory rate. The Company had a tax benefit in the 1998 comparable period reflecting the Company's loss from continuing operations in that period.
Average Oil and Gas Prices Nine Months Ended September 30, ----------------- 1999 1998 ------- ------- U.S. Petroleum liquids - per bbl Alaska....................... $ 9.76 $ 8.59 Lower 48, including Vastar... $13.40 $11.31 Composite average price...... $10.91 $ 9.55 Natural gas - per mcf.......... $ 1.89 $ 1.85
25 Average Oil and Gas Prices
Nine Months Ended September 30, ------------- 1999 1998 ---- ---- International Petroleum liquids - per bbl.............................................. $12.87 $11.62 Venezuela crude oil - per bbl............................................ $ 6.41 $ 7.96 Natural gas (excluding LNG) - per mcf.................................... $ 2.22 $ 2.51 Indonesia liquid natural gas (LNG) - per mcf............................. $ 2.94 $ 2.29
Petroleum Liquids and Natural Gas Production
1999 1998 ------- ------- Net Production* U.S. Petroleum liquids - bbl/day Alaska................................................................. 317,500 346,100 Vastar................................................................. 59,400 48,600 Other Lower 48......................................................... 86,800 138,500 ------- ------- Total................................................................ 463,700 533,200 Natural gas - mcf/day.................................................... 1,280,000 1,125,000 Barrels of oil equivalent - (BOE)/day.................................... 677,000 720,700 International Petroleum liquids - bbl/day.............................................. 163,800 116,000 Natural gas - mcf/day.................................................... 1,091,500 793,100 BOE/day.................................................................. 345,800 248,200 Total net production - BOE/day........................................... 1,022,800 968,900
* Includes ARCO's share of production from equity affiliates. For BOE calculation, natural gas is converted at the ratio of 6 mcf to 1 barrel of liquid. Liquidity and Capital Resources
1999 ---- (Millions) Cash flow provided (used) by: Operations................................................................... $ 1,515 Investing activities......................................................... $(1,387) Financing activities......................................................... $ (29)
The net cash provided by investing activities in the first nine months of 1999 included expenditures for additions to fixed assets of $2.0 billion, offset by proceeds from assets sales of $732 million primarily associated with the sale of Australian coal assets and the Union Texas Petrochemicals Corporation. The net cash used by financing activities in the first nine months of 1999 primarily included $826 million in long-term debt repayments, a decrease of $439 million in the Company's short-term debt position and dividend payments of $690 million, offset by proceeds from the issuance of $1.9 billion in long-term debt. 26 Cash and cash equivalents and short-term investments totaled $991 million and short-term borrowings were $1,958 million at the end of the third quarter of 1999. Beginning in 1997 and continuing through the first quarter of 1999, the Company utilized increased short-term borrowing in lieu of increased long-term borrowing (other than long-term debt assumed in connection with the UTP acquisition in 1998). While overall short-term borrowings are lower at the end of the third quarter of 1999 compared to the end of the first quarter 1999, the Company is still in a working capital deficit position of approximately $1,150 million at September 30, 1999. The Company believes it has adequate resources and liquidity to fund future cash requirements for working capital, capital expenditures, dividends and debt repayments with cash from operations, existing cash balances, additional short- and long-term borrowing and the sale of assets. Impact of Year 2000 Issue - ------------------------- The Company's plans to address the Year 2000 issue are fully described in its Annual Report on Form 10-K for the year ended December 31, 1998. The following table is an update of a table contained in that document and shows the Company's progress on addressing the Year 2000 issue as of October 31, 1999:
Total expended Percent through Total complete at Expected date October 31, estimated October 31, of 1999 cost Areas addressed 1999 completion (millions) (millions) --------------- ---- ------------- ---------- ---------- Computing integrity 100% October 1999 $14 $14 Asset integrity 98% November 1999 11 13 Commercial integrity 96% November 1999 3 3 --- --- Total costs $28 $30 === ===
________________ Current emphasis is contingency planning for all mission critical com- ponents and end of year transition. Items outside of ARCO's direct control are being addressed through the creation of specific contingency plans. The total cost associated with required modifications to achieve Year 2000 compliance is not expected to be material to the Company's financial position. The approximate total cost of the Year 2000 project is $30 million. This estimate does not include ARCO's potential share of Year 2000 costs that may be incurred by partnerships and joint ventures in which the Company participates but is not the operator. The ARCO Year 2000 due diligence requires that vendors of mission critical components and providers of mission critical services be solicited concerning Year 2000 compliance. Many of these third party providers have responded in writing addressing their understanding of the problem and their commitment to remediating the Year 2000 problem. 27 Statements of Financial Accounting Standards Not Yet Adopted In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 requires companies to adopt its provisions for all fiscal quarters of all fiscal years beginning after June 15, 2000 (as deferred by SFAS No. 137). Earlier application of all of the provisions of SFAS No. 133 is permitted, but the provisions cannot be applied retroactively to financial statements of prior periods. SFAS No. 133 standardizes the accounting for derivative instruments by requiring that an entity recognize those items as assets or liabilities in the statement of financial position and measure them at fair value. The Company has not yet completed evaluating the impact of the provisions of SFAS No. 133. _______________________________ Management cautions against projecting any future results based on present earnings levels because of economic uncertainties, the extent and form of existing or future governmental regulations and other possible actions by governments. 28 PART II. OTHER INFORMATION Item 1. Legal Proceedings. 1. On July 28, 1999, ARCO and the Riverside County District Attorney agreed in principle to settle the County Department of Environmental Health's (DEH) claim of violation of underground storage tank laws at thirty-three ARCO-owned stations in the county. DEH claims ARCO failed to maintain a continuous monitoring system, primarily due to the alleged improper placement of monitoring probes. Without admitting liability, ARCO agreed to pay $200,000 in civil penalties. 2. On August 13, 1999, the San Joaquin County District Attorney filed an action against ARCO, alleging operation without a certificate of equipment compliance from the County, among other matters, at eight service stations in the San Joaquin area. The District Attorney is seeking penalties in excess of $100,000. 3. On September 20, 1999, ARCO (as successor to IS&R) and The Anaconda Company were named by 11 homeowners as defendants in a purported class action suit filed in the Circuit Court for Baltimore City, Maryland, Earl Cofield, et al. v. Lead Industries Association, et al. (Case No. 24-C-99- 004491). The amended complaint, which also names 13 alleged former manufacturers of lead products, the Lead Industries Association, and the National Paint and Coatings Association, alleges causes of action for negligent product design and failure to warn, supplier negligence, fraud and deceit, conspiracy, concert of action, aiding and abetting, and products liability. This matter also incorporates causes of action for nuisance, indemnification, and enterprise liability. The plaintiffs seek, on behalf of themselves and a purported class of over 10,000 people living in the State of Maryland whose pre-1978 residences allegedly were contaminated with lead-based paint, compensatory and punitive damages and injunctive relief, including orders requiring defendants to pay for (i) notification to class members about the hazards of lead pigments, (ii) abatement of residences where class members reside, (iii) a public education campaign concerning the hazards of lead pigments, lead paint, and lead poisoning, and (iv) attorney fees. 4. On October 12, 1999, ARCO (as successor to IS&R) was named as a defendant in a lead paint lawsuit filed in Rhode Island Superior Court, Providence County by Rhode Island Attorney General Sheldon Whitehouse, State of Rhode Island v. Lead Industries Association, et al. (Case No. 99-5226). The complaint, which also names seven former lead pigment manufacturers and the Lead Industries Association, alleges causes of action for public nuisance, violation of Rhode Island's Unfair Trade Practice and Consumer Protection Act, strict liability, negligence, negligent and fraudulent misrepresentations, civil conspiracy, unjust enrichment, indemnity and equitable relief to protect children. The State of Rhode Island seeks compensatory and punitive damages, funding for a public education campaign concerning the dangers of lead poisoning and injunctive relief that includes an order requiring defendants to pay for the detection and abatement of lead paint in all public and private buildings within the State that are accessible to children. 29 Item 1. Legal Proceedings (continued). 5. In September, 1999, ARCO and the South Coast Air Quality Management District recently reached a tentative settlement of certain notices of violation (the "NOVs") alleging that ARCO and two of its contractors -- Metalclad and Brown & Root -- violated a number of federal and local asbestos regulations during excavation activities conducted in 1997 at the Los Angeles Refinery in preparation for the installation of certain polypropylene manufacturing equipment. The excavation occurred at large parcel of land that ARCO had earlier purchased from the Johns Manville Corporation and that was the former location of an asbestos manufacturing facility. The settlement amount consists of a penalty of $600,000 and a future payment of $200,000 towards a supplemental environmental project to be agreed upon later by the District and ARCO. 6. Reference is made to the disclosure on page 19 of the Company's 1998 Form 10-K Report and on page 27 of the Second Quarter Form 10-Q report regarding Squyres v. Barry, et al., (Case No. 16357NC), McMullen v. Union Texas Petroleum, et al., (Case No. 16358NC), and Squyres v. Whitmire, et al. (Case No. 98-6085). These cases have been dismissed with prejudice. 7. Reference is made to the Company's 1998 Form 10-K Report for information on other legal proceedings matters reported herein. 30 Item 5. Other Information. Safe Harbor for Forward-Looking Statements* ARCO's management from time to time may make forward-looking statements to inform existing and potential security holders regarding various matters. Such statements are generally accompanied by words such as estimate, project, predict or expect, that convey the uncertainty of future events or outcomes. These statements may include projections and estimates concerning the timing and success of specific projects, the size and timing of cost reductions, the level of future income, production volumes, size of hydrocarbon resources, ability to replace reserves and levels of capital spending. Actual results could differ materially based on numerous factors, including those described below. Unless otherwise noted in the statements, ARCO does not intend to update such forward- looking statements. Price Volatility, Political, Economic and Regulatory Instability Volatility in prices and margins affects all of the company's businesses. Volatility is caused by a number of factors, including changes in market supply and demand balances and fluctuations in political, regulatory and economic climates throughout the world. The ability to operate ARCO's businesses is dependent on the politics and regulations in the U.S. and in the particular geographic regions where the company operates. The ability to negotiate and implement specific projects in a timely and favorable manner may be impacted by political considerations unrelated to or beyond the control of the company. Level of Oil and Gas Prices ARCO's management makes assumptions about the future prices of oil and gas for various planning, budgetary and accounting disclosure purposes. Management expects that these assumptions will change over time and actual prices in the future may differ from these estimates. Any substantial or extended decline in actual prices could have a material adverse effect on ARCO's financial position and results of operations, on the quantities of crude oil and natural gas reserves that economically may be produced and on the quantity of proved reserves that may be attributed to our properties. Production Rates and Reserve Replacement Projecting future rates of oil and gas production is inherently imprecise. Production rates of oil and gas reservoirs generally decline. Future production rates can be affected by price volatility and the company's ability to replace depleting reserves. There can be no assurances: (a) as to the level or timing of success, if any that the company will have in acquiring or finding and developing economically recoverable reserves; (b) that estimates of proved reserves will not be revised in the future; or (c) that the actual quantities of oil and gas ultimately recovered will not differ from the reserve estimates. *The company desires to take advantage of the "safe harbor" provisions contained in Section 27A of the Securities Act and Section 21B of the Exchange Act and is including this statement in order to do so. 31 Item 5. Other Information (continued). Refining & Marketing Overall profitability of the company's refining and marketing operations depends heavily on the margin between the price of crude oil and/or purchased products and the sales price of products produced and/or purchased. Volumes produced and margins historically have been volatile and are impacted by market demand, regulatory changes (particularly environmental regulations regarding gasoline), the price of crude oil, and the ability of regional refiners and the company to provide a sufficient supply of refined products. Operating Hazards Operations are subject to various hazards common to the industry, including explosions, fires, uncontrollable spills, and damage from severe weather conditions. Year 2000 Risks The company has described its plans for addressing the Year 2000 issue and made a number of forward-looking statements regarding its Year 2000 readiness under the caption "Impact of the Year 2000 Issue." These statements are made on a number of assumptions: (a) that the company will be able to timely identify and locate all relevant Year 2000 items; (b) that the company's repair and replacement program will be timely completed, including work to be performed by third-party vendors and contractors; and (c) that representations by third parties regarding their readiness are correct. Actual results could differ materially if any of these assumptions are incorrect. Due to the general uncertainty as to the Year 2000 readiness of third parties and as to the reaction of the general population to any perceived gasoline shortages, as well as the general interconnectedness of businesses and their dependency on computers and embedded computer chips, the company cannot assure its stockholders that its operations and business will not be affected by a Year 2000 issue. Pending Merger with BP Amoco The timing of the closing of the combination with BP Amoco is subject to the timing of governmental reviews. 32 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. 2 Agreement and Plan of Merger. Among BP Amoco p.l.c., Atlantic Richfield Company and Prarie Holdings, Inc. dated as of March 31, 1999, as amended as of July 12, 1999, filed herewith. 2.1 Amendment No. 1 to Agreement and Plan of Merger, filed herewith. 10.1 Amended and Restated Atlantic Richfield Capital Accumulation Plan, effective March 15, 1999, filed herewith. 10.2 Amended and Restated CH-Twenty, Inc. Capital Accumulation Plan, effective March 15, 1999, filed herewith. 10.3 Amendment No. 12 to Atlantic Richfield Company 1985 Executive Long-Term Incentive Plan, effective March 31, 1999, filed herewith. 10.4 Amendment No. 13 to Atlantic Richfield Company 1985 Executive Long-Term Incentive Plan, effective March 31, 1999, filed herewith. 27 Financial Data Schedule. (b) Reports on Form 8-K The following Current Reports on Form 8-K were filed during the quarter ended September 30, 1999 and through the date hereof. Date of Report Item No. Financial Statements -------------- -------- -------------------- August 30, 1999 5 None September 14, 1999 5 None 33 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ATLANTIC RICHFIELD COMPANY (Registrant) /s/ ALLAN L. COMSTOCK Dated: November 10, 1999 ---------------------------- (signature) Allan L. Comstock Vice President and Controller (Duly Authorized Officer and Principal Accounting Officer) 34 EX-2 2 AGREEMENT & PLAN OF MERGER Exhibit 2 AGREEMENT AND PLAN OF MERGER Among BP AMOCO p.l.c., ATLANTIC RICHFIELD COMPANY and PRAIRIE HOLDINGS, INC. Dated as of March 31 , 1999 As amended as of July 12, 1999 TABLE OF CONTENTS Page ARTICLE I The Closing and the Merger
1.1. Closing............................................................. 2 1.2. The Share Exchange and the Merger................................... 2 1.3. Conversion and Exchange of Shares................................... 3 1.4. Surrender and Payment............................................... 6 1.5. ARCO Stock Options; Other Stock-Based Plans......................... 9 1.6. Fractional BP Amoco Depositary Shares...............................13 1.7. The Surviving Corporation...........................................13 1.8. Lost, Stolen or Destroyed Certificates..............................14 ARTICLE II Representations and Warranties 2.1. Representations and Warranties of BP Amoco and ARCO................. 14 2.1.1. Organization, Good Standing and Qualification............... 14 2.1.2. Capital Structure........................................... 15 2.1.3. Corporate Authority; Approval and Fairness.................. 18 2.1.4. Governmental Filings; No Violations......................... 19 2.1.5. Reports; Financial Statements............................... 21 2.1.6. Absence of Certain Changes.................................. 23 2.1.7. Litigation and Liabilities.................................. 23 2.1.8. Takeover Statutes........................................... 24 2.1.9. Brokers and Finders......................................... 24 2.1.10. Ownership of Other Party's Common Stock..................... 25 2.1.11. Merger Sub.................................................. 25 2.1.12. ARCO Employee Benefit Plans................................. 25 2.1.13. Environmental Matters....................................... 26 2.1.14. ARCO Rights Plan............................................ 27 2.1.15. ARCO Joint Ventures; Exclusivity Arrangements............... 27 2.1.16. Tax Matters................................................. 28 2.2. Vastar.............................................................. 28
-i-
ARTICLE III Covenants 3.1. Interim Operations.................................................. 28 3.1.1. Interim Operations of BP Amoco.............................. 28 3.1.2. Interim Operations of ARCO.................................. 30 3.1.3. Consultation as to Material Contracts....................... 35 3.2. ARCO Acquisition Proposals.......................................... 35 3.3. Information Supplied................................................ 37 3.3.1. Registration Statement...................................... 37 3.3.2. BP Amoco Documents.......................................... 38 3.4. Shareholders Meetings............................................... 39 3.5. Filings; Other Actions; Notification................................ 40 3.6. Access.............................................................. 42 3.7. Publicity........................................................... 43 3.8. Benefits and Other Matters.......................................... 43 3.8.1. Employee Benefits........................................... 43 3.8.2. Director and Officer Liability.............................. 46 3.9. Expenses............................................................ 47 3.10. Takeover Statutes................................................... 47 3.11. Dividends........................................................... 47 3.12. Listing Applications................................................ 47 3.13. Letters of Accountants.............................................. 48 3.14. Agreements of ARCO Affiliates....................................... 48 3.15. Accounting Matters.................................................. 48 3.16. Tax Matters......................................................... 49 3.17. Vastar.............................................................. 49 3.18. Section 103......................................................... 49 ARTICLE IV Conditions 4.1. Conditions to Each Party's Obligation to Effect the Merger.......... 49 4.1.1. Shareholder Approvals....................................... 49 4.1.2. Regulatory Consents......................................... 49 4.1.3. Laws and Orders............................................. 50 4.1.4. Effectiveness of Form F-4................................... 50 4.1.5. Exchange Listings........................................... 50
-ii-
4.2. Conditions to Obligations of BP Amoco and Merger Sub................ 50 4.2.1. Representations and Warranties of ARCO...................... 50 4.2.2. Performance of Obligations of ARCO.......................... 51 4.3. Conditions to Obligation of ARCO.................................... 51 4.3.1. Representations and Warranties.............................. 51 4.3.2. Performance of Obligations of BP Amoco...................... 51 4.3.3. Tax Opinion................................................. 52 ARTICLE V Termination 5.1. Termination by Mutual Consent....................................... 52 5.2. Termination by Either BP Amoco or ARCO.............................. 52 5.3. Termination by BP Amoco............................................. 53 5.4. Termination by ARCO................................................. 53 5.5. Effect of Termination and Abandonment............................... 53 ARTICLE VI Miscellaneous and General 6.1. Survival............................................................ 55 6.2. Modification or Amendment........................................... 56 6.3. Waiver.............................................................. 56 6.4. Failure or Indulgence Not Waiver; Remedies Cumulative............... 56 6.5. Counterparts........................................................ 56 6.6. GOVERNING LAW AND VENUE; WAIVER OF JURY TRIAL....................... 56 6.7. Notices............................................................. 57 6.8. Entire Agreement.................................................... 59 6.9. Obligations of BP Amoco and of ARCO................................. 60 6.10. Severability........................................................ 60 6.11. Interpretation...................................................... 60 6.12. Assignment.......................................................... 60
-iii- Index of Defined Terms
Affiliate................................................................... 15 Agreement................................................................... 1 ARCO........................................................................ 1 ARCO $2.80 Preference Stock................................................. 17 ARCO $3.00 Preference Stock................................................. 16 ARCO Acquisition Proposal................................................... 35 ARCO Affiliates............................................................. 48 ARCO Alternative Agreement.................................................. 54 ARCO Audit Date............................................................. 22 ARCO Common Shares.......................................................... 1 ARCO Compensation and Benefit Plans......................................... 26 ARCO Disclosure Letter...................................................... 14 ARCO Executive Officers..................................................... 24 ARCO Preference Stock....................................................... 17 ARCO Preferred Stock........................................................ 16 ARCO Proxy Statement........................................................ 37 ARCO Reports................................................................ 22 ARCO Representatives........................................................ 35 ARCO Required Consents...................................................... 20 ARCO Requisite Vote......................................................... 18 ARCO Stock Option........................................................... 9 ARCO Stock Plans............................................................ 17 ARCO Stockholders Meeting................................................... 39 ARCO Termination Amount..................................................... 54 Audit Date.................................................................. 22 Bankruptcy and Equity Exception............................................. 18 BP Amoco.................................................................... 1 BP Amoco 20-F............................................................... 21 BP Amoco ADRs............................................................... 3 BP Amoco Audit Date......................................................... 21 BP Amoco Circular........................................................... 38 BP Amoco Depositary Shares.................................................. 3 BP Amoco Disclosure Letter.................................................. 14 BP Amoco Documents.......................................................... 39 BP Amoco Executive Directors................................................ 24 BP Amoco First Preference Shares............................................ 15 BP Amoco Listing Document................................................... 38 BP Amoco Ordinary Shares.................................................... 3
-iv- BP Amoco Reports............................................................ 21 BP Amoco Required Consents.................................................. 20 BP Amoco Requisite Vote..................................................... 18 BP Amoco Second Preference Shares........................................... 16 BP Amoco Shareholder Meeting................................................ 39 BP Amoco Shares............................................................. 6 BP Amoco Termination Amount................................................. 55 BP Amoco Voting Shares...................................................... 18 Canceled ARCO Share......................................................... 3 Certificate................................................................. 4 Certificate of Merger....................................................... 3 CH-Twenty................................................................... 3 CH-Twenty ARCO Shares....................................................... 3 Closing..................................................................... 2 Closing Date................................................................ 2 Code........................................................................ 1 Companies Act............................................................... 15 Confidentiality Agreement................................................... 43 Constituent Corporations.................................................... 1 Contracts................................................................... 20 Deposit Agreement........................................................... 4 Depositary.................................................................. 4 DGCL........................................................................ 1 Directors' Plan............................................................. 12 Disclosure Letter........................................................... 14 Effective Time.............................................................. 3 Eligible ARCO Shareholders.................................................. 1 ELTIP....................................................................... 10 Encumbrance................................................................. 16 Environmental Law........................................................... 26 ERISA....................................................................... 25 Exchange Act................................................................ 15 Exchange Agent.............................................................. 6 Exchange Ratio.............................................................. 3 Excluded ARCO Shares........................................................ 3 Exclusivity Agreements...................................................... 27 Exon-Florio................................................................. 19 Form F-4.................................................................... 37 FSA......................................................................... 39 Governmental Consents....................................................... 49 Governmental Entity......................................................... 20
-v- Hazardous Substance......................................................... 27 HSR Act..................................................................... 19 Indemnitees................................................................. 46 IPA......................................................................... 45 Joint Venture Agreements.................................................... 27 Law......................................................................... 21 Material Adverse Effect..................................................... 15 Merger...................................................................... 1 Merger Consideration........................................................ 3 Merger Sub.................................................................. 1 Merger Sub Common Stock..................................................... 4 MMC......................................................................... 19 Nominee..................................................................... 6 NYSE........................................................................ 13 Option Schemes.............................................................. 16 Order....................................................................... 50 Ordinary Share Election..................................................... 6 Parties..................................................................... 1 Party....................................................................... 1 Person...................................................................... 15 Regulation.................................................................. 19 Reports..................................................................... 23 Rights...................................................................... 27 Rights Agreement............................................................ 27 SEC......................................................................... 12 Securities Act.............................................................. 12 Stock Option Agreement...................................................... 1 Subsidiary.................................................................. 15 Superior Proposal........................................................... 36 Surviving Corporation....................................................... 2 Takeover Panel.............................................................. 20 Takeover Statute............................................................ 24 Termination Date............................................................ 52 U.K. GAAP................................................................... 22 U.S. GAAP................................................................... 22 Vastar...................................................................... 17
-vi- This AGREEMENT AND PLAN OF MERGER, dated as of March 31, 1999, as amended as of July ___, 1999 (this "Agreement"), among BP AMOCO p.l.c. ("BP --------- -- Amoco"), an English public limited company, ATLANTIC RICHFIELD COMPANY, a - ----- Delaware corporation ("ARCO"), and PRAIRIE HOLDINGS, INC., a Delaware ---- corporation and a direct wholly owned subsidiary of BP Amoco ("Merger Sub" and, ---------- together with ARCO, the "Constituent Corporations"); ------------------------ W I T N E S S E T H : WHEREAS, the respective Boards of Directors of each of ARCO, BP Amoco and Merger Sub (each, a "Party" and, together, the "Parties") have each ----- ------- determined that it is in the best interests of their respective companies and stockholders or shareholders, as the case may be, to combine their respective businesses; WHEREAS, in furtherance of such combination, the respective Boards of Directors of ARCO and Merger Sub have each adopted resolutions approving this Agreement and declaring its advisability and approving the merger (the "Merger") ------ of Merger Sub with and into ARCO in accordance with the Delaware General Corporation Law, as amended (the "DGCL"), upon the terms and subject to the ---- conditions set forth herein; WHEREAS, in furtherance of such combination, the Board of Directors of BP Amoco adopted a resolution approving this Agreement and the Merger, upon the terms and subject to the conditions set forth herein; WHEREAS, it is intended that, for U.S. federal income tax purposes, the DSC II Share Exchange (as defined herein) and the Merger shall qualify as a reorganization under the provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder (the "Code") and that the holders of ARCO Common Shares who will not be "five ---- percent transferee shareholders" as defined in Treasury Regulation Section 1.367(a)-3(c)(5)(ii) or who enter into five-year gain recognition agreements in the form provided in Treasury Regulation Section 1.367(a)-8(b) ( "Eligible ARCO ------------- Shareholders") not recognize taxable gain with respect to the DSC II Share - ------------ Exchange or the Merger pursuant to Section 367(a) of the Code (except with respect to cash received in lieu of fractional share interests); WHEREAS, as an inducement to the willingness of BP Amoco to enter into this Agreement, the Board of Directors of ARCO has approved the grant to BP Amoco of an option to purchase shares of common stock, par value $2.50 per share, of ARCO ("ARCO Common Shares") pursuant to a stock option agreement, ------------------ dated as of March 31, 1999, between ARCO and BP Amoco (the "Stock Option ------------ Agreement"), and - --------- each of ARCO and BP Amoco has duly authorized, executed and delivered the Stock Option Agreement; and WHEREAS, ARCO and BP Amoco desire to make certain representations, warranties, covenants and agreements in connection with this Agreement. NOW, THEREFORE, in consideration of the mutual representations, warranties, covenants and agreements contained herein, the parties hereto, intending to be legally bound, hereby agree as follows: ARTICLE I The Closing and the Merger I.1. Closing. The closing of the Merger (the "Closing") shall take ------- ------- place (i) at the offices of Linklaters & Paines, One Silk Street, London, England, with a meeting to be held simultaneously at the offices of Sullivan & Cromwell, 125 Broad Street, New York, New York, for the delivery of certain documents in connection therewith, at a time to be agreed by the Parties on the third business day after the day on which the last to be fulfilled or waived of the conditions set forth in Article IV (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 or (ii) at such other places and time and/or on such other date as ARCO and BP Amoco may agree in writing (the "Closing Date"). ------------ I.2. The Share Exchange and the Merger. --------------------------------- I.2.1. Upon the terms and subject to the conditions set forth in the Share Exchange Agreement, dated as of July __, 1999 (the "Share Exchange -------------- Agreement"), among BP Amoco, ARCO and ARCO DSC II, Inc., a Delaware --------- corporation ("DSC II"), prior to the Effective Time (as defined in Section ------ 1.2.3), each ARCO Common Share then owned by DSC II shall be exchanged for a number of ordinary shares, of nominal value $0.50 each, of BP Amoco (each, a "BP Amoco Ordinary Share") equal to the Exchange Ratio (as defined ----------------------- in Section 1.3.2), which shall be delivered to DSC II in the form of BP Amoco Depositary Shares (as defined in Section 1.3.2) (the "DSC II Share ------------ Exchange"). The consummation of the DSC II Share Exchange shall not be a -------- condition to the obligations of the Parties to effect the Merger. 1.2.2. Upon the terms and subject to the conditions set forth in this Agreement, at the Effective Time (as defined in Section 1.2.3), Merger Sub shall be merged with and into ARCO in accordance with the DGCL, whereupon the separate existence of Merger Sub shall cease, and ARCO shall be the surviving corporation in the Merger (the "Surviving Corporation") and shall --------------------- continue to be governed by the laws of the State of Delaware, and the separate corporate existence of ARCO, with all its rights, privileges, immunities, powers and franchises, shall continue unaffected by the Merger except as set forth in this Article I. The Merger shall have the effects specified in the DGCL. 1.2.3. As soon as practicable after satisfaction or waiver (to the extent herein permitted) of the conditions to the obligations of the Parties to consummate the Merger set forth in Article IV, ARCO and Merger Sub will cause a certificate of merger (the "Certificate of Merger") to be --------------------- executed and filed with the Secretary of State of the State of Delaware and make all other filings or recordings required by applicable 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 in accordance with the DGCL (the "Effective Time"). -------------- I.3. Conversion and Exchange of Shares. At the Effective Time: --------------------------------- I.3.1. Each ARCO Common Share owned by BP Amoco, ARCO or any Subsidiary (as defined in Section 2.1.1) of BP Amoco or ARCO (other than CH-Twenty Holdings, LLC, a Delaware limited liability company and a Subsidiary of ARCO ("CH-Twenty")) immediately prior to the Effective Time, --------- including the ARCO Common Shares acquired by BP Amoco in the DSC II Share Exchange (each, a "Canceled ARCO Share"), shall, by virtue of the Merger, ------------------- and without any action on the part of the holder thereof, no longer be outstanding, shall be canceled and retired without payment of any consideration therefor and shall cease to exist. The ARCO Common Shares owned by CH-Twenty immediately prior to the Merger (if any) (the "CH-Twenty --------- ARCO Shares" and, together with the Canceled ARCO Shares, the "Excluded ----------- -------- ARCO Shares") shall remain outstanding, without change, after the Effective ----------- Time, and no consideration shall be delivered in exchange therefor. I.3.2. Each ARCO Common Share outstanding immediately prior to the Effective Time, other than Excluded ARCO Shares, shall be converted into and shall be canceled in exchange for the right to receive 4.92 (the "Exchange Ratio") BP Amoco Ordinary Shares, which shall be delivered to the --------------- holders of ARCO Common Shares (other than Excluded ARCO Shares) (i) in the form of American depositary shares (the "BP Amoco Depositary Shares"), each -------------------------- representing the right to receive six BP Amoco Ordinary Shares, or (ii) if and to the extent elected by any such holder in a timely manner in accordance with Section 1.4.1, in the -3- form of BP Amoco Ordinary Shares, in registered form, rather than BP Amoco Depositary Shares (the "Merger Consideration"). The BP Amoco Depositary -------------------- Shares may be evidenced by one or more receipts ("BP Amoco ADRs") issued in ------------- accordance with the Amended and Restated Deposit Agreement, dated as of December 31, 1998, among BP Amoco, Morgan Guaranty Trust Company of New York, as Depositary (the "Depositary"), and the holders from time to time ---------- of BP Amoco ADRs (as amended or supplemented through the Effective Time, the "Deposit Agreement"). At the Effective Time, all ARCO Common Shares ----------------- (other than any CH-Twenty ARCO Shares) shall no longer be outstanding, shall be canceled and retired and shall cease to exist, and each certificate (a "Certificate") formerly representing any of such ARCO Common ----------- Shares (other than Excluded ARCO Shares) and each uncertificated ARCO Common Share (other than Excluded ARCO Shares) shall thereafter represent only the right to the Merger Consideration and the right, if any, to receive pursuant to Section 1.6 cash in lieu of fractional interests in BP Amoco Depositary Shares (such fractional interests to include, for all purposes under this Agreement, Excess Ordinary Shares (as defined in Section 1.4.1) representing such a fractional interest in accordance with Section 1.6) and any dividend or distribution pursuant to Section 1.4.6, in each case without interest. BP Amoco shall, following the Closing, pay all stamp duties, stamp duty reserve tax and other taxes and similar levies imposed in connection with the issuance or creation of the BP Amoco Ordinary Shares, BP Amoco Depositary Shares and any BP Amoco ADRs in connection therewith. I.3.3. Each share of common stock of Merger Sub, par value $.001 per share ("Merger Sub Common Stock"), outstanding immediately prior to the ----------------------- Effective Time shall be canceled and, in consideration for the issuance of the BP Amoco Ordinary Shares referred to in Section 1.3.4, the Surviving Corporation shall issue to BP Amoco at the Effective Time such number of shares of common stock as is equal to the number of ARCO Common Shares outstanding immediately prior to the Effective Time (excluding any CH- Twenty ARCO Shares) with the same rights, powers and privileges as the ARCO Common Shares, which shares of common stock, together with the CH-Twenty ARCO Shares, shall constitute the only outstanding shares of common stock of the Surviving Corporation. I.3.4. In consideration of the issue to BP Amoco by the Surviving Corporation of shares of common stock of the Surviving Corporation pursuant to Section 1.3.3, BP Amoco shall issue, in accordance with Section 1.4, such number of BP Amoco Ordinary Shares as is equal to (a) the number of ARCO Common Shares outstanding immediately prior to the Effective Time (other than the Excluded ARCO Shares) multiplied by the Exchange Ratio to permit (i) the -4- issuance of BP Amoco Depositary Shares and (ii) if and to the extent elected by any holder of such ARCO Common Shares in a timely manner in accordance with Section 1.4.1, the delivery of BP Amoco Ordinary Shares, in registered form, to the holders of such ARCO Common Shares for the purpose of giving effect to the delivery of the Merger Consideration referred to in Section 1.3.2 , less (b) the aggregate number of BP Amoco Ordinary Shares that would (but for the provisions of Section 1.6) be issued in respect of fractional interests in BP Amoco Depositary Shares. I.3.5. In the event that, subsequent to the date of this Agreement but prior to the Effective Time, ARCO changes the number of ARCO Common Shares, or BP Amoco changes the number of BP Amoco Ordinary Shares, issued and outstanding as a result of a stock split, stock combination, stock dividend, recapitalization, redenomination of share capital or other similar transaction, the Exchange Ratio and other items dependent thereon (including the number of BP Amoco Ordinary Shares to be exchanged for each ARCO Common Share in the DSC II Share Exchange) shall be appropriately adjusted. Without limiting the generality of the foregoing, in the event that the proposed one-for-one subdivision of the ordinary share capital of BP Amoco (the "Share Subdivision") is approved by the requisite vote of ----------------- shareholders of BP Amoco at the BP Amoco Shareholder Meeting (as defined in Section 3.4) and otherwise becomes effective prior to the Effective Time, the Exchange Ratio shall for all purposes under this Agreement be 9.84, subject to any further adjustments pursuant to this Section 1.3.5, and references herein to the nominal value of each BP Amoco Ordinary Share shall be deemed to be $0.25. I.3.6. Each share of ARCO $3.00 Preference Stock and each share of ARCO $2.80 Preference Stock (each as defined in Section 2.1.2.2) outstanding immediately prior to the Effective Time shall remain outstanding, without change, after the Effective Time, and no consideration shall be delivered in exchange therefor; provided, however, BP Amoco agrees -------- ------- that (i) from and after the Effective Time, shares of ARCO $3.00 Preference Stock and ARCO $2.80 Preference Stock shall be convertible into BP Amoco Ordinary Shares, deliverable in the form of BP Amoco Depositary Shares, (ii) the number of BP Amoco Ordinary Shares into which each share of ARCO $3.00 Preference Stock and each share of ARCO $2.80 Preference Stock shall be convertible shall be equal in each case to the number of ARCO Common Shares into which such share was convertible immediately prior to the Effective Time, multiplied by the Exchange Ratio (subject to any adjustment pursuant to Section 1.3.5, but without any adjustment pursuant to Section 1.3.5 in the conversion rates between such ARCO Preference Stock and ARCO Common Shares for changes in ARCO -5- Common Shares prior to the Effective Time, for which changes the terms of the ARCO $3.00 Preference Stock and the ARCO $2.80 Preference Stock contained in the restated certificate of incorporation of ARCO shall provide the relevant adjustment, if any, and in each case subject to future adjustments after the Effective Time in accordance with ARCO's restated certificate of incorporation) and (iii) BP Amoco shall pay all stamp duties, stamp duty reserve tax and other taxes and similar levies imposed in connection with the issuance or creation of any BP Amoco Depositary Shares and any BP Amoco ADRs in connection therewith that may be issued upon the conversion of shares of ARCO $3.00 Preference Stock or ARCO $2.80 Preference Stock in accordance with their terms. I.4. Surrender and Payment. --------------------- I.4.1. Prior to the Effective Time, BP Amoco shall appoint an agent reasonably acceptable to ARCO as exchange agent (the "Exchange Agent") for -------------- the purpose of accepting Certificates to be surrendered by holders of ARCO Common Shares in exchange for BP Amoco Depositary Shares or, if and to the extent elected by a holder of ARCO Common Shares in the manner provided in this Section 1.4.1, for BP Amoco Ordinary Shares in registered form, and letters of transmittal as described in this Section 1.4.1. Promptly after the Effective Time, the Surviving Corporation will send, or will cause the Exchange Agent to send, to each holder of record as of the Effective Time of ARCO Common Shares (other than holders of Excluded ARCO Shares) (i) a letter of transmittal, in such form or forms as ARCO and BP Amoco may reasonably agree, for use in effecting delivery of Certificates to the Exchange Agent and including a form of election by which each holder of ARCO Common Shares may elect, subject to the provisions of this Section 1.4.1, to receive (the "Ordinary Share Election") all or part of the ----------------------- Merger Consideration to which such holder is entitled in the form of BP Amoco Ordinary Shares in registered form, rather than in the form of BP Amoco Depositary Shares (such BP Amoco Ordinary Shares or BP Amoco Depositary Shares to be received by a holder being referred to in this Agreement as "BP Amoco Shares"), and (ii) instructions for surrendering --------------- ARCO Common Shares in exchange for the BP Amoco Shares, and any cash in lieu of fractional interests in BP Amoco Depositary Shares and any cash dividends or other distributions, that such holder has the right to receive pursuant to this Article I. ARCO, acting as agent for each holder of record as of the Effective Time of ARCO Common Shares (other than Excluded ARCO Shares), shall prior to the Effective Time appoint Exchange Nominees Limited or such other agent as may be reasonably acceptable to BP Amoco (the "Nominee"), as nominee and agent for and on behalf of the holders of ------- ARCO Common Shares in connection with the issuance of BP Amoco Depositary Shares or BP Amoco Ordinary Shares in -6- accordance with this Article I, subject to the terms and conditions of this Agreement and an exchange agent and nominee agreement among BP Amoco, ARCO, the Exchange Agent and the Nominee. BP Amoco shall issue the BP Amoco Ordinary Shares referred to in Section 1.3.4 in registered form to the Nominee. The BP Amoco Ordinary Shares held by the Nominee shall be deposited by the Nominee or on its behalf with the Depositary (or as it may direct) as and when required for the issuance of BP Amoco Depositary Shares, or delivered by the Nominee to holders of ARCO Common Shares in accordance with any Ordinary Share Election, in each case in accordance with this Article I. To the extent required, the Nominee will requisition from the Depositary, from time to time, such number of BP Amoco Depositary Shares, in such denominations as the Nominee shall specify, as are issuable in respect of ARCO Common Shares properly delivered to the Exchange Agent that are not subject to an Ordinary Share Election. Each holder of ARCO Common Shares entitled to receive the Merger Consideration in accordance with Section 1.3.2 may exercise the Ordinary Share Election only by returning to the Exchange Agent prior to the close of business on the 42nd day following the Closing Date a properly completed letter of transmittal and form of election. Any such holder of ARCO Common Shares may make an Ordinary Share Election with respect to any or all of such holder's ARCO Common Shares, provided that (i) the number of BP Amoco -------- Ordinary Shares to which any such holder will be entitled in respect of such Ordinary Share Election shall not be less than six and shall be an integral multiple of six; (ii) any number of BP Amoco Ordinary Shares less than six or in excess of an integral multiple thereof ("Excess Ordinary --------------- Shares") shall constitute a fractional interest in a BP Amoco Depositary ------ Share; and (iii) such holder will therefore be entitled only to cash in lieu of Excess Ordinary Shares in accordance with Section 1.6. Only BP Amoco Depositary Shares shall be issued as Merger Consideration with respect to ARCO Common Shares for which the holder of such ARCO Common Shares shall not have exercised an Ordinary Share Election prior to the close of business on the 42nd day following the Closing Date or for which the holder shall have delivered to the Exchange Agent prior to such time a letter of transmittal declining to make an Ordinary Share Election. I.4.2. Each holder of any ARCO Common Shares that have been converted into a right to receive the consideration set forth in Section 1.3.2 shall, (i) in the case of a holder of a Certificate, upon surrender to the Exchange Agent of such Certificate, together with a properly completed letter of transmittal covering the ARCO Common Shares represented by such Certificate and (ii) in the case of a holder of uncertificated ARCO Common Shares, upon delivery to the -7- Exchange Agent prior to the close of business on the 42nd day following the Closing Date of a properly completed letter of transmittal and, after such time, without any further action on the part of such holder of uncertificated ARCO Common Shares, in case (i) and in case (ii), be entitled to receive (x) the number of BP Amoco Depositary Shares or BP Amoco Ordinary Shares (excluding any fractional interest in a BP Amoco Depositary Share), to which such holder is entitled in respect of such ARCO Common Shares pursuant to Sections 1.3.2 and 1.4.1 and (y) a check in the amount (after giving effect to any required tax withholdings) of (I) any cash in lieu of fractional interests in BP Amoco Depositary Shares to be paid pursuant to Section 1.6, plus (II) any cash dividends or other distributions that such holder has the right to receive pursuant to Section 1.4.6. Until such time as any such holder of ARCO Common Shares has become entitled to receive such BP Amoco Shares, such holder's ARCO Common Shares (whether or not represented by a Certificate) shall, after the Effective Time, represent for all purposes only the right to receive the Merger Consideration to which such holder is entitled and the applicable amounts provided in the foregoing clause (y). I.4.3. If any BP Amoco Shares are to be issued or transferred to a person other than the registered holder of the ARCO Common Shares represented by a Certificate or Certificates surrendered with respect thereto, it shall be a condition to such issue or transfer that the Certificate or Certificates so surrendered shall be properly endorsed or otherwise be in proper form for transfer and that the person requesting such issue or transfer shall pay to the Exchange Agent any transfer or other taxes required as a result of such issue or transfer to a person other than the registered holder of such ARCO Common Shares or establish to the satisfaction of the Exchange Agent that such tax has been paid or is not payable. I.4.4. After the close of the stock transfer books of ARCO on the day prior to the Effective Time, there shall be no further registration of transfers of ARCO Common Shares that were outstanding prior to the Effective Time. After the Effective Time, Certificates presented to the Surviving Corporation for transfer shall be canceled and exchanged for the consideration provided for, and in accordance with the procedures set forth, in this Article I. I.4.5. After the 42nd day after the Closing, any BP Amoco Ordinary shares and any cash amounts then held by the Nominee shall be deposited by the Nominee with the Depositary or on its behalf for the issuance or delivery to the Exchange Agent, as and when required, of BP Amoco Depositary Shares and any cash amounts which may thereafter be issuable or deliverable to holders of ARCO Common Shares. Any BP Amoco Depositary Shares issuable or deliverable in -8- respect of ARCO Common Shares pursuant to this Article I and any cash in lieu of fractional interests in BP Amoco Depositary Shares payable pursuant to Section 1.6, plus any cash dividend or other distribution that such holder has the right to receive pursuant to Section 1.4.6, that remains unclaimed by any holder of ARCO Common Shares six months after the Effective Time shall be held by or on behalf of the Depositary, subject to the instruction of BP Amoco, in an account or accounts designated for such purpose. BP Amoco shall not be liable to any holder of ARCO Common Shares for any securities delivered or any amount paid by the Depositary to a public official pursuant to applicable abandoned property laws. Any cash remaining unclaimed by holders of ARCO Common Shares three years after the Effective Time (or such earlier date immediately prior to such time as such cash would otherwise escheat to or become property of any governmental entity or as is otherwise provided by applicable Law (as defined in Section 2.1.4.2)) shall, to the extent permitted by applicable Law, become the property of the Surviving Corporation or BP Amoco, as BP Amoco may determine. I.4.6. No dividends, interest or other distributions with respect to securities of BP Amoco or the Surviving Corporation issuable with respect to ARCO Common Shares shall be paid to any holder of ARCO Common Shares until such holder shall have become entitled, in accordance with Section 1.4.2, to receipt of the Merger Consideration and the applicable amounts provided in Section 1.4.2. Subject to the effect of applicable Law, upon such holder becoming entitled to receipt of the Merger Consideration, there shall be issued and/or paid to the holder of the BP Amoco Shares issued in exchange therefor, without interest, (A) at the time of such entitlement, the dividends or other distributions payable with respect to such BP Amoco Shares with a record date after the Effective Time and a payment date on or prior to the date of such entitlement and not previously paid and (B) at the appropriate payment date, the dividends or other distributions payable with respect to such BP Amoco Shares with a record date after the Effective Time but with a payment date subsequent to the date of such entitlement. For purposes of dividends or other distributions in respect of BP Amoco Shares, all BP Amoco Shares to be issued pursuant to the Merger shall be deemed issued and outstanding as of the Effective Time. I.4.7. The Parties may, by mutual agreement and without amending this Agreement in accordance with Section 6.2, make any modifications to the terms of or procedures for the Share Election, provided that any such -------- modification will not adversely affect the entitlement of holders of ARCO Common Shares to the Merger Consideration and that such modification shall be filed with the Secretary of ARCO and made available to the stockholders of ARCO, without cost, upon request. -9- I.5. ARCO Stock Options; Other Stock-Based Plans. ------------------------------------------- I.5.1. At the Effective Time, each stock option to purchase ARCO Common Shares under any ARCO Stock Plan (as defined in Section 2.1.2.2) (each, an "ARCO Stock Option") which is then outstanding and unexercised ----------------- shall cease to represent a right to acquire ARCO Common Shares and shall be converted automatically into an option to purchase BP Amoco Ordinary Shares, to be issued in the form of BP Amoco Depositary Shares, and BP Amoco shall assume each such ARCO Stock Option subject to the terms of the relevant ARCO Stock Plan, and the agreement evidencing the grant thereunder; provided, however, that from and after the Effective Time, (i) -------- ------- the number of BP Amoco Ordinary Shares purchasable, in the form of BP Amoco Depositary Shares, upon exercise of each such ARCO Stock Option shall be equal to the number of ARCO Common Shares that were purchasable under such ARCO Stock Option immediately prior to the Effective Time (without taking into account any Dividend Share Credits under any ARCO Stock Plan), multiplied by the Exchange Ratio and rounded down to the number of BP Amoco Ordinary Shares representing the nearest whole number of BP Amoco Depositary Shares issuable in respect of such exercise, and (ii) the per BP Amoco Ordinary Share exercise price under each such ARCO Stock Option shall be obtained by dividing the per share exercise price of each such ARCO Stock Option by the Exchange Ratio, and rounding down to the nearest cent. Notwithstanding the foregoing, the number of BP Amoco Ordinary Shares and the per BP Amoco Ordinary Share exercise price of each ARCO Stock Option which is intended to be an "incentive stock option" (as defined in Section 422 of the Code) shall be adjusted in accordance with the requirements of Section 424 of the Code. Accordingly, with respect to any incentive stock options, BP Amoco Ordinary Shares representing a fractional interest in a BP Amoco Depositary Share shall be rounded down to the number of BP Amoco Ordinary Shares representing the nearest whole number of BP Amoco Depositary Shares and where necessary the per BP Amoco Ordinary Share exercise price shall be rounded up to the nearest cent. I.5.2. Shares of Restricted Stock and Performance-Based Restricted Stock outstanding and held by participants in any ARCO Stock Plan immediately prior to the Effective Time shall be converted into and shall be canceled in exchange for the right to receive BP Amoco Shares in accordance with Sections 1.3.2 and 1.4.1. I.5.3. The obligation of ARCO to deliver ARCO Common Shares pursuant to Article III, Subsection 3(b)(v)(1) of the ARCO 1985 Executive Long- -10- Term Incentive Plan (the "ELTIP"), as amended through the date hereof, in ----- respect of Contingent Restricted Stock upon the Change of Control represented by the Merger shall be satisfied through the delivery by BP Amoco of (i) a number of BP Amoco Ordinary Shares (to be issued in the form of BP Amoco Depositary Shares) equal to the number of ARCO Common Shares that were otherwise so deliverable multiplied by the Exchange Ratio and rounded down to the number of BP Amoco Ordinary Shares representing the nearest whole number of BP Amoco Depositary Shares issuable in respect of such ARCO Common Shares, and (ii) such other amounts payable in respect of such ARCO Common Shares pursuant to this Article I. I.5.4. With respect to Dividend Share Credits under any ARCO Stock Plan, including Prospective Dividend Share Credits to be credited pursuant to Article IV, Subsection 4(b) of the ELTIP and under Article II, Section 2.6 of the Director's Plan (as defined in Section 1.5.6(b)) in connection with the Merger, BP Amoco and ARCO agree that: (a) as of the Effective Time, ARCO Common Shares represented by Dividend Share Credits, including such Prospective Dividend Share Credits, shall be deemed converted into BP Amoco Ordinary Shares at the Exchange Ratio; (b) after the Effective Time the obligation of ARCO to deliver ARCO Common Shares under Article IV, Section 3 of the ELTIP shall be satisfied through the delivery by BP Amoco of (i) a number of BP Amoco Ordinary Shares (to be issued in the form of BP Amoco Depositary Shares) equal to the number of ARCO Common Shares that were otherwise so deliverable multiplied by the Exchange Ratio and rounded down to the number of BP Amoco Ordinary Shares representing the nearest whole number of BP Amoco Depositary Shares issuable in respect of such ARCO Common Shares and (ii) cash in lieu of any fractional interest in a BP Amoco Depositary Share, which would otherwise be issuable in respect of such ARCO Common Shares; and (c) after the Effective Time, references in Article IV of the ELTIP and Article V of the Directors' Plan to "Common Stock" shall be deemed references to "BP Amoco Ordinary Shares", and references in Article I, Subsection 2(m) of the ELTIP and Article II, Subsection 2.7 of the Directors' Plan to "New York Stock Exchange" shall be to "London Stock Exchange". I.5.5. At the Effective Time, each right of any kind, whether vested or unvested, contingent or accrued, to acquire or receive ARCO Common Shares that may be held, awarded, outstanding, credited, payable or reserved for issuance under the ARCO Stock Plans and any other ARCO Compensation and Benefit Plan (as defined in 2.1.12), except for ARCO Stock Options converted in accordance with Section 1.5.1, shares of Restricted Stock and Performance-Based Restricted Stock converted in accordance with Section 1.5.2, Contingent -11- Restricted Stock converted in accordance with Section 1.5.3, and any Dividend Share Credits converted in accordance with 1.5.4, shall be deemed to be converted into a right to acquire or receive, as the case may be, (i) the number of BP Amoco Ordinary Shares (to be issued in the form of BP Amoco Depositary Shares) equal to the number of ARCO Common Shares subject to such right immediately prior to the Effective Time multiplied by the Exchange Ratio and rounded down to the number of BP Amoco Ordinary Shares representing the nearest whole number of BP Amoco Depositary Shares issuable in respect of such ARCO Common Shares and (ii) cash in lieu of any fractional interest in a BP Amoco Depositary Share which would otherwise be issuable in respect of such ARCO Common Shares; and such rights with respect to BP Amoco Ordinary Shares shall otherwise be subject to the same terms, conditions and restrictions, if any, as were applicable to the rights with respect to ARCO Common Shares under the relevant ARCO Stock Plan or ARCO Compensation and Benefit Plan. Similarly, all ARCO Stock Plans and other ARCO Compensation and Benefit Plans (and awards thereunder) providing for cash payments measured by the value of a number of ARCO Common Shares shall be deemed to refer to the number of BP Amoco Ordinary Shares equal to the result of multiplying such number of ARCO Common Shares by the Exchange Ratio, and such cash payments shall otherwise be made on the same terms, conditions and restrictions, if any, as were applicable under the relevant ARCO Stock Plan or ARCO Compensation and Benefit Plan. At or prior to the Effective Time, ARCO shall adopt appropriate amendments to the ARCO Stock Plans and the ARCO Compensation and Benefit Plans to effectuate the provisions of this Section 1.5.5. Without limiting the applicability of the foregoing, ARCO shall take all necessary action to ensure that the Surviving Corporation will not be bound at the Effective Time by any options, stock appreciation rights, warrants or other rights or arrangements under any ARCO Compensation and Benefit Plan that would entitle any person to own any ARCO Common Shares or to receive any payments in respect thereof, and all ARCO Compensation and Benefit Plans conferring any rights to ARCO Common Shares or other capital stock of ARCO shall be deemed to be amended to be in conformity with this Section. I.5.6. All capitalized terms used in this Section 1.5 and not otherwise defined in this Agreement shall have the respective meanings given such terms in the ELTIP. "Directors' Plan" means the Stock Option --------------- Plan for Outside Directors of ARCO, as amended through the date hereof. I.5.7. Prior to the Effective Time, BP Amoco shall make available for issuance in accordance with Section 1.4.1 the number of BP Amoco Ordinary Shares necessary to satisfy BP Amoco's obligations under this Section 1.5. At the -12- Effective Time, BP Amoco shall file with the Securities and Exchange Commission (the "SEC") 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"), (i) with -------------- respect to the BP Amoco Ordinary Shares and the BP Amoco Depositary Shares subject to issuance or subject to options pursuant to this Section 1.5, and (ii) if registration of any other interests in any ARCO Stock Plan or any other ARCO Compensation and Benefit Plan referred to in this Section 1.5, or the BP Amoco Ordinary Shares and BP Amoco Depositary Shares to be issued thereunder, is required under the Securities Act, with respect to such interests or such BP Amoco Ordinary Shares or BP Amoco Depositary Shares, BP Amoco shall use its best reasonable efforts to cause such registration statement to become and remain effective and 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 remain outstanding. I.5.8. BP Amoco shall, following the Closing, pay all stamp duties, stamp duty reserve tax and other taxes and similar levies imposed in connection with the issuance or creation of the BP Amoco Depositary Shares and any BP Amoco ADRs in connection with such issuance or creation, pursuant to this Section 1.5. I.6. Fractional BP Amoco Depositary Shares. No fraction of a BP ------------------------------------- Amoco Depositary Share will be issued. In lieu of any fractional interest in a BP Amoco Depositary Share, including any Excess Ordinary Shares representing such a fractional interest, each holder of ARCO Common Shares who would otherwise be entitled thereto shall be entitled to an amount in cash, without interest, rounded to the nearest cent, equal to the product of (i) the amount of the fractional interest in a BP Amoco Depositary Share to which such holder is entitled under Section 1.3 (or would be entitled but for this Section 1.6) and (ii) the average of the closing sale prices for the BP Amoco Depositary Shares on the New York Stock Exchange (the "NYSE"), as reported in The Wall Street ---- --------------- Journal, Northeastern edition, for each of the ten consecutive trading days - ------- ending with the fifth complete trading day prior to the Closing Date (not counting the Closing Date). I.7. The Surviving Corporation. ------------------------- I.7.1. The certificate of incorporation of the Surviving Corporation shall be the restated certificate of incorporation of ARCO, unless this Agreement is adopted by the holders of 66 2/3% or more of the voting power of the outstanding stock entitled to vote at the ARCO Stockholders Meeting (as defined in Section 3.4), in which case the restated certificate of incorporation of the Surviving -13- Corporation shall be amended as of the Effective Time to delete Articles V, VI, VII and VIII and to substitute therefor Articles V, VI and VII as set forth in full in Exhibit A. --------- I.7.2. The bylaws of Merger Sub in effect at the Effective Time shall be the bylaws of the Surviving Corporation until amended in accordance with applicable law. I.7.3. From and after the Effective Time, until successors are duly elected or appointed and qualified in accordance with applicable law, (i) the directors of Merger Sub at the Effective Time shall be the directors of the Surviving Corporation, and (ii) such officers as are mutually agreed by BP Amoco and ARCO prior to the Effective Time shall be the officers of the Surviving Corporation. 1.8. Lost, Stolen or Destroyed Certificates. In the event any -------------------------------------- Certificate shall have been lost, stolen or destroyed, upon the holder's compliance with the replacement requirements established by the Exchange Agent, including, if necessary, the posting by such Person of a bond in customary amount 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 and any cash payable in lieu of fractional interests in BP Amoco Depositary Shares and any unpaid dividends or other distributions deliverable pursuant to Section 1.4.6 in respect of the ARCO Common Shares represented by such Certificate pursuant to this Agreement. ARTICLE II Representations and Warranties II.1. Representations and Warranties of BP Amoco and ARCO. Except --------------------------------------------------- as set forth in the corresponding sections or subsections of the disclosure letter, dated the date hereof and signed by an authorized officer, delivered by BP Amoco to ARCO or by ARCO to BP Amoco (each a "Disclosure Letter," and the "BP ----------------- -- Amoco Disclosure Letter" and the "ARCO Disclosure Letter," respectively), as the - ----------------------- ---------------------- case may be, BP Amoco (except for Sections 2.1.2.2, 2.1.3.2, 2.1.5.2, 2.1.8, 2.1.9(ii), 2.1.10.2, 2.1.12, 2.1.14 and 2.1.15 and references in Section 2.1.1 to documents made available by ARCO to BP Amoco) hereby represents and warrants to ARCO, and ARCO (except for Sections 2.1.2.1, 2.1.3.1, 2.1.5.1, 2.1.9(i), 2.1.10.1 and 2.1.11 and references in Section 2.1.1 to documents made available by BP Amoco to ARCO), subject to Section 2.2, hereby represents and warrants to BP Amoco, that: -14- II.1.1. Organization, Good Standing and Qualification. Each of it --------------------------------------------- and its Subsidiaries (as defined below), is duly organized, validly existing and in good standing (with respect to jurisdictions that recognize the concept of good standing) under the laws of its respective jurisdiction of organization and has all requisite corporate or similar power and authority, and has been duly authorized by all necessary approvals and orders, to own, operate and lease its properties and assets and to carry on its business as presently conducted and is duly qualified to do business and is in good standing in each jurisdiction where the ownership, operation or leasing of its assets or properties or conduct of its business requires such qualification, except where the failure to be so organized, qualified or in good standing, or to have such power or authority, would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect (as defined below) on it. BP Amoco has made available to ARCO complete and correct copies of its memorandum and articles of association, and ARCO has made available to BP Amoco complete and correct copies of its restated certificate of incorporation and by-laws, in all cases as amended to date. Such memorandum and articles of association or restated certificate of incorporation and by-laws, as the case may be, as so made available are in full force and effect. As used in this Agreement, the term (i) "Subsidiary" means, with ---------- respect to BP Amoco, any body corporate which is a subsidiary or subsidiary undertaking, in each case within the meaning of the Companies Act of 1985 of the United Kingdom, as amended (the "Companies Act"), and, with respect ------------- to ARCO, any entity, whether incorporated or unincorporated, in which ARCO owns, directly or indirectly, more than fifty percent of the securities or other ownership interests having by their terms ordinary voting power to elect more than fifty percent of the directors or other persons performing similar functions, or the management and policies of which ARCO otherwise has the power to direct, (ii) "Material Adverse Effect" means, with respect ----------------------- to any Person (as defined below), a material adverse effect on the financial condition, properties, business or operating income of such Person and its Subsidiaries taken as a whole, other than any such effect to the extent arising out of changes in general United States, United Kingdom or international economic conditions, conditions or changes in or affecting the United States, United Kingdom or international oil and gas industry (including changes in market prices), provided that, except as otherwise -------- specifically provided, all references to Material Adverse Effect on BP Amoco or any of its Subsidiaries or to ARCO or any of its Subsidiaries in this Article II or in Article III shall be deemed to refer solely to BP Amoco and its Subsidiaries and ARCO and its Subsidiaries, respectively, without giving effect to BP Amoco's ownership of ARCO and its Subsidiaries after the Effective Time, (iii) "Person" ------ -15- shall mean any individual, corporation (including not-for-profit), general or limited partnership, limited liability or unlimited liability company, joint venture, estate, trust, association, organization, Governmental Entity (as defined in Section 2.1.4.1) or other entity of any kind or nature, and (iv) "Affiliate" shall have the meaning specified in Rule 12b-2 --------- of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). ------------ II.1.2. Capital Structure. ----------------- -16- II.1.2.1. The authorized share capital of BP Amoco is $6,000,000,000 and (Pounds)12,750,000. As of the close of business on March 29, 1999, the allotted share capital of BP Amoco consisted of 9,720,380,579 BP Amoco Ordinary Shares, not more than 7,232,838 8% cumulative first preference shares, of nominal value (Pounds)1 each ("BP Amoco First Preference Shares"), and not more than 5,473,414 9% ---------------------------------- cumulative second preference shares, of nominal value (Pounds)1 each ("BP Amoco Second Preference Shares"). All of the outstanding BP --------------------------------- Amoco Ordinary Shares, BP Amoco First Preference Shares and BP Amoco Second Preference Shares have been, and the BP Amoco Ordinary Shares to be issued as Merger Consideration shall be, duly authorized and validly issued and are or will be, as the case may be, fully paid or credited as fully paid. As of March 31, 1999, BP Amoco has no BP Amoco Ordinary Shares, BP Amoco First Preference Shares or BP Amoco Second Preference Shares reserved for or otherwise subject to issuance, except for BP Amoco Ordinary Shares held by trusts or otherwise subject to issuance in relation to option schemes pursuant to which BP Amoco Ordinary Shares may be issued in the ordinary course of business (the "Option Schemes"). Each of the outstanding shares of -------------- capital stock or other ownership interests of each of BP Amoco's Subsidiaries that constitutes a "Significant Subsidiary" (as defined in Rule 1-02(w) of Regulation S-X promulgated under the Exchange Act) is duly authorized, validly issued, fully paid and nonassessable and owned by BP Amoco or a direct or indirect wholly owned Subsidiary of BP Amoco, in each case free and clear of any lien, pledge, security interest, claim or other encumbrance ("Encumbrance"). Except as set ----------- forth above or as contemplated by this Agreement, there are no pre- emptive or other outstanding rights, options, warrants, conversion rights, stock appreciation rights, redemption rights, repurchase rights, agreements, arrangements, calls, commitments or rights of any kind which obligate BP Amoco or any of its Subsidiaries to issue or to sell any shares of capital stock or other securities of BP Amoco or any of its Subsidiaries or any securities or obligations convertible or exchangeable into or exercisable for, or giving any Person a right to subscribe for or acquire from BP Amoco or any of its Subsidiaries, any securities of BP Amoco or any of its Subsidiaries, and no securities or obligations evidencing such rights are authorized, issued or outstanding. BP Amoco does not have outstanding any bonds, debentures, notes or other obligations the holders of which have the right to vote (or which are convertible into or exercisable for securities having the right to vote) with the shareholders of BP Amoco on any matter. -17- II.1.2.2. The authorized capital stock of ARCO consists of 600,000,000 ARCO Common Shares, of which 325,937,777 ARCO Common Shares were issued and outstanding as of the close of business on March 26, 1999, 75,000,000 shares of Preferred Stock, par value $.01 per share ("ARCO Preferred Stock"), of which no shares were -------------------- outstanding as of the date hereof; 78,089 shares of $3.00 Cumulative Convertible Preference Stock, par value $1.00 per share ("ARCO $3.00 ---------- Preference Stock"), of which 49,749 shares were outstanding as of ---------------- March 26, 1999; and 833,776 shares of $2.80 Cumulative Convertible Preference Stock, par value $1.00 per share ("ARCO $2.80 Preference --------------------- Stock"), of which 564,439 shares were outstanding as of March 26, 1999 ----- (the ARCO $3.00 Preference Stock and the ARCO $2.80 Preference Stock being referred to herein as the "ARCO Preference Stock"). All of the --------------------- outstanding ARCO Common Shares and shares of ARCO Preference Stock have been duly authorized and validly issued and are fully paid and nonassessable. As of March 31, 1999, ARCO has no ARCO Common Shares, shares of ARCO Preferred Stock or shares of ARCO Preference Stock reserved for or otherwise subject to issuance, except that (i) as of the close of business on March 29, 1999, there were 13,927,493.16 ARCO Common Shares subject to issuance pursuant to options or other common stock equivalents (excluding Prospective Dividend Share Credits (as defined in the ELTIP)) outstanding under the plans of ARCO identified in paragraph 2.1.2.2 of the ARCO Disclosure Letter as being the only ARCO Compensation and Benefit Plans pursuant to which ARCO Common Shares may be issued (the "ARCO Stock Plans"); and (ii) as of the date ---------------- hereof, there are not less than 64,861,617 ARCO Common Shares reserved for issuance pursuant to the Stock Option Agreement. Each of the outstanding shares of capital stock or other ownership interests of each of ARCO's Significant Subsidiaries (or, in the case of Vastar Resources, Inc. ("Vastar"), the shares of capital stock of Vastar ------ owned by ARCO) is duly authorized, validly issued, fully paid and nonassessable and owned by ARCO or a direct or indirect wholly owned subsidiary of ARCO, in each case free and clear of any Encumbrance. Except as set forth above or as contemplated by this Agreement, there are no preemptive or other outstanding rights, options, warrants, conversion rights, stock appreciation rights, redemption rights, repurchase rights, agreements, arrangements, calls, commitments or rights of any kind which obligate ARCO or any of its Subsidiaries to issue or sell any shares of capital stock or other securities of ARCO or any of its Subsidiaries or any securities or obligations convertible or exchangeable into or exercisable for, or giving any Person a right to subscribe for or acquire from ARCO or any of its Subsidiaries, any securities of ARCO or -18- any of its Subsidiaries, and no securities or obligations evidencing such rights are authorized, issued or outstanding. The ARCO Common Shares issuable pursuant to the Stock Option Agreement have been duly reserved for issuance by ARCO, and upon any issuance of such ARCO Common Shares in accordance with the terms of the Stock Option Agreement, such ARCO Common Shares will be duly authorized, validly issued, fully paid and nonassessable and free and clear of any Encumbrance. ARCO does not have outstanding any bonds, debentures, notes or other obligations the holders of which have the right to vote (or which are convertible into or exercisable for securities having the right to vote) with the stockholders of ARCO on any matter. II.1.3. Corporate Authority; Approval and Fairness. ------------------------------------------ II.1.3.1. BP Amoco has all requisite corporate power and authority and has taken all corporate action necessary in order to execute, deliver and perform its obligations under this Agreement and the Stock Option Agreement and to consummate the Merger and the other transactions contemplated hereby and thereby, subject only to the approval of the Merger by, on a show of hands, not less than the requisite majority of the holders of outstanding BP Amoco Ordinary Shares, BP Amoco First Preference Shares and BP Amoco Second Preference Shares (collectively, the "BP Amoco Voting Shares") present ---------------------- in person or, on a poll, not less than the requisite majority of the votes attaching to the BP Amoco Voting Shares voted by the holders in person or by proxy at the BP Amoco Shareholders Meeting (as defined in Section 3.4) (the "BP Amoco Requisite Vote"). The execution, delivery ----------------------- and performance of this Agreement and the Stock Option Agreement have been duly authorized by all necessary corporate action on the part of BP Amoco, and, assuming the due authorization, execution and delivery of this Agreement and the Stock Option Agreement by ARCO, this Agreement and the Stock Option Agreement constitute valid and binding agreements of BP Amoco, enforceable against BP Amoco in accordance with their 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 "Bankruptcy and Equity Exception"). ------------------------------- The Board of Directors of BP Amoco has approved this Agreement, the Stock Option Agreement, the Merger and the other transactions contemplated hereby and thereby and the Board of Directors has received the opinion of its financial advisor, Morgan Stanley & Co. -19- Incorporated, to the effect that, as of the date of this Agreement, the Exchange Ratio is fair to BP Amoco, from a financial point of view. II.1.3.2. ARCO has all requisite corporate power and authority and has taken all corporate action necessary in order to execute, deliver and perform its obligations under this Agreement and the Stock Option Agreement and to consummate the Merger and the other transactions contemplated hereby and thereby, subject only to the adoption of this Agreement by the vote of the holders of a majority of the outstanding stock entitled to vote at the ARCO Stockholders Meeting (the "ARCO Requisite Vote"). The execution, delivery and ------------------- performance of this Agreement and the Stock Option Agreement have been duly authorized by all necessary corporate action on the part of ARCO and, assuming the due authorization, execution and delivery of this Agreement and the Stock Option Agreement by BP Amoco, this Agreement and the Stock Option Agreement constitute valid and binding agreements of ARCO enforceable against ARCO in accordance with their terms, subject to the Bankruptcy and Equity Exception. The Board of Directors of ARCO (A) has unanimously approved this Agreement, the Stock Option Agreement, the Merger and the other transactions contemplated hereby and thereby and declared the advisability of the Merger Agreement and (B) has received the opinions of its financial advisors, Goldman, Sachs & Co. and Salomon Smith Barney Inc., to the effect that, as of the date of this Agreement, the Exchange Ratio is fair to the holders of ARCO Common Shares (other than holders of Excluded ARCO Shares) from a financial point of view. II.1.4. Governmental Filings; No Violations. ----------------------------------- -20- II.1.4.1. Other than the necessary filings, permits, authorizations, notices, approvals, confirmations, consents, declarations and/or decisions (A) pursuant to Sections 1.2.2 and 3.3.1, (B) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), the Exchange Act, the Securities Act ------- and the Exon-Florio provisions of the Omnibus Trade and Competitiveness Act of 1988 ("Exon-Florio"), (C) to comply with the ----------- rules and regulations of the NYSE or the LSE or any other stock exchanges on which securities of BP Amoco, ARCO or any of their respective Subsidiaries are listed, (D) to comply with Council Regulation (EEC) No 4064/89 as amended (the "Regulation"), (insofar as ---------- the Merger constitutes a concentration with a Community dimension within the scope of the Regulation), (E) from the UK Office of Fair Trading that is not the intention of the UK Secretary of State for Trade and Industry to refer the Merger or any matters arising therefrom to the UK Monopolies and Mergers Commission (the "MMC") or --- from the Secretary of State for Trade and Industry in the event that the Merger or any matters arising therefrom are referred to the MMC (insofar as the Merger qualifies for investigation by the MMC under the UK Fair Trading Act 1973 or a referral is made by the European Commission to the UK Competent Authority under Article 9 of the Regulation), (F) with or from any other national authority within the European Community to which the Merger (or any part of it) is referred pursuant to Article 9 of the Regulation) and (G) from H.M. Treasury pursuant to section 765 of the Income and Corporation Taxes Act 1988 (or the confirmation from H.M. Treasury or the Inland Revenue that no such consent is required to the transactions contemplated by this Agreement) (such filings, permits, authorizations, notices, approvals, confirmations, consents, declarations and/or decisions to be made, given or obtained by BP Amoco being the "BP Amoco Required Consents" -------------------------- and by ARCO being the "ARCO Required Consents"), no filings, notices, ---------------------- declarations and/or decisions are required to be made by it with, nor are any permits, authorizations, approvals or other confirmations or consents required to be obtained by it from, any governmental or regulatory (including stock exchange) authority, agency, court, commission, body or other governmental entity (including the U.K. Panel on Takeovers and Mergers (the "Takeover Panel")) (each, a -------------- "Governmental Entity"), in connection with the execution and delivery -------------------- by it of this Agreement and the Stock Option Agreement and the consummation by it of the Merger and the other transactions contemplated hereby and thereby, except those the failure of which to make, give or obtain would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on it or prevent, materially delay or -21- materially impair its ability to consummate the Merger and the other transactions contemplated by this Agreement and the Stock Option Agreement. II.1.4.2. The execution, delivery and performance of this Agreement and the Stock Option Agreement by it do not, and the consummation by it of the Merger and the other transactions contemplated hereby and thereby (including, in the case of BP Amoco, the issue of BP Amoco Ordinary Shares, and the deposit of BP Amoco Ordinary Shares by or on behalf of BP Amoco with the Depositary against issuance of BP Amoco Depositary Shares in accordance with the Deposit Agreement) will not, constitute or result in (A) a breach or violation of, or a default under, its memorandum or articles of association, in the case of BP Amoco, or its restated certificate of incorporation or by-laws, in the case of ARCO, or the comparable governing instruments of any of the Significant Subsidiaries of BP Amoco or ARCO (in each case as amended from time to time), (B) subject to making, giving or obtaining all necessary filings, permits, authorizations, notices, approvals, confirmations, consents, declarations and/or decisions described in Section 2.1.4.1 and all other necessary third-party consents as set forth in paragraph 2.1.4.2 of its Disclosure Letter, a breach or violation of, or a default under, the acceleration of any obligations or rights of third parties or the creation of an Encumbrance on the assets of it or any of its Subsidiaries (with or without notice, lapse of time or both) pursuant to any agreement, lease, license, contract, note, mortgage, indenture, arrangement or other obligation ("Contracts") binding upon it or any --------- of its Subsidiaries or any law, ordinance, regulation, judgment, order, decree, arbitration, award, license or permit of any Governmental Entity ("Law") or non-governmental permit or license to --- which it or any of its Subsidiaries is subject, or (C) any change in the rights or obligations of either Party under any of its Contracts, except, in the case of clause (B) or (C) above, for any breach, violation, default, acceleration, creation or change that, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on it or prevent, materially delay or materially impair its ability to consummate the Merger and the other transactions contemplated by this Agreement and the Stock Option Agreement. II.1.5. Reports; Financial Statements. ----------------------------- -22- II.1.5.1. BP Amoco has made available to ARCO copies of (A) each registration statement, report and annual report prepared by it or its Subsidiaries and filed with the SEC since December 31, 1997, each in the form (including exhibits, annexes and any amendments thereto) filed with the SEC, a draft as of the date hereof of BP Amoco's Annual Report on Form 20-F for the year ended December 31, 1998 (the "BP -- Amoco 20-F," December 31, 1998 being the "BP Amoco Audit Date"), and ---------- ------------------- each quarterly report distributed by BP Amoco to its shareholders (collectively, including any such registration statement, report or annual report filed with the SEC or, in the case of quarterly reports, distributed to BP Amoco shareholders subsequent to the date hereof, the "BP Amoco Reports"); and (B) all circulars, reports and other ---------------- documents distributed by BP Amoco to its shareholders since the BP Amoco Audit Date. As of their respective dates, the BP Amoco Reports (i) complied in all material respects with, and any BP Amoco Report filed, distributed or delivered subsequent to the date hereof will comply in all material respects with, any applicable requirements of the Securities Act and the Exchange Act and the rules and regulations of the SEC promulgated thereunder and (ii) did not, and any BP Amoco Report filed, distributed or delivered subsequent to the date hereof will not (and all circulars, reports and other documents referred to in clause (B) of the preceding sentence did not, and such materials circulated subsequent to the date hereof will not), 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 made therein, in the light of the circumstances under which they were made, not misleading. Each of the audited consolidated balance sheets of BP Amoco and its Subsidiaries included in or incorporated by reference into the BP Amoco Reports (including the related notes and schedules) fairly presents, or will fairly present, in all material respects, the consolidated financial position of BP Amoco and its Subsidiaries as of its date, and each of the related consolidated statements of income, changes in shareholders' interest, total recognized gains and losses and cash flows included in or incorporated by reference into the BP Amoco Reports (including any related notes and schedules) fairly presents, or will fairly present, in all material respects, the consolidated results of its operations, retained earnings and cash flows of BP Amoco and its Subsidiaries as of the relevant dates for the periods set forth therein (subject, in the case of unaudited statements, to notes and normal year-end audit adjustments that will not be material in amount or effect), in each case in accordance with generally accepted accounting principles in the U.K. ("U.K. GAAP") --------- consistently applied during the periods involved except as may be noted therein. The related notes -23- reconciling to generally accepted accounting principles in the United States ("U.S. GAAP") the consolidated net income and shareholders' --------- equity of BP Amoco and its Subsidiaries comply in all material respects with the requirements of the SEC applicable to such reconciliation. II.1.5.2. ARCO has made available to BP Amoco copies of each registration statement, report, proxy statement or information statement prepared by it or any of its Subsidiaries and filed with the SEC since December 31, 1998 (December 31, 1998 being the "ARCO Audit ---------- Date," with the BP Amoco Audit Date and the ARCO Audit Date each being ---- referred to herein as the relevant Party's "Audit Date"), including ---------- ARCO's Annual Report on Form 10-K for the year ended December 31, 1998, each in the form (including exhibits, annexes and any amendments thereto) filed with the SEC (collectively, including any such registration statement, report, proxy statement or information statement filed with the SEC subsequent to the date hereof, the "ARCO ---- Reports"). As of their respective dates, the ARCO Reports (i) ------- complied in all material respects with, and any ARCO Report filed subsequent to the date hereof will comply in all material respects with, any applicable requirements of the Securities Act and the Exchange Act and the rules and regulations of the SEC promulgated thereunder and (ii) did not, and any ARCO Reports filed with the SEC subsequent to the date hereof will not, 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 made therein, in the light of the circumstances under which they were made, not misleading. Each of the consolidated balance sheets included in or incorporated by reference into the ARCO Reports (including the related notes and schedules) fairly presents, or will fairly present, in all material respects, the consolidated financial position of ARCO and its Subsidiaries as of its date and each of the related consolidated statements of income, changes in stockholders' equity and cash flows included in or incorporated by reference into the ARCO Reports (including any related notes and schedules) fairly presents, or will fairly present in all material respects, the consolidated results of operations and cash flows of ARCO and its Subsidiaries for the periods set forth therein (subject, in the case of unaudited statements, to notes and normal year-end audit adjustments that will not be material in amount or effect), in each case in accordance with U.S. GAAP consistently applied during the periods involved except as may be noted therein. The BP Amoco Reports and the ARCO Reports are collectively referred to herein as the "Reports," and references in ------- this Agreement to "Reports filed prior to the date hereof" shall include, with -24- respect to BP Amoco, the BP Amoco 20-F provided to ARCO on or prior to the date hereof. II.1.6. Absence of Certain Changes. Except as disclosed in the -------------------------- Reports filed prior to the date hereof, or as expressly contemplated by this Agreement, since its respective Audit Date it and its Subsidiaries have conducted their respective businesses only in, and have not engaged in any material transaction other than according to, the ordinary and usual course of such businesses, and there has not been (i) any change in the financial condition, properties, business or operating income of it and its Subsidiaries except those changes that, individually or in the aggregate, have not had and would not reasonably be expected to have a Material Adverse Effect on it; (ii) any declaration, setting aside or payment of any dividend or other distribution in cash, stock or property in respect of its capital stock, except for dividends or other distributions on its capital stock publicly announced prior to the date hereof and except as expressly permitted hereby; (iii) any stock split, stock combination, recapitalization, redenomination of share capital or other similar transaction or issuance or authorization of any issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock, except as expressly contemplated hereby or, in the case of ARCO, in the Stock Option Agreement; or (iv) any change by it in accounting principles, practices or methods except as required by changes in U.K. GAAP or U.S. GAAP, as the case may be. Since its respective Audit Date, except as provided for herein or as disclosed in the Reports filed prior to the date hereof, there has not been any material increase in the compensation payable or that could become payable by it or any of its Subsidiaries to officers or key employees or any amendment of any of its compensation or benefit plans or agreements other than increases or amendments in the ordinary course or as contemplated by this Agreement. II.1.7. Litigation and Liabilities. Except as disclosed in the -------------------------- Reports filed prior to the date hereof, there are no (i) civil, criminal or administrative actions, suits, claims, hearings, investigations, complaints or proceedings pending or, to the knowledge of, in the case of BP Amoco, its Chief Executive Officer, Deputy Chief Executive Officer, Chief Financial Officer or General Counsel ("BP Amoco Executive Directors"), and, ---------------------------- in the case of ARCO, its Chief Executive Officer, President, Chief Financial Officer or General Counsel ("ARCO Executive Officers"), ----------------------- threatened against it or any of its Affiliates or (ii) obligations or liabilities, whether or not accrued, contingent or otherwise and whether or not required to be disclosed, or any other facts or circumstances of which, in the case of BP Amoco, the BP Amoco Executive Directors, and, in the case of ARCO, the ARCO Executive Officers, have knowledge that would reasonably be expected to result in any claims against, or obligations or liabilities of, it or any of its -25- Subsidiaries, except, in each case, for those that, individually or in the aggregate, have not had and would not reasonably be expected to have a Material Adverse Effect on it or prevent, materially delay or materially impair its ability to consummate the Merger and the other transactions contemplated by this Agreement and the Stock Option Agreement. II.1.8. Takeover Statutes. Assuming that BP Amoco's representation ----------------- and warranty set forth in Section 2.1.10.1 is true and correct, the board of directors of ARCO has taken or will take all appropriate and necessary action such that BP Amoco will not be prohibited from entering in a "business combination" with ARCO as an "interested stockholder" (in each case as such term is used in Section 203 of the DGCL) without complying with Section 203(a)(3) of the DGCL as a result of the execution and delivery of this Agreement and the Stock Option Agreement or the consummation of the transactions contemplated hereby and thereby. No other "fair price," "moratorium," "control share acquisition" or other similar anti-takeover statute or regulation, including such business combination provisions of the DGCL (each, a "Takeover Statute"), and no anti-takeover ---------------- provision in the restated certificate of incorporation or by-laws of ARCO is, or at the Effective Time will be, applicable to the Merger or any of the other transactions contemplated by this Agreement and the Stock Option Agreement. II.1.9. Brokers and Finders. Neither it nor any of its Subsidiaries, ------------------- officers, directors or employees has employed any broker or finder or incurred any liability for any brokerage fees, commissions or finders' fees in connection with the execution and delivery of this Agreement, the Stock Option Agreement, the Merger or the other transactions contemplated by this Agreement and the Stock Option Agreement, except that (i) BP Amoco has employed Morgan Stanley & Co. Incorporated, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Cazenove & Co. as its financial advisors, the arrangements with all of which have been disclosed to ARCO prior to the date hereof, and (ii) ARCO has retained Goldman, Sachs & Co. and Salomon Smith Barney Inc. as its financial advisors, the arrangements with both of which have been disclosed to BP Amoco prior to the date hereof. II.1.10. Ownership of Other Party's Common Stock. --------------------------------------- II.1.10.1. Neither BP Amoco nor any of its Subsidiaries "beneficially owns" (as such term is defined in Rule 13d-3 under the Exchange Act) any ARCO Common Shares. -26- II.1.10.2. Neither ARCO nor any of its Subsidiaries "beneficially owns" (as such term is defined in Rule 13d-3 under the Exchange Act) any BP Amoco Ordinary Shares or BP Amoco Depositary Shares (other than any BP Amoco Ordinary Shares or BP Amoco Depositary Shares beneficially owned by an ARCO Compensation and Benefit Plan or an ARCO sponsored non-U.S. employee benefit plan and, if the DSC II Share Exchange is consummated prior to the Effective Time, by DSC II). II.1.11. Merger Sub. Merger Sub was formed solely for the purpose of ---------- engaging in the transactions contemplated hereby and has not (i) engaged in any business activities, (ii) conducted any operations other than in connection with the transactions contemplated hereby or (iii) incurred any liabilities other than in connection with the transactions contemplated hereby. The execution, delivery and performance of this Agreement have been duly authorized by all necessary corporate action on the part of Merger Sub and, assuming the due authorization, execution and delivery of this Agreement by ARCO and BP Amoco, this Agreement constitutes a valid and binding agreement of Merger Sub enforceable against Merger Sub in accordance with its terms, subject to the Bankruptcy and Equity Exception. BP Amoco, as Merger Sub's sole stockholder, has approved Merger Sub's execution, delivery and performance of this Agreement and has adopted this Agreement. II.1.12. ARCO Employee Benefit Plans. --------------------------- II.1.12.1. Set forth in Section 2.1.12 of the ARCO Disclosure Letter are all significant compensation and benefit plans, contracts, policies or arrangements currently in effect for U.S. based employees covering current or former employees of ARCO and its Subsidiaries and current or former directors of ARCO, including, but not limited to, "employee benefit plans" within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), ----- and deferred compensation, stock option, stock purchase, stock appreciation rights, stock based, incentive and bonus plans (the "ARCO ---- Compensation and Benefit Plans"). True and complete copies of all ------------------------------ ARCO Compensation and Benefit Plans, including, but not limited to, any trust instruments and insurance contracts forming a part of any ARCO Compensation and Benefit Plan, and all amendments thereto have been provided or made available to BP Amoco. II.1.12.2. Except as set forth in Section 2.1.12 of the ARCO Disclosure Letter, none of the execution and delivery of this Agreement by -27- ARCO, the performance by ARCO of its obligations hereunder, the consummation of the transactions contemplated by this Agreement nor any other action taken or failed to be taken by ARCO prior to the execution of this Agreement will (a) limit ARCO's right, in its sole discretion, to administer, amend or terminate any ARCO Compensation and Benefit Plan or any related trust instrument, (b) entitle any employees of ARCO or any of its Subsidiaries to severance pay, (c) accelerate the time of payment or vesting or trigger any payment or funding (through a grantor trust or otherwise) of compensation, benefits or awards under, increase the amount payable or trigger any other material obligation pursuant to, any of the ARCO Compensation and Benefit Plans or (d) result in any breach or violation of, or a default under, any of the ARCO Compensation and Benefit Plans. II.1.13. Environmental Matters. Except as disclosed in its --------------------- Reports filed prior to the date hereof and except for such matters that, individually or in the aggregate, have not had and would not reasonably be expected to have a Material Adverse Effect on it, to the knowledge of the BP Amoco Executive Officers or the ARCO Executive Officers, as applicable, (i) it and its Subsidiaries are in compliance with all applicable Environmental Laws; (ii) no property currently or formerly owned or operated by it or its Subsidiaries is contaminated with any Hazardous Substance requiring remediation under any Environmental Law; (iii) neither it nor any of its Subsidiaries is subject to liability under any Environmental Law for off-site disposal or contamination; (iv) neither it nor any of its Subsidiaries has received any claim, notice, demand or letter indicating that it may be in violation of, or subject to liability under, any Environmental Law; (v) neither it nor any of its Subsidiaries is subject to any order, decree, investigation, injunction or agreement with any Governmental Entity or any third party relating to any Environmental Law; and (vi) there are no other circumstances or conditions involving it or any of its Subsidiaries that reasonably could be expected to result in any claims, liabilities or costs in connection with any Environmental Law. As used herein, "Environmental Law" means any federal, state, local ----------------- and foreign law, regulation, order, decree, common law or agency requirement relating to the protection of the environment or human health and safety, and "Hazardous Substance" means any substance, waste or ------------------- byproduct in any concentration that is listed, classified or regulated pursuant to any Environmental Law, including petroleum and petroleum products and wastes, mine tailings and wastes, asbestos, lead products and polychlorinated biphenyls. -28- II.1.14. ARCO Rights Plan. Assuming that BP Amoco's representation ---------------- and warranty set forth in Section 2.1.10.1 is true and correct, the board of directors of ARCO has taken all action necessary to render the rights (the "Rights") issued under the Rights Agreement, dated as of July 24, 1995 ------ (the "Rights Agreement"), between ARCO and First Chicago Trust Company of ---------------- New York inapplicable to the Merger, this Agreement, the Stock Option Agreement and the other transactions contemplated hereby and thereby. ARCO will take all necessary action with respect to all of the outstanding Rights so that, as of immediately prior to the Effective Time, (A) neither ARCO nor BP Amoco will have any obligations under the Rights or the Rights Agreement and (B) the holders of the Rights will have no rights under the Rights or the Rights Agreement. II.1.15. ARCO Joint Ventures; Exclusivity Arrangements. For purposes --------------------------------------------- of this Agreement, the material organizational documents, shareholder, membership or voting agreements and material agreements relating to the transfer of investments and management or operatorships to which it or any of its Subsidiaries is a party in connection with its joint ventures are referred to herein as the "Joint Venture Agreements", and the non-compete, ------------------------ exclusivity or similar agreements pursuant to which the ability of ARCO or any of its Subsidiaries or Affiliates of any of them to engage in any line of business, to contract with third parties or to do business in any geographic area is restricted in any material manner, and any area-of- mutual-interest agreements, are referred to herein as the "Exclusivity ----------- Agreements". All of ARCO's Joint Venture Agreements and Exclusivity ---------- Agreements are, with respect to it and its Subsidiaries, valid and in full force and effect on the date hereof except for any failures to be in full force and effect that, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on it. Neither ARCO nor any of its Subsidiaries has violated any provision of, or committed or failed to perform any act which with or without notice, lapse of time or both would constitute a default under the provisions of, any of its Joint Venture Agreements or Exclusivity Agreements, except in each case for such violations, acts or omissions as, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect on it; it being understood that no effect arising out of the execution, performance or consummation of this Agreement shall be deemed to have a Material Adverse Effect for purposes of this Section 2.1.15. II.1.16. Tax Matters. Neither it nor any of its Affiliates has taken ----------- or agreed to take any action that would, or failed to take any action the omission of which would, or has reason to believe that any conditions exist that could reasonably be expected to (i) prevent or impede the Merger from qualifying as a reorganization under Section 368(a) of the Code or (ii) cause the Eligible ARCO Shareholders to -29- recognize taxable gain with respect to the Merger pursuant to Section 367(a) of the Code (except with respect to cash received in lieu of fractional interests in BP Amoco Depositary Shares). II.2. Vastar. Notwithstanding anything to the contrary in this ------ Article II, ARCO does not make any representation or warranty with respect to Vastar and its Subsidiaries (i) as of any date after the date hereof or (ii) for matters covered by the fifth sentence of Section 2.1.2.2, clauses (B) and (C) of Section 2.1.4.2, the last sentence of Section 2.1.6, and Section 2.1.12; provided, however, that (x) ARCO represents and warrants as of the date hereof - -------- ------- that, to the knowledge of the ARCO Executive Officers, without any investigation or inquiry, the representations and warranties referred to in the foregoing clause (ii) are true and accurate with respect to Vastar and its Subsidiaries and (y) ARCO will make the representations and warranties contained in Sections 2.1.5.2 and 2.1.6(i) with respect to Vastar and its Subsidiaries as of the Closing Date as though made on the Closing Date (except that any such representation or warranty that by its terms expressly speaks as of an earlier date shall be true and correct as of its date) for purposes of Section 4.2.1. ARTICLE III Covenants III.1. Interim Operations. ------------------ III.1.1. Interim Operations of BP Amoco. BP Amoco covenants and ------------------------------ agrees as to itself and its Subsidiaries that, after the date hereof and until the Effective Time (unless ARCO shall otherwise approve in writing and except as contemplated by the Share Subdivision, as otherwise contemplated by the BP Amoco Circular, as otherwise expressly contemplated by or provided in this Agreement (including the BP Amoco Disclosure Letter), or as required by applicable Law): III.1.1.1. BP Amoco shall not: (i) amend its memorandum and articles of association in any manner that would adversely affect the rights of any Party under this Agreement, the transactions contemplated hereby or the rights of holders of BP Amoco Ordinary Shares or BP Amoco Depositary Shares; -30- (ii) split, combine, subdivide or reclassify its outstanding shares of capital stock; (iii) declare, set aside or pay any dividend or distribution payable in cash, stock or property in respect of any capital stock other than (A) regular quarterly cash dividends on BP Amoco Ordinary Shares consistent with past practice, including periodic dividend increases consistent with past practice, and (B) regular cash dividends on the issued and outstanding BP Amoco First Preference Shares and BP Amoco Second Preference Shares; or (iv) repurchase, redeem or otherwise acquire, or permit any of its Subsidiaries to purchase, redeem or otherwise acquire (except for repurchases, redemptions or acquisitions (A) required by the terms of its capital stock or securities outstanding on the date hereof or (B) required by or in connection with the respective terms as of the date hereof of any Option Schemes or any dividend reinvestment plan as in effect on the date hereof in the ordinary course of the operation of such plans) any shares of the capital stock of BP Amoco or any securities convertible into or exchangeable or exercisable for any shares of the capital stock of BP Amoco; III.1.1.2. neither BP Amoco nor any of its Subsidiaries shall issue, sell, pledge, dispose of or encumber any shares of, or securities convertible into or exchangeable or exercisable for, or rights, options, warrants, conversion rights, stock appreciation rights, redemption rights, repurchase rights, agreements, arrangements, calls, commitments or rights of any kind to acquire, the capital stock of BP Amoco of any class (other than (x) BP Amoco Ordinary Shares issuable or transferable pursuant to (A) options outstanding on the date hereof under the Option Schemes, (B) additional options or rights to acquire BP Amoco Ordinary Shares granted under the terms of any Option Scheme as in effect on the date hereof or as amended, or any similar option scheme adopted in replacement of or as an enhancement to any such option scheme, in each case in the ordinary course of the operation of such option scheme, and (C) the DSC II Share Exchange, (y) BP Amoco Ordinary Shares issuable or transferable pursuant to such options or rights so granted and (z) issuances of securities in connection with grants, awards or issuances of stock-based compensation); III.1.1.3. subject to the provisions of Section 3.5.1, neither BP Amoco nor any of its Subsidiaries shall take any action or omit to take any -31- action for the purpose of preventing, delaying or impeding the consummation of the Merger or the other transactions contemplated by this Agreement and the Stock Option Agreement including any action or omission that would cause (i) the Merger to fail to qualify as a reorganization under Section 368(a) of the Code or (ii) the exchange of BP Amoco Shares for ARCO Common Shares in the Merger to fail to qualify for nonrecognition of gain (except with respect to (a) cash received in lieu of fractional interests in BP Amoco Depositary Shares or (b) stockholders of ARCO that are not Eligible ARCO Shareholders); and III.1.1.4. neither BP Amoco nor any of its Subsidiaries shall authorize or enter into an agreement to do any of the foregoing. III.1.2. Interim Operations of ARCO. ARCO covenants and agrees as to -------------------------- itself and its Subsidiaries that, after the date hereof and until the Effective Time (unless BP Amoco shall otherwise approve in writing and except as otherwise expressly contemplated by or provided in this Agreement (including the ARCO Disclosure Letter) or the Stock Option Agreement, or as required by applicable Law, and subject to Section 3.17): III.1.2.1. the business of ARCO and its Subsidiaries shall be conducted in the ordinary and usual course and, to the extent consistent therewith, ARCO and each of its Subsidiaries shall use their respective best reasonable efforts to preserve its business organization intact and maintain its existing relations, status and goodwill with customers, suppliers, creditors, state, federal and foreign governmental authorities, lessors, employees and business associates; III.1.2.2. ARCO shall not: (i) amend its restated certificate of incorporation; amend its by-laws in any manner that would adversely affect the rights of any Party under this Agreement or the transactions contemplated hereby or affect the rights of holders of ARCO Common Shares; or, subject to the fiduciary duties of ARCO's board of directors, amend, modify or terminate the Rights Agreement; (ii) split, combine, subdivide or reclassify its outstanding shares of capital stock; -32- (iii) declare, set aside or pay any dividend or distribution payable in cash, stock or property in respect of any capital stock other than (A) regular quarterly cash dividends on ARCO Common Shares not in excess of the quarterly cash dividends declared by ARCO in the quarter ended December 31, 1998 and (B) regular cash dividends on the issued and outstanding shares of ARCO Preference Stock; or (iv) repurchase, redeem or otherwise acquire, or permit any of its Subsidiaries to purchase, redeem or otherwise acquire (except for repurchases, redemptions or acquisitions (A) required by the terms of its capital stock or securities outstanding on the date hereof, (B) required by or in connection with the respective terms as of the date hereof of any ARCO Stock Plans or any dividend reinvestment plan as in effect on the date hereof in the ordinary course of the operation of such plans or (C) effected to acquire ARCO Common Shares from DSC II) any shares of the capital stock of ARCO or any securities convertible into or exchangeable or exercisable for any shares of the capital stock of ARCO; III.1.2.3. neither ARCO nor any of its Subsidiaries shall: (i) issue, sell, pledge, dispose of or encumber any shares of, or securities convertible into or exchangeable or exercisable for, or rights, options, warrants, conversion rights, stock appreciation rights, redemption rights, repurchase rights, agreements, arrangements, calls, commitments or rights of any kind to acquire, the capital stock of ARCO of any class (other than (A) ARCO Common Shares issuable or deliverable (x) pursuant to options outstanding on the date hereof under the ARCO Stock Plans, (y) in connection with the conversion of shares of ARCO Preference Stock in accordance with their terms or (z) pursuant to the Stock Option Agreement; (B) issuances of ARCO Common Shares, including Restricted Stock, Performance-Based Restricted Stock, Contingent Restricted Stock and Dividend Share Credits, in connection with grants and awards made prior to the date hereof; (C) issuances of securities in connection with grants, awards or issuances of stock-based compensation made in accordance with Section 3.1.2.4; (D) Rights issuable pursuant to the Rights Agreement in respect of ARCO Common Shares issued or to be issued in accordance with this clause (i) or Section 3.1.2.4; (E) ARCO Common Shares issuable upon the exercise of Rights; or (F) ARCO Common Shares exchangeable for BP Amoco Depositary Shares in the DSC II Share Exchange); -33- (ii) transfer, lease, license, sell or otherwise dispose of any of its property or assets (including capital stock of any of its Subsidiaries), including any contribution of property or assets to a joint venture (including any joint venture that may be entered into pursuant to Section 3.1.2.3 (vii)) and any transfer or disposition in connection with financing transactions, other than property or assets having an aggregate fair market value of not more than $500 million; provided, however, that ARCO shall not transfer, lease, license, sell -------- ------- or otherwise dispose of any individual property or asset with a fair market value in excess of $50 million without first consulting with BP Amoco; (iii) incur any indebtedness except for (x) long-term indebtedness not in excess of $1.5 billion incurred in connection with the refinancing of existing indebtedness and (y) commercial paper and short-term indebtedness repayable upon less than 30 days' notice without penalty (other than LIBOR "breakage" costs); provided, -------- however, that ARCO shall provide reasonable advance notice to and ------- consult with BP Amoco on the development of, and any proposed changes in, ARCO's plans for such refinancings contemplated by clause (x) (including expected maturities and other material terms); (iv) make capital expenditures in an aggregate amount in excess of $2.7 billion during 1999 and $2.7 billion during 2000, plus, ---- in each year no more than an additional 15% of such limit, after reasonable advance notice to and consultation with BP Amoco with respect to ARCO's plans for such additional capital expenditures; or, without first consulting with BP Amoco, authorize or commit to any individual future capital expenditure in an amount in excess of $50 million unless such consultation would be inconsistent with applicable Laws; (v) by any means make or authorize or commit to any acquisition of, or investment in, assets or stock of any other Person or entity except to the extent that such acquisition or investment is a capital expenditure permitted pursuant to Section 3.1.2.3(iv) or a contribution to a joint venture permitted pursuant to Section 3.1.2.3(ii); (vi) terminate any existing line of business; or (vii) without reasonable advance notice to and consultation with BP Amoco, enter into any new shareholder, membership or voting agreements or other agreements relating to the transfer of investments or -34- management or operatorships in connection with joint ventures other than any such agreements with respect to which the total book value or fair market value (whichever is greater) of all of the assets of ARCO and its Subsidiaries to be employed in or subject to the relevant joint venture is less than $200 million; III.1.2.4. neither ARCO nor any of its Subsidiaries shall (i) terminate, establish, adopt, enter into, make any new (or accelerate or otherwise modify any existing) grants or awards of stock-based compensation or other benefits under, amend or otherwise modify any ARCO Compensation and Benefit Plan except for (A) grants or awards to directors, officers and employees of it or any of its Subsidiaries under existing ARCO Compensation and Benefit Plans in the ordinary and usual course of business consistent with past practice (which shall include normal periodic performance reviews and the making of related grants and awards with provisions consistent with past practice; but shall not include any grants or awards that would accelerate, vest or become payable solely as a result of the consummation of the transactions contemplated by this Agreement) and, with respect to stock-based compensation, in any event not in excess of a number of grants or awards (x) granted after the date of this Agreement and before December 31, 1999 that would (currently or with the passage of time or the fulfillment of conditions), in the aggregate, entitle the holders thereof to receive or to purchase 200,000 ARCO Common Shares pursuant to at-market stock options; and (y) granted after February 1, 2000 that would (currently or with the passage of time or the fulfillment of conditions), in the aggregate, entitle the holders thereof to receive or to purchase 1.5 million ARCO Common Shares pursuant to at-market stock options and 250,000 ARCO Common Shares pursuant to other equity-based awards, except that additional stock options may be substituted for other equity-based awards on an equivalent value basis, with calculation of the value of each equity instrument based on reasonable and customary valuation methods; (B) actions necessary to satisfy existing contractual obligations under ARCO Compensation and Benefit Plans in force as of the date hereof, as required by law or under the terms of any collective bargaining agreement or any other action in the ordinary and usual course of business which would not significantly increase the cost of such plan to ARCO; and (C) actions necessary in order to extend the effectiveness of the Enhanced Retirement Program as set forth in Section 41 of the ARCO Retirement Plan, Section 19 of the CH-Twenty, Inc. Retirement Plan and Section 4A and 5A of the ARCO -35- Special Termination Allowance Plan (the "Enhanced Retirement Program"), including but not limited to the final average salary feature, as currently in effect, for qualifying terminations of employment occurring within two years following the Effective Time; (ii) increase the salary, wage, bonus or other compensation of any directors, officers or employees except for (A) increases occurring in the ordinary and usual course of business (which shall include normal periodic performance reviews and related compensation and benefit increases and increases reasonably required to maintain competitive compensation (based on market data) for specialized employees) and (B) the provision of individual compensation and benefit plans or agreements for newly hired or appointed officers or employees in the ordinary and usual course of business consistent with past practice; or (iii) make any determination with respect to the satisfaction of performance objectives under the ARCO Compensation and Benefit Plans other than reasonable determinations that are consistent with past practice; III.1.2.5. subject to the provisions of Section 3.5.1, neither ARCO nor any of its Subsidiaries shall take any action or omit to take any action for the purpose of preventing, delaying or impeding the consummation of the Merger or the other transactions contemplated by this Agreement and the Stock Option Agreement including any action or omission that would cause (i) the Merger to fail to qualify as a reorganization under Section 368(a) of the Code or (ii) the exchange of BP Amoco Shares for ARCO Common Shares in the Merger to fail to qualify for nonrecognition of gain (except with respect to (a) cash received in lieu of fractional interests in BP Amoco Depositary Shares or (b) stockholders of ARCO who are not Eligible ARCO Shareholders); III.1.2.6. ARCO shall timely satisfy, or cause to be timely satisfied, all applicable tax reporting and filing requirements contained in the Code with respect to the transactions contemplated hereby, including, without limitation, the reporting requirements contained in United States Treasury Regulation Section 1.367(a)- 3(c)(6); III.1.2.7. neither ARCO nor any of its Subsidiaries shall: -36- (i) without reasonable advance notice to and consultation with BP Amoco (unless BP Amoco is an adverse party with respect to such claim or litigation or to the extent such consultation would result in ARCO waiving its attorney-client privilege with respect to such claim or litigation), settle or compromise any claims or litigation where the amount of any such settlement or compromise exceeds $50,000,000; or (ii) make any election with respect to taxes that could reasonably be expected to have a Material Adverse Effect on it; III.1.2.8. ARCO shall not modify any accounting policy except as may be required by changes in Law or in U.S. GAAP; III.1.2.9. ARCO shall not create, write down or change any material reserve, except in the ordinary and usual course of business, without reasonable advance notice to and consultation with BP Amoco; and III.1.2.10. neither ARCO nor any of its Subsidiaries shall authorize or enter into an agreement to do any of the foregoing. III.1.3. Consultation as to Material Contracts. ARCO shall ------------------------------------- cooperate with BP Amoco promptly after the date hereof in identifying and creating a list of Contracts that may be considered material to ARCO and its Subsidiaries. ARCO agrees that it will provide reasonable advance notice to and consult with BP Amoco with respect to any material amendment, modification or termination of, or any waiver, release or assignment of any material rights or claims under, the Contracts so identified and listed other than in the ordinary and usual course of business of ARCO and its Subsidiaries. III.2. ARCO Acquisition Proposals. -------------------------- III.2.1. ARCO agrees that, subject to Section 3.2.3 and except as expressly contemplated by this Agreement, neither it nor any of its Subsidiaries nor any of the officers or directors of it or any of its Subsidiaries shall, and that it shall direct and use its best efforts to cause its and its Subsidiaries' employees, investment bankers, attorneys, accountants, financial advisors, agents or other representatives (collectively, the "ARCO Representatives") not to, directly or indirectly, -------------------- initiate, solicit, encourage or otherwise facilitate any inquiries or the making of any proposal or offer with respect to a merger, reorganization, share exchange, dual-holding company transaction, consolidation or similar transaction involving -37- ARCO, or any purchase of, or offer to purchase, all or substantially all of the equity securities of ARCO or of its and its Subsidiaries' assets taken as a whole (any such proposal or offer being hereinafter referred to as an "ARCO Acquisition Proposal"). ARCO further agrees that neither it nor any ------------------------- of its Subsidiaries nor any of its or its Subsidiaries' officers or directors shall, and that it shall direct and use its best efforts to cause the ARCO Representatives not to, directly or indirectly, have any discussions with or provide any confidential information or data to any Person relating to an ARCO Acquisition Proposal or engage in any negotiations concerning an ARCO Acquisition Proposal, or otherwise facilitate any effort or attempt to make or implement an ARCO Acquisition Proposal; provided, however, that nothing contained in this Agreement shall -------- ------- prevent ARCO or its board of directors from (i) making any disclosure to its stockholders if, in the good faith judgment of its board of directors, failure so to disclose would be inconsistent with its obligations under applicable Law; (ii) negotiating with or furnishing information to any Person who has made a bona fide written ARCO Acquisition Proposal which did not result from a breach of this Section 3.2.1; or (iii) recommending such an ARCO Acquisition Proposal to its stockholders (and in connection therewith withdraw its approval or favorable recommendation to stockholders of this Agreement), if and only to the extent that, in the case of actions referred to in clause (ii) or clause (iii), such ARCO Acquisition Proposal is a Superior Proposal (as defined below). For purposes of this Agreement, a "Superior Proposal" means any ARCO Acquisition Proposal by a third party ----------------- (x) on terms which the board of directors of ARCO determines in its good faith judgment after consultation with its financial advisors, to be more favorable from a financial point of view to its stockholders than the Merger and the other transactions contemplated hereby, and (y) which the ARCO board of directors determines in its good faith judgment to constitute 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. ARCO agrees that it will, on the date hereof, immediately cease and cause to be terminated any existing activities, discussions or negotiations with any Person conducted heretofore with respect to any ARCO Acquisition Proposal. ARCO also agrees that if it has not already done so, it will promptly request each Person, if any, that has heretofore executed a confidentiality agreement within the 12 months prior to the date hereof in connection with its consideration of any ARCO 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. III.2.2. ARCO agrees that it will take the necessary steps promptly to inform its Subsidiaries and its Subsidiaries' officers, directors and the ARCO Representatives of the obligations undertaken in this Section 3.2. ARCO agrees -38- that it will notify BP Amoco promptly if any such inquiries, proposals or offers relating to or constituting an ARCO Acquisition Proposal are received by, any such information is requested from, or any such discussions or negotiations are sought to be initiated or continued with, any of its or its Subsidiaries' officers, directors and the ARCO Representatives indicating, in connection with such notice, the name of such Person and the material terms and conditions of any proposals or offers and thereafter shall keep BP Amoco informed, on a current basis, of the status and material terms and conditions of any such proposals or offers. ARCO shall give BP Amoco at least five business days' notice of all material terms and conditions of each ARCO Acquisition Proposal and the opportunity to respond to such ARCO Acquisition Proposal prior to any action by the ARCO board of directors approving the execution and delivery of a definitive agreement to implement a transaction in respect of such ARCO Acquisition Proposal. III.2.3. Nothing contained herein shall prohibit ARCO from taking and disclosing to its stockholders a position contemplated by Rule 14e-2(a) under the Exchange Act with respect to an ARCO Acquisition Proposal by means of a tender or exchange offer. -39- III.3. Information Supplied. -------------------- III.3.1. Registration Statement. ---------------------- III.3.1.1. Each of BP Amoco and ARCO shall cooperate with respect to and as promptly as practicable prepare, and BP Amoco shall file with the SEC as soon as practicable, a Registration Statement on Form F-4 (the "Form F-4") under the Securities Act, with respect to -------- the issuance pursuant to this Agreement and the Share Exchange Agreement of BP Amoco Shares, which Registration Statement shall include the proxy statement/prospectus to be sent to holders of ARCO Common Shares (the "ARCO Proxy Statement") and, so far as appropriate, -------------------- the BP Amoco Documents (as defined in Section 3.3.2.1). The Parties will cause the Form F-4 to comply as to form in all material respects with the applicable provisions of the Securities Act and the rules and regulations thereunder. Each of BP Amoco and ARCO shall use its respective best reasonable efforts to have the Form F-4 declared effective by the SEC as promptly as practicable after such filing. BP Amoco shall use its reasonable efforts to obtain, prior to the effective date of the Form F-4, all necessary state securities law or "Blue Sky" permits or approvals required to carry out the transactions contemplated by this Agreement. BP Amoco will advise ARCO, promptly after it receives notice thereof, of the time when the Form F-4 has become effective or any supplement or amendment has been filed, the issuance of any stop order, the suspension of the qualification of the BP Amoco Shares issuable in connection with the Merger for offering or sale in any jurisdiction, or any request by the SEC for amendment of the ARCO Proxy Statement or the Form F-4 or comments thereon and responses thereto or requests by the SEC for additional information. III.3.1.2. BP Amoco and ARCO each agrees, as to itself and its Subsidiaries, that none of the information supplied or to be supplied by it or its Subsidiaries for inclusion or incorporation by reference in the Form F-4, including, without limitation, the ARCO Proxy Statement, and any amendment or supplement thereto will, at the time the Form F-4 becomes effective under the Securities Act, at the date of mailing to stockholders and at the time or times of the ARCO Stockholders Meeting (as defined in Section 3.4), contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. If at any time prior to the date of the ARCO Stockholders Meeting any information relating to ARCO or BP -40- Amoco, or any of their respective Affiliates, officers or directors, should be discovered by ARCO or BP Amoco which should be set forth in an amendment to the Form F-4 or a supplement to the ARCO Proxy Statement, so that such document would not include any misstatement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, the Party which discovers such information shall promptly notify the other Party and, to the extent required by Law, an appropriate amendment or supplement describing such information shall be promptly filed with the SEC and, to the extent required by law, disseminated to the ARCO stockholders. III.3.1.3. ARCO will use its best reasonable efforts to cause the definitive ARCO Proxy Statement to be mailed to its stockholders as promptly as practicable after the date hereof. III.3.2. BP Amoco Documents. ------------------ III.3.2.1. BP Amoco shall, with the reasonable assistance of ARCO, as promptly as practicable prepare and file with the LSE (a) a circular to be sent to BP Amoco shareholders in connection with the BP Amoco Shareholders Meeting (as defined in Section 3.4) (the "BP Amoco -------- Circular"), containing (i) a notice convening the BP Amoco -------- Shareholders Meeting, (ii) such other information (if any) as may be required by the LSE and (iii) such other information as BP Amoco and ARCO shall agree to include therein; and (b) listing particulars or an exempt listing document relating to BP Amoco and its Subsidiaries and the BP Amoco Ordinary Shares (together with any summary thereof, the "BP Amoco Listing Document," and the BP Amoco Circular and the BP -------------------------- Amoco Listing Document, together, the "BP Amoco Documents"). BP Amoco ------------------ and ARCO each agrees, as to itself and its Subsidiaries, that the BP Amoco Documents and any supplements thereto and any circulars or documents issued to shareholders, employees or debentureholders of BP Amoco, will contain all particulars relating to BP Amoco and ARCO required to comply in all material respects with all United Kingdom statutory and other legal provisions (including, without limitation, the Companies Act, the Financial Services Act 1986 (the "FSA") and the --- rules and regulations made thereunder, and the rules and requirements of the LSE) and all such information contained in the BP Amoco Documents will be substantially -41- in accordance with the facts and will not omit anything material likely to affect the import of such information. III.3.2.2. BP Amoco will use its best reasonable efforts to cause the BP Amoco Documents to receive any clearance thereof required from the LSE and to cause the definitive BP Amoco Documents to be mailed to its shareholders, in each case as promptly as practicable after the date hereof. III.3.2.3. Notwithstanding any of the other provisions of this Section 3.3 and for the avoidance of doubt, BP Amoco hereby agrees that (i) for the purposes of the preparation of the BP Amoco Circular and the BP Amoco Listing Document and any amendments or supplements thereto, ARCO shall only be obliged (pursuant to such other provisions) to supply BP Amoco with information to the extent that it relates solely to ARCO and/or its Subsidiaries, and (ii) neither ARCO, nor any of its Subsidiaries, nor any of its or their directors or other officers shall accept any responsibility for either the BP Amoco Circular or the BP Amoco Listing Document or the information included therein or omitted therefrom. III.4. Shareholders Meetings. ARCO will take all action necessary --------------------- to convene a special meeting of the holders of ARCO Common Shares at which the holders of ARCO Common Shares shall consider the adoption of this Agreement (including any adjournments or postponements thereof, the "ARCO Stockholders ----------------- Meeting") as promptly as practicable after the Form F-4 has been declared - ------- effective by the SEC. BP Amoco will take all action necessary to convene an extraordinary general meeting of BP Amoco shareholders at which an ordinary resolution will be proposed to consider the approval of the Merger (the "BP -- Amoco Shareholder Meeting") after the BP Amoco Documents are cleared by the LSE - ------------------------- and the Form F-4 has been declared effective by the SEC. BP Amoco and ARCO each agrees to use best reasonable efforts such that, to the extent practical, the ARCO Stockholders Meeting and the BP Amoco Shareholders Meeting each shall be held as promptly as practicable after the conditions precedent to holding such meeting have been fulfilled and as nearly contemporaneously as practicable. Subject to the terms of this Agreement, including the provisions of Section 3.2, the board of directors of each of BP Amoco and ARCO shall recommend to its respective shareholders, in the case of BP Amoco, the approval of the Merger and, in the case of ARCO, the adoption of the Merger Agreement and shall use best reasonable efforts to solicit such adoption unless it concludes, in the exercise of its fiduciary duties, after consultation with outside counsel, that the Merger is no longer advisable for its shareholders; provided, however, that -------- ------- neither BP Amoco nor ARCO shall be entitled to withdraw its recommendation to its -42- respective shareholders if to do so would be inconsistent with the obligations it has expressly assumed elsewhere in this Agreement. In the event that subsequent to the date hereof, the board of directors of BP Amoco and/or ARCO determines that the Merger or the Merger Agreement, as the case may be, is no longer advisable and recommends that its respective shareholders reject it, BP Amoco shall nevertheless submit the Merger to the holders of BP Amoco Voting Shares for approval at the BP Amoco Shareholders meeting and ARCO shall nevertheless submit this Agreement to the holders of ARCO Common Shares, for adoption at the ARCO Stockholders Meeting, in each case unless this Agreement shall have been terminated in accordance with its terms prior to the date of the applicable meeting. III.5. Filings; Other Actions; Notification. ------------------------------------ III.5.1. BP Amoco and ARCO shall each cooperate with the other and (i) use (and shall use best reasonable efforts to cause their respective Subsidiaries to use) all their respective best reasonable efforts promptly to take or cause to be taken all actions, and do or cause to be done all things, necessary, proper or advisable under this Agreement, the Stock Option Agreement and applicable Laws to consummate and make effective the Merger and the other transactions contemplated by this Agreement and the Stock Option Agreement as soon as practicable, including preparing and filing as promptly as practicable all documentation to effect all necessary filings, notices, petitions, statements, registrations, submissions of information, applications and other documents, (ii) use (and shall use best reasonable efforts to cause their respective Subsidiaries to use) all their respective best reasonable efforts to obtain as promptly as practicable all approvals, consents, registrations, permits, authorizations and other confirmations required to be obtained from any third party (other than BP Amoco Required Consents and ARCO Required Consents) necessary, proper or advisable to consummate the Merger and the other transactions contemplated by this Agreement and the Stock Option Agreement, and (iii) use (and shall use best reasonable efforts to cause their respective Subsidiaries to use) their respective best reasonable efforts to take or cause to be taken all actions, and do or cause to be done all things, necessary, proper or advisable to obtain the BP Amoco Required Consents or ARCO Required Consents, as the case may be; it being understood that, for purposes of this Section 3.5, the Parties agree that "best reasonable efforts" shall require (without limitation of any other meaning of such words) each Party to accept or agree to, at such time as may be required to cause the condition set forth in Section 4.1.2 to be fulfilled prior to the Termination Date, as it may be extended pursuant to Section 5.2, any conditions, terms or restrictions in connection with any such BP Amoco Required Consent or ARCO Required Consent, as the case may be, unless all such conditions, terms and -43- restrictions, in the aggregate, would be reasonably likely to have a Material Adverse Effect on BP Amoco or ARCO after the Effective Time (it being understood that, for this purpose materiality shall be considered solely with respect to the total value of the U.S. operations of BP Amoco, ARCO and their Subsidiaries, taken together). Subject to applicable Laws relating to the exchange of information, BP Amoco and ARCO shall have the right to review in advance, and to the extent practicable each will consult the other on, all the information relating to ARCO and its Subsidiaries or BP Amoco 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 Entity in connection with the Merger and the other transactions contemplated by this Agreement and the Stock Option Agreement. In exercising the foregoing right, each of BP Amoco and ARCO shall act reasonably and as promptly as practicable. III.5.2. BP Amoco and ARCO each shall, upon request by and reasonable notice from the other, furnish the other with all information concerning itself, its Subsidiaries, directors, officers and shareholders or stockholders and such other matters as may be reasonably necessary or advisable in connection with the Form F-4, the BP Amoco Documents, the ARCO Proxy Statement or any other necessary or appropriate filing, notice, petition, statement, registration, submission of information or application made by or on behalf of BP Amoco or ARCO or any of their respective Subsidiaries to any third party and/or any Governmental Entity in connection with the Merger and the other transactions contemplated by this Agreement and the Stock Option Agreement. III.5.3. BP Amoco and ARCO each shall keep the other apprised of the status of matters relating to completion of the Merger and the other transactions contemplated by this Agreement and the Stock Option Agreement, including promptly furnishing the other with copies of notices or other communications received by BP Amoco or ARCO, as the case may be, or any of its Subsidiaries, from any third party and/or any Governmental Entity with respect to the Merger and the other transactions contemplated by this Agreement and the Stock Option Agreement. BP Amoco and ARCO each shall give prompt notice to the other of any change that would, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect on it or of any failure of any condition set forth in Article IV to the other Party's obligations to effect the Merger. III.5.4. Prior to making any filing, notice, petition, statement, registration, submission of information or application to or with any third party and/or Governmental Entity (including any domestic or foreign national securities exchange) in connection with the consummation of the Merger and the other -44- transactions contemplated by this Agreement and the Stock Option Agreement and except as may be required by Law or by obligations pursuant to any listing agreement with or rules of any domestic or foreign national securities exchange, each Party shall make all reasonable efforts to consult with the other Party with respect to the content of such filing, notice, petition, statement, registration, submission of information or application and to provide the other Party with copies of the proposed filing, notice, petition, statement, registration, submission of information or application. Neither BP Amoco nor ARCO shall agree to participate in any meeting with any Governmental Entity in respect of any filings, investigation or other inquiry relating to the Merger and the other transactions contemplated by this Agreement or the Stock Option Agreement unless it consults with the other Party in advance and, to the extent practicable and permitted by such Governmental Entity, gives the other Party the opportunity to attend and participate thereat. III.5.5. In the event any claim, action, suit, investigation or other proceeding by any Governmental Entity or other Person or other legal or administrative proceeding is commenced that questions the validity or legality of this Agreement, the Stock Option Agreement, or the Merger or the other transactions contemplated by this Agreement and the Stock Option Agreement or claims damages in connection therewith, the Parties agree to cooperate and use their best reasonable efforts, subject to the limitations set forth in Section 3.5.1, to defend against, respond to and resolve such claim, action, suit, investigation or other proceeding in a manner that permits the consummation of the Merger prior to the Termination Date. III.6. Access. In order to facilitate consummation of the Merger ------ and the other transactions contemplated by this Agreement, the Parties hereby agree that upon reasonable request to any executive officer of BP Amoco or ARCO, as the case may be, designated for the purpose, and except as may otherwise be required by applicable Law, BP Amoco and ARCO each shall (and shall cause its Subsidiaries to) afford the other's officers, employees, investment bankers, attorneys, accountants, financial advisors, agents or other representatives reasonable access, during normal business hours throughout the period prior to the Effective Time, to its properties, books, contracts and records and, during such period, each shall (and shall cause its Subsidiaries to) furnish promptly to the other all information concerning its business, properties and personnel as may reasonably be requested, provided that no receipt of information pursuant -------- to this Section shall affect or be deemed to modify any representation or warranty made by BP Amoco or ARCO hereunder, and provided, further, that the -------- ------- foregoing shall not require BP Amoco or ARCO to permit any inquiry, or to disclose any information, that in the reasonable judgment of BP Amoco or ARCO, as the case may be, would (i) violate any -45- antitrust or competition Law or (ii) result in the disclosure of any trade secrets of third parties or violate any of its obligations with respect to confidentiality to third parties unless the consent of such third party is obtained (and BP Amoco or ARCO, as the case may be, shall use its reasonable efforts to obtain the consent of such third party to such inspection or disclosure). All such information shall be governed by the terms of the Confidentiality Agreement, dated January 28, 1999, between BP Amoco and ARCO (the "Confidentiality Agreement"), including without limitation all such ------------------------- information disclosed in the Disclosure Letters. III.7. Publicity. The initial press release concerning this --------- Agreement, the Merger and the other transactions contemplated by this Agreement and the Stock Option Agreement shall be a joint press release, and thereafter BP Amoco and ARCO shall consult with each other prior to issuing any press releases or otherwise making public announcements with respect to the Merger and the other transactions contemplated by this Agreement and the Stock Option Agreement. III.8. Benefits and Other Matters. -------------------------- III.8.1. Employee Benefits. ----------------- III.8.1.1. It is the specific intention of the Parties that the compensation and benefit programs (including annual and long-term incentive programs) to be provided by BP Amoco and its Subsidiaries for current and former employees of ARCO will be no less favorable in the aggregate than is provided to similarly situated employees of BP Amoco and its Subsidiaries. III.8.1.2. For at least one year following the Effective Time, BP Amoco shall provide or cause to be provided to current and former employees and directors of ARCO and its Subsidiaries compensation and benefits that are at least as favorable in the aggregate (taking into account the benefits provided pursuant to this Section 3.8) as the compensation and benefits they were entitled to receive immediately prior to the Effective Time (including, without limitation, benefits pursuant to qualified and non-qualified retirement plans, savings plans, medical plans and programs, deferred compensation arrangements, incentive plans, and retiree benefit plans, policies and arrangements); provided, however, that, with respect to employees who -------- ------- are subject to collective bargaining, all benefits shall be provided in accordance with the applicable collective bargaining or other labor agreements; and provided, further, that all incentive, bonus and -------- ------- -46- similar plans shall after the Effective Time be substantially performance-based. III.8.1.3. BP Amoco shall cause (i) ARCO's and its Subsidiaries' (other than Vastar's) existing severance programs (as in effect immediately prior to the Effective Time) to continue without any reduction in benefits for at least two years following the Effective Time; (ii) beginning with the first full plan year after the Effective Time, interest to be credited to the accounts of participants under the ARCO Executive Deferral Plan (as in effect at the Effective Time) at the greater of (x) the interest rate credited under a comparable BP Amoco plan maintained in the United States for senior executives or (y) the "Citibank Base Rate," as defined in the ARCO Executive Deferral Plan; provided, however, that for the period ending upon -------- ------- completion of ten full plan years after the Effective Time, such rate shall be no less than 125% of the 120-month rolling average of the 10- year U.S. Treasury Note rate for each applicable 120-month period ending June 30 (determined in a manner consistent with past practice), such rate to be effective for the immediately following plan year, except that the minimum rate shall be the Citibank Base Rate in those limited circumstances in which it is determined by ARCO management, in its sole discretion pursuant to a formal action taken prior to the Effective Time, that any participant has failed to satisfactorily perform his/her duties consistent with pre-established goals previously communicated to the participant and such failure to so perform has not otherwise been excused by ARCO management; and (iii) the ARCO outplacement policies and, for executives, financial counseling policies, as in effect as of the date hereof, to be maintained for two years following the Effective Time. III.8.1.4. Following the Effective Time, BP Amoco shall, and shall cause its Subsidiaries to, recognize service with ARCO and its Subsidiaries and any predecessor entities (and any other service credited by ARCO under similar benefit plans), prior to the Effective Time for all purposes (including, without limitation, eligibility to participate, vesting, benefit accrual, eligibility to commence benefits and severance) under any benefit plans of BP Amoco or its Subsidiaries in which the particular employee or former employee of ARCO (or its respective Subsidiaries) participates to the same extent as if such service had been rendered to BP Amoco or any of its Subsidiaries; provided however, that the foregoing shall not result in -------- ------- any duplication of benefits for the same period of service. From and after the Effective Time, BP Amoco shall, and shall cause its Subsidiaries to, recognize any and all appropriate out-of-pocket -47- expenses of each employee or former employee of ARCO and its Subsidiaries for purposes of determining such employee's and former employee's (including their beneficiaries and dependents) deductible and co-payment expenses under BP Amoco's medical benefit plans. BP Amoco shall waive, or cause to be waived, any pre-existing condition limitation under any welfare benefit plan maintained by BP Amoco or any of its Subsidiaries in which employees of ARCO and its Subsidiaries (and their respective eligible dependents) will be eligible to participate on or following the Effective Time to the extent such pre-existing condition limitation was waived or satisfied under the comparable ARCO plan. III.8.1.5. From and after the Effective Time, BP Amoco shall honor, fulfill and discharge, and shall cause its Subsidiaries to honor, fulfill and discharge, in accordance with its terms, each existing employment, change of control, severance and termination agreement between ARCO or any of its Subsidiaries, and any officer, director or employee of such company, including without limitation (i) all legal and contractual obligations pursuant to outstanding retirement plans, including the extension of the Enhanced Retirement Program, pursuant to Section 3.1.2.4(i), salary and bonus deferral plans, vested and accrued benefits and similar employment and benefit arrangements and agreements in effect as of the Effective Time, including all the "change of control" provisions under the plans, programs, policies and agreements listed in Section 3.8.1.5 of the ARCO Disclosure Letter, and (ii) all vacation, personal and sick days accrued by employees of ARCO and its Subsidiaries as of the Effective Time. BP Amoco acknowledges that the consummation of the Merger will constitute a "change of control" as respectively defined under the plans, programs, policies and agreements listed in Section 3.8.1.5 of the ARCO Disclosure Letter. III.8.1.6. From and after the Effective Time, BP Amoco shall recognize, and cooperate in good faith with, the Independent Plan Administrator (the "IPA") of the ARCO Supplemental Executive Benefit --- Plans Trust Agreement; provided, however, that BP Amoco agrees to -------- ------- cooperate with ARCO and the IPA in an effort to effect the transfer and/or assumptions of any plan, or portion thereof, under the administration of ARCO or the IPA to any successor plan or trust, as may be requested by ARCO or the IPA. -48- III.8.2. Director and Officer Liability. ------------------------------ III.8.2.1. BP Amoco agrees that all rights to indemnification and all limitations on liability existing in favor of any Indemnitee (as defined below) in respect of acts or omissions of such Indemnitees on or prior to the Effective Time as provided in the restated certificate of incorporation and by-laws of ARCO or an agreement between an Indemnitee and ARCO or its Subsidiaries in effect as of the date hereof shall continue in full force and effect in accordance with the terms thereof. III.8.2.2. For six years after the Effective Time, BP Amoco shall indemnify and hold harmless the individuals who on or prior to the Effective Time were officers or directors of ARCO or any of its Subsidiaries (the "Indemnitees") (i) with respect to all acts or ----------- omissions by them in their capacities as officers or directors of ARCO in connection with the approval of this Agreement and the transactions contemplated hereby and (ii) to the same extent indemnified as set forth in Section 3.8.2.1, with respect to all other actions or omissions by them in their capacities as officers or directors of ARCO, or taken by them at the request of, ARCO or any of its Subsidiaries. In the event any claim in respect of which indemnification is available pursuant to the foregoing provisions is asserted or made within such six-year period, all rights to indemnification shall continue until such claim is disposed of or all judgments, orders, decrees or other rulings in connection with such claim are duly satisfied. III.8.2.3. For six years after the Effective Time, BP Amoco shall procure the provision of directors' and officers' liability insurance in respect of acts or omissions occurring prior to the Effective Time covering each such Person currently covered by ARCO's directors' and officers' liability insurance policy on terms set forth in the BP Amoco Disclosure Letter. Such liability insurance procured by BP Amoco may provide "first dollar" coverage, without any requirement to first seek indemnification from the Surviving Corporation or BP Amoco. III.8.2.4. The obligations of BP Amoco under this Section 3.8.2 shall not be terminated or modified in such a manner as to adversely affect any Indemnitee to whom this Section 3.8.2 applies without the consent of such affected Indemnitee (it being expressly agreed that the Indemnitees to whom this Section 3.8.2 applies shall be third party beneficiaries of this Section 3.8.2). -49- III.9. Expenses. Except as otherwise provided in Section 5.5, -------- whether or not the Merger is consummated, all costs and expenses incurred in connection with this Agreement, the Stock Option Agreement, the Merger and the other transactions contemplated by this Agreement and the Stock Option Agreement shall be paid by the party incurring such expense, except that the parties shall share equally the costs and expenses of filing, printing and distributing the Form F-4, the ARCO Proxy Statement, the BP Amoco Documents and related documents. III.10. Takeover Statutes. If any Takeover Statute is or may ----------------- become applicable to the Merger or the other transactions contemplated by this Agreement and the Stock Option Agreement, each of BP Amoco and ARCO and its board of directors shall, subject to applicable Law, grant such approvals and take such actions as are necessary so that the Merger and the other transactions contemplated by this Agreement and the Stock Option Agreement may be consummated as promptly as practicable on the terms contemplated by this Agreement and the Stock Option Agreement, and otherwise act to eliminate or minimize the effects of such Takeover Statute on such transactions. III.11. Dividends. At least until December 31, 2003, dividends on --------- the BP Amoco Ordinary Shares will be announced in U.S. dollars and paid to holders of BP Amoco Depositary Shares in U.S. dollars and to holders of BP Amoco Ordinary Shares in pounds sterling. ARCO agrees that it will coordinate its record dates for dividends on ARCO Common Shares with BP Amoco's record dates for dividends on BP Amoco Ordinary Shares so that record dates with respect to dividends to which holders of ARCO Common Shares will be entitled, whether declared with respect to ARCO Common Shares or, after the Effective Time, with respect to BP Amoco Ordinary Shares, do not occur more or less frequently than once each calendar quarter. III.12. Listing Applications. BP Amoco shall promptly prepare and -------------------- submit to the LSE a listing application with respect to the BP Amoco Ordinary Shares issuable in the Merger, and to each of the NYSE and Pacific Exchange a listing application in respect of the BP Amoco Depositary Shares issuable in the Merger and in the DSC II Share Exchange, and shall use its best efforts to obtain, prior to the Effective Time, approval for the listing of such BP Amoco Ordinary Shares, in the case of the LSE, subject to allotment, and such BP Amoco Depositary Shares, in the case of the NYSE, subject to official notice of issuance. After the Closing, BP Amoco shall take any action that may be required under applicable Laws, including, if necessary, the submission of additional listing applications, as and when required, to provide for the listing (i) on the London Stock Exchange of all BP Amoco Ordinary Shares and (ii) on the NYSE of all BP Amoco Depositary Shares, in each case that may be issued after the Effective Time in -50- respect of ARCO Stock Options or otherwise under any ARCO Stock Plan (or any successor thereto). III.13. Letters of Accountants. ---------------------- III.13.1. BP Amoco shall use its best reasonable efforts to cause to be delivered to ARCO "comfort" letters of Ernst & Young, BP Amoco's independent public accountants, dated the effective date of the Form F-4 and the Closing Date, respectively, and addressed to ARCO and its directors, in form reasonably satisfactory to ARCO and customary in scope and substance for "comfort" letters delivered by independent public accountants in connection with registration statements similar to the Form F-4. III.13.2. ARCO shall use its best reasonable efforts to cause to be delivered to BP Amoco "comfort" letters of PricewaterhouseCoopers, ARCO's independent public accountants, dated the effective date of the Form F-4 and the Closing Date, respectively, and addressed to BP Amoco and its directors, in form reasonably satisfactory to BP Amoco and customary in scope and substance for "comfort" letters delivered by independent public accountants in connection with registration statements similar to the Form F-4. III.14. Agreements of ARCO Affiliates. Prior to the date of the ----------------------------- ARCO Stockholders Meeting, ARCO shall cause to be prepared and delivered to BP Amoco a list identifying all persons who, at the time of the ARCO Stockholders Meeting, ARCO believes may be deemed to be "affiliates" of ARCO for purposes of Rule 145 under the Securities Act (the "ARCO Affiliates"). BP Amoco shall be --------------- entitled to place restrictive legends on any BP Amoco ADRs (or any underlying BP Amoco Ordinary Shares that may be withdrawn upon surrender of such BP Amoco ADRs) received by such ARCO Affiliates. ARCO shall use its best efforts to cause each person who is identified as an ARCO Affiliate in such list to deliver to BP Amoco, at or prior to the Effective Time, a written agreement, in the form to be approved by the Parties, that such ARCO Affiliate will not sell, pledge, transfer or otherwise dispose of any BP Amoco Depositary Shares or BP Amoco Ordinary Shares issued to such ARCO Affiliate pursuant to the Merger (or any underlying BP Amoco Ordinary Shares that may be withdrawn upon surrender of such BP Amoco Depositary Shares), except pursuant to an effective registration statement or in compliance with Rule 145 or an exemption from the registration requirements of the Securities Act. BP Amoco shall not register the transfer of any BP Amoco Ordinary Shares and shall cause the Depositary not to register the transfer of any BP Amoco Depositary Shares unless such transfer is made in compliance with the foregoing. -51- III.15. Accounting Matters. At least until December 31, 2003, BP ------------------ Amoco shall include as supplemental disclosure in its consolidated financial statements a reconciliation of its consolidated net income and shareholders' equity to U.S. GAAP. III.16. Tax Matters. BP Amoco shall timely satisfy, or cause to be ----------- timely satisfied, all applicable tax reporting and filing requirements contained in the Code with respect to the transactions contemplated hereby, including, without limitation, the reporting requirements contained in the United States Treasury Regulation Section 1.367(a)-3(c)(6). III.17. Vastar. Notwithstanding anything to the contrary in this ------ Article III, if any action is taken by Vastar or any of its Subsidiaries, or Vastar or any of its Subsidiaries fails to take any action, that would (but for this Section 3.17) constitute a violation by ARCO of a provision of this Article III, ARCO shall be deemed to be in compliance with, and deemed not in violation of, such provision if ARCO has used reasonable efforts, consistent with the fiduciary duties of the Vastar directors designated by ARCO, to prevent such action or such failure to take action, as the case may be, on the part of Vastar and its Subsidiaries. For the purposes of Section 3.1.2.3, transactions by Vastar and its Subsidiaries shall not count toward the monetary amounts set forth therein. III.18. Section 103. BP Amoco shall, if and to the extent ----------- required, comply with its obligations under Section 103 of the U.K. Companies Act 1985 in respect of the Merger Consideration. ARTICLE IV Conditions IV.1. Conditions to Each Party's Obligation to Effect the Merger'. ----------------------------------------------------------- The respective obligations of BP Amoco, Merger Sub and ARCO to effect the Merger are subject to the satisfaction or waiver of each of the following conditions: IV.1.1. Shareholder Approvals. This Agreement shall have been duly --------------------- adopted by holders of ARCO Common Shares constituting the ARCO Requisite Vote, and the Merger shall have been duly approved by the shareholders of BP Amoco constituting the BP Amoco Requisite Vote. IV.1.2. Regulatory Consents. All BP Amoco Required Consents and ------------------- ARCO Required Consents from or with any Governmental Entity (collectively, "Governmental Consents") in connection with the consummation of the Merger --------------------- and the other transactions contemplated hereby shall have been made or obtained, -52- except where the failure to obtain such Governmental Consent would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on BP Amoco or ARCO after the Effective Time, and such Governmental Consents shall not contain any terms or impose any conditions, terms or restrictions in connection with any such Governmental Consent which, individually or in the aggregate, would be reasonably likely to have a Material Adverse Effect on BP Amoco or ARCO after the Effective Time (it being understood that, for this purpose, materiality shall be considered solely with respect to the total value of the U.S. operations of BP Amoco, ARCO and their Subsidiaries, taken together. IV.1.3. Laws and Orders. No Governmental Entity of competent --------------- jurisdiction shall have enacted, issued, promulgated, enforced or entered any Law (whether temporary, preliminary or permanent) that is in effect and restrains, enjoins or otherwise prohibits the consummation of the Merger or the other transactions contemplated by this Agreement and that, individually or in the aggregate with all other such Laws, is reasonably likely to have a Material Adverse Effect on BP Amoco or ARCO or that would materially impair the ability of BP Amoco to consummate the Merger (collectively, an "Order"). The enactment, issuance, promulgation, ----- enforcement or execution by any Governmental Entity of any Order with respect to a Governmental Consent shall not result in a failure of the conditions set forth in this Section 4.1.3 if such Order imposes on BP Amoco or ARCO or their respective Subsidiaries conditions, terms or restrictions with respect to or upon the consummation of the Merger and such conditions, terms or restrictions, if contained solely in a Governmental Consent, would not result in the failure of the condition set forth in Section 4.1.2. IV.1.4. Effectiveness of Form F-4. The Form F-4 shall have become ------------------------- effective prior to the mailing of the ARCO Proxy Statement to its stockholders, no stop order suspending the effectiveness of the Form F-4 shall then be in effect, and no proceedings for that purpose shall then be threatened by the SEC or shall have been initiated by the SEC and not concluded or withdrawn. IV.1.5. Exchange Listings. The LSE shall have granted permission ----------------- for admission to the Official List of the LSE, subject to allotment, of the BP Amoco Ordinary Shares to be issued pursuant to the Merger, and such permission shall not have been withdrawn prior to the Effective Time, and the BP Amoco Depositary Shares shall have been authorized for listing on the NYSE, subject to official notice of issuance. -53- IV.2. Conditions to Obligations of BP Amoco and Merger Sub. The ---------------------------------------------------- obligations of BP Amoco and Merger Sub to effect the Merger is also subject to the satisfaction or waiver by BP Amoco and Merger Sub prior to the Effective Time of the following conditions: IV.2.1. Representations and Warranties of ARCO. The -------------------------------------- representations and warranties of ARCO set forth in this Agreement (i) to the extent qualified by Material Adverse Effect or any other materiality qualification shall be true and correct and (ii) to the extent not qualified by Material Adverse Effect or any other materiality qualification shall be true and correct, in each case when made and as of the Closing Date as though made on and as of the Closing Date (except as provided in Section 2.2 and except that any representation or warranty that by its terms expressly speaks as of an earlier date shall be true and correct as of such date) (provided that this clause (ii) shall be deemed satisfied so long as any failures of such representations and warranties to be true and correct, taken together, would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on ARCO), and BP Amoco shall have received a certificate signed on behalf of ARCO by an executive officer of ARCO to such effect. IV.2.2. Performance of Obligations of ARCO. ARCO shall have ---------------------------------- performed all material obligations required to be performed by it under this Agreement at or prior to the Closing Date, and BP Amoco shall have received a certificate signed on behalf of ARCO by an executive officer of ARCO to such effect. IV.3. Conditions to Obligation of ARCO. The obligation of ARCO to -------------------------------- effect the Merger is also subject to the satisfaction or waiver by ARCO prior to the Effective Time of the following conditions: IV.3.1. Representations and Warranties. The representations and ------------------------------ warranties of BP Amoco and Merger Sub set forth in this Agreement (i) to the extent qualified by Material Adverse Effect or any other materiality qualification shall be true and correct and (ii) to the extent not qualified by Material Adverse Effect or any other materiality qualification shall be true and correct, in each case when made and as of the Closing Date as though made on and as of the Closing Date (except that any representation or warranty that by its terms expressly speaks as of an earlier date shall be true and correct as of such date) (provided that this clause (ii) shall be deemed satisfied so long as any failures of such representations and warranties to be true and correct, taken together, would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on BP -54- Amoco), and ARCO shall have received a certificate signed on behalf of BP Amoco by an executive officer of BP Amoco to such effect. IV.3.2. Performance of Obligations of BP Amoco. BP Amoco shall -------------------------------------- have performed all material obligations required to be performed by it under this Agreement at or prior to the Closing Date, and ARCO shall have received a certificate signed on behalf of BP Amoco by an executive officer of BP Amoco to such effect. IV.3.3. Tax Opinion. ARCO shall have received an opinion from ----------- Cravath, Swaine & Moore, dated as of the Effective Time, substantially to the effect that, on the basis of the facts, representations and assumptions set forth in such opinion, the Merger will be treated for U.S. federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Code and that no gain or loss will be recognized by the stockholders of ARCO who exchange ARCO Common Shares solely for BP Amoco Shares pursuant to the Merger (except with respect to (i) cash received in lieu of fractional interests in BP Amoco Depositary Shares or (ii) stockholders of ARCO who are not Eligible ARCO Shareholders). In rendering such opinion, counsel may require and rely upon representation letters of BP Amoco and ARCO substantially in the form set forth as Exhibits B and C hereto, respectively. ARTICLE V Termination V.1. Termination by Mutual Consent. This Agreement may be ----------------------------- terminated and the Merger may be abandoned at any time prior to the Effective Time, whether before or after the approval by shareholders of BP Amoco and the stockholders of ARCO referred to in Section 4.1.1, by mutual written consent of BP Amoco and ARCO, by action of their respective boards of directors. V.2. Termination by Either BP Amoco or ARCO. This Agreement may be -------------------------------------- terminated and the Merger may be abandoned at any time prior to the Effective Time by action of the board of directors of either BP Amoco or ARCO if (i) the Merger shall not have been consummated by March 31, 2000, whether such date is before or after the approvals by the shareholders of BP Amoco and the stockholders of ARCO (subject to extension as provided below, the "Termination ----------- Date"), (ii) any Order permanently restraining, enjoining or otherwise - ---- prohibiting the consummation of the Merger shall have become final and non- appealable, whether before or after the approval by the shareholders of BP Amoco or the stockholders of ARCO, (iii) this Agreement shall not -55- have been adopted by holders of ARCO Common Shares constituting the ARCO Requisite Vote at the duly held ARCO Stockholders Meeting, including any adjournment or postponement thereof or (iv) the Merger shall not have been approved by shareholders of BP Amoco constituting the BP Amoco Requisite Vote at the duly held BP Amoco Shareholders Meeting, including any adjournment or postponement thereof; provided that the right to terminate this Agreement -------- pursuant to this Section 5.2 shall not be available to a Party that has breached in any material respect its obligations under Section 3.5 or any of its other obligations under this Agreement in any manner that shall have proximately contributed to the failure of the Merger to be consummated; provided, further, -------- ------- that, if a condition set forth in Section 4.1.2 or 4.1.3 remains unsatisfied and shall not have been waived by each of the parties hereto on or prior to the Termination Date, either ARCO or BP Amoco may extend the Termination Date to June 30, 2000. The party electing pursuant to the foregoing proviso to extend the Termination Date shall deliver written notice to such effect to the other party on or before March 31, 2000, whereupon such extension shall be effective from and after April 1, 2000, and this Agreement may not be terminated and the Merger abandoned pursuant to Section 5.2(i) until after such extended Termination Date. V.3. Termination by BP Amoco. This Agreement may be terminated and ----------------------- the Merger may be abandoned at any time prior to the Effective Time, whether before or after the approval by the shareholders of BP Amoco referred to in Section 4.1.1, by action of the board of directors of BP Amoco, if (i) the board of directors of ARCO shall have withdrawn its approval or favorable recommendation to stockholders of this Agreement; or (ii) ARCO or its board of directors shall take any of the actions described in clause (ii) or clause (iii) of the proviso to Section 3.2.1; or (iii) there shall be a breach by ARCO of any representation, warranty, covenant or agreement contained in this Agreement which would result in a failure of a condition set forth in Section 4.2.1 or 4.2.2 and cannot be or is not cured prior to the Termination Date. V.4. Termination by ARCO. This Agreement may be terminated and the ------------------- Merger may be abandoned at any time prior to the Effective Time, whether before or after the approval by stockholders of ARCO referred to in Section 4.1.1, by action of the board of directors of ARCO, if (i) the board of directors of BP Amoco shall have withdrawn its approval or favorable recommendation to shareholders of the Merger or (ii) the board of directors of ARCO becomes entitled pursuant to Section 3.2.1 to recommend an ARCO Acquisition Proposal to its stockholders and, (A) at the time of such termination pursuant to this clause (ii), ARCO is in compliance with Section 3.2.1, (B) ARCO first pays to BP Amoco the ARCO Termination Amount and any amounts due to BP Amoco under the Stock Option Agreement and (C) ARCO concurrently enters into a definitive agreement to implement such ARCO Acquisition Proposal, or (iii) there shall be a breach by BP Amoco of any representation, warranty, covenant or agreement -56- contained in this Agreement which would result in a failure of a condition set forth in Section 4.3.1 or 4.3.2 and cannot be or is not cured prior to the Termination Date. V.5. Effect of Termination and Abandonment. ------------------------------------- V.5.1. In the event of termination of this Agreement and the abandonment of the Merger pursuant to this Article V, this Agreement (other than as set forth in Section 6.1) shall become void and of no effect with no liability on the part of either Party (or of any of its Representatives); provided, however, that no such termination shall relieve -------- ------- either Party of any liability for damages resulting from any willful breach of this Agreement or from any obligation to pay, if applicable, the amounts payable pursuant to Section 5.5.2 or 5.5.3. V.5.2. In the event that (i) this Agreement is terminated by either BP Amoco or ARCO pursuant to Section 5.2(iii) and at the time of the ARCO Stockholders Meeting (or at any adjournment thereof) an ARCO Acquisition Proposal exists or (ii) (A) this Agreement is terminated by either BP Amoco or ARCO pursuant to Section 5.2(iii) and prior to such termination ARCO's board of directors shall have withdrawn its approval or favorable recommendation to its stockholders of this Agreement, (B) this Agreement is terminated by BP Amoco pursuant to Section 5.3(i), Section 5.3(ii) (solely with respect to the recommendation by ARCO or the board of directors of ARCO of an ARCO Acquisition Proposal) or Section 5.3(iii) (solely with respect to a willful breach of Section 3.2), or (C) this Agreement is terminated by ARCO in accordance with Section 5.4(ii), then ARCO shall promptly, but in no event later than two business days after the date of such termination or, in the case of termination pursuant to Section 5.4(ii), at the time provided therein, pay to BP Amoco as compensation for the Merger not becoming effective a termination payment equal to the ARCO Termination Amount (as defined below), which amount shall be exclusive of any expenses to be paid pursuant to Section 3.9, payable by wire transfer of same day funds. The term "ARCO Termination Amount" shall mean, in the ----------------------- case of termination by BP Amoco pursuant to clause (ii) of the preceding sentence, $450,000,000 (inclusive of value added tax, if any) or, in the case of termination by BP Amoco or ARCO pursuant to clause (i) of the preceding sentence, "ARCO Termination Amount" shall mean $250,000,000 (inclusive of value added tax, if any), plus, if (x) ARCO executes and ---- delivers an agreement with respect to any ARCO Acquisition Proposal (an "ARCO Alternative Agreement") or (y) an ARCO Acquisition Proposal with --------------------------- respect to ARCO is consummated, in any such case, within 12 months from the date of termination, an additional $200,000,000 (inclusive of value added tax, if any) (which additional amount shall be paid promptly by wire transfer in same day funds, and in no event later than two -57- business days after the earliest date on which the event requiring ARCO to pay such additional sum occurs). In the event that the board of directors of ARCO recommends the acceptance by ARCO stockholders of a third-party tender or exchange offer for the ARCO Common Shares, such recommendation shall be treated for purposes of this Section as though an ARCO Alternative Agreement had been executed. ARCO acknowledges that the agreements contained in this Section 5.5.2 are an integral part of the transactions contemplated by this Agreement, and that, without these agreements, BP Amoco would not enter into this Agreement; accordingly, if ARCO fails promptly to pay any amount due pursuant to this Section 5.5.2, and, in order to obtain such payment, BP Amoco commences a suit which results in a judgment against ARCO for the payment set forth in this Section 5.5.2, ARCO shall pay to BP Amoco its costs and expenses (including attorneys' fees) in connection with such suit, together with interest on the ARCO Termination Amount from each date for payment until the date of such payment at the prime rate of Citibank N.A. in effect on the date such payment was required to be made plus 2 percent. V.5.3. In the event that this Agreement is terminated (i) by ARCO pursuant to Section 5.4(i) or (ii) by either BP Amoco or ARCO pursuant to Section 5.2(iv) and prior to such termination BP Amoco's board of directors shall have withdrawn its approval or favorable recommendation to shareholders of the Merger, then BP Amoco shall promptly, but in no event later than two business days after the date of such termination, pay to ARCO a termination payment equal to the BP Amoco Termination Amount (as defined below), which amount shall be exclusive of any expenses to be paid pursuant to Section 3.9 payable by wire transfer of same day funds. The term "BP Amoco Termination Amount" shall mean $500,000,000 (inclusive of --------------------------- value added tax, if any). BP Amoco acknowledges that the agreements contained in this Section 5.5.3 are an integral part of the transactions contemplated by this Agreement, and that, without these agreements, ARCO would not enter into this Agreement; accordingly, if BP Amoco fails promptly to pay any amount due pursuant to this Section 5.5.3, and, in order to obtain such payment, ARCO commences a suit which results in a judgment against BP Amoco for the payment set forth in this Section 5.5.3, BP Amoco shall pay to ARCO its costs and expenses (including attorneys' fees) in connection with such suit, together with interest on the BP Amoco Termination Amount from each date for payment until the date of such payment at the prime rate of Citibank N.A. in effect on the date such payment was required to be made plus 2 percent. ARTICLE VI -58- Miscellaneous and General VI.1. Survival. This Article VI and the agreements of BP Amoco and -------- ARCO contained in Article I, Sections 3.8 (Benefits and Other Matters), 3.15 (Accounting Matters) and Section 3.16 (Tax Matters) shall survive the Effective Time. This Article VI, the representations and warranties contained in Section 2.1.3 (Corporate Authority; Approval and Fairness), the agreements of BP Amoco and ARCO contained in Section 3.7 (Publicity), Section 3.9 (Expenses), Section 5.5 (Effect of Termination and Abandonment), and the last sentence of Section 3.6 (Access) shall survive the termination of this Agreement. All other representations, warranties, agreements and covenants in this Agreement shall not survive the Effective Time or the termination of this Agreement. VI.2. Modification or Amendment. This Agreement may be modified or ------------------------- amended by agreement of the Parties, by action taken or authorized by their respective boards of directors, at any time prior to the Effective Time; provided, however, that, after approval by ARCO stockholders of the matters - -------- ------- presented at the ARCO Stockholders Meeting, no modification or amendment shall be made which under applicable Law requires further approval by such stockholders without such further approval. This Agreement may not be modified or amended except by an instrument in writing executed and delivered by duly authorized officers of each of the Parties. VI.3. Waiver. Any provision of this Agreement may be waived prior ------ to the Effective Time if, and only if, such waiver is in writing and signed by the Party against whom the waiver is to be effective. VI.4. Failure or Indulgence Not Waiver; Remedies Cumulative. 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. Except as otherwise herein provided, the rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by Law. VI.5. Counterparts. This Agreement may be executed in any number ------------ of counterparts, each such counterpart being deemed to be an original instrument, and all such counterparts shall together constitute the same agreement. VI.6. GOVERNING LAW AND VENUE; WAIVER OF JURY TRIAL. --------------------------------------------- VI.6.1. THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN, AND IN ALL RESPECTS SHALL BE INTERPRETED, CONSTRUED -59- AND GOVERNED BY AND IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO CONTRACTS TO BE PERFORMED WHOLLY IN SUCH STATE, EXCEPT TO THE EXTENT THAT IN THE CASE OF BP AMOCO, THE COMPANIES ACT AND ENGLISH LAW ARE APPLICABLE. The Parties hereby irrevocably submit to the jurisdiction of the federal courts of the United States of America located in the State of Delaware and the state courts of the State of Delaware, solely in respect of the interpretation and enforcement of the provisions of this Agreement and in respect of the transactions contemplated hereby and hereby waive, and agree not to assert, as a defense in any action, suit or proceeding for the interpretation or enforcement hereof, that it is not subject thereto or that such action, suit or proceeding may not be brought or is not maintainable in said courts or that the venue thereof may not be appropriate or that this Agreement may not be enforced in or by such courts, and the Parties irrevocably agree that all claims with respect to such action or proceeding shall be heard and determined in such a court. The Parties hereby consent to and grant any such court jurisdiction over the person of such Parties and over the subject matter of such dispute and agree that mailing of process or other papers in connection with any such action or proceeding in the manner provided in Section 6.7, or in such other manner as may be permitted by Law, shall be valid and sufficient service thereof. VI.6.2. EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH SUCH PARTY UNDERSTANDS AND WITH THE ADVICE OF COUNSEL HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH SUCH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 6.6. -60- VI.7. Notices. Notices, requests, instructions or other documents ------- to be given under this Agreement shall be in writing and shall be deemed given, (i) when sent if sent by facsimile, provided that the facsimile is promptly confirmed by telephone confirmation thereof, (ii) when delivered, if delivered personally to the intended recipient, and (iii) one business day later, if sent by overnight delivery via a national courier service, and in each case, addressed to a Party at the following address for such Party: if to ARCO: ---------- ARCO Atlantic Richfield Company 333 South Hope Street Los Angeles, California 90071 Attention: Bruce Whitmore, Esq. Telecopier: 213-486-1818 with copies to Cravath, Swaine & Moore Worldwide Plaza 825 Eighth Avenue New York, New York 10019 Attention: Richard Hall, Esq. Telecopier: (212) 474-3700 and Clifford Chance 200 Aldersgate Street London EC1A 4JJ England Attention: Adam Signy, Esq. Telecopier: 44-171-600-5555 -61- if to BP Amoco or Merger Sub: BP Amoco p.l.c. Brittanic House 1 Finsbury Circus London EC2M 7BA England Attention: Peter B.P. Bevan, Esq. General Counsel Telecopier: 44-171-496-4592 with copies to Sullivan & Cromwell 125 Broad Street New York, New York 10004 Attention: Benjamin F. Stapleton, Esq. Telecopier: (212) 558-3588 and Linklaters & Paines One Silk Street London EC2Y 8HQ Attention: David Cheyne, Esq. Telecopier: 011-44-171-456-2222 or to such other Persons or addresses as may be designated in writing by the Party to receive such notice as provided above. VI.8. Entire Agreement. This Agreement (including any exhibits ---------------- hereto), the Stock Option Agreement, the Share Exchange Agreement and the Confidentiality Agreement constitute the entire agreement, and supersede all other prior agreements, understandings, representations and warranties both written and oral, between the Parties with respect to the subject matter hereof. References herein to this Agreement shall for all purposes be deemed to include references to the BP Amoco Disclosure Letter and the ARCO Disclosure Letter. Except as set forth in Sections 1.3, 1.5 and 3.8 (except for the provisions of Section 3.8.1.1 and 3.8.1.2), this Agreement is not intended to confer upon any Person other than the Parties any rights or remedies hereunder. EACH PARTY HERETO AGREES THAT, EXCEPT FOR THE -62- REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS AGREEMENT, THE STOCK OPTION AGREEMENT OR ANY OTHER AGREEMENT CONTEMPLATED HEREBY OR THEREBY, NONE OF BP AMOCO, ARCO OR MERGER SUB MAKES ANY OTHER REPRESENTATIONS OR WARRANTIES, AND EACH HEREBY DISCLAIMS ANY OTHER REPRESENTATIONS OR WARRANTIES MADE BY ITSELF OR ANY OF ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, FINANCIAL AND LEGAL ADVISORS OR OTHER REPRESENTATIVES WITH RESPECT TO THE EXECUTION AND DELIVERY OF THIS AGREEMENT, THE STOCK OPTION AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, NOTWITHSTANDING THE DELIVERY OR DISCLOSURE TO THE OTHER OR THE OTHER'S REPRESENTATIVES OF ANY DOCUMENTATION OR OTHER INFORMATION WITH RESPECT TO ANY ONE OR MORE OF THE FOREGOING. VI.9. Obligations of BP Amoco and of ARCO. Whenever this Agreement ----------------------------------- requires a Subsidiary of BP Amoco to take any action, such requirement shall be deemed to include an undertaking on the part of BP Amoco to use best reasonable efforts to cause such Subsidiary to take such action. Subject to Section 3.17, whenever this Agreement requires a Subsidiary of ARCO to take any action, such requirement shall be deemed to include an undertaking on the part of ARCO to use best reasonable efforts to cause such Subsidiary to take such action. VI.10. Severability. The provisions of this Agreement shall be ------------ deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. If any provision of this Agreement, or the application thereof to any Person or any circumstance, is invalid or unenforceable, (a) a suitable and equitable provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision unless the substitution of such provision would materially frustrate the express intent and purposes of this Agreement, and (b) the remainder of this Agreement and the application of such provision to other Persons or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction. VI.11. Interpretation. The headings herein are for convenience of -------------- reference only, do not constitute part of this Agreement and shall not be deemed to limit or otherwise affect any of the provisions hereof. Where a reference in this Agreement is made to a Section or Exhibit, such reference shall be to a Section of or Exhibit to this Agreement unless otherwise indicated. Whenever the words "include," "includes" or -63- "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." VI.12. Assignment. This Agreement shall not be assignable by ---------- operation of law or otherwise, and any purported assignment in violation of this provision shall be void. -64- IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the duly authorized officers of BP Amoco, ARCO and Merger Sub as of the date hereof. BP AMOCO p.l.c. By: /s/ John Browne ------------------ Name: (E.J.P. Browne) - Sir John Browne Title: Chief Executive Officer By: /s/ B.E. Grote ----------------- Name: B.E. Grote Title: Executive Vice President ATLANTIC RICHFIELD COMPANY By: /s/ Mike R. Bowlin --------------------- Name: Mike R. Bowlin Title: Chairman of the Board and Chief Executive Officer PRAIRIE HOLDINGS, INC. By: /s/ Peter B.P. Bevan ----------------------- Name: P.B.P. Bevan Title: President -65- EX-2.1 3 AMENDMENT NO. 1 TO AGREEMENT & PLAN OF MERGER Exhibit 2.1 Amendment No. 1 to Agreement and Plan of Merger AMENDMENT NO. 1, dated as of July 12, 1999 (this "Amendment"), to the --------- Agreement and Plan of Merger, dated as of March 31, 1999 (the "Agreement"), --------- among BP AMOCO p.l.c., an English public limited company ("BP Amoco"), ATLANTIC -------- RICHFIELD COMPANY, a Delaware corporation ("ARCO") and Prairie Holdings, Inc., a ---- Delaware corporation and direct wholly owned subsidiary of BP Amoco ("Merger ------ Sub"). W I T N E S S E T H: WHEREAS, BP Amoco, ARCO and Merger Sub desire to amend the Agreement; and WHEREAS, Section 6.2 of the Agreement provides that, prior to approval by the respective shareholders of ARCO and BP Amoco, the Agreement may be modified or amended by agreement of the parties, by action taken or authorized by their respective boards of directors prior to the Effective Time (as defined in the Agreement) and by an instrument in writing executed and delivered by duly authorized officers of each of the parties hereto; and WHEREAS, the respective Boards of BP Amoco, ARCO and Merger Sub have approved this Amendment and authorized their duly authorized officers to execute and deliver this Amendment; NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein, the parties hereto agree as follows: ARTICLE I Amendments to the Agreement --------------------------- 1.1 The Agreement shall be amended to read in its entirety as set forth in Appendix 1 hereto. ---------- ARTICLE II Miscellaneous ------------- 2.1 Definitions. Capitalized terms used in this Amendment and not ----------- defined herein shall have the respective meanings ascribed to them in the Agreement. 2.2 Entire Agreement; Restatement. Other than as amended by Section 1.1 ----------------------------- above, the Agreement shall remain in full force and effect unaffected hereby. Reference in the Agreement to "this Agreement," "herein" and "hereof" shall be deemed to refer to the Agreement, as amended by this Amendment, and the parties hereto hereby agree that the Agreement may be restated to reflect the amendments provided for in this Amendment. 2.3 Counterparts. This Amendment may be executed in any number of ------------ counterparts, each such counterpart being deemed an original instrument, and all such counterparts shall together constitute the same agreement. IN WITNESS WHEREOF, the parties hereto have executed or caused this Amendment to be executed as of the date first written above. BP AMOCO p.l.c. By:___________________________ Name: Title: ATLANTIC RICHFIELD COMPANY By:___________________________ Name: Title: PRAIRIE HOLDINGS, INC. By:___________________________ Name: Title: EX-10.1 4 AMENDED & RESTATED ARCO CAPITAL ACCUM. PLAN EXHIBIT 10.1 [LOGO OF ARCO] - ---------------------------------------------------------------- ATLANTIC RICHFIELD CAPITAL ACCUMULATION PLAN Amendment and Restatement Effective As Of March 15, 1999 ATLANTIC RICHFIELD COMPANY. CAPITAL ACCUMULATION PLAN TABLE OF CONTENTS -----------------
Page No. -------- INTRODUCTION...................................................................... 1 Section 1 - DEFINITION - --------- 1.1 Acquisition Loan................................................ 2 1.2 Administrator................................................... 2 1.3 Annual Earnings or Earnings..................................... 2 1.4 Benefits Committee.............................................. 2 1.5 Capital Accumulation Plan Administrative Committee.............. 2 1.6 Code............................................................ 2 1.7 Company......................................................... 2 1.8 Credited Company Service........................................ 2 1.9 Effective Date.................................................. 2 1.10 Elective Deferrals or Deferrals................................ 3 1.11 Employee....................................................... 3 1.12 Employee Contribution Agreement................................ 3 1.13 ERISA.......................................................... 3 1.14 Financed Shares................................................ 3 1.15 Former Member.................................................. 3 1.16 Highly Compensated Employee.................................... 3 1.17 Hour of Service................................................ 4 1.18 Matching Contributions......................................... 5 1.19 Member......................................................... 5 1.20 Member's Account or Account.................................... 5 1.21 Member Contributions........................................... 6 1.22 Plan or Plans.................................................. 6 1.23 Plan Year...................................................... 6 1.24 Subsidiary or Affiliate........................................ 6 1.25 Trust Agreement................................................ 6 1.26 Trustee........................................................ 6 1.27 Valuation Date................................................. 6 Section 2 - MEMBERSHIP - ELIGIBILITY - --------- 2.1 Membership...................................................... 7 2.2 Notice to Administrator......................................... 7 2.3 Membership Termination.......................................... 7 2.4 Member Suspension............................................... 8 2.5 Member Transfers................................................ 8 2.6 Capital Accumulation Plan Assets................................ 8
i
Section 3 - MEMBERS' ELECTIVE DEFERRALS - --------- 3.1 Members' Elections.............................................. 10 3.2 Contribution of Elective Deferrals and Member Contributions..... 11 3.3 Annual Dollar Limitation........................................ 11 3.4 Actual Deferral Percentage Tests................................ 12 3.5 Distribution of Excess Contributions............................ 12 3.6 Make-Up Elective Deferrals and Member Contributions............. 13 Section 4 - COMPANY CONTRIBUTION - --------- 4.1 Matching Contribution........................................... 14 4.2 Form of Contribution............................................ 14 4.3 Members Excluded From Contribution.............................. 14 4.4 Actual Contribution Percentage Test............................. 14 4.5 Distribution of Excess Contributions............................ 15 4.6 Limitation on the Multiple Use Alternative...................... 16 4.7 Section 415 Limitations......................................... 16 4.8 Nonelective Contributions....................................... 17 4.9 Exclusive Benefit............................................... 17 Section 5 - FINANCED SHARES - --------- 5.1 Acquisition Loans............................................... 18 5.2 Payments on Acquisition Loan.................................... 19 Section 6 - INVESTMENT OF MEMBERS' AND FORMER MEMBERS' ACCOUNTS - --------- 6.1 Members' and Former Members' Accounts........................... 21 6.2 Investment of Elective Deferrals,Member Contribution, Rollovers and Certain Matching Contributions.............................. 21 6.3 Investment of Company Contributions............................. 21 6.4 Member of Former Member Direction of Investments................ 22 6.5 Allocation of Investment Experience............................. 22 6.6 Manner and Time of Debiting Distributions....................... 22 6.7 Title of Investments............................................ 22 6.8 Voting of Investments........................................... 22 6.9 Voting of Atlantic Richfield Company Common Stock............... 23 6.10 Allocation of Dividends on Atlantic Richfield Company Common Stock.................................................... 23 6.11 Investment Advisory Fees........................................ 24 6.12 Member or Former Member Protection.............................. 24 6.13 Confidentiality................................................. 24 Section 7 - WITHDRAWALS DURING EMPLOYMENT - --------- 7.1 Age 59 1/2 Withdrawal........................................... 25 7.2 Application and Basis for Hardship Withdrawal................... 25 7.3 Partial Withdrawals of Member Contributions..................... 26
ii
Section 8 - PAYMENTS ON TERMINATION OF MEMBERSHIP OR OTHER REASONS - --------- 8.1 Termination of Employment....................................... 28 8.2 Death........................................................... 29 8.3 Disability...................................................... 30 8.4 Divorce......................................................... 30 8.5 Rollover........................................................ 30 8.6 Notice.......................................................... 31 8.7 Distributions................................................... 31 8.8 Distribution of Benefits........................................ 33 Section 9 - LOANS TO MEMBERS - --------- 9.1 General......................................................... 34 9.2 Eligibility..................................................... 34 9.3 Loan Amount..................................................... 34 9.4 Number of Loans................................................. 35 9.5 Interest Rate................................................... 35 9.6 Security........................................................ 35 9.7 Funding of the Loan............................................. 35 9.8 Repayment of the Loan........................................... 35 9.9 Deemed Distribution............................................. 36 9.10 Default........................................................ 36 Section 10 - CAPITAL ACCUMULATION ADMINISTRATIVE COMMITTEE - ---------- 10.1 Capital Accumulation Plan Administrative Committee............. 37 10.2 Rules of Conduct............................................... 37 10.3 Legal, Accounting, Clerical.................................... 37 10.4 Interpretation of Provisions................................... 37 10.5 Records of Administration...................................... 37 10.6 Claims for Benefits............................................ 38 10.7 Liability of Committee......................................... 39 10.8 Unlocated Member............................................... 39 10.9 Legal Representative........................................... 39 Section 11 - AMENDMENTS, DISCONTINUANCE, LIABILITIES - ---------- 11.1 Amendment...................................................... 40 11.2 Termination.................................................... 41 11.3 Liability of Company........................................... 41 Section 12 - MISCELLANEOUS - ---------- 12.1 Employment..................................................... 42 12.2 Benefits Not Assignable........................................ 42 12.3 Discharge of Liability......................................... 42 12.4 Governing Laws................................................. 42 12.5 Limitation on Mergers.......................................... 42 12.6 Delegation of Fiduciary or Administrative Responsibilities..... 42
iii
12.7 Named Fiduciary................................................ 43 Section 13 - ROLLOVERS - ---------- 13.1 Rollovers from Other Qualified Plans.............................. 44 13.2 Transfers from Individual Retirement Accounts..................... 44 13.3 Membership........................................................ 44 13.4 Administration.................................................... 44 Section 14 - TOP HEAVY PROVISIONS - ---------- 14.1 Definitions....................................................... 46 14.2 Minimum Allocation................................................ 49 14.3 .................................................................. 50 14.4 .................................................................. 50 14.5 .................................................................. 50 14.6 .................................................................. 50
iv ATLANTIC RICHFIELD CAPITAL ACCUMULATION PLAN INTRODUCTION This Plan is intended to qualify as a Stock Bonus Plan under (S)401(a) of the Internal Revenue Code of 1986, as amended, and as a Qualified Cash or Deferred Arrangement under (S)401(k) of the Code. Part of the Plan (the "ESOP Part") is intended to qualify as an Employee Stock Ownership Plan under (S)4975(e)(7) of the Code and such part is designed to invest primarily in Atlantic Richfield Company Common Stock. Effective March 14, 1999, the Atlantic Richfield Company Capital Accumulation Plan III, the Atlantic Richfield Savings Plan II, the Atlantic Richfield Savings Plan III and the Union Texas Petroleum Savings Plan for Salaried Employees (the "Predecessor Plans") are merged into the Atlantic Richfield Capital Accumulation Plan II and the name of the plan is changed to the Atlantic Richfield Capital Accumulation Plan . This amendment and restatement of the Plan is effective March 15, 1999, except as otherwise indicated, and is intended to bring the Plan into compliance with the Uniformed Services Employment and Re-employment Act of 1994, Small Business Protection Act of 1996, subsequent legislation, and relevant regulations and rulings. The provisions of this amended and restated plan apply to persons who are employed on or after March 15, 1999, unless otherwise indicated. -1- SECTION 1 DEFINITIONS 1.1 "Acquisition Loan" means a loan or other extension of credit used by the Trustee to finance the acquisition of Atlantic Richfield Company Common Stock. 1.2 "Administrator" means the Capital Accumulation Plan Administrative Committee. 1.3 "Annual Earnings" or "Earnings" means the annual, actual wages or salary paid to a Member for the Member's personal service, including the amount of any Employee contribution pursuant to (S)125 and (S)401(k) of the Code, as amended, but excluding the Alaska benefit base enhancement and foreign service premiums/1/, and extra pay such as overtime, premiums, bonuses, living or other allowances. Annual Earnings shall not exceed a Member's regular wages or salary as determined by the Company. Annual Earnings or Earnings shall not exceed $160,000, as adjusted each Plan Year pursuant to (S)401(a)(17)(B) of the Code. 1.4 "Benefits Committee" means a committee comprised of the Senior Vice President, Human Resources, the Senior Vice President and Treasurer, and the Senior Vice President and General Counsel, which Committee shall have responsibilities for amendments to the Plan as prescribed in Subparagraph 11.1(b) of the Plan. 1.5 "Capital Accumulation Plan Administrative Committee" means the committee provided for in Section 10 of this Plan. 1.6 "Code" means the Internal Revenue Code of 1986, as amended. 1.7 "Company" means Atlantic Richfield Company and such of its Subsidiaries or Affiliates whose Employees are included in this Plan upon authorization of Atlantic Richfield Company and adoption of this Plan by such authorized Subsidiary or Affiliate. 1.8 "Credited Company Service" means service with the Company, a predecessor company, and/or a Subsidiary or Affiliate which service the Company recognizes, on a basis uniformly applicable to all persons similarly situated, for purposes of this Plan. 1.9 "Effective Date" means the effective date of this amended and restated Plan which is March 15, 1999, unless otherwise indicated. - -------------------------- /1/ The exclusion of foreign service premiums shall not apply to a Member who on September 1, 1994 is in a foreign assignment until such time as the Member leaves the country in which the Member is employed on September 1, 1994 or, if later, completes the assignment in which the Member was engaged on September 1, 1994. -2- 1.10 "Elective Deferrals" or "Deferrals" means reductions pursuant to an Employee Contribution Agreement of a Member's Annual Earnings, which amounts are transferred by the Company to the Trustee of the Plan. 1.11 "Employee" means any person who is employed by the Company, excluding: (a) Casual Employees, Project Employees and Leased Employees, as defined under the Atlantic Richfield Employment Status Classification Policy; (b) Employees represented by any collective bargaining agent which has not negotiated the benefits of this Plan; and (c) Any division or group of employees which is expressly excluded from eligibility for the Plan by action of Atlantic Richfield Company or, in the case of a Subsidiary or Affiliate, action by the Subsidiary or Affiliate by which such employees are paid. 1.12 "Employee Contribution Agreement" means an agreement entered into between the Member and the Company, and by which the Member agrees to accept a reduction in Earnings from the Company equal to any whole (or fractions, as required by adjustments under Paragraph 3.3, 3.4 or 4.4) percentage, per payroll period. This reduction may be on a pre-tax or after-tax basis, as elected by the Member. This agreement shall apply to each payroll period during the period it is in effect in which the Member receives Earnings. In consideration of such agreement, the Company will transfer to the Member's pre-tax Elective Deferral subaccount or to the Member's after-tax Member Contribution subaccount, as applicable, the amount of the Elective Deferrals or Member Contributions at the time that regular salary payments are made to its Employees. 1.13 "ERISA" means the Employee Retirement Income Security Act of 1974. 1.14 "Financed Shares" means shares of Atlantic Richfield Company Common Stock acquired by the Trustee with the proceeds of an Acquisition Loan. 1.15 "Former Member" means a Member whose membership has terminated pursuant to Paragraph 2.3 and whose account has not been fully distributed. 1.16 "Highly Compensated Employee", effective July 1, 1997, means: (a) Any employee who performs service during the determination year and is described in one or more of the following groups: (i) An employee who is a five percent owner, as defined in (S)416(i)(1) of the Code, at any time during the determination year or the look-back year, as defined below; or -3- (ii) An employee who receives compensation in excess of $80,000, as adjusted pursuant to (S)415(d) of the Code during the look-back year. (b) For purposes of the definition of Highly Compensated Employee the following will apply: (i) The determination year is the Plan Year for which the determination of who is highly compensated is being made. (ii) The look-back year is the 12-month period immediately preceding the determination year; provided, however, that for the Plan Year beginning March 15, 1999, the look-back year shall be the calendar beginning January 1, 1999. (iii) Employers aggregated under (S)414(b), (c), (m), or (o) of the Code are treated as a single employer. (iv) Compensation, for purposes of this Paragraph 1.16 means compensation within the meaning of (S)415(c)(3) of the Code without regard to (S)125, (S)402(e)(3) and (S)402(h)(1)(B) of the Code. (c) A former Employee who has a separation year prior to the determination year and who was a highly compensated active employee for either (i) such employee's separation year, or (ii) any determination year ending on or after the employee's 55th birthday will be a Highly Compensated Employee. Generally, a separation year is the determination year the employee separates from service. An employee who separated from service before January 1, 1987, will be included as a Highly Compensated Employee only if the Employee was a five percent owner or received compensation in excess of $50,000 during the year. 1.17 "Hour of Service" means: (a) Each hour for which an Employee is paid, or entitled to payment, for the performance of duties for the Company or any Subsidiary or Affiliate during the computation period in which the duties are performed. (b) Each hour for which an Employee is paid, or entitled to payment, by the Company or any Subsidiary or Affiliate on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence. (c) Each hour for which back pay, irrespective of mitigation of damages, is either awarded or agreed to by the Company or any Subsidiary or Affiliate. Such hours shall be credited to the Employee for the computation period or -4- periods to which the award or agreement pertains. (d) An Employee will be credited with 200 Hours of Service, to the extent required by Federal law, for each month during which the Employee is on active duty in the Armed Forces of the United States and for which the Employee is not paid or entitled to be paid by the Company or any Subsidiary or Affiliate. (e) Hours credited for any period under any provision of this Paragraph 1.17 may not also be credited for the same period under any other provisions of this Plan. Hours shall be credited under Subparagraphs 1.17(a) thru (c) pursuant to U.S. Department of Labor Regulations under 29CFR (S)2530.200b-2, which are incorporated herein by this reference. (f) For all purposes under the Plan, an Employee shall be credited with 200 Hours of Service for each calendar month in which the Employee would otherwise be credited with one or more Hours of Service. (g) Solely for purposes of determining whether a break in service has occurred in a computation period, and to the extent it does not duplicate Hours of Service credited under any other provision of this Paragraph 1.17, an individual who is absent from work for maternity or paternity reasons shall receive credit for the Hours of Service which would otherwise have been credited to such individual but for such absence, or in any case in which such hours cannot be determined, eight Hours of Service per day of such absence. For purposes of this subparagraph, an absence from work for maternity or paternity reasons means an absence which commences on or after January 1, 1985, and is (i) by reason of the pregnancy of the individual; (ii) by reason of a birth of a child of the individual; (iii) by reason of the placement of a child with the individual in connection with the adoption of the child by such individual; or (iv) for purposes of caring for such child for a period beginning immediately following such birth or placement. The Hours of Service credited under this subparagraph shall be credited within the computation period in which the absence begins if the crediting is necessary to prevent a break in service in that period, or in all other cases, in the following computation period. 1.18 "Matching Contributions" means the Company contribution pursuant to Paragraph 4.1 of the Plan. 1.19 "Member" means an Employee who has qualified for membership in accordance with the requirements of this Plan and whose membership has not terminated in accordance with Paragraph 2.3 of the Plan. 1.20 "Member's Account" or "Account" means a separate account maintained by the Trustee for each Member consisting of (a) one subaccount to which is allocated -5- the Member's Elective Deferrals, as adjusted for earnings and withdrawals, and realized and unrealized gains and losses attributable thereto; (b) a second subaccount to which is allocated Member Contributions as adjusted for earnings and withdrawals, and realized and unrealized gains and losses attributable thereto; (c) a third subaccount to which is allocated the Company's contributions as adjusted for earnings and withdrawals, and realized and unrealized gains and losses attributable thereto; and (d) a fourth subaccount to which is allocated rollovers pursuant to Section 13 and transfers pursuant to Subparagraph 2.6(b) as adjusted for earnings and withdrawals, and realized and unrealized gains and losses attributable thereto. 1.21 "Member Contributions" means after-tax reductions in the Member's Annual Earnings pursuant to an Employee Contribution Agreement, which amounts are transferred by the Company to the Trustee. 1.22 "Plan" or "Plans" means the Atlantic Richfield Capital Accumulation Plan as set forth herein, and any amendments thereto. 1.23 "Plan Year" means the period commencing on March 15, 1999 and ending on December 31, 1999. Thereafter, the Plan Year shall be the calendar year. 1.24 "Subsidiary" or "Affiliate" means: (a) Any corporation 50 percent or more of the voting stock of which is owned directly or indirectly by Atlantic Richfield Company or a Subsidiary or Affiliate; or (b) Any partnership, joint venture or similar organization 50 percent or more of the profits interest or capital interest of which is owned directly or indirectly by Atlantic Richfield Company or a Subsidiary or Affiliate. 1.25 "Trust Agreement" means the agreement of trust between the Trustee and Atlantic Richfield Company to hold contributions from the Company, Deferrals and Member Contributions of Members, transfers and rollovers, and investments thereof and earnings thereon. 1.26 "Trustee" means the persons or corporations, or both, designated by the Trust Agreement. The duties and responsibilities of the Trustee shall be those set forth in the Trust Agreement. 1.27 "Valuation Date" means the date or dates established by the Administrator for the valuation of the assets of the Plan. In no event shall the assets of the Plan be valued less frequently than once each Plan Year. -6- SECTION 2 MEMBERSHIP - ELIGIBILITY 2.1 Membership ---------- (a) Elective Deferrals and Member Contributions - An Employee who is paid ------------------------------------------- on the United States dollar payroll of the Company may become a Member and make Elective Deferrals and/or Member Contributions on or after the Employee's date of employment. To become a Member, an Employee must enter into an Employee Contribution Agreement in accordance with Section 3. (b) Company Contributions - An Employee who is paid on a United States --------------------- dollar payroll of the Company shall be eligible for Matching Contributions with respect to Elective Deferrals on the earlier of (i) or (ii) below: (i) Completion of six months of Credited Company Service, or (ii) The end of any 12-consecutive-month period during which the Employee completes at least 1,000 Hours of Service. Such 12- consecutive-month period shall commence on the Employee's date of employment or any anniversary thereof. 2.2 Notice to Administrator ----------------------- The Company shall advise the Administrator as to the date an Employee becomes a Member. In the event that any question arises as to the eligibility of any Employee, the decision of the Administrator as to such Employee's eligibility shall be binding upon the Company, the Employees, the Members, the beneficiaries, and any and all other persons having or claiming any interest hereunder. 2.3 Membership Termination ---------------------- (a) An Employee's membership shall terminate upon: (i) Death, disability, dismissal, retirement or termination of employment for any other reason; (ii) Continuation of a Participant's employment with an acquiring corporation in conjunction with a sale to the acquiring corporation of substantially all of the assets used by the Company or any Subsidiary or Affiliate in a trade or business which such entity conducts; or -7- (iii) A disposition of the Company's interest in a Subsidiary or Affiliate when the Participant continues employment with such Subsidiary or Affiliate. (b) A Member may not voluntarily terminate membership in this Plan during active employment with the Company. (c) If a Member transfers to a Subsidiary or Affiliate which is not participating in this Plan, or to an employment classification excluded from Plan participation, the Member's eligibility to make Elective Deferrals and Member Contributions, and to receive Matching or nonelective Contributions shall cease, but the Member's Account shall not be distributed until the Member has terminated employment with Atlantic Richfield Company or all of its Subsidiaries or Affiliates or is involved in a sale described in Subparagraph 2.3(a)(ii) or (iii). 2.4 Member Suspension ----------------- If an Employee is a Member of a defined contribution plan of the Company (including the Predecessor Plans), or a Subsidiary or Affiliate, and the Elective Deferrals to such plan of the Company or Subsidiary or Affiliate are suspended at the time the Employee becomes eligible for membership in this Plan, the Elective Deferrals and Employee's Contributions to the Plan shall commence with the first full pay period beginning on or after the date on which such period of suspension then in effect under the plan of the Company, or the Subsidiary or Affiliate, ends. 2.5 Member Transfers ---------------- If a Member transfers to employment with a Subsidiary or Affiliate of the Company, which maintains a capital accumulation plan, the Member's Account shall be transferred to the capital accumulation plan of the Subsidiary or Affiliate in accordance with procedure established by the Administrator. 2.6 Capital Accumulation Plan Assets -------------------------------- (a) Upon the transfer of an Employee eligible to participate in the Plan from a Subsidiary or Affiliate, any assets maintained under a capital accumulation plan of such Subsidiary or Affiliate on behalf of such Employee will be transferred to the Plan in the same investment alternative under which held as of the transfer date, and such transferred assets will be subject to the reinvestment provisions under Paragraph 6.4, except as provided herein: (i) Any assets transferred on behalf of a Member which have been invested in Common Stock of a Subsidiary or Affiliate in the subaccount attributable to the Member's Deferrals or Member -8- Contributions under the capital accumulation plan of a Subsidiary or Affiliate will remain so invested, with future dividends being reinvested in such stock under the Member's Account, absent the Member's direction to reinvest such assets pursuant to Paragraph 6.4 of the Plan; provided, however, that any assets converted from the Common Stock of a Subsidiary or Affiliate to another investment alternative under the Plan may not be reinvested in Common Stock of a Subsidiary or Affiliate. (ii) Any assets transferred on behalf of a Member which have been invested in the Common Stock of a Subsidiary or Affiliate in the subaccount attributable to Company Contributions under the capital accumulation plan of a Subsidiary or Affiliate, will remain so invested, with future dividends being reinvested in such stock under the Member's Account; provided, however, that the Member, unless the Employee is an officer of Atlantic Richfield Company, may elect to convert such assets to Atlantic Richfield Company Common Stock held under the ESOP Part of the Plan and any assets so converted may not be reinvested in the Common Stock of a Subsidiary or Affiliate. If the Member is an officer of Atlantic Richfield Company the Member may elect to convert such assets to Atlantic Richfield Company Common Stock held under the non-ESOP Part of the Plan and any assets so converted may not be reinvested in the Common Stock of a Subsidiary or Affiliate. This subparagraph does not apply to Atlantic Richfield Common Stock transferred to the Plan. (iii) Common Stock of a Subsidiary or Affiliate held by the Plan shall be subject to the sale and voting provisions of Section 6. (b) Upon the transfer to the Company from Prestige Stations, Inc., any assets maintained under the Prestige Stations, Inc. 401(k) Plan, on behalf of an Employee eligible to participate in the Plan, shall be converted to cash and transferred to a Rollover Account established for the Employee. -9- SECTION 3 MEMBERS' ELECTIVE DEFERRALS 3.1 Members' Elections ------------------ (a) Each Member who is an Employee may enter into an Employee Contribution Agreement with the Company providing for withholding of Elective Deferrals and/or Member Contributions from each of the Member's regular paychecks at a rate of one percent to 27 percent of the Member's Earnings, in whole percentages. An Employee Contribution Agreement shall remain in effect until changed by the Member, except as otherwise set forth in this Section 3. (b) A Member's election shall be made in the manner prescribed by the Administrator and shall include such information as the Administrator may require. A Member may change the Member's election with respect to the Member's rate of future contributions at any time by giving notice in such manner as is prescribed by the Administrator. Such changes shall be effective as soon as administratively feasible after the date of receipt of such notice by the Administrator, or its delegate. (c) The Company may limit or reduce its Employee Contribution Agreement with any Member at any time, on a nondiscriminatory basis, to the extent necessary to ensure compliance with the limitations of Paragraph 3.3, 3.4, 4.4 or 4.7. (d) A Member's Elective Deferrals and Member Contributions will be suspended as follows: (i) Upon the Member's transfer, other than on an approved leave of absence, to employment with: (1) A Subsidiary or Affiliate which is not participating in the Plan; or (2) Atlantic Richfield Company or any of its Subsidiaries or Affiliates in such foreign countries as the Company shall designate; the Member's Elective Deferrals and/or Member Contributions shall automatically be suspended while the Member remains in such employment. (ii) Upon the Member's transfer to an employee group of the Company that is not participating in the Plan. (iii) As described in Section 7. -10- 3.2 Contribution of Elective Deferrals and Member Contributions ----------------------------------------------------------- The Company shall pay to the Trustee on behalf of each Member the Elective Deferrals and Member Contributions elected by the Member. A Member's Elective Deferrals and Member Contributions shall be paid to the Trustee the earlier of the date such Elective Deferrals and Member Contributions can reasonably be segregated from the Company's general assets or the 15th day of the month following the month in which the Elective Deferrals and Member Contributions would have been paid to the Member. Elective Deferrals and Member Contributions may be paid to the Trustee in the following forms: (a) To the extent that a Member has directed pursuant to the Plan that his or her Elective Deferrals and/or Member Contributions be invested in an option other than Atlantic Richfield Common Stock, such Elective Deferrals and/or Member Contributions shall be paid to the Trustee in cash; (b) To the extent that a Member has directed pursuant to the Plan that his or her Elective Deferrals and/or Member Contributions be invested in Atlantic Richfield Company Common Stock under the Non-ESOP Part of the Plan, such Elective Deferrals and/or Member Contributions may be paid to the Trustee in cash, in shares of Atlantic Richfield Company Common Stock, or in any combination thereof; and (c) To the extent that a Member has directed pursuant to the Plan that his or her Elective Deferrals and/or Member Contributions be invested in Atlantic Richfield Company Common Stock under the ESOP Part of the Plan, such Elective Deferrals and/or Member Contributions may be paid to the Trustee in cash, in shares of Atlantic Richfield Company Common Stock, in the form of forgiveness of indebtedness on an Acquisition Loan from the Company to the Plan, or in any combination thereof. 3.3 Annual Dollar Limitation ------------------------ (a) A Member's Elective Deferrals for a calendar year, when considered together with the amount of salary reduction elected by the Member under any other plan meeting the requirement of (S)401(k) of the Code, may not exceed $10,000, as adjusted pursuant to Code (S)415(d). (b) Once a Member's Elective Deferrals reach the limitation described in Subparagraph 3.3(a), all subsequent deferrals will be suspended for the remainder of the calendar year. Elective Deferrals will automatically resume on the following January 1. Unless the Member elects to change the Elective Deferral percent according to Paragraph 3.1, Elective Deferrals will resume at the rate in effect on the suspension date. -11- (c) If a Member notifies the Administrator on or before March 31 after the close of a calendar year that the Member's total Elective Deferrals (within the meaning of (S)402(g)(3) of the Code) for such calendar year exceed the limitation of Subparagraph 3.3(a), the Administrator shall direct that such excess Elective Deferrals, plus any income and minus any loss allocable thereto for the calendar year, be distributed no later than the April 15 following notification to the Administrator. A Member is deemed to notify the Administrator of Elective Deferrals in excess of the limitation in Subparagraph 3.3(a) that arise by taking into account those Elective Deferrals made to the Plan or to any other Plan of the Company or a Subsidiary or Affiliate. (d) For purposes of Subparagraph 3.3(c), gain or loss allocable to excess Elective Deferrals shall be computed under the method used by the Plan to allocate gains and losses. 3.4 Actual Deferral Percentage Tests -------------------------------- The Plan shall comply with the requirements of (S)401(k)(3) of the Code, the regulations thereunder, including Treas. Reg. 1.401(k)-1(b) and Internal Revenue Service guidance in this regard, which provisions are incorporated herein by this reference. To the extent permitted by regulations, Matching Contributions described in Paragraph 4.1 and nonelective contributions described in Paragraph 4.8 may, at the discretion of the Administrator, be deemed Elective Deferrals for purposes of this Paragraph 3.4. Effective July 1, 1997, in determining whether the Plan satisfies the requirements of (S)401(k)(3) of the Code, the Plan shall use the prior-year testing method. 3.5 Distribution of Excess Contributions ------------------------------------ (a) If the average actual deferral percentage test of Paragraph 3.4 is not satisfied for a Plan Year, then the Excess Contributions, as defined below, and gain or loss allocable thereto, shall be distributed, to the extent required under Treasury regulations, no later than the last day of the Plan Year following the Plan Year for which the Excess Contributions were made. (b) Effective July 1, 1997, for purposes of this paragraph, Excess Contributions shall consist of the excess of the aggregate amount of Elective Deferrals made by or on behalf of the affected Highly Compensated Employees over the maximum amount of all such contributions permitted under the test of Paragraph 3.4. In reducing the excess contributions hereunder, the reduction shall be first applied to the Highly Compensated Employee with the highest percentage under Paragraph 3.4. If reductions are further required to comply with Paragraph 3.4, such reductions shall be applied to the Highly Compensated Employee with the next highest percentage, and so forth until the nondiscrimination test of Paragraph 3.4 is satisfied. The -12- aggregate amount of reductions determined in the preceding sentence shall be distributed, together with gain or loss allocable thereto, to the Highly Compensated Employees with the highest dollar amount of Elective Deferrals. The Elective Deferrals of the Highly Compensated Employee with the highest dollar amount of Elective Deferrals are reduced by the amount required to cause such Highly Compensated Employee's Elective Deferrals to equal the Elective Deferral amount of the Highly Compensated Employee with the next highest dollar amount of Elective Deferrals. If the total amount distributed to the Highly Compensated Employee is less than the total Excess Contribution, this process shall be repeated until the total Excess Contributions are distributed. (c) The gain or loss allocable to Excess Contributions shall be determined by multiplying the gain or loss allocable to the Member's Elective Deferrals for the Plan Year by a fraction, the numerator of which is the Excess Contributions made on behalf of the Member for the Plan Year, and the denominator of which is the sum of the Member's Account balances attributable to the Member's Elective Deferrals amounts on the last day of the Plan Year. 3.6 Make-Up Elective Deferrals and Member Contributions --------------------------------------------------- Notwithstanding any provision of the Plan to the contrary, Elective Deferrals and Member Contributions with respect to qualified military service may be made in accordance with (S)414(u) of the Code. -13- SECTION 4 COMPANY CONTRIBUTION 4.1 Matching Contribution --------------------- Subject to the provisions of Paragraphs 4.3 and 4.4, for each pay period, the Company shall pay to the Trustee a contribution on behalf of each Member equal to 160 percent of the Member's Elective Deferrals, including Elective Deferrals under Paragraph 3.6, for the pay period which do not exceed five percent of the Member's Earnings for the pay period. This contribution shall be made no later than 30 days following the date on which the related Member Deferrals are made, or as soon as administratively practicable, if later, and except for Members who have attained age 55, shall be made under the ESOP Part of the Plan. 4.2 Form of Contribution -------------------- Matching Contributions may be made in the form of cash, shares of Atlantic Richfield Company Common Stock, forgiveness of indebtedness on an Acquisition Loan from the Company to the Plan, or any combination of the foregoing. 4.3 Members Excluded From Contribution ---------------------------------- The Matching Contribution shall not be made on behalf of a Member described in one or more of the following subparagraphs: (a) A Member who is an officer of Atlantic Richfield Company; or (b) A Member whose base salary is more than $150,000 on an annualized basis. 4.4 Actual Contribution Percentage Test ----------------------------------- With respect to Member Contributions and Matching Contributions, the Plan shall comply with the requirements of (S)401(m)(2) of the Code, the regulations thereunder, including Treas. Reg. (S)1.401(m)-1(b) and Internal Revenue Service guidance in this regard, which provisions are incorporated herein by this reference. To the extent permitted by regulations, Elective Deferrals described in Paragraph 3.1 and nonelective contributions described in Paragraph 4.8 may, at the discretion of the Administrator, be taken into account in satisfying the requirements of this Paragraph 4.4. Effective July 1, 1997, in determining whether the Plan satisfies the requirements of Section 401(m)(2) of the Code, the Plan shall use the prior-year testing method. -14- 4.5 Distribution of Excess Aggregate Contributions ---------------------------------------------- (a) If the nondiscrimination tests of Paragraph 4.4 are not satisfied for a Plan Year, then the Excess Aggregate Contributions, as defined below, and any gain or loss allocable thereto, shall be distributed to the Member on whose behalf the Excess Aggregate Contributions were made no later than the last day of the Plan Year following the Plan Year for which such Excess Aggregate Contributions were made. Member Contributions shall be distributed before Matching Contributions. Notwithstanding the foregoing, to the extent otherwise required to comply with the requirements of (S)401(a)(4) of the Code and regulations thereunder, vested Matching Contributions may be forfeited. (b) Effective July 1, 1997, for purposes of this paragraph, Excess Aggregate Contributions shall consist of the excess of the amount of Member Contributions, Matching Contributions, and Elective Deferrals (to the extent not used to satisfy the average actual deferral percentage test of Section 3.4) made on behalf of the affected Highly Compensated Employees over the maximum amount of all such contributions permitted under the nondiscrimination tests under Paragraph 4.4. In reducing the Excess Aggregate Contributions hereunder, the reduction shall be first applied to the Highly Compensated Employee with the highest percentage under Paragraph 4.4. If reductions are further required to comply with Paragraph 4.4, such reductions shall be applied to the Highly Compensated Employee with the next highest percentage, and so forth until the nondiscrimination tests of Paragraph 4.4 are satisfied. The aggregate amount of reductions determined in the preceding sentence shall be distributed together with gain or loss allocable thereto, to the Highly Compensated Employees with the highest dollar amount of Member Contributions and Matching Contributions. The Member Contributions and Matching Contributions of the Highly Compensated Employee with the highest dollar amount of such contributions are reduced by the amount required to cause such Highly Compensated Employee's Member Contributions and Matching Contributions to equal the Member Contributions and Matching Contributions of the Highly Compensated Employee with the next highest dollar amount of such contributions. If the total amount distributed to the Highly Compensated Employee is less than the total Excess Aggregate Contribution, this process shall be repeated until the total Excess Aggregate Contributions are distributed. (c) The gain or loss allocable to Excess Aggregate Contributions shall be determined by multiplying the gain or loss allocable to such contributions by a fraction, the numerator of which is the Excess Aggregate Contributions on behalf of the Member for the Plan Year, and the denominator of which is the -15- sum of the Member's Account balances attributable to Excess Aggregate Contributions on the last day of the Plan Year. 4.6 Limitation On The Multiple Use Alternative ------------------------------------------ (a) The sum of the average actual deferral percentage of Highly Compensated Employees under Paragraph 3.4 and the average contribution percentage of Highly Compensated Employees under Paragraph 4.4 shall not exceed the "aggregate limit", as defined in (S)401(m)(9) of the Code and the regulations thereunder. (b) If the aggregate limit is exceeded, the average contributions percentage of the Highly Compensated Employees shall be reduced in accordance with the provisions of Paragraph 4.5. In lieu of reducing the average contribution percentage, the Administrator may reduce the average actual deferral percentage of the Highly Compensated Employees in accordance with the provisions of Paragraph 3.4. The reductions under this paragraph shall be made only to the extent necessary to comply with the restrictions on the multiple use of the alternative limitation within the meaning of Code (S)401(m)(9). 4.7 Section 415 Limitations ----------------------- (a) In addition to other limitations set forth in the Plan and notwithstanding any other provisions of the Plan, "annual additions" made to this Plan (and all other defined contribution plans required to be aggregated with the Plan under the provisions of (S)415 of the Code) shall not exceed an amount in excess of the limit set forth in such section of the Code. For purposes of calculating such limit under (S)415 of the Code, the "limitation year" shall be the calendar year. Elective Deferrals, Member Contributions and Matching Contributions in excess of the actual deferral and contribution percent tests of Sections 3.4 and 4.4 are considered annual additions even if corrected through distribution. (b) If the limitations described in (S)415(c) of the Code are exceeded for a Member for a limitation year, the excess will be eliminated as follows: (i) Provisions of any other defined contribution plans established by the Company or a Subsidiary or Affiliate which have caused the limits to be exceeded will be applied; provided, however, that if such other Plan is described in (S)401(k) of the Code, the provisions of the Plan in which the Member is active as of the last day of the limitation year shall be applied before the provisions of the Plan in which the Member is inactive. -16- (ii) Amounts attributable to after-tax contributions made by the Member to the Plan (or any other plan maintained by the Company or any Subsidiary or Affiliate) shall be paid to the Member. (iii) Amounts attributable to Elective Deferrals made by a Member to the Plan (or any other plan maintained by the Company or a Subsidiary or Affiliate) shall be paid to the Member. (iv) The excess, if any, will be held unallocated in a suspense account. The suspense account will be applied to reduce contributions for remaining Members in the limitation year, and each succeeding limitation year, if necessary. If a suspense account is in existence at any time during the limitation year pursuant to this subparagraph, it will not participate in the allocation of the investment gains and losses. (c) Prior to January 1, 2000, if the limitations described in (S)415(e) of the Code are exceeded for a Member for a limitation year, the excess will be eliminated by applying the provisions of the defined benefit plan in which the Member participates. 4.8 Nonelective Contributions ------------------------- (a) The Administrator, in its sole discretion, may make a nonelective contribution to the Accounts of certain Members who are not highly compensated to the extent necessary to satisfy the requirement of Paragraph 3.4 and/or 4.4 of the Plan, or to assist the Plan or any other plan of the Company or any Subsidiary or Affiliate to satisfy the requirements of (S)410(b) of the Code. (b) A contribution under Subparagraph 4.8(a) shall be allocated to eligible Members in the ratio that the Earnings of each such Member for the Plan Year bears to the total Earnings of all such Member's for the Plan Year. (c) The Company shall make contributions necessary to reinstate Members' Accounts pursuant to Paragraph 10.8 of the Plan. (d) The Company may make contributions necessary to correct administrative errors relative to a Member's Account. 4.9 Exclusive Benefit ----------------- The corpus or income of the trust may not be divested to or used for other than the exclusive benefit of the Members and their beneficiaries and to defray reasonable expenses of administering the Plan. -17- SECTION 5 FINANCED SHARES 5.1 Acquisition Loans ----------------- Atlantic Richfield Company, by action of its Treasurer, may direct the Trustee to incur Acquisition Loans from time to time to finance the acquisition of Atlantic Richfield Company Common Stock (Financed Shares) under the ESOP Part of the Plan or to repay a prior Acquisition Loan. For this purpose, an installment obligation incurred in connection with the purchase of Atlantic Richfield Company Common Stock shall be treated as an Acquisition Loan. An Acquisition Loan shall be for a specific term, shall bear a reasonable rate of interest, and shall not be payable on demand except in the event of default. An Acquisition Loan may be secured by a pledge of the Financed Shares so acquired (or acquired with the proceeds of a prior Acquisition Loan which is being refinanced). No other assets of the Plan may be pledged as collateral for an Acquisition Loan, and no lender shall have recourse against assets of the Plan other than Financed Shares remaining subject to pledge. If the lender is a "party in interest" [as defined in (S)3(14) of ERISA], the Acquisition Loan must provide that in the event of default, assets of the Plan may be transferred to the lender only upon, and to the extent of, the failure of the Plan to meet the payment schedule of the Acquisition Loan. Any pledge of Financed Shares must provide for the release of the shares so pledged as payments on the Acquisition Loan are made by the Trustee and such Financed Shares are allocated to Members' Accounts under Paragraph 5.2. Payments of principal and/or interest on any Acquisition Loan shall be made by the Trustee, as directed by the Company, only from: (a) Company Contributions paid in cash to enable the Plan to make payments on such Acquisition Loan [including Elective Deferrals and Member Contributions, to the extent that Members have directed pursuant to the Plan that such Elective Deferrals and/or Member Contributions be invested in shares of Atlantic Richfield Company Common Stock under the ESOP Part of the Plan] and earnings attributable thereto; (b) the proceeds of any Acquisition Loan and the earnings attributable thereto; and (c) any cash dividends received by the Plan on the Financed Shares purchased with the proceeds of such Acquisition Loan. The payments made with respect to an Acquisition Loan for a Plan Year must not exceed the sum of such Matching Contributions, Elective Deferrals, Member Contributions, proceeds, earnings, and dividends for that Plan Year and prior Plan Years, as reduced by the amount applied to make such payments in prior Plan Years. As directed by Atlantic Richfield Company, the Trustee also may sell any Financed Shares that have not yet been allocated to Members' Accounts and use the proceeds from such sale to pay principal and/or interest on the Acquisition Loan used to acquire such shares. -18- 5.2 Payments on Acquisition Loan ---------------------------- The acquisition of Atlantic Richfield Company Common Stock with the proceeds of an Acquisition Loan may be made on the open-market, or from the Company, in a single purchase or a series of purchases over a period of time. Prior to use for such purchase or purchases, the Acquisition Loan proceeds may be invested by the Trustee (as directed by Atlantic Richfield Company) in interest-bearing accounts or instruments. Interest derived therefrom shall be applied to make payments on the Acquisition Loan, or, if the Acquisition Loan has been repaid in full, shall be allocated as of the last day of the Plan Year among the Accounts of all Members who have not terminated membership pursuant to Paragraph 2.3 as of such date in proportion to their Earnings for the Plan Year. All Financed Shares acquired by the Plan shall initially be credited to a loan suspense account, and will be allocated to the Members' Accounts only as payments on the Acquisition Loan are made. Release from the loan suspense account for allocation to Members' Accounts in each Plan Year shall be based on shares of stock or other non-monetary units, rather than by dollar amount, and shall not be less than the number calculated as follows: (a) The number of Financed Shares held in the loan suspense account immediately before the release in the current Plan Year shall be multiplied by a fraction, the numerator of which is the amount of principal and interest paid on the Acquisition Loan for that Plan Year, and the denominator of which is the sum of the numerator plus the total payments of principal and interest on that Acquisition Loan projected to be paid for all future Plan Years. For this purpose, the interest to be paid in future Plan Years is computed by using the interest rate in effect as of the last day of the current Plan Year. (b) In lieu of the method described in Subparagraph 5.2(a), the Company may elect (as to each Acquisition Loan) or the provisions of the Acquisition Loan may provide for the release of Financed Shares from the loan suspense account based solely on the ratio that the payments of principal for each Plan Year bear to the total principal amount of the Acquisition Loan. This method may be used only if: (i) the Acquisition Loan provides for annual payments of principal and interest at a cumulative rate that is not less rapid at any time than level annual payments of such amounts for ten years; (ii) interest included in any payment on the Acquisition Loan is disregarded only to the extent that it would be determined to be interest under standard loan amortization tables; and (iii) the entire duration of the Acquisition Loan repayment period does not exceed ten years, even in the event of a renewal, extension, or refinancing of the Acquisition Loan. As of each date that payments (other than payments with the proceeds of a new Acquisition Loan) are made on an Acquisition Loan, the Financed Shares released -19- from the loan suspense account shall be allocated to Members' Accounts in proportion to the amounts debited from each Member's Account to make the Acquisition Loan payments. -20- SECTION 6 INVESTMENT OF MEMBERS' AND FORMER MEMBERS' ACCOUNTS 6.1 Members' and Former Members' Accounts ------------------------------------- The Administrator shall establish and maintain an Account in the name of each Member and Former Member. Separate records shall be maintained with respect to the portion of a Member's or Former Member's Account attributable to Elective Deferrals, Member Contributions, rollovers under Section 13, Matching Contributions, and earnings thereon. 6.2 Investment of Elective Deferrals, Member Contribution, Rollovers and -------------------------------------------------------------------- Certain Matching Contributions ------------------------------ (a) In accordance with procedures established by the Administrator, the following amounts shall be invested by the Trustee among the investment alternatives authorized by the Administrator in the proportion indicated by the Member or Former Member in his or her investment directions provided to the Administrator, or its delegate: (i) Elective Deferrals; (ii) Member Contributions; (iii) Rollovers; (iv) Matching Contributions pursuant to Subparagraph 6.3(b); and (v) Matching Contributions to the Atlantic Richfield Savings Plans II and III made prior to July 1, 1988. (b) Notwithstanding anything in the Plan to the contrary, the Trustee may limit the daily volume of purchases or sales of Atlantic Richfield Common Stock to the extent it believes such action to be in the best interest of Members or Former Members. 6.3 Investment of Company Contributions ----------------------------------- (a) Except as provided in Subparagraph 6.3(b), all Matching Contributions and nonelective contributions pursuant to Subparagraph 4.8(a), and any amounts of interest attributable to the proceeds of an Acquisition Loan allocated to Members' or Former Members' Accounts pursuant to Paragraph 5.2 after the Acquisition Loan has been repaid in full, shall at all times be invested in Atlantic Richfield Company Common Stock under the ESOP Part of the Plan. Contributions under Paragraph 4.1 made in cash shall be applied to purchase shares of Atlantic Richfield Company Common Stock or to make payments on an Acquisition Loan within a reasonable time after being paid to the Trustee or after being allocated to Members' or Former Members' Accounts. -21- (b) A Member or Former Member who has attained age 55 may invest Company Contributions in any of the investment alternatives set forth in Paragraph 6.2. 6.4 Member or Former Member Direction Of Investments ------------------------------------------------ In accordance with procedures established by the Administrator, each Member or Former Member may direct how his or her Account is to be invested among the available investment funds. In the event a Member or Former Member fails to make an investment election, with respect to all or any portion of his or her Account, the Trustee shall invest all or such portion of his or her Account in the investment fund to be designated by the Administrator. Under procedures established by the Administrator, a Member or Former Member may change his or her investment election, with respect to future contributions and amounts previously accumulated in the Member's or Former Member's Account. Any such change in a Member's or Former Member's investment election shall be effective at such time as may be prescribed by the Administrator. 6.5 Allocation of Investment Experience ----------------------------------- As of each Valuation Date, the investment funds of the Trust, other than shares of Company Common Stock, shall be valued at fair market value, and the income, loss, appreciation and deprecation (realized and unrealized), and any paid expenses of the Trust attributable to such fund shall be apportioned among Member's or Former Member's Accounts within the fund based upon the value of each Account within the fund as of the preceding Valuation Date. 6.6 Manner and Time of Debiting Distributions ----------------------------------------- For any Member or Former Member who is entitled to receive a distribution from his or her Account, the amount distributed shall be based upon the fair market value of the Member's or Former Member's Account as of the Valuation Date immediately preceding the distribution. 6.7 Title of Investments -------------------- All investments will be held in the name of the Trustee or its nominees. 6.8 Voting of Investments --------------------- Except as provided in Paragraph 6.9, the Trustee in accordance with the Trust Agreement, shall exercise all voting and other rights associated with any investments held in the Plan. -22- 6.9 Voting of Atlantic Richfield Company Common Stock ------------------------------------------------- (a) The Trustee shall vote whole shares of Atlantic Richfield Company Common Stock credited to each Member's or Former Member's Account in accordance with such Members' or Former Members' written instructions. Fractional shares of Atlantic Richfield Company Common Stock shall be aggregated into whole shares of stock and voted by the Trustee, to the nearest whole vote, in the same proportion as shares are to be voted by the Trustee pursuant to Members' or Former Members' written instructions. In the absence of voting instructions by one or more Members or Former Members, the Trustee shall vote uninstructed shares, to the nearest whole vote, in the same proportion as shares are to be voted by the Trustee pursuant to Members' or Former Members' written instructions. The Trustee shall vote unallocated shares, to the nearest whole vote, in the same proportion as allocated shares are to be voted by the Trustee pursuant to Members' or Former Members' written instructions. (b) The Trustee shall exercise rights other than voting rights attributable to whole shares of Atlantic Richfield Company Common Stock credited to each Member's or Former Member's Account in accordance with such Members' or Former Members' written instructions. Rights attributable to fractional shares of Company Common Stock (which for this purpose shall be aggregated into whole shares of stock) shall be exercised by the Trustee in the same proportion as rights which are exercised by the Trustee pursuant to Members' or Former Members' written instructions. In the absence of instructions by one or more Members or Former Members, the Trustee shall exercise uninstructed rights in the same proportion as rights which are to be exercised by the Trustee pursuant to Members' or Former Members' written instructions. The Trustee shall exercise rights attributable to unallocated shares in the same proportion as rights attributable to allocated shares which are to be exercised by the Trustee pursuant to Members' or Former Members' written instructions. Notwithstanding the foregoing, in the absence of directions, the Trustee shall not tender shares of Common Stock in the same proportion as shares are tendered pursuant to Member's or Former Member's written instructions. (c) The Trustee shall notify the Members or Former Members of each occasion for the exercise of voting rights and rights other than voting rights within a reasonable time before such rights are to be exercised. This notification shall include all the information that the Company distributes to shareholders regarding the exercise of such rights. 6.10 Allocation of Dividends on Atlantic Richfield Company Common Stock ------------------------------------------------------------------ (a) Any cash dividends declared on Atlantic Richfield Company Common Stock held in a Member's or Former Member's Account under the ESOP Part of -23- the Plan as of the record date for the dividend shall be paid in cash to the Member or Former Member (or, in the event of death, to the Member's or Former Member's beneficiary) on, or as soon as possible following, the payment date for the dividend. (b) Any cash dividends declared on Atlantic Richfield Company Common Stock held in a loan suspense account as of the record date for the dividend shall be used to make payments on the Acquisition Loan used to acquire the shares of stock held in such account. (c) Except as provided in Subparagraphs 6.10(a) and (b), all dividends or other distributions attributable to shares of Atlantic Richfield Company Common Stock shall be allocated to the Account of the Member or Former Member whose Account is credited with such shares. 6.11 Investment Advisory Fees ------------------------ The investment advisory fees, if any, incurred for management of any of the investment funds are charged to each respective fund. 6.12 Member or Former Member Protection ---------------------------------- No shares of Atlantic Richfield Company Common Stock held by the ESOP Part of the Plan may be subject to a put, call or other option, or buy/sell or similar arrangement. The provisions of this Paragraph 6.12 shall continue to be applicable to the shares of Atlantic Richfield Company Common Stock held by the ESOP Part of the Plan even if such part ceases to be an Employee Stock Ownership Plan under (S)4945(e)(7) of the Code. 6.13 Confidentiality --------------- The Capital Accumulation Plan Administrative Committee shall be responsible for ensuring the adequacy of procedures established by the Administrator to safeguard the confidentiality of information relating to the purchasing, holding and selling of Atlantic Richfield Company Common Stock and any voting, tender or similar rights relating to such stock. -24- SECTION 7 WITHDRAWALS DURING EMPLOYMENT 7.1 Age 59 1/2 Withdrawal --------------------- A Member who has attained age 59 1/2 may request that all or a portion of the Member's Account be paid to the Member. The request must be made at such time and in such manner as prescribed by the Administrator. 7.2 Application and Basis for Hardship Withdrawal --------------------------------------------- (a) A Member may at any time request that the Member's Elective Deferrals (but not the earnings thereon) be paid to the Member due to financial hardship. The request must be made to the Administrator at such time and in such manner as prescribed by the Administrator and shall include such documentation and/or written explanation requested by the Administrator. (b) The Administrator shall authorize a withdrawal on account of financial hardship only upon making a written determination that the withdrawal does not exceed the amount of the immediate and heavy financial need of the Member, including amounts withheld for taxes and the amount of any early distribution taxes, if any, and that the withdrawal is based on the need for funds under one or more of the five following circumstances: (i) The payment of unreimbursable medical expenses described in (S)29(d) of the Code previously incurred by the Member, the Member's spouse, or any dependents of the Member (as defined in (S)152 of the Code) or necessary for these persons to obtain medical care; (ii) The payment of all or a portion of the purchase price (excluding mortgage payments) of a principal residence of the Member; (iii) The payment of tuition and related educational expenses for the next 12 months of post-secondary education for the Member, his or her spouse, children or dependents, as defined in Code (S)152; (iv) The need to prevent the eviction of the Member from his or her principal residence or foreclosure on the mortgage of the Member's principal residence; and (v) The need to satisfy a judgment of a federal, state or local court against the Member (such withdrawal will be permitted only if a written determination is made that such withdrawal is necessary in light of immediate and heavy financial need of the Member). (c) Hardship withdrawals shall be paid as follows: -25- (i) A hardship withdrawal shall be paid in a single payment to the Member within 60 days following the Administrator's favorable determination. (ii) A hardship withdrawal shall not cause a termination of Membership in the Plan. (d) As a condition to receiving the withdrawal: (i) The Member must have obtained all distributions and all nontaxable loans available as of the date of the withdrawal under this Plan and any other employee benefit plan maintained by the Company and any Subsidiary or Affiliate; (ii) The Member's contributions to the Plan and any other defined contribution or defined benefit employee pension benefit plan maintained by the Company and any Subsidiary or Affiliate are to be suspended for 12 months; and Elective Deferrals shall be suspended for the remainder of the calendar year in which the hardship distribution occurs and the calendar year immediately following such calendar year. 7.3 Partial Withdrawals of Member Contributions ------------------------------------------- (a) An application for partial withdrawal of funds attributable to Member Contributions must be in the form prescribed by the Administrator. Distribution will be made as soon as practicable after the date the application is received by the Administrator. (b) A Member may make the following partial withdrawals during employment with the Company; provided, that (i) partial withdrawals under this Paragraph 7.3 are made at not less than six-month intervals, and (ii) Member Contributions made prior to January 1, 1987, must be withdrawn prior to withdrawal of any other contributions and earnings: (i) Items in the Member's Account derived from Member Contributions, and earnings thereon (Member Contributions made prior to January 1, 1987 must be withdrawn first); (ii) Items in the Member's Account derived from Company Contribution to an ARCO Savings Plan made prior to July 1, 1988, and earnings thereon; and (c) In addition to the withdrawals described in Subparagraph 7.3(b), a Former Member of the Union Texas Petroleum Savings Plan for Salaried Employees (the "UTP Plan") whose account balance has been transferred -26- to the Plan and who has withdrawn all Member Contributions made to such plan prior to January 1, 1987, and earnings thereon, may withdraw the following amounts: (i) If the Member made elective deferrals to the UTP Plan for at least 60-consecutive months, all or a portion of the Member's Company Contributions, and earnings thereon, under the UTP Plan; and (ii) If the Member has not made elective deferrals for at least 60-consecutive months, Company Contributions under the UTP Plan and earnings thereon that have been held in the UTP Plan and this Plan for at least 24 months. -27- SECTION 8 PAYMENTS ON TERMINATION OF MEMBERSHIP OR OTHER REASONS 8.1 Termination of Membership ------------------------- (a) If a Member's membership in the Plan is terminated due to disability, termination of employment for any other reason except death, or as the result of a sale described in Subparagraphs 2.3(a)(ii) or (iii), the Member may receive all items in the Member's Account. Each Member shall be fully vested at all times in all items in the Member's Account, whether the same be derived from Elective Deferrals, Member Contributions, Company Contributions or rollovers, and earnings thereon. (b) Upon the election of the Member who has terminated membership, all items in such Member's Account shall be distributed to the Member. With respect to a Former Member who does not request a distribution: (i) Notwithstanding anything to the contrary in this Paragraph 8.1, a Former Member's Account shall be distributed in accordance with the provisions of Paragraph 8.7; (ii) In the case of the Former Member's death prior to final distribution, the Former Member's Account shall be distributed in accordance with Paragraph 8.2 of the Plan; and (iii) No loans or hardship withdrawals may be taken following termination of membership or disability. (c) Notwithstanding anything to the contrary in this Paragraph 8.1, all items in the Account of a Member who has terminated membership, and whose Account balance is $5,000 or less on the date of determination, shall be distributed as soon as administratively practicable following the Member's termination of membership, unless the Member elects an earlier distribution date. (d) Notwithstanding anything in the Plan to the contrary, when a Former Member elects to receive all items in the Former Member's Account and, in conjunction therewith, directs that items in his or her Account be converted pursuant to Paragraph 6.4, the conversion shall be transacted on the later of the first transaction date under the Plan following the Administrator's receipt of a request for distribution, or the date of termination. Distribution under this Paragraph 8.1 shall be made in accordance with the requirements of 409(h) of the Code in the form of cash, Company stock or a combination thereof, as elected by the Member. If the Member does not make an election hereunder, Company stock will be distributed in kind and -28- all other investment alternative shall be converted to cash. (e) Under procedures established by the Administrator, distributions under this Paragraph 8.1 may be made under any of the following forms of payment, or any combination thereof: (i) Lump sum distribution; (ii) Installment payments, not to exceed 20 years if a specific period is requested; or (iii) Partial withdrawals. 8.2 Death ----- (a) If a Member or Former Member dies and it is established to the Plan's satisfaction that the consent required under Subparagraph 8.2(c), either has been obtained or was not obtainable, all items in the Member's or former Member's Account shall be paid to the beneficiary or beneficiaries most recently designated by the Member or Former Member in such manner as prescribed by the Administrator. If no such designation shall have been made, or if all designated beneficiaries should die before the Member or former Member, payment shall be made to the Member's or former Member's estate. (b) Except as provided in Subparagraph 8.2(c), if a Member or former Member is survived by a spouse, all items in the Member's or former Member's Account shall be paid to the Member's spouse. (c) If a Member or former Member is survived by a spouse, all items in a Member's or former Member's Account shall be paid to the beneficiary or beneficiaries most recently designated by the Member or former Member in such manner as prescribed by the Administrator; provided, (i) the surviving spouse of the Member or former Member has irrevocably consented in writing to the designation of the specific beneficiary or beneficiaries, which designation may not be changed without spousal consent (or the spouse expressly permits designations by the Member or Former Member without any further spousal consent), such consent acknowledged the effect of the election and such consent was witnessed by a notary public, or (ii) it is established to the Plan's satisfaction that the consent required by Subparagraph 8.2(c)(i), could not be obtained because the surviving spouse could not be located or because of such other circumstances as the Secretary of Treasury may by regulation prescribe. Any consent necessary under this paragraph shall be effective only with respect to such spouse, or, in the event it is established that the consent may not be obtained, such designated spouse. A revocation of a prior designation may be made by a Member or Former Member without the consent of the spouse at any time prior to the Member's for Former Member's death. A consent that permits -29- designation by the Member or Former Member without any requirement for further consent by the spouse must acknowledge that the spouse has the right to limit consent to a specific beneficiary and that the spouse voluntarily elects to relinquish such right. (d) Payment under this Paragraph 8.2 may be made in any form of distribution permitted by Paragraph 8.1; provided, however, that all items in the Member's or Former Member's Account shall be paid no later than December 31 of the calendar year which contains the fifth anniversary of the date of the Member's death. Prior to distribution, the beneficiary shall have the rights of a Former Member under Section 6 and Paragraph 8.1; provided, however, that the beneficiary may not elect installments or partial withdrawals under Subparagraphs 8.1(e)(ii) and (iii) and any Atlantic Richfield Company Stocks held under the ESOP Part of the Plan shall be converted to non- ESOP Atlantic Richfield Common Stock. 8.3 Disability ---------- (a) A Member who is determined to be disabled may elect to receive a distribution of such Member's Account in accordance with Paragraph 8.1. (b) A Member is disabled if as a result of a medically determinable physical or mental impairment resulting from illness or injury the Member is unable to perform one or more of the substantial duties of the Member's normal work assignment with the Company or of any work assignment which the Company determines is available to the Member and for which the Member is reasonably qualified by education, training or experience to perform as determined by the Administrator after review by the entity designated by the Administrator. 8.4 Divorce ------- To the extent a Qualified Domestic Relations Order ("QDRO"), as defined in (S)414(p) of the Code, is received by the Plan, distributions from a Member's Account shall be made to an Alternate Payee, as defined in (S)414(p) of the Code, as soon as administratively possible following the determination of the order's qualified status. Prior to such distribution, Atlantic Richfield Common Stock in the ESOP Part of the Plan shall be converted to non-ESOP Atlantic Richfield Common Stock. 8.5 Rollover -------- (a) Notwithstanding anything in this Section 8 to the contrary, a distributee, as defined below, may elect, at a time and in the manner prescribed by the Administrator, to have all or a portion of a distribution under this Section 8, other than any Member Contributions and any amount required to be -30- distributed pursuant to (S)401(a)(9) of the Code, made payable to an eligible retirement plan. (b) For purposes of this Section 8, other than Paragraph 8.2, an eligible retirement plan is an individual retirement account or annuity described in (S)408(a) or (b) of the Code, an annuity plan described in (S)403(a) of the Code or a qualified trust described in (S)401(a) of the Code that accepts such distribution. For purposes of a distribution under Paragraph 8.2, an eligible retirement plan is an individual retirement account or annuity. (c) Distributee means an Member or Former Member, the surviving spouse of such Member or such Member's spouse or former spouse who is an alternate payee as defined in (S)414(p) of the Code. 8.6 Notice ------ With respect to a Former Member whose account exceeds $5,000, the Administrator shall provide the notice required by (S)1.411(a)-11(c) of Income Tax Regulations no less than 30 days and no more than 90 days before the Former Member's date of distribution; provided, however, that such distribution may commence less than 30 days after the required notice is given if: (a) The Former Member is informed of the Former Members' right to a period of at least 30 days after receiving the notice to consider distribution options; and (c) The Former Member, after receiving the notice, affirmatively elects a distribution. The distribution shall commence no earlier than seven days following the date the notice, described above, is provided to the Former Member. 8.7 Distributions ------------- (a) All distributions required under the Plan shall be determined and made in accordance with the proposed regulations under (S)401(a)(9) of the Code, including the minimum distribution incidental benefit requirement of (S)1.401(a)(9)-2 of the proposed regulations. (b) The entire interest of a Member must be distributed or begin to be distributed no later than the Member's required beginning date. The required beginning date of a Member is the later of the April 1 of the calendar year following the calendar year in which the Member attains age 70 1/2 or retires, except that benefit distributions to a five-percent owner must commence by the April 1 of the calendar year following the calendar year in which the Member attains age 70 1/2. -31- (c) As of the first distribution calendar year, as defined below, distributions, if not made in a single-sum, may only be made over one of the following periods (or a combination thereof): (i) The life of the Member; (ii) The life of the Member and a designated beneficiary; (iii) A period certain not extending beyond the life expectancy of the Member; or (iv) A period certain not extending beyond the joint and last survivor expectancy of the Member and a designated beneficiary. (d) The amount required to be distributed for each calendar year, beginning with distributions for the first distribution calendar year, as defined below, must at least equal the quotient obtained by dividing the Member's entire Account as of the last Valuation Date in the calendar year preceding the distribution calendar year, by the applicable life expectancy. (e) The minimum distribution required for the Member's first distribution calendar year must be made on or before the Member's required beginning date as defined in Subparagraph 8.7(b). The minimum distribution for other calendar years, including the minimum distribution for the distribution calendar year in which the Member's required beginning date occurs, must be made on or before December 31 of that distribution calendar year. (f) If the Member dies after distribution of his or her interest has begun on or after the Member's required beginning date, as defined in Subparagraph 8.7(b), the remaining portion of such interest will continue to be distributed at least as rapidly as under the method of distribution being used prior to the Member's death. (g) If the Member dies before distribution of his or her interest begins, distribution of the Member's entire interest shall be completed by December 31 of the calendar year containing the fifth anniversary of the participant's death. (h) The life expectancy (or joint and last survivor expectancy) shall be calculated in accordance with Treasury regulations. Life expectancies shall be recalculated annually. (i) The distribution calendar year is a calendar year for which a minimum distribution is required. For distributions beginning before the Member's death, the first distribution calendar year is the calendar year immediately preceding the calendar year which contains the Member's required beginning date. -32- 8.8 Distribution of Benefits ------------------------ The distribution of benefits under this Plan to a Member who has elected to receive such benefits shall be made not later than the 60th day after the latest of the close of the Plan Year in which (a) the Member attains age 65 or such earlier normal retirement age as may be specified in this Plan; (b) there occurs the tenth anniversary of the year in which the Member commenced membership in this Plan; or (c) the Member's service with the Company is terminated. -33- SECTION 9 LOANS TO MEMBERS 9.1 General ------- A Member, or a Former Member who is a Party-In-Interest as defined in Section 3(14) of ERISA, may borrow from his or her Account in accordance with the terms and conditions set forth in this Section 9 and such additional rules, consistent with such terms and conditions, which the Administrator may establish from time to time. 9.2 Eligibility ----------- To be eligible to apply for and receive a loan, the Member must be in receipt of regular Earnings. The loan shall be irrevocable upon the earlier of: (a) Endorsement of the check representing the loan proceeds, or (b) Expiration of ten days from issuance of such check. 9.3 Loan Amount ----------- (a) The maximum loan shall be the lesser of one half of the Member's Account or $50,000 (reduced by the highest balance, at any specific time, of any outstanding loan or loans during the preceding 12 months from this Plan). (b) A loan must be in cash, in increments of $100 and in an amount not less than $1,000. (c) The maximum loan amount shall be reduced to the extent necessary to prevent each installment of the loan payment, including principal and interest, when added to installments under any outstanding loan under the Plan, from exceeding 25 percent of a Member's biweekly earnings. (d) The loan amount may not exceed the lesser of (i) the amount of the Member's Contributions, Elective Deferrals and Company Contributions under the Atlantic Richfield Savings Plans II and III made prior to July 1, 1988 (excluding assets which originated in the Atlantic Richfield Employee Stock Ownership Plan), Matching Contributions under the Union Texas Petroleum Savings Plan for Salaried Employees, and earnings thereon at the time the loan is made, or (ii) the amount of the security, as described hereafter, for the loan. (f) For purposes of this Paragraph 9.3, the value of Common Stock, or any other investment alternative will be determined on the Valuation Date immediately preceding the date the loan application is received by the Administrator under rules established by the Administrator. -34- 9.4 Number of Loans --------------- A Member may have such number of loans outstanding at any time as shall be determined by the Administrator. 9.5 Interest Rate ------------- A loan shall bear interest at a rate established and communicated by the Capital Accumulation Plan Administrative Committee to provide the Plan with a rate of return commensurate with prevailing interest rates charged on similar commercial loans by persons in the business of lending money. 9.6 Security -------- (a) Each loan must be evidenced by a loan agreement executed by the Member for the amount of the loan, including principal and interest, payable to the order of the Trustee. (b) Security for the loans shall equal 50 percent of the assets in the Member's Account as of the date of the loan request. (c) The assets which constitute security for the loan will be valued on the date of the loan agreement, or at such other time as may be determined by the Administrator. 9.7 Funding of the Loan ------------------- (a) The loan will be funded in accordance with procedures established by the Administrator. (b) Under procedures established by the Administrator, investment alternatives shall be sold to fund the loan. 9.8 Repayment of the Loan --------------------- (a) As determined by the Member, but subject to the restriction in Subparagraph 9.3(c), a loan may be repaid over a period of one, two, three, four or five years or, in the case of a loan used to acquire the Member's principal residence, such longer term as determined by the Administrator and permitted under (S)72(p) of the Code. (b) Principal and interest shall be amortized, on a level basis, over the term of the loan. (c) Except as provided below, payments shall be made by means of payroll deductions, the authorization of which shall be irrevocable. -35- (i) The loan may be repaid in full at any time without penalty. (ii) If a Member is not in receipt of regular Earnings sufficient to permit repayment of the loan, or has terminated employment, repayment shall be made by means prescribed by the Administrator. Repaid principal and interest shall be credited in accordance with the Member's election under Paragraph 6.2. 9.9 Deemed Distribution ------------------- A distribution of the unpaid principal shall be deemed to have been made to the Member if the Member fails to make payment under Subparagraph 9.8(c) for a period of 90 days. 9.10 Default ------- If the Member is not in receipt of regular Earnings sufficient to permit repayment of the loan and does not make manual repayments for a period exceeding 90 days, the loan will be deemed in default and the Administrator will realize on the security in accordance with applicable laws. -36- SECTION 10 ADMINISTRATION CAPITAL ACCUMULATION PLAN ADMINISTRATIVE COMMITTEE 10.1 Capital Accumulation Plan Administrative Committee -------------------------------------------------- The Plan shall be administered by a Capital Accumulation Plan Administrative Committee. The Committee shall consist of the Senior Vice President, Human Resources of Atlantic Richfield Company, who shall serve as Chairperson, and not less than two other persons appointed by the Chairperson. Members of the Committee shall serve without compensation. Vacancies shall be filled by the Chairperson or the Chairperson's delegate. 10.2 Rules of Conduct ---------------- The Capital Accumulation Plan Administrative Committee shall adopt such rules for the conduct of its business and administration of this Plan as it considers desirable; provided, they do not conflict with this Plan. 10.3 Legal, Accounting, Clerical --------------------------- The Capital Accumulation Plan Administrative Committee may authorize one or more of its members or any agent to act on its behalf and may contract for legal, accounting, clerical and other services to carry out this Plan. Unless paid by the Company, all expenses of the Company, the Administrator and the Plan shall be paid by the Plan, to the extent they constitute reasonable expenses of administering the Plan. The Plan may reimburse expenses paid directly by the Company or its designee. This provision shall be deemed a part of any contract to provide for expenses of Plan administration, whether or not the signatory to such contract is, as a matter of convenience, the Company or its designee. Notwithstanding the foregoing, brokerage commissions, transfer fees and other expenses actually incurred in any sale or purchase of Company Common Stock shall be equitably added to the cost or subtracted from the proceeds of all purchases or sales. 10.4 Interpretation of Provisions ---------------------------- The Capital Accumulation Plan Administrative Committee shall have full discretion and final authority to determine eligibility for benefits and to interpret the provisions of this Plan, to decide questions arising in its administration, and to establish such other rules for its administration as may be desirable. 10.5 Records of Administration ------------------------- The Capital Accumulation Plan Administrative Committee shall keep records reflecting the administration of this Plan which shall be subject to audit by the -37- Company. Members may examine records pertaining directly to themselves. At least annually, the Capital Accumulation Plan Administrative Committee shall have mailed to each Member a statement of his or her Account and such statement shall be deemed to have been accepted as correct for all purposes of this Plan unless written notice to the contrary is received by the Capital Accumulation Plan Administrative Committee or the Trustee within 30 days after the date of mailing. 10.6 Claims for Benefits ------------------- Applications for benefits must be made in such manner as prescribed by the Administrator. The Administrator shall have full discretion and final authority to determine eligibility for benefits and to construe the terms of the Plan in acting upon an initial application for benefits or an appeal of a denial of an application for benefits. Each application shall be acted upon and approved or disapproved within 90 days following its receipt by the Administrator. In the event special circumstances require an extension of time for reviewing the initial application for benefits, the Administrator shall make a determination as soon as practicable but no later than 180 days following receipt of the application. If any application for benefits is denied, in whole or in part, the Administrator shall notify the applicant in writing of such denial and of the applicant's right to a review by the Administrator and shall set forth in a manner calculated to be understood by the applicant, specified reasons for such denial, specific references to pertinent Plan provisions on which the denial is based, a description of any additional material or information necessary for the applicant to perfect the application, an explanation of why such material or information is necessary, and an explanation of the Plan's review procedure. Any person, or a duly authorized representative thereof, whose application for benefits is denied in whole or in part, may appeal from such denial to the Administrator for a review of the decision by submitting to the Administrator within 60 days after receiving notice of denial, a written statement: (a) Requesting a review of the application for benefits by the Administrator; (b) Setting forth all of the grounds upon which the request for review is based and any facts in support thereof; and (c) Setting forth any issues or comments which the applicant deems relevant to the application. The Administrator shall act upon each such appeal application within 60 days after the later of receipt of the applicant's request for review by the Administrator or receipt of any additional materials reasonably requested by the Administrator from such applicant. In the event special circumstances require an extension of time for reviewing the appeal, the Administrator shall make a determination as soon as practicable but no later than 120 days following receipt of the appeal. -38- The Administrator shall make a full and fair review of each such application and any written materials submitted by the applicant or the Company in connection therewith and may require the Company or the applicant to submit within 30 days of written notice by the Administrator therefor, such additional facts, documents, or other evidence as the Administrator, in its sole discretion, deems necessary or advisable in making such a review. The Administrator shall have full discretion in making an independent determination of the applicant's eligibility for benefits under the Plan and shall have full discretion to construe the terms of the Plan in making its review. The decision of the Administrator on any application for benefits shall be final and conclusive upon all persons. If the Administrator denies an application in whole or in part, the Administrator shall give written notice of its decision to the applicant setting forth in a manner calculated to be understood by the applicant the specific reasons for such denial and specific references to the pertinent Plan provisions on which the Administrator's decision was based. 10.7 Liability of Committee ---------------------- No Member of the Capital Accumulation Plan Administrative Committee shall be liable for any action taken in good faith or for the exercise of any power given the Capital Accumulation Plan Administrative Committee, or for the actions of other members of said Committee unless and except to the extent that such liability is imposed under law as a result of a breach by such Member of his or her fiduciary responsibilities. 10.8 Unlocated Member ---------------- If the Committee is unable, after reasonable and diligent effort, to locate a Member, Former Member or beneficiary entitled to payment under the Plan, such payment may be forfeited and used to offset Company Contributions or to pay Plan expenses. If the Member, Former Member or beneficiary later files a claim for benefit, such benefit will be reinstated. 10.9 Legal Representative -------------------- The Capital Accumulation Plan Administrative Committee shall act on behalf of the Plan with respect to any claim or cause of action, whether arising in the course of administrative or judicial proceedings or otherwise, and shall be responsible for initiating, pursuing and defending any such claim or cause of action involving the Plan. -39- SECTION 11 AMENDMENTS, DISCONTINUANCE, LIABILITIES 11.1 Amendment ---------- The Plan may be amended, as follows, provided that the Plan, as amended, continues to be for the exclusive benefit of the Members of the Plan and that no amendment shall reduce the Account of any Member as of the date of such amendment: (a) The Board of Directors of Atlantic Richfield Company shall have the sole power to amend the Plan with respect to any change that (i) reduces or may reduce, as determined by the Plan counsel, the future Member or Company Contribution to the Plan, in any manner, except to the extent legally required, as determined by the Plan counsel; (ii) increases or may increase, as certified by the Plan actuary, Company or Plan expense by an amount exceeding $10 million; and (iii) although within the amendment power of the ARCO Benefits Committee, has been determined by the Benefits Committee to be appropriate for decision by the Board of Directors. (b) Except as provided in Subparagraph 11.1(a), the ARCO Benefits Committee shall have the power to amend the Plan under the following circumstances: (i) Any legally required change, as determined by the Plan counsel. (ii) Any change which is the subject of a collective bargaining agreement. (iii) Any change which is determined by the Administrator, with concurrence of the Plan counsel, to be primarily intended to improve administrative efficiency. (iv) Any change that is the subject of an agreement to which the Company is a party and which pertains to an acquisition, divestiture or similar corporate transaction. (v) Any change which is a consequence of a legally required limitation, as determined by the Plan counsel, affecting the dollar amount or type of contributions or benefits available under the Plan. (vi) Any change which is made in conjunction with a transfer of assets and/or liabilities or merger or spin-off of assets and/or liabilities among plans of the Controlled Group of companies (or former members of such Controlled Group in conjunction with the entity -40- ceasing to be a Member of the Controlled Group) of which the Company is a member, as defined in Section 1563 of the Code. 11.2 Termination ----------- Atlantic Richfield Company intends to continue this Plan indefinitely but reserves the right to terminate it at any time, by action of its Board of Directors. If this Plan is terminated, or if there is a complete discontinuance of contributions under this Plan by the Company, all amounts credited to Accounts of Members shall be held for distribution as provided in Section 8. 11.3 Liability of Company -------------------- The Company shall have no liability for payments under this Plan except to make the contributions required by Section 4. Any payments under the Plan shall be made solely from the fund held by the Trustee. -41- SECTION 12 MISCELLANEOUS 12.1 Employment ---------- This Plan shall not give any Member any right to be continued in the employment of the Company. 12.2 Benefits Not Assignable ----------------------- Except as provided in Paragraph 8.4, no benefit under this Plan shall be assignable or transferable in whole or in part, either directly or by operation of law or otherwise, and shall not be subject to attachment or other process. 12.3 Discharge of Liability ---------------------- If the Administrator deems any person incapable of receiving benefits to which such person is entitled under this Plan, by reason of minority, illness, infirmity, mental incompetency or other incapacity, it may direct the Trustee to make payment directly for the benefit or the account of such person or to any eligible person selected by the Administrator to disburse such payment whose receipt shall be a complete settlement therefor. 12.4 Governing Laws -------------- The Plan shall be governed by and construed in accordance with federal laws governing employee benefit plans qualified under the Code or with the laws of the State of Delaware to the extent not preempted by federal law. 12.5 Limitation on Mergers --------------------- This Plan may not merge or consolidate with, or transfer any of its assets or liabilities to any other plan unless each Member in this Plan would, if said other plan were to terminate, receive a benefit immediately after the merger, consolidation or transfer which is equal to or greater than the benefit such Member would have been entitled to receive immediately before the merger, consolidation or transfer if this Plan had terminated. 12.6 Delegation of Fiduciary or Administrative Responsibilities ---------------------------------------------------------- Atlantic Richfield Company, by resolution of its Board of Directors or by written action of any officer generally or specifically named by such a resolution to take such an action, and the Capital Accumulation Plan Administrative Committee, by resolution of said Committee, may at any time delegate to any other named person or body, or reassume therefrom, any of their respective fiduciary responsibilities or administrative duties with respect to this Plan, including the power to delegate and -42- reassume such responsibilities and duties by written action naming the person or body to whom the responsibility has been delegated. However, only the immediate delegate of Atlantic Richfield Company, the Capital Accumulation Plan Administrative Committee, or of the Treasurer of Atlantic Richfield Company, as the case may be, may, if so authorized by Atlantic Richfield Company, said Committee or said Treasurer, delegate any such responsibilities or duties. 12.7 Named Fiduciary --------------- The named fiduciary with respect to this Plan is Atlantic Richfield Company except that (a) as to any matter specified in this Plan as being the responsibility or function of the Capital Accumulation Plan Administrative Committee, the named fiduciary is said Committee, (b) as to any matter specified in the Plan or in the Trust Agreement as being the responsibility or function of the Trustee or the Investment Officer, the named fiduciary is the Trustee or the Investment Officer, as the case may be, and (c) as to any matter specified in the Plan as being the responsibility or function of the Treasurer of Atlantic Richfield Company, the named fiduciary is such Treasurer. -43- SECTION 13 ROLLOVERS 13.1 Rollovers from Other Qualified Plans ------------------------------------ An Employee who has had distributed to the Employee all or a portion of his or her taxable interest in a plan meeting the requirements of (S)401(a) of the Code, including a defined benefit retirement plan of the Company or a Subsidiary or Affiliate, (the "Other Plan") may, in accordance with procedures approved by the Capital Accumulation Plan Administrative Committee, rollover in cash all or a portion of the taxable distribution received from the Other Plan to the Plan, provided the following conditions are met: (a) The rollover occurs on or before the 60th day after the Member receives the distribution from the Other Plan; (b) The distribution from the Other Plan qualifies as an eligible rollover distribution within the meaning of (S)402(c)(4) of the Code; and (c) The amount rolled over does not exceed the maximum amount which may be rolled over in accordance with (S)402(c)(2) of the Code. 13.2 Transfers From Individual Retirement Accounts --------------------------------------------- An Employee who receives a distribution from an individual retirement account described in (S)408(a) of the Code or an individual retirement annuity described in (S)408(b) of the Code which constitutes the entire amount of such account or annuity (including earnings thereon), and no portion of which is attributable to any source other than a distribution from a qualified plan described in Paragraph 13.1, may, in accordance with procedures approved by the Capital Accumulation Plan Administrative Committee, rollover in cash all or a portion of such distribution to the Plan, within 60 days after receiving the distribution. 13.3 Membership ---------- Notwithstanding anything in the Plan to the contrary, an Employee who rolls over funds to the Plan pursuant to Paragraph 13.1 or 13.2, shall, upon such rollover, become a Member of the Plan except that the right to make Elective Deferrals, Member Contributions or receive Company Contributions will remain subject to Paragraph 2.1. 13.4 Administration -------------- The Administrator shall develop such procedures, including procedures for obtaining information from an Employee desiring to make such a transfer, as it deems necessary or desirable to enable it to determine that the proposed rollover -44- will meet the requirements of this section. Upon approval by the Capital Accumulation Plan Administrative Committee, the rollover shall be deposited with the Trustee in the Employee's Rollover Account. -45- SECTION 14 TOP HEAVY PROVISIONS If the Plan is or becomes Top Heavy in any Plan Year, the provisions of this Section 14 will supersede any conflicting provisions in the Plan. 14.1 Definitions ----------- (a) Key Employee means an Employee, former Employee or an Employee's ------------ beneficiary who at any time during the determination period is: (i) An officer of the Company who has annual Compensation greater than 50 percent of the amount in effect under (S)415(b)(1)(A) of the Code for the Plan Year; (ii) One of the ten Employees owning (or considered as owning within the meaning of (S)318 of the Code) the largest interest in the Company; provided, such Employee's annual Compensation from the Company exceeds the dollar limitation under (S)415(c)(1)(A) of the Code. If two or more Employees have the same ownership interest, the Employee with the greater annual Compensation from the Company for the Plan Year shall be considered to own the larger interest in the Company; (iii) A five percent owner of the Company; or (iv) A one percent owner of the Company who has annual Compensation from the Company of more than $150,000. The determination period of the Plan is the Plan Year containing the Determination Date and the four preceding Plan Years. The determination of who is a Key Employee will be made in accordance with (S)416(i)(1) of the Code and the regulations thereunder. (b) Top Heavy Plan: For any Plan Year after December 31, 1983, this -------------- Plan is Top Heavy if any of the following conditions exist: (i) If the Top Heavy Ratio for this Plan exceeds 60 percent and this Plan is not part of any Required Aggregation Group or Permissive Aggregation Group of plans; (ii) If this Plan is a part of a Required Aggregation Group of plans (but which is not part of a Permissive Aggregation Group) and the Top Heavy Ratio for the group of plans exceeds 60 percent; or -46- (iii) If this Plan is a part of a Required Aggregation Group of plans and part of a Permissive Aggregation Group and the Top Heavy Ratio for the Permissive Aggregation Group exceeds 60 percent. (c) Top Heavy Ratio --------------- (i) If the Company maintains one or more defined contribution plans (including any Simplified Employee Pension Plan) and the Company has not maintained any defined benefit plan which during the five- year period ending on the Determination Date(s) has or has had accrued benefits, the Top Heavy Ratio for this plan alone or for the Required or Permissive Aggregation Group as appropriate is a fraction, the numerator of which is the sum of the account balances of all Key Employees as of the Determination Date(s) [including any part of any account balance distributed in the five-year period ending on the Determination Date(s)], and the denominator of which is the sum of all account balances [including any part of any account balance distributed in the five-year period ending on the Determination Date(s)], both computed in accordance with (S)416 of the Code and the regulations thereunder. Both the numerator and denominator of the Top Heavy Ratio are adjusted to reflect any contribution not actually made as of the Determination Date, but which is required to be taken into account on that date under (S)416 of the Code and the regulations thereunder. (ii) If the Company maintains one or more defined contribution plans (including any Simplified Employee Pension Plan) and the Company maintains or has maintained one or more defined benefit plans which during the five-year period ending on the Determination Date(s) has or has had any accrued benefits, the Top heavy Ratio for any Required or Permissive Aggregation Group as appropriate is a fraction, the numerator of which is the sum of account balances under the aggregated defined contribution plan or plans for all Key Employees, determined in accordance with Subparagraph 14.1(c)(i), and the Present Value of accrued benefits under the aggregated defined benefit plan or plans for all Key Employees as of the Determination Date(s), and the denominator of which is the sum of the account balances under the aggregated defined contribution plan or plans for all Members, determined in accordance with Subparagraph 14.1(c)(i), and the Present Value of accrued benefits under the defined benefit plan or plans for all Members as of the Determination Date(s), all determined in accordance with (S)416 of the Code and the regulations thereunder. The accrued benefits under a defined benefit plan in both the numerator and denominator of the Top Heavy Ratio are adjusted for any distribution of an accrued benefit made in the five-year period ending on the Determination -47- Date. (iii) For purposes of Subparagraphs 14.1(c)(i) and (c)(ii), the value of account balances and the Present Value of accrued benefits will be determined as of the most recent Valuation Date that falls within or ends with the 12-month period ending on the Determination Date except as provided in (S)416 of the Code and the regulations thereunder for the first and second Plan Years of a defined benefit plan. The account balances and accrued benefits of a Member (A) who is not a Key Employee but who was a Key Employee in a prior-year, or (B) effective January 1, 1985, who has not been credited with at least one Hour of Service with a Company maintaining the Plan at any time during the five-year period ending on the Determination Date will be disregarded. The calculation of the Top Heavy Ratio, and the extent to which distributions, rollovers and transfers are taken into account will be made in accordance with (S)416 of the Code and the regulations thereunder. Deductible Member Contributions will not be taken into account for purposes of computing the Top Heavy Ratio. When aggregating plans, the value of account balances and accrued benefits will be calculated with reference to the Determination Dates that fall within the same calendar year. (iv) The accrued benefit of a Member other than a Key Employee shall be determined under the method, (A) if any, that uniformly applies for accrual purposes under all defined benefit plans maintained by the Company, or (B) absent such method, as if such benefits accrued not more rapidly than the slowest accrued rate permitted under the fractional rule of (S)411(b)(1)(C) of the Code. (c) Permissive Aggregation Group: The Required Aggregation Group of ---------------------------- plans plus any other plan or plans of the Company which, when considered as a group with the Required Aggregation Group, would continue to satisfy the requirements of (S)401(a)(4) and (S)410 of the Code. (e) Required Aggregation Group means: -------------------------- (i) Each qualified plan of the Company in which at least one Key Employee participates or participated at any time during the determination period (regardless of whether the plan terminated); and (ii) Any other qualified plan of the Company which enables a plan described in Subparagraph 14.1(e)(i) to meet the requirements of (S)401(a)(4) or (S)410 of the Code. -48- (f) Determination Date means for any Plan Year the last day of the ------------------ preceding Plan Year. For the first Plan Year of the Plan, the last day of that year. (g) Valuation Date means December 31 of each year. -------------- (h) Present Value: Present Value shall be based on interest rate and ------------- the mortality tables specified in the Company's defined benefit plan. (i) Compensation means all compensation, as that term is defined for ------------ (S)415 purposes, but including amounts contributed by the Company pursuant to Employee Contribution Agreements which are excludable from the Employee's income under Code (S)125, (S)402(e)(3), (S)402(h) and (S)403(b). 14.2 Minimum Allocation ------------------ (a) Except as otherwise provided in Subparagraphs 14.2(b), (c) and (d), the Company Contribution allocated on behalf of any Member who is not a Key Employee shall not be less than the lesser of three percent of such Member's Compensation or in the case where the Company has no defined benefit plan which designates this Plan to satisfy (S)401 of the Code, the largest percentage of Company Contribution, as a percentage of the first $150,000 of the Key Employee's Compensation, allocated on behalf of any Key Employee for that year. The minimum allocation is determined without regard to any Social Security contribution. This minimum allocation shall be made even though, under other Plan provisions, the Member would not otherwise be entitled to receive an allocation, or would have received a lesser allocation for the year because of (i) the Member's failure to complete 1,000 Hours of Service, or (ii) the Member's failure to make mandatory Member Contributions to the Plan, or (iii) Compensation less than a stated amount. (b) The provision in Subparagraph 14.2(a), shall not apply to any Member who was not employed by the Company on the last day of the Plan Year. (c) If Members of this Plan are covered by one or more defined benefit plans maintained by the Company or its Subsidiaries, the minimum allocation or benefit requirements applicable to Top Heavy plans shall first be met by such defined benefit plan or plans. (d) If Members of this Plan are covered by one or more defined contribution plans maintained by the Company or its Subsidiaries, and are not covered by any defined benefit plans of the Company or its Subsidiaries, the minimum allocation requirement will be met by the defined contribution plan in which the Employee is an active Member in the following order: -49- 1. Money Purchase Pension Plan 2. Profit Sharing Plan, and 3. Stock Bonus Plan (e) For purposes of satisfying the minimum allocation requirements of this Paragraph 14.2, Elective Deferrals and Matching Contributions may not be taken into account. 14.3 The minimum accrued benefit required [to the extent required to be nonforfeitable under (S)416(b)] may not be suspended or forfeited under Code (S)411(a)(3)(B) or (S)411(a)(3)(D). 14.4 For any Plan Year in which the Plan is Top Heavy, only the first $150,000 (or such larger amount as may be prescribed by the Secretary of Treasury or the Secretary's delegate) of each Member's annual Compensation will be taken into account for purposes of determining benefits under the Plan. 14.5 In any Plan Year in which the Top Heavy Ratio exceeds 60 percent the denominators of the defined benefit fraction and defined contribution fraction [as previously defined in the Plan] shall be computed using 100 percent of the dollar limitation instead of 125 percent. The preceding sentence shall not apply to an Employee so long as there are no: (a) Company Contribution, forfeitures or voluntary nondeductible contributions allocated to such Employee, or (b) Accruals for such Employee under any qualified defined benefit plan. 14.6 In determining the highest rate of contribution applicable to any Key Employee, amounts that such Key Employee elects to defer under an arrangement qualified under (S)401(k) of the Code will be counted for the purposes of (S)416 of the Code. -50- ATLANTIC RICHFIELD CAPITAL ACCUMULATION PLAN To record the adoption of the amended and restated Atlantic Richfield Capital Accumulation Plan, effective March 15, 1999, the undersigned, being duly authorized to act on behalf of Atlantic Richfield Company has executed this plan document at Los Angeles, California on the 23 day of March, 1999. ATTEST: ATLANTIC RICHFIELD COMPANY BY: [Richard J. Anderson] BY: [John H. Kelly] --------------------------- ------------------------------- John H. Kelly Senior Vice President Human Resources -51- EX-10.2 5 AMENDED & RESTATED CH-TWENTY CAPITAL ACCUM. PLAN Exhibit 10.2 CH-Twenty, Inc. - -------------------------------------------------------------------------------- CH-TWENTY, INC. CAPITAL ACCUMULATION PLAN Amendment and Restatement Effective As Of March 15, 1999 CH-Twenty, Inc. CAPITAL ACCUMULATION PLAN TABLE OF CONTENTS -----------------
Page No. INTRODUCTION........................................................................ 1 Section 1 - DEFINITION - --------- 1.1 Acquisition Loan................................................... 2 1.2 Administrator...................................................... 2 1.3 Annual Earnings or Earnings........................................ 2 1.4 Capital Accumulation Plan Administrative Committee................. 2 1.5 Code............................................................... 2 1.6 Company............................................................ 2 1.7 Credited Company Service........................................... 2 1.8 Effective Date..................................................... 2 1.9 Elective Deferrals or Deferrals.................................... 2 1.10 Employee........................................................... 2 1.11 Employee Contribution Agreement.................................... 3 1.12 ERISA.............................................................. 3 1.13 Financed Shares.................................................... 3 1.14 Former Member...................................................... 3 1.15 Highly Compensated Employee........................................ 3 1.16 Hour of Service.................................................... 4 1.17 Matching Contributions............................................. 5 1.18 Member............................................................. 5 1.19 Member's Account or Account........................................ 5 1.20 Member Contributions............................................... 6 1.21 Plan or Plans...................................................... 6 1.22 Plan Year.......................................................... 6 1.23 Subsidiary or Affiliate............................................ 6 1.24 Trust Agreement.................................................... 6 1.25 Trustee............................................................ 6 1.26 Valuation Date..................................................... 6 Section 2 - MEMBERSHIP - ELIGIBILITY - --------- 2.1 Membership......................................................... 7 2.2 Notice to Administrator............................................ 7 2.3 Membership Termination............................................. 7 2.4 Member Suspension.................................................. 8 2.5 Member Transfers................................................... 8 2.6 Capital Accumulation Plan Assets................................... 8
i
Section 3 - MEMBERS' ELECTIVE DEFERRALS - --------- 3.1 Members' Elections................................................ 10 3.2 Contribution of Elective Deferrals and Member Contributions....... 11 3.3 Annual Dollar Limitation.......................................... 11 3.4 Actual Deferral Percentage Tests.................................. 12 3.5 Distribution of Excess Aggregate Contributions.................... 12 3.6 Make-Up Elective Deferrals and Member Contributions............... 13 Section 4 - COMPANY CONTRIBUTION - --------- 4.1 Matching Contribution............................................. 14 4.2 Form of Contribution.............................................. 14 4.3 Members Excluded From Contribution................................ 14 4.4 Actual Contribution Percentage Test............................... 14 4.5 Distribution of Excess Contributions.............................. 15 4.6 Limitation on the Multiple Use Alternative........................ 16 4.7 Section 415 Limitations........................................... 16 4.8 Nonelective Contributions......................................... 17 4.9 Exclusive Benefit................................................. 17 Section 5 - FINANCED SHARES - --------- 5.1 Acquisition Loans................................................. 18 5.2 Payments on Acquisition Loan...................................... 19 Section 6 - INVESTMENT OF MEMBERS' AND FORMER MEMBERS' ACCOUNTS - --------- 6.1 Members' and Former Members' Accounts............................. 21 6.2 Investment of Elective Deferrals,Member Contribution, Rollovers and Certain Matching Contributions.............................. 21 6.3 Investment of Company Contributions............................... 21 6.4 Member or Former Member Direction of Investments.................. 22 6.5 Allocation of Investment Experience............................... 22 6.6 Manner and Time of Debiting Distributions......................... 22 6.7 Title of Investments.............................................. 22 6.8 Voting of Investments............................................. 22 6.9 Voting of Atlantic Richfield Company Common Stock................. 23 6.10 Allocation of Dividends on Atlantic Richfield Company Common Stock.................................................... 24 6.11 Investment Advisory Fees.......................................... 24 6.12 Member or Former Member Protection................................ 24 6.13 Confidentiality................................................... 24 Section 7 - WITHDRAWALS DURING EMPLOYMENT - --------- 7.1 Age 59 1/2 Withdrawal............................................. 25 7.2 Application and Basis for Hardship Withdrawal..................... 25 7.3 Partial Withdrawals of Member Contributions....................... 26
ii
Section 8 - PAYMENTS ON TERMINATION OF MEMBERSHIP OR OTHER REASONS - --------- 8.1 Termination of Membership......................................... 27 8.2 Death............................................................. 28 8.3 Disability........................................................ 29 8.4 Divorce........................................................... 29 8.5 Rollover.......................................................... 29 8.6 Notice............................................................ 30 8.7 Distributions..................................................... 30 8.8 Distribution of Benefits.......................................... 32 Section 9 - LOANS TO MEMBERS - --------- 9.1 General........................................................... 33 9.2 Eligibility....................................................... 33 9.3 Loan Amount....................................................... 33 9.4 Number of Loans................................................... 34 9.5 Interest Rate..................................................... 34 9.6 Security.......................................................... 34 9.7 Funding of the Loan............................................... 34 9.8 Repayment of the Loan............................................. 34 9.9 Deemed Distribution............................................... 35 9.10 Default........................................................... 35 Section 10 - CAPITAL ACCUMULATION ADMINISTRATIVE COMMITTEE - ---------- 10.1 Capital Accumulation Plan Administrative Committee................ 36 10.2 Rules of Conduct.................................................. 36 10.3 Legal, Accounting, Clerical....................................... 36 10.4 Interpretation of Provisions...................................... 36 10.5 Records of Administration......................................... 37 10.6 Claims for Benefits............................................... 37 10.7 Liability of Committee............................................ 38 10.8 Unlocated Member.................................................. 38 10.9 Legal Representative.............................................. 38 Section 11 - AMENDMENTS, DISCONTINUANCE, LIABILITIES - ----------- 11.1 Amendment......................................................... 40 11.2 Termination....................................................... 40 11.3 Liability of Company.............................................. 40 Section 12 - MISCELLANEOUS - ---------- 12.1 Employment........................................................ 41 12.2 Benefits Not Assignable........................................... 41 12.3 Discharge of Liability............................................ 41 12.4 Governing Laws.................................................... 41 12.5 Limitation on Mergers............................................. 41 12.6 Delegation of Fiduciary or Administrative Responsibilities........ 41
iii 12.7 Named Fiduciary................................................... 42 Section 13 - ROLLOVERS - ---------- 13.1 Rollovers from Other Qualified Plans.............................. 43 13.2 Transfers from Individual Retirement Accounts..................... 43 13.3 Membership........................................................ 43 13.4 Administration.................................................... 43 Section 14 - TOP HEAVY PROVISIONS - ---------- 14.1 Definitions....................................................... 45 14.2 Minimum Allocation................................................ 48 14.3 .................................................................. 49 14.4 .................................................................. 49 14.5 .................................................................. 49 14.6 .................................................................. 49
iv CH-Twenty, Inc. CAPITAL ACCUMULATION PLAN INTRODUCTION This Plan is intended to qualify as a Stock Bonus Plan under (S)401(a) of the Internal Revenue Code of 1986, as amended, and as a Qualified Cash or Deferred Arrangement under (S)401(k) of the Code. Part of the Plan (the "ESOP Part") is intended to qualify as an Employee Stock Ownership Plan under (S)4975(e)(7) of the Code and such part is designed to invest primarily in Atlantic Richfield Company Common Stock. Effective March 14, 1999, the CH-Twenty, Inc. Savings Plan is merged into the CH-Twenty, Inc. Capital Accumulation Plan. The class of employees eligible to participate in this Plan previously participated in the Atlantic Richfield Capital Accumulation Plan II and the Atlantic Richfield Savings Plan II. The assets and liabilities of the Atlantic Richfield Capital Accumulation Plan II and the Atlantic Richfield Savings Plan II allocable as of June 30, 1997 to the participants in the CH-Twenty, Inc.- Twenty, Inc. Capital Accumulation Plan and CH-Twenty, Inc.-Twenty, Inc. Savings Plan who commence participation effective July 1, 1997 were transferred to such plan. This amendment and restatement of the Plan is effective March 15, 1999, except as otherwise indicated, and is intended to bring the Plan into compliance with the Uniformed Services Employment and Re-employment Act of 1994, Small Business Protection Act of 1996, subsequent legislation, and relevant regulations and rulings. The provisions of this amended and restated plan apply to persons who are employed on or after March 15, 1999, unless otherwise indicated. -1- SECTION 1 DEFINITIONS 1.1 "Acquisition Loan" means a loan or other extension of credit used by the Trustee to finance the acquisition of Atlantic Richfield Company Common Stock. 1.2 "Administrator" means the Capital Accumulation Plan Administrative Committee. 1.3 "Annual Earnings" or "Earnings" means the annual, actual wages or salary paid to a Member for the Member's personal service, including the amount of any Employee contribution pursuant to (S)125 and (S)401(k) of the Code, as amended, but excluding extra pay such as overtime, premiums, bonuses, living or other allowances. Annual Earnings shall not exceed a Member's regular wages or salary as determined by the Company. Annual Earnings or Earnings shall not exceed $160,000, as adjusted each Plan Year pursuant to (S)401(a)(17)(B) of the Code. 1.4 "Capital Accumulation Plan Administrative Committee" means the committee provided for in Section 10 of this Plan. 1.5 "Code" means the Internal Revenue Code of 1986, as amended. 1.6 "Company" means CH-Twenty, Inc. and such of its Subsidiaries or Affiliates whose Employees are included in this Plan upon authorization of CH-Twenty, Inc. and adoption of this Plan by such authorized Subsidiary or Affiliate. 1.7 "Credited Company Service" means service with the Company, a predecessor company, and/or a Subsidiary or Affiliate which service the Company recognizes, on a basis uniformly applicable to all persons similarly situated, for purposes of this Plan. 1.8 "Effective Date" means the effective date of this amended and restated Plan which is March 15, 1999, unless otherwise indicated. 1.9 "Elective Deferrals" or "Deferrals" means reductions pursuant to an Employee Contribution Agreement of a Member's Annual Earnings, which amounts are transferred by the Company to the Trustee of the Plan. 1.10 "Employee" means any person who is employed by the Company, excluding: (a) Casual Employees, Project Employees and Leased Employees, as defined under the Company's Employment Status Classification Policy; (b) Employees represented by any collective bargaining agent which has not negotiated the benefits of this Plan; and -2- (c) Any division or group of employees which is expressly excluded from eligibility for the Plan by action of the Board of Directors of the Company. 1.11 "Employee Contribution Agreement" means an agreement entered into between the Member and the Company, and by which the Member agrees to accept a reduction in Earnings from the Company equal to any whole (or fractions, as required by adjustments under Paragraph 3.3, 3.4 or 4.4) percentage, per payroll period. This reduction may be on a pre-tax or after-tax basis, as elected by the Member. This agreement shall apply to each payroll period during the period it is in effect in which the Member receives Earnings. In consideration of such agreement, the Company will transfer to the Member's pre-tax Elective Deferral subaccount or to the Member's after-tax Member Contribution subaccount, as applicable, the amount of the Elective Deferrals or Member Contributions at the time that regular salary payments are made to its Employees. 1.12 "ERISA" means the Employee Retirement Income Security Act of 1974. 1.13 "Financed Shares" means shares of Atlantic Richfield Company Common Stock acquired by the Trustee with the proceeds of an Acquisition Loan. 1.14 "Former Member" means a Member whose membership has terminated pursuant to Paragraph 2.3 and whose account has not been fully distributed. 1.15 "Highly Compensated Employee", effective July 1, 1997, means: (a) Any employee who performs service during the determination year and is described in one or more of the following groups: (i) An employee who is a five percent owner, as defined in (S)416(i)(1) of the Code, at any time during the determination year or the look-back year, as defined below; or (ii) An employee who receives compensation in excess of $80,000, as adjusted pursuant to (S)415(d) of the Code during the look-back year and is a member of the top-paid group as defined in Section 414(q)(3) of the Code. (b) For purposes of the definition of Highly Compensated Employee the following will apply: (i) The determination year is the Plan Year for which the determination of who is highly compensated is being made. (ii) The look-back year is the 12-month period immediately preceding the determination year; provided, however, that for the Plan Year -3- beginning March 15, 1999, the look-back year shall be the calendar beginning January 1, 1999. (iii) Employers aggregated under (S)414(b), (c), (m), or (o) of the Code are treated as a single employer. (iv) Compensation, for purposes of this Paragraph 1.16 means compensation within the meaning of (S)415(c)(3) of the Code without regard to (S)125, (S)402(e)(3) and (S)402(h)(1)(B) of the Code. (c) A former Employee who has a separation year prior to the determination year and who was a highly compensated active employee for either (i) such employee's separation year, or (ii) any determination year ending on or after the employee's 55th birthday will be a Highly Compensated Employee. Generally, a separation year is the determination year the employee separates from service. An employee who separated from service before January 1, 1987, will be included as a Highly Compensated Employee only if the Employee was a five percent owner or received compensation in excess of $50,000 during the year. 1.16 "Hour of Service" means: (a) Each hour for which an Employee is paid, or entitled to payment, for the performance of duties for the Company or any Subsidiary or Affiliate during the computation period in which the duties are performed. (b) Each hour for which an Employee is paid, or entitled to payment, by the Company or any Subsidiary or Affiliate on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence. (c) Each hour for which back pay, irrespective of mitigation of damages, is either awarded or agreed to by the Company or any Subsidiary or Affiliate. Such hours shall be credited to the Employee for the computation period or periods to which the award or agreement pertains. (d) An Employee will be credited with 200 Hours of Service, to the extent required by Federal law, for each month during which the Employee is on active duty in the Armed Forces of the United States and for which the Employee is not paid or entitled to be paid by the Company or any Subsidiary or Affiliate. -4- (e) Hours credited for any period under any provision of this Paragraph 1.17 may not also be credited for the same period under any other provisions of this Plan. Hours shall be credited under Subparagraphs 1.17(a) thru (c) pursuant to U.S. Department of Labor Regulations under 29CFR (S)2530.200b-2, which are incorporated herein by this reference. (f) For all purposes under the Plan, an Employee shall be credited with 200 Hours of Service for each calendar month in which the Employee would otherwise be credited with one or more Hours of Service. (g) Solely for purposes of determining whether a break in service has occurred in a computation period, and to the extent it does not duplicate Hours of Service credited under any other provision of this Paragraph 1.17, an individual who is absent from work for maternity or paternity reasons shall receive credit for the Hours of Service which would otherwise have been credited to such individual but for such absence, or in any case in which such hours cannot be determined, eight Hours of Service per day of such absence. For purposes of this subparagraph, an absence from work for maternity or paternity reasons means an absence which commences on or after January 1, 1985, and is (i) by reason of the pregnancy of the individual; (ii) by reason of a birth of a child of the individual; (iii) by reason of the placement of a child with the individual in connection with the adoption of the child by such individual; or (iv) for purposes of caring for such child for a period beginning immediately following such birth or placement. The Hours of Service credited under this subparagraph shall be credited within the computation period in which the absence begins if the crediting is necessary to prevent a break in service in that period, or in all other cases, in the following computation period. 1.17 "Matching Contributions" means the Company contribution pursuant to Paragraph 4.1 of the Plan. 1.18 "Member" means an Employee who has qualified for membership in accordance with the requirements of this Plan and whose membership has not terminated in accordance with Paragraph 2.3 of the Plan. 1.19 "Member's Account" or "Account" means a separate account maintained by the Trustee for each Member consisting of (a) one subaccount to which is allocated the Member's Elective Deferrals, as adjusted for earnings and withdrawals, and realized and unrealized gains and losses attributable thereto; (b) a second subaccount to which is allocated Member Contributions as adjusted for earnings and withdrawals, and realized and unrealized gains and losses attributable thereto; (c) a third subaccount to which is allocated the Company's contributions as adjusted for earnings and withdrawals, and realized and unrealized gains and losses attributable thereto; and (d) a fourth subaccount to which is allocated -5- rollovers pursuant to Section 13 and transfers pursuant to Subparagraph 2.6(b) as adjusted for earnings and withdrawals, and realized and unrealized gains and losses attributable thereto. 1.20 "Member Contributions" means after-tax reductions in the Member's Annual Earnings pursuant to an Employee Contribution Agreement, which amounts are transferred by the Company to the Trustee. 1.21 "Plan" or "Plans" means the CH-Twenty, Inc. Capital Accumulation Plan as set forth herein, and any amendments thereto. 1.22 "Plan Year" means the period commencing on March 15, 1999 and ending on December 31, 1999. Thereafter, the Plan Year shall be the calendar year. 1.23 "Subsidiary" or "Affiliate" means: (a) Any corporation 50 percent or more of the voting stock of which is owned directly or indirectly by Atlantic Richfield Company or a Subsidiary or Affiliate; or (b) Any partnership, joint venture or similar organization 50 percent or more of the profits interest or capital interest of which is owned directly or indirectly by Atlantic Richfield Company or a Subsidiary or Affiliate. 1.24 "Trust Agreement" means the agreement of trust between the Trustee and CH-Twenty, Inc. to hold contributions from the Company, Deferrals and Member Contributions of Members, transfers and rollovers, and investments thereof and earnings thereon. 1.25 "Trustee" means the persons or corporations, or both, designated by the Trust Agreement. The duties and responsibilities of the Trustee shall be those set forth in the Trust Agreement. 1.26 "Valuation Date" means the date or dates established by the Administrator for the valuation of the assets of the Plan. In no event shall the assets of the Plan be valued less frequently than once each Plan Year. -6- SECTION 2 MEMBERSHIP - ELIGIBILITY 2.1 Membership ---------- (a) Elective Deferrals and Member Contributions - An Employee who is paid ------------------------------------------- on the United States dollar payroll of the Company may become a Member and make Elective Deferrals and/or Member Contributions on or after the Employee's date of employment. To become a Member, an Employee must enter into an Employee Contribution Agreement in accordance with Section 3. (b) Company Contributions - An Employee who is paid on a United States --------------------- dollar payroll of the Company shall be eligible for Matching Contributions with respect to Elective Deferrals on the earlier of (i) or (ii) below: (i) Completion of six months of Credited Company Service, or (ii) The end of any 12-consecutive-month period during which the Employee completes at least 1,000 Hours of Service. Such 12- consecutive-month period shall commence on the Employee's date of employment or any anniversary thereof. 2.2 Notice to Administrator ----------------------- The Company shall advise the Administrator as to the date an Employee becomes a Member. In the event that any question arises as to the eligibility of any Employee, the decision of the Administrator as to such Employee's eligibility shall be binding upon the Company, the Employees, the Members, the beneficiaries, and any and all other persons having or claiming any interest hereunder. 2.3 Membership Termination ---------------------- (a) An Employee's membership shall terminate upon: (i) Death, disability, dismissal, retirement or termination of employment for any other reason; (ii) Continuation of a Participant's employment with an acquiring corporation in conjunction with a sale to the acquiring corporation of substantially all of the assets used by the Company or any Subsidiary or Affiliate in a trade or business which such entity conducts; or -7- (iii) A disposition of the Company's interest in a Subsidiary or Affiliate when the Participant continues employment with such Subsidiary or Affiliate. (b) A Member may not voluntarily terminate membership in this Plan during active employment with the Company. (c) If a Member transfers to a Subsidiary or Affiliate which is not participating in this Plan, or to an employment classification excluded from Plan participation, the Member's eligibility to make Elective Deferrals and Member Contributions, and to receive Matching or nonelective Contributions shall cease, but the Member's Account shall not be distributed until the Member has terminated employment with Atlantic Richfield Company or all of its Subsidiaries or Affiliates or is involved in a sale described in Subparagraph 2.3(a)(ii) or (iii). 2.4 Member Suspension ----------------- If an Employee is a Member of a defined contribution plan of the Company (including the Predecessor Plans), or a Subsidiary or Affiliate, and the Elective Deferrals to such plan of the Company or Subsidiary or Affiliate are suspended at the time the Employee becomes eligible for membership in this Plan, the Elective Deferrals and Employee's Contributions to the Plan shall commence with the first full pay period beginning on or after the date on which such period of suspension then in effect under the plan of the Company, or the Subsidiary or Affiliate, ends. 2.5 Member Transfers ---------------- If a Member transfers to employment with a Subsidiary or Affiliate of the Company, which maintains a capital accumulation plan, the Member's Account shall be transferred to the capital accumulation plan of the Subsidiary or Affiliate in accordance with procedure established by the Administrator. 2.6 Capital Accumulation Plan Assets -------------------------------- Upon the transfer of an Employee eligible to participate in the Plan from a Subsidiary or Affiliate, any assets maintained under a capital accumulation plan of such Subsidiary or Affiliate on behalf of such Employee will be transferred to the Plan in the same investment alternative under which held as of the transfer date, and such transferred assets will be subject to the reinvestment provisions under Paragraph 6.4, except as provided herein: (a) Any assets transferred on behalf of a Member which have been invested in Common Stock of a Subsidiary or Affiliate in the subaccount attributable to -8- the Member's Deferrals or Member Contributions under the capital accumulation plan of a Subsidiary or Affiliate will remain so invested, with future dividends being reinvested in such stock under the Member's Account, absent the Member's direction to reinvest such assets pursuant to Paragraph 6.4 of the Plan; provided, however, that any assets converted from the Common Stock of a Subsidiary or Affiliate to another investment alternative under the Plan may not be reinvested in Common Stock of a Subsidiary or Affiliate. (b) Any assets transferred on behalf of a Member which have been invested in the Common Stock of a Subsidiary or Affiliate in the subaccount attributable to Company Contributions under the capital accumulation plan of a Subsidiary or Affiliate, will remain so invested, with future dividends being reinvested in such stock under the Member's Account; provided, however, that the Member, unless the Employee is an officer of CH-Twenty, Inc., may elect to convert such assets to Atlantic Richfield Company Common Stock held under the ESOP Part of the Plan and any assets so converted may not be reinvested in the Common Stock of a Subsidiary or Affiliate. If the Member is an officer of CH-Twenty, Inc. the Member may elect to convert such assets to Atlantic Richfield Company Common Stock held under the non- ESOP Part of the Plan and any assets so converted may not be reinvested in the Common Stock of a Subsidiary or Affiliate. This subparagraph does not apply to Atlantic Richfield Common Stock transferred to the Plan. (c) Common Stock of a Subsidiary or Affiliate held by the Plan shall be subject to the sale and voting provisions of Section 6. -9- SECTION 3 MEMBERS' ELECTIVE DEFERRALS 3.1 Members' Elections ------------------ (a) Each Member who is an Employee may enter into an Employee Contribution Agreement with the Company providing for withholding of Elective Deferrals and/or Member Contributions from each of the Member's regular paychecks at a rate of one percent to 27 percent of the Member's Earnings, in whole percentages. An Employee Contribution Agreement shall remain in effect until changed by the Member, except as otherwise set forth in this Section 3. (b) A Member's election shall be made in the manner prescribed by the Administrator and shall include such information as the Administrator may require. A Member may change the Member's election with respect to the Member's rate of future contributions at any time by giving notice in such manner as is prescribed by the Administrator. Such changes shall be effective as soon as administratively feasible after the date of receipt of such notice by the Administrator, or its delegate. (c) The Company may limit or reduce its Employee Contribution Agreement with any Member at any time, on a nondiscriminatory basis, to the extent necessary to ensure compliance with the limitations of Paragraph 3.3, 3.4, 4.4 or 4.7. (d) A Member's Elective Deferrals and Member Contributions will be suspended as follows: (i) Upon the Member's transfer, other than on an approved leave of absence, to employment with: (1) A Subsidiary or Affiliate which is not participating in the Plan; or (2) CH-Twenty, Inc. or any of its Subsidiaries or Affiliates in such foreign countries as the Company shall designate; the Member's Elective Deferrals and/or Member Contributions shall automatically be suspended while the Member remains in such employment. (ii) Upon the Member's transfer to an employee group of the Company that is not participating in the Plan. (iii) As described in Section 7. -10- 3.2 Contribution of Elective Deferrals and Member Contributions ----------------------------------------------------------- The Company shall pay to the Trustee on behalf of each Member the Elective Deferrals and Member Contributions elected by the Member. A Member's Elective Deferrals and Member Contributions shall be paid to the Trustee the earlier of the date such Elective Deferrals and Member Contributions can reasonably be segregated from the Company's general assets or the 15/th/ day of the month following the month in which the Elective Deferrals and Member Contributions would have been paid to the Member. Elective Deferrals and Member Contributions may be paid to the Trustee in the following forms: (a) To the extent that a Member has directed pursuant to the Plan that his or her Elective Deferrals and/or Member Contributions be invested in an option other than Atlantic Richfield Common Stock, such Elective Deferrals and/or Member Contributions shall be paid to the Trustee in cash; (b) To the extent that a Member has directed pursuant to the Plan that his or her Elective Deferrals and/or Member Contributions be invested in Atlantic Richfield Company Common Stock under the Non-ESOP Part of the Plan, such Elective Deferrals and/or Member Contributions may be paid to the Trustee in cash, in shares of Atlantic Richfield Company Common Stock, or in any combination thereof; and (c) To the extent that a Member has directed pursuant to the Plan that his or her Elective Deferrals and/or Member Contributions be invested in Atlantic Richfield Company Common Stock under the ESOP Part of the Plan, such Elective Deferrals and/or Member Contributions may be paid to the Trustee in cash, in shares of Atlantic Richfield Company Common Stock, in the form of forgiveness of indebtedness on an Acquisition Loan from the Company to the Plan, or in any combination thereof. 3.3 Annual Dollar Limitation ------------------------ (a) A Member's Elective Deferrals for a calendar year, when considered together with the amount of salary reduction elected by the Member under any other plan meeting the requirement of (S)401(k) of the Code, may not exceed $10,000, as adjusted pursuant to Code (S)415(d). (b) Once a Member's Elective Deferrals reach the limitation described in Subparagraph 3.3(a), all subsequent deferrals will be suspended for the remainder of the calendar year. Elective Deferrals will automatically resume on the following January 1. Unless the Member elects to change the Elective Deferral percent according to Paragraph 3.1, Elective Deferrals will resume at the rate in effect on the suspension date. -11- (c) If a Member notifies the Administrator on or before March 31 after the close of a calendar year that the Member's total Elective Deferrals (within the meaning of (S)402(g)(3) of the Code) for such calendar year exceed the limitation of Subparagraph 3.3(a), the Administrator shall direct that such excess Elective Deferrals, plus any income and minus any loss allocable thereto for the calendar year, be distributed no later than the April 15 following notification to the Administrator. A Member is deemed to notify the Administrator of Elective Deferrals in excess of the limitation in Subparagraph 3.3(a) that arise by taking into account those Elective Deferrals made to the Plan or to any other Plan of the Company or a Subsidiary or Affiliate. (d) For purposes of Subparagraph 3.3(c), gain or loss allocable to excess Elective Deferrals shall be computed under the method used by the Plan to allocate gains and losses. 3.4 Actual Deferral Percentage Tests -------------------------------- The Plan shall comply with the requirements of (S)401(k)(3) of the Code, the regulations thereunder, including Treas. Reg. 1.401(k)-1(b) and Internal Revenue Service guidance in this regard, which provisions are incorporated herein by this reference. To the extent permitted by regulations, Matching Contributions described in Paragraph 4.1 and nonelective contributions described in Paragraph 4.8 may, at the discretion of the Administrator, be deemed Elective Deferrals for purposes of this Paragraph 3.4. Effective July 1, 1997, in determining whether the Plan satisfies the requirements of (S)401(k)(3) of the Code, the Plan shall use the prior-year testing method. 3.5 Distribution of Excess Contributions ------------------------------------ (a) If the average actual deferral percentage test of Paragraph 3.4 is not satisfied for a Plan Year, then the Excess Contributions, as defined below, and gain or loss allocable thereto, shall be distributed, to the extent required under Treasury regulations, no later than the last day of the Plan Year following the Plan Year for which the Excess Contributions were made. (b) Effective July 1, 1997, for purposes of this paragraph, Excess Contributions shall consist of the excess of the aggregate amount of Elective Deferrals made by or on behalf of the affected Highly Compensated Employees over the maximum amount of all such contributions permitted under the test of Paragraph 3.4. In reducing the excess contributions hereunder, the reduction shall be first applied to the Highly Compensated Employee with the highest percentage under Paragraph 3.4. If reductions are further required to comply with Paragraph 3.4, such reductions shall be applied to the Highly Compensated Employee with the next highest percentage, and -12- so forth until the nondiscrimination test of Paragraph 3.4 is satisfied. The aggregate amount of reductions determined in the preceding sentence shall be distributed, together with gain or loss allocable thereto, to the Highly Compensated Employees with the highest dollar amount of Elective Deferrals. The Elective Deferrals of the Highly Compensated Employee with the highest dollar amount of Elective Deferrals are reduced by the amount required to cause such Highly Compensated Employee's Elective Deferrals to equal the Elective Deferral amount of the Highly Compensated Employee with the next highest dollar amount of Elective Deferrals. If the total amount distributed to the Highly Compensated Employee is less than the total Excess Contribution, this process shall be repeated until the total Excess Contributions are distributed. (c) The gain or loss allocable to Excess Contributions shall be determined by multiplying the gain or loss allocable to the Member's Elective Deferrals for the Plan Year by a fraction, the numerator of which is the Excess Contributions made on behalf of the Member for the Plan Year, and the denominator of which is the sum of the Member's Account balances attributable to the Member's Elective Deferrals amounts on the last day of the Plan Year. 3.6 Make-Up Elective Deferrals and Member Contributions --------------------------------------------------- Notwithstanding any provision of the Plan to the contrary, Elective Deferrals and Member Contributions with respect to qualified military service may be made in accordance with (S)414(u) of the Code. -13- SECTION 4 COMPANY CONTRIBUTION 4.1 Matching Contribution --------------------- Subject to the provisions of Paragraphs 4.3 and 4.4, for each pay period, the Company shall pay to the Trustee a contribution on behalf of each Member equal to 160 percent of the Member's Elective Deferrals, including Elective Deferrals under Paragraph 3.6, for the pay period which do not exceed five percent of the Member's Earnings for the pay period. This contribution shall be made no later than 30 days following the date on which the related Member Deferrals are made, or as soon as administratively practicable, if later, and except for Members who have attained age 55, shall be made under the ESOP Part of the Plan. 4.2 Form of Contribution -------------------- Matching Contributions may be made in the form of cash, shares of Atlantic Richfield Company Common Stock, forgiveness of indebtedness on an Acquisition Loan from the Company to the Plan, or any combination of the foregoing. 4.3 Members Excluded From Contribution ---------------------------------- The Matching Contribution shall not be made on behalf of a Member described in one or more of the following subparagraphs: (a) A Member who is an officer of CH-Twenty, Inc.; or (b) A Member whose base salary is more than $150,000 on an annualized basis. 4.4 Actual Contribution Percentage Test ----------------------------------- With respect to Member Contributions and Matching Contributions, the Plan shall comply with the requirements of (S)401(m)(2) of the Code, the regulations thereunder, including Treas. Reg. (S)1.401(m)-1(b) and Internal Revenue Service guidance in this regard, which provisions are incorporated herein by this reference. To the extent permitted by regulations, Elective Deferrals described in Paragraph 3.1 and nonelective contributions described in Paragraph 4.8 may, at the discretion of the Administrator, be taken into account in satisfying the requirements of this Paragraph 4.4. Effective July 1, 1997, in determining whether the Plan satisfies the requirements of Section 401(m)(2) of the Code, the Plan shall use the prior-year testing method. -14- 4.5 Distribution of Excess Aggregate Contributions ---------------------------------------------- (a) If the nondiscrimination tests of Paragraph 4.4 are not satisfied for a Plan Year, then the Excess Aggregate Contributions, as defined below, and any gain or loss allocable thereto, shall be distributed to the Member on whose behalf the Excess Aggregate Contributions were made no later than the last day of the Plan Year following the Plan Year for which such Excess Aggregate Contributions were made. Member Contributions shall be distributed before Matching Contributions. Notwithstanding the foregoing, to the extent otherwise required to comply with the requirements of (S)401(a)(4) of the Code and regulations thereunder, vested Matching Contributions may be forfeited. (b) Effective July 1, 1997, for purposes of this paragraph, Excess Aggregate Contributions shall consist of the excess of the amount of Member Contributions, Matching Contributions, and Elective Deferrals (to the extent not used to satisfy the average actual deferral percentage test of Section 3.4) made on behalf of the affected Highly Compensated Employees over the maximum amount of all such contributions permitted under the nondiscrimination tests under Paragraph 4.4. In reducing the Excess Aggregate Contributions hereunder, the reduction shall be first applied to the Highly Compensated Employee with the highest percentage under Paragraph 4.4. If reductions are further required to comply with Paragraph 4.4, such reductions shall be applied to the Highly Compensated Employee with the next highest percentage, and so forth until the nondiscrimination tests of Paragraph 4.4 are satisfied. The aggregate amount of reductions determined in the preceding sentence shall be distributed together with gain or loss allocable thereto, to the Highly Compensated Employees with the highest dollar amount of Member Contributions and Matching Contributions. The Member Contributions and Matching Contributions of the Highly Compensated Employee with the highest dollar amount of such contributions are reduced by the amount required to cause such Highly Compensated Employee's Member Contributions and Matching Contributions to equal the Member Contributions and Matching Contributions of the Highly Compensated Employee with the next highest dollar amount of such contributions. If the total amount distributed to the Highly Compensated Employee is less than the total Excess Aggregate Contribution, this process shall be repeated until the total Excess Aggregate Contributions are distributed. (c) The gain or loss allocable to Excess Aggregate Contributions shall be determined by multiplying the gain or loss allocable to such contributions by a fraction, the numerator of which is the Excess Aggregate Contributions on behalf of the Member for the Plan Year, and the denominator of which is the -15- sum of the Member's Account balances attributable to Excess Aggregate Contributions on the last day of the Plan Year. 4.6 Limitation On The Multiple Use Alternative ------------------------------------------ (a) The sum of the average actual deferral percentage of Highly Compensated Employees under Paragraph 3.4 and the average contribution percentage of Highly Compensated Employees under Paragraph 4.4 shall not exceed the "aggregate limit", as defined in (S)401(m)(9) of the Code and the regulations thereunder. (b) If the aggregate limit is exceeded, the average contributions percentage of the Highly Compensated Employees shall be reduced in accordance with the provisions of Paragraph 4.5. In lieu of reducing the average contribution percentage, the Administrator may reduce the average actual deferral percentage of the Highly Compensated Employees in accordance with the provisions of Paragraph 3.4. The reductions under this paragraph shall be made only to the extent necessary to comply with the restrictions on the multiple use of the alternative limitation within the meaning of Code (S)401(m)(9). 4.7 Section 415 Limitations ----------------------- (a) In addition to other limitations set forth in the Plan and notwithstanding any other provisions of the Plan, "annual additions" made to this Plan (and all other defined contribution plans required to be aggregated with the Plan under the provisions of (S)415 of the Code) shall not exceed an amount in excess of the limit set forth in such section of the Code. For purposes of calculating such limit under (S)415 of the Code, the "limitation year" shall be the calendar year. Elective Deferrals, Member Contributions and Matching Contributions in excess of the actual deferral and contribution percent tests of Sections 3.4 and 4.4 are considered annual additions even if corrected through distribution. (b) If the limitations described in (S)415(c) of the Code are exceeded for a Member for a limitation year, the excess will be eliminated as follows: (i) Provisions of any other defined contribution plans established by the Company or a Subsidiary or Affiliate which have caused the limits to be exceeded will be applied; provided, however, that if such other Plan is described in (S)401(k) of the Code, the provisions of the Plan in which the Member is active as of the last day of the limitation year shall be applied before the provisions of the Plan in which the Member is inactive. -16- (ii) Amounts attributable to after-tax contributions made by the Member to the Plan (or any other plan maintained by the Company or any Subsidiary or Affiliate) shall be paid to the Member. (iii) Amounts attributable to Elective Deferrals made by a Member to the Plan (or any other plan maintained by the Company or a Subsidiary or Affiliate) shall be paid to the Member. (iv) The excess, if any, will be held unallocated in a suspense account. The suspense account will be applied to reduce contributions for remaining Members in the limitation year, and each succeeding limitation year, if necessary. If a suspense account is in existence at any time during the limitation year pursuant to this subparagraph, it will not participate in the allocation of the investment gains and losses. (c) Prior to January 1, 2000, if the limitations described in (S)415(e) of the Code are exceeded for a Member for a limitation year, the excess will be eliminated by applying the provisions of the defined benefit plan in which the Member participates. 4.8 Nonelective Contributions ------------------------- (a) The Administrator, in its sole discretion, may make a nonelective contribution to the Accounts of certain Members who are not highly compensated to the extent necessary to satisfy the requirement of Paragraph 3.4 and/or 4.4 of the Plan, or to assist the Plan or any other plan of the Company or any Subsidiary or Affiliate to satisfy the requirements of (S)410(b) of the Code. (b) A contribution under Subparagraph 4.8(a) shall be allocated to eligible Members in the ratio that the Earnings of each such Member for the Plan Year bears to the total Earnings of all such Member's for the Plan Year. (c) The Company shall make contributions necessary to reinstate Members' Accounts pursuant to Paragraph 10.8 of the Plan. (d) The Company may make contributions necessary to correct administrative errors relative to a Member's Account. 4.9 Exclusive Benefit ----------------- The corpus or income of the trust may not be divested to or used for other than the exclusive benefit of the Members and their beneficiaries and to defray reasonable expenses of administering the Plan. -17- SECTION 5 FINANCED SHARES 5.1 Acquisition Loans ----------------- CH-Twenty, Inc., by action of its President, may direct the Trustee to incur Acquisition Loans from time to time to finance the acquisition of Atlantic Richfield Company Common Stock (Financed Shares) under the ESOP Part of the Plan or to repay a prior Acquisition Loan. For this purpose, an installment obligation incurred in connection with the purchase of Atlantic Richfield Company Common Stock shall be treated as an Acquisition Loan. An Acquisition Loan shall be for a specific term, shall bear a reasonable rate of interest, and shall not be payable on demand except in the event of default. An Acquisition Loan may be secured by a pledge of the Financed Shares so acquired (or acquired with the proceeds of a prior Acquisition Loan which is being refinanced). No other assets of the Plan may be pledged as collateral for an Acquisition Loan, and no lender shall have recourse against assets of the Plan other than Financed Shares remaining subject to pledge. If the lender is a "party in interest" [as defined in (S)3(14) of ERISA], the Acquisition Loan must provide that in the event of default, assets of the Plan may be transferred to the lender only upon, and to the extent of, the failure of the Plan to meet the payment schedule of the Acquisition Loan. Any pledge of Financed Shares must provide for the release of the shares so pledged as payments on the Acquisition Loan are made by the Trustee and such Financed Shares are allocated to Members' Accounts under Paragraph 5.2. Payments of principal and/or interest on any Acquisition Loan shall be made by the Trustee, as directed by the Company, only from: (a) Company Contributions paid in cash to enable the Plan to make payments on such Acquisition Loan [including Elective Deferrals and Member Contributions, to the extent that Members have directed pursuant to the Plan that such Elective Deferrals and/or Member Contributions be invested in shares of Atlantic Richfield Company Common Stock under the ESOP Part of the Plan] and earnings attributable thereto; (b) the proceeds of any Acquisition Loan and the earnings attributable thereto; and (c) any cash dividends received by the Plan on the Financed Shares purchased with the proceeds of such Acquisition Loan. The payments made with respect to an Acquisition Loan for a Plan Year must not exceed the sum of such Matching Contributions, Elective Deferrals, Member Contributions, proceeds, earnings, and dividends for that Plan Year and prior Plan Years, as reduced by the amount applied to make such payments in prior Plan Years. As directed by Atlantic Richfield Company, the Trustee also may sell any Financed Shares that have not yet been allocated to Members' Accounts and use the proceeds from such sale to pay principal and/or interest on the Acquisition Loan used to acquire such shares. -18- 5.2 Payments on Acquisition Loan ---------------------------- The acquisition of Atlantic Richfield Company Common Stock with the proceeds of an Acquisition Loan may be made on the open-market, or from the Company, in a single purchase or a series of purchases over a period of time. Prior to use for such purchase or purchases, the Acquisition Loan proceeds may be invested by the Trustee (as directed by CH-Twenty, Inc.) in interest-bearing accounts or instruments. Interest derived therefrom shall be applied to make payments on the Acquisition Loan, or, if the Acquisition Loan has been repaid in full, shall be allocated as of the last day of the Plan Year among the Accounts of all Members who have not terminated membership pursuant to Paragraph 2.3 as of such date in proportion to their Earnings for the Plan Year. All Financed Shares acquired by the Plan shall initially be credited to a loan suspense account, and will be allocated to the Members' Accounts only as payments on the Acquisition Loan are made. Release from the loan suspense account for allocation to Members' Accounts in each Plan Year shall be based on shares of stock or other non-monetary units, rather than by dollar amount, and shall not be less than the number calculated as follows: (a) The number of Financed Shares held in the loan suspense account immediately before the release in the current Plan Year shall be multiplied by a fraction, the numerator of which is the amount of principal and interest paid on the Acquisition Loan for that Plan Year, and the denominator of which is the sum of the numerator plus the total payments of principal and interest on that Acquisition Loan projected to be paid for all future Plan Years. For this purpose, the interest to be paid in future Plan Years is computed by using the interest rate in effect as of the last day of the current Plan Year. (b) In lieu of the method described in Subparagraph 5.2(a), the Company may elect (as to each Acquisition Loan) or the provisions of the Acquisition Loan may provide for the release of Financed Shares from the loan suspense account based solely on the ratio that the payments of principal for each Plan Year bear to the total principal amount of the Acquisition Loan. This method may be used only if: (i) the Acquisition Loan provides for annual payments of principal and interest at a cumulative rate that is not less rapid at any time than level annual payments of such amounts for ten years; (ii) interest included in any payment on the Acquisition Loan is disregarded only to the extent that it would be determined to be interest under standard loan amortization tables; and (iii) the entire duration of the Acquisition Loan repayment period does not exceed ten years, even in the event of a renewal, extension, or refinancing of the Acquisition Loan. -19- As of each date that payments (other than payments with the proceeds of a new Acquisition Loan) are made on an Acquisition Loan, the Financed Shares released from the loan suspense account shall be allocated to Members' Accounts in proportion to the amounts debited from each Member's Account to make the Acquisition Loan payments. -20- SECTION 6 INVESTMENT OF MEMBERS' AND FORMER MEMBERS' ACCOUNTS 6.1 Members' and Former Members' Accounts ------------------------------------- The Administrator shall establish and maintain an Account in the name of each Member and Former Member. Separate records shall be maintained with respect to the portion of a Member's or Former Member's Account attributable to Elective Deferrals, Member Contributions, rollovers under Section 13, Matching Contributions, and earnings thereon. 6.2 Investment of Elective Deferrals, Member Contribution, Rollovers and -------------------------------------------------------------------- Certain Matching Contributions ------------------------------ (a) In accordance with procedures established by the Administrator, the following amounts shall be invested by the Trustee among the investment alternatives authorized by the Administrator in the proportion indicated by the Member or Former Member in his or her investment directions provided to the Administrator, or its delegate: (i) Elective Deferrals; (ii) Member Contributions; (iii) Rollovers; (iv) Matching Contributions pursuant to Subparagraph 6.3(b); and (v) Matching Contributions to the Atlantic Richfield Savings Plan II made prior to July 1, 1988. (b) Notwithstanding anything in the Plan to the contrary, the Trustee may limit the daily volume of purchases or sales of Atlantic Richfield Common Stock to the extent it believes such action to be in the best interest of Members or Former Members. 6.3 Investment of Company Contributions ----------------------------------- (a) Except as provided in Subparagraph 6.3(b), all Matching Contributions and nonelective contributions pursuant to Subparagraph 4.8(a), and any amounts of interest attributable to the proceeds of an Acquisition Loan allocated to Members' or Former Members' Accounts pursuant to Paragraph 5.2 after the Acquisition Loan has been repaid in full, shall at all times be invested in Atlantic Richfield Company Common Stock under the ESOP Part of the Plan. Contributions under Paragraph 4.1 made in cash shall be applied to purchase shares of Atlantic Richfield Company Common Stock or to make payments on an Acquisition Loan within a reasonable time after being paid to the Trustee or after being allocated to Members' or Former Members' Accounts. -21- (b) A Member or Former Member who has attained age 55 may invest Company Contributions in any of the investment alternatives set forth in Paragraph 6.2. 6.4 Member or Former Member Direction Of Investments ------------------------------------------------ In accordance with procedures established by the Administrator, each Member or Former Member may direct how his or her Account is to be invested among the available investment funds. In the event a Member or Former Member fails to make an investment election, with respect to all or any portion of his or her Account, the Trustee shall invest all or such portion of his or her Account in the investment fund to be designated by the Administrator. Under procedures established by the Administrator, a Member or Former Member may change his or her investment election, with respect to future contributions and amounts previously accumulated in the Member's or Former Member's Account. Any such change in a Member's or Former Member's investment election shall be effective at such time as may be prescribed by the Administrator. 6.5 Allocation of Investment Experience ----------------------------------- As of each Valuation Date, the investment funds of the Trust, other than shares of Company Common Stock, shall be valued at fair market value, and the income, loss, appreciation and deprecation (realized and unrealized), and any paid expenses of the Trust attributable to such fund shall be apportioned among Member's or Former Member's Accounts within the fund based upon the value of each Account within the fund as of the preceding Valuation Date. 6.6 Manner and Time of Debiting Distributions ----------------------------------------- For any Member or Former Member who is entitled to receive a distribution from his or her Account, the amount distributed shall be based upon the fair market value of the Member's or Former Member's Account as of the Valuation Date immediately preceding the distribution. 6.7 Title of Investments -------------------- All investments will be held in the name of the Trustee or its nominees. 6.8 Voting of Investments --------------------- Except as provided in Paragraph 6.9, the Trustee in accordance with the Trust Agreement, shall exercise all voting and other rights associated with any investments held in the Plan. -22- 6.9 Voting of Atlantic Richfield Company Common Stock ------------------------------------------------- (a) The Trustee shall vote whole shares of Atlantic Richfield Company Common Stock credited to each Member's or Former Member's Account in accordance with such Members' or Former Members' written instructions. Fractional shares of Atlantic Richfield Company Common Stock shall be aggregated into whole shares of stock and voted by the Trustee, to the nearest whole vote, in the same proportion as shares are to be voted by the Trustee pursuant to Members' or Former Members' written instructions. In the absence of voting instructions by one or more Members or Former Members, the Trustee shall vote uninstructed shares, to the nearest whole vote, in the same proportion as shares are to be voted by the Trustee pursuant to Members' or Former Members' written instructions. The Trustee shall vote unallocated shares, to the nearest whole vote, in the same proportion as allocated shares are to be voted by the Trustee pursuant to Members' or Former Members' written instructions. (b) The Trustee shall exercise rights other than voting rights attributable to whole shares of Atlantic Richfield Company Common Stock credited to each Member's or Former Member's Account in accordance with such Members' or Former Members' written instructions. Rights attributable to fractional shares of Company Common Stock (which for this purpose shall be aggregated into whole shares of stock) shall be exercised by the Trustee in the same proportion as rights which are exercised by the Trustee pursuant to Members' or Former Members' written instructions. In the absence of instructions by one or more Members or Former Members, the Trustee shall exercise uninstructed rights in the same proportion as rights which are to be exercised by the Trustee pursuant to Members' or Former Members' written instructions. The Trustee shall exercise rights attributable to unallocated shares in the same proportion as rights attributable to allocated shares which are to be exercised by the Trustee pursuant to Members' or Former Members' written instructions. Notwithstanding the foregoing, in the absence of directions, the Trustee shall not tender shares of Common Stock in the same proportion as shares are tendered pursuant to Member's or Former Member's written instructions. (c) The Trustee shall notify the Members or Former Members of each occasion for the exercise of voting rights and rights other than voting rights within a reasonable time before such rights are to be exercised. This notification shall include all the information that the Company distributes to shareholders regarding the exercise of such rights. -23- 6.10 Allocation of Dividends on Atlantic Richfield Company Common Stock ------------------------------------------------------------------ (a) Any cash dividends declared on Atlantic Richfield Company Common Stock held in a Member's or Former Member's Account under the ESOP Part of the Plan as of the record date for the dividend shall be paid in cash to the Member or Former Member (or, in the event of death, to the Member's or Former Member's beneficiary) on, or as soon as possible following, the payment date for the dividend. (b) Any cash dividends declared on Atlantic Richfield Company Common Stock held in a loan suspense account as of the record date for the dividend shall be used to make payments on the Acquisition Loan used to acquire the shares of stock held in such account. (c) Except as provided in Subparagraphs 6.10(a) and (b), all dividends or other distributions attributable to shares of Atlantic Richfield Company Common Stock shall be allocated to the Account of the Member or Former Member whose Account is credited with such shares. 6.11 Investment Advisory Fees ------------------------ The investment advisory fees, if any, incurred for management of any of the investment funds are charged to each respective fund. 6.12 Member or Former Member Protection ---------------------------------- No shares of Atlantic Richfield Company Common Stock held by the ESOP Part of the Plan may be subject to a put, call or other option, or buy/sell or similar arrangement. The provisions of this Paragraph 6.12 shall continue to be applicable to the shares of Atlantic Richfield Company Common Stock held by the ESOP Part of the Plan even if such part ceases to be an Employee Stock Ownership Plan under (S)4945(e)(7) of the Code. 6.13 Confidentiality --------------- The Capital Accumulation Plan Administrative Committee shall be responsible for ensuring the adequacy of procedures established by the Administrator to safeguard the confidentiality of information relating to the purchasing, holding and selling of Atlantic Richfield Company Common Stock and any voting, tender or similar rights relating to such stock. -24- SECTION 7 WITHDRAWALS DURING EMPLOYMENT 7.1 Age 59 1/2 Withdrawal --------------------- A Member who has attained age 59 1/2 may request that all or a portion of the Member's Account be paid to the Member. The request must be made at such time and in such manner as prescribed by the Administrator. 7.2 Application and Basis for Hardship Withdrawal --------------------------------------------- (a) A Member may at any time request that the Member's Elective Deferrals (but not the earnings thereon) be paid to the Member due to financial hardship. The request must be made to the Administrator at such time and in such manner as prescribed by the Administrator and shall include such documentation and/or written explanation requested by the Administrator. (b) The Administrator shall authorize a withdrawal on account of financial hardship only upon making a written determination that the withdrawal does not exceed the amount of the immediate and heavy financial need of the Member, including amounts withheld for taxes and the amount of any early distribution taxes, if any, and that the withdrawal is based on the need for funds under one or more of the five following circumstances: (i) The payment of unreimbursable medical expenses described in (S)29(d) of the Code previously incurred by the Member, the Member's spouse, or any dependents of the Member (as defined in (S)152 of the Code) or necessary for these persons to obtain medical care; (ii) The payment of all or a portion of the purchase price (excluding mortgage payments) of a principal residence of the Member; (iii) The payment of tuition and related educational expenses for the next 12 months of post-secondary education for the Member, his or her spouse, children or dependents, as defined in Code (S)152; (iv) The need to prevent the eviction of the Member from his or her principal residence or foreclosure on the mortgage of the Member's principal residence; and (v) The need to satisfy a judgment of a federal, state or local court against the Member (such withdrawal will be permitted only if a written determination is made that such withdrawal is necessary in light of immediate and heavy financial need of the Member). -25- (c) Hardship withdrawals shall be paid as follows: (i) A hardship withdrawal shall be paid in a single payment to the Member within 60 days following the Administrator's favorable determination. (ii) A hardship withdrawal shall not cause a termination of Membership in the Plan. (d) As a condition to receiving the withdrawal: (i) The Member must have obtained all distributions and all nontaxable loans available as of the date of the withdrawal under this Plan and any other employee benefit plan maintained by the Company and any Subsidiary or Affiliate; (ii) The Member's contributions to the Plan and any other defined contribution or defined benefit employee pension benefit plan maintained by the Company and any Subsidiary or Affiliate are to be suspended for 12 months; and Elective Deferrals shall be suspended for the remainder of the calendar year in which the hardship distribution occurs and the calendar year immediately following such calendar year. 7.3 Partial Withdrawals of Member Contributions ------------------------------------------- (a) An application for partial withdrawal of funds attributable to Member Contributions must be in the form prescribed by the Administrator. Distribution will be made as soon as practicable after the date the application is received by the Administrator.; and (b) A Member may make the following partial withdrawals during employment with the Company; provided, that (i) partial withdrawals under this Paragraph 7.3 are made at not less than six-month intervals, and (ii) Member Contributions made prior to January 1, 1987, must be withdrawn prior to withdrawal of any other contributions and earnings: (i) Items in the Member's Account derived from Member Contributions, and earnings thereon (Member Contributions made prior to January 1, 1987 must be withdrawn first); (ii) Items in the Member's Account derived from Company Contribution to an Atlantic Richfield Savings Plan make prior to July 1, 1988, and earnings thereon. -26- SECTION 8 PAYMENTS ON TERMINATION OF MEMBERSHIP OR OTHER REASONS 8.1 Termination of Membership ------------------------- (a) If a Member's membership in the Plan is terminated due to disability, termination of employment for any other reason except death, or as the result of a sale described in Subparagraphs 2.3(a)(ii) or (iii), the Member may receive all items in the Member's Account. Each Member shall be fully vested at all times in all items in the Member's Account, whether the same be derived from Elective Deferrals, Member Contributions, Company Contributions or rollovers, and earnings thereon. (b) Upon the election of the Member who has terminated membership, all items in such Member's Account shall be distributed to the Member. With respect to a Former Member who does not request a distribution: (i) Notwithstanding anything to the contrary in this Paragraph 8.1, a Former Member's Account shall be distributed in accordance with the provisions of Paragraph 8.7; (ii) In the case of the Former Member's death prior to final distribution, the Former Member's Account shall be distributed in accordance with Paragraph 8.2 of the Plan; and (iii) No loans or hardship withdrawals may be taken following termination of membership or disability. (c) Notwithstanding anything to the contrary in this Paragraph 8.1, all items in the Account of a Member who has terminated membership, and whose Account balance is $5,000 or less on the date of determination, shall be distributed as soon as administratively practicable following the Member's termination of membership, unless the Member elects an earlier distribution date. (d) Notwithstanding anything in the Plan to the contrary, when a Former Member elects to receive all items in the Former Member's Account and, in conjunction therewith, directs that items in his or her Account be converted pursuant to Paragraph 6.4, the conversion shall be transacted on the later of the first transaction date under the Plan following the Administrator's receipt of a request for distribution, or the date of termination. Distribution under this Paragraph 8.1 shall be made in accordance with the requirements of (S)409(h) of the Code in the form of cash, Company stock or a combination thereof, as elected by the Member. If the Member does not make an election hereunder, Company stock will be distributed in kind and -27- all other investment alternative shall be converted to cash. (e) Under procedures established by the Administrator, distributions under this Paragraph 8.1 may be made under any of the following forms of payment, or any combination thereof: (i) Lump sum distribution; (ii) Installment payments, not to exceed 20 years if a specific period is requested; or (iii) Partial withdrawals. 8.2 Death ----- (a) If a Member or Former Member dies and it is established to the Plan's satisfaction that the consent required under Subparagraph 8.2(c), either has been obtained or was not obtainable, all items in the Member's or former Member's Account shall be paid to the beneficiary or beneficiaries most recently designated by the Member or Former Member in such manner as prescribed by the Administrator. If no such designation shall have been made, or if all designated beneficiaries should die before the Member or former Member, payment shall be made to the Member's or former Member's estate. (b) Except as provided in Subparagraph 8.2(c), if a Member or former Member is survived by a spouse, all items in the Member's or former Member's Account shall be paid to the Member's spouse. (c) If a Member or former Member is survived by a spouse, all items in a Member's or former Member's Account shall be paid to the beneficiary or beneficiaries most recently designated by the Member or former Member in such manner as prescribed by the Administrator; provided, (i) the surviving spouse of the Member or former Member has irrevocably consented in writing to the designation of the specific beneficiary or beneficiaries, which designation may not be changed without spousal consent (or the spouse expressly permits designations by the Member or Former Member without any further spousal consent), such consent acknowledged the effect of the election and such consent was witnessed by a notary public, or (ii) it is established to the Plan's satisfaction that the consent required by Subparagraph 8.2(c)(i), could not be obtained because the surviving spouse could not be located or because of such other circumstances as the Secretary of Treasury may by regulation prescribe. Any consent necessary under this paragraph shall be effective only with respect to such spouse, or, in the event it is established that the consent may not be obtained, such designated spouse. A revocation of a prior designation may be made by a Member or Former Member without the consent of the spouse at any time -28- prior to the Member's for Former Member's death. A consent that permits designation by the Member or Former Member without any requirement for further consent by the spouse must acknowledge that the spouse has the right to limit consent to a specific beneficiary and that the spouse voluntarily elects to relinquish such right. (d) Payment under this Paragraph 8.2 may be made in any form of distribution permitted by Paragraph 8.1; provided, however, that all items in the Member's or Former Member's Account shall be paid no later than December 31 of the calendar year which contains the fifth anniversary of the date of the Member's death. Prior to distribution, the beneficiary shall have the rights of a Former Member under Section 6 and Paragraph 8.1; provided, however, that the beneficiary may not elect installments or partial withdrawals under Subparagraphs 8.1(e)(ii) and (iii) and any Atlantic Richfield Company Stocks held under the ESOP Part of the Plan shall be converted to non-ESOP Atlantic Richfield Common Stock. 8.3 Disability ---------- (a) A Member who is determined to be disabled may elect to receive a distribution of such Member's Account in accordance with Paragraph 8.1. (b) A Member is disabled if as a result of a medically determinable physical or mental impairment resulting from illness or injury the Member is unable to perform one or more of the substantial duties of the Member's normal work assignment with the Company or of any work assignment which the Company determines is available to the Member and for which the Member is reasonably qualified by education, training or experience to perform as determined by the Administrator after review by the entity designated by the Administrator. 8.4 Divorce ------- To the extent a Qualified Domestic Relations Order ("QDRO"), as defined in (S)414(p) of the Code, is received by the Plan, distributions from a Member's Account shall be made to an Alternate Payee, as defined in (S)414(p) of the Code, as soon as administratively possible following the determination of the order's qualified status. Prior to such distribution, Atlantic Richfield Common Stock in the ESOP Part of the Plan shall be converted to non-ESOP Atlantic Richfield Common Stock. 8.5 Rollover -------- (a) Notwithstanding anything in this Section 8 to the contrary, a distributee, as defined below, may elect, at a time and in the manner prescribed by the -29- Administrator, to have all or a portion of a distribution under this Section 8, other than any Member Contributions and any amount required to be distributed pursuant to (S)401(a)(9) of the Code, made payable to an eligible retirement plan. (b) For purposes of this Section 8, other than Paragraph 8.2, an eligible retirement plan is an individual retirement account or annuity described in (S)408(a) or (b) of the Code, an annuity plan described in (S)403(a) of the Code or a qualified trust described in (S)401(a) of the Code that accepts such distribution. For purposes of a distribution under Paragraph 8.2, an eligible retirement plan is an individual retirement account or annuity. (c) Distributee means an Member or Former Member, the surviving spouse of such Member or such Member's spouse or former spouse who is an alternate payee as defined in (S)414(p) of the Code. 8.6 Notice ------ With respect to a Former Member whose account exceeds $5,000, the Administrator shall provide the notice required by (S)1.411(a)-11(c) of Income Tax Regulations no less than 30 days and no more than 90 days before the Former Member's date of distribution; provided, however, that such distribution may commence less than 30 days after the required notice is given if: (a) The Former Member is informed of the Former Members' right to a period of at least 30 days after receiving the notice to consider distribution options; and (c) The Former Member, after receiving the notice, affirmatively elects a distribution. The distribution shall commence no earlier than seven days following the date the notice, described above, is provided to the Former Member. 8.7 Distributions ------------- (a) All distributions required under the Plan shall be determined and made in accordance with the proposed regulations under (S)401(a)(9) of the Code, including the minimum distribution incidental benefit requirement of (S)1.401(a)(9)-2 of the proposed regulations. (b) The entire interest of a Member must be distributed or begin to be distributed no later than the Member's required beginning date. The required beginning date of a Member is the later of the April 1 of the calendar year following the calendar year in which the Member attains age -30- 70 1/2 or retires, except that benefit distributions to a five-percent owner must commence by the April 1 of the calendar year following the calendar year in which the Member attains age 70 1/2. (c) As of the first distribution calendar year, as defined below, distributions, if not made in a single-sum, may only be made over one of the following periods (or a combination thereof): (i) The life of the Member; (ii) The life of the Member and a designated beneficiary; (iii) A period certain not extending beyond the life expectancy of the Member; or (iv) A period certain not extending beyond the joint and last survivor expectancy of the Member and a designated beneficiary. (d) The amount required to be distributed for each calendar year, beginning with distributions for the first distribution calendar year, as defined below, must at least equal the quotient obtained by dividing the Member's entire Account as of the last Valuation Date in the calendar year preceding the distribution calendar year, by the applicable life expectancy. (e) The minimum distribution required for the Member's first distribution calendar year must be made on or before the Member's required beginning date as defined in Subparagraph 8.7(b). The minimum distribution for other calendar years, including the minimum distribution for the distribution calendar year in which the Member's required beginning date occurs, must be made on or before December 31 of that distribution calendar year. (f) If the Member dies after distribution of his or her interest has begun on or after the Member's required beginning date, as defined in Subparagraph 8.7(b), the remaining portion of such interest will continue to be distributed at least as rapidly as under the method of distribution being used prior to the Member's death. (g) If the Member dies before distribution of his or her interest begins, distribution of the Member's entire interest shall be completed by December 31 of the calendar year containing the fifth anniversary of the participant's death. (h) The life expectancy (or joint and last survivor expectancy) shall be calculated in accordance with Treasury regulations. Life expectancies shall be recalculated annually. (i) The distribution calendar year is a calendar year for which a minimum distribution is required. For distributions beginning before the Member's -31- death, the first distribution calendar year is the calendar year immediately preceding the calendar year which contains the Member's required beginning date. 8.8 Distribution of Benefits ------------------------ The distribution of benefits under this Plan to a Member who has elected to receive such benefits shall be made not later than the 60th day after the latest of the close of the Plan Year in which (a) the Member attains age 65 or such earlier normal retirement age as may be specified in this Plan; (b) there occurs the tenth anniversary of the year in which the Member commenced membership in this Plan; or (c) the Member's service with the Company is terminated. -32- SECTION 9 LOANS TO MEMBERS 9.1 General ------- A Member, or a Former Member who is a Party-In-Interest as defined in Section 3(14) of ERISA, may borrow from his or her Account in accordance with the terms and conditions set forth in this Section 9 and such additional rules, consistent with such terms and conditions, which the Administrator may establish from time to time. 9.2 Eligibility ----------- To be eligible to apply for and receive a loan, the Member must be in receipt of regular Earnings. The loan shall be irrevocable upon the earlier of: (a) Endorsement of the check representing the loan proceeds, or (b) Expiration of ten days from issuance of such check. 9.3 Loan Amount ----------- (a) The maximum loan shall be the lesser of one half of the Member's Account or $50,000 (reduced by the highest balance, at any specific time, of any outstanding loan or loans during the preceding 12 months from this Plan). (b) A loan must be in cash, in increments of $100 and in an amount not less than $1,000. (c) The maximum loan amount shall be reduced to the extent necessary to prevent each installment of the loan payment, including principal and interest, when added to installments under any outstanding loan under the Plan, from exceeding 25 percent of a Member's biweekly earnings. (d) The loan amount may not exceed the lesser of (i) the amount of the Member's Contributions, Elective Deferrals and Company Contributions under the Atlantic Richfield Savings Plans II and III made prior to July 1, 1988 (excluding assets which originated in the Atlantic Richfield Employee Stock Ownership Plan), and earnings thereon at the time the loan is made, or (ii) the amount of the security, as described hereafter, for the loan. (f) For purposes of this Paragraph 9.3, the value of Common Stock, or any other investment alternative will be determined on the Valuation Date immediately preceding the date the loan application is received by the Administrator under rules established by the Administrator. -33- 9.4 Number of Loans --------------- A Member may have such number of loans outstanding at any time as shall be determined by the Administrator. 9.5 Interest Rate ------------- A loan shall bear interest at a rate established and communicated by the Capital Accumulation Plan Administrative Committee to provide the Plan with a rate of return commensurate with prevailing interest rates charged on similar commercial loans by persons in the business of lending money. 9.6 Security -------- (a) Each loan must be evidenced by a loan agreement executed by the Member for the amount of the loan, including principal and interest, payable to the order of the Trustee. (b) Security for the loans shall equal 50 percent of the assets in the Member's Account as of the date of the loan request. (c) The assets which constitute security for the loan will be valued on the date of the loan agreement, or at such other time as may be determined by the Administrator. 9.7 Funding of the Loan ------------------- (a) The loan will be funded in accordance with procedures established by the Administrator. (b) Under procedures established by the Administrator, investment alternatives shall be sold to fund the loan. 9.8 Repayment of the Loan --------------------- (a) As determined by the Member, but subject to the restriction in Subparagraph 9.3(c), a loan may be repaid over a period of one, two, three, four or five years or, in the case of a loan used to acquire the Member's principal residence, such longer term as determined by the Administrator and permitted under (S)72(p) of the Code. (b) Principal and interest shall be amortized, on a level basis, over the term of the loan. -34- (c) Except as provided below, payments shall be made by means of payroll deductions, the authorization of which shall be irrevocable. (i) The loan may be repaid in full at any time without penalty. (ii) If a Member is not in receipt of regular Earnings sufficient to permit repayment of the loan, or has terminated employment, repayment shall be made by means prescribed by the Administrator. Repaid principal and interest shall be credited in accordance with the Member's election under Paragraph 6.2. 9.9 Deemed Distribution ------------------- A distribution of the unpaid principal shall be deemed to have been made to the Member if the Member fails to make payment under Subparagraph 9.8(c) for a period of 90 days. 9.10 Default ------- If the Member is not in receipt of regular Earnings sufficient to permit repayment of the loan and does not make manual repayments for a period exceeding 90 days, the loan will be deemed in default and the Administrator will realize on the security in accordance with applicable laws. -35- SECTION 10 ADMINISTRATION CAPITAL ACCUMULATION PLAN ADMINISTRATIVE COMMITTEE 10.1 Capital Accumulation Plan Administrative Committee -------------------------------------------------- The Plan shall be administered by a Capital Accumulation Plan Administrative Committee. The Committee shall consist of the Senior Vice President, Human Resources of Atlantic Richfield Company, who shall serve as Chairperson, and not less than two other persons appointed by the Chairperson. Members of the Committee shall serve without compensation. Vacancies shall be filled by the Chairperson or the Chairperson's delegate. 10.2 Rules of Conduct ---------------- The Capital Accumulation Plan Administrative Committee shall adopt such rules for the conduct of its business and administration of this Plan as it considers desirable; provided, they do not conflict with this Plan. 10.3 Legal, Accounting, Clerical --------------------------- The Capital Accumulation Plan Administrative Committee may authorize one or more of its members or any agent to act on its behalf and may contract for legal, accounting, clerical and other services to carry out this Plan. Unless paid by the Company, all expenses of the Company, the Administrator and the Plan shall be paid by the Plan, to the extent they constitute reasonable expenses of administering the Plan. The Plan may reimburse expenses paid directly by the Company or its designee. This provision shall be deemed a part of any contract to provide for expenses of Plan administration, whether or not the signatory to such contract is, as a matter of convenience, the Company or its designee. Notwithstanding the foregoing, brokerage commissions, transfer fees and other expenses actually incurred in any sale or purchase of Company Common Stock shall be equitably added to the cost or subtracted from the proceeds of all purchases or sales. 10.4 Interpretation of Provisions ---------------------------- The Capital Accumulation Plan Administrative Committee shall have full discretion and final authority to determine eligibility for benefits and to interpret the provisions of this Plan, to decide questions arising in its administration, and to establish such other rules for its administration as may be desirable. -36- 10.5 Records of Administration ------------------------- The Capital Accumulation Plan Administrative Committee shall keep records reflecting the administration of this Plan which shall be subject to audit by the Company. Members may examine records pertaining directly to themselves. At least annually, the Capital Accumulation Plan Administrative Committee shall have mailed to each Member a statement of his or her Account and such statement shall be deemed to have been accepted as correct for all purposes of this Plan unless written notice to the contrary is received by the Capital Accumulation Plan Administrative Committee or the Trustee within 30 days after the date of mailing. 10.6 Claims for Benefits ------------------- Applications for benefits must be made in such manner as prescribed by the Administrator. The Administrator shall have full discretion and final authority to determine eligibility for benefits and to construe the terms of the Plan in acting upon an initial application for benefits or an appeal of a denial of an application for benefits. Each application shall be acted upon and approved or disapproved within 90 days following its receipt by the Administrator. In the event special circumstances require an extension of time for reviewing the initial application for benefits, the Administrator shall make a determination as soon as practicable but no later than 180 days following receipt of the application. If any application for benefits is denied, in whole or in part, the Administrator shall notify the applicant in writing of such denial and of the applicant's right to a review by the Administrator and shall set forth in a manner calculated to be understood by the applicant, specified reasons for such denial, specific references to pertinent Plan provisions on which the denial is based, a description of any additional material or information necessary for the applicant to perfect the application, an explanation of why such material or information is necessary, and an explanation of the Plan's review procedure. Any person, or a duly authorized representative thereof, whose application for benefits is denied in whole or in part, may appeal from such denial to the Administrator for a review of the decision by submitting to the Administrator within 60 days after receiving notice of denial, a written statement: (a) Requesting a review of the application for benefits by the Administrator; (b) Setting forth all of the grounds upon which the request for review is based and any facts in support thereof; and (c) Setting forth any issues or comments which the applicant deems relevant to the application. -37- The Administrator shall act upon each such appeal application within 60 days after the later of receipt of the applicant's request for review by the Administrator or receipt of any additional materials reasonably requested by the Administrator from such applicant. In the event special circumstances require an extension of time for reviewing the appeal, the Administrator shall make a determination as soon as practicable but no later than 120 days following receipt of the appeal. The Administrator shall make a full and fair review of each such application and any written materials submitted by the applicant or the Company in connection therewith and may require the Company or the applicant to submit within 30 days of written notice by the Administrator therefor, such additional facts, documents, or other evidence as the Administrator, in its sole discretion, deems necessary or advisable in making such a review. The Administrator shall have full discretion in making an independent determination of the applicant's eligibility for benefits under the Plan and shall have full discretion to construe the terms of the Plan in making its review. The decision of the Administrator on any application for benefits shall be final and conclusive upon all persons. If the Administrator denies an application in whole or in part, the Administrator shall give written notice of its decision to the applicant setting forth in a manner calculated to be understood by the applicant the specific reasons for such denial and specific references to the pertinent Plan provisions on which the Administrator's decision was based. 10.7 Liability of Committee ---------------------- No Member of the Capital Accumulation Plan Administrative Committee shall be liable for any action taken in good faith or for the exercise of any power given the Capital Accumulation Plan Administrative Committee, or for the actions of other members of said Committee unless and except to the extent that such liability is imposed under law as a result of a breach by such Member of his or her fiduciary responsibilities. 10.8 Unlocated Member ---------------- If the Committee is unable, after reasonable and diligent effort, to locate a Member, Former Member or beneficiary entitled to payment under the Plan, such payment may be forfeited and used to offset Company Contributions or to pay Plan expenses. If the Member, Former Member or beneficiary later files a claim for benefit, such benefit will be reinstated. 10.9 Legal Representative -------------------- The Capital Accumulation Plan Administrative Committee shall act on behalf of the Plan with respect to any claim or cause of action, whether arising in the course of -38- administrative or judicial proceedings or otherwise, and shall be responsible for initiating, pursuing and defending any such claim or cause of action involving the Plan. -39- SECTION 11 AMENDMENTS, DISCONTINUANCE, LIABILITIES 11.1 Amendment --------- The Plan may be amended by the Board of Directors of CH-Twenty, Inc., provided that the Plan, as amended, continues to be for the exclusive benefit of the Members of the Plan and that no amendment shall reduce the Account of any Member as of the date of such amendment. 11.2 Termination ----------- CH-Twenty, Inc. intends to continue this Plan indefinitely but reserves the right to terminate it at any time, by action of its Board of Directors. If this Plan is terminated, or if there is a complete discontinuance of contributions under this Plan by the Company, all amounts credited to Accounts of Members shall be held for distribution as provided in Section 8. 11.3 Liability of Company -------------------- The Company shall have no liability for payments under this Plan except to make the contributions required by Section 4. Any payments under the Plan shall be made solely from the fund held by the Trustee. -40- SECTION 12 MISCELLANEOUS 12.1 Employment ---------- This Plan shall not give any Member any right to be continued in the employment of the Company. 12.2 Benefits Not Assignable ----------------------- Except as provided in Paragraph 8.4, no benefit under this Plan shall be assignable or transferable in whole or in part, either directly or by operation of law or otherwise, and shall not be subject to attachment or other process. 12.3 Discharge of Liability ---------------------- If the Administrator deems any person incapable of receiving benefits to which such person is entitled under this Plan, by reason of minority, illness, infirmity, mental incompetency or other incapacity, it may direct the Trustee to make payment directly for the benefit or the account of such person or to any eligible person selected by the Administrator to disburse such payment whose receipt shall be a complete settlement therefor. 12.4 Governing Laws -------------- The Plan shall be governed by and construed in accordance with federal laws governing employee benefit plans qualified under the Code or with the laws of the State of Delaware to the extent not preempted by federal law. 12.5 Limitation on Mergers --------------------- This Plan may not merge or consolidate with, or transfer any of its assets or liabilities to any other plan unless each Member in this Plan would, if said other plan were to terminate, receive a benefit immediately after the merger, consolidation or transfer which is equal to or greater than the benefit such Member would have been entitled to receive immediately before the merger, consolidation or transfer if this Plan had terminated. 12.6 Delegation of Fiduciary or Administrative Responsibilities ---------------------------------------------------------- CH-Twenty, Inc., by resolution of its Board of Directors or by written action of any officer generally or specifically named by such a resolution to take such an action, and the Capital Accumulation Plan Administrative Committee, by resolution of said Committee, may at any time delegate to any other named person or body, or reassume therefrom, any of their respective fiduciary responsibilities or -41- administrative duties with respect to this Plan, including the power to delegate and reassume such responsibilities and duties by written action naming the person or body to whom the responsibility has been delegated. However, only the immediate delegate of CH-Twenty, Inc., or the Capital Accumulation Plan Administrative Committee, as the case may be, may, if so authorized by CH-Twenty, Inc., said Committee or said Treasurer, delegate any such responsibilities or duties. 12.7 Named Fiduciary --------------- The named fiduciary with respect to this Plan is CH-Twenty, Inc. except that (a) as to any matter specified in this Plan as being the responsibility or function of the Capital Accumulation Plan Administrative Committee, the named fiduciary is said Committee, (b) as to any matter specified in the Plan or in the Trust Agreement as being the responsibility or function of the Trustee or the Investment Officer of Atlantic Richfield Company, the named fiduciary is the Trustee or such Investment Officer, as the case may be, and (c) as to any matter specified in the Plan as being the responsibility or function of the President of CH-Twenty, Inc. the named fiduciary is such President. -42- SECTION 13 ROLLOVERS 13.1 Rollovers from Other Qualified Plans ------------------------------------ An Employee who has had distributed to the Employee all or a portion of his or her taxable interest in a plan meeting the requirements of (S)401(a) of the Code, including a defined benefit retirement plan of the Company or a Subsidiary or Affiliate, (the "Other Plan") may, in accordance with procedures approved by the Capital Accumulation Plan Administrative Committee, rollover in cash all or a portion of the taxable distribution received from the Other Plan to the Plan, provided the following conditions are met: (a) The rollover occurs on or before the 60th day after the Member receives the distribution from the Other Plan; (b) The distribution from the Other Plan qualifies as an eligible rollover distribution within the meaning of (S)402(c)(4) of the Code; and (c) The amount rolled over does not exceed the maximum amount which may be rolled over in accordance with (S)402(c)(2) of the Code. 13.2 Transfers From Individual Retirement Accounts --------------------------------------------- An Employee who receives a distribution from an individual retirement account described in (S)408(a) of the Code or an individual retirement annuity described in (S)408(b) of the Code which constitutes the entire amount of such account or annuity (including earnings thereon), and no portion of which is attributable to any source other than a distribution from a qualified plan described in Paragraph 13.1, may, in accordance with procedures approved by the Capital Accumulation Plan Administrative Committee, rollover in cash all or a portion of such distribution to the Plan, within 60 days after receiving the distribution. 13.3 Membership ---------- Notwithstanding anything in the Plan to the contrary, an Employee who rolls over funds to the Plan pursuant to Paragraph 13.1 or 13.2, shall, upon such rollover, become a Member of the Plan except that the right to make Elective Deferrals, Member Contributions or receive Company Contributions will remain subject to Paragraph 2.1. 13.4 Administration -------------- The Administrator shall develop such procedures, including procedures for obtaining information from an Employee desiring to make such a transfer, as it -43- deems necessary or desirable to enable it to determine that the proposed rollover will meet the requirements of this section. Upon approval by the Capital Accumulation Plan Administrative Committee, the rollover shall be deposited with the Trustee in the Employee's Rollover Account. -44- SECTION 14 TOP HEAVY PROVISIONS If the Plan is or becomes Top Heavy in any Plan Year, the provisions of this Section 14 will supersede any conflicting provisions in the Plan. 14.1 Definitions ----------- (a) Key Employee means an Employee, former Employee or an Employee's ------------ beneficiary who at any time during the determination period is: (i) An officer of the Company who has annual Compensation greater than 50 percent of the amount in effect under (S)415(b)(1)(A) of the Code for the Plan Year; (ii) One of the ten Employees owning (or considered as owning within the meaning of (S)318 of the Code) the largest interest in the Company; provided, such Employee's annual Compensation from the Company exceeds the dollar limitation under (S)415(c)(1)(A) of the Code. If two or more Employees have the same ownership interest, the Employee with the greater annual Compensation from the Company for the Plan Year shall be considered to own the larger interest in the Company; (iii) A five percent owner of the Company; or (iv) A one percent owner of the Company who has annual Compensation from the Company of more than $150,000. The determination period of the Plan is the Plan Year containing the Determination Date and the four preceding Plan Years. The determination of who is a Key Employee will be made in accordance with (S)416(i)(1) of the Code and the regulations thereunder. (b) Top Heavy Plan: For any Plan Year after December 31, 1983, this -------------- Plan is Top Heavy if any of the following conditions exist: (i) If the Top Heavy Ratio for this Plan exceeds 60 percent and this Plan is not part of any Required Aggregation Group or Permissive Aggregation Group of plans; (ii) If this Plan is a part of a Required Aggregation Group of plans (but which is not part of a Permissive Aggregation Group) and the Top Heavy Ratio for the group of plans exceeds 60 percent; or -45- (iii) If this Plan is a part of a Required Aggregation Group of plans and part of a Permissive Aggregation Group and the Top Heavy Ratio for the Permissive Aggregation Group exceeds 60 percent. (c) Top Heavy Ratio --------------- (i) If the Company maintains one or more defined contribution plans (including any Simplified Employee Pension Plan) and the Company has not maintained any defined benefit plan which during the five- year period ending on the Determination Date(s) has or has had accrued benefits, the Top Heavy Ratio for this plan alone or for the Required or Permissive Aggregation Group as appropriate is a fraction, the numerator of which is the sum of the account balances of all Key Employees as of the Determination Date(s) [including any part of any account balance distributed in the five-year period ending on the Determination Date(s)], and the denominator of which is the sum of all account balances [including any part of any account balance distributed in the five-year period ending on the Determination Date(s)], both computed in accordance with (S)416 of the Code and the regulations thereunder. Both the numerator and denominator of the Top Heavy Ratio are adjusted to reflect any contribution not actually made as of the Determination Date, but which is required to be taken into account on that date under (S)416 of the Code and the regulations thereunder. (ii) If the Company maintains one or more defined contribution plans (including any Simplified Employee Pension Plan) and the Company maintains or has maintained one or more defined benefit plans which during the five-year period ending on the Determination Date(s) has or has had any accrued benefits, the Top heavy Ratio for any Required or Permissive Aggregation Group as appropriate is a fraction, the numerator of which is the sum of account balances under the aggregated defined contribution plan or plans for all Key Employees, determined in accordance with Subparagraph 14.1(c)(i), and the Present Value of accrued benefits under the aggregated defined benefit plan or plans for all Key Employees as of the Determination Date(s), and the denominator of which is the sum of the account balances under the aggregated defined contribution plan or plans for all Members, determined in accordance with Subparagraph 14.1(c)(i), and the Present Value of accrued benefits under the defined benefit plan or plans for all Members as of the Determination Date(s), all determined in accordance with (S)416 of the Code and the regulations thereunder. The accrued benefits under a defined benefit plan in both the numerator and denominator of the -46- Top Heavy Ratio are adjusted for any distribution of an accrued benefit made in the five-year period ending on the Determination Date. (iii) For purposes of Subparagraphs 14.1(c)(i) and (c)(ii), the value of account balances and the Present Value of accrued benefits will be determined as of the most recent Valuation Date that falls within or ends with the 12-month period ending on the Determination Date except as provided in (S)416 of the Code and the regulations thereunder for the first and second Plan Years of a defined benefit plan. The account balances and accrued benefits of a Member (A) who is not a Key Employee but who was a Key Employee in a prior-year, or (B) effective January 1, 1985, who has not been credited with at least one Hour of Service with a Company maintaining the Plan at any time during the five-year period ending on the Determination Date will be disregarded. The calculation of the Top Heavy Ratio, and the extent to which distributions, rollovers and transfers are taken into account will be made in accordance with (S)416 of the Code and the regulations thereunder. Deductible Member Contributions will not be taken into account for purposes of computing the Top Heavy Ratio. When aggregating plans, the value of account balances and accrued benefits will be calculated with reference to the Determination Dates that fall within the same calendar year. (iv) The accrued benefit of a Member other than a Key Employee shall be determined under the method, (A) if any, that uniformly applies for accrual purposes under all defined benefit plans maintained by the Company, or (B) absent such method, as if such benefits accrued not more rapidly than the slowest accrued rate permitted under the fractional rule of (S)411(b)(1)(C) of the Code. (c) Permissive Aggregation Group: The Required Aggregation Group of plans ---------------------------- plus any other plan or plans of the Company which, when considered as a group with the Required Aggregation Group, would continue to satisfy the requirements of (S)401(a)(4) and (S)410 of the Code. (e) Required Aggregation Group means: -------------------------- (i) Each qualified plan of the Company in which at least one Key Employee participates or participated at any time during the determination period (regardless of whether the plan terminated); and -47- (ii) Any other qualified plan of the Company which enables a plan described in Subparagraph 14.1(e)(i) to meet the requirements of (S)401(a)(4) or (S)410 of the Code. (f) Determination Date means for any Plan Year the last day of the ------------------ preceding Plan Year. For the first Plan Year of the Plan, the last day of that year. (g) Valuation Date means December 31 of each year. -------------- (h) Present Value: Present Value shall be based on interest rate and ------------- the mortality tables specified in the Company's defined benefit plan. (i) Compensation means all compensation, as that term is defined for ------------ (S)415 purposes, but including amounts contributed by the Company pursuant to Employee Contribution Agreements which are excludable from the Employee's income under Code (S)125, (S)402(e)(3), (S)402(h) and (S)403(b). 14.2 Minimum Allocation ------------------ (a) Except as otherwise provided in Subparagraphs 14.2(b), (c) and (d), the Company Contribution allocated on behalf of any Member who is not a Key Employee shall not be less than the lesser of three percent of such Member's Compensation or in the case where the Company has no defined benefit plan which designates this Plan to satisfy (S)401 of the Code, the largest percentage of Company Contribution, as a percentage of the first $150,000 of the Key Employee's Compensation, allocated on behalf of any Key Employee for that year. The minimum allocation is determined without regard to any Social Security contribution. This minimum allocation shall be made even though, under other Plan provisions, the Member would not otherwise be entitled to receive an allocation, or would have received a lesser allocation for the year because of (i) the Member's failure to complete 1,000 Hours of Service, or (ii) the Member's failure to make mandatory Member Contributions to the Plan, or (iii) Compensation less than a stated amount. (b) The provision in Subparagraph 14.2(a), shall not apply to any Member who was not employed by the Company on the last day of the Plan Year. (c) If Members of this Plan are covered by one or more defined benefit plans maintained by the Company or its Subsidiaries, the minimum allocation or benefit requirements applicable to Top Heavy plans shall first be met by such defined benefit plan or plans. -48- (d) If Members of this Plan are covered by one or more defined contribution plans maintained by the Company or its Subsidiaries, and are not covered by any defined benefit plans of the Company or its Subsidiaries, the minimum allocation requirement will be met by the defined contribution plan in which the Employee is an active Member in the following order: 1. Money Purchase Pension Plan 2. Profit Sharing Plan, and 3. Stock Bonus Plan (e) For purposes of satisfying the minimum allocation requirements of this Paragraph 14.2, Elective Deferrals and Matching Contributions may not be taken into account. 14.3 The minimum accrued benefit required [to the extent required to be nonforfeitable under (S)416(b)] may not be suspended or forfeited under Code (S)411(a)(3)(B) or (S)411(a)(3)(D). 14.4 For any Plan Year in which the Plan is Top Heavy, only the first $150,000 (or such larger amount as may be prescribed by the Secretary of Treasury or the Secretary's delegate) of each Member's annual Compensation will be taken into account for purposes of determining benefits under the Plan. 14.5 In any Plan Year in which the Top Heavy Ratio exceeds 60 percent the denominators of the defined benefit fraction and defined contribution fraction [as previously defined in the Plan] shall be computed using 100 percent of the dollar limitation instead of 125 percent. The preceding sentence shall not apply to an Employee so long as there are no: (a) Company Contribution, forfeitures or voluntary nondeductible contributions allocated to such Employee, or (b) Accruals for such Employee under any qualified defined benefit plan. 14.6 In determining the highest rate of contribution applicable to any Key Employee, amounts that such Key Employee elects to defer under an arrangement qualified under (S)401(k) of the Code will be counted for the purposes of (S)416 of the Code. -49- CH-Twenty, Inc. CAPITAL ACCUMULATION PLAN To record the adoption of the amended and restated CH-Twenty, Inc. Capital Accumulation Plan, effective March 15, 1999, the undersigned, being duly authorized to act on behalf of CH-Twenty, Inc. has executed this plan document at Los Angeles, California on the 9th day of July, 1999. ATTEST: CH-TWENTY, INC. BY: [Armineh Simonian] BY: [Alan L. Comstock] ------------------ ------------------------------ Alan L. Comstock President EX-10.3 6 AMEND. #12-ARCO 1985 EXEC LONG TERM INCENTIVE PLAN Exhibit 10.3 AMENDMENT NO. 12 TO ATLANTIC RICHFIELD COMPANY 1985 EXECUTIVE LONG-TERM INCENTIVE PLAN _____________________________ Pursuant to the power of amendment reserved therein, the Atlantic Richfield Company 1985 Executive Long-Term Incentive Plan (the "Plan") is hereby amended effective immediately. 1. With respect to Performance Periods which commence before and end after January 1, 1999, as to the portion of such Performance Period occurring on and after January 1, 1999, and with respect to any Performance Periods which commence on or after January 1, 1999, as to the entire Performance Period, Article I, Subsection 2(f) the Plan is amended to read as follows: "(f) "Comparison Group" means Chevron Corporation, Conoco Inc., Exxon Corporation, Mobil Corporation, Occidental Corporation, Phillips Petroleum Company, Texaco Inc. and Unocal Corporation; provided, however, that if any member of the Comparison Group ceases to exist during a Performance Period ("Terminated Member") the Organization and Compensation Committee of the Board of Directors (the "Committee") shall designate another entity as a member of the Comparison Group ("New Member"), which entity shall have characteristics as common as possible with the existing members of the Comparison Group, as determined in the sole discretion of the Committee; provided, that the performance of the Terminated Member shall be used to calculate the Company Performance Ranking through the date it ceased to exist and the performance of the New Member shall be used to calculate the Company Performance Ranking for the remainder of the Performance Period." 2. Article I, Subsection 2(aa) of the Plan is amended to read as follows: "(aa) "Anticipatory Change of Control" means (i) the execution of an agreement or a written document which, if the subject thereof were consummated, would result in a Change of Control; (ii) a public announcement by any Person, including ARCO, of an intent to take an action(s) which, if consummated, would result in a Change of Control; or (iii) the delivery of a signed, written statement to the Trustee of the Change of Control Trust and ARCO's Independent Auditor by the Chief Financial Officer of ARCO and General Counsel of ARCO that an Anticipatory Change of Control is in effect, provided that, with respect to any of the above three circumstances, the Anticipatory Change of Control shall commence only upon approval either by the Board or the Executive Committee of the Board." Executed this 23rd day of March, 1999. ATTEST ATLANTIC RICHFIELD COMPANY BY: [Armineh Simoanian] BY: [John H. Kelly] --------------------------- --------------------------- JOHN H. KELLY Senior Vice President Human Resources EX-10.4 7 AMEND. #13-ARCO 1985 EXEC LONG TERM INCENTIVE PLAN Exhibit 10.4 AMENDMENT NO. 13 TO ATLANTIC RICHFIELD COMPANY 1985 EXECUTIVE LONG-TERM INCENTIVE PLAN _____________________________ Pursuant to the power of amendment reserved therein, the Atlantic Richfield Company Executive Long-Term Incentive Plan is amended, effective immediately, with respect to any Anticipatory Change of Control or Change of Control related to a merger of a subsidiary of BP Amoco p.l.c. with and into Atlantic Richfield Company (the "ARCO-BP Merger"), as follows:. 1. The introductory language under Article 1, Section 2(b)(i) of the Plan is amended to eliminate footnote No. 1 and read as follows: "(i) Consummation of a reorganization, merger or consolidation or sale of all or substantially all of the assets of ARCO (a "Business Combination"), unless, in each case, following such Business Combination:" 2. Article II, Section 2(f) of the Plan is amended to read as follows: "(f) Change of Control. Except as to any grant of Stock Options after the commencement of an Anticipatory Change of Control related to a merger between Atlantic Richfield Company and BP Amoco, upon the occurrence of a Change of Control, a participant shall be entitled to exercise any outstanding Stock Options which are not otherwise exercisable immediately preceding such a Change of Control." 3. Article III, Section 4(c) of the Plan is amended to read as follows: "(c) Except as to any grant of Restricted Stock or Performance-Based Restricted Stock after the commencement of an Anticipatory Change of Control related to a merger between Atlantic Richfield Company and BP Amoco, all shares of Restricted Stock and Performance-Based Restricted Stock shall be deemed vested upon the occurrence of a Change of Control." 4. Article III, Section 3(b)(v) of the Plan is amended to read as follows: "(v) (1) If a Change of Control occurs following any grant of Contingent Restricted Stock, any actual award of Performance-Based Restricted Stock to which the grantee would otherwise be entitled in respect of such Contingent Restricted Stock, based on the Company's Performance Ranking for the year of the Performance Period on the date of the Change of Control under the applicable Restricted Stock Payment Schedule, shall be satisfied by the grant of shares of Common Stock. The number of 1 shares shall be determined by multiplying the Contingent Restricted Stock by a fraction, the numerator of which is the number of completed months (or fraction thereof) in the Performance Period as of the date of the Change of Control and the denominator of which is the number of months in such Performance Period. However, if such Contingent Restricted Stock is granted after the commencement of an Anticipatory Change of Control related to a merger of a subsidiary of BP Amoco p.l.c. with and into Atlantic Richfield Company, such grant shall be satisfied by the grant of Performance-Based Restricted Stock subject to normal employment circumstances." Executed this 31st day of March, 1999. ATTEST ATLANTIC RICHFIELD COMPANY BY: [Diane Thompson] BY: [John H. Kelly] ------------------------ ------------------------ JOHN H. KELLY Senior Vice President Human Resources 2 EX-27 8 FINANCIAL DATA SCHEDULE
5 1,000,000 9-MOS SEP-30-1999 SEP-30-1999 745 246 1,504 0 427 3,146 40,033 (21,470) 25,827 4,296 5,691 0 1 816 7,287 25,827 8,885 9,313 6,837 7,119 195 0 288 1,215 382 808 42 0 0 850 $2.64 $2.59
-----END PRIVACY-ENHANCED MESSAGE-----