AMENDMENT NO. 4
TO
ATLANTIC RICHFIELD COMPANY
ANNUAL INCENTIVE PLAN
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Pursuant to authority contained in resolutions adopted by the Board of Directors
on February 24, 1997, the following amendment is hereby made to the Atlantic
Richfield Company Annual Incentive Plan (the "Plan"), effective February 24,
1997, unless otherwise indicated.
1. Sections 1 and 2 of the Plan are amended to read as follows:
"Section 1. Purpose
The purpose of the Plan is to provide annual cash Awards to
those executives who make substantial contributions to the success of the
Company by their ability, industry and exceptional performance. It is
intended that the Plan will thereby enable the Company to attract and
motivate management employees of high caliber and potential.
SECTION 2. DEFINITIONS
As used herein, the following terms shall have the following
meanings:
(a) "Adjusted Net Income" means after-tax income as adjusted to
exclude non-routine or "special" items.
(b) "Average Reserve Replacement Cost Per BOE" means the weighted
average of a Corporation's Reserve Replacement Cost Per BOE during the
immediately three preceding fiscal years, except that the Comparison Group
Average Reserve Replacement Cost Per BOE will lag the Company's cost by one
year (e.g., for the Performance Year 1996, the Comparison Group cost will be
based on the average of the years 1993, 1994 and 1995). For purposes of this
definition, weighted average is calculated by dividing the sum of the costs
incurred during the immediately three preceding years by the sum of the
Changes in Proved Reserves, excluding the effect of sales, during the
immediately three preceding years.
(c) "Average Reserve Replacement Ratio" means the weighted average
of a Corporation's Reserve Replacement Ratio during the immediately three
preceding fiscal years, except that the Comparison Group Average Reserve
Replacement Ratio will lag the Company's ratio by one year (e.g., for the
Performance Year 1996, the Comparison Group Ratio will be based on the
average of the years 1993, 1994 and 1995). For purposes of this definition,
weighted average is calculated by dividing the sum of the Changes in Proved
Reserves during the immediately three preceding years by the barrels of oil
equivalent produced or consumed during the immediately three preceding
years.
(d) "Average Return on Shareholders' Equity" or "Average ROSE"
means the simple average of a Corporation's Return on Shareholders' Equity
during the immediately three preceding fiscal years.
(e) "Average Shareholders' Equity" means, for a Corporation, the
average of shareholders' equity at the end of the year in question and at
the end of the immediately preceding fiscal year.
(f) "Award" means an annual award to a participant pursuant to
Section 6 of the Plan.
(g) "Award Multiple" means the multiplier applicable to the
Company's rank for each Performance Criterion, as described in Subsection
5(a)(2) of the Plan.
(h) "Awards Fund" means the aggregate amount of money determined
by the Committee to be available for Awards under the Plan for a Performance
Year pursuant to Section 5 of the Plan.
(i) "Base Salary" means the annualized regular biweekly wages of a
Participant, effective as of December 31 of the year immediately preceding
the Performance Year to which the Award relates, paid by the Company for the
Participant's personal service, excluding all extra pay such as overtime,
premiums, bonuses and other allowances.
(j) "Board" means the Board of Directors of Atlantic Richfield
Company.
(k) "Changes in Proved Reserves" means the sum of the number of
barrels of oil equivalent (BOE) added to and/or subtracted from a
Corporation's and its Equity Affiliates' reserves from the following sources
(6 Mcf = 1BOE):
. Revisions of Estimates
. Improved Recovery
. Extensions and Discoveries
. Purchases
. Sales
(l) "Committee" means the Organization and Compensation Committee
of the Board of Directors of the Company.
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(m) "Company" means Atlantic Richfield Company, its successors
and assigns, and its Subsidiaries.
(n) "Comparison Corporations" or "Comparison Group" means Amoco
Corporation, Chevron Corporation, Exxon Corporation, Mobil Corporation,
Occidental Corporation, Phillips Petroleum Company, Texaco Inc. and Unocal
Corporation.
(o) "Corporation" means the Company or any Comparison Corporation
and its Subsidiaries.
(p) "Equity Affiliate" means any entity accounted for under the
equity or proportional consolidation method in a Corporation's financial
statements.
(q) "Employee" means an employee of the Company.
(r) "Participant" means, with respect to a Performance Year, an
Employee who has been granted an Award under the Plan for such Performance
Year.
(s) "Performance Criteria" or "Performance Criterion", as the
context applies, means the Adjusted Net Income, Average Reserve Replacement
Ratio and Average ROSE, measured pursuant to Section 5 of the Plan in
calculating the Awards Fund.
(t) "Performance Year" means the calendar year immediately
preceding the year in which Awards are granted.
(u) "Plan" means the Annual Incentive Plan as set forth herein
and as may be amended from time to time.
(v) "Reserve Replacement Cost Per BOE" means the costs (both
capitalized and expensed) incurred in the acquisition, exploration and
development of petroleum liquids and natural gas reserves by a Corporation
and its Equity Affiliates divided by the Changes in Proved Reserves of
petroleum liquids and natural gas, excluding the effect of sales.
(w) "Reserve Replacement Ratio" means the percentage computed by
dividing the Changes in Proved Reserves of petroleum liquids and natural
gas during the year in question (before production) by a Corporation's and
its Equity Affiliates' reported total number of barrels of oil equivalent
(BOE) of petroleum liquids and natural gas produced and consumed during
that year. (6 Mcf = 1BOE).
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(x) "Return on Shareholders' Equity" or "ROSE" means, for a
Corporation, the percentage computed by dividing Adjusted Net Income by
Average Shareholders' Equity.
(y) "Salary Grade" means the classification assigned to an
Employee by Atlantic Richfield Company.
(z) "Subsidiary" means any corporation, the majority of the
voting stock of which, or any partnership or joint venture, the majority of
the profits interest or capital interest of which, is owned directly or
indirectly by the Company or a Corporation, as applicable.
(aa) "Total Award Multiple" means the sum of each of the three
Award Multiples applicable to the Company's ranking on each Performance
Criterion multiplied by its one-third weight.
2. Subsection 3(b) of the Plan is deleted and Subsection 3(c) is amended and
redesignated as Subsection 3(b) to read as follows:
"(b) No member of the Committee shall be personally liable by
reason of any contract or other instrument executed by such member, or on
such member's behalf, in such member's capacity as a member of the
Committee or for any mistake of judgment made in good faith, and the
Company shall indemnify and hold harmless each member of the Committee, and
each other officer, employee or director of the Company to whom any duty or
power relating to the administration or interpretation of the Plan has been
delegated, against any cost or expense (including counsel fees) or
liability (including any sum paid in settlement of a claim with the
approval of the Committee) arising out of any act or omission in connection
with the Plan unless arising out of such person's own fraud or bad faith."
3. Subsections 4(a) and (c) of the Plan are amended to read as follows:
"(a) An Employee who has served as an officer or in another key
position at any time during a Performance Year is eligible for selection by
the Committee to receive an Award with respect to that Performance Year. No
member of the Committee may be selected to receive an Award under the
Plan."
"(c) The Committee may make an Award to an Employee (or the
Employee's beneficiary or estate) who has terminated service with the
Company prior to the end of a Performance Year, if the Committee determines
that such Employee has made an outstanding contribution to the Company
during the Performance Year."
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4. Section 5 of the Plan is amended to read as follows:
"SECTION 5. DETERMINATION OF AWARDS FUND
(a) PERFORMANCE CRITERIA
(1) PERFORMANCE COMPARISON
As soon as possible following the close of each
Performance Year, the Committee shall calculate the following comparisons
of the Company with the Comparison Group and rank the Company accordingly:
(i) Compare the percentage change in Adjusted Net
Income from the prior year.
(ii) Compare Average Reserve Replacement Ratio.
(iii) Compare Average ROSE.
(2) RANKING OF PERFORMANCE CRITERIA AND CALCULATION OF FUND
(i) Subject to adjustments described under Subsections
5(a)(2)(ii), (iii) and (iv), each Performance Criterion is weighted one-
third, with Award Multiples relating to the Company's rank for each measure
as follows:
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Award
RANK MULTIPLE
-------------------------------------------------------
1 2.0
2 2.0
3 1.5
4 1.0
5 1.0
6 1.0
7 0.5
8 0
9 0
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(ii) The Total Award Multiple calculated under
Subsection 5(a)(2)(i) may be superseded, in the sole discretion of the
Committee, by a special adjustment in the following circumstances:
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COMPANY RANKING
ON ALL THREE TOTAL AWARD
PERFORMANCE CRITERIA MULTIPLE
------------------------------------------------------------------
1 Not to Exceed 3.0
1 or 2 Not to Exceed 2.5
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(iii) The Award Multiple relating to the Average Reserve
Replacement Ratio measure shall be adjusted as follows:
(1) For Average Reserve Replacement Cost Per BOE:
------------------------------------------------------------------------
Average Reserve
Replacement Cost Per Adjustment
BOE Multiplier
----------------------------------------------------------------------------
(less than)$4.00/BOE 1.25
$4.00-5.00/BOE 1.00
(greater than)$5.00/BOE 0.75
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(2) If the Company's Average Reserve Replacement
Ratio is less than 90 percent, the Award Multiple for this Performance
Criterion cannot exceed 1.0, regardless of actual ranking.
(3) If the Company's Average Reserve Replacement
Ratio is greater than 120 percent, the Award Multiple for this Performance
Criterion cannot be less than 1.5, regardless of actual ranking.
(iv) The Committee may, in its sole discretion, increase by
up to 0.5 the Award Multiple relating to each Performance Criterion for a
Performance Year in which the Committee determines there has been a
substantial improvement in such Performance Criterion on an absolute basis.
(b) SALARY GRADE TARGET AWARD PERCENTAGES
Each Salary Grade among the Employees has a target award which
shall be the percentage of Base Salary representing the 50th percentile of
annual incentive awards payable by the Comparison Group, as derived
annually from market data.
(c) ADJUSTMENT OF SALARY GRADE TARGET AWARD PERCENTAGES
The target award percentage determined under Subsection 5(b) to be
applicable to a Salary Grade shall be adjusted by multiplying such target
award percentage by the total award multiple. Each Salary Grade fund shall
be determined by multiplying the adjusted target percentage by the Base
Salary of each Employee in that Salary Grade.
(d) AWARDS FUND
Subject to any adjustments pursuant to Subsection 5(e), the total
fund available for the grant of individual Awards under the Plan shall be
the sum of each of the Salary Grade funds determined under Subsection 5(c).
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(e) AWARDS FUND LIMITATION
In no event may the aggregate dollar amount of Awards granted for
a Performance Year exceed two percent of the Company's Adjusted Net Income
for such Performance Year. to the extent that the determination of Awards
under Subsections 5(a), (b) and (c) would result in an amount exceeding two
percent of the Company's Adjusted Net Income, each individual Award shall
be reduced proportionately, with the result that the total Awards Fund
shall be an amount equal to two percent of Adjusted Net Income.
(f) INDIVIDUAL AWARD ADJUSTMENTS
In addition to any adjustments resulting from the application of
Subsections 5(a), (c) and/or (e), the Award of a Participant may be
increased or decreased from the amount determined under Subsection 5(c), as
determined to be appropriate by the Committee based on the individual,
group or business unit goals and accomplishments or any other criteria
deemed relevant by the Committee. the amount of any reduction may be
reallocated to other individuals within the same Salary Grade.
(g) BASIS FOR CALCULATIONS
All calculations described in this Section 5 shall be based on the
audited financial statements of each of the Comparison Corporations, to the
extent these are publicly available, or on the income statement and balance
sheet and dividend payments as reported to stockholders, or otherwise
publicly available."
5. Subsection 6(b) of the Plan is amended to read as follows:
"(b) Prior to the commencement of each Performance Year, prospective
Participants shall be afforded the right to elect irrevocably to defer all
or a portion of the payment of their Awards for the Performance Year
pursuant to the terms and conditions of the Atlantic Richfield Executive
Deferral Plan."
6. Subsection 8(a) of the Plan is amended to read as follows:
"(a) the company intends to establish a grantor trust to aid in
accumulating the amounts necessary to pay any amount awarded to a
participant for a performance year, or an award deferred pursuant to
section 6 or any interest credited thereon. all awards, and any interest
credited thereon, shall be paid from the general funds of the company to
the extent not paid from the grantor trust. under no circumstances shall a
participant or other person have any interest whatsoever in any particular
property or assets of the company as a result of this plan or an award made
thereunder."
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7. Section 10 of the Plan is amended to read as follows:
"Section 10. Effective Date
The effective date of the Plan is November 26, 1984."
Executed this 2nd day of October, 1997
ATTEST ATLANTIC RICHFIELD COMPANY
BY: /s/ Donna McGugan BY: /s/ John H. Kelly
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John H. Kelly
Senior Vice President
Human Resources
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