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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 15, 1999
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
ATLANTIC RICHFIELD COMPANY
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(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and stated how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
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[LOGO]
PROPOSED BP AMOCO--ARCO COMBINATION
YOUR VOTE IS VERY IMPORTANT
The boards of directors of Atlantic Richfield Company and BP Amoco p.l.c.
have approved a merger agreement that would result in ARCO being owned by BP
Amoco. The combined group would constitute one of the world's largest integrated
oil and gas companies by market capitalization.
If the combination of BP Amoco and ARCO is completed, BP Amoco will deliver
to you, in exchange for each share of ARCO common stock that you own, 0.82 of an
American depositary share of BP Amoco. Each BP Amoco American depositary share
represents six BP Amoco ordinary shares. Alternatively, if you follow certain
procedures described later in this proxy statement/prospectus, you may elect to
receive, in exchange for each share of ARCO common stock that you own, 4.92 BP
Amoco ordinary shares. BP Amoco American depositary shares trade on the New York
Stock Exchange and BP Amoco ordinary shares trade on the London Stock Exchange
under the symbol "BPA." You will be paid cash instead of receiving any
fractional share interests. On July 9, 1999, the closing price of BP Amoco
American depositary shares as reported on the New York Stock Exchange Composite
Tape was $114 3/16 per share, the closing mid-market quotation of BP Amoco
ordinary shares on the London Stock Exchange was L12.20 per share, and the
conversion rate between dollars and pounds was $1.5515 per pound.
If BP Amoco completes a proposed one-for-one subdivision of its ordinary
share capital prior to the merger, the number of BP Amoco ADSs or BP Amoco
ordinary shares you will receive for each share of ARCO common stock will be
doubled. The proposed share subdivision would not occur prior to the date of the
ARCO special meeting.
Shares of ARCO $3.00 preference stock and $2.80 preference stock will remain
outstanding. Holders of ARCO preference stock will not receive any stock or cash
in connection with the merger of BP Amoco and ARCO unless they convert their
ARCO preference stock into ARCO common stock prior to completion of the merger.
At a special meeting of ARCO's shareholders, you will be asked to vote on
the merger agreement. The merger cannot be completed unless holders of a
majority of the combined voting power of ARCO's outstanding common stock and
preference stock, voting together as a single class, affirmatively vote to adopt
the merger agreement. Under Delaware law, holders of ARCO common stock or
preference stock are not entitled to dissenters' rights in connection with the
merger.
THE ARCO BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR ADOPTION OF THE
MERGER AGREEMENT AT THE SPECIAL MEETING.
The special meeting will be held on August 30, 1999, at 11:00 a.m. local
time, at the Los Angeles Marriott Downtown, 333 South Figueroa Street, Los
Angeles, California.
July 9, 1999 is the record date for the determination of shareholders
entitled to notice of and to vote at the ARCO special meeting.
Please read this entire proxy statement/ prospectus carefully for detailed
information about the BP Amoco-ARCO combination. This document incorporates by
reference information from other documents that you can obtain free of charge.
YOUR VOTE IS VERY IMPORTANT. Whether or not you plan to attend the special
meeting, please vote your shares (1) by filling out, signing and dating the
proxy card and returning it by mail, (2) by submitting a proxy by telephone or
(3) by submitting a proxy via the Internet as instructed on the proxy card. If
you fail to vote your shares, the effect will be the same as a vote against the
merger. I urge you to vote FOR the merger.
Mike R. Bowlin
Chairman of the Board and
Chief Executive Officer
Neither the Securities and Exchange Commission nor any state securities
commission has approved the merger described in this proxy statement/prospectus
or the securities to be issued in the merger, nor have they passed upon the
adequacy or accuracy of this proxy statement/prospectus. Furthermore, the
Securities and Exchange Commission has not determined the fairness or merits of
the merger. Any representation to the contrary is a criminal offense. This proxy
statement/prospectus is not an offer to sell securities and it is not soliciting
an offer to buy securities in any jurisdiction where offers or sales are not
permitted.
This proxy statement/prospectus is dated July 15, 1999 and was first mailed
to ARCO shareholders on July 16, 1999.
<PAGE>
[LOGO]
ATLANTIC RICHFIELD COMPANY
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
Date: August 30, 1999
Time: 11:00 a.m.
Place: Los Angeles Marriott Downtown
333 South Figueroa Street
Los Angeles, California
Purpose: Vote on (a) the proposed adoption of the merger agreement among ARCO,
BP Amoco and a U.S. subsidiary of BP Amoco and (b) any other matters that are
properly presented for consideration at the meeting.
Record Date: July 9, 1999
IF YOU PLAN TO ATTEND:
All ARCO shareholders as of the record date, or their duly appointed proxies,
may attend the meeting. Registration and seating will begin at 10:00 a.m. Each
shareholder may be asked to present valid picture identification, such as a
driver's license or passport. Shareholders holding stock in brokerage accounts
will need to bring a copy of a brokerage statement reflecting stock ownership as
of July 9, 1999. Parking is available in the building. Cameras, recording
devices and other electronic devices will not be permitted at the meeting.
Your board of directors has determined that the terms of the merger
agreement and the merger are advisable and in your best interests and has
approved the merger agreement and the merger. YOUR BOARD OF DIRECTORS RECOMMENDS
THAT YOU VOTE FOR ADOPTION OF THE MERGER AGREEMENT AT THE SPECIAL MEETING.
Your vote is important. It will be helpful to us if you will read the
accompanying proxy statement/ prospectus and the voting instructions on the
proxy card, and then vote (1) by filling out, signing and dating the proxy card
and returning it by mail, (2) by submitting a proxy by telephone or (3) by
submitting a proxy via the Internet as instructed on the proxy card. If you
submit a proxy without specifying the manner in which you would like your shares
to be voted, your shares will be voted FOR adoption of the merger agreement. If
your shares are held in "street name," you must instruct your broker in order to
vote. If you fail to vote your shares by submitting your proxy, instructing your
broker or voting in person at the shareholders' meeting, the effect will be the
same as a vote against the merger.
By order of the board of directors,
Bruce G. Whitmore Los Angeles, California
Senior Vice President, July 15, 1999
General Counsel and
Corporate Secretary
<PAGE>
QUESTIONS AND ANSWERS
THE BP AMOCO--ARCO COMBINATION
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Q. WHY ARE BP AMOCO AND ARCO PROPOSING A
COMBINATION OF THE TWO COMPANIES?
A. The boards of directors of BP Amoco and
ARCO believe that combining the two
companies' complementary oil and gas
assets around the world will result in
an enterprise with a stronger strategic
position, will enhance efficiencies and
cost competitiveness, and will create
significant opportunities for growth.
Q. HOW WILL THE COMBINATION BE
ACCOMPLISHED?
A. ARCO will merge with a U.S. subsidiary
of BP Amoco, with the result that ARCO
will be owned by BP Amoco.
Q. WHAT WILL ARCO SHAREHOLDERS RECEIVE IF
THE COMBINATION IS COMPLETED?
A. For each share of ARCO common stock,
shareholders will receive 0.82 of a BP
Amoco ADS or, if properly elected by
the shareholder, 4.92 BP Amoco ordinary
shares. Holders of ARCO common stock
will receive cash instead of any
fractional interest in a BP Amoco ADS.
For this purpose, BP Amoco ordinary
shares in lots less than six are
considered a fractional interest in a
BP Amoco ADS. Shares of ARCO $3.00
preference stock and $2.80 preference
stock will remain outstanding unless
converted into common stock prior to
completion of the combination. Holders
of ARCO preference stock who convert
after completion of the combination
will receive at that time 0.82 of a BP
Amoco ADS for each share of ARCO common
stock they would otherwise have been
entitled to.
BP Amoco has proposed a one-for-one
subdivision of its ordinary share
capital, subject to the approval of BP
Amoco shareholders at the extraordinary
general meeting described in this proxy
statement/ prospectus at page 19. If
the proposed share subdivision is
approved by the requisite vote of BP
Amoco shareholders and otherwise
becomes effective prior to the
effective time of the merger, then the
exchange ratio in the combination will
be 1.64 BP Amoco depositary shares, or
9.84 BP Amoco ordinary shares, for each
share of ARCO common stock. The
proposed share subdivision would not
occur prior to the date of the ARCO
special meeting.
Q. WHAT IS A BP AMOCO ADS?
A. A BP Amoco ADS is an American
depositary share that represents six BP
Amoco ordinary shares. BP Amoco's
proposed share subdivision will not
affect the ratio of six BP Amoco
ordinary shares to one BP Amoco ADS. An
ADS allows U.S. shareholders to more
easily hold and trade interests in BP
Amoco on U.S. markets. Morgan Guaranty
Trust Company of New York will be the
depositary for the BP Amoco ADSs and
will issue the BP Amoco ADSs and hold
the BP Amoco ordinary shares
represented by the ADSs.
Q. WHAT DO I NEED TO DO TO CHOOSE BP AMOCO
ADSS OR BP AMOCO ORDINARY SHARES?
A. A holder of ARCO common stock will
receive BP Amoco ADSs unless the holder
specifically elects within 42 days of
the completion of the merger to receive
BP Amoco ordinary shares and will
receive instructions for making this
election after the completion of the
merger. ARCO shareholders who own
shares of ARCO common stock in "street
name" through a bank, broker or other
financial institution should seek
advice from their financial
institutions with regard to making an
election for BP Amoco ordinary shares.
Such shareholders may be required by
their financial institutions to give
instructions on that election prior to
completion of the merger.
Choosing BP Amoco ordinary shares will
relieve BP Amoco of its obligation to
pay, under current U.K. tax laws, a
1.5% tax on the value of the BP Amoco
ordinary shares
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underlying BP Amoco ADSs which you
would otherwise receive, and there is
therefore an advantage to BP Amoco in
your choosing ordinary shares. However,
you should consider carefully the
advantages of BP Amoco ADSs before you
make such a choice. You should
carefully read the answer to the next
question.
Q. WHAT ARE THE ADVANTAGES OF CHOOSING BP
AMOCO ADSS RATHER THAN BP AMOCO
ORDINARY SHARES?
A. Most non-institutional holders of ARCO
common stock will prefer to receive BP
Amoco ADSs instead of BP Amoco ordinary
shares for the following reasons: (1)
dividends on BP Amoco ADSs are paid in
U.S. dollars, whereas dividends on BP
Amoco ordinary shares are paid in
pounds sterling; (2) BP Amoco ADSs
trade on North American exchanges,
including the New York Stock Exchange,
whereas BP Amoco ordinary shares do not
trade on any North American exchanges;
and (3) unlike BP Amoco ordinary
shares, trading of BP Amoco ADSs in the
U.S. is not subject to U.K. stamp tax.
Your rights as a holder of BP Amoco
ADSs will in some cases be different
from the rights of a holder of BP Amoco
ordinary shares. For example, you, as
an individual holder of ADSs, will be
entitled to attend, speak and vote at
BP Amoco shareholders' meetings if you
hold your BP Amoco ADSs directly. If,
however, you hold BP Amoco ADSs through
a brokerage account or otherwise in
"street name," you will not be entitled
to attend or speak at a meeting, but
you will be able to vote your ADSs by
instructing the depositary. A
description of the rights of holders of
BP Amoco ADSs is set forth under
"Description of BP Amoco American
Depositary Shares" on page 116.
Q. WHAT ARE THE TAX CONSEQUENCES TO ARCO
SHAREHOLDERS OF THE COMBINATION?
A. The exchange of ARCO common stock for
BP Amoco ADSs or BP Amoco ordinary
shares is generally tax-free for U.S.
holders except for any gains on cash
received instead of fractional
interests in BP Amoco ADSs. This is
also true for those holders of ARCO
preference stock who become holders of
ARCO common stock by converting their
shares of preference stock prior to the
merger.
Q. WHEN WILL THE COMBINATION BE COMPLETED?
A. BP Amoco and ARCO are working to
complete the combination later this
year. Because completion is subject to
shareholder and governmental approvals,
the companies cannot predict the exact
timing.
Q. HOW DO THE DIVIDENDS PAID ON BP AMOCO
ADSS AND ORDINARY SHARES COMPARE WITH
THE DIVIDENDS PAID IN THE PAST ON MY
SHARES OF ARCO COMMON STOCK?
A. Like ARCO, BP Amoco normally pays
dividends four times a year and
announces dividends in U.S. dollars.
Holders of BP Amoco ADSs automatically
receive their dividends in U.S.
dollars, while holders of BP Amoco
ordinary shares receive their dividends
in pounds sterling.
ARCO paid total dividends of $2.85 on
each share of ARCO common stock over
its most recent four quarters. BP
Amoco's total dividends for the same
period were $2.82 on each BP Amoco ADS
(including an associated U.K. tax
credit for U.S. holders), equivalent to
$2.3124 per share of ARCO common stock,
based on conversion into BP Amoco ADSs
at the exchange ratio. Of course,
future dividends of BP Amoco will be
dependent on the company's future
earnings, financial condition and other
factors.
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THE ARCO SPECIAL MEETING
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Q. WHEN IS THE SPECIAL MEETING AND WHAT IS
ITS PURPOSE?
A. The special meeting of ARCO
shareholders will be held at 11:00 a.m.
local time, on August 30, 1999, at the
Los Angeles Marriott Downtown, 333
South Figueroa Street, Los Angeles,
California. At the special meeting,
ARCO shareholders of record will be
asked to consider and vote upon a
proposal to adopt the merger agreement.
Q. WHY AM I RECEIVING THIS PROXY
STATEMENT/ PROSPECTUS AND PROXY CARD?
A. You are receiving a proxy statement/
prospectus and proxy card because you
own shares of stock in ARCO. This proxy
statement/prospectus describes a
proposal to adopt the merger agreement
on which ARCO would like you, as a
shareholder, to vote. It also gives you
information on ARCO, BP Amoco and other
background information so that you can
make an informed decision.
When you cast your vote using the proxy
card or by submitting your proxy by
telephone or via the Internet, you also
appoint Allan Comstock, Terry Dallas
and Bruce Whitmore as your
representatives, or proxies, at the
meeting. They will vote your shares at
the meeting as you have instructed them
on the proxy card or when submitting
your proxy by telephone or via the
Internet. This way, your shares will be
voted whether or not you attend the
special meeting. Even if you plan to
attend the meeting, it is a good idea
to cast your vote in advance of the
meeting in case your plans change.
The board of directors of ARCO knows of
no other business to be presented at
the meeting. If any matters other than
the adoption of the merger agreement
are properly presented for
consideration at the meeting, Messrs.
Comstock, Dallas and Whitmore, as your
proxies, will vote, or otherwise act,
on your behalf in accordance with their
judgment on such matters.
Q. WHAT AM I VOTING ON?
A. You will vote on a proposal to adopt
the merger agreement in connection with
the proposed merger of ARCO and BP
Amoco.
Q. WHO CAN VOTE?
A. All record holders of ARCO common and
preference stocks at the close of
business on July 9, 1999 are entitled
to vote together as one class.
Q. WHO CAN ATTEND THE MEETING?
A. All ARCO shareholders as of the record
date, or their duly appointed proxies,
may attend the meeting. If you hold
your shares in "street name" (that is,
through a broker or other nominee), you
will need to bring a copy of a
brokerage statement reflecting your
stock ownership as of the record date.
Everyone must check in at the
registration desk at the meeting. You
may be asked to present valid picture
identification.
Q. HOW DO I VOTE?
A. You may choose one of three ways to
cast your vote:
1. By mail: Complete, date, sign and
mail the proxy card in the enclosed
postage pre-paid envelope.
2. By telephone: Call 1-877-779-8683
toll free from the U.S. and Canada to
submit your proxy.
3. Via the Internet: Access the
Worldwide Web site at
www.eproxyvote.com/arc to submit
your proxy.
Voting by telephone and via the
Internet is available 24 hours a day, 7
days a week.
You may also vote in person at the
meeting. ARCO will pass out written
ballots to anyone who wants to vote at
the meeting. If you hold your shares in
street name, you must request a legal
proxy from your stockbroker or other
nominee in order to vote at the
meeting.
Q. WHAT HAPPENS IF I DO NOT INDICATE MY
PREFERENCE FOR OR AGAINST ADOPTION OF
THE MERGER AGREEMENT?
A. If you submit a proxy without
specifying the manner in which you
would like your
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shares to be voted, your shares will be
voted FOR adoption of the merger
agreement.
Q. WHAT IF I VOTE AND THEN CHANGE MY MIND?
A. You can revoke your proxy by writing to
ARCO, by submitting a new proxy via
mail, telephone or the Internet, or by
attending the meeting and casting your
vote in person. Your last vote will be
the vote that is counted.
Q. HOW MANY VOTES DO YOU NEED TO HOLD THE
MEETING?
A. Shares are counted as present at the
meeting if the shareholder either:
(1) is present and votes in person at
the meeting, or
(2) has properly voted by submitting a
proxy via mail, telephone or
Internet.
Shares representing at least a majority
of the votes entitled to be cast on a
particular matter must be present at
the meeting in order to conduct
business. This is called a quorum.
As of the record date, July 9, 1999,
ARCO had 322,381,434 shares of common
stock, 48,539 shares of $3.00
preference stock and 550,921 shares of
$2.80 preference stock outstanding.
Each holder of $3.00 preference stock
will have the right to sixteen votes
for each share held, and each holder of
$2.80 preference stock will have the
right to four votes for each share
held. Holders of ARCO common stock will
have the right to one vote for each
share held. The holders of the
preference stocks therefore have the
right to cast a total of 2,980,308
votes, and the holders of common stock
have the right to cast a total of
322,381,434 votes. As of the record
date, ARCO directors and executive
officers and their affiliates owned
less than 1% of the shares of ARCO's
outstanding common stock and no shares
of ARCO's outstanding preference
stocks.
Q. WHAT IS THE VOTE NECESSARY TO ADOPT THE
MERGER AGREEMENT?
A. Adoption of the merger agreement
requires the affirmative vote of the
holders of a majority of the combined
voting power of the outstanding shares
of ARCO's common and preference stocks
voting together as one class.
Although only a majority of the voting
power of the outstanding shares of ARCO
stock is required to adopt the merger
agreement, the merger agreement
provides that if the agreement is
adopted by the affirmative vote of the
holders of 66 2/3% or more of the
combined voting power of the
outstanding shares of ARCO common and
preference stocks, then the articles of
incorporation of ARCO, as the surviving
corporation after the merger with a
subsidiary of BP Amoco, will be amended
to delete several provisions that will
not affect the economic rights of
holders of ARCO preference stock after
the merger. You can review these
amendments in Appendix F attached to
this proxy statement/prospectus. The
adoption of the merger agreement by a
supermajority vote is not a condition
to completion of the merger.
Q. IS MY VOTE CONFIDENTIAL?
A. Yes. Proxy cards, ballots and voting
tabulations that identify individual
shareholders are kept confidential
except in certain circumstances where
it is important to protect the
interests of ARCO and its shareholders.
Generally, only the employees of First
Chicago Trust Company of New York,
ARCO's transfer agent processing the
votes, will have access to your name.
They will not disclose your name as the
author of any comments you include on
the proxy card unless you ask that your
name be disclosed to ARCO's management.
Q. WHO WILL COUNT THE VOTES?
A. Employees of First Chicago will
tabulate the votes and act as the
inspectors of the vote.
Q. WHAT DOES IT MEAN IF I GET MORE THAN
ONE PROXY CARD?
A. It means you have multiple accounts at
the transfer agent and/or with
stockbrokers. Please sign and return
all proxy cards to ensure that all your
shares are voted.
Q. WHAT HAPPENS IF I DO NOT VOTE AT ALL?
A. If you fail to vote your shares by
submitting your proxy or by instructing
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your broker to vote your shares and do
not vote in person at the shareholders'
meeting, the effect will be the same as
a vote against the adoption of the
merger agreement.
If your shares are held in street name,
your brokerage firm will leave your
shares unvoted. ARCO's board of
directors encourages you to provide
instructions to your brokerage firm by
voting your proxy. This ensures your
shares will be voted at the meeting.
Abstentions and shares not voted
because your brokerage firm lacks the
authority will count as present or
represented for purposes of determining
a quorum for the special meeting. An
abstention, unreturned proxy or share
not voted because your brokerage firm
lacks the authority will have the
effect of a vote against adoption of
the merger agreement.
You may have granted to your brokerage
firm discretionary voting authority
over your account. In that case, your
stockbroker may be able to vote your
shares depending on the terms of the
agreement you have with your
stockbroker.
If you are participating in any of
ARCO's dividend reinvestment plans or
in ARCO's defined contribution employee
benefit plans, the trustee for your
plan may vote shares you hold if the
trustee does not receive voting
instructions from you. Your unvoted
shares will be voted in the same
proportion as the shares voted by other
participants in the applicable plan.
Q. WHERE DO I FIND THE VOTING RESULTS OF
THE MEETING?
A. ARCO will announce preliminary voting
results at the meeting. ARCO will
publish the final results in a Form 8-K
as soon as practicable following the
meeting. ARCO will file this report
with the Securities and Exchange
Commission. You can get a copy by
contacting the Securities and Exchange
Commission at 1-800-SEC-0330 for the
location of the nearest public
reference room, or through the EDGAR
system at WWW.SEC.GOV or on our
Internet web page at WWW.ARCO.COM.
Q. HOW MUCH DID THIS PROXY SOLICITATION
COST?
A. ARCO will bear the costs of the special
meeting, including the cost of
soliciting proxies. ARCO has retained
D.F. King & Co., Inc. to solicit
proxies from shareholders at an
estimated fee of $20,000, plus
expenses. Note that this fee does not
include the cost of printing and
mailing the proxy statement/prospectus.
ARCO and BP Amoco will share equally
the amount of the filing fees and other
expenses incurred in connection with
filing, printing and distributing this
proxy statement/prospectus. Some of
ARCO's officers and other employees
also may solicit proxies personally, by
telephone and by mail. ARCO will also
reimburse brokerage houses and other
custodians for their reasonable
out-of-pocket expenses for forwarding
proxy and solicitation materials to the
beneficial owners of ARCO common stock
and preference stocks.
Q. WHAT APPRAISAL RIGHTS DO THE ARCO
SHAREHOLDERS HAVE?
A. Under Delaware law, holders of
outstanding shares of ARCO common and
preference stocks are not entitled to
exercise appraisal rights with respect
to the merger.
Q. SHOULD STOCK CERTIFICATES BE SENT IN
WITH THE ENCLOSED VOTING FORM?
A. No. If the combination is completed,
you will be furnished with instructions
for exchanging your shares of ARCO
common stock for BP Amoco ADSs or, if
you properly elect, ordinary shares at
that time.
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WHO CAN HELP ANSWER QUESTIONS?
If you have more questions about the combination, you should contact:
D.F. KING & CO., INC.
77 WATER STREET
NEW YORK, NY 10005
CALL TOLL FREE: 1-800-488-8035
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TABLE OF CONTENTS
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QUESTIONS AND ANSWERS.......................... i
The BP Amoco--ARCO Combination............... i
The ARCO Special Meeting..................... iii
TABLE OF CONTENTS.............................. vii
SUMMARY........................................ 1
THE BP AMOCO EXTRAORDINARY GENERAL MEETING..... 19
Resolution Required for the Combination...... 19
Purpose of Resolution 2...................... 20
Purpose of Resolutions 3, 4 and 5............ 20
Purpose of Resolution 6...................... 20
REGULATORY MATTERS............................. 21
U.S. Antitrust............................... 21
Exon-Florio.................................. 21
European Union............................... 21
Other Laws................................... 22
THE COMBINATION................................ 23
Background of the Combination................ 23
ARCO's Reasons for the Combination;
Recommendation of the ARCO Board........... 26
BP Amoco's Reasons for the Combination....... 31
Opinions of ARCO's Financial Advisors........ 33
Opinion of Financial Advisor to BP Amoco..... 42
Plans for ARCO After the Combination......... 47
Interests of ARCO Directors and Management
Persons in the Combination................. 48
Accounting Treatment and Future Reporting.... 51
ARCO Preference Stocks....................... 52
Other Effects of the Combination............. 53
Directors and Management of BP Amoco
Following the Combination.................. 55
Dividends.................................... 55
Forward-Looking Statements May Prove
Inaccurate................................. 56
MATERIAL TAX CONSEQUENCES...................... 57
General...................................... 57
United States Federal Income Tax
Consequences............................... 58
United States Tax Consequences of Owning BP
Amoco Ordinary Shares and BP Amoco ADSs.... 60
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United Kingdom Tax Consequences of Owning BP
Amoco Ordinary Shares and BP Amoco ADSs.... 61
THE MERGER AGREEMENT........................... 64
The Merger................................... 64
Consideration to Be Received in the Merger... 64
Share Exchange Prior to the Merger............. 65
Treatment of ARCO Preference Stock............. 65
Exchange of ARCO Common Stock for BP Amoco ADSs
or BP Amoco Ordinary Shares.................. 65
Representations and Warranties............... 67
Conduct of Business Pending the Merger; Other
Actions.................................... 68
Acquisition Proposals........................ 69
Stock Options and Other Employee Benefits.... 70
Director and Officer Liability............... 72
Conditions................................... 72
Termination and Effects of Termination....... 75
Expenses..................................... 78
Amendment and Waiver......................... 78
THE STOCK OPTION AGREEMENT..................... 79
Purpose of the Stock Option.................. 79
Required Approvals........................... 79
Cash-Out Right............................... 80
Limitation on Total Profit................... 80
Maximum Option Price; Adjustments to Number
of Option Shares........................... 81
EXCHANGE RATES................................. 81
MARKET PRICE AND DIVIDEND DATA................. 82
Market Prices................................ 82
Dividend Data................................ 84
DESCRIPTION OF BP AMOCO........................ 85
DESCRIPTION OF ARCO............................ 86
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL INFORMATION........................ 87
DESCRIPTION OF BP AMOCO ORDINARY SHARES........ 112
Dividends.................................... 112
Voting Rights................................ 112
Shareholders' Meetings and Notices........... 113
Liquidation Rights........................... 113
</TABLE>
vii
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Preemptive Rights and New Issues of Shares... 113
Disclosure of Interests in Shares............ 114
Changes in Capital........................... 114
Transfer of Shares........................... 114
Liability of Directors and Officers.......... 115
Registrar.................................... 115
DESCRIPTION OF BP AMOCO AMERICAN DEPOSITARY
SHARES....................................... 116
General...................................... 116
Share Dividends and Other Distributions...... 116
Voting Rights................................ 117
Deposit and Withdrawal of Ordinary Shares.... 118
Fees and Expenses............................ 119
Payment of Taxes............................. 119
Actions by ADS Holders....................... 120
Limitations on Liability and Obligations to
ADS Holders................................ 120
Requirements for Depositary Actions.......... 120
Reclassifications, Recapitalizations and
Mergers.................................... 121
Disclosure of Interests in Shares............ 121
Amendment and Termination.................... 121
COMPARISON OF RIGHTS OF ARCO SHAREHOLDERS AND
BP AMOCO SHAREHOLDERS........................ 122
Voting Rights................................ 122
Shareholder Proposals and Shareholder
Nominations of Directors................... 123
Sources and Payment of Dividends............. 124
Rights of Purchase and Redemption............ 124
Meetings of Shareholders..................... 125
Appraisal Rights............................. 126
Preemptive Rights............................ 127
Amendment of Governing Instruments........... 127
Preferred Stock and Preference Stock......... 128
Stock Class Rights........................... 129
Shareholders' Votes on Certain
Transactions............................... 130
<CAPTION>
PAGE
---------
<S> <C>
Rights of Inspection......................... 131
Standard of Conduct for Directors............ 132
Classification of the Board of Directors..... 132
Removal of Directors......................... 133
Vacancies on the Board of Directors.......... 133
Liability of Directors and Officers.......... 133
Indemnification of Directors and Officers.... 134
Shareholders' Suits.......................... 134
Limitations on Enforceability of Civil
Liabilities Under U.S. Federal Securities
Laws....................................... 135
Certain Provisions Relating to Share
Acquisitions............................... 136
Anti-Takeover Measures....................... 137
Disclosure of Interests in Shares............ 137
Certain London Stock Exchange Listing
Requirements............................... 138
Proxy Statements and Reports................. 139
FEES AND EXPENSES.............................. 140
VALIDITY OF SECURITIES......................... 140
EXPERTS........................................ 140
U.K. LISTING PARTICULARS AND CIRCULAR.......... 140
FUTURE ARCO SHAREHOLDER PROPOSALS.............. 141
Appendix A--Agreement and Plan of Merger Among
BP Amoco p.l.c., Atlantic Richfield Company
and Prairie Holdings, Inc., as amended ...... A-1
Appendix B--Opinion of Goldman, Sachs & Co..... B-1
Appendix C--Opinion of Salomon Smith Barney
Inc. ........................................ C-1
Appendix D--Opinion of Morgan Stanley & Co.
Limited...................................... D-1
Appendix E--Summary Listing Particulars........ E-1
Appendix F--Proposed Amendments to Restated
Certificate of Incorporation of Atlantic
Richfield Company............................ F-1
</TABLE>
viii
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROXY
STATEMENT/PROSPECTUS. IT DOES NOT CONTAIN ALL OF THE INFORMATION THAT IS
IMPORTANT TO YOU. YOU SHOULD READ CAREFULLY THE ENTIRE PROXY
STATEMENT/PROSPECTUS AND THE ADDITIONAL DOCUMENTS REFERRED TO IN THIS PROXY
STATEMENT/PROSPECTUS TO FULLY UNDERSTAND THE COMBINATION. SEE "--WHERE YOU CAN
FIND MORE INFORMATION" ON PAGE 17.
THE COMPANIES
BP AMOCO P.L.C.
Britannic House
1 Finsbury Circus
London EC2M 7BA
England
(011 44) 171-496-4000
BP Amoco was created on December 31, 1998 by the merger of the Amoco group
and the BP group. BP began operations in 1909. BP Amoco is Britain's largest
company and one of the world's largest three oil companies on the basis of
market capitalization. Its main businesses are exploration and production,
refining and marketing, and chemicals. BP Amoco has well-established operations
in Europe, North and South America, Australasia and parts of Africa.
ATLANTIC RICHFIELD COMPANY
333 South Hope Street
Los Angeles, CA 90071
(213) 486-3511
ARCO began operations in 1866 as the Atlantic Petroleum Storage Company,
adopting its present name after merging with Richfield Oil Corporation in 1966.
ARCO is a worldwide oil and gas enterprise in which the two main businesses are
exploration and production and refining and marketing. Its exploration and
production operations are focused mainly in Alaska, the Gulf of Mexico and the
Midcontinent in the United States, China, Indonesia, the United Kingdom North
Sea, Algeria and Venezuela. Its refining and marketing operations include two
West Coast refineries and over 1,700 branded retail gasoline outlets in six
western U.S. states and British Columbia.
THE COMBINATION
(SEE PAGE 23)
To accomplish the combination of BP Amoco and ARCO, a wholly owned
subsidiary of BP Amoco will merge into ARCO and, as a result, ARCO will become a
subsidiary of BP Amoco. In the merger, BP Amoco will issue ordinary shares with
an approximate value of $31.5 billion, based on the closing price of a BP Amoco
ADS on the New York Stock Exchange Composite Tape on July 9, 1999. The full text
of the merger agreement is attached as Appendix A.
RECOMMENDATION OF THE ARCO BOARD
(SEE PAGE 26)
The ARCO board of directors has determined that the terms of the merger
agreement and the merger are advisable and in the best interests of ARCO
shareholders and approved the merger agreement and the merger. Accordingly, the
ARCO board of directors recommends that ARCO shareholders vote "FOR" adoption of
the merger agreement at the ARCO special meeting.
OPINIONS OF FINANCIAL ADVISORS
(SEE PAGES 33 AND 42)
ADVISORS TO ARCO
Goldman, Sachs & Co. and Salomon Smith Barney Inc., as co-financial advisors
to ARCO, have delivered separate written opinions to the ARCO board each to the
effect that, as of March 31, 1999, the exchange ratio was fair from a financial
point of view to the holders of ARCO common stock. The full text of the opinions
of Goldman Sachs and Salomon Smith Barney are attached as Appendices B and C.
The opinions describe important exceptions, assumptions and limitations and
should be read carefully in their entirety. THESE OPINIONS ARE DIRECTED TO THE
ARCO BOARD AND ARE NOT RECOMMENDATIONS AS TO HOW YOU SHOULD VOTE ON THE MERGER.
ADVISOR TO BP AMOCO
Morgan Stanley & Co. Limited acted as financial advisor to BP Amoco and has
rendered
<PAGE>
to the BP Amoco board of directors an opinion to the effect that as of March 30,
1999 and based upon and subject to the various considerations set forth in its
opinion, the exchange ratio is fair from a financial point of view to BP Amoco.
The full text of the written opinion of Morgan Stanley is attached to this proxy
statement/prospectus as Appendix D. We urge you to read the opinion carefully
and in its entirety. MORGAN STANLEY'S OPINION IS DIRECTED TO THE BP AMOCO BOARD
OF DIRECTORS AND ADDRESSES ONLY THE FAIRNESS OF THE EXCHANGE RATIO FROM A
FINANCIAL POINT OF VIEW TO BP AMOCO. IT DOES NOT CONSTITUTE A RECOMMENDATION TO
ANY PERSON AS TO HOW TO VOTE ON THE MERGER.
INTERESTS OF MEMBERS OF THE ARCO BOARD AND MANAGEMENT
(SEE PAGE 48)
When considering the ARCO board's recommendation in favor of the merger, you
should be aware that the directors and officers of ARCO have interests in the
merger that are in addition to yours as an ARCO shareholder. ARCO's senior
executive officers and directors collectively own less than 1% of ARCO's
outstanding common stock.
CONDITIONS TO THE COMBINATION
(SEE PAGE 72)
BP Amoco and ARCO will not complete the combination of BP Amoco and ARCO
unless a number of conditions are satisfied or waived by them. These include:
- approvals by BP Amoco and ARCO shareholders; and
- clearance under applicable U.S. and European Union antitrust laws and
obtaining required consents and approvals of other regulatory
authorities in the U.S., the U.K. and other countries.
TERMINATION OF THE MERGER AGREEMENT
(SEE PAGE 75)
BP Amoco and ARCO may terminate the merger agreement by mutual written
consent, with the approval of both boards of directors. Either company may
terminate the merger agreement if it is not in material breach of the merger
agreement and:
- BP Amoco and ARCO do not complete the merger by March 31, 2000, which
date may be extended to June 30, 2000 if any required regulatory
approval has not been obtained and either company elects to extend the
termination date; or
- the shareholders of BP Amoco or ARCO do not approve the merger at their
company's shareholders' meeting; or
- a governmental authority permanently restrains, enjoins or otherwise
prohibits the merger.
Either company may also terminate the merger agreement if:
- the board of directors of the other company withdraws its approval or
favorable recommendation of the merger to its shareholders; or
- the other company breaches any of its representations, warranties or
agreements under the merger agreement, and this breach results in a
failure to meet a condition to the merger which cannot be or is not
cured prior to March 31, 2000 or, if the termination date is extended,
June 30, 2000.
In addition, BP Amoco may terminate the merger agreement if ARCO enters into
negotiations with or furnishes information to a third party regarding an
acquisition transaction proposed by that party or recommends such an acquisition
transaction to ARCO shareholders.
ARCO may terminate the merger agreement if it (1) becomes entitled under the
merger agreement to recommend to its shareholders a superior proposal for an
acquisition transaction, (2) pays BP Amoco a termination payment, as described
below under "--Termination Payments," and (3) enters into an agreement to
implement the alternative acquisition transaction.
2
<PAGE>
TERMINATION PAYMENTS
(SEE PAGE 77)
ARCO will be required to pay BP Amoco a termination payment of $450 million
if the merger agreement is terminated:
- by either BP Amoco or ARCO because ARCO's shareholders do not adopt the
merger agreement at the ARCO special meeting and prior to such meeting
ARCO's board of directors has withdrawn its approval or favorable
recommendation of the merger to the ARCO shareholders; or
- by BP Amoco because ARCO's board of directors withdraws its approval or
favorable recommendation of the merger to its shareholders; or
- by BP Amoco because the ARCO board of directors recommends to its
shareholders an acquisition transaction proposed by a third party; or
- by BP Amoco because ARCO willfully breaches its obligations under the
merger agreement with respect to
seeking third-party acquisition proposals; or
- by ARCO because it becomes entitled to recommend a superior proposal for
an acquisition transaction and enters into an agreement to implement the
alternative acquisition transaction.
In addition, if BP Amoco or ARCO terminates the merger agreement because
ARCO's shareholders fail to adopt the merger agreement at the ARCO special
meeting and, at that time, there is a proposal from a third party for an
acquisition transaction with ARCO, ARCO will be required to pay BP Amoco a
termination payment of $250 million. If, within 12 months of termination, ARCO
enters into an agreement with respect to a third-party acquisition proposal or
such an acquisition proposal is consummated, ARCO will be required to pay BP
Amoco an additional $200 million. ARCO will be deemed to have entered into a
third-party acquisition agreement if its board of directors recommends
acceptance of a third-party acquisition proposal by its shareholders.
A termination payment of $450 million by ARCO, when taken together with the
maximum profit permitted to BP Amoco under the stock option agreement described
below, would result in a potential total gain to BP Amoco of $500 million.
BP Amoco will be required to pay ARCO a termination payment of $500 million
if the merger agreement is terminated:
- by either BP Amoco or ARCO because BP Amoco's shareholders do not approve
the merger at the BP Amoco extraordinary general meeting and prior to
such meeting BP Amoco's board of directors has withdrawn its approval or
favorable recommendation of the merger to the BP Amoco shareholders; or
- by ARCO because BP Amoco's board of directors withdraws its approval or
favorable recommendation of the merger to its shareholders.
THE STOCK OPTION AGREEMENT
(SEE PAGE 79)
Simultaneously with the execution of the merger agreement, BP Amoco and ARCO
also entered into a stock option agreement pursuant to which ARCO granted BP
Amoco an option to purchase up to 64,861,617 shares of ARCO common stock,
approximately 19.9% of the shares then outstanding. The stock option may be
exercised, at a price per share in cash equal to $82.82, only in the event that
the merger agreement is terminated and BP Amoco then or later becomes entitled
to receive the maximum termination payment of $450 million from ARCO. The number
of shares of ARCO common stock that are purchasable, and the purchase price per
share, under the stock option agreement are subject to adjustment as described
under "The Stock Option Agreement." The stock option agreement limits the total
profit that BP Amoco may obtain from exercise of the stock option and the
termination payment from ARCO, taken together, to $500 million.
3
<PAGE>
REGULATORY MATTERS
(SEE PAGE 21)
ARCO and BP Amoco each have agreed to use its best reasonable efforts to
complete the combination, including to gain clearance from antitrust authorities
and obtain other required regulatory approvals. For that purpose, the parties
also have agreed to accept any condition, term or restriction in connection with
obtaining any regulatory approval unless such conditions, terms and restrictions
in the aggregate would be reasonably likely to have a material adverse effect on
BP Amoco or ARCO, considered on the basis of the total value of the combined
U.S. operations of the two companies and their subsidiaries. There can be no
assurance, however, that BP Amoco and ARCO will obtain all required governmental
approvals or that these approvals will not contain conditions that would be
detrimental to BP Amoco after the merger.
LISTING OF BP AMOCO ADSS AND ORDINARY SHARES
(SEE PAGE 53)
The BP Amoco ADSs that ARCO common shareholders will receive in the merger
will be listed on the NYSE and the BP Amoco ordinary shares underlying those
ADSs or delivered instead of those ADSs will be admitted to the Official List of
the London Stock Exchange.
ACCOUNTING TREATMENT
(SEE PAGE 51)
BP Amoco will account for the combination as an acquisition under generally
accepted accounting principles in the United Kingdom and as a purchase under
generally accepted accounting principles in the United States.
U.S. FEDERAL INCOME TAX CONSEQUENCES
(SEE PAGE 58)
The merger of BP Amoco and ARCO will be tax-free to U.S. holders of ARCO
common stock, including holders of ARCO preference stock who convert their
shares of preference stock into ARCO common stock prior to the merger, except
with respect to any cash received instead of a fractional interest in a BP Amoco
ADS.
VOTE REQUIRED OF BP AMOCO SHAREHOLDERS
(SEE PAGE 19)
At the BP Amoco shareholders' extraordinary general meeting, BP Amoco
shareholders will vote on a resolution to approve the combination and several
other resolutions.
The resolution approving the combination is the only BP Amoco resolution
which is a condition to the completion of the combination. The resolution will
require the approval of a majority of the votes cast by the holders of BP Amoco
ordinary shares and preference shares, voting as one class.
The resolution approving the one-for-one subdivision of BP Amoco ordinary
share capital is not a condition to completion of the combination.
COMPARISON OF RIGHTS OF HOLDERS OF BP AMOCO ORDINARY SHARES WITH HOLDERS OF ARCO
COMMON STOCK
(SEE PAGE 122)
If the combination is completed, holders of ARCO common stock will receive
BP Amoco ADSs or, if they properly elect, BP Amoco ordinary shares. There are
numerous differences between the rights of a shareholder in ARCO, a Delaware
corporation, and the rights of a shareholder in BP Amoco, an English company.
For example,
- except in limited circumstances, holders of BP Amoco ordinary shares are
not entitled to appraisal rights in mergers or any other types of
transactions;
- except in certain limited circumstances, only holders of BP Amoco
ordinary shares representing 5% or more of the voting rights of BP Amoco
are able to make proposals at a shareholders' meeting;
- persons acquiring 3% or more of the nominal value of BP Amoco shares are
required to make public disclosures and notifications with respect to
their ownership;
- amendments to the memorandum and articles of association of BP Amoco
4
<PAGE>
require the approval of at least 75% of the votes cast at a
shareholders' meeting; and
- although holders of BP Amoco ordinary shares will be permitted to
initiate lawsuits on behalf of the company in limited circumstances,
holders will not generally be able to initiate class action lawsuits on
behalf of BP Amoco or on behalf of other shareholders.
You should also be aware that it may be difficult to effect service of
process to begin a lawsuit in a U.S. court against directors and officers of BP
Amoco who are not residents of the U.S.
5
<PAGE>
COMPARATIVE MARKET PRICE DATA
The table below presents closing market prices for BP Amoco ADSs and shares
of ARCO common stock as reported on the NYSE Composite Tape. It also shows the
closing middle market quotations--that is, the volume-weighted average sales
price for the last ten minutes of trading--for BP Amoco ordinary shares as
derived from the Daily Official List of the London Stock Exchange. These prices
are presented on three dates:
- March 26, 1999, the last trading day prior to the first news reports that
BP Amoco and ARCO were in discussions about a possible combination
transaction;
- March 31, 1999, the last trading day prior to the public announcement of
the signing of the merger agreement; and
- July 9, 1999, the latest practicable date prior to the printing of this
document.
The table also presents implied equivalent per share values for shares of
ARCO common stock by multiplying the price per BP Amoco ADS on the three dates
by the exchange ratio of 0.82. The implied equivalent per share values would not
be affected if the table assumed the proposed one-for-one subdivision of BP
Amoco's ordinary share capital.
<TABLE>
<CAPTION>
SHARE PRICE
BP AMOCO EQUIVALENT
BP AMOCO ORDINARY ARCO (BP AMOCO ADS)
ADS PRICE SHARE PRICE SHARE PRICE PER ARCO SHARE
----------- ----------- ----------- ----------------
<S> <C> <C> <C> <C>
March 26, 1999....................... $ 100.44 L10.37 $ 65.375 $ 82.36
March 31, 1999....................... $ 101.00 L10.49 $ 73.125 $ 82.82
July 9, 1999......................... $ 114.19 L 12.20 $ 88.125 $ 93.64
</TABLE>
ARCO SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE BP
AMOCO ADSS, BP AMOCO ORDINARY SHARES AND SHARES OF ARCO COMMON STOCK BEFORE
MAKING A DECISION WITH RESPECT TO THE MERGER.
CURRENCIES AND EXCHANGE RATES
References in this document to "dollars," "$" or " CENTS" are to the
currency of the United States and references to "pounds sterling," "pounds,"
"L," "pence" or "p" are to the currency of the United Kingdom. There are 100
pence to each pound. Solely for your convenience, this document contains
translations of certain pounds sterling amounts into U.S. dollars at specified
rates. You should not take these translations as assurances that the pounds
sterling amounts currently represent the U.S. dollar amounts indicated or could
be converted into U.S. dollars at the rate indicated or at any other rate, at
any time.
In this document, unless otherwise stated, pounds sterling have been
translated into U.S. dollars at a rate of $1.5515 per L1.00, the noon buying
rate in New York City for cable transfers in pounds sterling as certified for
customs purposes by the Federal Reserve Bank of New York on July 9, 1999, the
latest practicable date for which exchange rate information was available prior
to the printing of this document.
The period end, average and range of high and low U.S. dollar/pound sterling
exchange rates for the five years ended December 31, 1998 and the six months
ended June 30, 1999 are presented in the section entitled "Exchange Rates"
beginning on page 81.
6
<PAGE>
COMPARATIVE PER SHARE DATA
The following tables present unaudited historical and pro forma per share
data that reflect the completion of the merger based upon the historical
financial statements of BP Amoco and ARCO. The per share information presented
below does not reflect the proposed one-for-one subdivision of BP Amoco's
ordinary share capital. The pro forma data are not indicative of the results of
future operations or the actual results that would have occurred had the merger
been consummated at the beginning of the periods presented. You should read the
data presented below together with the historical consolidated financial
statements, including applicable notes, of BP Amoco and ARCO incorporated by
reference into this document, and the Unaudited Pro Forma Condensed Consolidated
Financial Information appearing in this document beginning on page 87. In the
Unaudited Pro Forma Condensed Consolidated Financial Information and for the
selected U.K. GAAP (U.K. generally accepted accounting practice) amounts shown
below, ARCO's financial position and results of operations have been adjusted to
U.K. GAAP as described in the Notes to the Unaudited Pro Forma Condensed
Consolidated Financial Information.
The first column on the left in the tables below presents certain historical
per share amounts for ARCO. The second column sets forth certain pro forma
equivalent amounts based on the estimated number of BP Amoco ordinary shares and
ordinary share equivalents that will be issued in the merger.
Profit and book value per share presented below for ARCO, BP Amoco
historical and BP Amoco pro forma on a U.S. GAAP basis are not comparable in
certain respects. The most significant difference relates to inventory
accounting. ARCO uses the last-in-first-out (LIFO) method of accounting for
certain inventories. BP Amoco uses the first-in-first-out (FIFO) method required
for U.K. GAAP reporting, which is a permitted basis under U.S. GAAP.
Consequently, the ARCO historical information, which is presented on a LIFO
basis for U.S. GAAP amounts, has been adjusted to the FIFO basis to arrive at
the ARCO historical amounts under U.K. GAAP and the BP Amoco pro forma amounts
under U.K. GAAP. FIFO is also the basis for the U.S. GAAP pro forma
presentation. The differences arising from these adjustments are set forth in
Note 4 and Note 6 of the Notes to the Unaudited Pro Forma Condensed Consolidated
Financial Information.
The profit (loss) per common share amounts shown in the BP Amoco pro forma
column in the tables below reflect the effect of acquisition accounting for the
ARCO combination. This requires the ARCO assets and liabilities to be restated
from their historic book amounts to their fair values. This restatement gives
rise to estimated additional depreciation, depletion and amortization. These
additional charges, together with other estimated fair value related
adjustments, result in a reduction in profit of $460 million and $1,726 million
for the three months ended March 31, 1999 and the year ended December 31, 1998,
respectively. Further details are shown in Note 5 of the Notes to the Unaudited
Pro Forma Condensed Consolidated Financial Information.
7
<PAGE>
BP Amoco pro forma dividends per share represent historical dividends per
share declared by BP prior to January 1, 1999 and by BP Amoco subsequently.
<TABLE>
<CAPTION>
THREE MONTHS ENDED AND AT MARCH 31, 1999
--------------------------------------------------------------
ARCO PRO FORMA
EQUIVALENT
(BP AMOCO PRO FORMA
ARCO DATA MULTIPLIED BY BP AMOCO BP AMOCO
HISTORICAL 4.92) HISTORICAL PRO FORMA
----------- ----------------------- ----------- -----------
<S> <C> <C> <C> <C>
$ $ $ $
AMOUNTS UNDER U.K. GAAP
Profit (loss) per common (ordinary) share
Basic............................................. 0.46 (0.20) (0.02) (0.04)
Diluted........................................... 0.46 (0.20 ) (0.02) (0.04)
Dividends per common (ordinary) share............... 0.71 0.49 0.10 0.10
Book value per common (ordinary) share.............. 30.81 31.34 4.25 6.37
AMOUNTS UNDER U.S. GAAP
Profit (loss) per common (ordinary) share
Basic............................................. 0.51 (0.10 ) 0.00 (0.02)
Diluted........................................... 0.51 (0.10 ) 0.00 (0.02)
Dividends per common (ordinary) share............... 0.71 0.49 0.10 0.10
Book value per common (ordinary) share.............. 24.37 27.31 3.73 5.55
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED AND AT DECEMBER 31, 1998
--------------------------------------------------------------
ARCO PRO FORMA
EQUIVALENT
(BP AMOCO PRO FORMA
ARCO DATA MULTIPLIED BY BP AMOCO BP AMOCO
HISTORICAL 4.92) HISTORICAL PRO FORMA
----------- ----------------------- ----------- -----------
<S> <C> <C> <C> <C>
$ $ $ $
AMOUNTS UNDER U.K. GAAP
Profit (loss) per common (ordinary) share from
continuing operations
Basic............................................. (0.60) 0.59 0.34 0.12
Diluted........................................... (0.60) 0.59 0.33 0.12
Dividends per common (ordinary) share............... 2.85 1.94 0.395 0.395
AMOUNTS UNDER U.S. GAAP
Profit per common (ordinary) share
Basic............................................. 1.40 0.74 0.29 0.15
Diluted........................................... 1.40 0.74 0.29 0.15
Profit (loss) per common (ordinary) share from
continuing operations
Basic............................................. (2.05) 0.25 0.29 0.05
Diluted........................................... (2.05) 0.25 0.29 0.05
Dividends per common (ordinary) share............... 2.85 1.94 0.395 0.395
</TABLE>
8
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following tables set forth selected historical financial data of ARCO
and BP Amoco for each of the five years ended December 31, 1998 and selected
unaudited historical financial data for the three months ended March 31, 1999
and 1998. The selected historical financial data of each of ARCO and BP Amoco
(apart from 1995 and 1994) have been derived from, and you should read them in
conjunction with, the annual audited consolidated financial statements of ARCO
and BP Amoco, including the notes thereto, and the unaudited three-month
condensed consolidated financial statements of ARCO and BP Amoco, incorporated
by reference in this proxy statement/prospectus. The BP Amoco unaudited
historical financial data for 1995 and 1994 have been derived by combining
historical financial information for BP and Amoco (after adjusting to a U.K.
GAAP basis). The ARCO selected historical financial data for 1995 and 1994 have
been derived from ARCO's annual audited consolidated financial statements for
such years, which are not incorporated by reference into this proxy
statement/prospectus.
ARCO reports quarterly and annual earnings results in accordance with U.S.
GAAP. BP Amoco reports quarterly and annual earnings results in accordance with
U.K. GAAP. These methods of accounting differ from each other in certain
significant respects. The main differences between U.K. GAAP and U.S. GAAP that
are relevant to BP Amoco's consolidated financial statements relate to deferred
taxation, the treatment of shares held by employee share ownership plans, the
sale and leaseback of property and the treatment of dividends. See Note 46 to
the audited consolidated financial statements of BP Amoco presented in BP
Amoco's Form 6-K filed on July 7, 1999, which presents restated financial
information for the years ended December 31, 1998, 1997 and 1996, and which is
incorporated by reference in this proxy statement/prospectus.
BP Amoco has adopted Financial Reporting Standard No. 12 "Provisions,
Contingent Liabilities and Contingent Assets" effective as of January 1, 1999
and accordingly has restated its financial statements for prior periods,
including the selected historical financial information shown below, in its
Report on Form 6-K filed on July 7, 1999. The financial statements included in
such Report on Form 6-K have also been amended to correct reserve information.
The proved reserves for associated undertakings have been revised to exclude
reserves in Abu Dhabi which, if recent production levels were to continue, would
not be fully recovered during the period of the concessions.
ARCO
ARCO's per share data for the three years ended December 31, 1996 have been
restated for the effect of the 100% stock dividend issued June 13, 1997.
All amounts are restated to eliminate discontinued operations, except for
net income and cash dividends.
BP AMOCO
"Operating profit" is a U.K. GAAP measure of trading performance. It
excludes profits and losses on the sale of businesses and fixed assets and
fundamental restructuring costs, interest expense and taxation. BP Amoco
determines operating profit on a replacement cost basis, which eliminates the
effect of inventory holding gains and losses. Operating profit on the
replacement cost basis is used by BP Amoco management as the primary measure of
business unit trading performance and BP Amoco management believes that this
measure assists investors to assess BP Amoco's underlying trading performance
from period to period. Replacement cost is not a U.S. GAAP measure. See Note 1
of the Notes to the Unaudited Pro Forma Condensed Consolidated Financial
Information for a further description of operating profit on a replacement cost
basis.
The BP Amoco dividends per share presented in the table below represent
historical dividends per share paid by BP prior to January 1, 1999 and by BP
Amoco subsequently. Dividend figures for the years 1994 to 1996 inclusive have
been restated to give effect to the two-for-one share split in BP Amoco ADSs on
June 6, 1997. (One BP Amoco ADS is now equivalent to six BP Amoco ordinary
shares.)
9
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF ARCO
(U.S. GAAP)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED AND AT
MARCH 31, YEARS ENDED AND AT DECEMBER 31,
-------------------- -------------------------------------------------------
1999 1998 1998(1)(2) 1997(1) 1996 1995(3) 1994(4)
--------- --------- ----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(MILLIONS EXCEPT PER SHARE AMOUNTS)
INCOME STATEMENT DATA
Sales and other operating
revenues.......................... $ 2,415 $ 2,536 $ 10,303 $ 14,340 $ 14,094 $ 10,995 $ 11,132
Income (loss) from continuing
operations (basic)................ 165 134 (655) 1,331 1,261 685 514
Earnings (loss) per share from
continuing operations (basic)..... 0.51 0.42 (2.05) 4.14 3.92 2.12 1.59
Earnings (loss) per share from
continuing operations
(diluted)(5)...................... 0.51 0.41 (2.05) 4.07 3.86 2.10 1.57
Net income.......................... 165 220 452 1,771 1,663 1,376 919
Cash dividends per common share..... 0.71 0.71 2.85 2.825 2.75 2.80 2.75
BALANCE SHEET DATA
Total assets........................ 25,363 25,199 25,199 22,425 22,703 20,934 21,415
Long-term debt and capital lease
obligations....................... 4,618 4,332 4,332 3,619 4,745 5,813 6,293
ARCO shareholders' interest......... 7,846 7,580 7,580 8,680 7,801 6,758 6,278
</TABLE>
- ------------------------
(1) See Notes 6 and 7, regarding restructuring costs and an extraordinary item
in 1997, to the consolidated financial statements of ARCO for the years
ended December 31, 1998, 1997 and 1996, which are presented in ARCO's Form
10-K for the year ended December 31, 1998 and are incorporated by reference
in this proxy statements/prospectus.
(2) Includes $925 million after tax impairment of oil and gas properties.
(3) Dividends include a $0.05 per share redemption payment for common stock
purchase rights.
(4) Includes after-tax gain of $273 million from issuance of stock by Vastar
Resources, Inc. and a $210 million after-tax charge for the costs associated
with the elimination of approximately 2,400 positions company wide.
(5) No dilution assumed for 1998 due to antidilutive effect on loss from
continuing operations.
10
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF BP AMOCO
<TABLE>
<CAPTION>
THREE MONTHS
ENDED AND AT
MARCH 31, YEARS ENDED AND AT DECEMBER 31,
-------------------- -------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
--------- --------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
(MILLIONS EXCEPT PER SHARE AMOUNTS AND PERCENTAGES)
U.K. GAAP
INCOME STATEMENT DATA
Turnover...................................... $ 17,984 $ 21,516 $ 83,732 $ 108,564 $ 102,064 $ 84,216 $ 76,809
Less: Joint ventures.......................... (3,342) (3,653) (15,428) (16,804) -- -- --
--------- --------- --------- --------- --------- --------- -----------
Group turnover................................ 14,642 17,863 68,304 91,760 102,064 84,216 76,809
Total replacement cost operating profit....... 1,246 1,999 6,521 10,683 10,634 8,264 7,131
Replacement cost profit before exceptional
items....................................... 677 1,279 3,963 6,625 6,662 4,946 3,967
Profit (loss) for the period.................. (176) 640 3,224 5,676 7,420 3,703 4,374
Per ordinary share:
Profit (loss) for the period:
Basic..................................... (0.02) 0.07 0.34 0.59 0.78 0.39 0.46
Diluted................................... (0.02) 0.07 0.33 0.59 0.77 0.39 0.46
Dividends................................... 0.10 0.095 0.395 0.36 0.31 0.27 0.21
BALANCE SHEET DATA
Total assets.................................. 84,703 85,241 84,915 86,279 88,651 81,499 79,060
BP Amoco shareholders' interest............... 41,072 42,332 42,612 42,610 42,234 36,889 35,195
Finance debt due after more than one year..... 10,721 9,687 10,918 10,021 10,088 11,375 13,284
Debt to borrowed and invested capital(1)...... 20% 18% 20% 19% 19% 23% 27%
OTHER DATA
Per ordinary share:
Replacement cost profit before exceptional
items..................................... 0.07 0.13 0.41 0.69 0.70 0.52 0.42
Net cash inflow from operating
activities(2)............................... 829 2,071 9,586 15,558 13,679 12,682 11,877
Net cash outflow from capital expenditure,
acquisitions and disposals.................. 1,624 2,124 6,520 10,056 8,056 7,183 4,629
U.S. GAAP
INCOME STATEMENT DATA
Revenues...................................... 14,642 17,863 68,304 91,760 102,064 84,216 76,809
Profit for the period......................... 1 655 2,826 5,686 6,795 3,991 4,050
Comprehensive income.......................... (805) 629 2,848 4,106 7,218 4,346 4,918
Profit per ordinary share(3):
Basic....................................... 0.00 0.07 0.29 0.59 0.71 0.42 0.43
Diluted..................................... 0.00 0.07 0.29 0.59 0.71 0.42 0.43
Profit per American depositary share(3)
Basic....................................... 0.00 0.41 1.74 3.54 4.26 2.52 2.58
Diluted..................................... 0.00 0.41 1.74 3.54 4.26 2.52 2.58
BALANCE SHEET DATA
Total assets.................................. 85,348 85,814 85,538 87,076 89,934 82,929 80,615
BP Amoco shareholders' interest............... 36,047 37,013 37,334 37,504 37,259 32,475 30,413
OTHER DATA
Net cash used in investing activities......... 1,393 2,384 6,861 10,151 8,311 7,160 4,594
Net cash used in (provided by) financing
activities.................................. (501) (210) 2,161 3,449 3,239 3,723 4,102
</TABLE>
- ------------------------------
(1) Finance debt due after more than one year, compared with such debt plus BP
Amoco and minority shareholders' interests.
(2) The net cash inflows from operating activities are presented in accordance
with the requirements of Financial Reporting Standard No. 1 (Revised 1996)
issued by the U.K. Accounting Standards Board. For a cash flow statement
prepared on a U.S. GAAP basis, see Note 45 of the notes to the consolidated
financial statements of BP Amoco which are presented in the Form 20-F of BP
Amoco for the year ended December 31, 1998 and are incorporated by reference
in this proxy statement/ prospectus.
(3) FASB Statement of Financial Accounting Standards No. 128--"Earnings per
Share" (SFAS 128) was adopted for the accounting period ending December 31,
1997. Amounts for prior periods have been restated as required by SFAS 128.
11
<PAGE>
SIGNIFICANT FACTORS AFFECTING OPERATING RESULTS
Financial results reported in accordance with U.K. GAAP or U.S. GAAP include
the impact of unusual or infrequent events and factors which are not expected to
occur regularly in the future. Examples of these events and factors include
gains or losses on the sale of businesses, the costs of completing major
acquisitions, restructuring charges and other business transactions, as well as
other significant factors and trends, which may be helpful to review in
understanding the past performance and future prospects of ARCO and BP Amoco and
are described briefly below. The following discussion should be read in
conjunction with the "Selected Historical Financial Data" of ARCO and BP Amoco
included in the previous pages and with the "Management's Discussion and
Analysis of Financial Condition and Results of Operations" of ARCO and BP Amoco
that are contained in the annual reports and other information that ARCO and BP
Amoco have filed with the Securities and Exchange Commission. See "--Where You
Can Find More Information" below.
SIGNIFICANT FACTORS AFFECTING ARCO'S OPERATING RESULTS
ASSET DISPOSITIONS
COAL. In June 1998, ARCO disposed of its U.S. coal operations for cash
consideration of approximately $1.1 billion. At December 31, 1998, ARCO recorded
a $92 million provision for the estimated loss on the disposal of its U.S. and
Australian coal assets. Following the disposition of ARCO's two major Australian
coal properties in the first quarter of 1999, ARCO's carrying value for its
remaining Australian coal properties was approximately $60 million.
CHEMICAL. In July 1998, ARCO sold its entire interest in ARCO Chemical to
Lyondell Petrochemical Company (Lyondell) for cash proceeds of $4.6 billion.
After deferral of $313 million of the pre-tax gain, ARCO recorded a net
after-tax gain of $1.1 billion. In 1997, ARCO redeemed its 9% exchangeable notes
with Lyondell common stock owned by ARCO. ARCO then sold its remaining Lyondell
shares in a privately negotiated transaction. ARCO realized an aggregate
after-tax gain of $291 million on the two Lyondell transactions.
IMPAIRMENT AND RESTRUCTURING CHARGES
In 1998, ARCO recorded a $925 million after-tax charge for the write-down of
oil and gas properties, including $507 million related to former Union Texas
Petroleum properties and $114 million related to California heavy crude oil
properties. In addition, ARCO recorded restructuring charges totaling $172
million after tax for the costs of eliminating over 1,200 positions related to
the downsizing of continuing operations, primarily exploration and production
technical support, international exploration and production support operations
and corporate headquarters. The total also included charges related to office
space and facilities that will be vacated with no expected future economic
benefit.
ACQUISITION
In June 1998, ARCO completed a tender offer for all of the common stock of
Union Texas Petroleum Holdings, Inc. (UTP) for approximately $2.5 billion. In
the second half of 1998, the added revenues from UTP production were more than
offset by depreciation, depletion and amortization, which included the allocated
purchase price and the operating costs associated with those properties.
SIGNIFICANT FACTORS AFFECTING BP AMOCO'S OPERATING RESULTS
EXCEPTIONAL ITEMS
Exceptional items comprise profits or losses on the sale of businesses and
fixed assets, merger transaction costs and fundamental restructuring charges.
12
<PAGE>
In 1998 sales of businesses and fixed assets generated net profits before
tax of $1,048 million. The principal sales were exploration and production
properties in the U.S. and Papua, New Guinea, the refinery in Lima, Ohio, the
retail network in the Czech Republic, the Adibis fuel additives business, a
specialty chemicals distribution business and the sale and partial leaseback of
the Amoco building in Chicago, Illinois. Also included was the disposal by the
BP/Mobil joint venture of its retail network in Belgium. BP and Amoco merger
transaction costs of $198 million in respect of advisors' fees and expenses were
incurred in 1998.
The major elements of the net profit before tax on the sale of businesses
and fixed assets in 1997 of $440 million were the sales of U.S. exploration and
production properties and an intrastate natural gas pipeline unit in Texas. Also
included were the costs of terminating the BP/Mobil joint venture lubricant
materials manufacturing operations at Llandarcy in the U.K.
The implementation costs relating to the European refining and marketing
joint venture with Mobil charged against income were $265 million in 1997 and
$267 million in 1996 before taxes. These costs represented BP Amoco's share of
severance, restructuring and rebranding in the joint venture which, together
with asset write-downs and some BP Amoco-specific costs, amounted to $532
million before taxes. Cash outflows relating to these costs were $122 million in
1998, $307 million in 1997 and $69 million in 1996.
The charges for refinery network rationalization of $47 million in 1997 and
$24 million in 1996 represent the balance of the costs associated with the
rationalization of BP Amoco's international refining system announced in 1995.
In 1996 the net loss of $171 million before taxes on the sale of businesses
and fixed assets resulted principally from the sale of the polystyrene foam
products and Carborundum businesses, properties in the U.K. and U.S. and
Canadian exploration and production assets.
IMPAIRMENT
In 1998, BP Amoco recognized charges for asset write-downs totaling $475
million. This included $214 million for the write-downs of the Opon Field and an
adjacent power plant in Colombia and $61 million for the write-down of various
other oil and natural gas properties. Also included was a write-down of $200
million in the book value of BP Amoco's investment in A.O. Sidanco as a result
of increased economic uncertainty in Russia.
ACQUISITIONS
During 1998 BP Amoco acquired Styrenix Kunststoffe, a plastics business
based in Germany, and a number of minor refining and marketing businesses. In
1997, BP Amoco and Shell Oil completed the formation of Altura Energy, a
partnership combining their oil and gas interests in west Texas and southeast
New Mexico. In 1996, BP Amoco acquired a chemical additives business and related
businesses of Albermarle Corporation for $535 million.
Investment in associated undertakings in 1997 included the acquisition of a
10% interest in A.O. Sidanco, a Russian integrated oil company, for $484
million. The net investment in joint ventures in 1997 of $1,967 million included
the operational funding of the BP/Mobil joint venture and the acquisition of a
60% interest in Pan American Energy in Argentina and a 50% interest in Empresa
Petrolera Chaco in Bolivia, two oil and natural gas producing companies, for
$865 million.
13
<PAGE>
BP AMOCO FINANCIAL TARGETS AND GROUP PROSPECTS
BP AMOCO FINANCIAL TARGETS
Following the merger of BP and Amoco on December 31, 1998, the Group Chief
Executive and the management of BP Amoco have conducted a major strategic review
of the combined BP Amoco Group's operations and asset base and, as a consequence
of this review, have developed targets for its financial performance. The
primary targets are:
- The percentage return on average capital employed of the BP Amoco Group to
be increased, through efficiency improvements and growth, by between five
and six percentage points over the three-year period to the end of the
year 2001.
- The gross level of capital expenditures over the three-year period to the
end of the year 2001 to be about $26 billion.
- Aggregate asset disposals of around 15% of capital employed by about the
end of the year 2001, that is, disposals of approximately $10 billion.
- Capital employed by the BP Amoco Group to grow in the three-year period to
the end of the year 2001.
- Gearing (the ratio of net debt to the aggregate of net debt and equity
expressed as a percentage) to remain in a range from between about 25% to
about 30%.
- Continuation of its current dividend policy of paying dividends equal to
approximately 50% of its estimated average earnings (excluding the effect
of the depreciation and amortization charges resulting from the
combination) over the course of a business cycle.
The targets are expected to be achievable in external environmental
conditions (including oil prices) over the period to the end of the year 2001
which are not substantially worse than those prevailing on average during 1998.
These targets replace previously announced targets and take account of an
expected rate of pre-tax cost savings of $2 billion per annum resulting from the
BP/Amoco merger and which it is now believed can be achieved before the end of
1999, but do not reflect the impact of the combination with ARCO. In particular,
the targets do not include the estimated annual pre-tax cost savings of $1
billion, the expected asset disposals of approximately $3 billion or the effects
of the fair valuation of ARCO assets and the resulting amortization and
additional depreciation charges. The targets will be reviewed following the
combination with ARCO and may require adjustment.
CURRENT TRADING AND PROSPECTS
Volatility in the general trading environment, particularly in relation to
higher crude oil prices, will affect results. Higher crude oil prices in the
second quarter 1999 are likely to create an improvement in second quarter 1999
trading performance of BP Amoco and ARCO over the corresponding first quarter
1999 performance.
Restructuring activity has caused BP Amoco's results for the three months
ended March 31, 1999, and is likely to cause its near term results, to be
affected by restructuring charges. These charges may be significant in the
context of a quarter's or a full year's results.
BP Amoco believes that the prospects of the BP Amoco Group will be enhanced
by the combination with ARCO.
RECENT DEVELOPMENTS
BP Amoco has announced a significant oil discovery in the Gulf of Mexico.
Based on information from the initial discovery well, it appears that the oil
field may hold at least one billion barrels of recoverable oil. BP Amoco has a
75% interest in the field. BP Amoco has also announced further significant
discoveries in the Gulf of Mexico, Angola and Azerbaijan.
14
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
BP Amoco and ARCO are providing the following pro forma financial
information to give you a better picture of what the results of operations and
financial position of the combined businesses of BP Amoco and ARCO might have
looked like had the combination occurred on an earlier date. This information is
provided for illustrative purposes only and does not purport to represent what
the actual results of operations or the financial position of BP Amoco would
have been if the combination had occurred on the respective dates assumed. This
information also is not necessarily indicative of BP Amoco's future operating
results or consolidated financial position.
Please see "Unaudited Pro Forma Condensed Consolidated Financial
Information" beginning on page 87 for a more detailed explanation of this
analysis.
BASIS OF PRESENTATION
The pro forma financial information has been prepared in accordance with
U.K. GAAP, which differs in certain respects from U.S. GAAP. In the pro forma
financial information, ARCO's financial position and results of operations have
been adjusted to U.K. GAAP as described in the Notes to the Unaudited Pro Forma
Condensed Consolidated Financial Information.
BP Amoco will account for the combination as an acquisition under U.K. GAAP
and as a purchase under U.S. GAAP. Under acquisition accounting, the
identifiable assets and liabilities of ARCO are recorded at their fair value on
the date of acquisition. The cost of acquisition and the fair values used in the
Unaudited Pro Forma Condensed Consolidated Financial Information have not yet
been finally determined and, accordingly, the amounts reflected below may differ
from the amounts that would have been determined if the final cost of
acquisition and its allocation had been known. The pro forma financial
information has been prepared on this basis.
UNAUDITED PRO FORMA INCOME STATEMENT DATA
The pro forma income statement data have been prepared assuming that the
combination took place on January 1, 1998. This is the first day of the earliest
financial period presented in the pro forma financial information.
The pro forma income statement for the three months ended March 31, 1999
combines the unaudited historical condensed consolidated income statement of
ARCO, as adjusted to U.K. GAAP, and BP Amoco for the period, after giving effect
to the pro forma adjustments described in the Notes to the Unaudited Pro Forma
Condensed Consolidated Financial Information.
The pro forma income statement for the year ended December 31, 1998 combines
the historical condensed consolidated income statements of ARCO, as adjusted to
U.K. GAAP, and BP Amoco for the year after giving effect to the pro forma
adjustments described in the Notes to the Unaudited Pro Forma Condensed
Consolidated Financial Information.
The pro forma per share information presented below does not reflect the
proposed one-for-one subdivision of BP Amoco ordinary share capital.
15
<PAGE>
The U.K. GAAP measures "Total replacement cost operating profit" and
"Replacement cost profit before exceptional items" are explained in Note 1 of
the Notes to the Unaudited Pro Forma Condensed Consolidated Financial
Information.
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED YEAR ENDED
MARCH 31, DECEMBER
1999 31, 1998
----------- -----------
<S> <C> <C>
$ $
<CAPTION>
(MILLIONS, EXCEPT PER
SHARE AND ADS AMOUNTS)
<S> <C> <C>
UNAUDITED PRO FORMA INCOME STATEMENT DATA
U.K. GAAP
Turnover................................................................................... 20,627 95,073
Less: Joint ventures....................................................................... 3,426 15,722
----------- -----------
Group turnover............................................................................. 17,201 79,351
Total replacement cost operating profit.................................................... 1,144 3,932
Replacement cost profit before exceptional items........................................... 368 1,213
Profit (loss) for the period from continuing operations.................................... (487) 1,308
Profit (loss) per BP Amoco ordinary share..................................................
Basic.................................................................................... (0.04) 0.12
Diluted.................................................................................. (0.04) 0.12
U.S. GAAP
Profit (loss) for the period from continuing operations.................................... (257) 554
Per BP Amoco ordinary share................................................................
Basic.................................................................................... (0.02) 0.05
Diluted.................................................................................. (0.02) 0.05
Per BP Amoco ADS...........................................................................
Basic.................................................................................... (0.12) 0.30
Diluted.................................................................................. (0.12) 0.30
Profit (loss) for the period............................................................... (257) 1,660
Per BP Amoco ordinary share
Basic.................................................................................... (0.02) 0.15
Diluted.................................................................................. (0.02) 0.15
Per BP Amoco ADS
Basic.................................................................................... (0.12) 0.90
Diluted.................................................................................. (0.12) 0.90
</TABLE>
UNAUDITED PRO FORMA BALANCE SHEET DATA
The pro forma balance sheet data have been prepared assuming that the
combination took place on March 31, 1999, and combines the unaudited historical
condensed consolidated balance sheets of ARCO, as adjusted to U.K. GAAP, and BP
Amoco after giving effect to the pro forma adjustments described in the Notes to
the Unaudited Pro Forma Condensed Consolidated Financial Information.
<TABLE>
<CAPTION>
AT
MARCH 31, 1999
--------------
<S> <C>
$
<CAPTION>
(MILLIONS)
<S> <C>
UNAUDITED PRO FORMA BALANCE SHEET DATA
U.K. GAAP
Total assets...................................................................................... 132,767
Shareholders' interest............................................................................ 72,243
Finance debt due after more than one year......................................................... 15,907
U.S. GAAP
Shareholders' interest............................................................................ 62,919
</TABLE>
16
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
BP Amoco files annual and special reports and other information and ARCO
files annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
any reports, statements or other information on file at the SEC's public
reference room located at 450 Fifth Street, NW, Washington, D.C. 20549 or at one
of the SEC's other public reference rooms in New York City and Chicago. Please
call the SEC at 1-800-SEC-0330 for further information on the public reference
rooms. The SEC filings are also available to the public from commercial document
retrieval services and, for the ARCO filings and most recent BP Amoco periodic
filings only, at the Internet world wide web site maintained by the SEC at
WWW.SEC.GOV.
BP Amoco has filed a registration statement on Form F-4 to register with the
SEC the BP Amoco ordinary shares which ARCO shareholders will receive in the
merger, including ordinary shares represented by ADSs. BP Amoco will also file a
registration statement on Form F-6 in respect of the BP Amoco ADSs. This proxy
statement/prospectus is a part of the registration statement on Form F-4 and
constitutes a prospectus of BP Amoco, as well as being a proxy statement of ARCO
for its special meeting.
The SEC permits BP Amoco and ARCO to "incorporate by reference" information
into this proxy statement/prospectus. This means that the companies can disclose
important information to you by referring you to another document filed
separately with the SEC. The information incorporated by reference is deemed to
be part of this proxy statement/prospectus, except for any information
superseded by information contained directly in this proxy statement/prospectus.
This proxy statement/prospectus incorporates by reference the documents set
forth below that have been previously filed with or furnished to the SEC. These
documents contain important information about BP Amoco and ARCO and the
financial conditions of each company.
<TABLE>
<CAPTION>
BP AMOCO SEC FILINGS (FILE NO. 1-06262) PERIOD OR DATE
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Annual Report on Form 20-F Year ended December 31, 1998
Reports on Form 6-K Filed on January 4, 1999, April 1, 1999,
April 7, 1999, June 15, 1999 and July 7, 1999
<CAPTION>
ARCO SEC FILINGS (FILE NO. 1-01196) PERIOD OR DATE
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Annual Report on Form 10-K/A Year ended December 31, 1998
Quarterly Report on Form 10-Q Quarter ended March 31, 1999
Current Reports on Form 8-K Filed on April 1, 1999 and April 23, 1999
</TABLE>
The restated financial statements of BP Amoco as of and for the years ended
December 31, 1998, 1997 and 1996, included in BP Amoco's Report on Form 6-K
filed on July 7, 1999, modify and supersede the financial statements included in
BP Amoco's Annual Report on Form 20-F for the year ended December 31, 1998. The
financial statements included in the Annual Report on Form 20-F are therefore
not incorporated by reference in this document to the extent those financial
statements have been modified by the restated financial statements.
BP Amoco and ARCO also incorporate by reference into this proxy
statement/prospectus additional documents that they may file with or furnish to
the SEC from and including the date of this proxy statement/prospectus to the
date of the ARCO special meeting. These include reports such as Annual Reports
on Form 10-K and Form 20-F, Quarterly Reports on Form 10-Q, Current Reports on
Form 8-K, any Reports on Form 6-K so designated, as well as proxy statements.
BP Amoco ADSs and ARCO common stock are listed on the NYSE. BP Amoco ADSs
are also traded on the Chicago, Pacific and Toronto Stock Exchanges. BP Amoco
ordinary shares are admitted to the Official List of the London Stock Exchange
and are also traded on stock exchanges in France, Germany, Japan and
Switzerland. ARCO common stock is also listed on the Pacific Exchange, the
17
<PAGE>
Swiss Stock Exchange and the LSE. You may inspect any periodic reports, proxy
statements and other information filed with the SEC by BP Amoco or ARCO at the
offices of the NYSE, 20 Broad Street, New York, New York 10005, and at the
Pacific Exchange.
If you are a BP Amoco or ARCO shareholder, you may have been sent some of
the documents incorporated by reference, but you can obtain any of them through
the SEC or the SEC's Internet world wide web site as described above or from BP
Amoco or ARCO as described below. Documents incorporated by reference are
available from BP Amoco or ARCO without charge, excluding all exhibits unless an
exhibit has been specifically incorporated by reference into this proxy
statement/ prospectus. Shareholders may obtain documents incorporated by
reference into this proxy statement/ prospectus by requesting them in writing,
by telephone, by e-mail or web site from the appropriate company at the
following addresses:
<TABLE>
<S> <C>
BP Amoco p.l.c. Atlantic Richfield Company
Britannic House 333 South Hope Street
1 Finsbury Circus Los Angeles, CA 90071
London, EC2M 7BA, England Attn: Investor Relations
Attn: Investor Relations Tel: (213) 486-3511
Tel: (011 44) 171-406-4000 Web site: WWW.ARCO.COM
Web site: WWW.BPAMOCO.COM
</TABLE>
If you would like to request documents from BP Amoco or ARCO, please do so
by August 16, 1999 to receive them before the ARCO special meeting.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE INTO THIS PROXY STATEMENT/PROSPECTUS TO VOTE ON THE TRANSACTIONS. NO
ONE HAS BEEN AUTHORIZED TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM
WHAT IS CONTAINED OR INCORPORATED BY REFERENCE INTO THIS PROXY
STATEMENT/PROSPECTUS. THIS PROXY STATEMENT/PROSPECTUS IS DATED JULY 15, 1999.
YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN, OR INCORPORATED BY
REFERENCE INTO, THIS PROXY STATEMENT/PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER
THAN THAT DATE, AND NEITHER THE MAILING OF THIS PROXY STATEMENT/ PROSPECTUS TO
ARCO SHAREHOLDERS NOR THE ISSUANCE OF BP AMOCO ADSS OR BP AMOCO ORDINARY SHARES
IN THE MERGER SHALL CREATE ANY IMPLICATION TO THE CONTRARY.
18
<PAGE>
THE BP AMOCO EXTRAORDINARY GENERAL MEETING
In connection with the proposed combination of BP Amoco and ARCO, the board
of directors of BP Amoco has convened an extraordinary general meeting of the
shareholders of BP Amoco for September 1, 1999.
At the meeting, BP Amoco will propose the following resolutions:
Resolution 1: to approve the combination of ARCO and BP Amoco;
Resolution 2: to approve and give effect to the subdivision of each existing
BP Amoco ordinary share, of nominal value $0.50 each, into two
new BP Amoco ordinary shares, of nominal value $0.25 each.
Resolution 3:to increase the authorized share capital of BP Amoco from
L12,750,000 and $6,000,000,000 to L12,750,000 and
$9,000,000,000, by authorizing an additional 6,000,000,000 BP
Amoco ordinary shares (or, adjusted for the proposed
subdivision of the BP Amoco ordinary share capital, an
additional 12,000,000,000 BP Amoco ordinary shares);
Resolution 4:to give the board of directors of BP Amoco the authority to
issue BP Amoco ordinary shares up to an aggregate nominal
amount of $1,885,000,000 in addition to the shares to be issued
to give effect to the combination;
Resolution 5:to give the BP Amoco board the power to disapply shareholders'
preemption rights in respect of issues of ordinary shares for
cash with an aggregate nominal value of $280,000,000, which
will be equal to approximately five percent of BP Amoco's
issued share capital immediately following the combination; and
Resolution 6: to amend the BP Amoco articles of association to provide that,
among other things, (1) voting on all resolutions at general
meetings of BP Amoco, other than those of a procedural nature,
will be on a poll and (2) to the extent permitted by law:
- the directors, if they determine, may accept proxies delivered
electronically or by telephone and the requirements in the
articles of association that a proxy form must only be in
writing and signed or, in the case of a company, have the seal
affixed, will no longer apply;
- BP Amoco may serve or deliver an offer, notice or other
document (except share certificates) on or to shareholders
electronically to an electronic address or facsimile number
provided to BP Amoco by the shareholder; and
- any such notice sent electronically or by facsimile is treated
as being served or delivered on the expiration of two hours
from the time it was sent.
The authorizations granted in Resolutions 4 and 5 will expire on the earlier
of the date of BP Amoco's annual general meeting in 2000 and July 14, 2000.
RESOLUTION REQUIRED FOR THE COMBINATION
BP Amoco shareholders must approve Resolution 1 by a majority of the votes
cast by the holders of BP Amoco ordinary shares and preference shares voting as
one class in order to complete the combination. Approval by the BP Amoco
shareholders of Resolutions 2 to 6 is not required to complete the combination.
Resolutions 3, 4 and 5 will not become effective unless Resolution 1 is passed.
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PURPOSE OF RESOLUTION 2
Resolution 2 provides that, effective October 4, 1999, each existing BP
Amoco ordinary share will be subdivided with each BP Amoco ordinary shareholder
holding two new BP Amoco ordinary shares of nominal value $0.25 for each
existing BP Amoco ordinary share of nominal value $0.50. A holder of BP Amoco
ADSs would be issued one additional BP Amoco ADS for each BP Amoco ADS held at
the record date for the share subdivision, so that such holder would hold BP
Amoco ADSs representing the increased number of BP Amoco ordinary shares. The
reason for the ordinary share subdivision is to reduce the price at which BP
Amoco ordinary shares and BP Amoco ADSs trade, with the intention of making BP
Amoco securities more attractive to retail investors and improving their
liquidity. Absent any other factors affecting market prices, the share
subdivision is expected to result in initial prices for the new BP Amoco
ordinary shares and BP Amoco ADSs which are, in each case, approximately half
the prices of the existing BP Amoco ordinary shares or existing BP Amoco ADSs
immediately prior to the share subdivision.
PURPOSE OF RESOLUTIONS 3, 4 AND 5
Resolutions 3, 4 and 5 provide for, respectively:
- an increase in authorized ordinary share capital;
- authority for the board of BP Amoco to allot shares; and
- the disapplication of shareholders' preemption rights.
Resolution 3 provides for an increase in the authorized share capital of BP
Amoco to a level which the company believes will be sufficient for its purposes
in the medium term. Resolution 4 provides for an increase in the board allotment
authority, which will enable the board to issue additional BP Amoco ordinary
shares following the combination with ARCO without a specific shareholder
approval, up to the nominal amount of $1,885,000,000, until the earlier of the
date of BP Amoco's annual general meeting in 2000 and July 14, 2000. Resolution
5 gives the BP Amoco board the power to disapply the preemption rights of
shareholders so as to permit the BP Amoco board to issue up to the nominal
amount of $280,000,000 BP Amoco ordinary shares for cash without being required
to offer such shares to existing shareholders in proportion to their existing
shareholdings, until the earlier of the date of BP Amoco's annual general
meeting in 2000 and July 14, 2000.
At the BP Amoco extraordinary general meeting, on a show of hands every
shareholder of BP Amoco who is present in person or whose duly appointed proxy
is present will have one vote. On a poll, every holder of BP Amoco ordinary
shares who is present in person or by proxy shall have one vote for each BP
Amoco ordinary share he or she holds and every holder of BP Amoco preference
shares who is present in person or by proxy will have two votes for every five
BP Amoco preference shares he or she holds. As Resolutions 5 and 6 will be
special resolutions, voting at the BP Amoco extraordinary general meeting on
these resolutions will be on a poll.
PURPOSE OF RESOLUTION 6
Resolution 6 provides for voting on all resolutions at BP Amoco
shareholders' meetings, other than resolutions of a procedural nature, such as
the adjournment of the meeting, to be taken on a poll. Resolution 6 also
provides for, among other things, changes in the permissible mechanisms for
shareholder notices, communications and appointment of proxies, if the directors
consider it appropriate. These changes are intended to result in more efficient
administration of BP Amoco shareholders meetings.
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REGULATORY MATTERS
Under the merger agreement, neither party is required to complete the
combination in the event that any required regulatory consent or approval
contains any term or imposes any condition that, individually or in the
aggregate with all other terms and conditions of regulatory approvals, would be
reasonably likely to have a material adverse effect on BP Amoco or ARCO. For
this purpose, a material adverse effect will be determined on the basis of the
total value of the combined U.S. operations of the two companies and their
subsidiaries. It is possible that required regulatory consents and approvals
will not be obtained at all or on a timely basis or that material conditions
will be imposed on these consents and approvals that could be detrimental to the
businesses of BP Amoco after the combination. See "The Merger
Agreement--Conditions."
U.S. ANTITRUST
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and related
rules, the combination may not be completed unless specific waiting period
requirements have been satisfied. On May 17, 1999, ARCO and BP Amoco each filed
a premerger notification and report form under the Hart-Scott-Rodino Act with
the Antitrust Division of the Department of Justice and the Federal Trade
Commission. On June 17, 1999, the FTC issued requests to BP Amoco and ARCO for
additional information and other documentary materials relating to the
combination. Under the Hart-Scott-Rodino Act, the combination may not be
completed until 20 days following the substantial compliance with these requests
by both parties, unless earlier terminated. At any time before or after the
completion of the combination, the Antitrust Division, the FTC or others could
take action under the antitrust laws with respect to the combination, including
seeking to enjoin the completion of the combination, to rescind the combination
or to condition approval of the combination on the divestiture of substantial
assets of BP Amoco or ARCO. In addition, the State of Alaska and several other
western U.S. states have indicated an interest in investigating and reviewing
the combination under their state antitrust laws. BP Amoco and ARCO cannot
assure you that a challenge to the combination on antitrust grounds will not be
made or, if such a challenge is made, that it would not be successful.
EXON-FLORIO
The provisions of Exon-Florio under the Omnibus Trade and Competitiveness
Act of 1988 empower the President of the United States to prohibit or suspend an
acquisition of, or investment in, a U.S. person by a non-U.S. person if the
President finds, after investigation, credible evidence that the non-U.S. person
might take action that threatens to impair the national security of the U.S. and
that other provisions of existing law do not provide adequate and appropriate
authority to protect the national security of the U.S. Any determination that an
investigation is called for must be made within 30 days of notice of the
proposed transaction. If such a determination is made, any investigation must be
completed within 45 days of the determination and any decision to take action
must be announced within 15 days of completion of the investigation. On July 12,
1999, ARCO and BP Amoco filed a voluntary notice under Exon-Florio requesting
confirmation that the combination does not threaten to impair the national
security of the United States.
EUROPEAN UNION
ARCO and BP Amoco filed a merger notification with the European Union
antitrust authorities on May 4, 1999. The European Commission must review the
combination to determine whether or not it is compatible with the common market
and, accordingly, whether or not to permit it to proceed. A merger or
acquisition which does not create or strengthen a dominant position so as to
significantly impede effective competition in the common market or in a
substantial part of it shall be declared compatible with the common market, and
must be allowed to proceed. If, following a preliminary one month Phase I
investigation, the European Commission considers that it needs to examine the
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combination more closely because it raises serious doubts as to its
compatibility with the common market, it must initiate further Phase II
investigation procedures. If it initiates a Phase II investigation, the European
Commission must issue a final decision as to whether or not the combination is
compatible with the common market no later than four months after the initiation
of the Phase II investigation.
BP Amoco and ARCO believe that the proposed combination is compatible with
the common market under Council Regulation (EEC) No. 4064/89. Nevertheless, on
June 10, 1999, the European Commission decided to initiate a Phase II
investigation into the combination. There can be no assurance as to what the
outcome of this investigation will be or whether a challenge to the proposed
combination will be made on the grounds that it is incompatible with the common
market or, if such a challenge is made, what the result will be.
OTHER LAWS
ARCO and BP Amoco conduct operations in a number of jurisdictions, including
U.S. states, where other regulatory filings or approvals may be required or
advisable in connection with the completion of the combination. ARCO and BP
Amoco are currently in the process of reviewing whether other filings or
approvals may be required or desirable in other jurisdictions which may be
material to ARCO or BP Amoco. ARCO and BP Amoco may not complete some of such
filings or obtain some of such approvals (which may not as a matter of practice
be required to be obtained prior to effectiveness of a merger transaction) prior
to the effective time of the combination.
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THE COMBINATION
BACKGROUND OF THE COMBINATION
In recent years, BP Amoco periodically reviewed strategic initiatives for
improvement of its competitive position in the oil and gas industry worldwide,
including possible business combinations, joint ventures and other significant
transactions. In August 1998, BP and Amoco announced that they were combining
under the name BP Amoco to become one of the world's largest integrated oil and
gas companies by market capitalization. They believed that such a combination
would create a more competitive, global energy and petrochemical group than
either BP or Amoco would have been on its own and would generate significant
opportunities to deliver greater value to their shareholders.
ARCO's management and board of directors periodically review ARCO's
competitive position in the oil and gas industry and consider strategies to
improve its position. ARCO's management in 1997 formulated a strategic plan,
approved by ARCO's board of directors, calling for ARCO to focus on its two core
oil and gas businesses, exploration and production and refining and marketing.
As part of ARCO's execution of this strategy, ARCO disposed of its coal and
chemical operations during the first seven months of 1998. ARCO also acquired
Union Texas Petroleum Holdings, Inc., a U.S. based oil and gas company with
primarily foreign operations.
During 1998, crude oil prices fell significantly, from a spot price (WTI) of
$20.60 per barrel at the beginning of 1998 to $12.05 on December 31, 1998. The
spot price ranged from $11 to $16 per barrel during the second half of the year.
This significant reduction in oil prices placed substantial pressures on the
profit margins and cash flow of ARCO and other oil producers.
The announcement of the BP/Amoco combination was followed in November 1998
by the announcement of a proposed merger between Exxon Corporation and Mobil
Corporation. ARCO's management believes that the largest worldwide oil and gas
companies, such as Royal Dutch/Shell, BP Amoco and the proposed combined
Exxon/Mobil, have the scale and diversity of operations, financial strength and
international presence that allow them to pursue the most profitable projects
and to achieve superior financial results.
In response to these industry developments and for reasons described below
under "--ARCO's Reasons for the Combination; Recommendation of the ARCO Board,"
ARCO's management and board of directors concluded that ARCO should explore, as
an alternative to executing its strategic plan as an independent company, a
strategic combination with another participant in the oil and gas industry.
Goldman Sachs and Salomon Smith Barney were engaged by ARCO as of December 1,
1998, and were instructed to act as ARCO's financial advisors in connection with
ARCO's consideration of financial alternatives, including a possible merger
transaction.
In mid-December, 1998, Mike R. Bowlin, Chairman of the Board and Chief
Executive Officer of ARCO, contacted Sir John Browne, Group Chief Executive of
BP Amoco, to suggest that they meet to discuss options for closer cooperation
between the two companies. Mr. Browne was heavily involved in other matters at
the time, including the completion of the BP/Amoco merger, and asked that Mr.
Bowlin contact him again after January 1. The BP/Amoco merger was completed on
December 31, 1998. On January 4, 1999, Mr. Bowlin called Mr. Browne and they
agreed to meet in London on January 8, 1999. At this meeting and at another
meeting on January 26, 1999, Messrs. Bowlin and Browne preliminarily discussed a
possible combination of the two companies. Their discussions focused on the
strategic fit and economic rationale of the proposed combination, its structure,
possible ranges for a premium to ARCO's shareholders, synergies, regulatory
issues and accounting treatment for the transaction. On January 11, 1999, BP
Amoco engaged Morgan Stanley and instructed Morgan Stanley to act as BP Amoco's
financial advisor in relation to the possible transaction.
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Beginning in late January, 1999, a small group of senior executives of ARCO
and BP Amoco, along with their outside financial advisors and legal counsel,
began a series of discussions regarding the possible combination of BP Amoco and
ARCO. The two companies entered into a mutual confidentiality and standstill
agreement on January 29, 1999, and thereafter began exchanging due diligence
information. Discussions continued throughout February and concerned the
structure of the proposed combination, accounting issues, the due diligence to
be conducted by each company, potential synergies, regulatory issues and a
proposed time schedule for further negotiations.
On January 27, 1999, Mr. Bowlin was contacted by the chief executive officer
of "Company A," another international, integrated oil and gas company, who
expressed preliminary interest in a combination of Company A with ARCO. On
February 11, 1999, Mr. Bowlin and the chief executive officer of Company A met
to discuss the potential for such a combination. Company A proposed a
stock-for-stock merger with ARCO that would be structured as a merger of equals,
accounted for as a "pooling of interests" and priced to provide ARCO's
shareholders with a small premium, although specific pricing terms were not
discussed. Mr. Bowlin and the chief executive officer of Company A agreed that
their companies should continue to explore whether a combination was desirable.
On February 24, the two companies entered into a mutual confidentiality and
standstill agreement and ARCO subsequently provided Company A with due diligence
information.
At BP Amoco's regular board of directors meeting on February 12, 1999 Mr.
Browne briefed the BP Amoco board regarding BP Amoco's contacts with ARCO and
the board endorsed the continuation of discussions between the two companies.
Mr. Bowlin briefed members of ARCO's board of directors regarding the
discussions with BP Amoco at a dinner prior to ARCO's regular board meeting on
January 25, 1999 and regarding the discussions with BP Amoco and with Company A
at a breakfast prior to ARCO's regular board meeting on February 22, 1999.
Messrs. Bowlin and Browne again met on February 25, 1999 in New York to
discuss the proposed combination of ARCO and BP Amoco. At this meeting, Mr.
Browne indicated that BP Amoco was not ready at that time to discuss the
significant economic terms of the proposed combination, principally the exchange
ratio. During the two weeks following this meeting, representatives of the two
companies and their financial advisors had ongoing conversations regarding the
status of the proposed transaction. At BP Amoco's regular board meeting on March
11, 1999, Mr. Browne updated BP Amoco's board on the current status of the
discussions. On March 16, 1999, a Goldman Sachs representative called a
representative of Morgan Stanley to convey ARCO's need to either continue moving
the discussions forward or terminate the discussions so that it could pursue
other alternatives. On March 18, 1999, BP Amoco indicated that it was prepared
to accelerate discussions with ARCO and proposed a meeting between Messrs.
Bowlin and Browne for March 24, 1999.
During the period between March 19, 1999 and March 23, 1999, senior members
of ARCO's and BP Amoco's managements and their financial advisors discussed a
revised timetable and prepared a list of critical issues for Messrs. Bowlin and
Browne to address at their upcoming meeting. On March 22, 1999, Mr. Bowlin,
along with Marie Knowles, ARCO's Chief Financial Officer, and Terry Dallas,
ARCO's Treasurer, briefed the ARCO board members regarding the proposed
combination with BP Amoco and updated them on the status of discussions between
the two companies, as well as discussions between ARCO and Company A. On March
24, 1999, Messrs. Bowlin and Browne met in Los Angeles and discussed a
combination of the two companies at an exchange ratio of 0.82 to 0.83 BP Amoco
ADSs per share of ARCO common stock. They also discussed the proposed terms for
the level of effort to be required of both companies to obtain regulatory
approvals and agreed that the two companies would work to complete negotiations
and execute a definitive merger agreement as promptly as possible.
Mr. Bowlin also met with the chief executive officer of Company A later in
the day on March 24, 1999. At this meeting, Company A proposed a stock-for-stock
merger with ARCO with an implied
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value of approximately $75 to $79 per share of ARCO common stock based on the
closing prices of the two companies' shares on March 24. The proposal was
conditioned upon, among other things, (1) ARCO agreeing to negotiate exclusively
with Company A while Company A completed four additional weeks of due diligence
and (2) the combination qualifying for pooling of interests accounting under
U.S. generally accepted accounting principles. Company A further proposed the
inclusion of certain members of ARCO's management team in the management of the
combined company and that five to six of the seats on Company A's board of
directors would be reserved for directors designated by ARCO. The two chief
executives also discussed the efforts that would be required of both companies,
including divestitures, in order to obtain antitrust clearance in the U.S. for
the proposed combination.
At a board of directors meeting on March 26, 1999, ARCO management, together
with Goldman Sachs and Salomon Smith Barney, reviewed with the ARCO board of
directors the proposals of BP Amoco and Company A. This review and the ensuing
discussion of ARCO's directors focused on (1) the terms of the proposals made by
BP Amoco and Company A, (2) the significant divestitures that likely would be
necessary to obtain antitrust clearance for the proposed combination of Company
A with ARCO and (3) the growth potential for BP Amoco and Company A both
individually and following a combination with ARCO. The ARCO board of directors
noted that the range of exchange ratios proposed by BP Amoco implied a higher
value for ARCO than the range of exchange ratios then proposed by Company A. It
also considered whether it was practical to attempt to pursue both proposals
simultaneously in light of the advanced state of discussions between ARCO and BP
Amoco and Company A's requirement for an exclusivity period while it conducted
an additional four weeks of due diligence. For these reasons, as well as the
other considerations described below under "--ARCO's Reasons for the
Combination; Recommendation of the ARCO Board--Alternative Transaction," the
ARCO board of directors concluded that ARCO should proceed with negotiations
with BP Amoco.
Between March 26, 1999 and March 31, 1999, representatives of BP Amoco and
ARCO and their legal and financial advisors met in New York to negotiate the
terms of the merger agreement and BP Amoco's requirement that ARCO grant BP
Amoco an option to purchase up to 19.9% of ARCO's outstanding shares of common
stock. Each company also completed its due diligence review during this period.
In response to news reports on March 28, 1999, ARCO and BP Amoco issued a
joint press release for publication prior to the opening of business (London
time) on March 29, 1999, confirming that the two companies were engaged in
discussions regarding a possible combination transaction. On March 29, 1999,
Messrs. Bowlin and Browne tentatively agreed, subject to board approval, on the
remaining unresolved principal terms of the merger, including an exchange ratio
of 0.82 and ARCO's grant of the stock option required by BP Amoco.
On March 29, 1999, the chief executive officer of Company A called Mr.
Bowlin in response to ARCO's and BP Amoco's announcement that they were engaged
in discussions. Company A's chief executive officer inquired what effect the BP
Amoco discussions would have on ARCO's and Company A's discussions. He also
indicated that he did not believe that Company A had presented ARCO with its
best proposal for a combination between the two companies. Mr. Bowlin suggested
in response that Company A provide ARCO with its best and final proposal,
approved by Company A's board of directors, by the start of business the next
day.
Late in the evening on March 29, 1999, the chief executive officer of
Company A sent Mr. Bowlin a letter proposing a stock-for-stock combination of
ARCO and Company A at a slightly improved exchange ratio. At the time the ARCO
board reviewed Company A's revised offer it yielded a value of approximately
$82.77 per share of ARCO common stock, based on the closing price of Company A's
common stock on March 30, 1999. Company A further proposed that ARCO would
designate approximately one-third of the combined company's directors, that Mr.
Bowlin would be the vice-chairman of the combined company and that certain other
unspecified officers of ARCO would be
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offered positions in the senior management of the combined company. The proposal
remained subject, however, to the availability of pooling of interests
accounting for the combination under U.S. GAAP, the receipt of regulatory
approvals and the receipt of the approval of both companies' shareholders.
Company A also acknowledged that substantial divestitures would be required in
order to receive antitrust clearance for an ARCO/Company A combination. The form
of merger agreement proposed by Company A provided that either company could
elect not to complete the combination if any divestitures necessary to obtain
regulatory clearance would have a material adverse effect on the business of
either company. Company A indicated that it wished to negotiate and enter into a
definitive merger agreement by April 5, 1999.
The BP Amoco board of directors met on March 30, 1999, and approved the
combination of BP Amoco with ARCO and authorized Mr. Browne to finalize the
merger agreement. At this meeting Morgan Stanley gave its oral opinion to the BP
Amoco board that, as of March 30, 1999 and subject to various considerations set
forth in such opinion, the exchange ratio was fair from a financial point of
view to BP Amoco. Such opinion subsequently was confirmed in writing.
On March 31, 1999, ARCO's board of directors met to approve the combination
of ARCO and BP Amoco, the merger agreement and related matters. ARCO's legal
advisors reviewed for the directors the terms and conditions of the merger
agreement. Goldman Sachs and Salomon Smith Barney made a joint presentation to
the board of directors regarding their financial analyses in connection with
their evaluation of the fairness of the exchange ratio from a financial point of
view. Goldman Sachs and Salomon Smith Barney each provided an oral opinion to
the ARCO board of directors to the effect that, as of March 31, 1999, and
subject to various considerations and exceptions, the exchange ratio was fair
from a financial point of view to holders of ARCO common stock. Such opinions
subsequently were confirmed by the delivery of written opinions dated March 31,
1999. See "--Opinions of ARCO's Financial Advisors" for a description of these
opinions and the related financial analyses. The ARCO board of directors also
considered and discussed at length with ARCO's management and financial advisors
the status of ARCO's discussions with Company A, including Company A's last
offer set forth in its letter of March 29, 1999, proposing, as described above,
revised terms for a combination between ARCO and Company A. The ARCO board of
directors concluded that the proposed combination with BP Amoco was preferable
to the proposed combination with Company A for the reasons described below under
"--ARCO's Reasons for the Combination; Recommendation of the ARCO Board--
Alternative Transaction." The ARCO directors in attendance then unanimously
approved the merger agreement and the merger and resolved to recommend that
ARCO's shareholders vote for adoption of the merger agreement. Two ARCO
directors, Henry Wendt and Gary L. Tooker, who attended a portion of the board
meeting but were not present for the directors' vote on the merger, expressed
their support for the merger prior to leaving the meeting.
Following the ARCO board meeting, Mr. Bowlin called the chief executive
officer of Company A to inform him that Company A's offer had been fully
considered and rejected by the ARCO board in favor of an alternative
transaction. On March 31, 1999, BP Amoco and ARCO entered into the merger
agreement and announced the transaction the following day.
ARCO'S REASONS FOR THE COMBINATION; RECOMMENDATION OF THE ARCO BOARD
In response to the large drop in crude oil prices and significant industry
consolidation during 1998, ARCO's management and board of directors extensively
considered the advantages and disadvantages of ARCO's continued execution of its
existing strategic plan, as well as possible changes to its strategic plan. In
October 1998, ARCO announced a global cost reduction program and began its
implementation. ARCO estimated that this program would reduce ARCO's current
annual pre-tax costs on a stand-alone basis by $350 million in 1999 and $500
million in 2000 and for each year thereafter. In early January 1999, ARCO
announced plans to cut capital spending in 1999 by at least 25%.
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ARCO's management considered the feasibility of further cost reductions in
order to maintain ARCO's profitability. It was concluded, however, that ARCO's
ability to make substantial further cost reductions was limited without
materially adversely affecting ARCO's capacity to pursue future opportunities,
including opportunities arising once oil prices recovered. ARCO's management and
board of directors also determined that ARCO, as a smaller international oil
company with relatively higher leverage than its competitors, had more limited
ability to aggressively pursue new capital intensive opportunities. In addition,
they considered the potential rewards of ARCO remaining independent, including,
among others, the ability of existing ARCO shareholders to fully participate in
ARCO's potential future growth and profitability. ARCO's management, following
discussions with the ARCO board of directors, concluded that ARCO should
explore, as an alternative to executing its strategic plan as an independent
company, a strategic combination with another participant in the oil and gas
industry.
In the fall of 1998, ARCO management, using a review conducted by ARCO over
the previous two years of virtually all the significant companies in the
international oil industry, determined that the greatest opportunities for
synergies and enhanced shareholder value, taking into account transaction costs
and risks, would be created by a combination of ARCO and BP Amoco. ARCO's
management and board of directors considered the following strategic benefits of
a combination with BP Amoco:
- BP Amoco is one of the world's three largest non-state owned integrated
oil and gas companies. Following the combination, BP Amoco and ARCO will
have combined pro forma 1998 earnings in excess of $5 billion and a
combined market capitalization of approximately $190 billion based on
their respective share prices on March 26, 1999 (the last trading day
prior to news reports of discussions between the two companies). The
combined company also will be the largest oil producer of any non-state
owned company. The ARCO management and board of directors believe that BP
Amoco's scale and financial strength will significantly enhance the value
of ARCO's assets and allow greater value to be realized than if ARCO
remained a smaller international oil and gas company. They also believe
that combining ARCO's and BP Amoco's technical skills and commercial
experience will enable the combined company to achieve ongoing
performance improvements relative to their main competitors.
- The ARCO management and board of directors believe that the businesses of
ARCO and BP Amoco are complementary in nature in terms of their
commercial strengths and geographic profiles. They believe, for example,
that:
(1) the combination of the combined company's exploration and production
operations in Alaska will generate significant synergies and cost
savings, which would allow Alaskan crude oil to compete more cost
effectively in the international crude oil market and might
facilitate development of large natural gas resources on the Alaskan
North Slope;
(2) ARCO's assets in South East Asia will significantly strengthen BP
Amoco's Asian portfolio by contributing gas producing assets in China
and Indonesia, as well as significant gas development interests in
Thailand and Malaysia and in Indonesia's Tangguh field; and
(3) following the combination of ARCO's leading West Coast refining and
marketing operations with BP Amoco's refining and marketing
operations east of the Rocky Mountains, BP Amoco will be able to
compete with other coast-to-coast marketers in the U.S.
- The ARCO management and board of directors believe that, due to expected
synergies and cost savings from the combination of the two companies, BP
Amoco will be able to run a combined BP Amoco and ARCO more efficiently
than either company could operate on its own. They noted that BP Amoco
expects the combination to generate pre-tax cost savings at
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an annual rate of $1 billion during the second full year after closing.
These synergies and savings, if realized, will significantly enhance BP
Amoco's earnings potential over the earnings potential of BP Amoco and
ARCO as separate companies. The ARCO management and board of directors
also considered the challenge that BP Amoco will encounter in integrating
the operations of BP Amoco and ARCO and in achieving all of the synergies
and cost savings currently contemplated, including the possibility that
integration activities may divert management focus and resources from the
ongoing operations of the combined companies.
- The ARCO management and board of directors noted that BP Amoco's shares,
like ARCO's shares, show a strong correlation to crude oil prices. For
example, when crude oil prices increased in March 1999 from recent lows,
the share prices of both companies increased, with BP Amoco's share price
showing a greater percentage gain. If crude oil prices should experience
significant increases, the ARCO management and board of directors
concluded that the shares of the combined company likely would experience
positive price movement similar to the movement that ARCO would expect to
experience as an independent company.
While other combinations might also enhance shareholder value, ARCO's
management viewed them as less likely to be completed or as creating fewer long
term benefits. In particular, the ARCO management considered the feasibility of
a combination with one of the two other largest oil and gas companies,
Exxon/Mobil and Royal Dutch/Shell. Management concluded that a combination with
Exxon/Mobil was not feasible while the Exxon/Mobil merger was still pending and
would likely be complicated by Exxon/Mobil's large West Coast refining and
marketing presence. Management also determined that a merger with Royal
Dutch/Shell was not feasible while Royal Dutch/Shell remained focused on its own
internal restructuring and would also be complicated by Royal Dutch/Shell's
significant West Coast refining and marketing position held through a joint
venture with Texaco. In addition, ARCO management considered combinations with
other participants in the oil and gas industry. It concluded that such a
combination could not realize as great a degree of strategic fit, potential for
application of best practices and level of cost savings as a combination with BP
Amoco.
In the course of reaching its decision to approve the merger agreement and
the merger, the ARCO board of directors consulted with ARCO's management, as
well as its legal counsel and its financial advisors. The ARCO board of
directors considered the following material factors at its March 31, 1999
meeting and prior meetings:
- CURRENT INDUSTRY, ECONOMIC AND MARKET CONDITIONS. The ARCO board of
directors considered current industry, economic and market conditions and
their effects on the oil and gas industry. The ARCO board of directors
also noted the recent combination of BP and Amoco to form BP Amoco and the
pending merger of Exxon and Mobil.
- ARCO'S STRATEGIC ALTERNATIVES. The ARCO board of directors considered
ARCO's future business prospects in light of current and expected future
conditions in the oil and gas industry, including, as discussed above, the
advantages and disadvantages of its current strategic plan compared to a
combination with BP Amoco. The ARCO board evaluated ARCO's strategic plan
using various different assumptions regarding the future levels of crude
oil prices and of ARCO's exploration and production, including assumptions
of significantly higher future oil prices, enhanced rates of exploration
success and increased volumes and profitability of production.
- STRATEGIC BENEFITS OF A COMBINATION WITH BP AMOCO. ARCO's board of
directors considered the strategic benefits of a combination with BP Amoco
described above.
- EXCHANGE RATIO. The ARCO board of directors considered the value of the
exchange ratio provided for in the merger agreement relative to the
then-current market prices and historical trading prices of ARCO's common
stock and BP Amoco's ordinary shares over the past three
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years. It noted that, based on the closing price of BP Amoco's ordinary
shares on March 26, 1999, the exchange ratio represents a 26% premium over
the closing price of ARCO's common stock on the same date, the last
trading day prior to the news reports of discussions between the two
companies, and based on the same BP Amoco closing price represents a
premium of approximately 36% over the average closing price of ARCO common
stock for the one-month period, 28% over the six-month period and 19% over
the one-year period, prior to March 26, 1999. In addition, the ARCO board
of directors considered the following factors:
(1) that there is a strong potential for appreciation in the value of BP
Amoco ordinary shares and BP Amoco ADSs as a result of synergies and
cost savings created by the combination;
(2) that the stock prices of the three largest oil and gas companies,
Exxon/Mobil, Royal Dutch/Shell and BP Amoco, as a multiple of their
earnings and discretionary cash flows, are consistently higher than
those for the more domestically focused integrated oil and gas
companies in ARCO's peer group, irrespective of the level of crude
oil prices, creating the possibility of additional appreciation in
the value of BP Amoco's ordinary shares and BP Amoco ADSs compared to
ARCO's common stock;
(3) that ARCO's shareholders, who will hold following the combination
approximately 15% of the total issued share capital of BP Amoco, will
be able to participate in any such appreciation;
(4) that there can be no assurance that ARCO's shareholders will realize
any appreciation in the value of BP Amoco ordinary shares and BP
Amoco ADSs that they receive in the combination; and
(5) that the exchange ratio will not be adjusted if the BP Amoco share
price changes, even if materially, in the period prior to completion
of the combination, creating the possibility that the value of the
merger consideration may increase or diminish prior to the closing.
- ALTERNATIVE TRANSACTION. The ARCO board considered the alternative of a
combination with Company A as discussed above under "--Background of the
Combination." It noted that BP Amoco's offer had an implied value of
approximately $84.72 per share of ARCO common stock compared to an implied
value of approximately $82.77 per share of ARCO common stock for Company
A's last offer based on the closing prices of BP Amoco's ADSs and Company
A's common stock on March 30, 1999, the last complete trading day prior to
the date of the board's consideration. It also noted that a combination of
ARCO and Company A would not create a combined company that would be
comparable in its market capitalization or financial strength to BP Amoco
and the other largest oil and gas companies. It determined that the
proposed combination with BP Amoco was more favorable to ARCO's
shareholders because, among other reasons, it believed that:
(1) Company A's offer would not generate the same level of synergies and
cost savings as the combination with BP Amoco, due in part to the
smaller expected overlap in the operations of ARCO and Company A,
particularly following the divestitures that would likely be required
from a combined Company A and ARCO to obtain regulatory clearances
for such a combination,
(2) BP Amoco's ordinary shares had greater potential to appreciate in
value than Company A's common stock following a combination with
ARCO, due in part to the impact of the anticipated divestitures by a
combined Company A and ARCO, and
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(3) a combination with Company A was not as certain to be completed as
the combination with BP Amoco due to an additional condition to
completion that a combination with Company A qualify for
pooling-of-interests accounting treatment.
- OBLIGATION TO OBTAIN ANTITRUST CLEARANCE. The ARCO board of directors
noted that the merger agreement requires BP Amoco and ARCO to use their
best reasonable efforts to complete the combination, including to gain
clearance from antitrust authorities. The merger agreement also requires
each of them to accept any condition, term or restriction in connection
with obtaining such clearance unless such conditions, terms and
restrictions in aggregate would be reasonably likely to have a material
adverse effect on BP Amoco or ARCO, considered with respect to the total
value of the combined U.S. operations of BP Amoco, ARCO and their
subsidiaries. The ARCO board of directors concluded that these provisions
significantly increased the likelihood that the merger would receive
antitrust clearance.
- FINANCIAL ADVISORS PRESENTATIONS. The ARCO board of directors considered
the presentations and related analyses by Goldman Sachs and Salomon Smith
Barney. It also noted the oral opinion, subsequently confirmed in writing,
of each of them as to the fairness of the exchange ratio from a financial
point of view to the holders of ARCO common stock as of March 31, 1999.
See "-- Opinions of ARCO's Financial Advisors" for a description of these
opinions and the related financial analyses. ARCO does not currently
intend to request updated opinions from Goldman Sachs and Salomon Smith
Barney.
- COMPETING OFFERS; BREAK-UP FEE. The ARCO board of directors considered the
potential effect of the limitations in the merger agreement on ARCO's
ability to respond to third-party proposals to acquire ARCO made
subsequent to the merger agreement's execution. In particular, the ARCO
board of directors noted that:
(1) if it determined that any such proposal was a "superior proposal," it
could provide information to and engage in negotiations with the
third party making the superior proposal, subject to the terms and
conditions of the merger agreement;
(2) the termination payment provisions of the merger agreement could have
the effect of discouraging alternative proposals for a business
combination with ARCO; and
(3) the stock option agreement could have the effect of precluding any
alternative business combination with ARCO from being accounted for
as a pooling-of-interests under U.S. GAAP, which could be an
additional impediment to certain alternative proposals for a business
combination with ARCO.
On balance, the ARCO board of directors determined that these
provisions, which it considered customary for transactions of this nature
involving U.S. companies and which BP Amoco insisted be included, were a
necessary aspect of assuring BP Amoco's entry into the merger agreement.
See "The Merger Agreement--Acquisition Proposals," "--Termination and
Effects of Termination" and "The Stock Option Agreement."
- CUSTOMARY CLOSING CONDITIONS. The ARCO board of directors noted the
provisions of the merger agreement providing for customary closing
conditions, including regulatory approvals and required approvals of
ARCO's and BP Amoco's shareholders.
- EMPLOYEE COMPENSATION AND BENEFITS. The ARCO board of directors considered
the provisions of the merger agreement protecting the severance and other
benefits afforded to ARCO's employees.
- TAX-FREE REORGANIZATION. The ARCO board of directors considered the
ability to consummate the combination as a tax-free reorganization for
U.S. federal income tax purposes.
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- PRINCIPAL TRADING MARKET FOR BP AMOCO ORDINARY SHARES. The ARCO board of
directors noted that the principal trading market for BP Amoco ordinary
shares is, and will continue to be after the combination, the London Stock
Exchange. It noted, however, that the BP Amoco ADSs are listed on the NYSE
and will provide a more accessible trading vehicle than BP Amoco ordinary
shares for most U.S. shareholders.
The foregoing discussion of the information and factors considered by the
ARCO board of directors is not intended to be exhaustive, but includes all
material factors considered by ARCO's board of directors. In addition, the board
of directors of ARCO did not undertake to make any specific determination as to
whether any particular factor (or any aspect of any particular factor) was
favorable or unfavorable to its ultimate determination, but rather conducted a
discussion of the factors described above, including asking questions of ARCO's
management and legal and financial advisors, and reached a general consensus
that the merger was in the best interest of ARCO and its shareholders. In view
of the wide variety of factors considered in connection with its evaluation of
the merger and the complexity of such matters, the ARCO board of directors did
not consider it practical to, nor did it attempt to, assign relative weights to
the specific factors it considered in reaching its decision. In considering the
factors described above, individual members of the ARCO board of directors may
have given different weight to different factors.
Based on its consideration of the factors described above, the ARCO board of
directors has (1) determined that the terms of the merger agreement and the
merger of ARCO and BP Amoco were advisable and in the best interests of ARCO and
its shareholders and (2) approved the merger agreement and the merger. THE ARCO
BOARD OF DIRECTORS RECOMMENDS THAT ARCO'S SHAREHOLDERS VOTE "FOR" ADOPTION OF
THE MERGER AGREEMENT.
BP AMOCO'S REASONS FOR THE COMBINATION
At its meeting on March 30, 1999, the BP Amoco board of directors approved
the combination of BP Amoco and ARCO. In the course of making its decision to
approve the combination, the BP Amoco board consulted with BP Amoco's
management, as well as outside legal counsel and its financial advisors, and
considered a number of factors. The material factors considered are summarized
below.
STRENGTHENED STRATEGIC POSITION
The combination of the two companies will make BP Amoco the largest
non-state owned oil producer in the world, as well as the largest oil and gas
producer in both the U.S. and the U.K. ARCO will bring to BP Amoco distinctive
assets that will diversify its portfolio internationally, bolster or extend its
strategic position in key areas, and significantly increase its options for
growth. Among the strategic gains considered by the BP Amoco board are the
following:
- ALASKAN OIL AND GAS. The combined Alaskan oil assets of BP Amoco and ARCO
would provide BP Amoco opportunities for significant cost reductions and
incentives for new investment, which should result in a more efficient and
cost competitive Alaskan North Slope oil region. ARCO's significant
Alaskan gas interests, taken together with BP Amoco's existing interests,
justify a new phase of investigation into the feasibility of bringing
Alaskan North Slope gas deposits into production.
- REFINING AND MARKETING. In the U.S., the combination of ARCO's leading
position in refining and marketing on the West Coast with BP Amoco's
substantial position in the balance of the U.S. will enable the combined
group to compete on an equal footing with other major coast-to-coast
marketers of gasoline.
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- GLOBAL GAS ASSETS. The addition of ARCO's gas production and reserves will
make BP Amoco the second largest non-state owned gas producer in the world
and offer significant potential for further growth in production. In
Southeast Asia ARCO will bring to BP Amoco, in addition to ARCO's current
gas producing assets in China and Indonesia, significant growth interests
in the Thailand/Malaysia joint development zone and in Indonesia's
world-class Tangguh field, each of which is currently undeveloped.
SYNERGIES
The combined enterprise is expected to achieve an annual rate of pre-tax
cost savings of approximately $1 billion during the second full year after
closing, with anticipated pre-tax cost savings of approximately $600 million to
be achieved during the first full year. The estimated cost savings, which are in
addition to cost savings previously targeted by the two companies separately,
are expected to come from the following:
- organizational efficiencies, including reductions in staff and corporate
overheads;
- more focused exploration efforts through the use of shared technology to
reduce the risk of unsuccessful wells and through the ability to choose
only the most attractive opportunities available to the combined company;
- standardization and simplification of business processes, E.G.,
information technology; and
- rationalization of operations, e.g., through the elimination of
duplicative offices and the adoption of common procurement policies.
The anticipated cost savings are expected to be offset by restructuring charges
and transaction expenses of approximately $1 billion in the first year after the
combination, including approximately $400 million in U.K. stamp duty reserve tax
to be incurred on the issuance of BP Amoco ADSs to ARCO shareholders. BP Amoco
expects to reduce worldwide staff by approximately 2,000 positions as a result
of the combination.
ADDITIONAL CONSIDERATIONS
In the course of reaching its decision to approve the combination, the BP
Amoco board considered the following additional factors:
- The board considered the opinion of Morgan Stanley to the effect that, as
of March 30, 1999, the exchange ratio was fair from a financial point of
view to BP Amoco based upon and subject to the various considerations set
forth in its opinion. BP Amoco does not currently intend to request an
updated opinion from Morgan Stanley.
- The board considered that the combination would be subject to acquisition
accounting under U.K. GAAP, resulting in ongoing additional depreciation
and amortization charges. It is currently estimated that these additional
charges will amount to approximately $2.0 billion in the first full year
after completion of the combination. While accepting that this accounting
treatment would have an adverse effect on reported earnings, the board
recognized that investors were increasingly prepared to take other
financial measures into account when assessing the performance of a
company.
- The board also considered that in the first full year of combined
enterprise operations, the combination would be accretive to BP Amoco's
earnings per ordinary share, based on achieving the anticipated pre-tax
cost savings of approximately $600 million during the first full year and
excluding the effect of additional depreciation and amortization charges,
the restructuring charges and transaction expenses. This anticipated
accretion assumes prospective oil prices above $10 per barrel. The board
also recognized that the transaction would generate significant
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incremental cash flow through reduced cash costs arising from the targeted
synergies and reduced capital expenditure through the application of BP
Amoco capital efficiency targets to all of the combined enterprise's
assets.
- The board considered that the implied premium to be paid for ARCO's
outstanding shares, based on the relative market prices of BP Amoco and
ARCO shares, was approximately 26% based on average closing market prices
for both the one-week and one-month periods prior to the first public
reporting of a possible combination. The board also considered that such
implied premium was in line with the implied premia paid or payable in the
BP/Amoco and Exxon/Mobil mergers when measured by the equivalent trading
periods.
- The board considered that the growth opportunities in ARCO's existing
asset base could contribute up to 300,000 barrels per day in oil or oil
equivalents of new production by 2010.
- The board considered that the proposed combination was not expected to
result in any change to the ceiling target for BP Amoco's "gearing," or
leverage, or to its policy of paying dividends equal to approximately 50%
of its estimated average earnings, excluding the effect of additional
depreciation and amortization charges resulting from the combination, over
the course of a business cycle.
- The board considered the fact that BP Amoco's current management would
manage the combined group.
- The board considered the possibility that the process of planning for the
integration of ARCO into BP Amoco and the regulatory approval process and
effects might adversely affect the delivery of BP Amoco business
performance targets. The board noted the proposal of BP Amoco management
that the risk of such adverse effects be minimized through the appointment
of two senior executives dedicated principally to managing these
processes.
- The board considered the possibility of encountering difficulties in
achieving cost savings in the amounts currently estimated or in the time
frame currently contemplated.
In view of the wide variety of factors considered by the BP Amoco board in
connection with its evaluation of the combination, the board did not consider it
practical to, and did not attempt to, quantify, rank or otherwise assign
relative weights to the specific factors described above, and individual members
of the board may have given different weight to different factors.
OPINIONS OF ARCO'S FINANCIAL ADVISORS
OPINION OF GOLDMAN SACHS
On March 31, 1999, Goldman Sachs delivered its oral opinion to the ARCO
board that, as of that date, the exchange ratio was fair from a financial point
of view to the holders of ARCO common stock other than BP Amoco and BP Amoco's
and ARCO's subsidiaries. Goldman Sachs later delivered a written opinion
confirming its oral opinion.
THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN SACHS, WHICH SETS FORTH THE
ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN IN
CONNECTION WITH THE OPINION, IS ATTACHED AS APPENDIX B TO THIS DOCUMENT AND IS
INCORPORATED BY REFERENCE. ARCO SHAREHOLDERS ARE URGED TO, AND SHOULD, READ THE
OPINION CAREFULLY AND IN ITS ENTIRETY.
In connection with its opinion, Goldman Sachs reviewed, among other things:
- the merger agreement;
- annual reports to shareholders of ARCO and of BP Amoco for the five years
ended December 31, 1998;
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- annual reports on Form 10-K of ARCO for the five years ended December 31,
1998;
- annual reports on Form 20-F of BP Amoco for the five years ended December
31, 1997 and a draft annual report on Form 20-F provided to Goldman Sachs
by BP Amoco for the year ended December 31, 1998;
- certain interim reports to shareholders and quarterly reports on Form 10-Q
of ARCO;
- certain interim reports to shareholders on Form 6-K of BP Amoco;
- certain other communications from ARCO and BP Amoco to their respective
shareholders;
- certain internal financial analyses and forecasts for ARCO prepared by its
management; and
- estimates of cost savings and synergies projected by the managements of
ARCO and BP Amoco to result from the merger.
Goldman Sachs also held discussions with members of the senior management of
ARCO and BP Amoco regarding the strategic rationale for, and the potential
benefits of, the merger and the past and current business operations, financial
condition and future prospects of their respective companies. In addition,
Goldman Sachs:
- reviewed the reported price and trading activities for the shares of ARCO
common stock, BP Amoco ordinary shares and BP Amoco ADSs;
- compared certain financial and stock market information for ARCO and BP
Amoco with similar information for certain other companies the securities
of which are publicly traded;
- reviewed the financial terms of certain recent business combinations
involving integrated oil companies specifically and in other industries
generally; and
- performed such other studies and analyses as Goldman Sachs considered
appropriate.
In arriving at its opinion, Goldman Sachs relied upon and assumed the
accuracy and completeness of all of the financial and other information it
reviewed. In that regard, Goldman Sachs assumed, with the ARCO board's consent,
that the estimates of cost savings and synergies projected by the managements of
ARCO and BP Amoco had been reasonably prepared on a basis reflecting the best
currently available estimates and judgments of the managements of ARCO and BP
Amoco. As the ARCO board was aware, BP Amoco did not make available to Goldman
Sachs its projections of expected future performance. Instead, for purposes of
its analyses, Goldman Sachs utilized, with the ARCO board's consent, the
estimates of research analysts for BP Amoco. Goldman Sachs also assumed that all
governmental, regulatory and other consents and approvals necessary for the
consummation of the merger will be obtained without any adverse effect on ARCO,
BP Amoco or their subsidiaries or on the contemplated benefits of the merger in
any respect material to Goldman Sachs' analysis. In addition, Goldman Sachs did
not make an independent evaluation or appraisal of the assets and liabilities of
ARCO or BP Amoco or any of their subsidiaries and it was not furnished with any
such evaluation or appraisal. Goldman Sachs' written opinion was provided for
the information and assistance of ARCO's board in connection with its
consideration of the merger and does not constitute a recommendation as to how
any ARCO shareholder should vote with respect to the merger.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. In rendering
its opinion, Goldman Sachs performed a variety of financial and comparative
analyses, including those described below. Selecting portions of the analyses or
of the summary set forth below, without considering the analyses as a whole,
could create an incomplete view of the processes underlying Goldman Sachs'
opinion. In arriving at its fairness determination, Goldman Sachs considered the
results of all such analyses. No company or transaction
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used in the analyses below as a comparison is directly comparable to ARCO or BP
Amoco or the merger.
The analyses were prepared solely for purposes of Goldman Sachs' providing
its opinion to the ARCO board as to the fairness from a financial point of view
of the exchange ratio to the holders of ARCO common stock, other than BP Amoco
and BP Amoco's or ARCO's subsidiaries, and do not purport to be appraisals or
necessarily reflect the prices at which businesses or securities actually may be
sold. Analyses based upon forecasts of future results are not necessarily
indicative of actual future results, which may be significantly more or less
favorable than suggested by such analyses. Because such analyses are inherently
subject to uncertainty, being based upon numerous factors or events beyond the
control of the parties or their respective advisors, none of ARCO, BP Amoco,
Goldman Sachs nor any other person assumes responsibility if future results are
materially different from those forecast.
Goldman Sachs' opinion to the ARCO board was one of many factors taken into
consideration by the ARCO board in making its determination to approve the
merger agreement. The summary below does not purport to be a complete
description of the analysis performed by Goldman Sachs in connection with such
opinion and is qualified by reference to the written opinion of Goldman Sachs
set forth in Appendix B.
Goldman Sachs is familiar with ARCO, having provided certain investment
banking services to ARCO from time to time, including having acted as its
financial advisor in connection with its divestiture of its United States and
Australian coal assets, having acted as lead managing underwriter of a private
placement of preferred stock of an ARCO subsidiary, having acted as dealer on
its commercial paper program and having acted as its financial advisor in
connection with, and having participated in certain of the negotiations leading
to, the merger agreement.
Goldman Sachs has also provided from time to time, and continues to provide,
certain investment banking services to BP Amoco, including having acted as lead
managing underwriter in connection with various public and other offerings of
its and its subsidiaries' debt securities, having acted as co-managing
underwriter of various public offerings of Amoco Corporation's debt securities,
having acted as a dealer on its subsidiary BP America Inc.'s commercial paper
program and providing general financial advisory services. Peter D. Sutherland,
Chairman of BP Amoco, is a managing director of Goldman Sachs and a partner of
The Goldman Sachs Group, L.P., the parent of Goldman Sachs. On April 12, 1999,
it was announced that Sir John Browne, chief executive officer of BP Amoco,
would serve as a director on the board of The Goldman Sachs Group, Inc., the
successor to The Goldman Sachs Group, L.P. following its initial public
offering. Goldman Sachs may provide investment banking services to BP Amoco and
its subsidiaries in the future.
Goldman Sachs provides a full range of financial advisory and securities
services and, in the course of its normal trading activities, may from time to
time effect transactions and hold securities, including derivative securities,
of ARCO or BP Amoco for its own account and for the accounts of customers.
OPINION OF SALOMON SMITH BARNEY
Salomon Smith Barney was retained by ARCO to act as co-financial advisor in
connection with the proposed merger. In connection with its engagement, ARCO
requested that Salomon Smith Barney evaluate the fairness, from a financial
point of view, to the holders of ARCO common stock of the exchange ratio
provided for in the merger. On March 31, 1999, at a meeting of the ARCO board
held to evaluate the proposed merger, Salomon Smith Barney delivered to the ARCO
board an oral opinion, subsequently confirmed by delivery of a written opinion
dated March 31, 1999, to the effect that, as of that date and based upon and
subject to the matters stated in the opinion, the exchange ratio was fair, from
a financial point of view, to the holders of ARCO common stock.
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In arriving at its opinion, Salomon Smith Barney:
- reviewed the merger agreement and related documents;
- held discussions with senior officers, directors and other representatives
and advisors of ARCO and senior officers and other representatives and
advisors of BP Amoco concerning the businesses, operations and prospects
of ARCO and BP Amoco;
- examined publicly available business and financial information relating to
ARCO and BP Amoco, as well as financial forecasts for ARCO, and other
information and data for ARCO and BP Amoco which were provided to or
otherwise discussed with Salomon Smith Barney by the managements of ARCO
and BP Amoco, including information relating to strategic implications and
operational benefits anticipated to result from the merger;
- reviewed the financial terms of the merger as described in the merger
agreement in relation to, among other things, current and historical
market prices and trading volumes of ARCO common stock and BP Amoco
securities, the historical and projected earnings and other operating data
of ARCO and BP Amoco, and the capitalization and financial condition of
ARCO and BP Amoco;
- considered, to the extent publicly available, the financial terms of other
transactions recently effected which Salomon Smith Barney considered
relevant in evaluating the merger;
- analyzed financial, stock market and other publicly available information
relating to the businesses of other companies whose operations Salomon
Smith Barney considered relevant in evaluating those of ARCO and BP Amoco;
- evaluated the potential pro forma financial impact of the merger on BP
Amoco; and
- conducted other analyses and examinations and considered other financial,
economic and market criteria as Salomon Smith Barney deemed appropriate in
arriving at its opinion.
In rendering its opinion, Salomon Smith Barney assumed and relied, without
independent verification, upon the accuracy and completeness of all financial
and other information and data publicly available or furnished to or otherwise
reviewed by or discussed with Salomon Smith Barney. With respect to these
financial forecasts and other information and data, Salomon Smith Barney assumed
that they were reasonably prepared on bases reflecting the best currently
available estimates and judgments as to the future financial performance of ARCO
and BP Amoco and the strategic implications and operational benefits anticipated
to result from the merger.
Salomon Smith Barney assumed, with the consent of ARCO, that the merger will
be treated as a tax-free reorganization for federal income tax purposes. Salomon
Smith Barney's opinion relates to the relative values of ARCO and BP Amoco.
Salomon Smith Barney did not express any opinion as to what the value of BP
Amoco securities actually will be when issued to ARCO shareholders pursuant to
the merger agreement or the prices at which BP Amoco securities will trade
subsequent to the merger. Salomon Smith Barney did not make and was not provided
with an independent evaluation or appraisal of the assets or liabilities,
contingent or otherwise, of ARCO or BP Amoco nor did Salomon Smith Barney make
any physical inspection of the properties or assets of ARCO or BP Amoco.
In connection with its engagement, Salomon Smith Barney was not requested
to, and did not, solicit third party indications of interest in the possible
acquisition of all or a part of ARCO. Salomon Smith Barney expressed no view as
to, and its opinion does not address, the relative merits of the merger as
compared to any alternative business strategies that might exist for ARCO or the
effect of any other transaction in which ARCO might engage. Salomon Smith
Barney's opinion was necessarily based upon information available, and
financial, stock market and other conditions and circumstances existing and
disclosed, to Salomon Smith Barney as of the date of its opinion. Although
Salomon Smith
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Barney evaluated the exchange ratio from a financial point of view, Salomon
Smith Barney was not asked to and did not recommend the specific consideration
payable in the merger agreement, which was determined through negotiation
between ARCO and BP Amoco. No other instructions or limitations were imposed by
ARCO on Salomon Smith Barney with respect to the investigations made or
procedures followed by Salomon Smith Barney in rendering its opinion.
THE FULL TEXT OF SALOMON SMITH BARNEY'S WRITTEN OPINION DATED MARCH 31,
1999, WHICH DESCRIBES THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS
ON THE REVIEW UNDERTAKEN, IS ATTACHED TO THIS DOCUMENT AS APPENDIX C AND SHOULD
BE READ CAREFULLY IN ITS ENTIRETY. SALOMON SMITH BARNEY'S OPINION IS DIRECTED TO
THE ARCO BOARD AND RELATES ONLY TO THE FAIRNESS OF THE EXCHANGE RATIO FROM A
FINANCIAL POINT OF VIEW, DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGER AND
DOES NOT CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER WITH RESPECT TO ANY
MATTER RELATING TO THE PROPOSED MERGER. THE SUMMARY OF SALOMON SMITH BARNEY'S
OPINION INCLUDED IN THIS DOCUMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE FULL TEXT OF THE OPINION.
In preparing its opinion, Salomon Smith Barney performed a variety of
financial and comparative analyses, including those described below. The summary
of these analyses is not a complete description of the analyses underlying
Salomon Smith Barney's opinion. The preparation of a fairness opinion is a
complex analytic process involving various determinations as to the most
appropriate and relevant methods of financial analyses and the application of
those methods to the particular circumstances and, therefore, a fairness opinion
is not readily susceptible to summary description. Accordingly, Salomon Smith
Barney believes that its analyses must be considered as a whole and that
selecting portions of its analyses and factors or focusing on information
presented in tabular format, without considering all analyses and factors or the
narrative description of the analyses, could create a misleading or incomplete
view of the processes underlying its analyses and opinion.
In its analyses, Salomon Smith Barney considered industry performance,
general business, economic, market and financial conditions and other matters
existing on the date of its opinion, many of which are beyond the control of
ARCO and BP Amoco. No company, transaction or business used in those analyses as
a comparison is identical to ARCO, BP Amoco or the proposed merger, nor is an
evaluation of those analyses entirely mathematical; rather, the analyses involve
complex considerations and judgments concerning financial and operating
characteristics and other factors that could affect the merger, public trading
or other values of the companies, business segments or transactions being
analyzed. The estimates contained in Salomon Smith Barney's analyses and the
valuation ranges resulting from any particular analysis are not necessarily
indicative of actual values or predictive of future results or values, which may
be significantly more or less favorable than those suggested by its analyses. In
addition, analyses relating to the value of businesses or securities do not
purport to be appraisals or to reflect the prices at which businesses or
securities actually may be sold. Accordingly, Salomon Smith Barney's analyses
and estimates are inherently subject to substantial uncertainty.
Salomon Smith Barney's opinion and analyses were only one of many factors
considered by the ARCO board in its evaluation of the merger and should not be
viewed as determinative of the views of the ARCO board or management with
respect to the exchange ratio or such proposed merger.
Salomon Smith Barney is familiar with ARCO and BP Amoco, having provided
investment banking services to ARCO and BP Amoco in the past in connection with
matters unrelated to the proposed merger, for which services Salomon Smith
Barney has received compensation. In addition, Salomon Smith Barney and its
affiliates, including Citigroup Inc. and its affiliates, may maintain
relationships with ARCO, BP Amoco and their respective affiliates. Salomon Smith
Barney has advised ARCO that, in the ordinary course of business, Salomon Smith
Barney and its affiliates may actively trade or hold the securities of ARCO and
BP Amoco for their own account or for the account of customers and, accordingly,
may at any time hold a long or short position in those securities.
37
<PAGE>
JOINT FINANCIAL ANALYSES OF ARCO'S FINANCIAL ADVISORS
The following is a summary of all material financial analyses Goldman Sachs
and Salomon Smith Barney used in connection with providing their opinions to the
ARCO board. THE FINANCIAL ANALYSES SUMMARIZED BELOW INCLUDE INFORMATION
PRESENTED IN TABULAR FORMAT. IN ORDER TO FULLY UNDERSTAND THE FINANCIAL ANALYSES
OF THE FINANCIAL ADVISORS, THE TABLES MUST BE READ TOGETHER WITH THE TEXT OF
EACH SUMMARY. THE TABLES ALONE DO NOT CONSTITUTE A COMPLETE DESCRIPTION OF THE
FINANCIAL ANALYSES. CONSIDERING THE DATA SET FORTH BELOW WITHOUT CONSIDERING THE
FULL NARRATIVE DESCRIPTION OF THE FINANCIAL ANALYSES, INCLUDING THE
METHODOLOGIES AND ASSUMPTIONS UNDERLYING THE ANALYSES, COULD CREATE A MISLEADING
OR INCOMPLETE VIEW OF THE FINANCIAL ANALYSES OF ARCO'S FINANCIAL ADVISORS.
SELECTED TRANSACTIONS ANALYSIS. ARCO's financial advisors compared certain
premiums and multiples implied in the merger to those from two selected recent
transactions in the integrated oil industry: the pending merger of Exxon and
Mobil, and the merger of BP with Amoco.
The financial advisors calculated the share price premium indicated by the
excess of (1) the implied values of the merger consideration on each of March
26, 1999 and March 30, 1999, over (2) the per share closing price of ARCO common
stock on March 26, 1999 and the average per share closing price of ARCO common
stock for the one-month, six-month and one-year periods ended March 26, 1999.
The implied value of the merger consideration was derived from the per share
closing prices of BP Amoco ADSs on March 26, 1999 and on March 30, 1999, and the
exchange ratio of 0.82 of a BP Amoco ADS for one share of ARCO common stock.
March 26, 1999 was chosen as a reference date for both the implied value of the
merger consideration and the price of ARCO common stock because it was the last
trading day prior to the first news reports that ARCO and BP Amoco were
discussing a potential business combination. March 30, 1999 was chosen as an
additional reference date for the implied value of the merger consideration
because it was the last trading day prior to the date of execution of the merger
agreement. The following table reflects the results of the share price premium
analysis:
<TABLE>
<CAPTION>
IMPLIED SHARE PRICE PREMIUM IN
BP AMOCO/ARCO COMBINATION
------------------------------------------------
<S> <C> <C>
BASED ON BASED ON
REFERENCE DATE OR PERIOD BP AMOCO ADS PRICE BP AMOCO ADS PRICE
FOR ARCO COMMON STOCK PRICE MARCH 26, 1999 MARCH 30, 1999
- ----------------------------------------------------------------------- ----------------------- -----------------------
March 26, 1999......................................................... 26.0% 29.6%
One Month Prior Average................................................ 36.1% 40.0%
Six Months Prior Average............................................... 28.0% 31.6%
One Year Prior Average................................................. 19.4% 22.8%
</TABLE>
The financial advisors calculated the implied premiums in the Exxon/Mobil
and BP/Amoco transactions on the same basis, based on the applicable per share
closing price on the trading day prior to the first news reports that the
companies were discussing or had announced a potential business combination
transaction. The following table reflects the results of the share price premium
analysis:
<TABLE>
<CAPTION>
IMPLIED SHARE PRICE PREMIUMS
IN RECENT COMBINATIONS
------------------------------------------------
REFERENCE DATE OR PERIOD FOR PRICE EXXON/MOBIL BP/AMOCO
OF TARGET COMPANY'S SHARES ----------------------- -----------------------
- ----------------------------------------------------------------------- (BASED ON PER SHARE CLOSING PRICE OF
SHARES ISSUED IN MERGER ON
TRADING DAY PRIOR TO NEWS REPORTS)
<S> <C> <C>
Trading Day Prior to News Reports...................................... 32.1% 22.7%
One Month Prior Average................................................ 33.6% 22.3%
Six Months Prior Average............................................... 32.5% 18.5%
One Year Prior Average................................................. 33.4% 14.5%
</TABLE>
38
<PAGE>
The financial advisors also compared the price-to-earnings per share and
price-to-discretionary cash flow per share multiples implied by the exchange
ratio in the merger agreement to those implied in the Exxon/Mobil and BP/Amoco
transactions, in each case based on per share closing prices on the trading days
prior to the first news reports that the companies were discussing or had
announced a potential business combination. Discretionary cash flow is net
income plus depreciation, depletion, amortization, deferred taxes and
exploration expenses. Multiples were calculated for the fiscal year of, and the
two full fiscal years following, the public announcements of the transactions,
using median earnings per share and discretionary cash flow per share estimates
provided by I/B/E/S International Inc., a data service which monitors and
publishes a compilation of earnings estimates of selected research analysts on
publicly traded companies. The following table indicates the implied multiples
calculated for each transaction:
<TABLE>
<CAPTION>
IMPLIED MULTIPLES IN
BP AMOCO/ARCO COMBINATION
--------------------------------------------
<S> <C> <C> <C> <C>
IMPLIED MULTIPLES IN
BASED ON BASED ON RECENT TRANSACTIONS
BP AMOCO ADS PRICE BP AMOCO ADS PRICE --------------------------
MARCH 26, 1999 MARCH 30, 1999 EXXON/MOBIL BP/AMOCO
--------------------- --------------------- ------------- -----------
P/E MULTIPLE
Current Fiscal Year........................ 41.2x 42.4x 32.0x 28.7x
Fiscal Year 2.............................. 28.6x 29.4x 25.7x 19.7x
Fiscal Year 3.............................. 22.6x 23.2x 22.6x 16.3x
P/DCF MULTIPLE
Current Fiscal Year........................ 9.5x 9.8x 14.0x 10.4x
Fiscal Year 2.............................. 8.6x 8.8x 12.3x 8.7x
Fiscal Year 3.............................. 7.5x 7.7x 10.8x N/A
</TABLE>
COMPARISON OF PUBLICLY TRADED COMPANIES. ARCO's financial advisors reviewed
and compared certain financial information, ratios and public market multiples
relating to ARCO and BP Amoco to corresponding financial data for the following
publicly traded integrated oil companies which were divided into tiers
reflecting their relative market capitalization size:
<TABLE>
<S> <C>
TIER 1 TIER 3
- -Exxon Corporation/Mobil Corporation -ARCO
- -Royal Dutch Petroleum Company/ -Texaco Inc.
Shell Transport & Trading Co. plc
- -BP Amoco TIER 4
-Unocal Corporation
TIER 2 -Phillips Petroleum Company
- -Chevron Corporation -Conoco Inc.
-USX-Marathon Group
</TABLE>
The financial advisors calculated and compared the price-to-earnings per
share and price-to-discretionary cash flow per share multiples for each of the
companies for 1999 and 2000 based on per share closing prices on March 26, 1999,
the last trading day prior to the first news reports that ARCO and BP Amoco were
discussing a potential business combination. Estimates of earnings per share and
discretionary cash flow per share were based on median I/B/E/S estimates. The
financial advisors also calculated the ratio of the price-to-earnings per share
multiple for 2000 for each company to the five-year earnings per share growth
rate of such company based on median I/B/E/S estimates. In addition, the
financial advisors calculated the dividend yield for each company based on per
share closing prices on March 26, 1999 and current dividend levels.
39
<PAGE>
The following table reflects the results of the analysis, as compared to the
implied multiples and dividend yields for ARCO and BP Amoco:
<TABLE>
<CAPTION>
P/DCF MULTIPLE
P/E MULTIPLE 2000 P/E
-------------------- -------------------- TO
1999E 2000E 1999E 2000E GROWTH RATIO DIVIDEND YIELD
--------- --------- --------- --------- --------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Tier 1 Median..................................... 31.3x 22.4x 13.2x 11.3x 2.2x 2.86%
Tier 2 Median..................................... 28.5x 22.0x 11.1x 9.7x 2.59x 2.81%
Tier 3 Median..................................... 30.7x 21.2x 8.4x 7.3x 2.55x 3.80%
Tier 4 Median..................................... 28.2x 17.9x 6.2x 5.9x 2.00x 3.02%
ARCO.............................................. 32.7x 22.7x 7.5x 6.8x 2.84x 4.36%
BP Amoco.......................................... 31.4x 22.3x 13.5x 11.3x 2.23x 2.86%
</TABLE>
HISTORICAL EXCHANGE RATIO ANALYSIS. ARCO's financial advisors calculated
the average of the historical daily exchange ratios of BP Amoco ADSs to ARCO
common stock based on the closing prices of BP Amoco ADSs and ARCO common stock
on March 26, 1999, the last trading day prior to the first news reports that
ARCO and BP Amoco were discussing a potential business combination, and for the
one-month, three-month, six-month and twelve-month periods ended March 26, 1999.
This analysis indicated the following historical exchange ratios, as compared to
the exchange ratio in the merger agreement:
<TABLE>
<CAPTION>
HISTORICAL
EXCHANGE RATIOS
---------------------------------
PERIOD LOW AVERAGE HIGH
- ------------------------------------------------------------------------------------------ --------- ----------- ---------
<S> <C> <C> <C>
Last Month................................................................................ 0.63 0.65 0.67
Last Three Months......................................................................... 0.63 0.69 0.81
Last Six Months........................................................................... 0.63 0.73 0.84
Last Twelve Months........................................................................ 0.63 0.79 0.94
</TABLE>
<TABLE>
<CAPTION>
MARCH 26, 1999 MERGER EXCHANGE RATIO
- ----------------- -------------------------
<S> <C>
0.65......... 0.82
</TABLE>
CONTRIBUTION ANALYSIS. ARCO's financial advisors reviewed certain
historical and estimated future operating and financial information for ARCO, BP
Amoco and the combined enterprise resulting from the merger. The financial
advisors analyzed the relative ownership of ARCO shareholders in the combined
enterprise following the merger based on the exchange ratio of 0.82 as compared
to the relative income statement contribution of ARCO and BP Amoco to the
combined enterprise without taking into account any of the possible cost savings
and other benefits that may be realized as a result of the merger. Using median
I/B/E/S estimates for 1999 through 2001, the financial advisors analyzed ARCO's
relative contribution to net income for 1997 through 2001 and ARCO's relative
contribution to discretionary cash flow and cash flow for 1997 through 2000.
Discretionary cash flow is net income plus depreciation, depletion,
amortization, deferred taxes and exploration expenses. Cash flow is
40
<PAGE>
discretionary cash flow less capital expenditure estimates based on Goldman
Sachs' Equity Research. The following table reflects the results of this
analysis:
<TABLE>
<CAPTION>
CONTRIBUTION OF ARCO
TO THE COMBINED BP AMOCO/ARCO
--------------------------------------------------
<S> <C> <C> <C> <C>
1997 1998 1999E 2000E
----- ----- ----------- -----------
Net Income.................................................................. 19% 9% 11% 13%
Discretionary Cash Flow..................................................... 20% 19% 19% 18%
Cash Flow................................................................... 9% 0% 2% 4%
ARCO common shareholders' relative ownership of combined BP Amoco/ARCO.................................................... 14%
<CAPTION>
<S> <C>
2001E
-----------
Net Income.................................................................. 15%
Discretionary Cash Flow.....................................................
Cash Flow...................................................................
ARCO common shareholders' relative ownership of combined BP Amoco/ARCO....
</TABLE>
PRO FORMA COMBINED ANALYSIS. ARCO's financial advisors prepared a pro forma
analysis of the potential financial impact of the combination based on the
exchange ratio in the merger of 0.82. The financial advisors analyzed the pro
forma financial impact of the merger on earnings per share for 2000 through 2002
and on discretionary cash flow per share for 2000 for the BP Amoco ADSs. In this
analysis, the financial advisors used median I/B/E/S estimates for BP Amoco and
both ARCO management's estimates for 2000 and 2001 and median I/B/E/S estimates
for ARCO, and assumed that either 50% or 100% of $1 billion of projected pre-tax
synergies from the merger would be realized in 2000 and that 100% of $1 billion
of projected pre-tax synergies would be realized in 2001 and 2002. This analysis
indicated that the merger would be dilutive, or represent a reduction, to the
estimated earnings per share of BP Amoco ADSs in 2000, 2001 and 2002, and would
be accretive, or represent an addition, to estimated discretionary cash flow per
share of BP Amoco ADSs in 2000, in each case as compared to estimates for BP
Amoco on a stand-alone basis.
PRESENT VALUE OF HYPOTHETICAL FUTURE STOCK PRICE ANALYSIS. ARCO's financial
advisors compared a range of net present values of hypothetical future ARCO
common stock prices on a stand-alone basis to a range of net present values of
hypothetical future stock prices of the pro forma combined company. The
financial advisors calculated hypothetical ARCO common stock prices in 2001
based on ARCO management's 2001 earnings per share estimates and a range of
price-to-earnings multiples of 18x to 22x. The financial advisors applied a
sensitivity analysis to the earnings per share estimates by varying oil price
assumptions up and down by $2 per barrel and adjusting the earnings per share
estimates accordingly based on Goldman Sachs Equity Research analysis. The
financial advisors then calculated the net present values of these hypothetical
future stock prices, assuming dividends during the two-year period at present
levels and using discount rates ranging from 8% to 10%.
The financial advisors then performed similar calculations to derive a range
of net present values of hypothetical future stock prices of the pro forma
combined company, adjusted for the merger exchange ratio. Earnings per share
estimates for the combined company were based on median I/B/E/S estimates for BP
Amoco, ARCO management's estimates for ARCO, $1 billion of pre-tax synergies and
purchase accounting, and included the same $2 per barrel of oil sensitivity
analysis as for the ARCO common stock. Price-to-earnings per share multiples
ranged from 20x to 24x and the discount rate ranged from 8% to 10%.
Comparing the net present values derived for ARCO on a stand-alone basis to
those derived for the pro forma combined company in the analysis indicated that
the net present values of these hypothetical future stock prices for the pro
forma combined company ranged from 31.9% to 33.5% higher than the net present
values for ARCO without any variance in oil price assumptions, from 15.2% to
16.8% higher assuming a $2 per barrel increase in oil prices, and from 59.1% to
60.4% higher assuming a $2 per barrel decrease in oil prices.
41
<PAGE>
MISCELLANEOUS
Goldman Sachs and Salomon Smith Barney, as part of their investment banking
businesses, are continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for estate, corporate and
other purposes. ARCO selected the financial advisors because they are
internationally recognized investment banking firms that have substantial
experience in transactions similar to the BP Amoco-ARCO combination.
Pursuant to the terms of their engagement, ARCO has agreed to pay Goldman
Sachs and Salomon Smith Barney an aggregate fee equal to 0.15% of the sum of the
consideration paid in connection with the combination plus the principal amount
of ARCO's debt. ARCO has also agreed to reimburse Goldman Sachs and Salomon
Smith Barney for their reasonable out-of-pocket expenses, including attorney's
fees, and to indemnify Goldman Sachs and Salomon Smith Barney and related
parties against liabilities, including liabilities under federal securities
laws, arising out of their engagement.
OPINION OF FINANCIAL ADVISOR TO BP AMOCO
BP Amoco retained Morgan Stanley on January 11, 1999 to act as its financial
advisor in connection with a possible combination with ARCO. Morgan Stanley was
selected by the BP Amoco board of directors to act as BP Amoco's financial
advisor based on Morgan Stanley's qualifications, expertise and reputation and
its knowledge of the business and affairs of BP Amoco. At the March 30, 1999
meeting of the BP Amoco board of directors, Morgan Stanley rendered to the BP
Amoco board of directors an oral opinion, which was confirmed in writing as of
such date, to the effect that as of such date and based upon and subject to the
various considerations set forth in its opinion, the exchange ratio is fair from
a financial point of view to BP Amoco.
THE FULL TEXT OF THE WRITTEN OPINION OF MORGAN STANLEY DATED MARCH 30, 1999
SETS FORTH, AMONG OTHER THINGS, THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED,
MATTERS CONSIDERED AND LIMITATIONS ON THE SCOPE OF THE REVIEW UNDERTAKEN BY
MORGAN STANLEY IN RENDERING ITS OPINION. THE OPINION IS ATTACHED TO THIS PROXY
STATEMENT/PROSPECTUS AS APPENDIX D AND IS INCORPORATED HEREIN BY REFERENCE. THIS
OPINION SHOULD BE READ CAREFULLY AND IN ITS ENTIRETY. MORGAN STANLEY'S OPINION
IS DIRECTED TO THE BP AMOCO BOARD OF DIRECTORS AND ADDRESSES ONLY THE FAIRNESS
OF THE EXCHANGE RATIO FROM A FINANCIAL POINT OF VIEW TO BP AMOCO AS OF THE DATE
OF THE OPINION. THE OPINION DOES NOT ADDRESS ANY OTHER ASPECT OF THE COMBINATION
AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY PERSON AS TO HOW TO VOTE WITH
RESPECT TO THE COMBINATION. THE SUMMARY OF THE OPINION OF MORGAN STANLEY SET
FORTH IN THIS PROXY STATEMENT/ PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF THE OPINION.
In connection with rendering its opinion, Morgan Stanley, among other
things:
- reviewed certain publicly available financial statements and other
publicly available information of BP Amoco and ARCO;
- reviewed certain internal financial statements and other financial data of
BP Amoco and ARCO;
- participated in discussions with ARCO management regarding ARCO's
financial performance and prospects;
- discussed with BP Amoco management certain strategic, financial and
operational benefits which BP Amoco management anticipate from the
combination of BP Amoco and ARCO;
- reviewed the likely pro forma impact of the merger on BP Amoco's future
earnings and cash flow per ADS, consolidated capitalization and financial
ratios;
- reviewed the reported historical prices and trading activity for ARCO
common stock and BP Amoco ordinary shares and ADSs;
42
<PAGE>
- compared the financial performance of ARCO and BP Amoco and the prices and
trading activity of ARCO common stock and BP Amoco ordinary shares and
ADSs with that of certain other publicly traded companies comparable to
ARCO and BP Amoco;
- reviewed the financial terms, to the extent publicly available, of certain
comparable transactions;
- participated in discussions and negotiations among representatives of ARCO
and BP Amoco and their financial and legal advisors;
- reviewed drafts of the merger agreement and certain related documents each
dated March 30, 1999; and
- performed such other analyses and considered such other factors as Morgan
Stanley deemed appropriate.
In rendering its opinion, Morgan Stanley assumed and relied upon, without
independent verification, the accuracy and completeness of the information
reviewed by it for the purposes of its opinion. Morgan Stanley relied upon BP
Amoco's commercial assessments of the merits of the combination and assumed that
the internal financial statements and other financial data, including
information relating to certain strategic, financial and operational benefits
anticipated from the combination, have been reasonably prepared on bases
reflecting the best currently available estimates and judgements of the future
financial performance of ARCO and BP Amoco. Morgan Stanley has not made any
independent valuation or appraisal of the assets or liabilities of ARCO or BP
Amoco, nor was it furnished with any such appraisals. Morgan Stanley also
assumed that the combination of BP Amoco with ARCO will be consummated on the
terms set forth in the merger agreement. Morgan Stanley's opinion is necessarily
based on economic, market and other conditions as in effect on March 30, 1999
and the information made available to it as of such date.
The following is a brief summary of all material analyses performed by
Morgan Stanley in connection with rendering its opinion letter dated March 30,
1999. Certain of these summaries of financial analyses include information
presented in tabular format. In order to understand fully the financial analyses
used by Morgan Stanley, the tables must be read together with the text of each
summary. The tables alone do not constitute a complete description of the
financial analyses.
HISTORICAL EXCHANGE RATIO ANALYSES
Morgan Stanley reviewed and analyzed the exchange ratios implied by relating
the daily historical closing prices per share of ARCO common stock to the
corresponding prices of BP Amoco ADSs during the 12-month period beginning March
26, 1998 and ending March 26, 1999. The following table presents the highest,
lowest and certain average implied exchange ratios during the periods covered
and as of March 26, 1999. The table also presents, for each implied historical
exchange ratio or average
43
<PAGE>
exchange ratio, the premium (discount) implied by the actual exchange ratio for
the combination over the relevant implied historical exchange ratios.
<TABLE>
<CAPTION>
IMPLIED PREMIUM
(DISCOUNT) OFFERED BY
IMPLIED HISTORICAL BP AMOCO/ARCO EXCHANGE
EXCHANGE RATIO (BP AMOCO RATIO
ADSS TO ARCO OVER HISTORICAL
COMMON STOCK) EXCHANGE RATIO
------------------------------- -----------------------
<S> <C> <C>
High as of June 19, 1998...................................... 0.94 (14.4)%
Low as of March 11, 1999...................................... 0.63 30.2
Average Prior 12 Months....................................... 0.79 3.4
Average Prior 6 Months........................................ 0.73 12.5
Average Prior 3 Months........................................ 0.69 19.3
Average Prior 1 Month......................................... 0.65 26.8
Average Prior 1 Week.......................................... 0.65 27.0
As of March 26, 1999.......................................... 0.65 26.0
</TABLE>
EXCHANGE RATIO PREMIUMS IMPLIED IN SELECTED PRECEDENT TRANSACTIONS
Morgan Stanley reviewed historical exchange ratios implied by the daily
historical closing prices per share of the two companies involved in each of the
BP/Amoco merger and the Exxon/Mobil merger, as well as the premiums implied in
each of those transactions based on the actual merger exchange ratios over the
implied historical exchange ratios for various periods preceding the
announcement date of each transaction. The following table sets forth the
exchange ratio premiums implied in the foregoing transactions as compared to the
current transaction.
<TABLE>
<CAPTION>
IMPLIED
IMPLIED IMPLIED PREMIUM OFFERED BY
PREMIUM OF PREMIUM OF THE BP AMOCO/ARCO
PRE-ANNOUNCEMENT PERIOD OR DATE BP/AMOCO EXXON/MOBIL EXCHANGE
FOR HISTORICAL EXCHANGE RATIOS EXCHANGE RATIO EXCHANGE RATIO RATIO
- ----------------------------------------------------------------- --------------- --------------- -----------------------
<S> <C> <C> <C>
Prior 12 Months Average.......................................... 28.9% 20.7% 3.4%
Prior 6 Months Average........................................... 35.2 24.7 12.5
Prior 3 Months Average........................................... 36.9 24.2 19.3
Prior 1 Month Average............................................ 32.7 27.6 26.8
Prior 1 Week Average............................................. 25.3 26.3 27.0
1 Day Prior...................................................... 22.7 28.1 26.0
</TABLE>
Based on the foregoing, Morgan Stanley observed that, depending on the
selected time frame, the premium implied in the proposed combination with ARCO
over historical implied exchange ratios is either in line with, or less than,
similar premiums implied by such precedent transactions.
PRO FORMA EARNINGS AND CASH FLOW IMPACT ANALYSES
Morgan Stanley analyzed the pro forma effects of the combination and
computed the resulting accretion/dilution to the combined enterprise's projected
earnings per share, cash earnings per share and cash flow per share during 2001
based on the exchange ratio. Such computations were done using projections of
income and cash flow for each of BP Amoco and ARCO and assumed synergies for the
combined entity prepared and provided to Morgan Stanley by BP Amoco management.
The analysis indicated that under various oil price scenarios the combination
would be dilutive (or represent a reduction) to estimated earnings per share of
BP Amoco ADSs in 2001 and would be accretive (or represent an addition) to
estimated cash earnings per share and cash flow per share of BP Amoco ADSs in
2001, in each case as compared to estimates for BP Amoco on a stand-alone basis.
44
<PAGE>
SYNERGY ADJUSTED PUBLIC MARKET TRADING MULTIPLES VALUATION
Morgan Stanley selected certain publicly traded companies engaged in
businesses which Morgan Stanley judged to be comparable to that of ARCO. For
purposes of such analysis, Morgan Stanley grouped such companies as follows:
<TABLE>
<S> <C>
Tier 1 BP Amoco, Royal Dutch/Shell and Exxon Corp.;
Tier 2 Mobil Corp., Chevron Corp. and Texaco Inc.;
Tier 3 Conoco Inc., Phillips Petroleum Co.,
USX-Marathon Group and Occidental Petroleum
Corporation;
International Integrateds ENI Spa, Elf Aquitane SA, Total S.A. and
Repsol S.A.
</TABLE>
Morgan Stanley determined the market capitalization for each of the
foregoing companies based upon the closing price per share as of March 26, 1999
using publicly available information. Morgan Stanley then arrived at a range of
comparable company multiples by (1) dividing such market capitalizations by
projected earnings and cash flow and (2) dividing such market capitalization,
plus net debt, by earnings before interest, taxes, depreciation and
amortization, in each case, for each of the foregoing companies for the year
2000 based upon estimates compiled by I/B/E/S International Inc.
Based on its judgement of comparability, Morgan Stanley applied multiples
derived from such analysis ranging between (1) 18.0-28.0x ARCO projected
earnings, (2) 7.0-9.0x ARCO cash flow and (3) 6.0-8.0x ARCO earnings before
interest, taxes, depreciation and amortization, for 1999 and 2000 in each case
similarly compiled by I/B/E/S International Inc. The resulting average of these
three implied valuation ranges was then adjusted for anticipated pro forma
synergies to be realized following the combination, as estimated by BP Amoco
management. The resulting valuation range computed by Morgan Stanley implies a
total equity value for ARCO of between $21.2 and $28.5 billion and an implied
premium (or discount) to ARCO's market capitalization between (0.5)% and 33.8%,
based upon its common stock price on March 26, 1999.
Based on the foregoing, Morgan Stanley observed that the premium offered in
the proposed combination with ARCO is within the range suggested by the
foregoing public market trading analysis.
SYNERGY ADJUSTED DISCOUNTED CASH FLOW ANALYSIS
Morgan Stanley generated estimates of future cash flow for ARCO for various
periods ranging from 1999-2008, depending on the business, by geographic region
and business segment based primarily on publicly available information, BP Amoco
management's estimates, Morgan Stanley estimates and third party sources,
including Wood Mackenzie reports, and assuming various oil price scenarios.
Morgan Stanley then determined the present value of such cash flows using
various discount rates which reflected Morgan Stanley's judgment regarding the
appropriate weighted average cost of capital for these businesses. The sum of
the discounted cash flow amounts by business segment and region, was further
adjusted for ARCO's estimated investments, working capital, net debt and other
liabilities, which information was based on publicly available information. As a
result of the foregoing, Morgan Stanley arrived at estimated pre-synergy equity
value for ARCO. Such pre-synergy equity value was adjusted to reflect
anticipated synergies resulting from the combination, as estimated by BP Amoco
management.
45
<PAGE>
The following table summarizes Morgan Stanley's calculated discounted cash
flow (DCF) equity values for ARCO and the resulting implied premium (or
discount) to ARCO's common stock price on March 26, 1999.
<TABLE>
<CAPTION>
IMPLIED
ASSUMED BRENT EQUITY DCF VALUE PREMIUM OR
OIL PRICE ($MILLIONS) (DISCOUNT)
- ---------------- ---------------- ---------------
<S> <C> <C>
$ 14 per Barrel $ 20,987 (1.5%)
$ 17 per Barrel $ 29,151 36.8%
</TABLE>
Based on the foregoing, Morgan Stanley observed that the premium offered in
the proposed combination with ARCO is within the range suggested by the
foregoing discounted cash flow analysis.
PRECEDENT TRANSACTION ANALYSIS
Morgan Stanley used publicly available information to calculate multiples of
selected financial data paid in certain precedent transactions and applied such
multiples to comparable financial data of ARCO. Specifically, for the smaller
corporation in each of the BP/Amoco merger, the Exxon/Mobil merger and the Total
Petroleum North America/Petrofina merger, Morgan Stanley determined the amounts
of (1) earnings before interest, taxes, depreciation and amortization, (2) cash
flow and (3) earnings, in each case realized or projected during the applicable
transaction year and following year, without giving effect to the impact of any
transaction. Morgan Stanley then calculated the multiples of such amounts paid
by the larger corporation in such precedent transactions and applied multiples
derived from such calculations ranging from (1) 6.2-9.4x projected earnings
before interest, taxes, depreciation and amortization, (2) 7.4-13.9x cash flow
and (3) 19.1-30.0x earnings, for ARCO as compiled by I/B/E/S International Inc.
The resulting consensus equity values and premium (or discount) to ARCO's common
stock price on March 26, 1999 are summarized below.
<TABLE>
<CAPTION>
IMPLIED EQUITY IMPLIED
VALUATION BASIS VALUE ($MILLIONS) PREMIUM (DISCOUNT)
- ------------------------------------------------------------------------ ------------------- -------------------
<S> <C> <C>
Consensus ARCO Equity Value $ 26,000--$28,000 22.1%--31.4%
</TABLE>
Based on the foregoing, Morgan Stanley observed that the premium offered in
the proposed combination with ARCO is within the range suggested by the
foregoing precedent transaction analysis.
None of the transactions used in any of the foregoing precedent transactions
analyses is identical to the BP Amoco/ARCO combination and no company used in
any of the foregoing comparable company analyses is identical to BP Amoco or
ARCO. In evaluating precedent transactions and comparable companies, Morgan
Stanley made judgements and assumptions with regard to industry performance,
general business, economic, market and financial conditions and other matters,
many of which are beyond the control of BP Amoco or ARCO, such as the impact of
competition on BP Amoco or ARCO and the industry generally, industry growth and
the absence of any adverse material change in the financial condition and
prospects of BP Amoco or ARCO or the industry or in the financial markets in
general. Mathematical analysis (such as determining the mean or median) is not
in itself a meaningful method of using comparable transaction or comparable
company data.
In connection with the review of the combination by the BP Amoco board of
directors, Morgan Stanley performed a variety of financial and comparative
analyses for purposes of its opinion. The summary set forth above does not
purport to be a complete description of the analyses performed by Morgan Stanley
in connection with the combination.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. In arriving
at its opinion, Morgan Stanley considered the results of all of its analyses as
a whole and did not attribute any particular weight to any analysis or factor
considered by it. Furthermore, Morgan Stanley believes that selecting any
portion of its analyses,
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<PAGE>
without considering all analyses, would create an incomplete view of the process
underlying its opinion. In addition, Morgan Stanley may have given various
analyses and factors more or less weight than other analyses and factors, and
may have deemed various assumptions more or less probable than other
assumptions, so that the ranges of valuations resulting from any particular
analysis described above should not be taken to be Morgan Stanley's view of the
actual value of BP Amoco or ARCO.
Any estimates contained in Morgan Stanley's analyses are not necessarily
indicative of future results or actual values, which may be significantly more
or less favorable than those suggested by such estimates. The analyses performed
were prepared solely as part of Morgan Stanley's analysis of the fairness of the
exchange ratio in the merger agreement to BP Amoco. The analyses do not purport
to be appraisals or to reflect the prices at which BP Amoco ordinary shares or
ADSs or ARCO common stock might actually trade. The exchange ratio pursuant to
the merger agreement and other terms of the merger agreement were determined
through arm's length negotiations between BP Amoco and ARCO and were approved by
BP Amoco's board of directors. Morgan Stanley provided advice to BP Amoco during
such negotiations. However, Morgan Stanley did not recommend any specific
consideration to BP Amoco or that any specific consideration constituted the
only appropriate consideration for the combination. Also, with BP Amoco's
consent, the future financial information regarding ARCO reviewed by Morgan
Stanley in connection with rendering its opinion was limited to publicly
available information regarding ARCO and certain discussions with the senior
management of BP Amoco and ARCO regarding the prospects of ARCO.
Morgan Stanley's opinion was one of the many factors taken into
consideration by BP Amoco's board of directors in making its determination to
approve the proposed combination. Morgan Stanley's analyses summarized above
should not be viewed as determinative of the opinion of the BP Amoco board of
directors with respect to the value of ARCO or of whether the BP Amoco board of
directors would have been willing to agree to different consideration.
Morgan Stanley is an internationally recognized investment banking and
advisory firm. Morgan Stanley, as part of its investment banking and financial
advisory business, is continuously engaged in the valuation of businesses and
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for corporate and other
purposes. In addition, Morgan Stanley is a full-service securities firm engaged
in securities trading, brokerage and financing activities. In the ordinary
course of Morgan Stanley's trading and brokerage activities, Morgan Stanley or
its affiliates may at any time hold long or short positions, and may trade or
otherwise effect transactions for its own account or the accounts of customers,
in debt or equity securities of BP Amoco or ARCO.
Pursuant to an engagement letter, BP Amoco agreed to pay Morgan Stanley a
customary fee and to reimburse Morgan Stanley for reasonable expenses incurred.
BP Amoco also agreed to indemnify Morgan Stanley and its affiliates, their
respective directors, officers, agents and employees and each person, if any,
controlling Morgan Stanley or any of its affiliates, against certain liabilities
and expenses, including certain liabilities under the federal securities laws,
arising out of Morgan Stanley's engagement. In the past, Morgan Stanley and its
affiliates have provided financial advisory services for ARCO and BP Amoco and
have received fees for the rendering of these services.
PLANS FOR ARCO AFTER THE COMBINATION
After the combination is completed, ARCO will be a subsidiary of BP Amoco.
BP Amoco currently expects that the rationalization of its operations after the
combination will involve the sale of some of the businesses or assets now held
by ARCO. Although BP Amoco has not made any determinations as to the businesses
or assets to be sold, its preliminary estimate of the value of these sales is $3
billion. Except for these asset sales and other plans described in this proxy
statement/ prospectus, BP Amoco does not have any present plans or proposals
which relate to or would result in
47
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an extraordinary corporate transaction, such as a merger, reorganization or
liquidation, involving ARCO, a sale or transfer of a material amount of ARCO'S
or any of ARCO's subsidiaries' assets or any material change in its
capitalization, or any other material changes in ARCO's business.
INTERESTS OF ARCO DIRECTORS AND MANAGEMENT PERSONS IN THE COMBINATION
When you consider the recommendation of the ARCO board in favor of the
merger agreement, you should keep in mind that the most highly paid members of
ARCO's management and the members of the ARCO board have interests in the merger
that are in addition to the interests of other shareholders of ARCO generally.
Their additional interests arise primarily because there are change of control
provisions in ARCO's compensation and benefit plans that are tied to their
compensation levels. The merger agreement, however, does not provide the
executive officers, including the named executive officers, with any right of
continued employment or any special bonuses.
EXECUTIVE OFFICERS
ARCO's board of directors adopted in 1997, and has since amended, a number
of change of control arrangements applicable to all employees on the regular
U.S. payroll, including ARCO's five most highly compensated executive officers.
The merger agreement recognizes that the consummation of the merger will be
considered a change of control within the meaning of these various provisions.
BP Amoco and ARCO agreed that all of the change of control provisions would
become operative immediately following the consummation of the merger. As
described under the "The Merger Agreement--Stock Options and Other Employee
Benefits," the merger agreement also specifically provides that all
stock-related benefits automatically will be converted into the right to
purchase or receive BP Amoco ordinary shares, which will be issued in the form
of BP Amoco ADSs. While all employees holding stock options and other
stock-related interests will have the benefit of this provision, the named
executive officers hold approximately 16% of the currently outstanding ARCO
stock options and other stock related interests.
Executive officers whose employment is involuntarily or constructively
terminated within 24 months following a change of control will receive severance
benefits that include:
(1) an enhancement of the normal retirement benefit, known as the "5+5"
because the enhancement adds five years of age and five years of service
to the normal retirement benefit, payable in the form of a lump sum or an
annuity,
(2) a severance benefit equal to the product of one and one-half weeks of
pay for each year of continuous service, capped at 36 weeks of pay,
payable in a lump sum,
(3) a cash amount equal to the excess, if any, by which the amount equal to
three times the executive's total current compensation exceeds the sum of
(1) plus (2) above. Current compensation is defined as annualized current
base salary plus (a) the greater of the amount of the average cash bonus
paid during the last three years or the target bonus for the current year
plus (b) the average of any payment in lieu of merit awards over the
preceding three years,
(4) payment of the executive's pro-rated target Annual Incentive Plan (AIP)
award, and
(5) the continuation of health, dental and life insurance coverage for 36
months.
The sum of (1), (2) and (3) above constitutes the severance allowances detailed
in the chart below.
All executive officers, regardless of post-merger employment status, will
receive the following benefits upon a change of control:
(1) crediting of prospective dividend share credits (future undeclared and
unpaid dividends),
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<PAGE>
(2) vesting of a pro-rated number of shares in respect of contingent stock
awards,
(3) lifting of restrictions on restricted stock, and
(4) vesting of previously unvested stock options.
Executives will also receive a tax gross-up payment, if any of the preceding
payments are deemed to give rise to an excise tax obligation under Internal
Revenue Code Section 4999.
In addition to the change of control-related benefits, upon termination of
employment, each of the named executive officers will receive normal retirement
benefits, including payments under the retirement plan, the supplementary
executive retirement plan and the executive deferral plan, and will continue to
hold previously vested options and other stock rights. The date of actual
receipt of certain of the retirement benefits will depend on an individual's age
and length of service at the time of termination and on individual payout
elections. For purposes of estimating the interests of the named executive
officers in the merger, several assumptions have been made:
<TABLE>
<S> <C>
Effective date of merger: December 31, 1999
Termination date of
employment: February 29, 2000
Retirement date: March 1, 2000
ARCO stock value: $94.24 per share
</TABLE>
The assumed ARCO stock value is based on the exchange ratio in the merger and
the closing mid-market quotation for BP Amoco ordinary shares on the London
Stock Exchange on July 6, 1999.
Based on these assumptions, the chart below shows the estimated cash value
of the severance-related benefits to be received by each of the named executive
officers that are directly attributable to the change of control:
<TABLE>
<CAPTION>
PROSPECTIVE
DIVIDEND PAYMENT OF
PRORATED SHARE CONTINGENT VESTING OF UNVESTED
SEVERANCE AIP CREDITS RESTRICTED RESTRICTED OPTION
ALLOWANCES PAYMENT (DSCS) STOCK STOCK SPREAD TOTAL
----------- --------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Mike R. Bowlin................ $ 6,224,319 $ 138,833 $ 7,683,506 $ 4,577,237 $ 1,514,652 $ 7,434,359 $ 27,572,906
Michael E. Wiley.............. 3,487,500 81,250 0 1,840,319 590,195 4,619,499 10,618,763
Marie L. Knowles.............. 3,020,705 54,167 1,799,033 1,737,471 590,195 2,871,267 10,072,838
J. Kenneth Thompson........... 2,320,500 49,292 1,002,827 1,123,655 326,279 2,771,284 7,593,837
Donald R. Voelte, Jr.......... 2,312,250 49,292 0 986,441 341,246 3,379,451 7,068,680
</TABLE>
<TABLE>
<S> <C>
Credited Years of Service at
February 29, 2000
Mr. Bowlin 31 years, 2 months
27 years, 10
Mr. Wiley months
Mrs. Knowles 27 years, 4 months
Mr. Thompson 26 years, 2 months
Mr. Voelte 2 years, 11 months
</TABLE>
The following are explanations of the items in the columns of the above
chart.
SEVERANCE ALLOWANCES. This amount includes the primary severance benefit
calculated as described above. For purposes of this presentation, a lump sum
payout has been assumed, and the amount shown has been calculated as the present
value of that lump sum amount on March 1, 2000, using a discount rate of 5.8%.
PRORATED ANNUAL INCENTIVE PLAN (AIP) PAYMENT. The AIP provides for payment
of a pro-rated amount of the target AIP amount for the portion of the year
completed at the time of the executive's
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<PAGE>
termination after a change of control. Because the termination date is assumed
to be February 29, 2000, the amount represents 2/12ths of the target amount for
2000 for each of the named officers.
PROSPECTIVE DIVIDEND SHARE CREDITS (DSCS). Under ARCO's Executive Long-Term
Incentive Plan (LTIP), for all option grants made prior to 1997, DSCs are
credited to an optionee's account whenever dividends are declared on ARCO common
stock. The number of credits is computed by multiplying the dividend rate per
share times the sum of (1) the number of eligible options and (2) the number of
DSCs then accrued and then dividing the resulting number by the stock price on
the dividend record date. Upon exercise of options having the right to DSCs, the
option holder is entitled to receive an additional number of shares equal to the
number of DSCs then accrued with respect to the options being exercised. Upon a
change of control, the number of prospective DSCs yet to be accrued for the
remaining term of a particular option grant are accelerated and vested. For
purposes of calculating the value shown in the table above, the dividend rate
was assumed to be $0.7125 per share.
CONVERSION AND VESTING OF CONTINGENT RESTRICTED STOCK. Under the LTIP,
since 1997, grants of contingent restricted stock have been awarded having one-
to three-year performance periods. At the conclusion of the performance period,
grants of restricted stock are made in amounts ranging from zero to three times
the number of contingent shares awarded, depending on ARCO's performance
relative to a peer group of other oil and gas companies. Upon a change of
control, a prorated number of shares of common stock are granted based on the
portion of the three-year performance cycle completed. The chart includes the
estimated payout for contingent shares awarded in 1997, 1998 and 1999, assuming
a payout multiple of 1.0 times the number of contingent shares.
RESTRICTED STOCK. Under the LTIP, performance based restricted stock was
granted in each of 1998 and 1999, with each grant having a two-year restricted
period. Dividends paid after the grant date have been reinvested in additional
restricted stock. Under the change of control provisions, the restricted stock
vests immediately upon the consummation of the merger.
UNVESTED OPTION SPREAD. The second to last column shows the net value of
each executive's unvested options--the spread between the exercise price and the
assumed stock value of $94.24 per share. These unvested options, none of which
has the right to DSCs, will vest upon the change of control. In addition, the
net value of each executive's vested options (and related DSCs) already has
accrued to his or her account regardless of the change of control. As of
December 31, 1999, vested options and related DSCs are estimated to have a value
of $33,171,835 for Mr. Bowlin, $1,555,931 for Mr. Wiley, $6,103,953 for Mrs.
Knowles, $4,398,180 for Mr. Thompson and $2,687,848 for Mr. Voelte.
TAX GROSS-UP PAYMENT. Under the change of control arrangements, ARCO is
obligated to make additional tax gross-up payments to officers and certain other
key employees deemed under Internal Revenue Code Sections 280G and 4999 to have
received an "excess parachute payment." In general, Section 4999 imposes an
excise tax equal to 20% of that payment. A parachute payment is any payment that
is contingent on a change of control. In addition to making a payment equal to
the amount of the excise tax, ARCO is also obligated to gross up the amount of
the excise tax payment by an amount that completely offsets the effect of
additional taxable income resulting from the excise tax payment and the gross-up
process. The actual amounts deemed to be excess parachute payments and the
related excise tax and gross-up amounts for each of the five named officers, as
well as for the other employees eligible for the tax gross-up, cannot be
reasonably determined until the time of actual termination when all relevant
facts are known.
NON-EMPLOYEE DIRECTORS
The benefit plans covering ARCO's non-employee directors contain change of
control provisions that provide for accelerated vesting of certain benefits, but
do not otherwise result in increased benefits for the non-employee directors.
The outside directors will, however, become vested in their restricted
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<PAGE>
stock holdings upon consummation of the merger. As described above, the merger
agreement provides that all rights to ARCO common stock will become rights to BP
Amoco ADSs upon consummation of the merger. For purposes of the chart below, the
consummation of the merger is assumed to occur on December 31, 1999 and the
retirement date for each of the directors is assumed to occur on January 1,
2000.
Under the Outside Directors Restricted Stock Plan, directors receive a
minimum of 65% of their retainer fee, and may elect to receive 100% of their
retainer fee, in restricted stock. In addition, in 1997 the directors' accrued
retirement benefits were converted into restricted stock upon termination of the
outside directors' retirement plan. Finally, some of the directors converted
their cash deferral plan balances into restricted stock. All dividends are
reinvested in shares of restricted stock. The restrictions normally lift upon
retirement from the board. These restrictions will lift upon the concurrent
consummation of the merger and retirement of each of the directors from the
board.
The chart below sets out the estimated value of the restricted stock that
will be received by each of the directors as a result of his or her retirement
from ARCO's board upon completion of the combination. The number of shares of
restricted stock was estimated as of December 31, 1999, using an assumed stock
value of $94.24 per share and the current dividend rate of $0.7125 per share.
<TABLE>
<CAPTION>
VALUE OF
RESTRICTED
STOCK
---------------
<S> <C>
Frank D. Boren............................................................... $ 363,041
John Gavin................................................................... 430,534
Kent Kresa................................................................... 738,008
Arnold G. Langbo............................................................. 132,015
David T. McLaughlin.......................................................... 892,947
John B. Slaughter............................................................ 366,203
Gary L. Tooker............................................................... 103,368
Henry Wendt.................................................................. 1,624,344
Gayle E. Wilson.............................................................. 54,057
</TABLE>
Each of the outside directors also has vested options that he or she
received in connection with acceptance of a position on the ARCO board of
directors. The options issued to those directors who joined the ARCO board prior
to 1997 carried with them the right to dividend share credits. As of December
31, 1999, vested options and related DSCs are estimated to have the following
values: Mr. Boren, $156,492; Mr. Gavin, $156,492; Mr. Kresa, $137,676; Mr.
Langbo, $74,638; Mr. McLaughlin, $136,132; Mr. Slaughter, $156,492; Mr. Tooker,
$99,013; Mr. Wendt, $156,492; and Mrs. Wilson, $166,200.
INDEMNIFICATION, DIRECTORS' AND OFFICERS' INSURANCE
For a period of six years following completion of the combination, BP Amoco
will indemnify and provide directors' and officers' liability insurance for
individuals who were directors or officers of ARCO prior to completion of the
combination for their acts or omissions in that capacity, as more fully
described in "The Merger Agreement--Director and Officer Liability."
ACCOUNTING TREATMENT AND FUTURE REPORTING
BP Amoco will account for the combination of ARCO and BP Amoco as an
acquisition under U.K. GAAP in accordance with Financial Reporting Standard No.
6, "Acquisitions and Mergers," and will account for the combination as a
purchase for U.S. GAAP purposes in accordance with APB Opinion No. 16, "Business
Combinations."
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<PAGE>
The impact on net income and BP Amoco shareholders' interest will be broadly
the same under U.K. GAAP and U.S. GAAP. The excess of the purchase price for the
acquisition over the fair value of the assets and liabilities acquired will be
recorded as goodwill which will be amortized over its estimated economic life.
The amortization of this goodwill and the additional depreciation on the fair
value uplift to fixed assets will give rise to ongoing additional non-cash
charges. It is currently anticipated that these additional charges will amount
to approximately $2.0 billion initially against profit in the first full year
after the combination of BP Amoco and ARCO. They will slowly decline but will
persist for a number of years. These charges will not affect BP Amoco's cash
flows nor is it expected that they will affect BP Amoco's ability to pay
dividends. For further information about the fair value adjustments and goodwill
BP Amoco will have to record and the additional amounts to be charged against
net income, see Note 7 of the Notes to the Unaudited Pro Forma Condensed
Consolidated Financial Information beginning on page 102.
BP Amoco intends to disclose additional indicators of the BP Amoco Group's
financial performance such as "EBITDA" (i.e., earnings before interest, tax,
depreciation and amortization) and "Adjusted EBITDA" (i.e., replacement cost
profit before exceptional items and before interest, tax, depreciation and
amortization). The aim of such indicators will be to bring greater clarity to
the reporting of the performance of the BP Amoco Group. While these indicators
are not recognized U.K. GAAP or U.S. GAAP measures, BP Amoco believes they will,
in the future, enable investors to evaluate better both BP Amoco's historical
performance and its performance against that of its competitors. This new
information is expected to be disclosed for the first time with the announcement
of BP Amoco's results for the first six months of 1999. The new measures will be
published with, and be reconcilable to, BP Amoco's other measures of financial
performance.
ARCO PREFERENCE STOCKS
Each share of ARCO's $3.00 preference stock and $2.80 preference stock still
outstanding immediately prior to the effective time of the merger of ARCO and BP
Amoco will remain outstanding after the effective time, and no consideration
will be delivered in the merger in exchange for such preference stock. Following
completion of the combination, shares of ARCO's preference stock will be
convertible into BP Amoco ordinary shares, deliverable in the form of BP Amoco
ADSs, rather than into shares of ARCO common stock. See "The Merger
Agreement--Treatment of ARCO Preference Stock." BP Amoco will be liable for all
stamp duties, stamp duty reserve tax and other taxes and similar levies, if any,
imposed in connection with the issuance or creation of BP Amoco ADSs (and any BP
Amoco American depositary receipts that may be issued in connection with such BP
Amoco ADSs) to be issued on such conversions. See "Description of BP Amoco
American Depositary Shares--Fees and Expenses."
Until the day prior to the effective time of the merger (after which ARCO's
stock transfer books will be closed), each holder of shares of ARCO's $3.00
preference stock and $2.80 preference stock may convert such shares into shares
of ARCO common stock in accordance with the terms of such shares. The shares of
ARCO common stock received prior to the merger upon any conversion of ARCO
preference stock will then be converted pursuant to the merger into BP Amoco
ADSs or, at such holder's election in accordance with required procedures, BP
Amoco ordinary shares, in the same manner as all other shares of ARCO common
stock to be converted in the merger. If a sufficient number of shares of either
$3.00 preference stock or $2.80 preference stock is converted into ARCO common
stock prior to the merger, or into BP Amoco ordinary shares after the merger, it
is possible that the NYSE will delist that class of preference stock. The NYSE
would normally consider the delisting of listed preference stock if:
- the aggregate market value of publicly-held shares is less than $2
million; or
- the number of publicly held shares is less than 100,000.
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<PAGE>
If either class of ARCO preference stock is delisted, ARCO cannot assure
holders of shares of that class that any active trading market outside the NYSE
will develop for their shares, or that the market price for those shares, if
there is an available market price, will not be adversely affected. As of July
9, 1999, there were 48,539 shares of $3.00 preference stock and 550,921 shares
of $2.80 preference stock outstanding.
Shares of ARCO preference stock outstanding after the merger will continue
to provide their holders with the right to vote at ARCO shareholders' meetings,
if any are held, but will not represent the right to vote at meetings of BP
Amoco shareholders. Except for these shares of ARCO preference stock, BP Amoco
will own directly or indirectly all of the voting stock of ARCO after the
merger.
Shares of ARCO preference stock also will continue to be redeemable by ARCO
following the merger in accordance with their terms. See "Comparison of Rights
of ARCO Shareholders and BP Amoco Shareholders--Preferred Stock and Preference
Stock."
OTHER EFFECTS OF THE COMBINATION
It is a condition to the combination of ARCO and BP Amoco that the BP Amoco
ADSs issuable in connection with the merger be authorized for listing on the
NYSE subject to official notice of issuance, and that the London Stock Exchange
will have granted permission for admission to the Official List, subject to
allotment, of the new BP Amoco ordinary shares to be issued by BP Amoco in
connection with the merger and that such permission will not have been withdrawn
prior to the merger. If the merger is completed, listing of the newly issued BP
Amoco ordinary shares on the LSE will become effective, and dealings in the BP
Amoco ordinary shares are expected to commence, at 8:00 a.m., London time, on
the day that the merger occurs. If the merger is completed, shares of ARCO
common stock will cease to be listed on the NYSE and the other exchanges on
which such shares are listed. For information concerning the material income tax
consequences of the ownership of BP Amoco ordinary shares and BP Amoco ADSs, see
"Material Tax Consequences--United States Tax Consequences of Owning BP Amoco
Ordinary Shares and BP Amoco ADSs."
Immediately after the completion of the merger, ARCO will continue to have
debt securities outstanding and, unless all of the ARCO preference stock is
converted prior to the merger, shares of ARCO preference stock outstanding and,
accordingly, ARCO will continue to file periodic reports with the SEC under the
Securities Exchange Act for so long as required after the merger. If at any time
permitted by applicable law and the terms of such securities, ARCO may cease
filing such periodic reports with the SEC.
The content and timing of reports and notices that BP Amoco files with the
SEC differ in several respects from the reports and notices that ARCO currently
files. BP Amoco is a foreign private issuer for the purposes of the reporting
rules under the Securities Exchange Act.
As a U.S. reporting company, ARCO must file with the SEC, among other
reports and notices:
(1) an annual report on Form 10-K within 90 days after the end of each
fiscal year,
(2) quarterly reports on Form 10-Q within 45 days after the end of each
fiscal quarter, and
(3) reports on Form 8-K upon the occurrence of certain corporate events.
As a foreign private issuer, pursuant to the requirements of the Securities
Exchange Act, BP Amoco is required to:
(1) file with the SEC an annual report on Form 20-F within six months after
the end of each fiscal year, and
(2) furnish reports on Form 6-K upon the occurrence of significant corporate
events.
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<PAGE>
BP Amoco is not required under the Securities Exchange Act to file quarterly
reports on Form 10-Q after the end of each financial quarter. Pursuant to its
1998 merger agreement with Amoco Corporation, however, BP Amoco agreed to use
all reasonable efforts:
(1) within 45 days after the end of each of its first three fiscal quarters
in each of its fiscal years to file with the SEC quarterly interim
reports containing the principal financial information required by Form
10-Q under cover of a Report on Form 6-K, and
(2) within 90 days after the end of each fiscal year, to file with the SEC
its Annual Report on Form 20-F.
BP Amoco's Annual Reports on Form 20-F contain audited financial statements
prepared in conformity with U.K. GAAP, with a reconciliation of net income and
shareholders' interest to U.S. GAAP. BP Amoco's quarterly interim reports
include unaudited interim financial information prepared in conformity with U.K.
GAAP, with a reconciliation of net income and shareholders' interest to U.S.
GAAP.
In addition, the content and timing of reports and notices that holders of
BP Amoco ordinary shares and BP Amoco ADSs will receive will differ from the
reports and notices that are currently received by ARCO shareholders. As a U.S.
reporting company, ARCO must mail to its shareholders in advance of each annual
meeting of shareholders:
(1) an annual report containing audited financial statements, and
(2) a proxy statement that complies with the requirements of the Securities
Exchange Act.
As a foreign private issuer, BP Amoco is exempt from the rules under the
Securities Exchange Act prescribing the furnishing and content of annual reports
and proxy statements to its shareholders. However, BP Amoco intends to furnish
to its shareholders reports similar to the reports currently furnished or
available on request to the holders of BP Amoco ordinary shares, although BP
Amoco could change or discontinue such practice at any time in the future. BP
Amoco currently furnishes its ordinary shareholders with a summary of the BP
Amoco Annual Report and Accounts, which contain audited financial statements
prepared in conformity with U.K. GAAP and semi-annual interim reports which
include unaudited interim financial information prepared in conformity with U.K.
GAAP. In addition, ordinary shareholders of BP Amoco may request copies of BP
Amoco's complete Annual Report and Accounts, which contain audited financial
statements prepared in conformity with U.K. GAAP and a discussion of BP Amoco's
financial results that is comparable to the Management's Discussion and Analysis
that is contained in ARCO's Annual Report on Form 10-K. Shareholders may also
request a copy of BP Amoco's Form 20-F. See "Summary--Where You Can Find More
Information." BP Amoco also furnishes to its shareholders notices of meetings of
shareholders and related documents in accordance with the rules of the London
Stock Exchange.
BP Amoco furnishes to the depositary all notices of shareholders' meetings
and other reports and communications that are made generally available to BP
Amoco shareholders. The depositary makes such documents available for inspection
at the depositary's office in New York and arranges for the mailing to holders
of BP Amoco ADSs of copies of those documents that are mailed to BP Amoco
shareholders.
ARCO common stock is presently included in the S&P 500 index. Mutual funds
and other investment vehicles whose investment objective is to track the
performance of the S&P 500 index currently hold a substantial amount of ARCO
common stock. These funds will be required to sell their shares of ARCO common
stock, or the BP Amoco ADSs or BP Amoco ordinary shares they receive in the
combination of ARCO and BP Amoco, if, as is likely after the completion of the
combination, ARCO is removed from the S&P 500 and BP Amoco is not included. In
addition, some mutual funds and state pension funds currently holding ARCO
common stock and which are precluded from holding
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<PAGE>
non-U.S. equities will similarly be required to sell their shares of ARCO common
stock or BP Amoco ADSs or BP Amoco ordinary shares received on completion of the
combination. These sales could adversely affect the market price for the BP
Amoco ADSs.
In addition, after the combination is completed, the relative weight of BP
Amoco in the FTSE 100 index is expected to increase. As a result, pension funds,
unit trusts and other investment vehicles whose investment objective is to track
the performance of this index are likely to increase their holdings of BP Amoco
ordinary shares which may have a counter balancing effect on any adverse effect
to the market price for the BP Amoco ADSs or BP Amoco ordinary shares caused by
the factors described above. However, the market capitalization of the combined
BP Amoco-ARCO may represent more than 10% of the aggregate market capitalization
of all FTSE 100 companies. In such event, there are a small number of
institutional investors that track the FTSE 100 index that are by regulation
obligated not to hold more than 10% of their portfolio in a single stock. Such
investors will not be able to increase their holdings of BP Amoco ordinary
shares to reflect the full weighting of the BP Amoco-ARCO combination in the
FTSE 100 index.
DIRECTORS AND MANAGEMENT OF BP AMOCO FOLLOWING THE COMBINATION
The current directors and management of BP Amoco are expected to continue to
serve after the combination is completed, subject to any resignations or
retirements in the period prior to the combination. Information about BP Amoco's
directors is contained in BP Amoco's Annual Report on Form 20-F, which is
available from the SEC and from BP Amoco. See "Summary--Where You Can Find More
Information."
DIVIDENDS
The future dividends of BP Amoco will be dependent on its future earnings
and financial condition and other factors affecting its business, but it is
expected that BP Amoco will continue its current practice of paying dividends
equal to approximately 50% of its estimated average earnings (excluding the
effect of the depreciation and amortization charges resulting from the
combination) over the course of the business cycle.
BP Amoco currently expects that the timetable for dividends to be paid to
its shareholders over the next 12 months will be as set forth below. ARCO
shareholders will participate in all BP Amoco dividends that have a record date
on or after the date that the merger becomes effective. For example, if the
merger becomes effective on December 31, 1999, former holders of ARCO common
stock would be entitled to receive the BP Amoco dividend payable on March 24,
2000. BP Amoco and ARCO have agreed in the merger agreement to coordinate the
record dates for dividends on ARCO common stock with the record dates for
dividends on BP Amoco ordinary shares so that whenever the merger becomes
effective, ARCO shareholders will be entitled to one and only one dividend in
each calendar quarter.
<TABLE>
<CAPTION>
DATE OF ANNOUNCEMENT RECORD DATE PAYMENT DATE
- ------------------------------------ ------------------------------------ ------------------------------------
<S> <C> <C>
August 10, 1999 August 20, 1999 September 10, 1999
November 2, 1999 November 12, 1999 December 10, 1999
February 15, 2000 February 25, 2000 March 24, 2000
May 9, 2000 May 19, 2000 June 12, 2000
</TABLE>
The announcement of a dividend in any quarter is not assured, and is
ultimately within the discretion of the board of directors of BP Amoco.
At least until December 31, 2003, BP Amoco will announce dividends on BP
Amoco ordinary shares in U.S. dollars and state an equivalent pounds sterling
dividend. Holders of BP Amoco ordinary shares will receive dividends in pounds
sterling and holders of BP Amoco ADSs will receive such
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<PAGE>
dividends in U.S. dollars subject to arrangements with the depositary which
enable Canadian holders to receive dividends in Canadian dollars. Since BP Amoco
dividends will be determined by reference to projected earnings calculated in
U.S. dollars, BP Amoco shareholders who receive dividends in pounds sterling can
expect fluctuation between the amounts of one receipt and the next because of
fluctuation in the U.S. dollar/pounds sterling exchange rate.
Eligible U.S. holders of BP Amoco ADSs or BP Amoco ordinary shares will be
entitled to tax benefits on the payment of cash dividends by BP Amoco. For those
holders, dividend payments carry a U.K. tax credit that is, under current tax
rules, fully offset by a deemed U.K. withholding tax. An eligible U.S. holder
will be entitled to credit the amount of the deemed U.K. withholding tax against
U.S. federal income tax liabilities. This credit and the withholding tax offset
are shown in the following example:
<TABLE>
<CAPTION>
EXAMPLE
- -------------------------------------------------------------------------------------
<S> <C> <C>
1. Announced dividend per BP Amoco ADS $ .60
2. Plus: U.K. tax credit (1/9th of line 1) .066
---------
3. Gross taxable amount .666
4. Less: Deemed U.K. withholding tax
(15% of line 3, up to a maximum
of the tax credit amount) (.066)
---------
5. Net dividend payment .60
</TABLE>
For more information, see "Material Tax Consequences--United States Tax
Consequences of Owning BP Amoco Ordinary Shares and BP Amoco ADSs--Taxation of
Dividends."
BP Amoco has in place a dividend reinvestment program for holders of BP
Amoco ordinary shares and a direct access plan (incorporating a dividend
investment program) whereby United States and Canadian residents can acquire BP
Amoco ADSs.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
Statements contained in this proxy statement/prospectus or in documents
incorporated by reference herein, particularly those regarding possible or
assumed future performance, costs, dividends, returns, divestments, reserves and
growth of ARCO and BP Amoco, industry growth and other trend projections, and
those regarding synergistic benefits of the merger and estimated company
earnings, in particular those set forth under "Summary--BP Amoco Financial
Targets and Group Prospects," "--Recent Developments," "The Combination--ARCO's
Reasons for the Combination; Recommendation of the ARCO Board," "--Opinions of
ARCO's Financial Advisors," "--BP Amoco's Reasons for the Combination" and
"--Opinion of Financial Advisor to BP Amoco" are or may be forward-looking
statements that involve risks and uncertainties. Actual results may differ
materially from those expressed in such statements, depending on a variety of
factors, including the specific factors identified in the discussions
accompanying such forward-looking statements; future levels of industry product
supply, demand and pricing; political stability and economic growth in relevant
areas of the world; the ability of ARCO and BP Amoco to integrate their
businesses successfully after the merger; development and use of new technology
and successful partnering; the actions of competitors, natural disasters and
other changes to business conditions; and other factors discussed elsewhere in
this proxy statement/prospectus and in the documents incorporated by reference
in this proxy statement/ prospectus.
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MATERIAL TAX CONSEQUENCES
GENERAL
The following discussion sets forth the material U.S. federal income tax
consequences to holders of ARCO common stock who exchange such stock for BP
Amoco ADSs or, at an ARCO shareholder's election, BP Amoco ordinary shares,
pursuant to the merger and the material U.S. and U.K. tax consequences of the
ownership and disposition of BP Amoco ADSs and BP Amoco ordinary shares received
pursuant to the merger.
For purposes of this discussion, "U.S. Holder" means:
(1) a citizen or resident of the United States,
(2) a corporation or other entity taxable as a corporation created or organized
under the laws of the United States or any of its political subdivisions,
(3) a trust if a U.S. court is able to exercise primary supervision over the
administration of the trust and one or more U.S. fiduciaries have the
authority to control all substantial decisions of the trust, or
(4) an estate that is subject to U.S. federal income tax on its income
regardless of its source.
In addition, "Non-U.S. Holder" means any person that (1) is not a U.S.
Holder, (2) is not engaged in the conduct of a trade or business within the
United States and (3) is not present in the United States for 183 days or more
during any taxable year.
The term "Eligible U.S. Holder" means a U.S. person that, after the merger,
is a beneficial owner of BP Amoco ordinary shares or BP Amoco ADSs and of the
cash dividend paid with respect thereto and that (1) is an individual or a
corporation resident in the U.S. for purposes of the Treaty (and, in the case of
a corporation, is not also resident in the U.K. for U.K. tax purposes), (2) is
not a corporation which, alone or together with one or more associated
corporations, controls, directly or indirectly, 10% or more of the voting stock
of BP Amoco, (3) holds the BP Amoco ordinary shares or BP Amoco ADSs in a manner
which is not effectively connected with a permanent establishment in the U.K.
through which such U.S. person carries on business or with a fixed base in the
U.K. from which such person performs independent personal services, and (4) is
not otherwise ineligible for benefits under the Tax Treaty with respect to
income and gains derived in connection with the BP Amoco ordinary shares or BP
Amoco ADSs. U.S. Holders are urged to confirm their status as Eligible U.S.
Holders with their advisors and to discuss with their advisors any possible
consequences of their failure to qualify as Eligible U.S. Holders.
The discussion is based on existing U.S. federal income and U.K. tax law,
including the United States Internal Revenue Code of 1986 and other legislation,
regulations, administrative rulings and court decisions, as well as the
U.K.-U.S. Income Tax Convention, also known as the Tax Treaty, and the U.S.-U.K.
Estate and Gift Tax Convention, also known as the Estate Tax Treaty. PLEASE NOTE
THAT THESE SOURCES OF LAW AND AUTHORITY ARE SUBJECT TO CHANGE, POSSIBLY WITH
RETROACTIVE EFFECT. IN PARTICULAR, THE UNITED STATES AND THE UNITED KINGDOM HAVE
ENTERED INTO NEGOTIATIONS TO UPDATE THE TAX TREATY.
The following discussion assumes that ARCO shareholders hold their shares of
ARCO common stock and will hold their BP Amoco ordinary shares or BP Amoco ADSs
as a capital asset within the meaning of Section 1221 of the Internal Revenue
Code and for the purposes of U.K. taxation. This discussion does not address all
aspects of U.S. federal income taxation or U.K. taxation that may be relevant to
you in your particular circumstances. We therefore advise you to consult your
own tax advisors as to how the merger will impact you individually. The U.S.
federal income tax and U.K. tax consequences of the merger might involve facts
and circumstances which are unique to you. You should also consult your tax
advisor as to any estate, gift, local or non-U.S. tax consequences of the
merger, as well as of the ownership and disposition of BP Amoco ordinary shares
or BP Amoco ADSs.
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<PAGE>
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The discussion is based in part upon representations of the depositary and
the assumption that each obligation in the deposit agreement and any related
agreement will be performed in accordance with its terms. Further, the
discussion does not address all aspects of U.S. federal income taxation that may
be relevant to a particular shareholder in light of his, her or its personal
investment circumstances or to shareholders subject to special treatment under
the U.S. federal income tax laws such as:
- insurance companies
- tax-exempt organizations
- dealers in securities or foreign currency
- banks or trusts
- persons that hold their shares of ARCO common stock, their BP Amoco
ordinary shares or their BP Amoco ADSs as part of a straddle, a hedge
against currency risk or a constructive sale or conversion transaction
- persons that have a functional currency other than the U.S. dollar
- investors in pass-through entities
- shareholders who acquired their shares of ARCO common stock through the
exercise of options or otherwise as compensation or through a
tax-qualified retirement plan
- holders of options granted under any ARCO benefit plan or
- persons that, after the merger, will own, directly or indirectly, stock
possessing at least 10% of the total combined voting power of all BP Amoco
stock.
For U.S. tax purposes, if you hold BP Amoco ADSs then, generally, you will
be treated as the owner of the underlying BP Amoco ordinary shares which are
represented by such BP Amoco ADSs. As a result, if you deposit or withdraw BP
Amoco ordinary shares in exchange for BP Amoco ADSs, you will not be subject to
U.S. federal income tax.
Neither BP Amoco nor ARCO has requested a ruling from the United States
Internal Revenue Service with respect to any of the U.S. federal income tax
consequences of the merger and, as a result, there can be no assurance that the
Internal Revenue Service will not disagree with or challenge any of the
conclusions described below.
UNITED STATES TAX CONSEQUENCES OF THE MERGER TO U.S. HOLDERS
Cravath, Swaine & Moore, counsel to ARCO, has delivered its opinion to ARCO
as to the U.S. federal income tax consequences to ARCO shareholders of the
merger. The Cravath tax opinion is subject to qualifications and is based on
currently applicable law, certain factual representations made by BP Amoco and
ARCO and certain assumptions. Any change in currently applicable law, which may
or may not be retroactive, or failure of any of such factual representations or
assumptions to be true, correct and complete in all material respects, could
affect the continuing validity of the Cravath tax opinion. The Cravath tax
opinion is attached as Exhibit 8 to the registration statement, on Form F-4,
filed with the Securities and Exchange Commission, which includes this proxy
statement/prospectus. ARCO shareholders should read the Cravath tax opinion in
its entirety. The conclusions reached in the Cravath tax opinion are:
- The merger will be treated as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code.
- ARCO, BP Amoco and Prairie Holdings, Inc. (a U.S. subsidiary of BP Amoco)
will each be a party to that reorganization within the meaning of Section
368(b) of the Internal Revenue Code.
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<PAGE>
- Except as discussed below with respect to cash received in lieu of a
fractional interest in a BP Amoco ADS, no gain or loss will be recognized
by U.S. Holders of shares of ARCO common stock on the exchange of their
shares of ARCO common stock for BP Amoco ordinary shares or BP Amoco ADSs,
PROVIDED that, in the case of U.S. Holders that, immediately after the
merger and taking into account any shares of capital stock of BP Amoco
owned by such U.S. Holders immediately prior to the merger as well as any
BP Amoco ordinary shares or BP Amoco ADSs received by such U.S. Holders
pursuant to the merger, own 5% or more, by either vote or value, of the
shares of capital stock of BP Amoco, gain will not be recognized only if
such 5% BP Amoco shareholders enter into gain recognition agreements with
the Internal Revenue Service as required under Section 367 of the Internal
Revenue Code and the related Treasury regulations.
- Other than with respect to 5% BP Amoco shareholders who fail to enter into
a gain recognition agreement as described above, the aggregate adjusted
tax basis of the BP Amoco ordinary shares or BP Amoco ADSs received in the
merger, including any fractional interest, by a U.S. Holder will be the
same as the aggregate adjusted tax basis of such U.S. Holder's shares of
ARCO common stock exchanged for such BP Amoco ordinary shares or BP Amoco
ADSs.
- Other than with respect to 5% BP Amoco shareholders who fail to enter into
a gain recognition agreement as described above, the holding period of BP
Amoco ordinary shares or BP Amoco ADSs received in the merger by a U.S.
Holder will include the holding period of such U.S. Holder's shares of
ARCO common stock exchanged for such BP Amoco ordinary shares or BP Amoco
ADSs.
The receipt of cash instead of a fractional interest in a BP Amoco ADS by a
U.S. Holder of shares of ARCO common stock will result in taxable gain or loss
to such U.S. Holder for U.S. federal income tax purposes based upon the
difference between the amount of cash received by such U.S. Holder and such U.S.
Holder's adjusted tax basis in such fractional interest as set forth above. Such
gain or loss will constitute capital gain or loss and will constitute long-term
capital gain or loss if the U.S. Holder's holding period is greater than 12
months as of the date of the merger. For non-corporate U.S. Holders, any such
long-term capital gain generally will be taxed at a maximum U.S. federal income
tax rate of 20%. The deductibility of capital losses is subject to limitations.
In addition, the receipt of BP Amoco ordinary shares or BP Amoco ADSs and
cash instead of a fractional interest in a BP Amoco ADS by a U.S. Holder who
holds or has held at any time during the five-year period ending at the date of
the merger, directly or indirectly, more than 5% of the outstanding ARCO common
stock will be subject to U.S. withholding tax at a 10% rate unless such U.S.
Holder furnishes to BP Amoco a certification, signed under penalty of perjury,
that (1) states that such U.S. Holder is not a foreign person--is not a
nonresident alien individual, foreign corporation, foreign partnership, foreign
trust or foreign estate, and (2) sets forth such U.S. Holder's name, address and
correct taxpayer identification number.
CONSEQUENCES TO NON-U.S. HOLDERS. The material conclusion specific to
Non-U.S. Holders that is reached in the Cravath tax opinion is:
- The exchange of shares of ARCO common stock for BP Amoco ordinary shares
or BP Amoco ADSs by a Non-U.S. Holder of shares of ARCO common stock will
not be subject to U.S. federal income tax unless such Non-U.S. Holder
holds or held at any time during the five-year period ending at the date
of the merger, directly or indirectly, more than 5% of the outstanding
ARCO common stock (a "5% Non-U.S. Holder").
ARCO believes that it is currently a U.S. real property holding corporation.
If that is the case, a 5% Non-U.S. Holder will generally recognize gain for U.S.
federal income tax purposes in connection with the merger equal to the
difference between (1) the sum of the fair market value of the BP Amoco ordinary
shares or BP Amoco ADSs received in the merger and any cash received instead of
a
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<PAGE>
fractional interest in a BP Amoco ADS and (2) such 5% Non-U.S. Holder's adjusted
tax basis in his, her or its shares of ARCO common stock surrendered in exchange
for such BP Amoco ordinary shares or BP Amoco ADSs. In addition, the receipt of
BP Amoco ordinary shares or BP Amoco ADSs and cash instead of a fractional
interest in a BP Amoco ADS by a 5% Non-U.S. Holder will generally be subject to
U.S. withholding tax at a 10% rate. Because of the complexity of the rules with
respect to U.S. real property holding corporations, each 5% Non-U.S. Holder of
shares of ARCO common stock is urged to consult his, her or its own tax advisor
regarding the U.S. federal income tax consequences of exchanging shares of ARCO
common stock for BP Amoco ordinary shares or BP Amoco ADSs in connection with
the merger.
BACKUP WITHHOLDING WITH RESPECT TO CASH PAID INSTEAD OF A FRACTIONAL
INTEREST IN A BP AMOCO ADS. Certain non-corporate ARCO shareholders may be
subject to backup withholding at a 31% rate on cash payments received in lieu of
a fractional interest in a BP Amoco ADS. Backup withholding will not apply,
however, to an ARCO shareholder who or that (1) furnishes a correct taxpayer
identification number and certifies that he, she or it is not subject to backup
withholding on the substitute Form W-9 or successor form included in the letter
of transmittal to be delivered to ARCO shareholders following the date of the
merger, (2) provides a certification of foreign status on Form W-8 or successor
form or (3) is otherwise exempt from backup withholding.
UNITED STATES TAX CONSEQUENCES OF OWNING BP AMOCO ORDINARY SHARES AND BP AMOCO
ADSS
TAXATION OF DIVIDENDS
The following discussion assumes you are an Eligible U.S. Holder. You will
include in gross income the gross amount of any dividend paid by BP Amoco out of
its current or accumulated earnings and profits, as determined for U.S. federal
income tax purposes. You must include any U.K. tax withheld from the dividend
payment in this gross amount, even though you do not in fact receive it. The
dividend is ordinary income when it is actually or constructively received by
you, in the case of BP Amoco ordinary shares, or by the depositary, in the case
of BP Amoco ADSs. The dividend you receive will not be eligible for the
dividends-received deduction generally allowed to U.S. corporations in respect
of dividends received from other U.S. corporations. Distributions in excess of
current and accumulated earnings and profits, as determined for U.S. federal
income tax purposes, will be treated as a return of capital to the extent of
your basis in the BP Amoco ordinary shares or BP Amoco ADSs and thereafter as
capital gain.
Subject to certain limitations and the provisions of the next paragraph, the
U.K. tax withheld from the dividend payment will be creditable against your U.S.
federal income tax liability. For foreign tax credit limitation purposes, the
dividend will be income from sources outside the U.S., but generally will be
treated separately, together with other items of "passive income" (or, in the
case of certain holders, "financial services income"). The rules relating to the
determination of the foreign tax credit are complex and you should consult with
your own tax advisors to determine whether and to what extent a credit would be
available. If you do not elect to claim a foreign tax credit you may instead
claim a deduction for U.K. tax withheld from the dividend payment.
It is possible that, after the merger, BP Amoco will be at least 50% owned
by United States persons. Under Section 904(g) of the U.S. Internal Revenue
Code, dividends paid by a foreign corporation that is at least 50% owned by U.S.
persons may be treated as United States source income (rather than foreign
source income) for foreign tax credit purposes to the extent the foreign
corporation has more than an insignificant amount of U.S. source income. The
effect of this rule may be to treat a portion of the dividends paid by BP Amoco
as United States source income. Section 904(g)(10) of the Internal Revenue Code
permits you to elect to treat BP Amoco dividends as foreign source income for
foreign tax credit limitation purposes, so long as in calculating your foreign
tax credit you apply the rules separately to the dividend and any other foreign
income that you may have.
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Although there is no form prescribed for making this election, applicable
Treasury Regulations suggest that the election is made by claiming the credit in
the manner described in this paragraph.
TAXATION OF CAPITAL GAINS
If you sell or otherwise dispose of BP Amoco ordinary shares or BP Amoco
ADSs, you will recognize capital gain or loss for U.S. federal income tax
purposes in an amount equal to the difference between the U.S. dollar value of
the amount realized and your adjusted tax basis (determined in U.S. dollars) in
such BP Amoco ordinary shares or BP Amoco ADSs. Generally, such gain or loss
will be a long-term capital gain or loss if your holding period for such BP
Amoco ordinary shares or BP Amoco ADSs exceeds one year. Any such gain generally
will be income from sources within the U.S. for foreign tax credit limitation
purposes. Long-term capital gain for a non-corporate Eligible U.S. Holder is
generally subject to a maximum tax rate of 20%.
BACKUP WITHHOLDING AND INFORMATION REPORTING
In general, information reporting requirements will apply to dividend
payments (or other taxable distributions) in respect of BP Amoco ordinary shares
or BP Amoco ADSs made within the U.S. to a non-corporate U.S. person, and backup
withholding at the rate of 31% will apply to such payments if the holder or
beneficial owner fails to provide an accurate taxpayer identification number in
the manner required by U.S. law and applicable regulations, if there has been
notification from the IRS of a failure by the holder or beneficial owner to
report all interest or dividends required to be shown on its federal income tax
returns or, in certain circumstances, if the holder or beneficial owner fails to
comply with applicable certification requirements.
In general, payment of the proceeds from the sale of BP Amoco ordinary
shares or BP Amoco ADSs to or through a U.S. office of a broker is subject to
both U.S. backup withholding and information reporting requirements, unless the
holder or beneficial owner certifies its non-United States status under
penalties of perjury or otherwise establishes an exemption. United States
information reporting and backup withholding generally will not apply to a
payment made outside the U.S. of the proceeds of a sale of BP Amoco ordinary
shares or BP Amoco ADSs through an office outside the U.S. of a non-U.S. broker.
Amounts withheld under the backup withholding rules may be credited against
a U.S. Holder's U.S. tax liability, and a holder may obtain a refund of any
excess amounts withheld under the backup withholding rules by filing the
appropriate claim for refund with the Internal Revenue Service.
UNITED KINGDOM TAX CONSEQUENCES OF OWNING BP AMOCO ORDINARY SHARES AND BP AMOCO
ADSS
TAXATION OF DISTRIBUTIONS
An Eligible U.S. Holder who receives a dividend from BP Amoco will not have
any further U.K. tax to pay in respect of the dividend but will not be able to
claim any payment in respect of the dividend under the Tax Treaty. See "The
Combination--Dividends."
TAXATION OF CAPITAL GAINS
A U.S. Holder who is neither resident nor ordinarily resident for tax
purposes in the U.K. will not normally be liable for U.K. tax on capital gains
realized when such U.S. holder disposes of BP Amoco ordinary shares or BP Amoco
ADSs. However, this will not apply if at the time of the disposal, the U.S.
Holder carries on a trade (which for this purpose includes a profession or
vocation) in the U.K. through a branch or agency and the disposed BP Amoco
ordinary shares or BP Amoco ADSs are or have been used, held or acquired for the
purposes of that trade or branch or agency. An individual U.S. Holder who is
only temporarily not resident in the U.K. may, under anti-avoidance legislation,
still be liable for U.K. tax on capital gains realized on any disposal of such
U.S. holder's BP Amoco ordinary shares or BP Amoco ADSs, subject to any
available exemption or relief.
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INHERITANCE AND GIFT TAXES
BP Amoco ordinary shares and BP Amoco ADSs are assets situated in the U.K.
for the purposes of U.K. inheritance tax. If an individual holder either dies or
makes a gift of such assets, this may, subject to certain exemptions and
reliefs, give rise to a liability to U.K. inheritance tax even if the holder is
neither domiciled in the U.K. nor deemed to be domiciled there under special
rules relating to long residence or previous domicile. For U.K. inheritance tax
purposes, a transfer of assets at less than full market value may be treated as
a gift and particular rules apply to gifts where the donor reserves or retains
some benefit. Special rules also apply to close companies and to trustees of
settlements holding BP Amoco ordinary shares or BP Amoco ADSs, bringing them
within the charge to inheritance tax. An individual who is domiciled in the U.S.
for the purposes of the Estate Tax Treaty and who is not a national of the U.K.
for the purposes of the Estate Tax Treaty will generally not be subject to U.K.
inheritance tax in respect of the BP Amoco ordinary shares or BP Amoco ADSs on
the individual's death or on a gift of the BP Amoco ordinary shares or BP Amoco
ADSs during the individual's lifetime, provided that any applicable U.S. federal
gift or estate tax liability is paid, unless the BP Amoco ordinary shares or BP
Amoco ADSs are part of the business property of a permanent establishment of an
enterprise of the individual in the U.K. or pertain to a fixed base in the U.K.
of the individual used for the performance of independent personal services.
Where a settlor who, at the time of the settlement, was a U.S. Holder has placed
BP Amoco ordinary shares or BP Amoco ADSs in trust, the BP Amoco ordinary shares
or BP Amoco ADSs will generally not be subject to U.K. inheritance tax if the
settlor, at the time of settlement, was domiciled in the U.S. for the purposes
of the Estate Tax Treaty and was not a U.K. national, provided that the BP Amoco
ordinary shares or BP Amoco ADSs are not part of the business property of a
permanent establishment in the U.K. and do not pertain to a fixed base in the
U.K., as more fully summarized above. In the exceptional case where the BP Amoco
ordinary shares or BP Amoco ADSs are subject both to U.K. inheritance tax and to
U.S. federal gift or estate tax, the Estate Tax Treaty generally provides for
the tax paid in the U.K. to be credited against tax paid in the U.S. or for tax
paid in the U.S. to be credited against tax payable in the U.K. based on
priority rules set out in the Estate Tax Treaty.
STAMP DUTY AND STAMP DUTY RESERVE TAX
BP Amoco will be liable for all stamp duties, stamp duty reserve tax
("SDRT") and other taxes and similar levies imposed in connection with the issue
or creation of the BP Amoco ordinary shares and BP Amoco ADSs, and any BP Amoco
American depositary receipts in connection with such BP Amoco ADSs, to be issued
(1) in the combination, (2) on the conversion after the effective time of ARCO
preference stock into BP Amoco ordinary shares in the form of BP Amoco ADSs (see
"The Combination--ARCO Preference Stocks"), (3) pursuant to the exercise after
the effective time of ARCO stock options that have been converted into options
to purchase BP Amoco ordinary shares, to be delivered in the form of BP Amoco
ADSs (see "The Merger Agreement--Stock Options and Other Employee Benefits"),
and (4) pursuant to certain other ARCO stock plans (see "The Merger
Agreement--Stock Options and Other Employee Benefits").
No stamp duty will be payable on the acquisition or transfer of BP Amoco
ADSs or beneficial ownership of BP Amoco ADSs, provided that any instrument of
transfer or written agreement to transfer is executed outside the U.K. and
remains at all times outside the U.K. An agreement for the transfer of BP Amoco
ADSs or beneficial ownership of BP Amoco ADSs will not give rise to a liability
for SDRT. On a transfer of BP Amoco ordinary shares from the custodian of the
depositary for BP Amoco ADSs to a holder of a BP Amoco ADS upon cancellation of
the BP Amoco ADS, only a fixed stamp duty of 50p per instrument of transfer will
be payable. Provided that the Finance Bill 1999 is enacted in its current form,
this fixed duty will be increased to L5 with effect from October 1, 1999. Any
transfer for value of the underlying BP Amoco ordinary shares represented by BP
Amoco ADSs may give rise to a liability on the transferee to U.K. stamp duty or
SDRT.
A transfer for value of BP Amoco ordinary shares will generally be subject
to AD VALOREM stamp duty or to SDRT. Stamp duty will arise on the execution of
an instrument to transfer BP Amoco
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ordinary shares and SDRT will arise on the entry into an agreement to transfer
BP Amoco ordinary shares. Stamp duty and SDRT are normally a liability of the
purchaser. The rate of stamp duty or SDRT payable is generally 50p per L100 (or
part thereof) in the case of stamp duty, or 0.5% in the case of SDRT, in either
case, of the consideration for the transfer of the BP Amoco ordinary shares. If
an agreement to transfer BP Amoco ordinary shares is completed by a duly stamped
transfer within six years, then the charge to SDRT will be cancelled or, where
the SDRT charge has been paid, the SDRT will, provided that a claim for
repayment is made, be repaid. Paperless transfers of BP Amoco ordinary shares
within the CREST system will be liable to SDRT rather than stamp duty.
A charge to stamp duty or SDRT may arise on the issue or transfer of BP
Amoco ordinary shares to the depositary for BP Amoco ADSs or its custodian (or
their nominees) or to certain persons providing a clearance service (or their
nominees). The rate of stamp duty or SDRT will generally be L1.50 per L100 (or
part thereof) or 1.5%, respectively, of either (i) in the case of an issue of BP
Amoco ordinary shares, the issue price of the BP Amoco ordinary shares
concerned, or (ii) in the case of a transfer of BP Amoco ordinary shares, the
value of the consideration or, in some circumstances, the value of the BP Amoco
ordinary shares concerned. The depositary or the person providing the clearance
service will generally be liable for the stamp duty or SDRT. In accordance with
the terms of the deposit agreement, the depositary will charge any tax payable
by the depositary or custodian (or their nominees) on the deposit of BP Amoco
ordinary shares to the party to whom BP Amoco ADSs are delivered against such
deposits. However, as described above, where an ARCO shareholder receives BP
Amoco ADSs pursuant to the combination or in certain other events, BP Amoco will
pay the stamp duty or SDRT.
Provided that the Finance Bill 1999 is enacted in its current form, stamp
duty will be rounded up to the nearest multiple of L5 (if the duty is not
already a multiple of L5) with effect from October 1, 1999.
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THE MERGER AGREEMENT
BP Amoco and ARCO entered into the merger agreement on March 31, 1999. The
parties amended the merger agreement with the approval of both boards of
directors as of July 12, 1999. The following description of the merger agreement
describes the material terms of the amended agreement but does not purport to
describe all the terms. The complete text of the merger agreement is attached to
this proxy statement/prospectus as Appendix A and is incorporated by reference
into this proxy statement/prospectus. We urge you to read the merger agreement
in its entirety because it is the legal document that governs the merger.
THE MERGER
Prairie Holdings, Inc., a Delaware corporation and a direct, wholly owned
subsidiary of BP Amoco, will merge into ARCO, with ARCO surviving as a
subsidiary of BP Amoco.
The merger will become effective when BP Amoco and ARCO file the certificate
of merger with the Secretary of State of the State of Delaware or at a later
time specified in the certificate of merger. The closing of the merger will take
place on the third business day after the conditions described in the merger
agreement have been satisfied or waived or on another date agreed upon by BP
Amoco and ARCO.
CONSIDERATION TO BE RECEIVED IN THE MERGER
At the time the merger becomes effective:
- each share of ARCO common stock outstanding, except for any shares owned
by BP Amoco, ARCO or any of their subsidiaries, will be canceled and
converted into 4.92 BP Amoco ordinary shares, which will be delivered in
the form of 0.82 of a BP Amoco ADS, unless the holder of record properly
elects within 42 days after the date of completion of the merger to
receive BP Amoco ordinary shares instead of all or a portion of the whole
BP Amoco ADS to which the holder would be entitled;
- each share of ARCO common stock owned by BP Amoco, ARCO or any of their
subsidiaries other than CH-Twenty Holdings, LLC, a subsidiary of ARCO,
will automatically be canceled without the payment of any consideration;
- each share of ARCO common stock owned by CH-Twenty Holdings will remain
outstanding after the merger;
- each share of ARCO preference stock will remain outstanding after the
merger;
- each ARCO stock option outstanding and unexercised will be converted into
the specific rights described on page 70 under "--Stock Options and Other
Employee Benefits";
- each share of common stock of Prairie Holdings outstanding will be
canceled; and
- ARCO, as the surviving corporation in the merger, will issue to BP Amoco a
number of shares of ARCO common stock equal to the number of shares of
ARCO common stock canceled in the merger.
In the event that a stock split, stock combination, stock dividend,
recapitalization, redenomination of share capital or other similar transaction
causes the number of shares of ARCO common stock or BP Amoco ordinary shares
issued and outstanding to change prior to the time the merger becomes effective,
the exchange ratio of BP Amoco ordinary shares for each share of ARCO common
stock, and consequently the number of BP Amoco ADSs for each share of ARCO
common stock, will be adjusted accordingly. If the proposed one-for-one
subdivision of BP Amoco's ordinary share capital is approved by the requisite
vote of BP Amoco shareholders and otherwise becomes effective, then each
existing BP Amoco ordinary share will be subdivided so that each BP Amoco
ordinary shareholder will hold two new BP Amoco ordinary shares, of nominal
value $0.25 each, for each existing ordinary share, of nominal value $0.50 each,
formerly held by the ordinary shareholder. In connection with the ordinary
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share subdivision, a holder of BP Amoco ADSs would be issued one additional BP
Amoco ADS for each BP Amoco ADS held at the effective time of the share
subdivision, so that such holder would hold BP Amoco ADSs representing the
increased number of BP Amoco ordinary shares. The proposed effective date for
the ordinary share subdivision is October 4, 1999. The merger agreement provides
that if the proposed ordinary share subdivision becomes effective prior to the
effective time of the merger, the exchange ratio will be 9.84 BP Amoco ordinary
shares, or 1.64 BP Amoco ADSs, for each share of ARCO common stock.
SHARE EXCHANGE PRIOR TO THE MERGER
The merger agreement contemplates an exchange of all shares of ARCO common
stock held at the time of the exchange by a special purpose subsidiary of ARCO,
ARCO DSC II, Inc., for BP Amoco ordinary shares, to be delivered in the form of
BP Amoco ADSs. A Share Exchange Agreement, dated as of July 12, 1999, among BP
Amoco, ARCO and ARCO DSC II, provides that this share exchange will be
accomplished just prior to the time at which the merger is completed, but only
after all conditions to the merger have been satisfied, and will be made at the
same exchange ratio that applies in the merger. As of July 9, 1999, ARCO DSC II
held 1,025,085 shares of ARCO common stock, solely for the purpose of funding
distributions of ARCO common stock to ARCO employees under the ARCO 1985
Executive Long-Term Incentive Plan. The shares of ARCO common stock so exchanged
will then be held by BP Amoco at the effective time of the merger and will
therefore be cancelled, without consideration, in the merger. BP Amoco and ARCO
have agreed to effect the share exchange in order that the shares of ARCO common
stock held by ARCO DSC II will be exchanged for BP Amoco ADSs that will be
available for delivery to ARCO employees under the ARCO 1985 Executive Long-Term
Incentive Plan.
TREATMENT OF ARCO PREFERENCE STOCK
Each share of ARCO preference stock still outstanding immediately prior to
the effective time of the merger will remain outstanding after the effective
time, and no consideration will be delivered in the merger in exchange for such
preference stock.
Following the merger, shares of ARCO preference stock will be convertible
into BP Amoco ordinary shares, to be delivered in the form of BP Amoco ADSs,
rather than into shares of ARCO common stock. Each share of ARCO preference
stock will be convertible into a number of BP Amoco ordinary shares equal to the
number of shares of ARCO common stock into which such share of preference stock
was convertible immediately prior to the effective time of the merger,
multiplied by the exchange ratio, subject to adjustments as provided in the
merger agreement and ARCO's certificate of incorporation.
EXCHANGE OF ARCO COMMON STOCK FOR BP AMOCO ADSS OR BP AMOCO ORDINARY SHARES
BP Amoco will appoint an exchange agent who will accept letters of
transmittal and certificates which, before the merger, represent outstanding
shares of ARCO common stock and, in the merger, will be converted into the right
to receive BP Amoco ADSs or, if properly elected by the shareholder, BP Amoco
ordinary shares. Promptly after the merger takes place, ARCO or the exchange
agent will mail to each record holder of ARCO common stock entitled to receive
BP Amoco ADSs a letter of transmittal for use in effecting delivery of ARCO
common stock to the exchange agent. The letter of transmittal will include a
form of election by which a record holder of ARCO common stock, including
uncertificated shares of ARCO common stock, may elect to receive BP Amoco
ordinary shares in lieu of all or part of the BP Amoco ADSs to which the holder
is entitled.
Elections to receive BP Amoco ordinary shares will be accepted from holders
of record only until the close of business on the 42nd day following the date
the merger is completed and must be made for BP Amoco ordinary shares in
multiples of six. Any holder of record failing to submit a properly completed
form of election within that 42-day period will automatically receive the merger
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consideration in the form of BP Amoco ADSs upon delivery of such holder's letter
of transmittal and any certificates for such holder's ARCO common stock or, in
the case of a holder of uncertificated shares of ARCO common stock, without any
further action. A record holder who desires to receive all of the merger
consideration to which the holder is entitled in the form of BP Amoco ADSs is
not required to wait for the expiration of the 42-day period in order to receive
the merger consideration in that form. The form of election will permit a holder
to request all of such holder's merger consideration in ADS form. For holders
properly electing to receive their merger consideration in BP Amoco ordinary
shares, any entitlement to ordinary shares in excess of multiples of six--e.g.,
an "odd lot" of four ordinary shares--will constitute a fractional interest in a
BP Amoco ADS and will be paid in cash, as described below.
BP Amoco will issue all of the BP Amoco ordinary shares to be issued as
merger consideration, whether for delivery to ARCO shareholders or for deposit
with the ADS depositary against the delivery of BP Amoco ADSs to ARCO
shareholders, to Exchange Nominees Limited, or another agent that may be
reasonably acceptable to BP Amoco, as nominee and agent for and on behalf of
record holders of ARCO common stock. BP Amoco ordinary shares held by the
nominee, and any dividends payable on those shares after the completion of the
merger in accordance with the merger agreement, will be delivered to the ARCO
shareholders or deposited by the nominee with the depositary or on its behalf
against the issuance of BP Amoco ADSs, in each case as and when required for the
delivery to ARCO shareholders of the applicable merger consideration in
accordance with the merger agreement.
After delivering ARCO certificates, if any, and a signed transmittal letter
to the exchange agent, each holder of ARCO common stock will be entitled to
receive in exchange for ARCO common stock:
- the number of BP Amoco ADSs or BP Amoco ordinary shares, excluding any
fractional interest in a BP Amoco ADS, that the holder has the right to
receive as stock consideration, and
- a check in the amount, after giving effect to any required tax
withholdings, of
(1) cash in lieu of any fractional interest in a BP Amoco ADS on the
terms described below, plus
(2) any cash dividends or other distributions that the holder has the
right to receive, including dividends or other distributions payable
with respect to the holder's BP Amoco ADSs or ordinary shares with a
record date after the completion of the merger and a payment date on
or prior to the date that the holder becomes entitled to receipt of
the BP Amoco ADSs or BP Amoco ordinary shares as described in this
paragraph and not previously paid.
A holder of uncertificated shares of ARCO common stock will be entitled to
receive the merger consideration in BP Amoco ADSs and other amounts described
above after the expiration of the 42-day period for the ordinary share election
without delivering any letter of transmittal.
Shares of ARCO common stock that are surrendered will be canceled. No
interest will be paid or accrued on any amount payable to holders of ARCO common
stock. No holder of ARCO common stock will receive any dividends or other
distributions with respect to BP Amoco ADSs or BP Amoco ordinary shares to which
it is entitled under the merger agreement until the ARCO certificate registered
to the holder is surrendered to the exchange agent or, in the case of a holder
of uncertificated shares of ARCO common stock, such holder otherwise becomes
entitled to the merger consideration.
The depositary will not issue fractional BP Amoco ADSs and the nominee will
not deliver BP Amoco ordinary shares in any multiple other than six shares in
connection with the merger. Instead, each holder of shares of ARCO common stock
exchanged in the merger who would otherwise have received a fractional interest
in a BP Amoco ADS (including BP Amoco ordinary shares (less than six)
representing such a fractional interest) will receive an amount in cash, without
interest and rounded to the nearest cent, equal to (1) the amount of that
fractional interest multiplied by (2) the average of the
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closing sale prices for BP Amoco ADSs on the NYSE for the ten trading days
ending on the fifth complete trading day prior to the completion of the merger.
In order for a person who is not a registered holder of the ARCO common
stock represented by an ARCO certificate to have that certificate exchanged
under the merger, the person must
- ensure that the certificate surrendered is properly endorsed or otherwise
in proper form for transfer; and
- pay the exchange agent any transfer or other taxes required or establish
to the satisfaction of the exchange agent that such taxes have been paid
or are not payable.
An ARCO shareholder who holds ARCO common stock in "street name" through a
bank, broker or other financial institution should receive information about the
procedures for exchanging such holder's ARCO common stock for BP Amoco ADSs or
ordinary shares from that institution and should direct inquiries about the
election for BP Amoco ordinary shares to the institution. Some financial
institutions, including participants in the Depository Trust Company, may
require such a beneficial owner of ARCO common stock to give instructions to the
institution on the ordinary share election prior to the completion of the
merger. DTC has advised BP Amoco and ARCO that DTC participants will have until
the last business day prior to the completion of the merger to make any
elections for BP Amoco ordinary shares on their own behalf or on behalf of their
underlying beneficial owners. In addition, some financial institutions may
impose fees on beneficial owners of ARCO common stock who elect to receive
ordinary shares to cover transaction fees charged by DTC.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains a number of customary representations and
warranties made by BP Amoco and ARCO with respect to themselves and their
respective subsidiaries regarding, among other things: due organization, good
standing and qualification; capital structure; corporate authority to enter into
the contemplated transactions and lack of conflicts with corporate governance
documents; governmental filings; reports and financial statements; absence of
certain changes or events; litigation and liabilities; brokers or finders;
ownership of the other party's common stock; ARCO employee benefit plans;
environmental matters; ARCO joint ventures and exclusivity arrangements; and tax
matters.
ARCO has also represented that it has taken or will take all actions
appropriate and necessary to ensure that (1) the provisions of the Delaware
General Corporation Law limiting business combinations or any other
anti-takeover statute or regulation will not affect the merger or any other
transaction contemplated by the merger agreement or the stock option agreement,
and (2) neither BP Amoco nor ARCO will have any obligations, and the holders of
those rights will not have any rights, under ARCO's stockholder rights agreement
on account of the merger.
In the merger agreement, ARCO's representations and warranties with respect
to Vastar Resources, Inc., a subsidiary that is not wholly owned by ARCO, are
more limited than the representations and warranties made with respect to ARCO's
other subsidiaries, and generally do not extend to any date after March 31,
1999. ARCO will represent, however, that as of the date of completion of the
merger, Vastar's filings with the SEC since December 31, 1998 comply in all
material respects with U.S. federal securities laws and regulations, and that
there has been no change in the financial condition, properties, business or
operating income of Vastar since December 31, 1998, other than changes which
would not reasonably be expected to have a material adverse effect on ARCO.
The merger agreement also contains customary representations and warranties
of BP Amoco regarding Prairie Holdings, including its corporate authority to
enter into the contemplated transactions and absence of previous business
activities.
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CONDUCT OF BUSINESS PENDING THE MERGER; OTHER ACTIONS
During the period from the signing of the merger agreement until the merger
becomes effective, ARCO has agreed that, subject to exceptions specified in the
merger agreement and plans disclosed to BP Amoco in connection with the merger
agreement, ARCO and each of its subsidiaries, among other things:
- will carry on its business in the ordinary course and, to the extent
consistent with that obligation, will use its best reasonable efforts to
preserve its business organization intact and maintain its existing
relations and goodwill with customers, suppliers, creditors, governmental
authorities, lessors, employees and business associates;
- will not dispose of property or assets having an aggregate value of more
than $500 million;
- will not incur debt except for the refinancing of long-term indebtedness
and except for commercial paper and other short-term debt;
- will not make capital expenditures in excess of specified dollar limits;
- will not make or authorize any acquisition, investment or commitment to
invest in the assets or stock of another entity, except for certain
capital expenditures or contributions to joint ventures otherwise
permitted under the merger agreement;
- will not terminate any existing line of business;
- will not enter into any new shareholder, membership or voting agreements,
or other agreements relating to transfers of investments or management in
connection with joint ventures, without reasonable advance notice to and
consultation with BP Amoco, except agreements involving less than $200
million in assets of ARCO and its subsidiaries;
- will not establish any new, or terminate or amend any existing,
stock-based compensation plan or other benefit plan or, in the case of
existing plans, make any new awards thereunder, except, among other
things, to extend the effectiveness of ARCO's enhanced retirement program
and to issue new stock options within specified limits;
- will not increase the salary or other compensation of employees except for
periodic increases and new hires or promotions occurring in the ordinary
course of business;
- will not settle any litigation where the amount of the settlement would
exceed $50 million without reasonable advance notice to and consultation
with BP Amoco;
- will not modify any accounting policy except as may be required by a
change in applicable law or U.S. GAAP; and
- will consult with BP Amoco with respect to any modification, waiver,
release or assignment, other than in the ordinary course of business, of
any contract identified by BP Amoco and ARCO as material to ARCO.
In addition, BP Amoco and ARCO have agreed that before the merger they will
not take any of the following actions, among others, except as specifically
permitted by the merger agreement or with the consent of the other company:
- amend their corporate governance documents;
- declare or pay dividends, other than quarterly cash dividends on common or
ordinary shares (limited, in the case of ARCO, to the amount of its fourth
quarter 1998 dividend) and dividends required under each company's
preference stocks;
- issue or permit any of their subsidiaries to issue equity securities or
rights; or
- redeem or permit any of their subsidiaries to redeem shares of capital
stock.
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In addition, BP Amoco and ARCO have agreed:
- to cooperate with each other and to use best reasonable efforts promptly
to take all actions necessary or advisable to give effect to the merger,
including all actions necessary or advisable to obtain required regulatory
approvals, and to accept any conditions or restrictions in connection with
obtaining any regulatory approval unless all such conditions and
restrictions, taken together, would be reasonably likely to have a
material adverse effect on BP Amoco or ARCO after the merger, considered
on the basis of the total value of the combined U.S. operations of the two
companies and their subsidiaries;
- not to take any action or omit to take any action which would cause the
merger to fail to qualify as a tax-free reorganization; and
- to timely satisfy all applicable tax reporting and filing requirements
contained in the U.S. tax code with respect to the merger.
In addition, ARCO has agreed:
- without reasonable advance notice to and consultation with BP Amoco, not
to create, write down or change any material reserve except in the
ordinary course of business; and
- to use its best efforts to cause each person who may be considered an
affiliate of ARCO under Rule 145 of the Securities Act of 1933 to execute
an agreement which, among other things, restricts the disposition of the
affiliate's BP Amoco ADSs or ordinary shares received in the merger.
ACQUISITION PROPOSALS
ARCO has agreed that neither it nor any of its subsidiaries nor any of the
officers and directors of it or its subsidiaries will, and that it will direct
and use its best efforts to cause its or its subsidiaries' employees, agents and
representatives not to:
- solicit, encourage or facilitate any inquiries with respect to any
acquisition proposal, including a merger, reorganization, share exchange,
dual-holding company transaction, consolidation, or similar transaction
involving it or any purchase of all or substantially all of its equity
securities or of its and its subsidiaries' assets taken as a whole;
- have any discussions with or provide any confidential information or data
to any person relating to, or engage in any negotiations concerning, an
acquisition proposal, or otherwise facilitate any effort or attempt to
make or implement an acquisition proposal.
However, ARCO and its board of directors have the right to:
- make any disclosure to its shareholders if, in the good faith judgment of
its board of directors, failure to do so would be inconsistent with its
obligations under applicable law;
- negotiate with or furnish information to any person who has made a bona
fide written acquisition proposal that is a superior proposal, as
described below, and that did not result from the breach of the party's
obligations not to solicit or engage in discussions or negotiations with
respect to an acquisition proposal, as described above; and
- recommend an acquisition proposal to its shareholders if the acquisition
proposal is a superior proposal. A "superior proposal" is an acquisition
proposal by a third party (1) on terms which the board of directors of
ARCO determines in good faith, after consultation with its financial
advisors, to be more favorable from a financial point of view to its
shareholders than the merger, and (2) which the board of directors of ARCO
determines in good faith is reasonably likely to be consummated on the
terms set forth, taking into account all legal, financial, regulatory and
other aspects of the proposal.
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ARCO has also agreed to:
- terminate any discussions or negotiations with any parties regarding
acquisition proposals that were being conducted at the time the merger
agreement was signed;
- promptly inform its subsidiaries and their representatives of the relevant
obligations undertaken in the merger agreement;
- notify BP Amoco promptly if any inquiries, proposals or requests for
information regarding an acquisition proposal are received or any
discussions or negotiations are sought, with the notice including the name
of the party making the inquiry or proposal and the material terms and
conditions of any proposal;
- give BP Amoco at least five business days' notice of all material terms of
any acquisition proposal and the opportunity to respond to any such
proposal prior to any action by the ARCO board approving a definitive
agreement with respect to such proposal; and
- promptly request that each person who executed a confidentiality agreement
with it within the 12 months prior to the date of the merger agreement in
connection with its consideration of an acquisition proposal return or
destroy all confidential information previously furnished to the person.
STOCK OPTIONS AND OTHER EMPLOYEE BENEFITS
STOCK OPTIONS AND OTHER STOCK PLANS
ARCO and BP Amoco have agreed that at the effective time of the merger:
- each outstanding and unexercised stock option to purchase ARCO common
stock under any ARCO stock plan will cease to represent a right to acquire
ARCO common stock and will be converted automatically into an option to
purchase BP Amoco ordinary shares deliverable in the form of BP Amoco ADS,
provided that:
(1) the number of BP Amoco ordinary shares purchasable upon exercise of
each ARCO stock option will be equal to the number of shares of ARCO
common stock purchasable under such option immediately prior to the
effective time of the merger multiplied by 4.92, subject to
adjustments provided for in the merger agreement; and
(2) the exercise price per BP Amoco ordinary share under each ARCO stock
option shall be obtained by dividing the per share exercise price of
each option by 4.92, subject to adjustments as provided for in the
merger agreement;
- shares of ARCO restricted stock and performance-based restricted stock
outstanding and held by participants in any ARCO stock plan immediately
prior to the merger's completion will be converted into the right to
receive BP Amoco ADSs or, if properly elected by the participant, BP Amoco
ordinary shares;
- ARCO's obligation under the ARCO 1985 Executive Long-Term Incentive Plan
to deliver ARCO common stock in exchange for contingent restricted stock
upon ARCO's change of control will be satisfied through BP Amoco's
delivery of 4.92 BP Amoco ordinary shares, subject to adjustments as
provided in the merger agreement, in the form of BP Amoco ADSs, for each
share of ARCO common stock otherwise deliverable;
- with respect to dividend share credits under any ARCO stock plan,
including the ARCO 1985 Executive Long-Term Incentive Plan and the ARCO
Stock Plan for Outside Directors:
(1) each share of ARCO common stock represented by such dividend share
credits will be deemed converted into 4.92 BP Amoco ordinary shares,
subject to adjustments as provided in the merger agreement, in the
form of BP Amoco ADSs; and
(2) ARCO's obligation to deliver ARCO common stock in respect of
prospective dividend share credits under the ARCO 1985 Executive
Long-Term Incentive Plan will be satisfied
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through BP Amoco's delivery of 4.92 BP Amoco ordinary shares, subject
to adjustments as provided in the merger agreement, in the form of BP
Amoco ADSs, for each share of ARCO common stock otherwise
deliverable;
- except as already described above, each vested or unvested right to
acquire or receive ARCO common stock under the ARCO compensation and
benefit plans will be converted into a right to acquire or receive a
number of BP Amoco ordinary shares, in the form of BP Amoco ADSs, equal to
the number of shares of ARCO common stock subject to this right
immediately prior to completion of the merger multiplied by 4.92, subject
to adjustments as provided in the merger agreement; and
- all ARCO compensation and benefit plans and any related awards providing
for cash payments measured by the value of a number of shares of ARCO
common stock will be deemed to refer, for each share of such ARCO common
stock, to 4.92 BP Amoco ordinary shares, subject to adjustments as
provided in the merger agreement.
The conversions of stock options and other equity rights, as described
above, assume an exchange ratio of 4.92 BP Amoco ordinary shares for each share
of ARCO common stock. As noted earlier under "--Consideration to Be Received in
the Merger," this exchange ratio will be 9.84 if BP Amoco's proposed one-for-one
subdivision of ordinary share capital takes effect.
BP Amoco will be liable for all stamp duties, stamp duty reserve tax and
other taxes and similar levies, if any, imposed in connection with the issue or
creation of BP Amoco ordinary shares and BP Amoco ADSs (and any BP Amoco
American depositary receipts in connection with such BP Amoco ADSs) to be issued
pursuant to the ARCO stock option and other ARCO stock plans described above.
See "Description of BP Amoco American Depositary Shares--Fees and Expenses."
OTHER EMPLOYEE BENEFITS
ARCO and BP have agreed that after completion of the merger:
- it is the intent of ARCO and BP Amoco that compensation and benefit
programs for current and former ARCO employees will be no less favorable
in the aggregate than the compensation and benefit programs provided to
similarly situated employees of BP Amoco;
- for at least one year, BP Amoco will provide to current and former ARCO
employees and directors compensation and benefits that are at least as
favorable in the aggregate as the compensation and benefits they were
entitled to receive immediately prior to the effective time of the merger,
provided that:
(1) BP Amoco will provide employees who are subject to collective
bargaining or other labor agreements benefits in accordance with the
terms of the applicable agreements; and
(2) all incentive, bonus and similar plans will be substantially
performance-based;
- for at least two years, BP Amoco will cause ARCO's existing severance
programs in effect immediately prior to the completion of the merger to
continue without any reductions in benefits;
- BP Amoco will recognize:
(1) an employee's prior service with ARCO and any predecessor entities
for all purposes under any BP Amoco benefit plans to the same extent
as if such service had been rendered to BP Amoco, without duplication
of benefits; and
(2) any appropriate out-of-pocket expenses of an ARCO employee or former
employee for purposes of determining his or her deductible and
co-payment expenses under BP Amoco's medical plans; and
- BP Amoco will waive any pre-existing condition limitation under any BP
Amoco welfare benefit plan in which ARCO employees will be eligible to
participate following the merger's completion to the extent the
pre-existing condition limitation was waived or satisfied under the
comparable ARCO plan.
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BP Amoco also has agreed that, beginning with the first full plan year after
the effective time of the merger, interest will be credited to the accounts of
participants under the ARCO Executive Deferral Plan at the greater of (a) the
interest rate credited under a comparable BP Amoco plan maintained in the United
States for senior executives and (b) the "Citibank Base Rate," as defined in the
ARCO Executive Deferral Plan. However, for the period ending upon completion of
ten full plan years after the effective time of the merger, the rate will be,
consistent with past practice, 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.
In addition, BP Amoco has agreed that after the completion of the merger, BP
Amoco will honor each existing employment, change of control, severance and
termination agreement between ARCO and any ARCO officer, director or employee,
including:
- all obligations pursuant to outstanding retirement plans, including the
ARCO Enhanced Retirement Program, salary and bonus deferral plans, vested
and accrued benefits and similar employment and benefit arrangements;
- agreements in effect as of the date of the merger's completion, including
all the change of control provisions under ARCO's plans, programs,
policies and agreements; and
- all vacation, personal and sick days accrued by ARCO employees as of the
merger's completion.
BP Amoco has acknowledged that the completion of the merger will constitute
a change of control as defined in ARCO's employee benefit plans, programs,
policies and agreements.
DIRECTOR AND OFFICER LIABILITY
After the merger, BP Amoco will indemnify the individuals who on or prior to
the merger were directors or officers of ARCO or any of its subsidiaries for any
losses they incur because they acted as directors and officers of ARCO or its
subsidiaries before the merger, as follows:
- BP Amoco will maintain all rights to indemnification and all limitations
on liability existing under the ARCO certificate of incorporation and
by-laws in favor of those directors and officers;
- BP Amoco will maintain all rights to indemnification and all limitations
on liability existing under any agreement between any of those directors
or officers and ARCO or its subsidiaries;
- BP Amoco will, for a period of six years after the merger becomes
effective, indemnify those directors and officers to the same extent they
are indemnified on the date of the merger agreement; and
- BP Amoco will, for a period of six years after the merger becomes
effective, provide liability insurance for those directors and officers
for acts or omissions occurring before the effective time of the merger on
terms specified pursuant to the merger agreement.
CONDITIONS
CONDITIONS TO EACH PARTY'S OBLIGATIONS TO COMPLETE THE MERGER
ARCO, Prairie Holdings and BP Amoco may complete the merger only if each of
the following conditions is satisfied or waived:
- SHAREHOLDER APPROVALS.
(1) The holders of a majority of the votes entitled to be cast by the
holders of the ARCO common stock and preference stocks, voting as a
single class, have adopted the merger agreement at a special meeting
of shareholders of ARCO; and
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<PAGE>
(2) the holders of a majority of the BP Amoco ordinary shares and
preference shares, voting as a single class, have approved the merger
at an extraordinary general meeting of the shareholders of BP Amoco;
- REGULATORY APPROVALS. The following required filings, authorizations,
notices, approvals or other consents have been made or obtained, unless
failing to make or obtain any such filing, authorization, notice,
approval or other consent would not have a material adverse effect on BP
Amoco or ARCO after the merger, and no authorization, approval or other
consent contains any terms or conditions that would be reasonably likely
to have a material adverse effect on BP Amoco or ARCO after the merger,
considered on the basis of the total value of the combined U.S.
operations of the two companies and their subsidiaries:
(1) filing of the certificate of merger with the Secretary of State of
the State of Delaware;
(2) termination of the review and any investigation under the Exon-Florio
Act and no action authorized under the Exon-Florio Act having been
taken by the President of the United States;
(3) the termination or expiration of the waiting period, and any
extensions, under the Hart-Scott-Rodino Antitrust Improvements Act;
(4) compliance with the rules and regulations of the NYSE, the London
Stock Exchange or any other stock exchanges on which securities of BP
Amoco, ARCO or any of their subsidiaries are listed;
(5) confirmation from the European Commission in accordance with Article
6(1)(b), 8(2) or 10(6) of Council Regulation (EEC) No 4064/89, as
amended, that the merger and any matters arising from the merger are
compatible with the common market or clearance from any national
authority within the European Community to which the merger or any
part of the merger is referred;
(6) if the merger qualifies for investigation pursuant to the U.K. Fair
Trading Act 1973, confirmation from the U.K. Office of Fair Trading
that the U.K. Secretary of State for Trade and Industry does not
intend to refer the merger to the U.K. Competition Commission for
review, or receipt of approval from the U.K. Secretary of State for
Trade and Industry, in the event that the merger was referred to the
U.K. Competition Commission; and
(7) consent of H.M. Treasury pursuant to Section 765 of the Income and
Corporation Taxes Act 1988 or confirmation that such consent is not
required;
- NO LAWS OR ORDERS. No laws, judgments or orders have been enacted or
issued that permanently restrain, enjoin, or prohibit the completion of
the merger and that are reasonably likely to have a material adverse
effect on BP Amoco or ARCO or would materially impair the ability of BP
Amoco to complete the merger; and
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- STOCK EXCHANGE LISTINGS.
(1) The BP Amoco ordinary shares to be issued in the merger have been
granted permission for admission to the Official List of the London
Stock Exchange, subject to allotment, and this permission has not
been withdrawn prior to the merger; and
(2) the BP Amoco ADSs have been authorized for listing on the NYSE,
subject to official notice of issuance.
As used in the merger agreement with respect to conditions for completion of
the merger, a "material adverse effect" means, with respect to any entity, a
material adverse effect on the financial condition, properties, business or
operating income of the entity and its subsidiaries, taken as a whole, other
than any such effect to the extent arising out of: (1) changes in general U.S.,
U.K. or international economic conditions; or (2) conditions or changes in or
affecting the U.S., U.K. or international oil and gas industry, including
changes in market prices.
ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF BP AMOCO
The obligations of BP Amoco and Prairie Holdings to effect the merger are
also subject to the satisfaction or waiver by BP Amoco and Prairie Holdings of
the following conditions:
- REPRESENTATIONS AND WARRANTIES TRUE.
(1) Each of the representations and warranties of ARCO set forth in the
merger agreement,
(A) to the extent qualified by material adverse effect or other
materiality qualification, being true, and
(B) to the extent not qualified by material adverse effect or other
materiality qualification, being true,
in each case, when made and as of the closing date, except to the
extent that a representation and warranty expressly speaks as of
a specific date, PROVIDED that clause (B) will be satisfied so
long as any failures of representations and warranties to be true
would not, individually or in the aggregate, reasonably be
expected to have a material adverse effect on ARCO; and
(2) BP Amoco having received a certificate to this effect signed on
behalf of ARCO by an executive officer;
- COMPLIANCE WITH COVENANTS.
(1) ARCO having performed all material obligations required to be
performed by it under the merger agreement at or prior to the closing
date; and
(2) BP Amoco having received a certificate to this effect signed on
behalf of ARCO by an executive officer.
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<PAGE>
ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF ARCO
The obligation of ARCO to effect the merger is also subject to the
satisfaction or waiver by ARCO of the following conditions:
- REPRESENTATIONS AND WARRANTIES TRUE.
(1) Each of the representations and warranties of BP Amoco set forth in
the merger agreement,
(A) to the extent qualified by material adverse effect or other
materiality qualification, being true, and
(B) to the extent not qualified by material adverse effect or other
materiality qualification, being true,
in each case, when made and as of the closing date, except to the
extent that a representation and warranty expressly speaks as of
a specific date, PROVIDED that clause (B) will be satisfied so
long as any failures of representations and warranties to be true
would not, individually or in the aggregate, reasonably be
expected to have a material adverse effect on BP Amoco; and
(2) ARCO having received a certificate to this effect signed on behalf of
BP Amoco by an executive officer;
- COMPLIANCE WITH COVENANTS.
(1) BP Amoco having performed all material obligations required to be
performed by it under the merger agreement at or prior to the closing
date; and
(2) ARCO having received a certificate to this effect signed on behalf of
BP Amoco by an executive officer;
- TAX OPINION. ARCO having received an opinion from Cravath, Swaine &
Moore, dated as of the effective time of the merger and substantially to
the effect that, on the basis of the facts, representations and
assumptions set forth in the 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 U.S. tax code and no gain or loss will be
recognized by the shareholders of ARCO who exchange ARCO common stock
solely for BP Amoco ordinary shares or ADSs pursuant to the merger
(except with respect to cash received in exchange for a fractional
interest in a BP Amoco ADS and except by 5% BP Amoco shareholders who
fail to enter into any required gain recognition agreement with the
Internal Revenue Service). ARCO will not waive the condition that it
receive this opinion without first recirculating revised proxy materials
and resoliciting the vote of the ARCO shareholders to approve the merger.
TERMINATION AND EFFECTS OF TERMINATION
BP Amoco and ARCO may terminate the merger agreement and abandon the merger
at any time prior to the merger becoming effective, whether before or after
adoption of the merger agreement by ARCO's shareholders or approval of the
merger by BP Amoco's shareholders, by mutual written consent by action of each
company's board of directors.
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TERMINATION BY BP AMOCO OR ARCO
Either company may terminate the merger agreement and abandon the merger at
any time prior to the completion of the merger, provided that it is not in
material breach of the merger agreement, if:
- the merger is not completed by March 31, 2000, whether such date is before
or after adoption of the merger agreement by ARCO's shareholders or
approval of the merger by BP Amoco's shareholders, which date may be
extended to June 30, 2000 if required regulatory approval has not been
obtained and the directors of either BP Amoco or ARCO elect to extend the
termination date;
- the shareholders of BP Amoco or ARCO do not approve the merger at their
company's shareholders' meeting; or
- a governmental authority permanently restrains or prohibits completion of
the merger, whether before or after adoption of the merger agreement by
ARCO's shareholders or approval of the merger by BP Amoco's shareholders.
TERMINATION BY BP AMOCO
BP Amoco may terminate the merger agreement and abandon the merger at any
time prior to the completion of the merger, whether before or after approval of
the merger by BP Amoco shareholders, by action of its board, if:
- the ARCO board of directors withdraws its approval or favorable
recommendation of the merger agreement to ARCO's shareholders;
- ARCO enters into negotiations with or furnishes information to a third
party regarding an acquisition transaction proposed by the third party;
- ARCO or its board recommends such an acquisition transaction to its
shareholders; or
- ARCO breaches any representation, warranty, covenant or agreement
contained in the merger agreement which would result in a failure of
either:
(1) the condition to the obligation of BP Amoco to complete the merger
relating to the accuracy of the representations and warranties of
ARCO; or
(2) the condition to the obligation of BP Amoco to complete the merger
relating to the performance by ARCO of its obligations under the
merger agreement;
and such breach cannot be or is not cured prior to March 31, 2000 or,
if the termination date is extended, June 30, 2000.
TERMINATION BY ARCO
ARCO may terminate the merger agreement and abandon the merger at any time
prior to the completion of the merger, whether before or after adoption of the
merger agreement by ARCO shareholders, by action of its board, if:
- the BP Amoco board withdraws its approval or favorable recommendation of
the merger to BP Amoco's shareholders;
- ARCO becomes entitled under the merger agreement to recommend to its
shareholders a superior proposal for an acquisition transaction, pays BP
Amoco a termination payment, as described below under "--Termination
Payments," and enters into an agreement to implement that alternative
acquisition transaction; or
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- BP Amoco breaches any representation, warranty, covenant or agreement
contained in the merger agreement which would result in a failure of
either:
(1) the condition to the obligations of ARCO to complete the merger
relating to the accuracy of the representations and warranties of BP
Amoco; or
(2) the condition to the obligations of ARCO to complete the merger
relating to the performance by BP Amoco of its obligations under the
merger agreement;
and such breach cannot be or is not cured prior to March 31, 2000 or,
if the termination date is extended, June 30, 2000.
TERMINATION PAYMENTS
ARCO will be required to pay BP Amoco a termination payment of $450 million
if the merger agreement is terminated:
- by either BP Amoco or ARCO because ARCO's shareholders do not approve the
merger at the ARCO special shareholders' meeting and prior to such meeting
the ARCO board of directors has withdrawn its approval or favorable
recommendation of the merger to the ARCO shareholders;
- by BP Amoco because the ARCO board of directors withdraws its approval or
favorable recommendation of the merger to its shareholders;
- by BP Amoco because the ARCO board of directors recommends to its
shareholders an acquisition transaction proposed by a third party;
- by BP Amoco because ARCO willfully breaches its obligations under the
merger agreement with respect to seeking third-party acquisition
proposals; or
- by ARCO because it becomes entitled to recommend to its shareholders a
superior proposal for an acquisition transaction and enters into an
agreement to implement that alternative acquisition transaction.
If, however, BP Amoco or ARCO terminates the merger agreement because ARCO's
shareholders fail to adopt the merger agreement at the ARCO special meeting and,
at that time, there is a proposal from a third party for an acquisition
transaction with ARCO, ARCO will be required to pay BP Amoco a termination
payment of $250 million. If, within 12 months of termination, ARCO enters into
an agreement with respect to a third-party acquisition proposal or such an
acquisition is consummated, ARCO will be required to pay BP Amoco an additional
$200 million. ARCO will be deemed to have entered into a third-party acquisition
agreement if its board of directors recommends acceptance of the third-party
acquisition by its shareholders.
A termination payment of $450 million by ARCO, when taken together with the
maximum profit permitted to BP Amoco under the stock option agreement described
below, would result in a potential total gain to BP Amoco of $500 million.
BP Amoco will be required to pay ARCO a termination payment of $500 million
if the merger agreement is terminated by:
- either BP Amoco or ARCO because BP Amoco's shareholders do not approve the
merger at the BP Amoco extraordinary meeting and prior to such meeting BP
Amoco's board of directors has withdrawn its approval or favorable
recommendation of the merger to the BP Amoco shareholders; or
- ARCO because BP Amoco's board of directors withdraws its approval or
favorable recommendation of the merger to its shareholders.
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<PAGE>
EXPENSES
Whether or not the merger is completed, all costs and expenses incurred in
connection with the merger will be paid by the party incurring the expense,
except for termination payments by BP Amoco or ARCO and expenses related to
their collection. However, BP Amoco and ARCO will share equally the costs and
expenses of filing, printing and distributing the F-4 registration statement,
this proxy statement/prospectus, the circular to be distributed to shareholders
of BP Amoco and the listing particulars relating to the BP Amoco ordinary
shares.
AMENDMENT AND WAIVER
BP Amoco and ARCO may amend the merger agreement by written agreement prior
to completion of the merger, but, after ARCO's shareholders have approved the
merger agreement, no amendment may be made which by law requires further
shareholder approval without the shareholder approval being obtained.
Any provision of the merger agreement may be waived prior to the completion
of the merger, but only if the waiver is in writing and signed by the party
against which the waiver is to be effective.
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<PAGE>
THE STOCK OPTION AGREEMENT
Contemporaneously with the execution of the merger agreement, BP Amoco and
ARCO also entered into a stock option agreement. The following description sets
forth the material terms of the stock option agreement but does not purport to
describe all the terms of the agreement. The complete text of the stock option
agreement is incorporated by reference in this proxy statement/prospectus.
Pursuant to the stock option agreement, ARCO granted BP Amoco an irrevocable
option to purchase up to 64,861,617 shares of ARCO common stock at an option
price per share in cash of $82.82. In this section, these shares are referred to
as "option shares" and this per share price is referred to as the "option
price." The number of option shares and the option price are each subject to
adjustment in the circumstances described below under "--Maximum Option Price;
Adjustments to Number of Option Shares." In no event will the number of option
shares exceed 19.9% of the issued and outstanding shares of ARCO common stock
(excluding the option shares) at the time of exercise.
The stock option agreement provides that BP Amoco may exercise its option
within 180 days after the merger agreement is terminated and BP Amoco then or
thereafter becomes entitled to receive the full ARCO termination amount of $450
million, after taking into account any amounts that BP Amoco has become entitled
to previously. We refer in this section to such an event as a "triggering
event."
The option will terminate upon the earliest to occur of:
- the effective time of the merger;
- 180 days after the date on which a triggering event occurs; and
- the date that it is no longer possible for a triggering event to occur,
if no triggering event has occurred prior to such date.
PURPOSE OF THE STOCK OPTION
The stock option agreement is intended to increase the likelihood that the
merger will be completed on its agreed terms, and to compensate BP Amoco for its
efforts and costs in case the merger is not completed for specified reasons,
including the termination of the merger agreement because ARCO recommends a
different acquisition transaction to its shareholders. See "The Merger
Agreement--Termination and Effects of Termination." The stock option could
prevent an alternative acquisition transaction with ARCO from being accounted
for as a "pooling of interests" under U.S. GAAP. The stock option therefore may
have the effect of discouraging offers by third parties to acquire ARCO prior to
the completion of the merger, even from a bidder prepared to offer to pay
consideration to ARCO shareholders which has a higher current market price than
the shares to be received by ARCO shareholders pursuant to the merger agreement.
REQUIRED APPROVALS
Any purchase of option shares upon exercise of the option will be subject to
compliance with Hart-Scott-Rodino Antitrust Improvements Act and to any required
prior notification to or application for approval of any other regulatory
authority so that the issuance of option shares to BP Amoco would not be
illegal. Each of BP Amoco and ARCO has agreed to file any and all required
notices, applications or other documents necessary for regulatory approval and
to use its best reasonable efforts to cooperate with respect to any required
filing, notice or application for regulatory approval.
The stock option agreement is not subject to the approval of shareholders of
ARCO, and is effective whether or not ARCO shareholders adopt the merger
agreement at their special meeting. No triggering event has occurred as of the
date of this proxy statement/prospectus.
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CASH-OUT RIGHT
The stock option agreement provides that within 180 days following the
occurrence of a triggering event, BP Amoco may elect to require ARCO to
repurchase the option for cash, at a price equal to (1) the number of option
shares for which the option is then exercisable, multiplied by (2) the
difference between the market price (as defined below) for shares of ARCO common
stock and the option price. Similarly, within the same time period, BP Amoco may
require ARCO to repurchase all option shares then owned by BP Amoco for cash, at
the market price for each share. In each case, the market price will equal the
average market price for ARCO shares over a 90-day period preceding the date of
BP Amoco's written request for repurchase or, failing any market prices, based
on the good faith determination of the ARCO board of directors. Where the
repurchase price to be paid by ARCO for the option or the option shares upon the
exercise by BP Amoco of its cash-out right would require a vote by ARCO
shareholders pursuant to ARCO's certificate of incorporation, the repurchase
price will be reduced to the extent necessary to avoid the requirement of a
shareholder vote.
LIMITATION ON TOTAL PROFIT
The stock option agreement provides that, notwithstanding any other
provision of the agreement, BP Amoco's total profit (as defined below), taken
together with any termination amount paid to BP Amoco pursuant to the provisions
of the merger agreement cannot exceed $500 million in the aggregate. If the
total amount that otherwise would be received by BP Amoco would exceed that
amount, BP Amoco, at its sole election, will:
(1) reduce the number of option shares subject to the option;
(2) deliver to ARCO for cancellation option shares previously purchased
by BP Amoco;
(3) pay cash to ARCO; or
(4) any combination of (1), (2) and (3),
so that BP Amoco's actually realized total profit, when taken together with any
termination payment paid to BP Amoco, will not exceed $500 million after taking
into account the foregoing actions.
For purposes of the stock option agreement, "total profit" means the
aggregate amount before taxes of the following:
- the amount received by BP Amoco pursuant to ARCO's repurchase of the
option or option shares pursuant to the exercise of BP Amoco's cash-out
right, described under "--Cash-Out Right" above, LESS, in the case of
any repurchase of option shares, the amount paid by BP Amoco for those
shares; and
- the fair market value, or the aggregate net cash amounts received by BP
Amoco pursuant to the sale of option shares (or any other securities
into which such option shares are converted or exchanged), or any
property, cash or securities received on exercise of the option
pursuant to the adjustment provisions of the stock option agreement,
LESS the amount paid by BP Amoco for such option shares.
The stock option agreement also provides that, notwithstanding any other
provision of the stock option agreement, an option may not be exercised for a
number of shares as would, as of the date of exercise, result in a notional
total profit which, together with any ARCO termination amount previously paid to
BP Amoco, would exceed $500 million. For purposes of the stock option agreement,
"notional total profit" means the total profit for the option determined as of
the date of BP Amoco's proposed exercise, assuming that:
(1) BP Amoco exercised the option in full on that date;
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(2) the option shares (or any other securities into which such shares are
converted or exchanged) were sold for cash at the closing market
price on the NYSE for ARCO common stock as of the close of business
on the preceding trading day LESS customary brokerage commissions;
and
(3) any additional property, cash or other securities received on
exercise of the option were sold at fair market value.
MAXIMUM OPTION PRICE; ADJUSTMENTS TO NUMBER OF OPTION SHARES
The stock option agreement contains provisions intended to ensure that the
option has a minimum value. These provisions cause the option price to be
adjusted downwards, if necessary, so that BP Amoco could, at any time of
exercise, realize a total profit of $25 million if BP Amoco exercised the option
and sold the option shares purchased at the market price on the NYSE for ARCO
common stock as of the close of business on the trading day preceding the
exercise.
The stock option agreement provides for automatic adjustment of the number
of option shares purchasable on the exercise of the option in the event that any
additional shares of ARCO common stock are issued or otherwise become
outstanding after the date of the stock option agreement other than pursuant to
the stock option agreement. In this event, the aggregate number of option shares
which may be purchased upon exercise of the option will automatically be
increased so that, taking into consideration any such issuance of additional
shares, the aggregate number of option shares equals 19.9% of the shares of ARCO
common stock then issued and outstanding. This increase will take place without
any further action on the part of ARCO or BP Amoco.
The stock option agreement provides for other adjustments to the number of
option shares purchasable on the exercise of the option, as well as adjustments
to the option price and the other securities, cash and property to be issued or
transferred to BP Amoco on exercise of the option, in the event of changes in
the outstanding shares of ARCO common stock by reason of stock dividends,
splits, combinations, subdivisions or reclassifications and extraordinary
transactions such as mergers, recapitalizations and share exchanges. In each
case, the effect of the adjustment or adjustments will be to place BP Amoco in
the same position as it would have held had there been no dividend, alteration
to the ARCO common stock or extraordinary transaction.
EXCHANGE RATES
This table sets forth, for each period indicated, the high and low noon
buying rates for one pound sterling expressed in U.S. dollars, the average noon
buying rate during such period, and the noon buying rate at the end of such
period, based upon information provided by the Federal Reserve Bank of New York:
<TABLE>
<CAPTION>
SIX
MONTHS
YEAR ENDED DECEMBER 31, ENDED
----------------------------------------------------- JUNE 30,
1994 1995 1996 1997 1998 1999
--------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
High..................................... $ 1.6368 $ 1.6440 $ 1.7123 $ 1.7035 $ 1.7222 $ 1.6585
Low...................................... 1.4615 1.5302 1.4948 1.5775 1.6114 1.5765
Average.................................. 1.5392 1.5803 1.5733 1.6397 1.6602 1.6197
Period End............................... 1.5665 1.5535 1.7123 1.6427 1.6628 1.5765
</TABLE>
This table sets forth, for each period indicated, the high and low noon
buying rates for one U.S. dollar expressed in pounds sterling, the average noon
buying rate during such period, and the noon
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<PAGE>
buying rate at the end of such period, based upon information provided by the
Federal Reserve Bank of New York:
<TABLE>
<CAPTION>
SIX
MONTHS
YEAR ENDED DECEMBER 31, ENDED
----------------------------------------------------- JUNE 30,
1994 1995 1996 1997 1998 1999
--------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
High..................................... L0.6109 L0.6083 L0.5840 L0.5870 L0.5807 L0.6030
Low...................................... 0.6842 0.6535 0.6690 0.6339 0.6206 0.6343
Average.................................. 0.6497 0.6328 0.6356 0.6099 0.6023 0.6174
Period End............................... 0.6384 0.6437 0.5840 0.6088 0.6014 0.6343
</TABLE>
MARKET PRICE AND DIVIDEND DATA
As of July 9, 1999 (the record date for the ARCO special meeting), there
were approximately 80,000 ARCO shareholders of record. As of July 9, 1999, there
were approximately 367,000 holders of record of BP Amoco ordinary shares and
approximately 119,000 holders of record of BP Amoco ADSs.
The market prices for, and dividends paid on, shares of ARCO common stock,
BP Amoco ordinary shares and BP Amoco ADSs shown below are the market prices and
dividends paid for each security without adjustments to give effect to the
merger. Such market prices are not necessarily indicative of what the market
value of BP Amoco ordinary shares or BP Amoco ADSs will be after the merger.
MARKET PRICES
ARCO
The principal trading market for ARCO common stock is the New York Stock
Exchange. Its ticker symbol is "ARC." ARCO common stock is also traded on the
Pacific Exchange, the Swiss Stock Exchange and the London Stock Exchange. The
table below sets forth, for the calendar quarters indicated, the high and low
sale prices of shares of ARCO common stock as reported on the NYSE Composite
Tape.
<TABLE>
<CAPTION>
ARCO COMMON STOCK
--------------------
HIGH LOW
--------- ---------
<S> <C> <C>
($ PER SHARE)
YEAR ENDED DECEMBER 31, 1997
First Quarter........................................................................ 69 3/8 62 3/16
Second Quarter....................................................................... 75 5/8 63 11/16
Third Quarter........................................................................ 86 15/16 67 3/8
Fourth Quarter....................................................................... 87 1/4 74
YEAR ENDED DECEMBER 31, 1998
First Quarter........................................................................ 84 11/16 70 3/8
Second Quarter....................................................................... 82 1/4 74
Third Quarter........................................................................ 81 5/16 56 1/4
Fourth Quarter....................................................................... 72 7/16 62 7/8
YEAR ENDING DECEMBER 31, 1999
First Quarter........................................................................ 75 3/16 52 1/2
Second Quarter....................................................................... 88 15/16 71 1/2
Third Quarter (through July 9, 1999)................................................. 89 1/4 84 1/4
</TABLE>
ARCO SHAREHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE
ARCO COMMON STOCK.
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BP AMOCO
The primary trading market for the BP Amoco ordinary shares is the London
Stock Exchange. The BP Amoco ordinary shares are also traded on stock exchanges
in France, Germany, Japan and Switzerland. BP Amoco ADSs, each representing six
BP Amoco ordinary shares, are issued by the depositary and are listed on the
NYSE, where their ticker symbol is "BPA," and are also listed on the Pacific,
Chicago and Toronto Stock Exchanges.
The table below sets forth, for the calendar quarters indicated, the highest
and lowest middle-market quotations for the BP Amoco ordinary shares as derived
from the Daily Official List of the London Stock Exchange and the highest and
lowest sales prices of BP Amoco ADSs (BP ADSs prior to January 1, 1999) on the
NYSE Composite Tape.
<TABLE>
<CAPTION>
BP AMOCO ORDINARY BP AMOCO
SHARES ADSS(1)
------------------ ------------------
HIGH LOW HIGH LOW
------- ------- ------- -------
<S> <C> <C> <C> <C>
(PENCE) ($)
YEAR ENDED DECEMBER 31, 1997
First Quarter........................... 748 663 73 1/2 64 7/8
Second Quarter.......................... 759 670 75 3/8 65 11/16
Third Quarter........................... 956 756 93 74 5/8
Fourth Quarter.......................... 939 797 91 7/8 79
YEAR ENDED DECEMBER 31, 1998
First Quarter........................... 934 746 96 73 3/4
Second Quarter.......................... 968 833 97 5/16 82 7/8
Third Quarter........................... 910 737 91 3/4 73
Fourth Quarter.......................... 957 815 95 3/8 81 7/16
YEAR ENDING DECEMBER 31, 1999
First Quarter........................... 1,079 822 105 5/16 80 3/8
Second Quarter.......................... 1,191 1,009 115 3/8 94
Third Quarter (through July 9, 1999).... 1,228 1,177 115 1/8 109 7/8
</TABLE>
- ------------------------
(1) With effect from June 6, 1997, BP Amoco split existing ADSs on a two-for-one
basis so that a BP Amoco ADS is now equivalent to six BP Amoco ordinary
shares. Comparative figures for prior periods have been restated
accordingly.
ARCO SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE BP
AMOCO ORDINARY SHARES AND THE BP AMOCO ADSS.
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DIVIDEND DATA
ARCO
ARCO has historically declared and paid dividends quarterly. The following
table sets forth the quarterly dividends in respect of the ARCO common stock
declared and paid in each of the past five years. ARCO expects to pay regular
quarterly dividends in September and December of 1999.
<TABLE>
<CAPTION>
DIVIDENDS ($) PER SHARE OF
ARCO COMMON STOCK(1)
-------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31,
1994......................................... 0.6875 0.6875 0.6875 0.6875 2.75
1995......................................... 0.6875 0.6875 0.7375(2) 0.6875 2.80
1996......................................... 0.6875 0.6875 0.6875 0.6875 2.75
1997......................................... 0.6875 0.7125 0.7125 0.7125 2.825
1998......................................... 0.7125 0.7125 0.7125 0.7125 2.85
1999......................................... 0.7125 0.7125 -- -- --
</TABLE>
- ------------------------
(1) ARCO per share data reflects a two-for-one stock split of shares of ARCO
common stock outstanding on June 13, 1997. All per share dividend amounts
for prior quarters have been restated accordingly.
(2) Dividend includes a $0.05 per share redemption payment for ARCO common
stock.
BP AMOCO
The following table sets forth dividends announced and paid in respect of BP
Amoco ordinary shares, on a per BP Amoco ordinary share basis and on a per BP
Amoco ADS basis, for the periods indicated. The per share dividends shown for BP
Amoco ADSs include the associated U.K. tax credit available to certain
beneficial owners of BP Amoco ADSs who are resident in the U.S. for tax
purposes, but before deduction of deemed U.K. withholding taxes. Therefore, the
amounts shown are not necessarily those that were actually paid to holders of BP
Amoco ADSs. It should be noted that the percentage of any dividend represented
by the associated U.K. tax credit has varied over the periods indicated and
that, for dividends paid on and after April 6, 1999, the U.K. tax credit has
effectively been completely set off, for U.S. holders, by the amount of
applicable deemed U.K. withholding taxes. For dividends paid before April 6,
1999 (which are the dividends paid in respect of the third quarter of 1998 and
earlier periods) the associated tax credit represents 20% of the dividend amount
stated in the table. For dividends paid on or after April 6, 1999 (which are the
dividends paid in respect of the fourth quarter of 1998 and later periods), the
associated tax credit represents 10% of the dividend amount stated in the table.
Dividends have been translated from pounds sterling per BP Amoco ADS into
U.S. dollars using the exchange rate at the close of business in London on the
business day last preceding the day when the BP Amoco directors announced their
intention to pay quarterly dividends for such period. Dividends have
historically been announced quarterly in August, November, February and May. See
84
<PAGE>
"Summary--Currencies and Exchange Rates" and "The Combination--Other Effects of
the Combination."
<TABLE>
<CAPTION>
DIVIDENDS PER BP AMOCO ORDINARY SHARE
AND BP AMOCO ADS(1)
-------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31,
1994
Ordinary Share..................................... 2.50p 2.50p 2.50p 3.00p 10.50p
ADS................................................ $ 0.28 $ 0.29 $ 0.31 $ 0.35 $ 1.23
1995
Ordinary Share..................................... 3.00p 4.00p 4.00p 4.25p 15.25p
ADS................................................ $ 0.36 $ 0.48 $ 0.47 $ 0.49 $ 1.80
1996
Ordinary Share..................................... 4.25p 5.00p 5.00p 5.25p 19.50p
ADS................................................ $ 0.48 $ 0.58 $ 0.62 $ 0.64 $ 2.32
1997
Ordinary Share..................................... 5.25p 5.50p 5.50p 5.75p 22.00p
ADS................................................ $ 0.64 $ 0.67 $ 0.69 $ 0.71 $ 2.71
1998
Ordinary Share..................................... 5.75p 6.00p 6.00p 6.12p 23.87p
ADS................................................ $ 0.72 $ 0.73 $ 0.75 $ 0.67 $ 2.87
1999
Ordinary Share..................................... 6.14p -- -- -- --
ADS................................................ $ 0.67 -- -- -- --
</TABLE>
- ------------------------
(1) With effect from June 6, 1997, BP Amoco split existing ADSs on a two-for-one
basis so that a BP Amoco ADS is now equivalent to six BP Amoco ordinary
shares. Comparative figures for prior periods have been restated
accordingly.
DESCRIPTION OF BP AMOCO
BP Amoco is one of the world's top three oil and petrochemical companies on
the basis of market capitalization, with a wide operational and geographic
scope. It has well established operations in Europe, North and South America,
Australia, Asia and parts of Africa. BP Amoco's main businesses are as follows:
<TABLE>
<S> <C>
Exploration and Production... E&P is engaged in oil and gas exploration and field
development and production (upstream activities), together
with pipeline transportation, gas processing and gas
marketing (midstream activities).
Refining and Marketing....... The activities of R&M include oil supply and trading as well
as oil refining and marketing (downstream activities).
Chemicals.................... Chemicals activities include petrochemicals manufacturing
and marketing.
</TABLE>
Prairie Holdings, Inc. is a wholly owned subsidiary of BP Amoco organized
under the laws of Delaware. It was incorporated in March, 1999 solely for use in
the merger of ARCO and Prairie
85
<PAGE>
Holdings and is engaged in no other business. Its executive offices are located
at Britannic House, 1 Finsbury Circus, London, EC2M 7BA, England.
DESCRIPTION OF ARCO
ARCO is a worldwide oil and gas enterprise operating in two segments:
exploration and production, and refining and marketing.
<TABLE>
<S> <C>
Exploration and Production... E&P operations are focused mainly in Alaska, the Gulf of
Mexico and the Midcontinent in the United States, China,
Indonesia, the United Kingdom North Sea, Algeria and
Venezuela. The largest component of ARCO's operations in the
lower 48 United States are held by ARCO's 82% owned
subsidiary, Vastar Resources, Inc.
Refining and Marketing....... R&M operations include the two West Coast refineries and
over 1,700 branded retail gasoline outlets in six western
states and British Columbia.
</TABLE>
86
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
INTRODUCTORY NOTE
The following Unaudited Pro Forma Condensed Consolidated Financial
Information gives pro forma effect to the merger, after giving effect to the pro
forma adjustments described in the accompanying notes. The Unaudited Pro Forma
Condensed Consolidated Financial Information has been prepared from, and should
be read in conjunction with, the respective historical consolidated financial
statements and notes thereto of BP Amoco and ARCO, which are incorporated by
reference into this proxy statement/prospectus. For information on how to obtain
any of those documents, see "Summary--Where You Can Find More Information."
The Unaudited Pro Forma Condensed Consolidated Financial Information is
provided for illustrative purposes only and does not purport to represent what
the actual results of operations or the financial position of BP Amoco would
have been had the merger of ARCO with a subsidiary of BP Amoco occurred on the
respective dates assumed, nor is it necessarily indicative of BP Amoco's future
operating results or consolidated financial position.
The Unaudited Pro Forma Condensed Consolidated Financial Information has
been prepared in accordance with U.K. GAAP, which differs in certain respects
from U.S. GAAP. Note 46 to the consolidated financial statements of BP Amoco
included in BP Amoco's Report on Form 6-K filed on July 7, 1999, which presented
restated financial information for the years ended December 31, 1998, 1997 and
1996, provides a description of the principal differences between U.K. GAAP and
U.S. GAAP as they relate to BP Amoco. The financial statements included in such
Form 6-K have been restated to reflect the adoption of FRS No. 12, effective as
of January 1, 1999, and also to correct reserve information. The proved reserves
for associated undertakings have been revised to exclude reserves in Abu Dhabi
which, if recent production levels were to continue, would not be fully
recovered during the period of the concessions. A reconciliation of the pro
forma profit and the pro forma ordinary shareholders' interest to U.S. GAAP is
included in Note 10 of Notes to the Unaudited Pro Forma Condensed Consolidated
Financial Information.
BP Amoco's use of the replacement cost basis for inventory accounting is
explained in Note 1 of Notes to the Unaudited Pro Forma Condensed Consolidated
Financial Information. The replacement cost basis is generally similar to the
LIFO basis.
BP Amoco will account for the merger as an acquisition under U.K. GAAP and
as a purchase under U.S. GAAP. Under U.K. GAAP acquisition accounting, the
identifiable assets and liabilities of ARCO are recorded at their fair value on
the date of acquisition. The date of acquisition for determining the cost of
acquisition is the date of completion of the merger. The cost of acquisition
comprises the fair value of BP Amoco shares issued, based on their quoted price
on the date of acquisition, i.e. the date of completion, together with the
expenses of acquisition. Consequently, the cost of acquisition and the fair
values used in the Unaudited Pro Forma Condensed Consolidated Financial
Information are provisional and may differ from the finally determined amounts.
BP Amoco has estimated the fair values of all significant assets and liabilities
of ARCO, apart from the restructuring costs of approximately $500 million to be
incurred following the combination as such costs may not be recognized as at the
date of acquisition under U.K. GAAP. In the pro forma financial information the
consideration is based on the BP Amoco ordinary share price of L12.20, the
closing middle market quotation for BP Amoco ordinary shares as derived from the
Daily Official List of the London Stock Exchange on July 9, 1999, the latest
practicable date prior to the printing of this document, which has been
translated into U.S. dollars at $1.5515 to L1.00, the effective Noon Buying Rate
at July 9, 1999. BP Amoco cannot finalize the allocation of the consideration to
assets and liabilities and the amortization/depreciation periods until the cost
of acquisition is fixed and it has full access to ARCO financial and reserve
information.
87
<PAGE>
Under U.S. GAAP purchase accounting, the cost of acquisition is based on the
BP Amoco share price for a reasonable period before and after the terms of the
acquisition were agreed. BP Amoco has averaged the share price and the L/$
exchange rate for three working days straddling the date of the announcement,
that is, March 31, April 1 and April 6. The London Stock Exchange was closed for
the Easter holiday on April 2 and 5. This average price was L10.23, which has
been translated into U.S. dollars at $1.6049 to L1.00, the average Noon Buying
Rate on those three days.
The historical financial statements of ARCO have been prepared in accordance
with U.S. GAAP. For purposes of presenting the Unaudited Pro Forma Condensed
Consolidated Financial Information, financial information relating to ARCO has
been adjusted to conform materially with BP Amoco's accounting policies under
U.K. GAAP as described in Note 3 of Notes to the Unaudited Pro Forma Condensed
Consolidated Financial Information. The historical income statement for ARCO on
a U.K. GAAP basis for the year ended December 31, 1998 shows results from
continuing operations only.
The pro forma acquisition adjustments reflected in the accompanying
Unaudited Pro Forma Condensed Consolidated Income Statements and Balance Sheet
and described in Notes 5 and 7, respectively, reflect estimates made by BP Amoco
management and assumptions that it believes to be reasonable. There are no pro
forma adjustments in the accompanying Unaudited Pro Forma Condensed Consolidated
Income Statements to eliminate transactions between ARCO and BP Amoco because
such amounts are considered to be immaterial. No account has been taken, within
the Unaudited Pro Forma Condensed Consolidated Financial Information, of any
cost savings or any severance and restructuring costs which may or are expected
to occur as a result of the combination. See "The Combination--BP Amoco's
Reasons for the Combination."
ARCO shareholders will be entitled to receive, for each share of ARCO common
stock held as of the effective time of the merger, 4.92 BP Amoco ordinary
shares. Such BP Amoco ordinary shares will be delivered in the form of BP Amoco
ADSs, each of which represents six BP Amoco ordinary shares, subject to an
election by ARCO shareholders to receive BP Amoco ordinary shares. The precise
number of ARCO shares to be canceled and exchanged in the merger cannot be
determined until the effective time. The Unaudited Pro Forma Condensed
Consolidated Financial Information presented below does not reflect the proposed
one-for-one subdivision of BP Amoco ordinary share capital.
88
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
FOR THE THREE MONTHS ENDED MARCH 31, 1999
The following unaudited pro forma condensed consolidated income statement for
the three months ended March 31, 1999 is derived from the unaudited historical
condensed consolidated income statements of BP Amoco and ARCO for the three
months then ended, after giving effect to the pro forma adjustments described in
the Notes to the Unaudited Pro Forma Condensed Consolidated Financial
Information. These adjustments have been determined as if the combination of
ARCO and BP Amoco took place on January 1, 1998, the first day of the earliest
financial period presented in the Unaudited Pro Forma Condensed Consolidated
Financial Information. The Unaudited Pro Forma Condensed Consolidated Financial
Information has been prepared from, and should be read in conjunction with, and
as supplemental to, the respective historical consolidated financial statements
and notes thereto of BP Amoco and ARCO, which are incorporated by reference in
this proxy statement/prospectus.
<TABLE>
<CAPTION>
BP AMOCO
HISTORICAL ARCO HISTORICAL
------------- ----------------------------------------------- PRO FORMA
U.K. GAAP U.S. GAAP ADJUSTMENTS U.K. GAAP ADJUSTMENTS
------------- ------------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
$ $ $ $ $
<CAPTION>
(MILLIONS, EXCEPT PER SHARE AMOUNTS)
(NOTE 1) (NOTE 2) (NOTE 4) (NOTE 5)
<S> <C> <C> <C> <C> <C>
Turnover................................... 17,984 2,643 -- 2,643 --
Less: Joint ventures....................... 3,342 55 29(a) 84
------ ----- --- ----- ------
Group turnover............................. 14,642 2,588 (29) 2,559 --
Replacement cost of sales.................. 11,911 2,039 (50)(b) 1,989 495(a)
Production taxes........................... 142 41 -- 41 --
------ ----- --- ----- ------
Gross profit............................... 2,589 508 21 529 (495)
Distribution and administration expenses... 1,536 199 (5)(c) 194 --
Exploration expense........................ 172 74 -- 74 --
------ ----- --- ----- ------
881 235 26 261 (495)
Other income............................... 105 121 (22)(d) 99 --
------ ----- --- ----- ------
Group replacement cost operating profit.... 986 356 4 360 (495)
Share of profits of joint ventures......... 131 -- 21(e) 21 --
Share of profits of associated
undertakings............................. 129 -- 12(f) 12 --
------ ----- --- ----- ------
Total replacement cost operating profit.... 1,246 356 37 393 (495)
Profit (loss) on sale of businesses........ 102 -- --(g) -- --
Profit (loss) on sale of fixed assets...... (5) -- 14(h) 14 --
Restructuring costs........................ (1,155) -- -- -- --
------ ----- --- ----- ------
Replacement cost profit before interest and
tax...................................... 188 356 51 407 (495)
Inventory holding gains (losses)........... 7 -- (15)(i) (15) --
------ ----- --- ----- ------
Historical cost profit before interest and
tax...................................... 195 356 36 392 (495)
Interest expense........................... 304 95 29(j) 124 (14)(b)
------ ----- --- ----- ------
Profit (loss) before taxation.............. (109) 261 7 268 (481)
Taxation................................... 56 93 25(k) 118 --
------ ----- --- ----- ------
Profit (loss) after taxation............... (165) 168 (18) 150 (481)
Minority shareholders' interest (MSI)...... 11 3 (2)(m) 1 (21)(c)
------ ----- --- ----- ------
Profit (loss) for the period............... (176) 165 (16) 149 (460)
------ ----- --- ----- ------
Profit (loss) for the period applicable to
ordinary shares.......................... (176) 165 (16) 149 (460)
------ ----- --- ----- ------
------ ----- --- ----- ------
Profit (loss) per ordinary share
Profit (loss) for the period............. (0.02) 0.46
Replacement cost profit before
exceptional items...................... 0.07 0.47
------ -----
------ -----
Average number outstanding shares
(in millions)............................ 9,669 322 1,672
------ ----- ------
------ ----- ------
Reconciliation of replacement cost results
Profit (loss) for the period............... (176) 149 (460)
Inventory holding (gains) losses........... (7) 15 --
------ ----- ------
Replacement cost profit (loss) for the
period................................... (183) 164 (460)
Exceptional items net of tax and MSI....... 860 (13) --
------ ----- ------
Replacement cost profit before
exceptional items........................ 677 151 (460)
------ ----- ------
------ ----- ------
<CAPTION>
BP AMOCO
PRO FORMA
-------------
U.K. GAAP
-------------
<S> <C>
$
<S> <C>
Turnover................................... 20,627
Less: Joint ventures....................... 3,426
------
Group turnover............................. 17,201
Replacement cost of sales.................. 14,395
Production taxes........................... 183
------
Gross profit............................... 2,623
Distribution and administration expenses... 1,730
Exploration expense........................ 246
------
647
Other income............................... 204
------
Group replacement cost operating profit.... 851
Share of profits of joint ventures......... 152
Share of profits of associated
undertakings............................. 141
------
Total replacement cost operating profit.... 1,144
Profit (loss) on sale of businesses........ 102
Profit (loss) on sale of fixed assets...... 9
Restructuring costs........................ (1,155)
------
Replacement cost profit before interest and
tax...................................... 100
Inventory holding gains (losses)........... (8)
------
Historical cost profit before interest and
tax...................................... 92
Interest expense........................... 414
------
Profit (loss) before taxation.............. (322)
Taxation................................... 174
------
Profit (loss) after taxation............... (496)
Minority shareholders' interest (MSI)...... (9)
------
Profit (loss) for the period............... (487)
------
Profit (loss) for the period applicable to
ordinary shares.......................... (487)
------
------
Profit (loss) per ordinary share
Profit (loss) for the period............. (0.04)
Replacement cost profit before
exceptional items...................... 0.03
------
------
Average number outstanding shares
(in millions)............................ 11,341
------
------
Reconciliation of replacement cost results
Profit (loss) for the period............... (487)
Inventory holding (gains) losses........... 8
------
Replacement cost profit (loss) for the
period................................... (479)
Exceptional items net of tax and MSI....... 847
------
Replacement cost profit before
exceptional items........................ 368
------
------
</TABLE>
THE NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
INFORMATION
ARE AN INTEGRAL PART OF THE STATEMENT.
89
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1998
The following unaudited pro forma condensed consolidated income statement
for the year ended December 31, 1998 is derived from the historical condensed
consolidated income statements of BP Amoco and ARCO for the year then ended,
after giving effect to the pro forma adjustments described in the Notes to the
Unaudited Pro Forma Condensed Consolidated Financial Information. These
adjustments have been determined as if the combination of ARCO and BP Amoco took
place on January 1, 1998, the first day of the earliest financial period
presented in the Pro Forma Condensed Consolidated Financial Information. The
Unaudited Pro Forma Condensed Consolidated Financial Information has been
prepared from, and should be read in conjunction with, and as supplemental to,
the respective historical consolidated financial statements and notes thereto of
BP Amoco and ARCO, which are incorporated by reference in this proxy
statement/prospectus.
<TABLE>
<CAPTION>
ARCO HISTORICAL
BP AMOCO ----------------------------------------- BP AMOCO
HISTORICAL CONTINUING PRO FORMA
------------- OPERATIONS PRO FORMA -------------
U.K. GAAP U.S. GAAP ADJUSTMENTS U.K. GAAP ADJUSTMENTS U.K.GAAP
------------- ------------- ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
$ $ $ $ $ $
<CAPTION>
(MILLIONS, EXCEPT PER SHARE AMOUNTS)
(NOTE 1) (NOTE 2) (NOTE 4) (NOTE 5)
<S> <C> <C> <C> <C> <C> <C>
Turnover.................................... 83,732 11,341 -- 11.341 -- 95,073
Less: Joint ventures........................ 15,428 188 106(a) 294 -- 15,722
------ ------ ------ ----------- ------ ------
Group turnover.............................. 68,304 11,153 (106) 11,047 -- 79,351
Replacement cost of sales................... 56,270 10,607 (368)(b) 10,239 1,845(a) 68,354
Production taxes............................ 604 227 -- 227 -- 831
------ ------ ------ ----------- ------ ------
Gross profit................................ 11,430 319 262 581 (1,845) 10,166
Distribution and administration expenses.... 6,044 1,167 (16)(c) 1,151 -- 7,195
Exploration expense......................... 921 629 -- 629 -- 1,550
------ ------ ------ ----------- ------ ------
4,465 (1,477) 278 (1,199) (1,845) 1,421
Other income................................ 709 454 (137)(d) 317 -- 1,026
------ ------ ------ ----------- ------ ------
Group replacement cost operating profit
(loss).................................... 5,174 (1,023) 141 (882) (1,845) 2,447
Share of profits of joint ventures.......... 825 -- 78(e) 78 -- 903
Share of profits of associated
undertakings.............................. 522 -- 60(f) 60 -- 582
------ ------ ------ ----------- ------ ------
Total replacement cost operating profit
(loss).................................... 6,521 (1,023) 279 (744) (1,845) 3,932
Profit (loss) on sale of businesses......... 395 928 1,713(g) 2,641 -- 3,036
Profit (loss) on sale of fixed assets....... 653 -- 61(h) 61 -- 714
Merger expenses............................. (198) -- -- -- -- (198)
------ ------ ------ ----------- ------ ------
Replacement cost profit (loss) before
interest and tax.......................... 7,371 (95) 2,053 1,958 (1,845) 7,484
Inventory holding gains (losses)............ (1,391) -- (57)(i) (57) -- (1,448)
------ ------ ------ ----------- ------ ------
Historical cost profit (loss) before
interest and tax.......................... 5,980 (95) 1,996 1,901 (1,845) 6,036
Interest expense............................ 1,173 259 75(j) 334 (40) (b) 1,467
------ ------ ------ ----------- ------ ------
Profit (loss) before taxation............... 4,807 (354) 1,921 1,567 (1,805) 4,569
Taxation.................................... 1,520 (651) 2,388(k) 1,737 -- 3,257
------ ------ ------ ----------- ------ ------
Profit (loss) after taxation................ 3,287 297 (467) (170) (1,805) 1,312
Income from discontinued operations......... -- 179 (179) (l) -- -- --
Minority shareholders' interest (MSI)....... 63 24 (4)(m) 20 (79)(c) 4
------ ------ ------ ----------- ------ ------
Profit (loss) for the year.................. 3,224 452 (642) (190) (1,726) 1,308
Dividend requirements on preference
shares.................................... 1 2 -- 2 (2)(d) 1
------ ------ ------ ----------- ------ ------
Profit (loss) for the year applicable to
ordinary shares........................... 3,223 450 (642) (192) (1,724) 1,307
------ ------ ------ ----------- ------ ------
------ ------ ------ ----------- ------ ------
Profit (loss) per ordinary share
Profit (loss) for the year................ 0.34 (0.60) 0.12
Replacement cost profit (loss) before
exceptional items....................... 0.41 (3.19) 0.11
------ ----------- ------
------ ----------- ------
Average number outstanding of ordinary
shares (in millions)...................... 9,596 321 1,672 11,268
------ ----------- ------ ------
------ ----------- ------ ------
Reconciliation of replacement cost results
Profit (loss) for the year.................. 3,224 (190) (1,726) 1,308
Inventory holding (gains) losses............ 1,391 57 -- 1,448
------ ----------- ------ ------
Replacement cost profit (loss) for the
year...................................... 4,615 (133) (1,726) 2,756
Exceptional items net of tax and MSI........ (652) (891) -- (1,543)
------ ----------- ------ ------
Replacement cost profit (loss) before
exceptional items......................... 3,963 (1,024) (1,726) 1,213
------ ----------- ------ ------
------ ----------- ------ ------
</TABLE>
THE NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
INFORMATION
ARE AN INTEGRAL PART OF THE STATEMENT.
90
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AT MARCH 31, 1999
The following unaudited pro forma condensed consolidated balance sheet
consolidates the respective unaudited historical condensed consolidated balance
sheets of BP Amoco and ARCO as of March 31, 1999 and has been prepared to
reflect the combination of ARCO and BP Amoco after giving effect to the pro
forma adjustments described in the Notes to the Unaudited Pro Forma Condensed
Consolidated Financial Information as if the combination had occurred on March
31, 1999. The Unaudited Pro Forma Condensed Consolidated Financial Information
has been prepared from, and should be read in conjunction with, and as
supplemental to, the respective historical consolidated financial statements and
notes thereto of BP Amoco and ARCO, which are incorporated by reference in this
proxy statement/prospectus.
<TABLE>
<CAPTION>
BP AMOCO BP AMOCO
HISTORICAL ARCO HISTORICAL PRO FORMA
----------- --------------------------------------- PRO FORMA -----------
U.K. GAAP U.S. GAAP ADJUSTMENTS U.K. GAAP ADJUSTMENTS U.K. GAAP
----------- ----------- ----------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
$ $ $ $ $ $
<CAPTION>
(MILLIONS)
(NOTE 1) (NOTE 2) (NOTE 6) (NOTE 7)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Fixed assets
Intangible assets...................... 3,310 976 -- 976 3,585(a) 7,871
Tangible assets........................ 53,947 18,257 (909)(a) 17,348 19,137(b) 90,432
Investments............................
Joint ventures.......................
Gross assets....................... 9,115 1,383 119(b) 1,502 -- 10,617
Gross liabilities.................. 4,085 352 33(b) 385 -- 4,470
----------- ----------- ----------- ------------- ------------- -----------
Net investment....................... 5,030 1,031 86 1,117 -- 6,147
Associated undertakings.............. 4,143 214 -- 214 -- 4,357
Other................................ 569 1,133 33(c) 1,166 57(c) 1,792
----------- ----------- ----------- ------------- ------------- -----------
9,742 2,378 119 2,497 57 12,296
----------- ----------- ----------- ------------- ------------- -----------
Total fixed assets..................... 66,999 21,611 (790) 20,821 22,779 110,599
----------- ----------- ----------- ------------- ------------- -----------
Current assets
Inventories............................ 3,616 597 163(d) 760 -- 4,376
Trade receivables...................... 6,182 722 -- 722 -- 6,904
Other receivables falling due
Within 1 year........................ 4,162 618 (18)(e) 600 605(d) 5,367
After more than 1 year............... 3,169 555 104(f) 659 (233)(e) 3,595
Investments............................ 305 563 (2)(g) 561 -- 866
Cash in bank and in hand............... 270 790 -- 790 -- 1,060
----------- ----------- ----------- ------------- ------------- -----------
Total current assets................... 17,704 3,845 247 4,092 372 22,168
----------- ----------- ----------- ------------- ------------- -----------
Current liabilities falling due within
1 year
Finance debt......................... 3,789 2,763 -- 2,763 -- 6,552
Trade payables....................... 3,219 660 -- 660 -- 3,879
Other creditors...................... 12,414 2,020 510(h) 2,530 630(f) 15,574
----------- ----------- ----------- ------------- ------------- -----------
Net current (liabilities) assets....... (1,718) (1,598) (263) (1,861) (258) (3,837)
----------- ----------- ----------- ------------- ------------- -----------
Total assets less current
liabilities.......................... 65,281 20,013 (1,053) 18,960 22,521 106,762
----------- ----------- ----------- ------------- ------------- -----------
Non-current liabilities
Finance debt......................... 10,721 4,618 -- 4,618 568(g) 15,907
Accounts payable and accrued
liabilities........................ 2,532 1,025 -- 1,025 -- 3,557
Provisions for liabilities and charges
Deferred taxation.................... 1,597 3,279 (2,921)(i) 358 -- 1,955
Other provisions..................... 8,321 2,983 (218)(j) 2,765 (153)(h) 10,933
----------- ----------- ----------- ------------- ------------- -----------
Net assets............................. 42,110 8,108 2,086 10,194 22,106 74,410
Minority shareholders' interest........ 1,038 262 9(k) 271 858(i) 2,167
----------- ----------- ----------- ------------- ------------- -----------
Shareholders' interest................. 41,072 7,846 2,077 9,923 21,248 72,243
----------- ----------- ----------- ------------- ------------- -----------
----------- ----------- ----------- ------------- ------------- -----------
REPRESENTED BY
Capital shares
Preference........................... 21 1 -- 1 (1)(j) 21
Ordinary............................. 4,861 502 90(l) 592 244(k) 5,697
Paid-in surplus........................ 3,468 858 -- 858 (1,333)(l) 2,993
Merger reserve......................... 697 -- -- -- 30,810(m) 31,507
Retained earnings...................... 32,025 6,485 1,987(m) 8,472 (8,472)(n) 32,025
----------- ----------- ----------- ------------- ------------- -----------
41,072 7,846 2,077 9,923 21,248 72,243
----------- ----------- ----------- ------------- ------------- -----------
----------- ----------- ----------- ------------- ------------- -----------
</TABLE>
THE NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
INFORMATION
ARE AN INTEGRAL PART OF THE STATEMENT.
91
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION
NOTE 1--REPLACEMENT COST PROFIT
Operating profit is a U.K. GAAP measure of trading performance. It excludes
profits and losses on the sale or termination of operations and fundamental
restructuring costs, interest expense and taxation.
BP Amoco determines operating profit on a replacement cost basis, which
eliminates the effect of inventory holding gains and losses. For the oil and gas
industry, the price of crude oil can vary significantly from period to period,
hence the value of crude oil (and products) also varies. As a consequence, the
amount that would be charged to cost of sales on a FIFO basis of inventory
valuation would include the effect of oil price fluctuations on oil and products
inventories. BP Amoco therefore charges cost of sales with the average cost of
supplies incurred during the period rather than the historical cost of supplies
on a FIFO basis. For this purpose, inventories at the beginning and end of the
period are valued at the average cost of supplies incurred during the period
rather than at their historical cost. These valuations are made quarterly by
each business unit, based on local oil and product price indices applicable to
their specific inventory holdings, following a methodology that has been
consistently applied by BP Amoco for many years. Operating profit on the
replacement cost basis is used by BP Amoco management as the primary measure of
business unit trading performance, and BP Amoco management believes that this
measure assists investors to assess the group's underlying trading performance
from period to period.
Replacement cost is not a U.S. GAAP measure. The major U.S. oil companies
apply the LIFO basis of inventory valuation. The LIFO basis is not permitted
under U.K. GAAP. The LIFO basis eliminates the effect of price fluctuations on
crude oil and product inventory except where an inventory drawdown occurs in a
period. BP Amoco management believes that, where inventory volumes remain
constant or increase in a period, operating profit on the LIFO basis will not
differ materially from operating profit on BP Amoco's replacement cost basis.
Where an inventory drawdown occurs in a period, cost of sales on a LIFO
basis will be charged with the historical cost of the inventory drawn down,
whereas BP Amoco's replacement cost basis charges cost of sales at the average
cost of supplies for the period. To the extent that the historical cost on the
LIFO basis of the inventory drawn down is lower than the current cost of
supplies in the period, operating profit on the LIFO basis will be greater than
operating profit on BP Amoco's replacement cost basis. To the extent that the
historical cost on the LIFO basis of the inventory drawn down is greater than
the current cost of supplies in the period, operating profit on the LIFO basis
will be lower than operating profit on BP Amoco's replacement cost basis.
Replacement cost profit before exceptional items excludes profits and losses
on the sale or termination of operations and fundamental restructuring costs,
which are defined by U.K. GAAP. This is the measure of profit used by the BP
Amoco board of directors in setting targets for and monitoring performance
within BP Amoco. BP Amoco's management believes this indicator provides the most
relevant and useful measure for investors because it most accurately reflects
underlying trading performance.
NOTE 2--RECLASSIFICATION
Reclassifications have been made to the ARCO historical financial
information presented under U.S. GAAP to conform to BP Amoco's presentation
under U.K. GAAP.
92
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION (CONTINUED)
NOTE 2--RECLASSIFICATION (CONTINUED)
For the presentation of ARCO's U.S. GAAP income statement on a U.K. format,
the gain on disposition of discontinued operations, net of tax, has been shown
as a profit on the sale of businesses.
NOTE 3-- SIGNIFICANT DIFFERENCES BETWEEN ARCO'S ACCOUNTING POLICIES UNDER U.S.
GAAP AND BP AMOCO'S ACCOUNTING POLICIES UNDER U.K. GAAP
ARCO prepares its financial statements in accordance with U.S. GAAP. For
purposes of preparing the Unaudited Pro Forma Condensed Consolidated Income
Statements and Balance Sheet, the financial statements of ARCO have been
restated to conform with BP Amoco accounting policies under U.K. GAAP by giving
effect to the adjustments described below.
CONSOLIDATION BASIS
Under U.S. GAAP, ARCO's interest in a cogeneration facility is
proportionately consolidated, whereas under U.K. GAAP the joint venture would be
equity accounted.
INVENTORY ACCOUNTING
ARCO carries inventories at the lower of current market value or cost. Cost
is determined under the LIFO method for the majority of inventories of crude oil
and petroleum products. The costs of remaining inventories are determined
predominantly on an average cost basis.
BP Amoco carries inventories at the lower of cost or net realizable value.
Cost to BP Amoco is determined using the FIFO method. Cost of sales determined
on a FIFO basis is adjusted to a replacement cost basis, i.e., to reflect the
average cost of supplies incurred during the period, by excluding inventory
holding gains and losses.
DEFERRED TAXATION
Under the U.K. GAAP restricted liability method, deferred taxation is only
provided for where timing differences are expected to reverse in the foreseeable
future. For U.S. GAAP under the liability method, deferred taxation is provided
for temporary differences between the financial reporting basis and the tax
basis of assets and liabilities at enacted tax rates.
EXCEPTIONAL ITEMS
Under U.K. GAAP, certain exceptional items are shown separately on the face
of the income statement after operating profit. These items are profits or
losses on the sale or closure of businesses and fixed assets and fundamental
restructuring charges. Under U.S. GAAP, these items other than for discontinued
operations are classified as operating income or expenses.
EQUITY ACCOUNTING
U.K. GAAP requires the investor's share of operating profit or loss,
exceptional items, interest expense and taxation of associated undertakings and
joint ventures to be shown separately from those of the group. For U.S. GAAP,
the after-tax profits or losses (i.e. operating results after exceptional items,
interest expense and taxation) are included in the income statement as a single
line item.
93
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION (CONTINUED)
NOTE 3-- SIGNIFICANT DIFFERENCES BETWEEN ARCO'S ACCOUNTING POLICIES UNDER U.S.
GAAP AND BP AMOCO'S ACCOUNTING POLICIES UNDER U.K. GAAP (CONTINUED)
U.K. GAAP requires the investor's share of the gross assets and gross
liabilities of joint ventures to be shown on the face of the balance sheet,
whereas under U.S. GAAP the net investment is included as a single line item.
PROVISIONS
U.K. GAAP requires provisions for decommissioning and environmental
liabilities to be determined on a discounted basis if the effect of the time
value of money is material.
Provisions for decommissioning are recognized in full, on a discounted
basis, at the commencement of oil and natural gas production. U.K. GAAP also
requires the capitalization as a tangible fixed asset and subsequent
depreciation of an amount equivalent to the provision.
The unwinding of the discount, which represents a period-by-period cost, is
included within interest expense.
Under U.S. GAAP (i) environmental liabilities are discounted only where the
timing and amounts of payments are fixed and reliably determinable and (ii)
provisions for decommissioning are provided for on a unit-of-production basis
over field lives.
DEPRECIATION
BP Amoco depreciates the cost of its interest in the TransAlaska pipeline on
a unit-of-throughput basis, whereas ARCO depreciates the cost of its interest on
a straight-line basis over the estimated useful life of the pipeline. ARCO's
interest in the pipeline has been accounted for in the Unaudited Pro Forma
Condensed Consolidated Income Statements and Balance Sheet using the BP Amoco
method.
DISCONTINUED OPERATIONS
ARCO's U.S. chemicals operations and its U.S. and Australian coal operations
were classified in its statements as discontinued operations, in accordance with
U.S. GAAP. These operations have been disposed of and due to restrictions on the
availability of financial information following their disposal it is not
possible to adjust these discontinued operations to a U.K. GAAP basis.
Consequently, the results of discontinued operations have been eliminated from
the U.K. GAAP income statement, which therefore shows information for continuing
operations only.
BUSINESS COMBINATIONS
U.S. GAAP requires the recognition of a deferred tax asset or liability for
the tax effects of differences between the assigned values and the tax bases of
assets acquired and liabilities assumed in a purchase business combination,
whereas under U.K. GAAP no such deferred tax asset or liability is recognized.
Under U.S. GAAP the deferred tax asset or liability is amortized over the same
period as the assets and liabilities to which it relates.
U.S. GAAP requires certain reorganization and integration costs to be
incurred as part of a purchase business combination to be recognized as
liabilities assumed and included in the allocation of
94
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION (CONTINUED)
NOTE 3-- SIGNIFICANT DIFFERENCES BETWEEN ARCO'S ACCOUNTING POLICIES UNDER U.S.
GAAP AND BP AMOCO'S ACCOUNTING POLICIES UNDER U.K. GAAP (CONTINUED)
the acquisition cost. U.K. GAAP does not permit recognition of these costs as
part of the accounting for the business combination.
PENSIONS
U.S. GAAP requires an additional minimum liability to be shown in the
balance sheet if the accumulated benefit obligation exceeds the fair value of
pension plan assets. U.K. GAAP does not require recognition of a liability in
these circumstances.
INVESTMENTS
Under U.S. GAAP ARCO has classified its investments in LUKOIL ADRs and the
Zhenhai Refining and Chemical Company convertible bonds as available for sale.
Consequently they are reported at fair value, with unrealized holding gains and
losses, net of tax, reported in accumulated other comprehensive income. If a
decline in fair value below cost is "other than temporary" the unrealized loss
should be accounted for as a realized loss and charged against income. Under
U.K. GAAP these investments are deemed to be long term and carried in the
balance sheet at cost, subject to review for impairment.
TREASURY STOCK
Under U.S. GAAP treasury stock is deducted from shareholders' interest.
Under U.K. GAAP stock purchased to meet obligations under employee share schemes
is shown in the balance sheet as fixed asset--investments and stock purchased
which may be re-issued is deducted from shareholders' interest.
NOTE 4--U.K. GAAP ADJUSTMENTS TO HISTORICAL ARCO INCOME STATEMENTS
The adjustments to restate the income statements of ARCO for the three
months ended March 31, 1999 and the year ended December 31, 1998 to conform with
BP Amoco accounting policies under U.K. GAAP are set out below.
<TABLE>
<CAPTION>
FOR THE YEAR
FOR THE THREE ENDED
MONTHS ENDED DECEMBER 31,
INCREASE (DECREASE) IN CAPTION HEADING MARCH 31, 1999 1998
- ------------------------------------------------------------------------------------ --------------- -------------
<S> <C> <C>
$ $
<CAPTION>
(MILLIONS)
<S> <C> <C>
Consolidation basis
Turnover: Joint ventures.......................................................... 29 106
Replacement cost of sales......................................................... (11) (53)
Distribution and administration expenses.......................................... (5) (16)
Share of profits of joint ventures................................................ 13 37
Profit for the period............................................................. -- --
</TABLE>
95
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION (CONTINUED)
NOTE 4--U.K. GAAP ADJUSTMENTS TO HISTORICAL ARCO INCOME STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEAR
FOR THE THREE ENDED
MONTHS ENDED DECEMBER 31,
INCREASE (DECREASE) IN CAPTION HEADING MARCH 31, 1999 1998
- ------------------------------------------------------------------------------------ --------------- -------------
$ $
(MILLIONS)
<S> <C> <C>
Inventory accounting
Inventory holding gains (losses).................................................. (15) (57)
Profit for the period............................................................. (15) (57)
Deferred taxation
Taxation.......................................................................... (11) 322
Profit for the period............................................................. 11 (322)
Exceptional items
Other income...................................................................... (14) (61)
Profit (loss) on the sale of businesses........................................... -- 1,713
Profit (loss) on the sale of fixed assets......................................... 14 61
Taxation.......................................................................... -- 1,713
Profit for the period............................................................. -- --
Equity accounting
Other income...................................................................... (8) (76)
Share of profits of joint ventures................................................ 8 41
Share of profits of associated undertakings....................................... 12 60
Interest expense.................................................................. 5 16
Taxation.......................................................................... 7 9
Profit for the period............................................................. -- --
Provisions
Replacement cost of sales......................................................... (8) (58)
Interest expense.................................................................. 24 59
Minority shareholders interest.................................................... (2) (4)
Profit for the period............................................................. (14) 3
Depreciation
Replacement cost of sales......................................................... (2) (9)
Profit for the period............................................................. 2 9
Discontinued operations
Income from discontinued operations............................................... -- (179)
Profit for the period............................................................. -- (179)
Business combinations
Replacement cost of sales......................................................... (29) (248)
Taxation.......................................................................... 29 344
Profit for the period............................................................. -- (96)
</TABLE>
96
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION (CONTINUED)
NOTE 4--U.K. GAAP ADJUSTMENTS TO HISTORICAL ARCO INCOME STATEMENTS (CONTINUED)
These adjustments may be summarized by caption heading as set out below.
<TABLE>
<CAPTION>
FOR THE YEAR
FOR THE THREE ENDED
MONTHS ENDED DECEMBER 31,
MARCH 31, 1999 1998
--------------- -------------
<S> <C> <C> <C>
$ $
<CAPTION>
(MILLIONS)
<S> <C> <C> <C>
(a) Turnover: Joint ventures
Consolidation basis........................................................ 29 106
--- ------
--- ------
(b) Replacement cost of sales
Consolidation basis........................................................ (11) (53)
Provisions................................................................. (8) (58)
Depreciation............................................................... (2) (9)
Business combinations...................................................... (29) (248)
--- ------
(50) (368)
--- ------
--- ------
(c) Distribution and administration expenses
Consolidation basis........................................................ (5) (16)
--- ------
--- ------
(d) Other income
Exceptional items.......................................................... (14) (61)
Equity accounting.......................................................... (8) (76)
--- ------
(22) (137)
--- ------
--- ------
(e) Share of profits of joint ventures
Consolidation basis........................................................ 13 37
Equity accounting.......................................................... 8 41
--- ------
21 78
--- ------
--- ------
(f) Share of profits of associated undertakings
Equity accounting.......................................................... 12 60
--- ------
--- ------
(g) Profit (loss) on sale of businesses
Exceptional items.......................................................... -- 1,713
--- ------
--- ------
(h) Profit (loss) on sale of fixed assets
Exceptional items.......................................................... 14 61
--- ------
--- ------
(i) Inventory holding gains (losses)
Inventory accounting....................................................... (15) (57)
--- ------
--- ------
(j) Interest expense
Equity accounting.......................................................... 5 16
Provisions................................................................. 24 59
--- ------
29 75
--- ------
--- ------
</TABLE>
97
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION (CONTINUED)
NOTE 4--U.K. GAAP ADJUSTMENTS TO HISTORICAL ARCO INCOME STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEAR
FOR THE THREE ENDED
MONTHS ENDED DECEMBER 31,
MARCH 31, 1999 1998
--------------- -------------
$ $
(MILLIONS)
<S> <C> <C> <C>
(k) Taxation
Deferred taxation.......................................................... (11) 322
Exceptional items.......................................................... -- 1,713
Equity accounting.......................................................... 7 9
Business combinations...................................................... 29 344
--- ------
25 2,388
--- ------
--- ------
(l) Income from discontinued operations
Discontinued operations.................................................... -- (179)
--- ------
--- ------
(m) Minority shareholders' interest
Provisions................................................................. (2) (4)
--- ------
--- ------
</TABLE>
NOTE 5--PRO FORMA ADJUSTMENTS TO THE CONSOLIDATED INCOME STATEMENTS
The Unaudited Pro Forma Condensed Consolidated Income Statements give effect
to the pro forma adjustments set out below.
(a) The depreciation and amortization rates for the fair value adjustments to
tangible fixed assets and goodwill are set out below.
Depreciation: Exploration and Production assets have been depreciated on a
unit-of-production basis. Refining and Marketing assets have been
depreciated over 20 years (refineries) and 8 years (marketing assets).
Goodwill: Amortized over a period of 20 years.
(b) The fair value of ARCO long-term debt, including current maturities, has
been estimated as $5,385 million based on the quoted market prices for the
same or similar issues. The difference between the fair value and the
carrying value of this debt ($4,817 million) has been amortized on a
straight line basis over the remaining term of the debt and is shown as an
adjustment to interest expense.
(c) Minority shareholders' interest
This represents the share of the other pro forma adjustments attributable to
minority shareholders.
(d) Dividend requirements on preference shares
It is assumed that ARCO preference shares are converted into ARCO common
stock prior to the combination and are therefore exchanged into BP Amoco
ordinary shares on completion of the merger.
All the adjustments apart from (d) above will have a continuing effect. The
estimated charge for additional depreciation and amortization of goodwill in
the first full year following the combination is $2.0 billion.
98
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION (CONTINUED)
NOTE 5--PRO FORMA ADJUSTMENTS TO THE CONSOLIDATED INCOME STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE THREE FOR THE YEAR
MONTHS ENDED ENDED
MARCH 31, DECEMBER 31,
1999 1998
--------------- -------------
$ $
<S> <C> <C> <C>
(MILLIONS)
(a) Replacement cost of sales
Depreciation............................................................... 473 1,757
Goodwill amortization...................................................... 22 88
--- ------
495 1,845
--- ------
--- ------
(b) Interest expense............................................................. (14) (40)
(c) Minority shareholders' interest.............................................. (21) (79)
(d) Dividend requirements on preference shares................................... -- (2)
</TABLE>
The Unaudited Pro Forma Condensed Consolidated Income Statements do not
include adjustments to eliminate transactions between ARCO and BP Amoco, because
such amounts are not considered material.
NOTE 6--U.K. GAAP ADJUSTMENTS TO HISTORICAL ARCO BALANCE SHEET
The adjustments to restate the balance sheet of ARCO at March 31, 1999 to
conform with BP Amoco accounting policies under U.K. GAAP are set out below.
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN CAPTION HEADING
- ----------------------------------------------------------------------------------------------- AT MARCH 31, 1999
-----------------
$
<S> <C>
(MILLIONS)
Consolidation basis
Tangible assets.............................................................................. (101)
Fixed assets: Investments--Joint ventures--gross assets...................................... 119
Fixed assets: Investments--Joint ventures--gross liabilities................................. (33)
Other receivables
Within 1 year.............................................................................. (18)
After more than 1 year..................................................................... 27
Other creditors.............................................................................. (6)
Retained earnings............................................................................ --
Inventory accounting
Inventories.................................................................................. 163
Retained earnings............................................................................ 163
Deferred taxation
Tangible assets.............................................................................. 285
Other creditors.............................................................................. 516
Deferred taxation............................................................................ (1,666)
Retained earnings............................................................................ 1,435
</TABLE>
99
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION (CONTINUED)
NOTE 6--U.K. GAAP ADJUSTMENTS TO HISTORICAL ARCO BALANCE SHEET (CONTINUED)
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN CAPTION HEADING
- -----------------------------------------------------------------------------------------------
AT MARCH 31, 1999
-----------------
$
(MILLIONS)
<S> <C>
Provisions
Tangible assets.............................................................................. 107
Provisions................................................................................... (218)
Minority shareholders' interest.............................................................. 9
Retained earnings............................................................................ 316
Depreciation
Tangible assets.............................................................................. 61
Retained earnings............................................................................ 61
Business combinations
Tangible assets.............................................................................. (1,261)
Deferred taxation............................................................................ (1,261)
Pensions
Other receivables falling due after more than 1 year......................................... 77
Deferred taxation............................................................................ 29
Retained earnings............................................................................ 48
Investments
Fixed assets: Investments--Other............................................................. (57)
Current assets: Investments.................................................................. (2)
Deferred taxation............................................................................ (23)
Retained earnings............................................................................ (36)
Treasury stock
Fixed assets: Investments--Other............................................................. 90
Capital shares--Ordinary..................................................................... 90
</TABLE>
These adjustments may be summarized by caption heading as set out below.
<TABLE>
<CAPTION>
AT MARCH 31, 1999
-----------------
<S> <C> <C>
$
<CAPTION>
(MILLIONS)
<S> <C> <C>
(a) Tangible assets
Consolidation basis................................................................... (101)
Deferred taxation..................................................................... 285
Provisions............................................................................ 107
Depreciation.......................................................................... 61
Business combinations................................................................. (1,261)
------
(909)
------
------
</TABLE>
100
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION (CONTINUED)
NOTE 6--U.K. GAAP ADJUSTMENTS TO HISTORICAL ARCO BALANCE SHEET (CONTINUED)
<TABLE>
<CAPTION>
AT MARCH 31, 1999
-----------------
$
(MILLIONS)
<S> <C> <C>
(b) Fixed assets: Investments--Joint ventures
Gross assets:
Consolidation basis................................................................... 119
Gross liabilities:
Consolidation basis................................................................... (33)
------
86
------
------
(c) Fixed Assets: Investment--Other
Investments........................................................................... (57)
Treasury stock........................................................................ 90
------
33
------
------
(d) Inventories
Inventory accounting.................................................................. 163
------
------
(e) Other receivables falling due within 1 year
Consolidation basis................................................................... (18)
------
------
(f) Other receivables falling due after 1 year
Consolidation basis................................................................... 27
Pensions.............................................................................. 77
------
104
------
------
(g) Current assets: Investments
Investments........................................................................... (2)
------
------
(h) Other creditors
Consolidation basis................................................................... (6)
Deferred taxation..................................................................... 516
------
510
------
------
(i) Deferred taxation
Deferred taxation..................................................................... (1,666)
Business combinations................................................................. (1,261)
Pensions.............................................................................. 29
Investments........................................................................... (23)
------
(2,921)
------
------
(j) Other provisions
Provisions............................................................................ (218)
------
------
(k) Minority shareholders' interest
Provisions............................................................................ 9
------
------
</TABLE>
101
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION (CONTINUED)
NOTE 6--U.K. GAAP ADJUSTMENTS TO HISTORICAL ARCO BALANCE SHEET (CONTINUED)
<TABLE>
<CAPTION>
AT MARCH 31, 1999
-----------------
$
(MILLIONS)
<S> <C> <C>
(l) Capital shares--Ordinary
Treasury stock........................................................................ 90
------
------
(m) Retained earnings
Inventory............................................................................. 163
Deferred taxation..................................................................... 1,435
Provisions............................................................................ 316
Depreciation.......................................................................... 61
Pensions.............................................................................. 48
Investments........................................................................... (36)
------
1,987
------
------
</TABLE>
NOTE 7--PRO FORMA ADJUSTMENTS TO THE CONSOLIDATED BALANCE SHEET
The Unaudited Pro Forma Condensed Consolidated Balance Sheet gives effect to
the pro forma adjustments set forth below, which include adjustments to reflect
the fair values of the assets and liabilities of ARCO under the acquisition
method of accounting.
BP Amoco expects to incur severance and other restructuring costs as a
result of the combination. Preliminary estimates indicate that these costs will
be approximately $500 million and will be charged to income as and when the
criteria for recognition of such costs under U.K. GAAP are met and, accordingly,
no amount for these costs has been included in the Unaudited Pro Forma Condensed
Consolidated Financial Information. For U.S. GAAP these costs have not been
included as part of the fair value adjustments as they do not at this time meet
the criteria for recognition. However, it is expected that these costs will meet
the U.S. GAAP recognition criteria for the final purchase price allocation.
The Unaudited Pro Forma Condensed Consolidated Balance Sheet does not
include adjustments to eliminate amounts payable and receivable between BP Amoco
and ARCO, because such amounts are not considered material.
CONSIDERATION
ARCO shareholders will be entitled to receive for each share of ARCO common
stock held as of the effective time of the merger 4.92 BP Amoco ordinary shares.
Such BP Amoco ordinary shares will be delivered in the form of BP Amoco ADSs or,
at the election of a holder of ARCO common stock, BP Amoco ordinary shares. The
precise number of shares of ARCO common stock to be cancelled and exchanged in
the merger cannot be determined until the effective time. For purposes of the
pro forma adjustments within the Unaudited Pro Forma Condensed Consolidated
Financial Information at March 31, 1999, the number of ARCO shares issued and
outstanding on July 9, 1999 (323 million shares) together with the estimated
number of additional shares which may be issued in respect of outstanding
options and contingent stock and on conversion of ARCO preference stock (16
million shares) have been used, which would result in the issue of approximately
278 million BP Amoco ADSs.
102
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION (CONTINUED)
NOTE 7--PRO FORMA ADJUSTMENTS TO THE CONSOLIDATED BALANCE SHEET (CONTINUED)
For the purposes of the Unaudited Pro Forma Condensed Consolidated Financial
Information, the cost of acquisition has been determined as follows:
<TABLE>
<CAPTION>
MARCH 31, 1999
--------------
<S> <C>
$
(MILLIONS)
Issue of 1,672 million BP Amoco ordinary shares at L12.20 ($18.93) per share............ 31,646
Less: expected consideration receivable on issue of shares under option................. 605
--------------
31,041
Merger fees and expenses................................................................ 70
--------------
31,111
--------------
--------------
</TABLE>
ACCRUALS FOR AMOUNTS RECEIVABLE AND PAYABLE ON THE COMBINATION
All outstanding ARCO options are assumed to be exercised at the time of the
combination. The amount receivable on the exercise of these options is $605
million.
Stamp Duty Reserve Tax (SDRT) of 1.5% of the value of the BP Amoco ordinary
shares underlying the BP Amoco ADSs, at the time the BP Amoco ordinary shares
are transferred to the depositary (or its nominee), is payable by BP Amoco on
the issue of BP Amoco ADSs. To the extent that ARCO shareholders elect to take
BP Amoco ordinary shares (which underlie BP Amoco ADSs) rather than ADSs, BP
Amoco will have no SDRT liability for the ordinary shares issued. For the
purposes of preparing the pro forma information BP Amoco has assumed that all
ARCO common shareholders will take BP Amoco ADSs rather than BP Amoco ordinary
shares. The amount of SDRT payable has been estimated as $475 million, using a
BP Amoco ordinary share price of L12.20 and applying the Noon Buying Rate of
$1.5515 per L1.00 at July 9, 1999.
The estimated amounts of SDRT ($475 million) and aggregate BP Amoco and ARCO
fees and expenses ($155 million) payable have been accrued for purposes of these
adjustments. SDRT is a share issue expense and has been charged against the
paid-in surplus.
FAIR VALUE ADJUSTMENTS
The methods and assumptions set out in the following paragraphs were used in
estimating the preliminary fair value of the assets and liabilities acquired.
FINANCE DEBT
The fair value of ARCO long-term debt, including current maturities, has
been estimated based on the quoted market prices for the same or similar issues.
The adjustment increases the book value of finance debt by $568 million.
PENSIONS AND OTHER POSTRETIREMENT BENEFITS
The fair value adjustments have been derived from the information disclosed
in ARCO's Annual Report on Form 10-K for the year ended December 31, 1998. The
adjustments for pensions reduce the asset by $233 million. The adjustments for
other postretirement benefits reduce the provision by $153 million.
103
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION (CONTINUED)
NOTE 7--PRO FORMA ADJUSTMENTS TO THE CONSOLIDATED BALANCE SHEET (CONTINUED)
TANGIBLE AND INTANGIBLE FIXED ASSETS
The fair value of the Refining and Marketing tangible assets was estimated
by determining the net present value of future cash flows. Goodwill represents
the difference between the value of the business and the value of the assets
acquired. The goodwill created was $1,761 million. The balance of the
consideration given and the liabilities acquired was attributed to Exploration
and Production tangible and intangible assets. The increase over carrying value
for tangible fixed assets was $19,137 million and for intangible fixed assets
was $1,824 million. The fair value of fixed asset investments exceeds their
carrying value by $57 million.
OTHER ASSETS AND LIABILITIES
The carrying amounts for all other assets and liabilities approximate their
fair value.
MINORITY SHAREHOLDERS' INTEREST
A part of the fair value adjustment relating to Vastar Resources, Inc. is
ascribed to the minority shareholders' interest.
COMBINATION ADJUSTMENTS
The combination adjustments eliminate the ARCO common stock, ARCO preference
shares, paid-in surplus and retained earnings and introduce the nominal value of
the BP Amoco ordinary shares to
104
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION (CONTINUED)
NOTE 7--PRO FORMA ADJUSTMENTS TO THE CONSOLIDATED BALANCE SHEET (CONTINUED)
be issued and the merger reserve which represents the deemed premium arising on
the issue of BP Amoco shares.
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN CAPTION HEADING AT MARCH 31, 1999
- ----------------------------------------------------------------------------------------------- -----------------
<S> <C>
$
(MILLIONS)
Consideration
Capital shares--Ordinary..................................................................... 836
Merger reserve............................................................................... 30,810
Accruals for amounts receivable and payable on the combination
Other receivables falling due within 1 year.................................................. 605
Other creditors.............................................................................. 630
Paid-in surplus.............................................................................. (475)
Fair value adjustments
Intangible assets............................................................................ 3,585
Tangible assets.............................................................................. 19,137
Fixed assets: Investments--Other............................................................. 57
Other receivables falling due after 1 year................................................... (233)
Other provisions............................................................................. (153)
Finance debt................................................................................. 568
Minority shareholders' interest.............................................................. 858
Combination adjustments
Capital shares
Preference................................................................................. (1)
Ordinary................................................................................... (592)
Paid-in surplus.............................................................................. (858)
Retained earnings............................................................................ (8,472)
</TABLE>
105
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION (CONTINUED)
NOTE 7--PRO FORMA ADJUSTMENTS TO THE CONSOLIDATED BALANCE SHEET (CONTINUED)
These adjustments may be summarized by caption heading as set out below.
<TABLE>
<CAPTION>
AT MARCH 31, 1999
--------------------
<S> <C> <C> <C>
$ $
<CAPTION>
(MILLIONS)
<S> <C> <C> <C>
(a) Intangible assets
Fair value adjustments....................................................... 3,585
(b) Tangible assets
Fair value adjustments....................................................... 19,137
(c) Fixed assets: Investments--Other
Fair value adjustments....................................................... 57
(d) Other receivables falling due within 1 year
Accruals for amounts receivable and payable on the combination............... 605
(e) Other receivables falling due after 1 year
Fair value adjustments....................................................... (233)
(f) Other creditors
Accruals for amounts receivable and payable on the combination............... 630
(g) Finance debt
Fair value adjustments....................................................... 568
(h) Other provisions
Fair value adjustments....................................................... (153)
(i) Minority shareholders' interest
Fair value adjustments....................................................... 858
(j) Capital shares--Preference
Combination adjustments...................................................... (1)
(k) Capital shares--Ordinary
Consideration................................................................ 836
Combination adjustments........................................................ (592)
---------
244
(l) Paid-in surplus
Accruals for amounts receivable or payable on the combination................ (475)
Combination adjustments........................................................ (858)
---------
(1,333)
(m) Merger reserve
Consideration................................................................ 30,810
(n) Retained earnings
Combination adjustments...................................................... (8,472)
</TABLE>
106
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION (CONTINUED)
NOTE 8--NET DEBT TO NET DEBT PLUS EQUITY RATIO
This is calculated as debt ($22,459 million) less cash ($1,060 million) and
liquid resources ($866 million) to net debt ($20,533 million) plus equity
($74,410 million). At March 31, 1999, based on the pro forma balance sheet, this
gives a ratio of 22%.
NOTE 9--OPERATING COST SAVINGS
BP Amoco expects to achieve an annual rate of pre-tax cost savings of
approximately $1 billion during the second full year of operations of the
combined enterprise, through organizational efficiencies, more focused
exploration efforts, standardization and simplification of business processes
and rationalization of operations. No adjustment has been included in the
Unaudited Pro Forma Condensed Consolidated Financial Information for the
anticipated benefits of these operating cost savings. There can be no assurance
that anticipated cost savings will be achieved in the expected amounts or at the
times anticipated.
NOTE 10--SIGNIFICANT DIFFERENCES BETWEEN U.K. GAAP AND U.S. GAAP
The Unaudited Pro Forma Condensed Consolidated Financial Information has
been prepared in accordance with U.K. GAAP, which differs in certain respects
from U.S. GAAP.
The main differences between U.K. GAAP and U.S. GAAP that are relevant to BP
Amoco's Unaudited Pro Forma Condensed Consolidated Financial Information are set
out below.
For U.S. GAAP the cost of acquisition has been determined as follows:
<TABLE>
<CAPTION>
MARCH 31, 1999
---------------
<S> <C>
$
(MILLIONS)
Issue of 1,672 million BP Amoco ordinary shares at L10.23 ($16.42) per share
(net of stamp duty reserve tax of $475 million).............................. 26,961
Less: expected consideration receivable on issue of shares under option....... 605
------
26,356
Stamp duty reserve tax........................................................ 475
Merger fees and expenses...................................................... 70
------
26,901
------
------
</TABLE>
GROUP CONSOLIDATION
Investments in entities over which BP Amoco does not exercise control
(associates and joint ventures) are accounted for by the equity method.
U.K. GAAP requires the consolidated financial statements to show separately
the BP Amoco proportion of operating profit or loss, exceptional items,
inventory holding gains or losses, interest expense and taxation of associated
undertakings and joint ventures. In addition, the turnover of joint ventures
should be disclosed. For U.S. GAAP the after tax profits or losses (i.e.,
operating results after exceptional items, inventory holding gains or losses,
interest expense and taxation) are included in the income statement as a single
line item.
U.K. GAAP requires BP Amoco's share of the gross assets and gross
liabilities of joint ventures to be shown on the face of the balance sheet
whereas under U.S. GAAP the net investment is included as a single line item.
107
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION (CONTINUED)
NOTE 10--SIGNIFICANT DIFFERENCES BETWEEN U.K. GAAP AND U.S. GAAP (CONTINUED)
Where BP Amoco conducts activities through a joint arrangement that is not
carrying on a trade or business in its own right, BP Amoco accounts for its own
assets, liabilities and cash flows of the activity measured according to the
terms of the arrangement. For BP Amoco this method of accounting applies to
certain oil and natural gas activities and undivided interests in pipelines.
U.S. GAAP requires those activities to be accounted for by proportional
consolidation, which is equivalent to U.K. GAAP.
INCOME STATEMENT
The income statement prepared under U.K. GAAP shows sub-totals for
replacement cost profit before interest and tax, historical cost profit before
interest and tax and profit after taxation. These line items are not recognized
under U.S. GAAP.
EXCEPTIONAL ITEMS
Under U.K. GAAP certain exceptional items are shown separately on the face
of the income statement after operating profit. These items are profits or
losses on the sale of businesses and fixed assets, merger transaction costs and
fundamental restructuring charges. Under U.S. GAAP these items are classified as
operating income or expenses.
DEFERRED TAXATION
Under the U.K. GAAP restricted liability method, deferred taxation is only
provided where timing differences are expected to reverse in the foreseeable
future. Under U.S. GAAP deferred taxation is provided for temporary differences
between the financial reporting basis and the tax basis of BP Amoco assets and
liabilities at enacted tax rates.
U.S. GAAP requires the recognition of a deferred tax asset or liability for
the tax effects of differences between the assigned values and the tax bases of
assets acquired and liabilities assumed in a purchase business combination,
whereas under U.K. GAAP no such deferred tax asset or liability is recognized.
Under U.S. GAAP the deferred tax asset or liability is amortized over the same
period as the assets and liabilities to which it relates.
The adjustments for fixed assets, depreciation and deferred taxation arise
from the difference between the U.K. GAAP and U.S. GAAP bases for deferred
taxation.
ORDINARY SHARES HELD FOR FUTURE AWARDS TO EMPLOYEES
Under U.K. GAAP BP Amoco shares held by an Employee Share Ownership Plan to
meet future requirements of employee share schemes are recorded in the balance
sheet as Fixed assets-- investments. Under U.S. GAAP such shares are recorded in
the balance sheet as a reduction of shareholders' interest.
SALE AND LEASEBACK OF CHICAGO OFFICE BUILDING AND ONEROUS PROPERTY LEASE
The sale and leaseback of the Amoco building in Chicago, Illinois is treated
as a sale for U.K. GAAP whereas for U.S. GAAP it is treated as a financing
transaction.
A provision was recognized under U.K. GAAP to cover the likely shortfall on
rental income from subletting the Chicago office building. As the original sale
and leaseback was not treated as a sale for U.S. GAAP the provision has been
reversed for U.S. GAAP.
108
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION (CONTINUED)
NOTE 10--SIGNIFICANT DIFFERENCES BETWEEN U.K. GAAP AND U.S. GAAP (CONTINUED)
DIVIDENDS
Under U.K. GAAP dividends are recorded in the year in respect of which they
are announced or declared by the board of directors to the shareholders. Under
U.S. GAAP, dividends are recorded in the period in which dividends are declared.
GAIN ON SALE OF DISCONTINUED OPERATIONS
The gain on the sale of discontinued operations is included within net
income from continuing operations for U.K. GAAP but excluded from net income
from continuing operations for U.S. GAAP.
PROVISIONS
U.K. GAAP requires provisions for decommissioning, environmental liabilites
and onerous contracts to be determined on a discounted basis if the effect of
the time value of money is material. Under U.S. GAAP (i) environmental
liabilities are discounted only where the timing and amounts of payments are
fixed and reliably determinable and (ii) provisions for decommissioning are
provided on a unit-of-production basis over field lives.
The adjustments for decommissioning expense, interest expense and
decommissioning and environmental provisions arise from the differences between
the U.K. and U.S. GAAP bases for determining provisions.
109
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION (CONTINUED)
NOTE 10--SIGNIFICANT DIFFERENCES BETWEEN U.K. GAAP AND U.S. GAAP (CONTINUED)
<TABLE>
<CAPTION>
FOR THE THREE FOR THE YEAR
MONTHS ENDED ENDED
MARCH 31, DECEMBER 31,
PROFIT FOR THE PERIOD 1999 1998
- ------------------------------------------------------------------------------------ ------------- ------------
<S> <C> <C>
$ $
<CAPTION>
(MILLIONS, EXCEPT PER SHARE
AND ADS AMOUNTS)
<S> <C> <C>
Profit (loss) from continuing operations as reported under U.K. GAAP................ (487) 1,308
Adjustments
Depreciation charge............................................................... (85) (357)
Deferred taxation................................................................. 181 824
Sale and leaseback of Chicago office building..................................... -- (211)
Onerous property leases........................................................... 156 --
Decommissioning expense........................................................... (77) (221)
Interest expense.................................................................. 54 179
Other............................................................................. 1 (40)
Gain on disposition of discontinued operations.................................... -- (928)
------------- ------------
Profit (loss) for the year from continuing operations as adjusted to accord with
U.S. GAAP......................................................................... (257) 554
Dividend requirements on preference shares.......................................... -- 1
------------- ------------
Profit (loss) for the period from continuing operations applicable to ordinary
shares as adjusted to accord with U.S. GAAP....................................... (257) 553
------------- ------------
Adjustments
Profit from discontinued operations............................................... -- 179
Gain on disposition of discontinued operations.................................... -- 928
------------- ------------
Profit for the period applicable to ordinary shares as adjusted to accord with U.S.
GAAP.............................................................................. (257) 1,660
------------- ------------
------------- ------------
Profit (loss) for the period from continuing operations as adjusted:
Per ordinary share
Basic............................................................................. (0.02) 0.05
Diluted........................................................................... (0.02) 0.05
------------- ------------
------------- ------------
Per ADS
Basic............................................................................. (0.12) 0.30
Diluted........................................................................... (0.12) 0.30
------------- ------------
------------- ------------
Profit (loss) for the period as adjusted:
Per ordinary share
Basic............................................................................. (0.02) 0.15
Diluted........................................................................... (0.02) 0.15
------------- ------------
------------- ------------
Per ADS
Basic............................................................................. (0.12) 0.90
Diluted........................................................................... (0.12) 0.90
------------- ------------
------------- ------------
</TABLE>
110
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION (CONTINUED)
NOTE 10--SIGNIFICANT DIFFERENCES BETWEEN U.K. GAAP AND U.S. GAAP (CONTINUED)
BP AMOCO SHAREHOLDERS' INTEREST
<TABLE>
<CAPTION>
AT MARCH 31, 1999
-----------------
<S> <C>
($ MILLIONS)
Shareholders' interest as reported in the consolidated balance sheet........................... 72,243
Adjustments
Fixed assets................................................................................. 5,031
Deferred taxation............................................................................ (13,728)
Ordinary shares held for future awards to employees.......................................... (547)
Sale and leaseback of Chicago office building................................................ (413)
Dividend..................................................................................... 970
Pension liability adjustment................................................................. (143)
Onerous property leases...................................................................... 156
Decommissioning and environmental provisions................................................. (641)
Other........................................................................................ (9)
-----------------
Shareholders' interest as adjusted to accord with U.S. GAAP.................................... 62,919
-----------------
-----------------
</TABLE>
NOTE 11--PROFIT PER ORDINARY SHARE ON A U.S. GAAP BASIS
<TABLE>
<CAPTION>
BP AMOCO ARCO
THREE MONTHS ENDED MARCH 31, 1999 HISTORICAL HISTORICAL PRO FORMA
- ------------------------------------------------------------------------------ ----------- --------- -----------
<S> <C> <C> <C>
$ $ $
<CAPTION>
(MILLIONS, EXCEPT PER SHARE AND ADS
AMOUNTS)
<S> <C> <C> <C>
Profit (loss) for the period applicable to common (ordinary) shares........... 1 165 (257)
----------- --------- -----------
----------- --------- -----------
Profit (loss) for the period:
Per common (ordinary) share
Basic................................................................... 0.00 0.51 (0.02)
Diluted................................................................. 0.00 0.51 (0.02)
Per ADS
Basic................................................................... 0.00 (0.12)
Diluted................................................................. 0.00 (0.12)
Average number of common (ordinary) shares outstanding
(in millions)
Basic....................................................................... 9,669 322 11,341
Assuming dilution........................................................... 9,721 327 11,393
----------- --------- -----------
----------- --------- -----------
YEAR ENDED DECEMBER 31, 1998
- ------------------------------------------------------------------------------
Profit for the year applicable to common (ordinary) shares.................... 2,825 450 1,660
----------- --------- -----------
----------- --------- -----------
Profit for the year:
Per common (ordinary) share
Basic................................................................... 0.29 1.40 0.15
Diluted................................................................. 0.29 1.40 0.15
Per ADS
Basic................................................................... 1.74 0.90
Diluted................................................................. 1.74 0.90
Profit (loss) for the period on continuing operations applicable to common
(ordinary) shares........................................................... 2,825 (657) 553
----------- --------- -----------
----------- --------- -----------
Profit (loss) for the year:
Per common (ordinary) share
Basic................................................................... 0.29 (2.05) 0.05
Diluted................................................................. 0.29 (2.05) 0.05
Per ADS
Basic................................................................... 1.74 0.30
Diluted................................................................. 1.74 0.30
Average number of common (ordinary) shares outstanding
(in millions)
Basic....................................................................... 9,596 321 11,268
Assuming dilution........................................................... 9,638 321 11,310
----------- --------- -----------
----------- --------- -----------
</TABLE>
111
<PAGE>
DESCRIPTION OF BP AMOCO ORDINARY SHARES
The following information is a summary of material terms of the BP Amoco
ordinary shares as specified in the BP Amoco articles of association as
presently in effect and taking into account the amendments to the articles of
association proposed to be adopted at the extraordinary general meeting of BP
Amoco.
If you receive BP Amoco ADSs in exchange for ARCO common stock in the
merger, the deposit agreement between BP Amoco, Morgan Guaranty Trust Company of
New York and all BP Amoco ADS holders will govern your rights as a holder of BP
Amoco ADSs. See "Description of BP Amoco American Depositary Shares." You should
be aware that these rights are different in some respects from the rights of a
holder of BP Amoco ordinary shares.
All of the existing issued BP Amoco ordinary shares are fully paid. BP Amoco
ordinary shares are represented in certificated form and also in uncertificated
form under "CREST." CREST is an electronic settlement system in the U.K. which
enables BP Amoco ordinary shares to be evidenced and transferred electronically
without use of a physical certificate.
DIVIDENDS
If recommended by the directors of BP Amoco, BP Amoco shareholders may, by
ordinary resolution, declare final dividends but no such dividend may be
declared in excess of the amount recommended by the directors. The directors may
also pay interim dividends without obtaining shareholder approval. No dividend
may be paid other than out of profits available for distribution under the U.K.
Companies Act. Dividends on BP Amoco ordinary shares are payable only after
payment of dividends on BP Amoco preference shares. For further discussion, see
"Comparison of Rights of ARCO Shareholders and BP Amoco Shareholders--Sources
and Payment of Dividends."
At least until December 31, 2003, BP Amoco will announce dividends for BP
Amoco ordinary shares in U.S. dollars and state an equivalent pounds sterling
dividend. Dividends on BP Amoco ordinary shares will be paid in pounds sterling
and on BP Amoco ADSs in U.S. dollars.
On April 6, 1999, BP Amoco implemented its dividend reinvestment program
under which holders of BP Amoco ordinary shares may reinvest the dividends
receivable to purchase BP Amoco ordinary shares.
VOTING RIGHTS
The current articles of association of BP Amoco provide that ordinary
resolutions at a shareholders' meeting may be decided on a show of hands, where
each shareholder who is present at the meeting in person or whose duly appointed
proxy is present in person will have one vote, regardless of the number of
shares held, unless a poll is requested or demanded. BP Amoco has proposed
amendments to its articles of association for approval at the BP Amoco
extraordinary general meeting to provide that voting on ordinary resolutions at
a shareholders' meeting will be decided on a poll other than resolutions of a
procedural nature, which may be decided on a show of hands. If voting is on a
poll, every shareholder who is present in person or by proxy has two votes for
every L5 in nominal amount of the BP Amoco preference shares held, and one vote
for every BP Amoco ordinary share held. Special and extraordinary resolutions at
a shareholders' meeting will be decided on a poll. Shareholders do not have
cumulative voting rights. See "Comparison of Rights of ARCO Shareholders and BP
Amoco Shareholders--Meetings of Shareholders."
An extraordinary resolution at a separate class meeting of BP Amoco ordinary
shareholders, requiring an affirmative vote of at least 75% of the votes cast in
person or by proxy, is necessary under the BP Amoco articles of association in
respect of any proposal to vary the rights of such ordinary shareholders.
112
<PAGE>
Holders of record of BP Amoco ordinary shares may appoint a proxy, including
a beneficial owner of those shares, to attend, speak and vote on their behalf at
any shareholders' meeting.
Record holders of BP Amoco ADSs also are entitled to attend, speak and vote,
at any shareholders' meeting of BP Amoco by the depositary's appointment of them
as proxies in respect of the BP Amoco ordinary shares represented by their BP
Amoco ADSs. Each such proxy may also appoint a proxy. Alternatively, holders of
BP Amoco ADSs are entitled to vote by supplying their voting instructions to the
depositary, who will vote the BP Amoco ordinary shares represented by their BP
Amoco ADSs in accordance with their instructions. See "Description of BP Amoco
American Depositary Shares--Voting Rights."
SHAREHOLDERS' MEETINGS AND NOTICES
Shareholders must provide BP Amoco with an address in the U.K. in order to
be entitled to receive notices of shareholders' meetings. In certain
circumstances, BP Amoco may give notices to shareholders by advertisement in
U.K. newspapers. Holders of BP Amoco ADSs are entitled to receive notices under
the terms of the deposit agreement relating to BP Amoco ADSs. See "Description
of BP Amoco American Depositary Shares--Voting Rights."
Under the BP Amoco articles of association, the annual general meeting of
shareholders will be held within 15 months after the preceding annual general
meeting and at a time and place determined by the directors.
LIQUIDATION RIGHTS
In the event of the liquidation of BP Amoco, after payment of all
liabilities and applicable deductions under U.K. laws, the holders of BP Amoco
preference shares would be entitled to the sum of (1) the capital paid up on
such shares plus, (2) accrued and unpaid dividends and (3) a premium equal to
the higher of (a) 10% of the capital paid up on the BP Amoco preference shares
and (b) the excess of the average market price over par value of such shares on
the London Stock Exchange during the previous six months. The remaining assets
would be divided among the holders of BP Amoco shares in order of priority,
including holders of BP Amoco ordinary shares.
PREEMPTIVE RIGHTS AND NEW ISSUES OF SHARES
Under Section 80 of the U.K. Companies Act, the directors are, with certain
exceptions, unable to allot relevant securities without the authority of the
shareholders in a general meeting. Relevant securities as defined in the U.K.
Companies Act include BP Amoco ordinary shares or securities convertible into BP
Amoco ordinary shares. In addition, Section 89 of the U.K. Companies Act imposes
further restrictions on the issue of equity securities (as defined in the U.K.
Companies Act, which would include BP Amoco ordinary shares or securities
convertible into BP Amoco ordinary shares) which are, or are to be, paid up
wholly in cash and not first offered to existing shareholders in proportion to
their existing shareholdings. Holders of BP Amoco ADSs would, acting through the
depositary, be entitled to participate in any such preemptive offer.
BP Amoco's articles of association allow shareholders to authorize directors
for a period of up to five years, to issue (1) relevant securities generally up
to an amount fixed by the shareholders and (2) equity securities for cash other
than in connection with a rights issue. In accordance with institutional
investor guidelines, the amount of relevant securities to be fixed by
shareholders is normally restricted to one-third of the existing issued ordinary
share capital, and the amount of equity securities that may be issued for cash
other than in connection with a rights issue, is restricted to 5% of the
existing issued ordinary share capital. At the BP Amoco annual general meeting
on April 15, 1999, these amounts were fixed at $1,158,000,000 and $242,000,000,
respectively.
113
<PAGE>
The authority referred to above granted to the directors at the annual
general meeting on April 15, 1999, expires at the earlier of BP Amoco's next
annual general meeting or July 14, 2000. At the BP Amoco extraordinary general
meeting, the shareholders of BP Amoco will be asked to increase the amount of
relevant securities which can be allotted by the directors to $1,885,000,000 and
the amount of equity securities that may be issued for cash other than in
connection with a rights issue to $280,000,000.
DISCLOSURE OF INTERESTS IN SHARES
The U.K. Companies Act gives BP Amoco the power to require persons whom it
believes to have, or to have acquired within the previous three years, an
interest in its voting shares, to disclose certain information with respect to
those interests. Failure to supply the information required may lead to
disenfranchisement of the relevant shares and a prohibition on their transfer
and receipt of dividends and other payments in respect of those shares. In this
context the term "interest" is widely defined and will generally include an
interest of any kind whatsoever in voting shares, including any interest of a
holder of BP Amoco ADSs. See "Comparison of Rights of ARCO Shareholders and BP
Amoco Shareholders--Disclosure of Interests in Shares."
CHANGES IN CAPITAL
The BP Amoco shareholders may pass an ordinary resolution to do any of the
following:
- consolidate, or consolidate and then divide, all or any of BP Amoco's
share capital into new shares of larger nominal amounts than its existing
shares;
- cancel any shares which have not, at the date of the relevant resolution,
been subscribed or agreed to be subscribed by any person and reduce the
amount of BP Amoco's authorized share capital by the amount of the shares
so canceled;
- divide some or all of BP Amoco's shares into shares of a smaller amount;
and
- increase BP Amoco's share capital.
BP Amoco will also be able to:
- with the authority of shareholders by ordinary or special resolution,
depending on the circumstances relating to the purchase, purchase its own
shares; and
- by special resolution and, where required by the U.K. Companies Act, with
the sanction of the court, reduce its share capital, any capital
redemption reserve, share premium account or any other undistributable
reserve.
TRANSFER OF SHARES
Except as described in this paragraph, the BP Amoco articles of association
do not restrict the transferability of BP Amoco ordinary shares. BP Amoco
ordinary shares may be transferred by an instrument in any usual form or in any
other form acceptable to the directors. The directors may refuse to register a
transfer:
- if it is of shares which are not fully paid;
- if it is not stamped and duly presented for registration, together with
the share certificate and evidence of title as the directors reasonably
require;
- if it is in respect of more than one class of share;
- if it is in favor of more than four persons jointly; or
114
<PAGE>
- in certain circumstances, if the holder has failed to provide the required
particulars to the investigating power referred to under "--Disclosure of
Interests in Shares" above.
BP Amoco may not refuse to register transfers of BP Amoco ordinary shares if
it would prevent dealings in the shares on the London Stock Exchange from taking
place on an open and proper basis. The registration of transfers may be
suspended at any time and for any period the directors may determine. The
register of shareholders may not be closed for more than 30 days in any year.
LIABILITY OF DIRECTORS AND OFFICERS
See "Comparison of Rights of ARCO Shareholders and BP Amoco
Shareholders--Liability of Directors and Officers" for a discussion of the
inability of an English company to exempt directors and officers from certain
liabilities.
REGISTRAR
The registrar for BP Amoco ordinary shares after the combination will be
Lloyds TSB Registrars, The Causeway, Worthing, West Sussex, BN99 6DA, England.
115
<PAGE>
DESCRIPTION OF BP AMOCO AMERICAN DEPOSITARY SHARES
GENERAL
Morgan Guaranty Trust Company of New York, as depositary, will issue BP
Amoco American depositary shares, or ADSs, to holders of ARCO common stock in
certificated or book-entry form upon the completion of the combination of ARCO
and BP Amoco, unless such holders elect to receive BP Amoco ordinary shares. For
more details about the mechanics of this exchange in connection with the
combination, see "The Merger Agreement--Exchange of ARCO Common Stock for BP
Amoco ADSs or BP Amoco Ordinary Shares." Each ADS will represent ownership in
six BP Amoco ordinary shares which BP Amoco will deposit with the custodian,
currently the London office of Morgan Guaranty Trust Company of New York. Your
ADSs will be evidenced by BP Amoco American depositary receipts, or ADRs, which
may be issued in either certificated or book-entry form.
Because the depositary will be the actual legal owner of the underlying
ordinary shares, you will generally exercise your rights as a shareholder
through it, although you will have the right to attend, speak and vote at the
shareholder meetings as the depositary's proxy, as described below.
You may hold ADSs either directly or indirectly through your broker or
financial institution. If you hold ADSs directly, you are an ADS holder. This
description assumes you hold your ADSs directly. If you hold the ADSs
indirectly, you must rely on the procedures of your broker or financial
institution to assert the rights of ADS holders described in this section. You
should consult with your broker or financial institution to find out what these
procedures are.
The following is a summary of the material terms of the BP Amoco ADSs as
issued in connection with the combination. It is derived from the amended and
restated deposit agreement, dated as of December 31, 1998 and as amended from
time to time, among BP Amoco, Amoco, the depositary and holders from time to
time of BP Amoco ADSs. Because it is a summary, it does not contain all the
information that may be important to you. For more complete information you
should read the entire deposit agreement and the BP Amoco ADR. Copies of the
deposit agreement, the BP Amoco ADR and the BP Amoco articles of association are
available for inspection at the office of the depositary located at 60 Wall
Street, New York, New York, 10260. You may also obtain a copy of any of these
documents from the SEC. See "Summary--Where You Can Find More Information."
SHARE DIVIDENDS AND OTHER DISTRIBUTIONS
HOW WILL I RECEIVE DIVIDENDS AND OTHER DISTRIBUTIONS ON THE SHARES?
The depositary will pay to you the cash dividends or other distributions it
or the custodian receives on ordinary shares or any other deposited securities,
after deducting any applicable fees and expenses. You will receive these
distributions in proportion to the number of ordinary shares represented by your
ADSs.
- CASH. Before making a distribution of any cash dividend or distribution BP
Amoco pays on the shares, the depositary will deduct any withholding taxes
that must be paid under applicable laws, except those taxes and charges
which are to be paid by BP Amoco. See "Material Tax Consequences--United
Kingdom Tax Consequences of Owning BP Amoco Ordinary Shares and BP Amoco
ADSs," and "--Payment of Taxes." The depositary will distribute only whole
U.S. dollars and cents and will hold any fractional amounts not
distributed which shall be added to future cash distributions.
To the extent BP Amoco pays a dividend or distribution on ordinary shares
or any other deposited securities, in a currency other than dollars, the
depositary will, as promptly as practicable after payment, convert such
dividend or distribution into U.S. dollars, if it determines that the
conversion can be made on a reasonable basis.
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- ORDINARY SHARES. The depositary will distribute new ADSs, evidenced by
additional ADRs, representing any ordinary shares BP Amoco distributes as
a dividend or free distribution, if BP Amoco requests it to make this
distribution. Otherwise the depositary has the option not to distribute
new ADSs. If the depositary does not distribute additional cash or ADSs,
each existing ADS will also represent the proportion of new ordinary
shares it would have received upon the distribution. The depositary will
only distribute whole ADSs. It may sell shares which would require it to
issue a fractional ADS and distribute the net proceeds to the holders
entitled to those shares.
- RIGHTS TO RECEIVE ADDITIONAL ORDINARY SHARES. If BP Amoco offers holders
of ordinary shares any rights, including rights to subscribe for
additional ordinary shares, the depositary may follow a procedure agreed
with BP Amoco to make these rights available to you. If the depositary
determines that it is not legal or not feasible to make these rights
available to you, the depositary may sell the rights and allocate the net
proceeds to ADS holders' accounts.
If the depositary makes rights available to you, upon instruction from you
it will exercise the rights and purchase the ordinary shares on your
behalf. The depositary will then deposit the ordinary shares and issue
ADSs to you. It will only exercise rights if you pay it the exercise price
and any charges the rights require you to pay.
The depositary will not offer you rights unless those rights and the
ordinary shares to which the rights relate are either exempt from
registration or have been registered under the Securities Act of 1933 with
respect to a distribution to you. BP Amoco will have no obligation to
register under the Securities Act those rights or the ordinary shares to
which they relate.
- OTHER DISTRIBUTIONS. The depositary shall send to you anything else BP
Amoco distributes on ordinary shares or any other deposited securities in
proportion to your ADS holding by any means the depositary thinks is
equitable and practical. If it cannot make a proportionate distribution,
the depositary may adopt any method of distribution it deems equitable and
practicable including selling what BP Amoco distributed--for example by
public or private sale-- and distributing the net proceeds, in the same
way as it does with cash. This paragraph does not apply to any ordinary
shares or other securities which the depositary or custodian may receive
in connection with a change in par value, split, consolidation or
reclassification of ordinary shares or other deposited securities. Nor
does it apply to the receipt of securities in connection with a
recapitalization, merger, consolidation or sale of assets. For more
information about what happens in those situations, see
"--Reclassifications, Recapitalizations and Mergers" below.
If the distribution of a foreign currency is not possible on a reasonable
basis, or if any approval from any government is needed and cannot be
obtained, the deposit agreement allows the depositary to distribute the
foreign currency only to those ADS holders to whom it is possible to do so
or to hold the foreign currency it cannot convert or distribute for the
account of the ADS holders who have not been paid. It will not invest the
foreign currency and it will not be liable for any interest.
BP Amoco will have no obligation to take any other action to permit the
distribution of ADSs, ordinary shares, rights or anything else to ADS holders.
VOTING RIGHTS
HOW DO I VOTE?
If you are an ADS holder on a record date fixed by the depositary, you may
attend, speak and vote at BP Amoco shareholder meetings of holders of the
ordinary shares represented by your ADSs. To the extent practicable, the
depositary shall make the record date the same as the record date for the
ordinary shares.
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The depositary will enable you to attend, speak and vote at a meeting by
appointing you its proxy for the ordinary shares underlying your ADSs. If you do
not wish to attend a meeting, you may appoint the depositary or another person
as your substitute proxy to attend, speak and vote on your behalf. The
depositary will only vote as you instruct. It will not vote on your behalf at
all if you do not give any instructions. The depositary will not vote insofar as
doing so is unpracticable or in contradiction of applicable law, the BP Amoco
articles of association or the deposit agreement.
If you hold BP Amoco ADSs through a brokerage account or otherwise in
"street name," you will not be entitled to attend or speak at a meeting, but you
will be able to vote your ADSs by instructing the depositary.
The depositary will notify you of the upcoming meeting and arrange to
deliver certain materials to you. The materials will:
- describe the meeting time, place and the matters to be voted on; and
- explain how you may instruct the depositary to vote the ordinary shares or
other deposited securities, if any, underlying your ADSs as you direct if
you choose to appoint the depositary as your substitute proxy, or how you
may appoint a different substitute proxy.
DEPOSIT AND WITHDRAWAL OF ORDINARY SHARES
HOW DO I DEPOSIT ORDINARY SHARES?
If you hold BP Amoco ordinary shares, you may have them deposited with the
custodian and hold ADSs instead. Your ordinary shares will be held by the
custodian for the account and to the order of the depositary.
To the extent you are requested to do so by the custodian for the
depositary, you must deliver to it the following:
- certificates or other instruments of title for the ordinary shares to be
deposited, properly endorsed and in a form satisfactory to the custodian;
- a written order directing the depositary to issue to you, or upon your
written order, ADRs evidencing the number of ADSs which will represent the
number of ordinary shares deposited;
- any required payments;
- an instrument which provides for the prompt transfer to the custodian of
any dividend, right to subscribe for additional ordinary shares or right
to receive other property--or, in lieu of such a transfer instrument, an
agreement of indemnity; and
- any other required documents.
The custodian will then, at the earliest practicable date, present the BP
Amoco ordinary shares for registration of transfer into the name of the
custodian, or its nominee, and notify the depositary that the registration
occurred. The deposit of the ordinary shares will be done at your cost and
expense.
Once the depositary receives notice of the deposit, it shall issue to you
ADRs evidencing the number of ADSs to which you are entitled. The ADRs will be
issued in book-entry form, unless you specifically request ADRs in certificated
form.
You may deposit your BP Amoco ordinary shares directly with the depositary
for the purpose of having them forwarded to the custodian, but you will incur a
charge and delivery will be at your risk.
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HOW DO I CANCEL MY ADSS AND OBTAIN SHARES?
You may submit a written request to withdraw ordinary shares and turn in
your certified ADRs, if any, with the depositary. The depositary will deliver
the ordinary shares to you in registered form only. You have the right to cancel
your ADSs and withdraw the underlying ordinary shares in registered form at any
time except:
- due to delays caused by the temporary closing of the transfer books,
- when you owe money for the payment of fees, taxes and similar charges, or
- when it is necessary to prohibit withdrawals to comply with any laws or
governmental regulations relating to BP Amoco ADSs or ordinary shares.
FEES AND EXPENSES
<TABLE>
<CAPTION>
FOR ADS HOLDERS MUST PAY:
---------------------------------------------------- ----------------------------------------------------
<S> <C> <C>
- - Each issuance of an ADS, including as a result of a $5.00 (or less) per 100 ADSs
distribution of shares or rights or other property
- - Each cancellation of an ADS, including if the $5.00 (or less) per 100 ADSs
deposit agreement terminates
- - Transfer and registration of ordinary shares on BP Registration or transfer fees
Amoco's share register from your name to the name of
the depositary or its agent or vice versa when you
deposit or withdraw shares
- - Conversion of foreign currency to U.S. dollars Expenses of the depositary
- - Cable, telex and facsimile transmission expenses Expenses of the depositary
incurred at your request
- - As necessary Certain taxes and governmental charges the
depositary or the custodian has to pay on any ADS or
ordinary share underlying an ADS, for example, stock
transfer taxes, stamp duty reserve tax or
withholding taxes
</TABLE>
NO TAXES OR CHARGES WILL BE PAYABLE BY ARCO SHAREHOLDERS OR BY HOLDERS OF
OUTSTANDING ARCO STOCK OPTIONS IN CONNECTION WITH THEIR RECEIPT OF BP AMOCO ADSS
PURSUANT TO THE MERGER AGREEMENT.
PAYMENT OF TAXES
The depositary may deduct the amount of any taxes owed from any payments to
you. It may also restrict the transfer of your ADSs or restrict the withdrawal
of your underlying ordinary shares or other deposited securities until you pay
any taxes owed on your ADSs or underlying securities. It may also sell deposited
securities to pay any taxes owed. You will remain liable if the proceeds of the
sale are not enough to pay the taxes.
See also the previous section "--Fees and Expenses" in relation to your
liability for taxes which the depositary or custodian has to pay.
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ACTIONS BY ADS HOLDERS
HOW MAY I ASSERT MY RIGHTS AS A BP AMOCO SHAREHOLDER?
Upon written request to the depositary, you may exercise the rights of a
member of BP Amoco in respect of the BP Amoco ordinary shares or other deposited
property represented by your BP Amoco ADSs. Guaranty Nominees Limited, the
depositary's current nominee, will only take action to the extent it is
practicable and not restricted by any law, regulation, stock exchange
requirement or the BP Amoco articles of association. With respect to rights
other than those set forth above under "--Voting Rights," Guaranty Nominees will
only take action to the extent that you indemnify it and provide security in the
form of a bond. Any action taken by Guaranty Nominees will be for your sole
benefit, and at your cost and expense.
In order to become ordinary shareholders and enforce such rights directly,
holders of BP Amoco ADSs will be required to withdraw from the depositary at
least six of the BP Amoco ordinary shares underlying their BP Amoco ADSs.
LIMITATIONS ON LIABILITY AND OBLIGATIONS TO ADS HOLDERS
The deposit agreement expressly limits the obligations of BP Amoco and the
depositary. It also limits their liability. Pursuant to the deposit agreement,
BP Amoco and the depositary:
- are obligated only to take the actions specifically set forth in the
deposit agreement without negligence or bad faith;
- are not liable if either of them is prevented or delayed by law, any
provision of the BP Amoco articles of association or circumstances beyond
their control from performing their obligations under the deposit
agreement;
- are not liable if either of them exercises, or fails to exercise, any
discretion permitted under the agreement;
- have no obligation to become involved in a lawsuit or proceeding related
to the BP Amoco ADSs or the deposit agreement on your behalf or on behalf
of any other party unless they are indemnified to their satisfaction;
- may rely upon any advice of or information from any legal counsel,
accountants, any person depositing ordinary shares, any ADS holder or any
other person whom they believe in good faith is competent to give them
that advice or information;
- may rely and shall be protected in acting upon any written notice or other
document believed by them to be genuine; and
- shall not be responsible for any failure to carry out any instructions to
vote any of the ordinary shares.
In the deposit agreement, BP Amoco and the depositary agree to indemnify
each other under specified circumstances.
REQUIREMENTS FOR DEPOSITARY ACTIONS
Before the depositary will issue or register the transfer of an ADS, make a
distribution on an ADS, or permit withdrawal of ordinary shares, BP Amoco or the
depositary may require:
- payment of taxes, including stamp duty reserve and stock transfer taxes or
other governmental charges, and transfer or registration fees charged by
third parties for the transfer of any shares or other deposited
securities, as well as the fees and expenses of the depositary;
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- production of satisfactory proof of the identity, residence and
citizenship of the person presenting ordinary shares for deposit or ADSs
upon withdrawal, and of the genuineness of any signature or other
information they deem necessary; and
- compliance with regulations the depositary may establish with BP Amoco
which are consistent with the deposit agreement, including presentation of
transfer documents.
RECLASSIFICATIONS, RECAPITALIZATIONS AND MERGERS
If BP Amoco:
- changes the par value of, splits, cancels, consolidates or otherwise
reclassifies any of the BP Amoco ordinary shares or other deposited
securities; or
- recapitalizes, reorganizes, merges, consolidates, sells its assets, or
takes any similar action, then:
(1) The cash, ordinary shares or other securities received by the
depositary automatically will become new deposited securities under
the deposit agreement, and each ADS will represent its equal share of
the new deposited securities unless additional BP Amoco ADSs are
delivered as in the case of a stock dividend; and
(2) The depositary will, if BP Amoco asks it to, issue new ADSs or ask
you to surrender your outstanding ADSs in exchange for new ADSs
identifying the new deposited securities.
DISCLOSURE OF INTERESTS IN SHARES
The obligation of a holder of BP Amoco ordinary shares and other persons
with an interest in the shares to disclose information to BP Amoco under English
law also applies to you and any other persons with an interest in the ADSs. The
consequences for failure to comply with these provisions will be the same for
you and any other persons with an interest as for a holder of BP Amoco ordinary
shares. See "Description of BP Amoco Ordinary Shares--Disclosure of Interests in
Shares" and "Comparison of Rights of ARCO shareholders and BP Amoco
shareholders--Disclosure of Interests in Shares."
AMENDMENT AND TERMINATION
HOW MAY THE DEPOSIT AGREEMENT BE AMENDED?
BP Amoco may agree with the depositary to amend the deposit agreement and
the BP Amoco ADRs without your consent for any reason. If the amendment adds or
increases fees or charges, except for taxes and governmental charges, or
prejudices an important right of ADS holders, it will only become effective 30
days after the depositary notifies you of the amendment. AT THE TIME AN
AMENDMENT BECOMES EFFECTIVE, YOU ARE CONSIDERED, BY CONTINUING TO HOLD YOUR ADS,
TO AGREE TO THE AMENDMENT AND TO BE BOUND BY THE AGREEMENT AS AMENDED. HOWEVER,
NO AMENDMENT WILL IMPAIR YOUR RIGHT TO RECEIVE THE DEPOSITED SECURITIES IN
EXCHANGE FOR YOUR ADSS.
HOW MAY THE DEPOSIT AGREEMENT BE TERMINATED?
The depositary will terminate the deposit agreement if BP Amoco asks it to
do so, in which case it must notify you at least 30 days before termination. The
depositary may also terminate the agreement after notifying you if the
depositary informs BP Amoco that it would like to resign and BP Amoco does not
appoint a new depositary bank within 90 days. In this event, you have certain
rights which are set forth in the deposit agreement.
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COMPARISON OF RIGHTS OF ARCO SHAREHOLDERS
AND BP AMOCO SHAREHOLDERS
As a result of the combination, holders of ARCO common stock will receive BP
Amoco ADSs, each representing six BP Amoco ordinary shares or, at the election
of the holder, BP Amoco ordinary shares. BP Amoco is a company incorporated
under the laws of England and Wales. The following is a summary comparison of
material differences between the rights of an ARCO shareholder and a BP Amoco
shareholder arising from the differences between the corporate laws of Delaware
and of England and Wales, the governing instruments of the two companies, and
the securities laws and regulations governing the two companies. This summary
assumes that all the changes to BP Amoco's articles of association that are
proposed at the BP Amoco extraordinary general meeting are approved by BP Amoco
shareholders. However, it is not a complete description of the laws of Delaware
or of England and Wales, the other rules or laws referred to in this summary,
the ARCO certificate of incorporation, the ARCO by-laws or the BP Amoco
memorandum and articles of association. You may obtain a copy of any of these
documents from the SEC. See "Summary--Where You Can Find More Information." You
are encouraged to obtain and read these documents.
You should refer to "Description of BP Amoco American Depositary Shares" and
the documents referred to in that section for a description of the BP Amoco ADSs
and a discussion of the ways in which the rights of holders of BP Amoco ADSs may
differ from those of holders of BP Amoco ordinary shares.
VOTING RIGHTS
Under Delaware law, each shareholder is entitled to one vote for each share
of capital stock held by the shareholder unless the certificate of incorporation
provides otherwise. The ARCO certificate of incorporation:
- does not alter the voting rights of holders of ARCO common stock, and
- provides that each holder of $3.00 preference stock will have the right to
sixteen votes for each share held and each holder of $2.80 preference
stock will have the right to four votes for each share held, after
adjustments in voting rights based on a 1997 stock dividend.
The presence, in person or by proxy, of shares representing a majority of
the votes entitled to be cast at any ARCO shareholders meeting constitutes a
quorum for the conduct of business.
As noted above under "The Merger Agreement--Treatment of ARCO Preference
Stock," shares of ARCO preference stock outstanding immediately prior to the
merger will continue after the merger to be voting securities of ARCO, which
will then be a subsidiary of BP Amoco. The higher voting power of a share of
ARCO preference stock relative to that of ARCO common stock will continue
unchanged, but BP Amoco will own directly or indirectly all of the ARCO common
stock. The special voting rights of ARCO preference stock are described below
under "--Stock Class Rights."
Under English law, a shareholder entitled to vote at a shareholders' meeting
is entitled to one vote on a show of hands regardless of the number of shares he
or she holds. In BP Amoco's articles of association, on a poll, an ordinary
shareholder has one vote for each share held and a preference shareholder has
two votes for every five shares held.
Under English law, ordinary resolutions must be approved on a show of hands
by at least a majority of the shareholders present in person, or by proxy if the
articles of association so permit, and voting at the meeting or on a poll by
holders of at least a majority of the votes cast at the meeting. Both special
and extraordinary resolutions require the affirmative vote of at least 75% of
the votes cast at the meeting to be approved.
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The current BP Amoco articles of association provide that:
- special and extraordinary resolutions will be conducted on a poll;
- ordinary resolutions will be conducted on a show of hands, unless a poll
is demanded by:
(1) the chairman of the meeting;
(2) at least five shareholders present in person or by proxy that have
the right to vote at the meeting;
(3) any shareholder or shareholders representing at least 10% of the
voting rights of all shareholders that have the right to vote at the
meeting; or
(4) any shareholder or shareholders holding shares that have voting
rights at the meeting on which the aggregate sum paid on its or their
shares is equal to at least 10% of the total sum paid on those shares
having these voting rights at the meeting; and
- proxies of shareholders will be entitled to attend, speak and vote at a
shareholders' meeting on both a show of hands and on a poll.
If amended as proposed at the BP Amoco extraordinary general meeting, the BP
Amoco articles of association will provide that all resolutions, including
ordinary resolutions, shall be conducted on a poll, except for resolutions of a
procedural nature, such as the appointment of a chairman, adjournment of a
meeting or amendment of a resolution, which may still be voted on a show of
hands.
For a description of the voting rights of a BP Amoco ADS holder, see
"Description of BP Amoco American Depositary Shares--Voting Rights."
Under English law, two shareholders present in person constitute a quorum
for the purposes of a shareholders' meeting, unless the company's articles of
association specify otherwise. The BP Amoco articles of association specify that
five shareholders present in person or by proxy and entitled to vote constitute
a quorum for a shareholders' meeting, except in specified circumstances.
Cumulative voting is not recognized under English law.
SHAREHOLDER PROPOSALS AND SHAREHOLDER NOMINATIONS OF DIRECTORS
Under the ARCO by-laws, any shareholder may bring business before an annual
meeting, including nominations to the board of directors, if the shareholder
gives timely notice, in writing and in proper form, of the shareholder's
intention to bring the business before the meeting. To be timely, a
shareholder's notice must be received at ARCO's principal executive offices 120
days in advance of the annual meeting. In addition, SEC rules allow precatory
resolutions to be included in management's proxy statement for annual meetings
of shareholders if, among other conditions required to be met, advance notice is
given to the corporation.
Under English law, shareholders may demand that a resolution be voted on at
a shareholders' meeting if the demand is made by:
- shareholders holding at least 5% of the voting rights of all shareholders
having a right to vote on the resolution at that shareholders' meeting; or
- at least 100 shareholders holding shares on which there has been paid up
an average sum, per shareholder, of at least L100.
The shareholders must deposit the demand at the company's registered office
at least six weeks before the shareholders' meeting to which the demand relates,
other than in certain limited circumstances when a notice of a resolution is not
required, where the demand may be deposited up to one week before the meeting.
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In general, resolutions to appoint directors must be put to shareholders on
the basis of one resolution for each nominated director. A resolution including
more than one director may be presented to be voted upon at a shareholders'
meeting only if the shareholders have first unanimously approved doing so.
SOURCES AND PAYMENT OF DIVIDENDS
Under Delaware law, the board of directors, subject to any restrictions in
the corporation's certificate of incorporation, may declare and pay dividends
out of (1) surplus of the corporation, which is defined as net assets less
statutory capital, or (2) if no surplus exists, out of the net profits of the
corporation for the year in which the dividend is declared and/or the preceding
year. If, however, the capital of the corporation has been diminished to an
amount less than the aggregate amount of capital represented by the issued and
outstanding stock of all classes having preference upon the distribution of
assets, the board may not declare and pay dividends out of the corporation's net
profits until the deficiency in the capital has been repaired.
The ARCO certificate of incorporation contains no provisions restricting
dividends on ARCO common stock, except that holders of ARCO preferred stock and
preference stock have preferences over the holders of ARCO common stock with
respect to dividends and distributions upon liquidation.
Subject to the prior rights of holders of its preferred shares, an English
company may pay dividends on its ordinary shares only out of its distributable
profits, defined as accumulated, realized profits less accumulated, realized
losses, and not out of share capital, which includes the amount standing to the
share premium account, defined as the excess of the aggregate consideration for
the issue of shares over the aggregate nominal amount of such shares. Amounts
credited to the share premium account may be used, among other things, to pay up
unissued shares which may then be distributed to shareholders in proportion to
their holdings.
In addition, under English law, BP Amoco will not be permitted to make a
distribution at any time if, at the time, the amount of its net assets is less
than the aggregate of its issued and paid-up share capital and undistributable
reserves.
BP Amoco's board has the power under the BP Amoco articles of association to
announce and pay dividends. BP Amoco has historically paid four dividends per
year.
RIGHTS OF PURCHASE AND REDEMPTION
Under Delaware law, any corporation may purchase or redeem its own shares,
except that it may not purchase or redeem these shares if the capital of the
corporation is impaired at the time or would become impaired as a result of the
redemption. The ARCO certificate of incorporation requires the approval of at
least 66 2/3% of the combined voting power of the capital stock of ARCO for
ARCO's repurchase of capital stock or capital stock rights from a significant
shareholder at a premium to the fair market value of the stock or rights.
Under English law, a company may issue redeemable shares if authorized by
its articles of association subject to the conditions stated therein. The BP
Amoco articles of association permit the issue of redeemable shares.
An English company may purchase its own shares, including any redeemable
shares, if the purchase:
- is authorized by its articles of association; and either
- in the case of an open-market purchase, the purchase has been previously
authorized by an ordinary resolution of its shareholders; or
- in all other cases, the purchase has been approved by a special resolution
of its shareholders.
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An English company may redeem or repurchase shares only if the shares are
fully paid and, in the case of public companies, only out of distributable
profits or the proceeds of a new issue of shares issued for the purpose of the
repurchase or redemption.
The London Stock Exchange requires that where a company has issued shares
which are listed on the London Stock Exchange and are convertible into a class
of shares to be repurchased, the holders of the convertible shares must first
pass an extraordinary resolution approving any repurchase at a separate class
meeting.
The London Stock Exchange requires that purchases within a 12-month period
of 15% or more of any class of a company's share capital must be made through
either a tender or partial offer to all shareholders of that class on the same
terms and at a stated maximum or fixed price.
Purchases within a 12-month period below the 15% threshold may be made
through:
- the open market provided that the price is not more than 5% above the
average of the middle market quotations of the relevant shares taken from
the daily official list of the London Stock Exchange for the five trading
days before the purchase date; or
- an off-market purchase negotiated with one or more shareholders.
MEETINGS OF SHAREHOLDERS
ANNUAL OR GENERAL MEETINGS
The ARCO by-laws provide that all meetings of shareholders are to be held at
any place designated by the ARCO board, or if no designation is made, at the
principal executive office of ARCO. A Delaware corporation is required to hold
an annual meeting of shareholders.
Under the BP Amoco articles of association, all shareholders' meetings are
to be held in England at a time and place determined by the directors. An
English company is required to hold a meeting of shareholders at least once in
every 15 months. See "Description of BP Amoco Ordinary Shares-- Shareholders'
Meetings and Notices."
SPECIAL MEETINGS
Delaware law provides that special meetings of shareholders may be called by
- the board of directors, or
- any person or persons authorized by the corporation's certificate of
incorporation or by-laws.
The ARCO by-laws provide that special meetings of shareholders may be called
only by
- the chairman of the ARCO board of directors,
- the president of ARCO, or
- by resolution approved by a majority of the ARCO board.
Under English law, an extraordinary general meeting of shareholders may be
called by:
- the board of directors, or
- shareholders holding at least 10% of the paid-up capital of the company
carrying voting rights at shareholders' meetings.
NOTICE
The ARCO by-laws provide that the Secretary must mail notice of the meeting
at least 10 days and not more than 60 days prior to the meeting to shareholders
entitled to receive notice of an annual or special meeting.
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Under English law, the notice requirements for an ordinary resolution, an
extraordinary resolution and a special resolution to be proposed at an
extraordinary general meeting are as follows:
- ordinary resolution--14 clear days' notice;
- extraordinary resolution--14 clear days' notice; and
- special resolution--21 clear days' notice.
When an ordinary resolution, an extraordinary resolution or a special
resolution is to be proposed at an annual general meeting, the minimum notice
requirement is 21 clear days. When an ordinary resolution to remove a director
is proposed, the minimum notice requirement is 28 clear days. See
"--Removal of Directors."
"Clear days' notice" means calendar days and excludes the date of mailing,
the date of receipt of such notice, and the date of the meeting itself.
BP Amoco's articles of association provides that documents sent by mail are
considered received 24 hours after mailing or, where second class mail is used,
48 hours after mailing.
"Extraordinary resolutions" are relatively unusual and are confined to
certain matters out of the ordinary course of business such as a proposal to
wind up the affairs of the company.
"Special resolutions" are required for some matters by BP Amoco's articles
of association and the U.K. Companies Act, including proposals to:
- change the name of the company;
- alter its capital structure;
- permit the company to issue new shares for cash without applying the
shareholders' preemptive rights;
- amend the company's objects (or purpose) clause in its memorandum of
association; or
- amend the company's articles of association.
All other proposals relating to the ordinary course of the company's
business, such as the election and removal of directors and transactions such as
mergers, acquisitions and disposals, would be the subject of an "ordinary
resolution."
APPRAISAL RIGHTS
Delaware law generally provides shareholders of a corporation involved in a
merger the right to demand and receive payment of the fair value of their stock.
Appraisal rights are not available, however, to holders of shares:
- listed on a national securities exchange;
- designated as a national market system security on an interdealer
quotation system operated by the National Association of Securities
Dealers, Inc.; or
- held of record by more than 2,000 shareholders;
UNLESS the holders are required to accept in the merger anything other than
any combination of
- shares of stock or depositary receipts of the surviving corporation in the
merger;
- shares of stock or depositary receipts of another corporation that, at the
effective date of the merger, will be
(1) listed on a national securities exchange,
(2) designated as a national market system security on an interdealer
quotation system operated by the National Association of Securities
Dealers, Inc., or
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(3) held of record by more than 2,000 holders; or
- cash instead of fractional shares of the stock or depositary receipts
received.
While English law does not generally provide for appraisal rights, a
shareholder may apply to a court and the court may specify terms for the
acquisition that it considers appropriate as described under "--Shareholders'
Votes on Certain Transactions" below.
PREEMPTIVE RIGHTS
Under Delaware law, a shareholder is not entitled to preemptive rights to
subscribe for additional issuances of stock or any security convertible into
stock unless they are specifically granted in the certificate of incorporation.
The ARCO certificate of incorporation does not provide for preemptive rights.
Under English law, the issue for cash of:
- equity securities, which are securities that have the right to participate
in dividends or capital beyond a specified amount; or
- rights to subscribe for or convert into equity securities,
must be offered first to the existing equity shareholders in proportion to the
respective nominal values of their holdings, unless a special resolution has
been passed to the contrary by shareholders in a general meeting.
At its annual general meeting each year, BP Amoco proposes, as is the custom
of many English companies listed on the London Stock Exchange, a resolution to
authorize the BP Amoco board to allot up to a specified amount of share capital,
generally 5% of issued share capital, without being subject to these preemptive
rights. The resolutions to be proposed to the BP Amoco shareholders at the
extraordinary general meeting on September 1, 1999, authorize the board to allot
equity securities with a nominal value of approximately 5% of the expected
issued share capital of BP Amoco following the combination, without being
subject to preemptive rights.
AMENDMENT OF GOVERNING INSTRUMENTS
Under Delaware law, unless the certificate of incorporation requires a
greater vote, an amendment to the certificate of incorporation requires
- the recommendation of the board of directors,
- the affirmative vote of a majority of the outstanding stock entitled to
vote thereon, and
- the affirmative vote of a majority of the outstanding stock of each class
entitled to vote thereon as a class.
Under the ARCO certificate of incorporation, approval of the holders of
shares representing at least 66 2/3% of the combined voting power of the capital
stock of ARCO entitled to vote is required to amend or repeal any of the
articles of the ARCO certificate of incorporation or by-laws relating to:
- the number and terms of directors of the corporation,
- the classification of the ARCO board,
- filling vacancies on the board,
- indemnification of directors, officers and employees,
- limitation of the liability of directors,
- the prohibition on shareholder action by written consent,
- amendment of the ARCO by-laws, or
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- the prohibition of "greenmail," which is generally the repurchase of
capital stock or capital stock rights from a significant shareholder at
more than the fair market value of the stock or rights.
Under Delaware law, shareholders have the power to adopt, amend or repeal
by-laws, but the certificate of incorporation may give those powers to the
directors of the corporation as well. The ARCO certificate of incorporation and
by-laws provide that the board of directors is authorized to make, amend or
repeal the by-laws, without any action on the part of the shareholders.
In addition to any other vote required by law, the shareholders may make,
amend or repeal the by-laws by the affirmative vote of the holders representing
at least 66 2/3% of the combined voting power of the outstanding shares of
capital stock entitled to vote.
Under English law, shareholders have the power to amend the objects or
purpose clause in a company's memorandum of association and any provisions of
its articles of association, by special resolution, subject to, in the case of
amendments to the objects clause of the memorandum of association, the right of
dissenting shareholders holding at least 15% in aggregate of the nominal value
of the company's issued share capital (or any class of it) to apply to the
courts to cancel the amendments. The board of directors is not authorized to
change a company's memorandum of association or articles of association.
Amendments affecting the rights of the holders of any class of shares may,
depending on the rights attached to such class and the nature of the amendments,
also require approval by extraordinary resolution of the classes affected in
separate class meetings. See "--Stock Class Rights."
PREFERRED STOCK AND PREFERENCE STOCK
The ARCO certificate of incorporation authorizes the issuance of $3.00
preference stock and $2.80 preference stock, which entitle the holders to a
fixed cumulative dividend of $3.00 per share and $2.80 per share, respectively.
Holders of preference stock are entitled to priority on the payment of
dividends. If ARCO fails to pay, or declare and set apart for payment, dividends
on all outstanding shares of $3.00 preference stock or $2.80 preference stock in
an amount equal to six quarterly dividends at the applicable rates, then the
number of directors of ARCO will be increased by two directors, for each class
of preference stock then having dividend arrearages. At the next annual
shareholders' meeting and at each subsequent annual meeting until all dividends
payable have been paid or declared and set apart for payment, in full, the
holders of $3.00 preference stock or $2.80 preference stock, as the case may be,
will have the right, voting as a class, to elect such two additional directors.
In the event of a liquidation of ARCO, each share of $3.00 preference stock
or $2.80 preference stock is entitled to receive from the assets of ARCO, prior
to any payment to holders of ARCO common stock or any class of stock ranking
junior as to assets to the preference stock,
(1) the stated liquidation amount, which is $80.00 for the $3.00 preference
stock and $70.00 for the $2.80 preference stock, plus
(2) accrued and unpaid dividends thereon, to the date of payment of the
liquidation amount.
In the event that ARCO has insufficient assets to pay the liquidation
amounts for the preference stocks in full, all shares of preference stock would
participate ratably in the distribution of assets in proportion to the full
amounts to which they were respectively entitled.
At the option of the holder, shares of preference stock are currently
convertible into ARCO common stock at the rate of 13.6 shares of common stock
for each share of $3.00 preference stock and at the rate of 4.8 shares of common
stock for each share of $2.80 preference stock, subject to adjustment. Following
the merger, ARCO may redeem outstanding $3.00 preference stock and $2.80
preference stock for $82 and $70 per share, respectively, plus any accrued
dividends.
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The ARCO certificate of incorporation also authorizes the ARCO board of
directors to provide for the issuance of one or more series of preferred stock.
To date, ARCO has not issued any preferred stock.
The BP Amoco articles of association specify two types of preference shares
that have been or may be issued with rights which entitle the holders, among
other things, to a fixed cumulative preferential dividend. As of July 9, 1999,
7,232,838 8% cumulative preference shares and 5,473,414 9% cumulative preference
shares of BP Amoco were outstanding.
In the event of the liquidation of BP Amoco, after payment of all
liabilities and applicable deductions under U.K. laws, the holders of the BP
Amoco preference shares would be entitled to a sum equal to the capital paid up
on such shares (all issued BP Amoco preference shares are fully paid up to the
nominal value of L1) plus an amount in respect of accrued and unpaid dividends
and a premium equal to the higher of (1) 10% of the capital paid up on the BP
Amoco preference shares or (2) the excess of the average market price over the
nominal value of such shares on the London Stock Exchange during the previous
six months. The remaining assets would be divided among the holders of BP Amoco
shares in order of priority, including holders of BP Amoco ordinary shares.
STOCK CLASS RIGHTS
Delaware law provides that the holders of shares of a class shall be
entitled to vote as a class upon a proposed amendment if the amendment will:
- increase or decrease the authorized shares of the class;
- increase or decrease the par value of the shares of the class; or
- alter or change the powers, preferences or special rights of the shares of
the class so as to affect them adversely.
Except as required by law or as specifically provided in the certificate of
incorporation, the holders of $3.00 preference stock, $2.80 preference stock and
ARCO common stock vote together as one class. Under Delaware law, any change to
the rights of holders of the ARCO common stock or any series of preferred or
preference stock would require an amendment to the ARCO certificate of
incorporation. ARCO's certificate of incorporation provides that the affirmative
vote of the holders of at least two-thirds of the then outstanding $3.00
preference stock or two-thirds of the then outstanding $2.80 preference stock,
as applicable, is required:
- to change, in any material respect adverse to the holders thereof, the
preferences, qualifications, privileges, limitations, restrictions, or
other special or relative rights granted to or imposed upon the shares of
such class of preference stock; or
- to create or increase the authorized number of shares of any class of
stock ranking as to dividends or assets prior to the class of preference
stock;
ARCO's certificate of incorporation provides that the affirmative vote of
the holders of a majority of the then outstanding $3.00 preference stock or a
majority of the then outstanding $2.80 preference stock, as applicable, is
required:
- to create any class of stock ranking as to dividends or assets on a parity
with the preference stock or increase the authorized number of shares of
the preference stock or of any class of stock ranking as to dividends or
assets on a parity with it;
- to sell, lease or convey (not including a mortgage) all or substantially
all of the property or business of ARCO; or
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- to become a party to a merger or consolidation unless the surviving
corporation will have no stock either authorized or outstanding (except
such stock of ARCO as may have been authorized or outstanding immediately
before the merger or consolidation or such stock of the surviving
corporation as may be issued upon conversion thereof or in exchange
therefor) ranking as to dividends or assets prior to or on a parity with
the preference stock or the stock of the surviving corporation issued upon
conversion thereof or in exchange therefor.
The BP Amoco articles of association provide that:
- the rights attached to any class of shares may only be varied by an
extraordinary resolution passed at a separate class meeting of the holders
of the relevant class of shares;
- the quorum for the separate class meeting is persons holding or
representing by proxy one-tenth of the issued shares of one class (in
respect of the BP Amoco preference shares) and one-third of the issued
shares of any other class of share; and
- a poll may be demanded at a separate class meeting by not less than five
shareholders present in person or by proxy and entitled to vote.
SHAREHOLDERS' VOTES ON CERTAIN TRANSACTIONS
Generally, under Delaware law, unless the certificate of incorporation
provides for the vote of a larger portion of the stock, completion of a merger,
consolidation, or the sale, lease or exchange of all or substantially all of a
corporation's assets or dissolution requires
- the approval of the board of directors; and
- approval by the vote of the holders of a majority of the outstanding stock
or, if the certificate of incorporation provides for more or less than one
vote per share, a majority of the votes of the outstanding stock of a
corporation entitled to vote on the matter.
The ARCO certificate of incorporation does not require the affirmative vote
of a larger proportion than a majority of the holders of ARCO voting stock for a
merger or consolidation, except as described above under "--Stock Class Rights."
Under the rules of the NYSE, the issuance of additional shares of common
stock of a listed company involving directors, officers, substantial security
holders or other affiliates of the company, involving a change in control or
totaling 20% or more of the outstanding shares of common stock of the company
require the approval of the holders of a majority of the shares voting on the
transaction. Other transactions do not require shareholder approval under the
NYSE rules.
Under the rules of the London Stock Exchange, shareholder approval:
- is usually required for an acquisition or disposition by a listed company,
if, by applying certain tests, the size of the company or business to be
acquired or disposed of represents 25% or more of the size of the listed
company; and
- may also be required for an acquisition or disposal of assets between a
listed company and certain parties, including:
(1) directors of the company or of any members of its group;
(2) holders of shares entitled to exercise at least 10% of the votes
generally able to be cast at shareholders' meetings of the company or
of any member of its group; or
(3) any of their associates, which include: (1) in relation to an
individual, a person's spouse or children, a trustee of any trust of
which that person is a beneficiary, any company over which that
person exercises 30% of the votes, and (2) in relation to a company,
any
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company in which it holds or controls a majority of the voting
rights, has the right to appoint or remove the majority of directors,
or over which it has a dominant influence.
The U.K. Companies Act provides for schemes of arrangement, which are
arrangements or compromises between a company and any class of its shareholders
or its creditors and are used for certain types of reconstructions,
amalgamations, capital reorganizations or takeovers. These arrangements require:
- the approval at a special meeting convened by order of a U.K. court of a
majority in number of shareholders or creditors representing at least 75%
in value of the capital held by or debt owed to the class of shareholders
or class of creditors present and voting, either in person or by proxy;
and
- the approval of the court.
Once approved and sanctioned, all creditors or shareholders of the relevant
class are bound by the terms of the scheme and a dissenting shareholder would
have no rights comparable to appraisal rights provided under Delaware law.
The U.K. Companies Act also provides that where a takeover offer is made for
the shares of a U.K. company and, within four months of the date of the offer,
the offeror has acquired or contracted to acquire at least 90% in value of the
shares of any class to which the offer relates, the offeror may, within two
months of reaching the 90% level, by notice require shareholders who do not
accept the offer to transfer their shares on the terms of the offer. A
dissenting shareholder may object to the transfer or its proposed terms by
applying to the court within six weeks of the date on which such notice of
transfer was given. In the absence of fraud or oppression, the court is unlikely
to order that the acquisition not take effect, but it may specify terms of the
transfer that it finds appropriate. A minority shareholder is also entitled in
these circumstances, in the alternative, to require the offeror to acquire his
or her shares on the terms of the offer.
RIGHTS OF INSPECTION
Delaware law allows any shareholder the right:
- to inspect the corporation's stock ledger, a list of its shareholders, and
its other books and records, and
- to make copies or extracts of those materials during normal business
hours, provided that the shareholder makes a written request under oath
stating the purpose of his inspection, and the inspection is for a purpose
reasonably related to the person's interest as a shareholder.
Except when closed under the provisions of the U.K. Companies Act, the
register and index of names of shareholders of an English company may be
inspected during business hours:
- for free, by its shareholders including, in the case of BP Amoco, holders
of BP Amoco ADSs; and
- for a fee, by any other person,
In both cases, the documents may be copied for a fee.
The shareholders of an English public company may, without charge, during
business hours, also inspect:
- the minutes of meetings of the shareholders and obtain copies of the
minutes on payment of a fee; and
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- service contracts of the company's directors, if the contracts have more
than 12 months unexpired or require more than 12 months' notice to
terminate.
Rights of inspection during business hours mean that the company must make
the register, index or document available for inspection for not less than two
hours during the period between 9:00 a.m. and 5:00 p.m. on each business day.
The rules of the London Stock Exchange require the service contracts of
directors, whether or not they have more than 12 months unexpired or require
more than 12 months' notice to terminate, to be open for inspection during
normal business hours and each business day at certain times for periods longer
than two hours.
In addition, the published annual accounts of a public company are required
to be available for shareholders at a shareholders' meeting and a shareholder is
entitled to a copy of the accounts. The shareholders of BP Amoco have no rights
to inspect its accounting records or the minutes of meetings of its directors.
STANDARD OF CONDUCT FOR DIRECTORS
Neither Delaware law nor the ARCO certificate of incorporation and by-laws
contain any specific provisions setting forth the standard of conduct of a
director. The scope of the fiduciary duties of the ARCO board is therefore
determined by the courts of the State of Delaware. In general, directors have a
duty to act in good faith, on a fully-informed basis and with loyalty to the
Corporation and the shareholders.
Under English law, a director has a fiduciary duty to act in a company's
best interest. This duty includes the obligations:
- not to create an actual or potential conflict between his duty to his
company and duties to any other person or his personal interests; and
- to exercise his powers only in accordance with the memorandum and articles
of association of the company and for the purpose for which they were
given.
In addition, a director must exercise reasonable care and skill. The precise
scope of this duty is unclear, but the test appears to be both subjective (that
is, was the director's conduct that of a reasonably diligent person who has the
knowledge and experience of the director?) and objective (that is, was the
director's conduct that of a reasonably diligent person having the knowledge and
experience that a director should have?).
Various duties are also imposed upon directors of a company under English
law in that they are required to disclose certain information, e.g., personal
interests in contracts with the company, to the company.
CLASSIFICATION OF THE BOARD OF DIRECTORS
Delaware law permits the certificate of incorporation or a
shareholder-adopted by-law to provide that directors be divided into one, two or
three classes, with the term of office of one class of directors to expire each
year. The ARCO certificate of incorporation and by-laws do not provide for a
classified board.
While English law permits a company to provide for terms of different length
for its directors, the articles of association of BP Amoco do not provide for
any such differentiation. The BP Amoco articles of association provide that all
directors who have been in office for three years or more since they were
elected or re-elected shall retire from office. Retiring directors are
immediately eligible for re-election.
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REMOVAL OF DIRECTORS
Delaware law provides that a director may be removed with or without cause
by the holders of a majority in voting power of the shares entitled to vote at
an election of directors, or such larger proportion of the voting power as may
be provided in the certificate of incorporation, except that:
- members of a classified board of directors may be removed only for cause,
unless the certificate of incorporation provides otherwise, and
- directors may not be removed in certain situations in the case of a
corporation having cumulative voting.
Under the U.K. Companies Act, shareholders may generally remove a director
without cause by ordinary resolution irrespective of the provisions of the
articles of association of the company or of any service contract the director
has with the company, provided that 28 clear days' notice of the resolution is
given to the company.
VACANCIES ON THE BOARD OF DIRECTORS
Under Delaware law, unless otherwise provided in the certificate of
incorporation or the by-laws, vacancies on a board of directors and newly
created directorships resulting from an increase in the number of directors may
be filled by a majority of the directors in office. However, if the holders of
any specific class of stock are entitled to elect directors, vacancies and newly
created directorships of the class may only be filled by a majority of the
directors elected by the class. The ARCO certificate of incorporation provides
that, subject to the rights of any class of preferred or preference
shareholders, any vacancies on the ARCO board or newly created directorships
will be filled only by the affirmative vote of a majority of the remaining
directors in office, even if less than a quorum. The ARCO certificate of
incorporation also provides that any directors so chosen to fill a vacancy or
newly created directorship will serve for the remainder of the full term of the
relevant directorship.
The ARCO by-laws provide that the ARCO board of directors may fix the number
of directors from time to time, subject to the right of the holders of
preference stock to elect additional directors in the event of dividend
arrearages, as described above in "--Preferred Stock and Preference Stock."
Under English law, shareholders may, by ordinary resolution at a meeting at
which any director retires, appoint a person who is willing to be a director:
- to fill a vacancy; or
- as an additional director, subject to any maximum provided in the
company's articles of association.
The board of directors has the power to appoint a director to serve until
the next following shareholders' meeting, whereupon the director concerned is
required to retire but will be immediately eligible for election.
The BP Amoco articles of association provide that there shall not be less
than three directors and not more than 22.
LIABILITY OF DIRECTORS AND OFFICERS
Delaware law permits a corporation's certificate of incorporation to include
a provision eliminating or limiting the personal liability of a director to the
corporation and its shareholders for damages arising from a breach of fiduciary
duty as a director. However, no provision can limit the liability of a director
for
- any breach of his duty of loyalty to the corporation or its shareholders;
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- acts or omissions not in good faith or that involve intentional misconduct
or a knowing violation of law;
- intentional or negligent payment of unlawful dividends or stock purchases
or redemptions; or
- any transaction from which he derives an improper personal benefit.
The ARCO certificate of incorporation provides that, to the fullest extent
permitted by Delaware law, a director of ARCO will not be liable to ARCO or its
shareholders for money damages for breach of fiduciary duty as a director.
English law does not permit a company to exempt any director or officer of
the company or any person employed by the company as an auditor from any
liability arising from negligence, default, breach of duty or breach of trust in
relation to the company.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Delaware law provides that a corporation may indemnify any officer or
director who is made a party to any third party suit or proceeding on account of
being a director, officer, employee or agent of the corporation against
expenses, including attorney's fees, judgments, fines and amounts paid in
settlement reasonably incurred by him in connection with the action, through,
among other things, a majority vote of a quorum consisting of directors who were
not parties to the suit or proceeding if the officer or director acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and in a criminal proceeding, had no reasonable
cause to believe his conduct was unlawful.
The ARCO by-laws provide that ARCO will indemnify its current and former
directors and officers to the fullest extent permitted by law and that the
indemnification will include the right to receive advance payment of any
expenses incurred in connection with any proceeding.
The ARCO by-laws also provide that ARCO will be required to indemnify a
person in connection with a proceeding initiated by the person only if the
proceeding was authorized by the board of directors.
ARCO maintains directors' and officers' insurance for its directors and
officers.
English law does not permit a company to indemnify a director or an officer
of the company or any person employed by the company as auditor against any
liability arising from negligence, default, breach of duty or breach of trust
against the company, except that indemnification is allowed for liabilities
incurred in proceedings in which:
- judgment is entered in favor of the director, officer or auditor or the
director, officer or auditor is acquitted; or
- the director, officer or auditor is held liable, but the court finds that
he acted honestly and reasonably and that relief should be granted.
The U.K. Companies Act enables companies to purchase and maintain insurance
for directors, officers and auditors against any liability arising from
negligence, default, breach of duty or breach of trust against the company.
BP Amoco maintains directors' and officers' liability insurance for its
directors and officers.
SHAREHOLDERS' SUITS
Under Delaware law, a shareholder may initiate a derivative action to
enforce a right of a corporation if the corporation fails to enforce the right
itself. The complaint must
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- state that the plaintiff was a shareholder at the time of the transaction
of which the plaintiff complains or that the plaintiff's shares thereafter
devolved on the plaintiff by operation of law, and
- either allege with particularity the efforts made by the plaintiff to
obtain the action the plaintiff desires from the directors, or state the
reasons for the plaintiff's failure to obtain the action or for not making
the effort.
Additionally, the plaintiff must remain a shareholder through the duration
of the derivative suit. The action will not be dismissed or compromised without
the approval of the Delaware Court of Chancery.
While English law only permits a shareholder to institute a lawsuit on
behalf of the company in certain limited circumstances, the U.K. Companies Act
permits a shareholder whose name is on the register of shareholders of the
company, including U.S. persons, to apply for a court order:
- if the company's affairs are being or have been conducted in a manner
unfairly prejudicial to the interests of all or some of the shareholders,
including the shareholder making the claim; or
- when any actual or proposed act or omission of the company is or would be
so prejudicial.
A court has wide discretion in granting relief and may authorize civil
proceedings to be brought in the name of the company by a shareholder on such
terms that the court directs. Except in these limited circumstances, English law
does not generally permit class action lawsuits by shareholders on behalf of the
company or on behalf of other shareholders.
In order to become a shareholder and enforce such rights under English law,
holders of BP Amoco ADSs will be required to withdraw from the depositary at
least six of the BP Amoco ordinary shares underlying their BP Amoco ADSs. See
"Description of BP Amoco American Depositary Shares--Deposit and Withdrawal of
Ordinary Shares" for information about how to withdraw BP Amoco ordinary shares.
LIMITATIONS ON ENFORCEABILITY OF CIVIL LIABILITIES UNDER U.S. FEDERAL SECURITIES
LAWS
ABILITY TO BRING SUITS, ENFORCE JUDGMENTS AND ENFORCE U.S. LAW
BP Amoco is an English company located in the U.K. Many of the directors and
officers of BP Amoco are residents of the U.K. and not the U.S. As a result,
U.S. investors may find it difficult in a lawsuit based on the civil liability
provisions of the U.S. federal securities laws to:
- effect service within the U.S. upon BP Amoco and the directors and
officers of BP Amoco located outside the U.S.,
- enforce in U.S. courts or outside the U.S. judgments obtained against
those persons in U.S. courts,
- enforce in U.S. courts judgments obtained against those persons in courts
in jurisdictions outside the U.S., and
- enforce against those persons in the U.K., whether in original actions or
in actions for the enforcement of judgments of U.S. courts, civil
liabilities based solely upon the U.S. federal securities laws.
Individual shareholders of an English company, including U.S. persons, have
the right under English law to bring lawsuits on behalf of the company in which
they are a shareholder, and on their own behalf against the company, in certain
limited circumstances. Except in limited circumstances, English law does not
permit class action lawsuits by shareholders. See "--Shareholders' Suits" above
for more information.
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"SHORT SWING" PROFITS
Directors and officers of ARCO are governed by rules under the Securities
Exchange Act that may require directors and officers to forfeit to ARCO any
"short swing" profits realized from purchases and sales, as determined under the
Securities Exchange Act and the rules thereunder, of ARCO securities over short
periods.
Directors and officers of BP Amoco are not subject to the Securities
Exchange Act's "short swing" profit rules because BP Amoco is a foreign private
issuer. However, directors of BP Amoco will be subject to applicable U.K.
legislation prohibiting insider dealing. In addition, the directors will have to
comply with the Model Code of the London Stock Exchange, which provides that the
considerations taken into account by directors when deciding whether or not to
deal in shares of the company of which they are a director must not be of a
short-term nature. The Model Code also places additional restrictions on trading
during certain periods, including prior to announcement of a company's results.
CERTAIN PROVISIONS RELATING TO SHARE ACQUISITIONS
Section 203 of the Delaware General Corporation Law prohibits "business
combinations," including mergers, sales and leases of assets, issuances of
securities and similar transactions by a corporation or a subsidiary with an
"interested stockholder" who beneficially owns 15% or more of a corporation's
voting stock, within three years after the person or entity becomes an
interested stockholder, unless:
- the transaction that will cause the person to become an interested
stockholder is approved by the board of directors of the target prior to
the transaction,
- after completion of the transaction in which the person becomes an
interested stockholder, the interested stockholder holds at least 85% of
the voting stock of the corporation not including (a) shares held by
directors who are also officers and (b) shares held by certain employee
benefit plans or
- after the person becomes an interested stockholder, the business
combination is approved by the board and holders of at least 66 2/3% of
the outstanding voting stock, excluding shares held by the interested
stockholder.
The merger of BP Amoco and ARCO is not governed by the limitations set forth
in Section 203. The ARCO board has approved the merger agreement and each of the
transactions contemplated thereby.
In the case of a company listed on the London Stock Exchange, shareholder
approval must be obtained for certain acquisitions or disposals of assets
involving directors or substantial shareholders or their associates. In
addition, takeovers of public companies are regulated by the City Code which is:
- a set of non-statutory rules not enforceable at law; and
- administered by the Takeover Panel, a body comprising representatives of
City of London financial and professional institutions which oversees the
conduct of takeovers.
The City Code provides that when:
- any person acquires, whether by a series of transactions over a period of
time or not, shares which, together with shares held or acquired by
persons acting in concert with him, represent 30% or more of the voting
rights of a public company; or
- any person, together with persons acting in concert with him, holds at
least 30% but not more than 50% of the voting rights and such person, or
any person acting in concert with him, acquires any additional shares,
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the person must generally make an offer for all of the equity shares of the
company, whether voting or non-voting, and any class of voting non-equity shares
of the company held by such person or any person acting in concert with him, for
cash, or accompanied by a cash alternative, at not less than the highest price
paid by the person or any person acting in concert with such person for the
relevant shares during the 12 months preceding the date of the offer period.
ANTI-TAKEOVER MEASURES
In general, directors of a Delaware corporation have a duty to act in good
faith, on a fully informed basis and with loyalty to the corporation and the
shareholders.
A Delaware court will generally apply a policy of judicial deference to
board of director decisions to adopt anti-takeover measures in the face of a
potential takeover where the directors are able to show that:
- they had reasonable grounds for believing that there was a danger to
corporate policy and effectiveness from an acquisition proposal, and
- the board action taken was reasonable in relation to the threat posed.
Under English law, directors of a company have a fiduciary duty to take only
those actions which are in the interests of the company. Generally speaking,
anti-takeover measures are not actions which fall within this category.
Under the City Code, a company is generally prohibited from taking certain
actions without the approval of its shareholders at a shareholders' meeting if:
- a BONA FIDE offer has been communicated to its board of directors; or
- its board of directors has reason to believe that a BONA FIDE offer might
be imminent,
when such action could effectively result in the offer being frustrated or
in the shareholders being denied an opportunity to decide on the takeover offer
on its merits.
DISCLOSURE OF INTERESTS IN SHARES
Acquirors of ARCO common stock are subject to disclosure requirements under
Section 13(d)(1) of the Securities Exchange Act and Rule 13d-1 thereunder, which
provide that any person who becomes the beneficial owner of more than 5% of the
outstanding ARCO common stock must, within 10 days after such acquisition, file
a Schedule 13D with the SEC disclosing specified information, and send a copy of
the Schedule 13D to ARCO and to each securities exchange on which the security
is traded.
The U.K. Companies Act provides that anyone who acquires a relevant interest
or becomes aware that he has acquired a relevant interest in 3% or more of any
class of shares of a public company's issued share capital carrying rights to
vote at shareholders' meetings must notify that company in writing of his
interest within two days. Thereafter, any increase or decrease of such interest
which takes it through a percentage or decrease which reduces the interest below
3% must be notified in writing to the company. This requirement will apply to
holders of BP Amoco ordinary shares. Holding a BP Amoco ADR or a BP Amoco ADS
will constitute a relevant interest in the underlying BP Amoco ordinary shares.
In addition, the U.K. Companies Act provides that a public company may, by
notice in writing, require a person whom the company knows or reasonably
believes to be, or to have been within the three preceding years, interested in
the company's issued voting share capital to:
- confirm whether this is or is not the case; and
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- if this is the case, to give further information that the company requires
relating to his or her interest and any related interest in the company's
shares of which he or she is aware.
The disclosure must be made within such reasonable period as may be
specified in the relevant notice, which may be as short as one or two days.
When the notice is served by a company on a person who is or was interested
in shares of the company and that person fails to give the company any
information required by the notice within the time specified in the notice, the
company may apply to the court for an order directing that the shares in
question be subject to restrictions prohibiting, among other things:
- any transfer of those shares;
- the exercise of voting rights in respect of those shares;
- the issue of further shares in respect of those shares; and
- other than in a liquidation, payments, including dividends, in respect of
those shares.
These restrictions may also void any agreement to transfer the shares. In
respect of an interest in shares that is less than 0.25% of the relevant class
of shares in a company listed on the London Stock Exchange, the restrictions
extend only to a prohibition on attending and voting at shareholders' meetings.
Under the BP Amoco articles of association, the BP Amoco board may impose the
restrictions on shareholders set out in the above paragraph, which restrictions
are normally imposed by the courts in the event a notice is served. In addition,
a person who fails to fulfill the obligations described above is subject to
criminal penalties in the U.K.
CERTAIN LONDON STOCK EXCHANGE LISTING REQUIREMENTS
In addition to the provisions of the BP Amoco articles of association and
the U.K. Companies Act, BP Amoco will be subject to the London Stock Exchange
listing rules and, in particular, to the continuing obligations under those
rules. Among other things, these rules require the company:
- to notify the London Stock Exchange of any major new developments in its
activities which are not public knowledge which may by virtue of the
effect of these developments on its assets and liabilities or financial
position or in the general course of its business, lead to a substantial
movement in the price of its listed securities;
- to ensure equality of treatment for all holders of listed securities who
are in the same position; and
- when its securities are listed on more than one stock exchange, to ensure
that equivalent information is made available to the market on each
exchange on which its securities are listed.
In addition, the BP Amoco articles of association, the general law and/or
the London Stock Exchange listing rules impose obligations on listed companies
to send the following information to shareholders:
- details relating to certain acquisitions, disposals, takeovers, mergers
and offers either made by or in respect of the company; and
- an explanatory circular, whenever a shareholders' meeting is convened. If
the meeting includes any business other than routine business at an annual
general meeting, it must specify the general nature of such business.
Routine business means declarations of dividends, considering the annual
report and accounts, election of directors in place of those retiring, and
appointment and fixing remuneration of auditors or approving the manner in
which it is fixed.
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In addition to the above requirements, a listed company is required to
notify the London Stock Exchange of:
- certain notifications received by the company of persons holding an
interest in 3% or more of any class of the company's issued, voting share
capital;
- any changes to the company's board of directors;
- any purchase or redemption by the company of its own securities;
- any directors' interests, including changes, in the shares or the
debentures of the company; and
- changes in the capital structure of the company.
Unaudited half yearly reports of results for the first six months of any
fiscal year and an unaudited preliminary announcement of results for each full
fiscal year must also be published. BP Amoco will also publicly announce
unaudited results for quarterly periods.
PROXY STATEMENTS AND REPORTS
Under the U.S. proxy rules, ARCO must comply with notice and disclosure
requirements relating to the solicitation of proxies for shareholders' meetings.
As a foreign private issuer, BP Amoco is not subject to the proxy rules.
However, BP Amoco is governed by the U.K. Companies Act and the London Stock
Exchange listing rules regulating notices of shareholders' meetings which
provide that notice of a shareholders' meeting must be accompanied by:
- a shareholder circular containing an explanation of the purpose of the
meeting and
- the recommendations of the board of directors with respect to actions to
be taken.
BP Amoco furnishes to its shareholders a summary of the BP Amoco annual
report and accounts, although a full BP Amoco annual report and accounts is
available to BP Amoco shareholders who so request. BP Amoco also furnishes to
its shareholders semi-annual interim reports. All such communications will be
sent by BP Amoco to the depositary for BP Amoco ADSs at the same time as they
are sent to BP Amoco shareholders.
In addition, under the rules of the London Stock Exchange, BP Amoco will,
depending on the size and importance of such matters, be required to send to
shareholders details relating to certain acquisitions, disposals, takeovers,
mergers and offers made either by or in respect of the company.
As a foreign private issuer, BP Amoco is not required to file with the
Securities and Exchange Commission all of the reports and notices that ARCO, as
a reporting public company under the Securities Exchange Act, is required to
file. However, BP Amoco furnishes other similar reports to the SEC. See "The
Combination--Other Effects of the Combination."
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FEES AND EXPENSES
Pursuant to the merger agreement, ARCO and BP Amoco have agreed to each pay
half of certain expenses. See "The Merger Agreement--Expenses."
ARCO estimates that it will incur fees and expenses in connection with the
merger of approximately $85 million.
BP Amoco estimates that it will incur fees and expenses in connection with
the merger of approximately $70 million.
ARCO and BP Amoco each will fund its fees or expenses from its available
general funds and from borrowings, which may be made under existing short-term
credit facilities or may take the form of longer term indebtedness on terms to
be determined.
Neither ARCO nor BP Amoco will pay any fees or commissions to any broker or
dealer or any other person (other than D.F. King & Co. and the exchange agent)
for soliciting votes of ARCO shareholders on the merger. Brokers, dealers,
commercial banks and trust companies will, upon request, be reimbursed by ARCO
for reasonable and necessary costs and expenses incurred by them in forwarding
materials to their customers.
VALIDITY OF SECURITIES
The validity under English law of the BP Amoco ordinary shares to be issued
pursuant to the merger will be passed upon for BP Amoco by Peter B.P. Bevan,
Group General Counsel of BP Amoco. As of the date of this proxy
statement/prospectus, Mr. Bevan owned less than 0.1% of BP Amoco ordinary shares
outstanding (including options representing certain rights to purchase such
shares).
EXPERTS
The consolidated financial statements of BP Amoco as of December 31, 1998,
1997 and 1996 and for each of the three years in the period ended December 31,
1998, incorporated in this proxy statement/prospectus by reference to the BP
Amoco Report on Form 6-K filed on July 7, 1999, have been audited by Ernst &
Young, independent auditors, as set forth in their report thereon included
therein and incorporated herein by reference. Such consolidated financial
statements are incorporated herein in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The consolidated financial statements of ARCO for each of the three years in
the period ended December 31, 1998 incorporated in this proxy
statement/prospectus by reference to the ARCO Annual Report and Form 10-K for
the year ended December 31, 1998, have been so incorporated in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
U.K. LISTING PARTICULARS AND CIRCULAR
A copy of a document comprising the U.K. listing particulars relating to BP
Amoco in accordance with the Listing Rules of the London Stock Exchange will be
delivered to the Registrar of Companies in England and Wales for registration
and will be available for inspection at the offices of Linklaters, One Silk
Street, London, EC2Y 8HQ, England, until the date on which the merger is
completed. Summary listing particulars are attached as Appendix E to this proxy
statement/prospectus. Neither the listing particulars nor the documents listed
in the summary listing particulars as available for inspection form part of, or
are incorporated into, this proxy statement/prospectus. In addition, BP Amoco is
convening the BP Amoco extraordinary general meeting, and distributing to its
shareholders a circular relating to the merger of ARCO with a subsidiary of BP
Amoco, a copy of which will also be available
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for inspection at the offices of Linklaters until the date on which the merger
is completed and at the BP Amoco extraordinary general meeting. The contents of
such circular do not form part of, nor are they incorporated into, this proxy
statement/prospectus.
FUTURE ARCO SHAREHOLDER PROPOSALS
If the merger of ARCO and BP Amoco is completed as expected, ARCO will not
hold an annual meeting of ARCO shareholders in 2000.
If the merger agreement is not approved by ARCO shareholders or is not
completed for any other reason, ARCO will hold a 2000 annual meeting.
Shareholder proposals for the 2000 annual meeting must be received by November
27, 1999, to be considered for inclusion in ARCO's 2000 proxy statement. Such
proposals should be addressed to ARCO's Corporate Secretary. Under ARCO's
certificate of incorporation and by-laws, notice of any shareholder nomination
for director, or other proposal not to be considered for inclusion in ARCO's
proxy, must be given by mail or by personal delivery to ARCO's Corporate
Secretary no later than 120 days in advance of the annual meeting, or by January
2, 2000, assuming the annual meeting for 2000 will be held on May 1, 2000;
shareholders wishing to make nominations should contact ARCO's Corporate
Secretary as to information required to be supplied in such notice.
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APPENDIX A
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
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TABLE OF CONTENTS
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ARTICLE I THE CLOSING AND THE MERGER
1.1. Closing.............................................................................................. 1
1.2. The Share Exchange and the Merger.................................................................... 2
1.3. Conversion and Exchange of Shares.................................................................... 2
1.4. Surrender and Payment................................................................................ 4
1.5. ARCO Stock Options; Other Stock-Based Plans.......................................................... 7
1.6. Fractional BP Amoco Depositary Shares................................................................ 9
1.7. The Surviving Corporation............................................................................ 9
1.8. Lost, Stolen or Destroyed Certificates............................................................... 10
ARTICLE II REPRESENTATIONS AND WARRANTIES
2.1. Representations and Warranties of BP Amoco and ARCO.................................................. 10
2.1.1. Organization, Good Standing and Qualification............................................. 10
2.1.2. Capital Structure......................................................................... 11
2.1.3. Corporate Authority; Approval and Fairness................................................ 12
2.1.4. Governmental Filings; No Violations....................................................... 13
2.1.5. Reports; Financial Statements............................................................. 14
2.1.6. Absence of Certain Changes................................................................ 16
2.1.7. Litigation and Liabilities................................................................ 16
2.1.8. Takeover Statutes......................................................................... 16
2.1.9. Brokers and Finders....................................................................... 17
2.1.10. Ownership of Other Party's Common Stock................................................... 17
2.1.11. Merger Sub................................................................................ 17
2.1.12. ARCO Employee Benefit Plans............................................................... 17
2.1.13. Environmental Matters..................................................................... 18
2.1.14. ARCO Rights Plan.......................................................................... 18
2.1.15. ARCO Joint Ventures; Exclusivity Arrangements............................................. 18
2.1.16. Tax Matters............................................................................... 19
2.2. Vastar............................................................................................... 19
ARTICLE III COVENANTS
3.1. Interim Operations................................................................................... 20
3.1.1. Interim Operations of BP Amoco............................................................ 20
3.1.2. Interim Operations of ARCO................................................................ 21
3.1.3. Consultation as to Material Contracts..................................................... 24
3.2. ARCO Acquisition Proposals........................................................................... 24
3.3. Information Supplied................................................................................. 25
3.3.1. Registration Statement.................................................................... 25
3.3.2. BP Amoco Documents........................................................................ 26
3.4. Shareholders Meetings................................................................................ 27
3.5. Filings; Other Actions; Notification................................................................. 27
3.6. Access............................................................................................... 29
3.7. Publicity............................................................................................ 29
3.8. Benefits and Other Matters........................................................................... 29
3.8.1. Employee Benefits......................................................................... 29
3.8.2. Director and Officer Liability............................................................ 31
3.9. Expenses............................................................................................. 31
</TABLE>
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3.10. Takeover Statutes.................................................................................... 32
3.11. Dividends............................................................................................ 32
3.12. Listing Applications................................................................................. 32
3.13. Letters of Accountants............................................................................... 32
3.14. Agreements of ARCO Affiliates........................................................................ 32
3.15. Accounting Matters................................................................................... 33
3.16. Tax Matters.......................................................................................... 33
3.17. Vastar............................................................................................... 33
3.18. Section 103.......................................................................................... 33
ARTICLE IV CONDITIONS
4.1. Conditions to Each Party's Obligation to Effect the Merger........................................... 34
4.1.1. Shareholder Approvals..................................................................... 34
4.1.2. Regulatory Consents....................................................................... 34
4.1.3. Laws and Orders........................................................................... 34
4.1.4. Effectiveness of Form F-4................................................................. 34
4.1.5. Exchange Listings......................................................................... 34
4.2. Conditions to Obligations of BP Amoco and Merger Sub................................................. 35
4.2.1. Representations and Warranties of ARCO.................................................... 35
4.2.2. Performance of Obligations of ARCO........................................................ 35
4.3. Conditions to Obligation of ARCO..................................................................... 35
4.3.1. Representations and Warranties............................................................ 35
4.3.2. Performance of Obligations of BP Amoco.................................................... 35
4.3.3. Tax Opinion............................................................................... 35
ARTICLE V TERMINATION
5.1. Termination by Mutual Consent........................................................................ 36
5.2. Termination by Either BP Amoco or ARCO............................................................... 36
5.3. Termination by BP Amoco.............................................................................. 36
5.4. Termination by ARCO.................................................................................. 36
5.5. Effect of Termination and Abandonment................................................................ 37
ARTICLE VI MISCELLANEOUS AND GENERAL
6.1. Survival............................................................................................. 38
6.2. Modification or Amendment............................................................................ 38
6.3. Waiver............................................................................................... 38
6.4. Failure or Indulgence Not Waiver; Remedies Cumulative................................................ 38
6.5. Counterparts......................................................................................... 38
6.6. GOVERNING LAW AND VENUE; WAIVER OF JURY TRIAL........................................................ 38
6.7. Notices.............................................................................................. 39
6.8. Entire Agreement..................................................................................... 40
6.9. Obligations of BP Amoco and of ARCO.................................................................. 41
6.10. Severability......................................................................................... 41
6.11. Interpretation....................................................................................... 41
6.12. Assignment........................................................................................... 41
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This AGREEMENT AND PLAN OF MERGER, dated as of March 31, 1999, as amended as
of July 12, 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
1.1. 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
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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").
1.2. THE SHARE EXCHANGE AND THE MERGER.
1.2.1. Upon the terms and subject to the conditions set forth in the
Share Exchange Agreement, dated as of July 12, 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").
1.3. CONVERSION AND EXCHANGE OF SHARES. At the Effective Time:
1.3.1. 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.
1.3.2. 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
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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 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.
1.3.3. 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.
1.3.4. 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 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.
1.3.5. 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
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"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.
1.3.6. 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 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.
1.4. SURRENDER AND PAYMENT.
1.4.1. 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
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connection with the issuance of BP Amoco Depositary Shares or BP Amoco
Ordinary Shares in 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.
1.4.2. 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 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 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).
1.4.3. 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
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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.
1.4.4. 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.
1.4.5. 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 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.
1.4.6. 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.
1.4.7. 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.
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1.5. ARCO STOCK OPTIONS; OTHER STOCK-BASED PLANS.
1.5.1. 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.
1.5.2. 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.
1.5.3. The obligation of ARCO to deliver ARCO Common Shares pursuant to
Article III, Subsection 3(b)(v)(1) of the ARCO 1985 Executive Long-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.
1.5.4. 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
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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".
1.5.5. 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 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.
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1.5.6. 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.
1.5.7. 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 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.
1.5.8. 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.
1.6. 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).
1.7. THE SURVIVING CORPORATION.
1.7.1. 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 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.
1.7.2. 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.
1.7.3. 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.
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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
2.1. 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:
2.1.1. 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
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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" 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").
2.1.2. CAPITAL STRUCTURE.
2.1.2.1. The authorized share capital of BP Amoco is $6,000,000,000
and L12,750,000. 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 L1 each ("BP AMOCO FIRST PREFERENCE SHARES"),
and not more than 5,473,414 9% cumulative second preference shares, of
nominal value L1 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.
2.1.2.2. 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
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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 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.
2.1.3. CORPORATE AUTHORITY; APPROVAL AND FAIRNESS.
2.1.3.1. 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
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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. 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.
2.1.3.2. 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.
2.1.4. GOVERNMENTAL FILINGS; NO VIOLATIONS.
2.1.4.1. 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,
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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 materially
impair its ability to consummate the Merger and the other transactions
contemplated by this Agreement and the Stock Option Agreement.
2.1.4.2. 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.
2.1.5. REPORTS; FINANCIAL STATEMENTS.
2.1.5.1. 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
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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 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.
2.1.5.2. 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.
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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 respect to BP Amoco,
the BP Amoco 20-F provided to ARCO on or prior to the date hereof.
2.1.6. 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.
2.1.7. 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 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.
2.1.8. 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
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Effective Time will be, applicable to the Merger or any of the other
transactions contemplated by this Agreement and the Stock Option Agreement.
2.1.9. 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.
2.1.10. OWNERSHIP OF OTHER PARTY'S COMMON STOCK.
2.1.10.1. 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.
2.1.10.2. 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).
2.1.11. 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.
2.1.12. ARCO EMPLOYEE BENEFIT PLANS.
2.1.12.1. 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.
2.1.12.2. Except as set forth in Section 2.1.12 of the ARCO
Disclosure Letter, none of the execution and delivery of this Agreement
by ARCO, the performance by ARCO of its obligations hereunder, the
consummation of the transactions contemplated by this Agreement
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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.
2.1.13. 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.
2.1.14. 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.
2.1.15. 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
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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.
2.1.16. 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 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).
2.2. 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.
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ARTICLE III
Covenants
3.1. INTERIM OPERATIONS.
3.1.1. 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):
3.1.1.1. 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;
(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;
3.1.1.2. 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);
3.1.1.3. 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 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
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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
3.1.1.4. neither BP Amoco nor any of its Subsidiaries shall authorize or
enter into an agreement to do any of the foregoing.
3.1.2. 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):
3.1.2.1. 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;
3.1.2.2. 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;
(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;
3.1.2.3. 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
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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);
(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 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;
3.1.2.4. 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
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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 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;
3.1.2.5. 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);
3.1.2.6. 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);
3.1.2.7. neither ARCO nor any of its Subsidiaries shall:
(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
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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;
3.1.2.8. ARCO shall not modify any accounting policy except as may be
required by changes in Law or in U.S. GAAP;
3.1.2.9. 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
3.1.2.10. neither ARCO nor any of its Subsidiaries shall authorize or
enter into an agreement to do any of the foregoing.
3.1.3. 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.
3.2. ARCO ACQUISITION PROPOSALS.
3.2.1. 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 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
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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.
3.2.2. 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
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.
3.2.3. 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.
3.3. INFORMATION SUPPLIED.
3.3.1. REGISTRATION STATEMENT.
3.3.1.1. 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.
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3.3.1.2. 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 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.
3.3.1.3. 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.
3.3.2. BP AMOCO DOCUMENTS.
3.3.2.1. 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 in
accordance with the facts and will not omit anything material likely to
affect the import of such information.
3.3.2.2. 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.
3.3.2.3. 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
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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.
3.4. 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 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.
3.5. FILINGS; OTHER ACTIONS; NOTIFICATION.
3.5.1. 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
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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 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.
3.5.2. 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.
3.5.3. 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.
3.5.4. 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 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
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practicable and permitted by such Governmental Entity, gives the other Party
the opportunity to attend and participate thereat.
3.5.5. 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.
3.6. 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 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.
3.7. 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.
3.8. BENEFITS AND OTHER MATTERS.
3.8.1. EMPLOYEE BENEFITS.
3.8.1.1. 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.
3.8.1.2. 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,
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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
similar plans shall after the Effective Time be substantially
performance-based.
3.8.1.3. 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.
3.8.1.4. 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 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.
3.8.1.5. 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
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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.
3.8.1.6. 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.
3.8.2. DIRECTOR AND OFFICER LIABILITY.
3.8.2.1. 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.
3.8.2.2. 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.
3.8.2.3. 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.
3.8.2.4. 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).
3.9. 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
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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.
3.10. 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.
3.11. 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.
3.12. 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 respect of ARCO Stock Options or otherwise under any ARCO
Stock Plan (or any successor thereto).
3.13. LETTERS OF ACCOUNTANTS.
3.13.1. 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.
3.13.2. 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.
3.14. 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
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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.
3.15. 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.
3.16. 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).
3.17. 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.
3.18. 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.
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ARTICLE IV
Conditions
4.1. 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:
4.1.1. 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.
4.1.2. 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, 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.
4.1.3. 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.
4.1.4. 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.
4.1.5. 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.
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4.2. 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:
4.2.1. 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.
4.2.2. 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.
4.3. 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:
4.3.1. 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 Amoco), and ARCO shall have received a certificate signed on
behalf of BP Amoco by an executive officer of BP Amoco to such effect.
4.3.2. 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.
4.3.3. 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.
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<PAGE>
ARTICLE V
Termination
5.1. 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.
5.2. 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 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.
5.3. 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.
5.4. 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
contained in this Agreement which would result in a failure of a
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<PAGE>
condition set forth in Section 4.3.1 or 4.3.2 and cannot be or is not cured
prior to the Termination Date.
5.5. EFFECT OF TERMINATION AND ABANDONMENT.
5.5.1. 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.
5.5.2. 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 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.
5.5.3. 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
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<PAGE>
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
Miscellaneous and General
6.1. 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.
6.2. 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.
6.3. 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.
6.4. 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.
6.5. 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.
6.6. GOVERNING LAW AND VENUE; WAIVER OF JURY TRIAL.
6.6.1. THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN, AND IN ALL
RESPECTS SHALL BE INTERPRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE
WITH THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO
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<PAGE>
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.
6.6.2. 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.
6.7. 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
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<PAGE>
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
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.
6.8. 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 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
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<PAGE>
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.
6.9. 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.
6.10. 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.
6.11. 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 "including" are used in this Agreement, they shall be
deemed to be followed by the words "without limitation."
6.12. 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.
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<PAGE>
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.
<TABLE>
<S> <C> <C>
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
</TABLE>
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<PAGE>
APPENDIX B
[LOGO]
PERSONAL AND CONFIDENTIAL
March 31, 1999
Board of Directors
Atlantic Richfield Company
515 South Flower Street
Los Angeles, California 90071
Ladies and Gentlemen:
You have requested our opinion as to the fairness from a financial point of view
to the holders (other than BP Amoco p.l.c. ("BP Amoco") and any subsidiaries of
BP Amoco or Atlantic Richfield Company ("ARCO")) of the outstanding shares of
Common Stock, par value $2.50 per share (the "Shares"), of ARCO (the "Holders")
of the exchange ratio of 0.82 American depositary shares ("ADRs"), each
representing the right to receive six ordinary shares, of nominal value $0.50
each, of BP Amoco ("BP Amoco Common Stock"), or, at the election of each Holder,
4.92 shares of BP Amoco Common Stock, to be received for each Share (the
"Exchange Ratio") pursuant to the Agreement and Plan of Merger, dated as of
March 31, 1999, among BP Amoco, ARCO and Prairie Holdings, Inc., a direct wholly
owned subsidiary of BP Amoco (the "Agreement").
Goldman, Sachs & Co., as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. We are familiar with
ARCO having provided certain investment banking services to ARCO from time to
time, including having acted as its financial advisor in connection with its
divestiture of its United States and Australian coal assets, having acted as
lead managing underwriter of a private placement of its preferred stock, having
acted as dealer on its commercial paper program and having acted as its
financial advisor in connection with, and having participated in certain of the
negotiations leading to, the Agreement. We have also provided from time to time,
and continue to provide, certain investment banking services to BP Amoco,
including having acted as lead-managing underwriter in connection with various
public and other offerings of its and its subsidiaries' debt securities, having
acted as co-managing underwriter of various public offerings of Amoco
Corporation's debt securities, having acted as a dealer on its subsidiary BP
America Inc.'s commercial paper program and providing general financial advisory
services. Peter D. Sutherland, Chairman of BP Amoco, is a Managing Director of
Goldman, Sachs & Co. and a Partner of The Goldman Sachs Group, L.P. Goldman,
Sachs & Co. provides a full range of financial advisory and securities services
and, in the course of its normal trading activities, may from time to time
effect transactions and hold securities, including derivative securities, of
ARCO or BP Amoco for its own account and for the accounts of customers. Goldman,
Sachs & Co. may provide investment banking services to BP Amoco and its
subsidiaries in the future.
B-1
<PAGE>
Atlantic Richfield Company
March 31, 1999
Page Two
In connection with this opinion, we have reviewed, among other things: the
Agreement; Annual Reports to Stockholders of ARCO and BP Amoco for the five
years ended December 31, 1998; Annual Reports on Form 10-K of ARCO for the five
years ended December 31, 1998; Annual Reports on Form 20-F of BP Amoco for the
five years ended December 31, 1997 and a draft Annual Report on Form 20-F
provided to us by BP Amoco for the year ended December 31, 1998; certain interim
reports to stockholders and Quarterly Reports on Form 10-Q of ARCO; certain
interim reports to stockholders on Form 6-K of BP Amoco; certain other
communications from ARCO and BP Amoco to their respective stockholders; certain
internal financial analyses and forecasts for ARCO prepared by its management;
and estimates of cost savings and synergies projected by the managements of ARCO
and BP Amoco to result from the transaction contemplated by the Agreement (the
"Synergies"). We also
have held discussions with members of the senior management of ARCO and BP Amoco
regarding the strategic rationale for, and the potential benefits of, the
transaction contemplated by the Agreement and the past and current business
operations, financial condition and future prospects of their respective
companies. In addition, we have reviewed the reported price and trading activity
for the Shares and shares of BP Amoco Common Stock and BP Amoco ADRs, compared
certain financial and stock market information for ARCO and BP Amoco with
similar information for certain other companies the securities of which are
publicly traded, reviewed the financial terms of certain recent business
combinations involving integrated oil companies specifically and in other
industries generally and performed such other studies and analyses as we
considered appropriate.
We have relied upon the accuracy and completeness of all of the financial and
other information reviewed by us and have assumed such accuracy and completeness
for purposes of rendering this opinion. In that regard, we have assumed with
your consent that the Synergies have been reasonably prepared on a basis
reflecting the best currently available estimates and judgments of the
managements of ARCO and BP Amoco. As you are aware, BP Amoco did not make
available to us its projections of expected future performance. Instead, for
purposes of our analyses, we have utilized with your consent the estimates of
certain research analysts for BP Amoco. We also have assumed that all
governmental, regulatory and other consents and approvals necessary for the
consummation of the transaction contemplated by the Agreement will be obtained
without any adverse effect on ARCO or BP Amoco or their subsidiaries or on the
contemplated benefits of the transaction contemplated by the Agreement in any
respect material to our analysis. In addition, we have not made an independent
evaluation or appraisal of the assets and liabilities of ARCO or BP Amoco or any
of their subsidiaries and we have not been furnished with any such evaluation or
appraisal. Our advisory services and the opinion expressed herein are provided
for the information and assistance of the Board of Directors of ARCO in
connection with its consideration of the transaction contemplated by the
Agreement and such opinion does not constitute a recommendation as to how any
holder of Shares should vote with respect to such transaction.
Based upon and subject to the foregoing and based upon such other matters as we
consider relevant, it is our opinion that as of the date hereof the Exchange
Ratio pursuant to the Agreement is fair from a financial point of view to the
Holders.
Very truly yours,
/s/ Goldman, Sachs & Co.
- ---------------------------
(GOLDMAN, SACHS & CO.)
B-2
<PAGE>
APPENDIX C
[LETTERHEAD OF SALOMON SMITH BARNEY INC.]
March 31, 1999
The Board of Directors
Atlantic Richfield Co.
515 South Flower Street
Los Angeles, California 90071
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of the common stock of Atlantic Richfield Co. ("Arco") of
the Exchange Ratio (defined below) provided for in the Agreement and Plan of
Merger, dated as of March 31, 1999 (the "Merger Agreement"), among BP Amoco
p.l.c. ("BP Amoco"), Prairie Holdings, Inc., a wholly owned subsidiary of BP
Amoco ("Merger Sub"), and Arco. As more fully described in the Merger Agreement,
(a) Merger Sub will be merged with and into Arco (the "Merger") and (b) each
outstanding share of the Common Stock, par value $2.50 per share, of Arco (the
"Arco Common Stock") will be converted into the right to receive 4.92 (the
"Exchange Ratio") Ordinary Shares, of nominal value $0.50 each, of BP Amoco (the
"BP Amoco Ordinary Shares") either (i) in the form of American depositary shares
(the "BP Amoco Depositary Shares" and, together with the BP Amoco Ordinary
Shares, the "BP Amoco Securities"), each representing the right to receive six
BP Amoco Ordinary Shares, or (ii) if elected by the holder thereof, in the form
of BP Amoco Ordinary Shares, in registered form, rather than BP Amoco Depositary
Shares. The Merger Agreement further provides that each share of $3.00
Cumulative Convertible Preference Stock, par value $1.00 per share, and $2.80
Cumulative Convertible Preference Stock, par value $1.00 per share, of Arco
outstanding prior to the effective time of the Merger will remain outstanding,
without change, after the effective time of the Merger.
In arriving at our opinion, we reviewed the Merger Agreement and certain related
documents, and held discussions with certain senior officers, directors and
other representatives and advisors of Arco and certain senior officers and other
representatives and advisors of BP Amoco concerning the businesses, operations
and prospects of Arco and BP Amoco. We examined certain publicly available
business and financial information relating to Arco and BP Amoco, as well as
certain financial forecasts for Arco, and other information and data for Arco
and BP Amoco which were provided to or otherwise discussed with us by the
respective managements of Arco and BP Amoco, including information relating to
certain strategic implications and operational benefits anticipated to result
from the Merger. We reviewed the financial terms of the Merger as set forth in
the Merger Agreement in relation to, among other things: current and historical
market prices and trading volumes of the Arco Common Stock and BP Amoco
Securities; the historical and projected earnings and other operating data of
Arco and BP Amoco; and the capitalization and financial condition of Arco and BP
Amoco. We considered, to the extent publicly available, the financial terms of
other transactions recently effected which we considered relevant in evaluating
the Merger and analyzed certain financial, stock market and other publicly
available information relating to the businesses of other companies whose
operations we considered relevant in evaluating those of Arco and BP Amoco. We
also evaluated the potential pro forma financial impact of the Merger on BP
Amoco. In addition to the foregoing, we conducted such other analyses and
examinations and considered such other financial, economic and market criteria
as we deemed appropriate in arriving at our opinion.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information and data publicly available or furnished to or otherwise reviewed by
or discussed with us. With respect to financial forecasts and other information
and data provided to or otherwise reviewed by or discussed with us, we have
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The Board of Directors
Atlantic Richfield Co.
March 31, 1999
Page 2
assumed that such forecasts and other information and data were reasonably
prepared on bases reflecting the best currently available estimates and
judgments as to the future financial performance of Arco and BP Amoco and the
strategic implications and operational benefits anticipated to result from the
Merger. We also have assumed, with your consent, that the Merger will be treated
as a tax-free reorganization for federal income tax purposes. Our opinion, as
set forth herein, relates to the relative values of Arco and BP Amoco. We are
not expressing any opinion as to what the value of the BP Amoco Securities
actually will be when issued to Arco stockholders pursuant to the Merger or the
prices at which the BP Amoco Securities will trade subsequent to the Merger. We
have not made or been provided with an independent evaluation or appraisal of
the assets or liabilities (contingent or otherwise) of Arco or BP Amoco nor have
we made any physical inspection of the properties or assets of Arco or BP Amoco.
In connection with our engagement, we were not requested to, and we did not,
solicit third party indications of interest in the possible acquisition of all
or a part of Arco. We express no view as to, and our opinion does not address,
the relative merits of the Merger as compared to any alternative business
strategies that might exist for Arco or the effect of any other transaction in
which Arco might engage. Our opinion is necessarily based upon information
available to us, and financial, stock market and other conditions and
circumstances existing and disclosed to us, as of the date hereof.
Salomon Smith Barney Inc. has acted as financial advisor to Arco in connection
with the proposed Merger and will receive a fee for such services contingent
upon the consummation of the Merger. We have in the past provided investment
banking services to Arco and BP Amoco unrelated to the proposed Merger, for
which services we have received compensation. In the ordinary course of our
business, we and our affiliates may actively trade or hold the securities of
Arco and BP Amoco for our own account or for the account of our customers and,
accordingly, may at any time hold a long or short position in such securities.
In addition, we and our affiliates (including Citigroup Inc. and its affiliates)
may maintain relationships with Arco, BP Amoco and their respective affiliates.
Our advisory services and the opinion expressed herein are provided for the
information of the Board of Directors of Arco in its evaluation of the proposed
Merger, and our opinion is not intended to be and does not constitute a
recommendation to any stockholder as to the form of BP Amoco Securities to be
elected by such stockholder in the proposed Merger or how such stockholder
should vote on the proposed Merger.
Based upon and subject to the foregoing, our experience as investment bankers,
our work as described above and other factors we deemed relevant, we are of the
opinion that, as of the date hereof, the Exchange Ratio is fair, from a
financial point of view, to the holders of Arco Common Stock.
Very truly yours,
SALOMON SMITH BARNEY INC.
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APPENDIX D
Board of Directors
BP Amoco p.l.c.
Britannic House
1 Finsbury Circus
London EC2M 7BA
March 30, 1999
Members of the Board:
We understand that BP Amoco p.l.c. ("BP Amoco"), an English public limited
company, and Atlantic Richfield Company ("ARCO"), a Delaware corporation,
propose to enter into an Agreement dated as of March 31, 1999 (the "Agreement"),
substantially in the form of the draft dated March 30, 1999, which provides,
among other things, for the acquisition of ARCO by BP Amoco (the "Acquisition").
Pursuant to the Acquisition, each issued and outstanding share of common stock
of ARCO (the "ARCO Common Stock"), other than shares held by any subsidiary of
ARCO, will be converted into the right to receive 4.92 (the "Exchange Ratio") BP
Amoco ordinary shares of 50 cents par value each ("BP Amoco Ordinary Shares")
which shall be delivered to ARCO shareholders either i) in the form of BP Amoco
American Depositary Shares ("ADSs"), each representing the right to receive six
BP Amoco Ordinary Shares, or ii) if elected by any such holder, in the form of
BP Amoco Ordinary Shares. The terms and conditions of the Acquisition are more
fully set forth in the Agreement.
You have asked for our opinion as to whether the Exchange Ratio is fair from
a financial point of view to BP Amoco.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
publicly available information of ARCO and BP Amoco, respectively;
(ii) reviewed certain internal financial statements and other financial data
of ARCO and BP Amoco respectively;
(iii) participated in discussions with ARCO management regarding ARCO's
financial performance and prospects;
(iv) discussed with BP Amoco management certain strategic, financial and
operational benefits which BP Amoco management anticipates from the
Acquisition;
(v) reviewed the likely pro forma impact of the Acquisition on BP Amoco's
future earnings and cash flow per ADS, consolidated capitalisation and
financial ratios;
(vi) reviewed the reported prices and trading activity for ARCO Common Stock
and BP Amoco Ordinary Shares and ADSs;
(vii) compared the financial performance of ARCO and BP Amoco and the prices
and trading activity of ARCO Common Stock and BP Amoco Ordinary Shares
and ADSs with that of certain other publicly traded companies
comparable with ARCO and BP Amoco;
(viii) reviewed the financial terms, to the extent publicly available, of
certain comparable transactions;
(ix) participated in discussions and negotiations among representatives of
ARCO and BP Amoco and their financial and legal advisors;
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(x) reviewed the Agreement and certain related documents; and
(xi) performed such other analyses and considered such other factors as we
have deemed appropriate.
We have assumed and relied upon, without independent verification, the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. We have also relied upon your commercial assessments of the merits
of the Acquisition. With respect to internal financial statements and other
financial data, including information relating to certain strategic, financial
and operational benefits anticipated from the Acquisition, we have assumed that
they have been reasonably prepared on bases reflecting the best currently
available estimates and judgements of the future financial performance of ARCO
and BP Amoco. We have not made any independent valuation or appraisal of the
assets or liabilities of ARCO or BP Amoco, nor have we been furnished with any
such appraisals. We have further assumed that the Acquisition will be
consummated on the terms set forth in the Agreement. Our opinion is necessarily
based on economic, market and other conditions as in effect on, and the
information made available to us as of, the date hereof.
We have acted as financial advisor to the Board of Directors of BP Amoco in
connection with this transaction and will receive a fee for our services,
including a transaction fee, which is contingent upon the consummation of the
Acquisition. In the past, Morgan Stanley & Co. Limited and its affiliates have
provided financial advisory and financing services for ARCO and BP Amoco and
have received fees for the rendering of these services.
It is understood that this letter is for the information of the Board of
Directors of BP Amoco in its evaluation of the Acquisition and our opinion is
not intended to be and does not constitute a recommendation to any stockholder
as to how to vote in respect of the Acquisition.
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the Exchange Ratio is fair from a financial point of view to BP
Amoco.
Very truly yours,
MORGAN STANLEY & CO. LIMITED
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APPENDIX E
SUMMARY LISTING PARTICULARS
<TABLE>
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1. LISTING PARTICULARS
Listing Particulars dated 15 July 1999 and prepared in accordance with the Listing
Rules made under Section 142 of the Financial Services Act 1986 have been published
and alone contain full details relating to BP Amoco and the BP Amoco ordinary shares
to be issued in connection with the combination of ARCO and BP Amoco.
The Directors of BP Amoco are satisfied that these Summary Listing Particulars
contain a fair summary of the key information set out in the Listing Particulars.
These Summary Listing Particulars have been authorised for issue by the London Stock
Exchange without approval of their contents.
2. INFORMATION ON BP AMOCO
On 31 December 1998, Amoco Corporation and The British Petroleum Company p.l.c.
merged. The merger was effected by The British Petroleum Company p.l.c. issuing
ordinary shares in the form of BP Amoco ADSs to holders of Amoco common stock.
Following this merger, Amoco became a wholly-owned subsidiary of The British
Petroleum Company p.l.c., which was renamed BP Amoco p.l.c.
BP Amoco is one of the world's top three petroleum and petrochemical groups on the
basis of market capitalisation, with a wide operational and geographic scope. The BP
Amoco Group has well established operations in Europe, North and South America,
Australia, Asia and parts of Africa.
BP Amoco's main businesses are exploration and production, refining and marketing,
and chemicals. Exploration and production's activities include oil and gas
exploration and field development and production (upstream activities), together
with pipeline transportation, gas processing and gas marketing (midstream
activities). The activities of refining and marketing include oil supply and trading
as well as oil refining and marketing (downstream activities). Chemicals' activities
include petrochemicals manufacturing and marketing. The BP Amoco Group provides high
quality technological support for all its businesses through its research and
engineering activities. Although relatively small in comparison to its main
business, the BP Amoco Group also contains one of the world's leading solar
businesses--BP Solarex.
The merger with Amoco resulted in BP's established oil production base in Alaska and
its increasing presence in the Gulf of Mexico being combined with Amoco's Gulf of
Mexico interests and its extensive oil and gas production in the US (other than
Alaska) to create the largest producer of oil and gas in the US. The addition of
Amoco's UK North Sea assets strengthened BP's position as the largest producer of
oil in the UK.
In refining and marketing, Amoco's strong presence and brand in the mid-west, east
and south-east of the US was reinforced by BP's existing business in the mid-west
and south-east. The merger with Amoco resulted in BP Amoco having approximately
16,300 service stations in the US and 12,000 in the rest of the world.
In chemicals, BP's polyethylene, acetic acid and acrylonitrile technology and
production was complemented by Amoco's leading position in purified teraphthalic
acid, paraxylene and metaxylene.
</TABLE>
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<TABLE>
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Details of BP Amoco Group reserves are set out in Part VI of the Listing
Particulars.
3. INFORMATION ON ARCO
ARCO began operations in 1866 as the Atlantic Petroleum Storage Company. The
company's present name, Atlantic Richfield Company, was adopted in 1966 after
Richfield Oil Corporation was merged into the company. Sinclair Oil Corporation was
merged into ARCO in 1969 and ARCO acquired the Anaconda Company in 1977. ARCO became
a Delaware corporation in 1985.
ARCO is a global oil and gas enterprise operating in two segments, exploration and
production and refining and marketing.
(a) Exploration and production
Exploration and production explores for, develops and produces oil and natural gas
worldwide. ARCO has operations in Alaska, the Gulf of Mexico and the Midcontinent
in the United States, and internationally in China, Indonesia, the United Kingdom
North Sea, Algeria and Venezuela. The largest element of ARCO's operations in the
United States (other than Alaska) is held by ARCO's 82 per cent owned subsidiary,
Vastar Resources, Inc.
(b) Refining and marketing
Refining and marketing is primarily responsible for petroleum refining, marketing
and transportation. ARCO's refining and marketing operations in the western United
States include two west coast refineries, over 1,700 branded retail gasoline
outlets in six western states of the United States and British Columbia, a marine
fleet, and supporting pipelines and terminals.
ARCO's turnover for the year ended 31 December 1998 was approximately $10.3 billion
and its gross assets as at that date were approximately $25.2 billion.
In 1997, ARCO announced its decision to increase its focus on its core exploration
and production areas through organic growth, acquisitions and joint ventures, and to
divest itself of non-strategic assets whilst retaining its position in west coast
refining and marketing. In connection with this strategy, ARCO has disposed of the
following:
- its 49.9 per cent equity interest in Lyondell Petrochemical Company (September
1997);
- its US coal operations (including its Black Thunder and Coal Creek mines in
Wyoming, its West Elk mine in Colorado, and its 65 per cent interest in three
mines in Utah) to Arch Coal (June 1998);
- its entire interest in ARCO Chemical Company to its former subsidiary,
Lyondell Petrochemical Company (July 1998); and
- its interest in two coal properties in Australia: the Blair Athol mine and the
Gordonstone mine (in the first quarter of 1999).
In June 1998, ARCO merged with Union Texas Petroleum Holdings, Inc. ("UTP") and in
this way acquired properties in the United Kingdom North Sea, Indonesia and
Venezuela as well as interests in three oil concessions in the Badin area of
Pakistan, interests in the Alpine field in Alaska and the Geismar petrochemical
plant in Louisiana. In line with its focus on its core oil and gas operations, ARCO
sold this petrochemical plant to Williams Energy Services in March 1999.
In late 1998, ARCO announced that it was undertaking a worldwide cost reduction
programme designed to reduce (1) upstream and downstream operating and support
costs; (2) exploration spending; and (3) costs for the corporate centre and support
services.
</TABLE>
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4. PROPOSED COMBINATION WITH ARCO
BP Amoco and ARCO have entered into a merger agreement together with Prairie
Holdings, Inc. pursuant to which they agreed that Prairie Holdings will be merged
with and into ARCO, with ARCO being the surviving corporation in the combination.
Pursuant to the combination, ARCO will become a subsidiary of BP Amoco.
BP Amoco's ordinary shares will remain listed on the London Stock Exchange, as well
as the Tokyo and certain European stock exchanges, and its ADSs will remain listed
on the New York Stock Exchange, as well as certain other North American stock
exchanges.
Under the terms of the combination, holders of ARCO common stock (other than BP
Amoco, ARCO and their respective subsidiaries) will be entitled to receive for each
ARCO common share 4.92 BP Amoco ordinary shares in the form of BP Amoco ADSs or, if
properly elected by the ARCO common shareholder, in the form of BP Amoco ordinary
shares.
The aggregate value of the consideration to be paid by BP Amoco pursuant to the
combination, calculated on the basis of the per share price of L12.20, being the
closing middle market quotation for BP Amoco ordinary shares as derived from the
Daily Official List of the London Stock Exchange on 9 July 1999 (the latest
practicable date prior to the printing of the Listing Particulars), multiplied by
1,672 million, being the estimated maximum number of BP Amoco ordinary shares to be
issued pursuant to the combination, which includes the number of BP Amoco ordinary
shares which may be issued in respect of outstanding ARCO options and contingent
stock and on conversion of ARCO preference shares, is approximately L20 billion ($31
billion), reflecting deductions made for the consideration receivable by ARCO with
respect to all outstanding ARCO options and applying an exchange rate of $1.5515:
L1, being the Noon Buying Rate on 9 July 1999.
Each BP Amoco ADS represents six BP Amoco ordinary shares and, as a consequence,
ARCO common shareholders will receive 0.82 of a BP Amoco ADS in exchange for each
share of ARCO common stock they own at the date on which the combination becomes
effective unless they make a special election to receive BP Amoco ordinary shares.
Holders of record of ARCO common stock may specifically elect within 42 days after
the date of completion of the combination to receive six BP Amoco ordinary shares
instead of all or any portion of the BP Amoco ADSs to which the holder would be
entitled. ARCO common shareholders who would otherwise have been entitled to receive
a fractional interest in a BP Amoco ADS, including any lot of less than six BP Amoco
ordinary shares representing such a fractional interest, will receive, instead, a
payment of cash, without interest and rounded to the nearest cent, equal to (a) the
amount of that fractional interest multiplied (b) by the average of the closing sale
prices for BP Amoco ADSs on the New York Stock Exchange for the ten trading days
ending on the fifth complete trading day prior to the completion of the combination
as reported in the Wall Street Journal.
If the proposed subdivision of the ordinary share capital of BP Amoco is approved by
the BP Amoco shareholders at the extraordinary general meeting and becomes effective
prior to completion of the combination, (a) the ARCO common shareholders will
receive 1.64 BP Amoco ADSs in exchange for each share of ARCO common stock they own
at the time the combination becomes effective and (b) the nominal value of each BP
Amoco ordinary share will be $0.25.
The combination is subject to the approval of the shareholders of BP Amoco and ARCO
at shareholders' meetings of the respective companies, together with the fulfilment
of certain other conditions, including obtaining regulatory consents.
The combination will become effective only following the receipt of such shareholder
approvals and the satisfaction of the other conditions to the combination. BP Amoco
and ARCO are working to complete the combination later this year.
</TABLE>
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The merger agreement may be terminated by mutual consent of the parties or by either
party in certain circumstances. In certain circumstances, a termination payment of
up to $450 million may become payable by ARCO to BP Amoco or $500 million by BP
Amoco to ARCO pursuant to the merger agreement. In addition, under circumstances
where BP Amoco is entitled to a termination payment, it may exercise its rights
under its stock option agreement with ARCO and realise a profit of up to $50
million.
5. PROCEDURE FOR RECEIVING BP AMOCO ADSS
It is expected that admission to the Official List of the London Stock Exchange of
the BP Amoco ordinary shares issued in connection with the combination of BP Amoco
and ARCO will become effective and dealings will commence at 8.00 am on the date on
which the combination becomes effective. Application has also been made to the New
York Stock Exchange for the BP Amoco ADSs issuable in the combination to be listed.
Promptly after the date on which the combination becomes effective, ARCO or the
exchange agent will mail to each holder of record of ARCO common stock, other than
ARCO common shareholders who hold ARCO common stock excluded from receiving any
consideration under the combination, a letter of transmittal for use in delivering
shares of ARCO common stock to the exchange agent. The letter of transmittal will
include a form of election by which a holder of record of ARCO common stock may
elect to receive BP Amoco ordinary shares instead of all or part of the BP Amoco
ADSs to which such holder is entitled. Elections to receive BP Amoco ordinary shares
will be accepted only until the close of business on the 42nd day following the date
of completion of the combination and must be made for BP Amoco ordinary shares in
multiples of six. Any holder of record failing to submit a properly completed form
of election within that period will automatically receive the consideration under
the combination in the form of BP Amoco ADSs upon delivery of such shareholder's
letter of transmittal and any certificates for ARCO common stock. A holder who
desires to receive all of the consideration under the combination to which the
holder is entitled in the form of BP Amoco ADSs is not required to wait for the
expiration of the 42-day period in order to receive the consideration under the
combination in that form. The form of election will permit a holder to request all
of such holder's consideration under the combination in ADS form. For holders
properly electing to receive their consideration in BP Amoco ordinary shares, any
entitlement to ordinary shares in excess of multiples of six will constitute a
fractional interest in a BP Amoco ADS and will be paid in cash. After delivery of an
ARCO common share certificate (if any) together with a duly executed and completed
letter of transmittal, each such holder will be entitled to receive (a) the number
of BP Amoco ADSs or BP Amoco ordinary shares, excluding any fractional interest in a
BP Amoco ADS, that such holder has the right to receive as consideration under the
combination and (b) a cheque in the amount (after giving effect to any required tax
withholdings) of (i) cash in lieu of any fractional interest in a BP Amoco ADS and
(ii) any cash dividends or other distributions announced in respect of such holder's
BP Amoco ADSs or BP Amoco ordinary shares with a record date after the date on which
the combination becomes effective and a payment date on or prior to the date that
the holder becomes entitled to receipt of the BP Amoco ADSs or ordinary shares as
described in this paragraph and not previously paid. A holder of uncertificated
shares of ARCO common stock will be entitled to receive the merger consideration in
BP Amoco ADSs and other amounts described above after the expiration of the 42-day
period for the ordinary share election without delivery of any letter of
transmittal. Any ARCO common share certificates which are surrendered will be
cancelled. No interest will be paid or accrued on any amount payable.
For the purpose of the combination an exchange agent, reasonably acceptable to ARCO,
shall be selected by BP Amoco. The registrar of BP Amoco will be Lloyds TSB
Registrars, The Causeway, Worthing, West Sussex BN99 6DA, England.
</TABLE>
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6. EXTRAORDINARY GENERAL MEETING ("EGM")
The EGM has been convened by BP Amoco for 1 September 1999. At the EGM the following
resolutions will be proposed:
(a) Resolution 1 will be proposed to approve the combination of ARCO and BP Amoco;
(b) Resolution 2 will be proposed to approve and give effect to each BP Amoco
ordinary share of $0.50 each being subdivided into two new BP Amoco ordinary shares
of $0.25 each;
(c) Resolution 3 will be proposed to increase the authorised share capital in BP
Amoco from L12,750,000 and $6,000,000,000 to L12,750,000 and $9,000,000,000 by
creating an additional 6,000,000,000 BP Amoco ordinary shares of $0.50 each or
12,000,000,000 new BP Amoco ordinary shares of $0.25 each;
(d) Resolution 4 will be proposed to give the BP Amoco board the authority to allot
BP Amoco ordinary shares up to an aggregate nominal amount of $1,885 million in
addition to the shares to be allotted to give effect to the combination;
(e) Resolution 5 will be proposed to give the BP Amoco board the power to disapply
shareholders' pre-emption rights in respect of issues of ordinary shares for
cash with an aggregate nominal value of $280 million, and
(f) Resolution 6 will be proposed to provide that the articles of association be
amended to provide, among other things, that voting on all resolutions at BP Amoco
shareholders' meetings, other than those of a procedural nature, will be
approved by a vote on a poll and to enable proxies to be appointed in
electronic form or by telephone, should the directors so determine.
The combination is conditional on the approval of Resolution 1. The approval of
Resolutions 2 to 6 is not required to complete the combination. Resolutions 3 to 5
will not become effective unless Resolution 1 is passed.
Resolutions 1 to 4 are being proposed as ordinary resolutions, which require the
approval of a majority of the votes cast in person or by proxy at the meeting.
Resolutions 5 and 6 are being proposed as special resolutions and require the
approval of a majority of not less than 75 per cent of the votes cast on a poll at
the EGM.
7. BP AMOCO CRUDE OIL AND NATURAL GAS RESERVES
The BP Amoco Group's UK and US fields are the main sources of its production of
crude oil and natural gas.
7.1. CRUDE OIL AND NATURAL GAS PRODUCTION
7.1.1. CRUDE OIL PRODUCTION
A total of 1,351,000 b/d of crude oil was produced by the BP Amoco Group from these
two regions in the year ended 31 December 1998, with the total produced
comprising 66 per cent of the BP Amoco Group's total worldwide production of
2,049,000 b/d.
7.1.2. NATURAL GAS PRODUCTION
In the year ended 31 December 1998, the BP Amoco Group's natural gas production in
the UK and US totaled 3,579 mmcf/d, comprising 62 per cent of the BP Amoco
Group's worldwide natural gas production of 5,808 mmcf/d.
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7.2. CRUDE OIL AND NATURAL GAS RESERVES
The BP Amoco Group has crude oil and natural gas reserves in 19 countries.
7.2.1. NET PROVED RESERVES
The estimated net proved reserves of the BP Amoco Group at 31 December 1998 are
summarised below:
</TABLE>
<TABLE>
<CAPTION>
NATURAL
GAS(B)
CRUDE OIL(A) (BILLIONS
(MILLIONS OF BARRELS) OF CUBIC
--------------------------------------------------------- FEET)
REST ---------
REST OF UNITED OF
UK EUROPE STATES WORLD TOTAL UK
--------- ----------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Proved developed........................................... 1,258 220 2,982 858 5,318 3,536
Proved undeveloped......................................... 270 51 979 686 1,986 1,107
1,528 271 3,961(c) 1,544 7,304 4,643
Associated Undertakings.................................... 1,128
Total BP Amoco Group and BP
Amoco share of associated
undertakings............................................. 8,432
<CAPTION>
REST OF UNITED REST OF
EUROPE STATES WORLD TOTAL
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Proved developed........................................... 324 9,637 6,054 19,551
Proved undeveloped......................................... 38 1,658 8,647 11,450
362 11,295 14,701 31,001
Associated Undertakings.................................... 1,766
Total BP Amoco Group and BP
Amoco share of associated
undertakings............................................. 32,767
</TABLE>
NOTES:
(a.) Crude oil includes natural gas liquids and condensate. Net proved
resources of crude oil exclude production royalties due to others.
(b.) Net proved reserves of natural gas exclude production royalties due to
others.
(c.) Proved reserves in the Prudhoe Bay Field in Alaska include a volume of
reserves upon which a net profits royalty will be payable over the life of
the field under the terms of the BP Prudhoe Bay Royalty Trust. This volume
varies from time to time, depending as it does on a number of factors
including the price of crude oil. As at 31 December 1998, it was estimated
as nil.
7.2.2. CHANGES IN RESERVES SINCE 31 DECEMBER 1998
Except as described in "Recent Developments" in paragraph 12
below, at 9 July 1999 no major discovery or significant event has
occurred that would have a material effect on the estimated
proved reserves reported at 31 December 1998.
Current levels of reserves are expected to substantially support
current levels of production for the foreseeable future.
8. ARCO CRUDE OIL AND NATURAL GAS RESERVES
8.1. CRUDE OIL AND NATURAL GAS RESERVES
The estimated net proved reserves of the ARCO Group at 31 December 1998 are
summarised below:
<TABLE>
<CAPTION>
PETROLEUM LIQUIDS
NATURAL GAS (BILLIONS
(MILLIONS OF BARRELS)
OF CUBIC FEET)
---------------------- ----------------------
REST OF REST OF
US(A) WORLD(B) US(C) WORLD(D)
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Proved reserves................................................................ 2,043 799 5,117 4,727
Proved developed reserves...................................................... 1,582 328 4,480 2,830
</TABLE>
NOTES:
(a.) includes 185 mmb proved and 109 mmb developed attributable to Vastar.
(b.) includes 61 mmb proved and 36 mmb developed attributable to the equity
interest in the LUKARCO joint venture.
(c.) includes 2,590 bcf proved and 2,071 bcf developed attributable to Vastar.
(d.) includes 401 bcf proved and 343 bcf developed attributable to the equity
interest in the LUKARCO joint venture.
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8.2. CRUDE OIL AND NATURAL GAS PRODUCTION
The ARCO Group's production of crude oil and natural gas for the three years
ended 31 December 1998, 1997 and 1996, which includes applicable volumes
produced under service contracts and production sharing agreements, is
summarised below:
<TABLE>
<CAPTION>
PETROLEUM LIQUIDS
(B/D)
-------------------- NATURAL GAS (MMCF/D)
REST OF --------------------------
YEARS ENDED 31 DECEMBER US(A) WORLD US(B) REST OF WORLD
- ------------------------------------------------------------------ --------- --------- --------- ---------------
<S> <C> <C> <C> <C>
1998.............................................................. 527,600 130,400 1,175 929
1997.............................................................. 557,900 82,600 1,066 844
1996.............................................................. 564,500 66,100 1,044 730
</TABLE>
NOTES:
(a.) includes 50,100, 50,700 and 48,800 b/d produced by Vastar in 1998, 1997
and 1996, respectively.
(b.) includes 988, 882 and 872 mmcf/d produced by Vastar in 1998, 1997 and
1996, respectively.
8.2.1 CHANGES IN RESERVES SINCE 31 DECEMBER 1998
As at 31 March 1999 no major discovery or significant event has
occurred that would have a material effect on the estimated
proved reserves reported at 31 December 1998.
Current levels of reserves are expected to substantially support
current levels of production for the foreseeable future.
9. INDEBTEDNESS
On 30 June 1999 the borrowings and indebtedness of the BP Amoco Group and
the ARCO Group (excluding their respective intra group borrowings) were as
follows:
<TABLE>
<CAPTION>
BP AMOCO ARCO
GROUP GROUP TOTAL
--------- --------- ---------
<S> <C> <C> <C>
$ $ $
Loans and other borrowings (unsecured)
-Bonds, debentures and notes............................................. 8,866 7,472 16,338
-Finance leases.......................................................... 1,857 23 1,880
Other borrowings............................................................. 5,127 -- 5,127
--------- --------- ---------
TOTAL........................................................................ 15,850 7,495 23,345
--------- --------- ---------
--------- --------- ---------
</TABLE>
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Of the BP Amoco Group indebtedness set forth above, $13,885 million has been
guaranteed by BP Amoco. Of the ARCO Group indebtedness $6,243 million has been
guaranteed by ARCO.
Save as disclosed above and in respect of the litigation disclosed in paragraph 15
below and apart from their respective intra-group liabilities, neither the BP Amoco
Group nor the ARCO Group had outstanding as at 30 June 1999 any loan capital issued,
or created but unissued, term loans, other borrowings or indebtedness in the nature
of borrowings, including bank overdrafts and liabilities under acceptances (other
than normal trade bills), acceptance credits or hire purchase commitments, or
obligations under finance leases, mortgages, charges, guarantees or other material
contingent liabilities.
Foreign currency amounts have been translated into US dollars at the exchange rates
prevailing on 30 June 1999.
At 30 June 1999, the BP Amoco Group had bank facilities of $3 billion. These
committed facilities are mainly with a number of international banks and half of
them expire in 2000 and
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half in 2001. Any borrowings under these facilities would be at pre-agreed rates.
Certain of these facilities support the BP Amoco Group's $6 billion commercial paper
programmes. As at 30 June 1999, $3,163 million was outstanding under these
programmes. In addition, in April 1999, BP Amoco updated and increased the value of
its Euro Debt Issuance Programme to $4 billion. As at 30 June 1999 $2,019 million
was outstanding under this programme.
At 30 June 1999, the ARCO Group had bank facilities of $3.1 billion. These
facilities consist of credit agreements with a number of domestic and international
banks, $100 million of which expires in 1999 and $3 billion in 2000. Any borrowings
under these facilities would be at pre-agreed rates. These facilities serve as an
alternative form of credit to the ARCO Group's $1,953 million commercial paper
programme.
10. WORKING CAPITAL
BP Amoco is of the opinion that, taking into account bonds in issue, available bank
facilities and assuming future utilisation of existing commercial paper programmes
and other money market facilities, the BP Amoco Group as enlarged by the combination
of ARCO and BP Amoco has sufficient working capital for its present requirements,
that is for at least the next 12 months from the date of this document.
11. FINANCIAL AND TRADING POSITION
Volatility in the general trading environment, particularly in relation to higher
crude oil prices, will affect results. Higher crude oil prices in second quarter
1999 are likely to cause an improvement in the second quarter 1999 trading
performance of BP Amoco and ARCO over the corresponding first quarter 1999
performance.
Except as described above and in paragraph 12 below, since 31 March 1999, being the
date to which its most recent interim financial statements have been published,
there has been no significant change in the financial or trading position of the BP
Amoco Group.
Except as described above, since 31 March 1999, being the date to which its most
recent interim financial statements have been published, there has been no
significant change in the financial or trading position of the ARCO Group.
12. RECENT DEVELOPMENTS
BP Amoco has announced a significant oil discovery in the Gulf of Mexico. Based on
information from the initial discovery well, it appears that the oil field may hold
at least one billion barrels of recoverable oil. BP Amoco has a 75 per cent interest
in the field. BP Amoco has also announced further significant discoveries in the
Gulf of Mexico, Angola and Azerbaijan.
13. MATERIAL CONTRACTS
13.1 BP AMOCO
The following contracts (not being contracts entered into in the ordinary course of
business) have been entered into by members of the BP Amoco Group, within the two
years immediately preceding the date of this document and are, or may be, material:
13.1.1. The agreement dated 11 August 1998 (amended on 22 October 1998) between The
British Petroleum Company p.l.c., Amoco Corporation and Eagle Holdings, Inc.
pursuant to which the parties agreed to merge their respective businesses as
BP Amoco p.l.c. and to conduct their operations on a unified basis;
13.1.2. An agreement dated 11 August 1998 between Amoco Corporation and The British
Petroleum Company p.l.c. pursuant to which Amoco Corporation granted The
British Petroleum Company p.l.c. an unconditional and irrevocable option to
purchase up to 19.9 per cent of the common shares of Amoco Corporation;
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13.1.3. The merger agreement with ARCO; and
13.1.4. The stock option agreement with ARCO.
Save as disclosed above, no contracts, other than contracts entered into in the
ordinary course of business, have been entered into by members of the BP Amoco Group
within the two years immediately preceding the date of this document which are, or
may be, material.
13.2. ARCO
The following contracts (not being contracts entered into in the ordinary course of
business) have been entered into by members of the ARCO Group within the two years
immediately preceding the date of this document and are, or may be, material:
13.2.1 The agreement and plan of merger dated 4 May 1998 (the "UTP Merger
Agreement") between (1) ARCO, (2) VWK Acquisition Corp., a Delaware corporation and
wholly owned subsidiary of ARCO, ("VWK") and (3) UTP pursuant to which VWK
was merged with and into UTP (the "UTP Merger") with UTP surviving the merger
as a subsidiary of ARCO.
Under the UTP Merger Agreement, prior to the merger, VWK purchased on 29 June 1998
more than 90 per cent of the outstanding common stock of UTP for a purchase
price of approximately $2.5 billion, or $29 per share. ARCO also purchased
substantially all of UTP's 7.14% Series A Cumulative Preferred Stock
(1,649,500 shares out of 1,750,000) for approximately $200 million, or $122
per share. The preferred stock becomes redeemable in 2008. ARCO made both
purchases pursuant to public tender offers for the two classes of equity
securities (the "UTP Offer"). The principal assets of UTP acquired pursuant
to the UTP Offer include properties in the United Kingdom North Sea,
Indonesia and Venezuela and interests in three oil concessions in the Badin
area of Pakistan, the Alpine field in Alaska and a 41.67 per cent interest in
the Geismar petrochemical plant in Louisiana.
The UTP Merger Agreement contains certain provisions relevant to the period prior to
the UTP Merger being effective including conditions to the merger,
non-solicitation of alternate proposals and conduct of business.
The UTP Merger Agreement contains certain customary representations and warranties
by ARCO and VWK regarding, inter alia, due organisation, good standing, the
activities of VWK, corporate authority, lack of conflict, information
supplied, financing and litigation. The UTP Merger Agreement also contains
certain customary representations and warranties by UTP with respect to
itself and its subsidiaries, regarding, inter alia, due organisation, good
standing, capital structure, corporate authority, lack of conflict,
government filings, reports and financial statements, litigation, compliance
with environmental laws, absence of certain changes or events, title to
properties, tax matters and compliance with the United States Employee
Retirement Income Security Act of 1974.
In the UTP Merger Agreement, ARCO agreed to honour all of UTP's obligations to
indemnify the directors and officers of UTP and its subsidiaries for acts or
omissions by such directors and officers occurring at or prior to the
effective time of the UTP Merger. In addition, ARCO agreed for a period of
six years after the effective time of the UTP Merger, to cause to be
maintained in effect the policies of directors' and officers' liability
insurance maintained by UTP, subject to a maximum premium.
In the UTP Merger Agreement, ARCO also agreed to indemnify, defend and hold harmless
the officers and directors of UTP and its subsidiaries against all losses,
claims, damages, liabilities, fees and expenses, judgements, fines and
amounts paid in settlement arising out of actions or omissions at or prior to
the effective time of the
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UTP Merger in connection with the UTP Merger Agreement, a stockholder
agreement dated 4 May 1998 between ARCO and KKR Partners II, L.P., the UTP
Offer, the UTP Merger and the other transactions contemplated by the UTP
Merger Agreement and the stockholder agreement.
The UTP Merger Agreement is governed by the laws of the State of Delaware.
13.2.2 The agreement and plan of merger dated 18 June 1998 (the "Lyondell Merger
Agreement") between (1) ARCO Chemical Company, (2) Lyondell Acquisition
Corporation ("Acquisition Corp.") a Delaware corporation and wholly-owned
subsidiary of Lyondell Petrochemical Company (itself a former subsidiary of
ARCO) ("Lyondell") and (3) Lyondell pursuant to which Acquisition Corp. was
merged with and into ARCO Chemical Company (the "Lyondell Merger") with ARCO
Chemical Company surviving the merger as a subsidiary of Lyondell.
Under the Lyondell Merger Agreement on 28 July 1998, ARCO completed the sale of its
80,000,001 shares of ARCO Chemical Company stock to Lyondell for $57.75 per
share, or total cash proceeds of approximately $4.6 billion. The sale was
made by a public tender offer by Lyondell (the "Lyondell Offer") for all of
the outstanding shares of ARCO Chemical Company stock.
The Lyondell Merger Agreement contains certain provisions relevant to the period
prior to the Lyondell Merger being effected including conditions to the
merger, non-solicitation of alternate proposals and conduct of business.
The Lyondell Merger Agreement contains certain customary representations and
warranties by ARCO Chemical Company regarding, inter alia, due organisation,
its subsidiaries, capitalisation, corporate authority, lack of conflicts,
government filings, reports and financial statements, information supplied,
absence of certain changes or events, litigation, compliance with the United
States Employee Retirement Income Security Act of 1974 ("ERISA"),
environmental matters, taxes and intellectual property. The Lyondell Merger
Agreement also contains customary representations and warranties by Lyondell
and Acquisition Corp. regarding, inter alia, due organisation, corporate
authority, consents and approvals, no violations or conflicts, information
supplied and financing.
In the Lyondell Merger Agreement, Lyondell also agreed for a period of not less than
six years to indemnify the officers and directors of ARCO Chemical Company
from liabilities for acts or omissions occurring at or prior to the effective
time of the Lyondell Merger.
In addition, pursuant to the Lyondell Merger Agreement, Lyondell agreed that, for
six years after the effective time of the Lyondell Merger, it would indemnify and
hold harmless each then present and former director and officer of ARCO
Chemical Company against any costs or expenses, judgements, fines, losses,
claims, damages or liabilities (to the extent that such were not otherwise
covered and paid by insurance) incurred in connection with any claim, action,
suit, proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of or pertaining to matters existing or occurring
at or prior to the effective time of the Lyondell Merger.
Pursuant to the Lyondell Merger Agreement, ARCO also agreed, for a period of six
years after the effective time of the Lyondell Merger, to maintain in effect
policies of directors' and officers' liability insurance covering the
officers, directors and employees of ARCO Chemical Company covered by ARCO's
directors' and officers' liability insurance with similar terms and
conditions with respect to claims arising from or
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related to facts or events which occurred at or before the effective time of
the Lyondell Merger, subject to a maximum premium.
The Lyondell Merger Agreement is governed by the laws of the state of Delaware.
In connection with the negotiation of the Lyondell Merger Agreement, ARCO, ARCO
Chemical Company, and Lyondell also entered into a tax agreement dated 18
June 1998 (the "Tax Agreement").
The Tax Agreement provides that the parties will make a section 338(h)(10) election
for federal income tax purposes and a similar election for certain state
income tax purposes to treat the disposition of the shares pursuant to the
Lyondell Offer and the Lyondell Merger as, in effect, a sale of assets by
ARCO Chemical Company and its subsidiaries (the "ARCO Chemical Group"). As a
result, Lyondell's base cost in the assets of the ARCO Chemical Group for
such federal and state income tax purposes is equal to the amount paid by
Lyondell for the shares plus the amount of ARCO Chemical Group liabilities
(the "Gross Purchase Price"), and the ARCO Chemical Group will recognise
taxable gains equal to the excess of the Gross Purchase Price over its
adjusted tax base in the assets (the "Sale Gain"). Because ARCO owned more
than 80 per cent of the outstanding shares, the ARCO Chemical Group was part
of the affiliated group of corporations headed by ARCO that file a U.S.
consolidated return (the "ARCO Group"). Accordingly, the entire Sale Gain
will be included in the consolidated tax return filed by the ARCO Group, and
under the Tax Agreement ARCO will be liable for the tax attributable thereto,
even though ARCO owned less than 100 per cent of the outstanding shares.
The Tax Agreement also provides that, other than taxes attributable to the Sale
Gain, ARCO Chemical Company and Lyondell will be responsible for the tax liabilities
of the ARCO Group that are attributable to the ARCO Chemical Group. ARCO
Chemical Company and Lyondell will also indemnify ARCO against any taxes
attributable to the recapture of dual consolidated losses incurred by the
ARCO Chemical Group and reflected on an ARCO Group consolidated return.
ARCO and Lyondell entered into a related guarantee dated 18 June 1998, pursuant to
which Lyondell, as of the date of the completion of the Lyondell Offer,
guaranteed the obligations of ARCO Chemical Company under the Tax Agreement
and previous tax agreements between ARCO Chemical Company and ARCO.
13.2.3 The purchase and sale agreement dated 22 March 1998 (the "Purchase and Sale
Agreement") between (1) ARCO, (2) ARCO Uinta Coal Company (the "Seller"), (3)
Arch Western Acquisition Corporation (the "Buyer") and (4) Arch Coal Inc.
("Arch") pursuant to which the Buyer acquired from the Seller all the shares
of Mountain Coal Company LLC ("MCC"), all the shares of a Delaware limited
liability company formed by the Seller ("AUS") and 65 per cent of the shares
in Canyon Fuel Company LLC ("CFC"). The aggregate purchase price paid under
the Purchase and Sale Agreement was approximately $390 million plus
post-closing adjustments. The principal assets acquired by the Buyer pursuant
to the Purchase and Sale Agreement include Black Thunder and Coal Creek mines
in Wyoming, the West Elk mine in Colorado and a 65 per cent interest in three
mines in Utah.
The Purchase and Sale Agreement contains certain customary representations and
warranties by ARCO and the Seller regarding, INTER ALIA, due organisation,
its subsidiaries, capitalisation, corporate authority, lack of conflicts,
government filings, reports and financial statements, information supplied,
absence of certain changes or events, litigation, compliance with ERISA,
environmental matters, taxes and authorisations. The Purchase and Sale
Agreement also contains customary
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representations and warranties by Arch and the Buyer regarding, INTER ALIA,
due organisation, corporate authority, consents and approvals, no violations,
information supplied and financing.
In addition, Arch and the Buyer agreed to indemnify and hold harmless the officers
and directors of the Seller and ARCO and the Seller agreed to indemnify and
hold harmless the officers and directors of Arch and the Buyer, in each case,
against losses for acts or omissions occurring at or prior to the effective
time of the Purchase and Sale Agreement.
The Purchase and Sale Agreement is governed by the laws of the State of Delaware and
is under the jurisdiction of the courts of the State of New York.
In connection with the negotiation of the Purchase and Sale Agreement, (1) ARCO, (2)
Delta Housing, Inc, a subsidiary of ARCO, ("Delta"), (3) Arch, (4) the Buyer
and (5) Arch Western Resources LLC ("AWR") also entered into a contribution
agreement dated 22 March 1998 (the "Contribution Agreement").
Under the Contribution Agreement a joint venture was established by ARCO and the
Buyer and a joint venture company, AWR, was constituted to which ARCO and the
Buyer contributed certain companies and businesses as follows.
Pursuant to the Contribution Agreement, on 1 June 1998 ARCO transferred its shares
in Thunder Basin Coal Company LLC ("TBCC") and Delta transferred its
shareholdings in State Leases ("SL") to AWR in exchange for the issue to ARCO
of 0.5 per cent of the common shares and 0.5 per cent of the preferred shares
in AWR. ARCO then transferred its entire shareholdings in AWR to Delta. In
return, the Buyer transferred its shareholdings in Arch of Wyoming LLC
("AOW"), AUS, MCC and CFC to AWR in exchange for 99.5 per cent of the common
shares in AWR. Thereafter, Delta received a distribution of $675 million from
AWR arising from proceeds of a loan incurred by AWR which Delta guaranteed.
The Contribution Agreement contains certain customary representations and warranties
by ARCO and Delta to AWR regarding, INTER ALIA, due organisation, no
violations, approvals and consents, its subsidiaries, capitalisation, taxes,
authorisations, litigation and ERISA. The Contribution Agreement also
contains customary representations and warranties by Arch and the Buyer to
ARCO, Delta and AWR, regarding, INTER ALIA, due organisation, no violations,
approvals and consents, its subsidiaries, capitalisation, taxes,
authorisations, litigation and ERISA.
The Contribution Agreement is governed by the laws of the State of Delaware and is
under the jurisdiction of the courts of the State of New York.
13.2.4 The merger agreement with BP Amoco; and
13.2.5 The stock option agreement with BP Amoco.
Save as disclosed above, no contracts, other than contracts entered into in the
ordinary course of business, have been entered into by members of the ARCO Group
within the two years immediately preceding the date of this document which are, or
may be material.
14. YEAR 2000 ISSUES
The Year 2000 issue could result in system failure or miscalculations causing
disruptions of operations. Both BP Amoco and ARCO have implemented programmes which
seek to ensure that they do not suffer business losses from failures due to the Year
2000 problem. They are taking positive steps to minimise the effect of the Year 2000
date change before, after and during the Year 2000 on their operations.
BP Amoco's planned remediation is scheduled for completion by 30 September 1999.
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ARCO is addressing the Year 2000 issue in three major areas: (i) computing
integrity; (ii) asset integrity; and (iii) commercial integrity. Remediation of
these three areas is expected to be completed by September 1999. ARCO believes that
the impact of any Year 2000 failure will most likely be localised. However, as a
result of the general uncertainty inherent in the Year 2000 problem, particularly
the possible failure of critical third parties to address their Year 2000 problems,
ARCO is unable to assess the likelihood of significant disruptions in one or more of
its locations.
15. LITIGATION
15.1. BP AMOCO
Other than as set out below, no member of the BP Amoco Group is or has been engaged
in any legal or arbitration proceedings, nor, so far as the directors of BP Amoco
are aware, are any such proceedings pending or threatened which may have, or have
had during the 12 months preceding the date of this document, a significant effect
on the BP Amoco Group's financial position.
15.1.1. Approximately 200 lawsuits were filed in state and federal courts in Alaska
seeking compensatory and punitive damages arising out of the Exxon Valdez oil spill
in Prince William Sound in March 1989. Most of those suits named Exxon,
Alyeska Pipeline Service Company ("Alyeska"), which operates the oil
terminal in Valdez, and the seven oil companies which own Alyeska. Alyeska
initially responded to the spill until the response was taken over by Exxon.
BP Amoco owns a 50 per cent interest in Alyeska through a subsidiary of BP
America Inc. Alyeska and its owners have settled all of the claims against
them under these lawsuits. Exxon has indicated that it may file a claim for
contribution against Alyeska for a proportion of the costs and damages which
it has incurred. If any claims are asserted by Exxon which affect Alyeska
and its owners, BP Amoco would defend the claims vigorously.
15.1.2. The IRS has challenged the application of certain foreign income taxes as
credits against BP Amoco Corporation's US taxes that otherwise would have been
payable for the years 1980 to 1992. On 18 June 1992, the IRS issued a
statutory Notice of Deficiency for additional taxes in the amount of $466
million, plus interest, relating to 1980 to 1982. BP Amoco filed a petition
in the US Tax Court contesting the IRS statutory Notice of Deficiency. Trial
on the matter was held in April 1995, and a decision was rendered by the US
Tax Court in March 1996, in BP Amoco's favour. The IRS has appealed the Tax
Court's decision to the US Court of Appeals for the Seventh Circuit and on
11 March 1998 the Seventh Circuit affirmed the Tax Court's prior decision. A
comparable adjustment of foreign tax credits for each year has been proposed
for the years 1983 to 1992 based upon subsequent IRS audits. BP Amoco
Corporation believes that the foreign income taxes have been reflected
properly in its US federal tax returns. Consequently, this dispute is not
expected to have a material adverse effect on liquidity, results of
operations, or the financial position of the BP Amoco Group.
15.2. ARCO
Other than as set out below, no member of the ARCO Group is or has been engaged in
any legal or arbitration proceedings, nor, so far as the directors of ARCO are
aware, are any such proceedings pending or threatened which may have, or have had
during the 12 months preceding the date of this document, a significant effect on
the ARCO Group's consolidated financial position.
15.2.1. The State of Montana, along with the United States and the Salish and
Kootenai Tribes (the "Tribes"), have been seeking recovery from ARCO for alleged
injuries to
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natural resources resulting from mining and mineral processing businesses
formerly operated by the Anaconda Company. In April 1999, the court approved
two consent decrees pursuant to which ARCO has agreed to pay $135 million
for settlement of $561 million of the State of Montana's $767 million
natural resource damage claim relating to the Clark Fort 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. As at the
date of this document, ARCO is unable to predict the scope or amount of any
such liability.
15.2.2. Following the Exxon Valdez oil spill in Prince William Sound in March 1989,
a number of federal, state and private plaintiff law suits were brought against
Exxon, Alyeska Pipeline Service Company ("Alyeska"), and Alyeska's owner
companies (including ARCO which has a 22 per cent interest). As at the date
of this document, while all of the federal, state and private plaintiff law
suits have been settled, certain issues relating to the liability for the
spill remain unresolved between Exxon and Alyeska (including its owner
companies).
15.2.3 Lawsuits, including purported class actions, are pending or threatened
against ARCO and others, seeking damages, abatement of the housing units, and
compensation for medical problems arising out of the presence of lead-based
paint in certain housing units. As at the date of this document, ARCO is
unable to predict the scope or amount of any such liability.
15.2.4 In June 1994 a purported class action was filed by several individuals in
Pittsburgh, Pennsylvania against ARCO and Babcock & Wilcox Company ("B&W") on behalf
of persons who lived or worked in Apollo and Parks Township, Pennsylvania and
areas downwind of those places, from 1957 up to the present day. The claim
relates to exposure to releases of radioactive and other toxic substances
from two nuclear materials processing facilities and seeks damages for death
and personal injury, diminution in property values, costs of decontamination
of property, injunctive relief requiring the defendants to establish a fund
for medical monitoring and punitive damages. On 17 September 1998, in a trial
of eight "test case" plaintiffs, a verdict of $33.7 million was returned
jointly and severally against ARCO and B&W and another $2.8 million against
B&W alone. On 24 September 1998 these eight "test-case" plaintiffs withdrew
their claim for punitive damages against ARCO. On 29 June 1999, the court
granted ARCO's and B&W's motion for a new trial as to these eight test case
plaintiffs. As at the date of this document the claims of these and other
plaintiffs remain for trial and ARCO is unable to predict the scope or amount
of any such liability.
15.2.5
(a) In June 1996, a case was brought in the Superior Court of California for the
County of San Diego against ARCO and eight other refiner-marketers of CARB
reformulated gasoline claiming that ARCO and the eight other refinery-marketers
conspired to restrict the supply and thereby raise the price of CARB gasoline
in violation of California State anti-trust and unfair competition law. In
October 1997 the court granted a motion for summary judgement and in January
1998 granted a motion for a new trial. These motions are under appeal as at the
date of this document.
(b) In January 1998, a case was brought in the District Court for the Southern
District of California on behalf of a purported class of wholesale purchasers
of CARB gasoline claiming violations of federal anti-trust laws based upon
factual allegations that are essentially the same as those in paragraph
15.2.5(a) above.
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(c) In October 1998, ARCO was served with a complaint filed in the Superior Court
of California for the County of Sacramento on behalf of a purported class of
all direct or indirect purchasers of California diesel fuel between 19 March
1996 and 31 December 1997 against all California refiners of California diesel
fuel. The complaint alleges violations of various state statutes by alleged
conspiracy to fix prices of California diesel fuel.
As at the date of this document, ARCO is unable to predict the scope or amount of
any liability for cases (a) to (c) set out in this paragraph 14.2.5.
16. AVAILABILITY OF LISTING PARTICULARS
Copies of the Listing Particulars are available free of charge from the Company
Secretary, BP Amoco p.l.c., Britannic House, 1 Finsbury Circus, London EC2M 7BA,
England during normal business hours on any weekday (Saturdays, Sundays and public
holidays excepted) from 15 July 1999 to the date that the combination of ARCO and BP
Amoco becomes effective. Non-US shareholders may also obtain a copy of the Listing
Particulars free of charge by calling the Listing Particulars Request Line on 0800
500 220 (24 hours). US shareholders may obtain a copy by calling the Listing
Particulars Request Line on (877) 638 5672 (8:30 am - 8:00 pm New York time). The
Listing Particulars may also be inspected at the offices of Linklaters at One Silk
Street, London EC2Y 8HQ and at the Company Announcements Office during normal
business hours on any weekday (Saturdays, Sundays and public holidays excepted)
during the same period.
17. DOCUMENTS FOR INSPECTION
In addition to the Listing Particulars, the following documents may be inspected at
the offices of Linklaters at One Silk Street, London EC2Y 8HQ, England, during
normal business hours on any weekday (Saturdays, Sundays and public holidays
excepted) from 15 July 1999 until the date that the combination of ARCO and BP Amoco
becomes effective and at the Extraordinary General Meeting:
17.1. the memorandum and articles of association of BP Amoco in their current form;
17.2. the memorandum and articles of association of BP Amoco in their proposed form,
assuming that the resolution proposed at the EGM which amends the articles of
association (Resolution 6) is passed and the combination and subdivision have
occurred;
17.3. the audited consolidated accounts of the BP Amoco Group for the two financial years
ended 31 December 1998 and the quarterly results announcement for the three month
period ended 31 March 1999;
17.4. the audited consolidated accounts of the ARCO Group for the two financial years
ended 31 December 1998 and the Form 10-Q filed with the SEC for the three-month
period ended 31 March 1999;
17.5. the letter from Ernst & Young regarding the summary of differences between US GAAP
and UK GAAP, set out in Part III of the Listing Particulars;
17.6. the letter from Ernst & Young regarding the pro forma financial information set out
in Part IV of the Listing Particulars;
17.7. the Registration Statement on Form F-4;
17.8. the circular to BP Amoco Shareholders relating to the merger of BP and Amoco dated
30 October 1998;
17.9. the share exchange agreement among BP Amoco, ARCO and ARCO DSC II, Inc. referred to
in paragraph 6 of Section A of Part V of the Listing Particulars;
</TABLE>
E-15
<PAGE>
<TABLE>
<S> <C>
17.10. the letter from Morgan Stanley & Co. Limited to BP Amoco dated 30 March 1999 giving
its opinion as of that date that the exchange ratio was fair from a financial point
of view to BP Amoco;
17.11. the service contracts of the directors of BP Amoco referred to in paragraph 8.3 of
Part VIII of the Listing Particulars;
17.12. the Form 6-K of BP Amoco filed with the SEC on 7 July 1999;
17.13. the material contracts referred to in paragraph 10 of Part VIII of the Listing
Particulars; and
17.14. the written consents referred to in paragraph 12 of Part VIII of the Listing
Particulars.
15 July 1999.
</TABLE>
E-16
<PAGE>
APPENDIX F
PROPOSED AMENDMENTS TO
RESTATED CERTIFICATE OF INCORPORATION
OF ATLANTIC RICHFIELD COMPANY
The Restated Certificate of Incorporation shall be amended to delete in
their entirety Article V (Annual and Special Meetings of Stockholders), Article
VI (Directors), Article VII (Prohibition of "Greenmail") and Article VIII
(Director's Liability) and to substitute therefor the following Articles V, VI
and VII:
"Article V
Directors
A. The number of directors of the Company shall be fixed from time to time
pursuant to the by-laws of the Company. Elections of directors need not be by
written ballot except and to the extent provided in the by-laws of the Company.
B. A director of the Company shall not be liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except to the extent that such exemption from liability or limitation thereof is
not permitted under the Delaware General Corporation Law as currently in effect
or as the same may hereafter be amended. No amendment, modification or repeal of
this Article V shall adversely affect any right or protection of a director that
exists at the time of such amendment, modification or repeal.
Article VI
By-Laws
The board of directors of the Company is expressly authorized to adopt,
amend or repeal by-laws of the Company.
Article VII
Action by Shareholders
Any action required or permitted to be taken by the holders of any class or
series of stock of the Company, including but not limited to the election of
directors, may be taken by written consent or consents but only if such consent
or consents are signed by all holders of the class or series of stock entitled
to vote on such action."
F-1
<PAGE>
Exhibit 99(d)
[LOGO] ATLANTIC RICHFIELD COMPANY -- COMMON STOCK
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THE COMPANY FOR THE SPECIAL MEETING ON AUGUST 30, 1999
The undersigned hereby constitutes and appoints Allan L. Comstock,
P Terry G. Dallas and Bruce G. Whitmore, and each of them, true and
lawful agents and proxies with full power of substitution in each to
R represent the undersigned at the special meeting of stockholders of
ATLANTIC RICHFIELD COMPANY to be held at the Los Angeles Marriott
O Downtown, 333 South Figueroa Street, Los Angeles, California on Monday,
August 30, 1999, at 11:00 a.m. local time, and at any adjournments
X thereof, in the manner directed on this proxy on the matter of the
adoption of the merger agreement among ARCO, BP Amoco, and a U.S.
Y subsidiary of BP Amoco, and in their discretion on all other matters
properly coming before the special meeting.
<TABLE>
<S> <C>
Proposal 1: Adoption of the Agreement and Plan of Merger, COMMENTS OR CHANGE OF ADDRESS
dated as of March 31, 1999, as amended as of July 12,
1999, among BP Amoco p.l.c., an English public ----------------------------------------
limited company, Atlantic Richfield Company, a
Delaware corporation, and Prairie Holdings, Inc., a ----------------------------------------
Delaware corporation and wholly-owned subsidiary of
BP Amoco. ----------------------------------------
----------------------------------------
(If you have written in the above space,
please mark the corresponding box on the
reverse side of this card.)
You are encouraged to specify your choices by marking the appropriate boxes, SEE
REVERSE SIDE, but you need not mark any boxes if you wish to vote in accordance -----------
with the Board of Directors' recommendation. This Proxy cannot be voted unless SEE REVERSE
you sign and return it. SIDE
-----------
</TABLE>
- --------------------------------------------------------------------------------
* PLEASE CAREFULLY DETACH HERE AND RETURN THIS PROXY IN THE ENCLOSED ENVELOPE *
<PAGE>
Please mark your 0444
/X/ votes as in this
example.
This proxy, when properly executed, will be voted in the manner directed
herein. If no direction is made, this proxy will be voted FOR proposal 1.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------- -------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 1. SPECIAL ACTION
- -------------------------------------------------------------------------------- -------------------------------------------------
<S> <C>
Comments or change of address on
reverse side. / /
FOR AGAINST ABSTAIN Receive future mailings via
electronic mail. / /
1. Adoption of the merger agreement among ARCO, / / / / / /
BP Amoco and a subsidiary of BP Amoco (see reverse).
Will attend special meeting. / /
- -------------------------------------------------------------------------------- -------------------------------------------------
</TABLE>
SIGNATURE(S)___________________________________________ DATE_________________
Note: Please sign exactly as name appears hereon. Joint
owners should each sign. When signing as attorney,
executor, administrator, trustee or guardian, please
give full title as such.
- --------------------------------------------------------------------------------
* Please carefully detach here and return this proxy in the enclosed envelope *
[LOGO]
Dear Stockholder:
A special meeting of stockholders of Atlantic Richfield Company will be held on
August 30, 1999 to vote on the proposed adoption of the merger agreement among
ARCO, BP Amoco and a U.S. subsidiary of BP Amoco. We urge you to promptly
complete, sign, date and return the proxy card in the envelope provided OR take
advantage of new and convenient ways by which you can vote your shares either by
telephone or via the Internet. This eliminates the need to return the proxy
card.
To vote shares by telephone or via the Internet, you must have your proxy card
and social security number available. The series of numbers that appear on the
top of your proxy card must be used to access the system.
1. To vote by telephone: On a touch-tone telephone call 1-877-779-8683 toll free
from the US and Canada.
2. To vote via the Internet: Access the World Wide Web site
http://www.eproxyvote.com/arc.
Voting by telephone or via the Internet is available 24 hours a day, 7 days a
week.
Your vote by telephone or via the Internet authorizes the named proxies in the
same manner as if you completed, signed, dated and mailed the proxy card.
If you choose to vote your shares by telephone or via the Internet, there is no
need for you to mail back your proxy card.
YOUR VOTE IS IMPORTANT. THANK YOU FOR VOTING.
<PAGE>
[GRAPHIC]
ATLANTIC RICHFIELD COMPANY
$3.00 CUMULATIVE CONVERTIBLE PREFERENCE STOCK
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THE COMPANY FOR THE SPECIAL MEETING ON AUGUST 30, 1999
P The undersigned hereby constitutes and appoints Allan L. Comstock, Terry G.
Dallas and Bruce G. Whitmore, and each of them, true and lawful agents and
R proxies with full power of substitution in each to represent the
undersigned at the special meeting of stockholders of ATLANTIC RICHFIELD
O COMPANY to be held at the Los Angeles Marriott Downtown, 333 South Figueroa
Street, Los Angeles, California on Monday, August 30, 1999, at 11:00 a.m.
X local time, and at any adjournments thereof, in the manner directed on this
proxy on the matter of the adoption of the merger agreement among ARCO, BP
Y Amoco, and a U.S. subsidiary of BP Amoco, and in their discretion on all
other matters properly coming be fore the special meeting.
Proposal 1: Adoption of the Agreement and Plan of COMMENTS OR CHANGE OF ADDRESS
Merger, dated as of March 31, 1999, as
amended as of July 12, 1999, among BP ----------------------------
Amoco p.l.c., an English public limited ----------------------------
company, Atlantic Richfield Company, a ----------------------------
Delaware corporation, and Prairie ----------------------------
Holdings, Inc., a Delaware corporation (If you have written
and wholly-owned subsidiary of BP Amoco. in the above space,
please mark the
corresponding box on
the reverse side of
this card.)
You are encouraged to specify your choices by marking the appropriate boxes, See
Reverse Side, but you need not mark any boxes if you wish to vote in accordance
with the Board of Directors recommendation. This Proxy cannot be voted unless
you sign and return it.
SEE REVERSE SIDE
- --------------------------------------------------------------------------------
Please carefully detach here and return this proxy in the enclosed envelope
<PAGE>
/X/ Please mark
your votes as
in this example.
This proxy, when properly executed, will be voted in the manner directed
herein. If no direction is made, this proxy will be voted FOR proposal 1.
<TABLE>
<CAPTION>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 1. SPECIAL ACTION
<S> <C>
Comments or change of address on reverse side. / /
1. Adoption of the merger agreement among ARCO, FOR AGAINST ABSTAIN Receive future mailings via electronic mail. / /
BP Amoco and a subsidiary of BP Amoco (see / / / / / /
reverse). Will attend special meeting. / /
</TABLE>
SIGNATURE(S) DATE
------------------------------------------ ----------------
NOTE: Please sign exactly as name appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such.
- --------------------------------------------------------------------------------
Please carefully detach here and return this proxy in the enclosed envelope
[GRAPHIC]
Dear Stockholder:
A special meeting of stockholders of Atlantic Richfield Company will be held on
August 30, 1999 to vote on the proposed adoption of the merger agreement among
ARCO, BP Amoco and a U.S. subsidiary of BP Amoco. We urge you to promptly
complete, sign, date and return the proxy card in the envelope provided OR take
advantage of new and convenient ways by which you can vote your shares either by
telephone or via the Internet. This eliminates the need to return the proxy
card.
To vote shares by telephone or via the Internet, you must have your proxy card
and social security number available. The series of numbers that appear on the
top of your proxy card must be used to access the system.
1. To vote by telephone: On a touch-tone telephone call 1-877-779-8683 toll free
from the US and Canada.
2. To vote via the Internet: Access the World Wide Web site
http://www.eproxyvote.com/arc.
Voting by telephone or via the Internet is available 24 hours a day, 7 days a
week.
Your vote by telephone or via the Internet authorizes the named proxies in the
same manner as if you completed, signed, dated and mailed the proxy card.
If you choose to vote your shares by telephone or via the Internet, there is
no need for you to mail back your proxy card.
YOUR VOTE IS IMPORTANT. THANK YOU FOR VOTING.
<PAGE>
[GRAPHIC]
ATLANTIC RICHFIELD COMPANY
$2.80 CUMULATIVE CONVERTIBLE PREFERENCE STOCK
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THE COMPANY FOR THE SPECIAL MEETING ON AUGUST 30, 1999
P The undersigned hereby constitutes and appoints Allan L. Comstock, Terry G.
Dallas and Bruce G. Whitmore, and each of them, true and lawful agents and
R proxies with full power of substitution in each to represent the
undersigned at the special meeting of stockholders of ATLANTIC RICHFIELD
O COMPANY to be held at the Los Angeles Marriott Downtown, 333 South Figueroa
Street, Los Angeles, California on Monday, August 30, 1999, at 11:00 a.m.
X local time, and at any adjournments thereof, in the manner directed on this
proxy on the matter of the adoption of the merger agreement among ARCO, BP
Y Amoco, and a U.S. subsidiary of BP Amoco, and in their discretion on all
other matters properly coming be fore the special meeting.
Proposal 1: Adoption of the Agreement and Plan of COMMENTS OR CHANGE OF ADDRESS
Merger, dated as of March 31, 1999, as
amended as of July 12, 1999, among BP ----------------------------
Amoco p.l.c., an English public limited ----------------------------
company, Atlantic Richfield Company, a ----------------------------
Delaware corporation, and Prairie ----------------------------
Holdings, Inc., a Delaware corporation (If you have written
and wholly-owned subsidiary of BP Amoco. in the above space,
please mark the
corresponding box on
the reverse side of
this card.)
You are encouraged to specify your choices by marking the appropriate boxes, See
Reverse Side, but you need not mark any boxes if you wish to vote in accordance
with the Board of Directors recommendation. This Proxy cannot be voted unless
you sign and return it.
SEE REVERSE SIDE
- --------------------------------------------------------------------------------
Please carefully detach here and return this proxy in the enclosed envelope
<PAGE>
/X/ Please mark
your votes as
in this example.
This proxy, when properly executed, will be voted in the manner directed
herein. If no direction is made, this proxy will be voted FOR proposal 1.
<TABLE>
<CAPTION>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 1. SPECIAL ACTION
<S> <C>
Comments or change of address on reverse side. / /
1. Adoption of the merger agreement among ARCO, FOR AGAINST ABSTAIN Receive future mailings via electronic mail. / /
BP Amoco and a subsidiary of BP Amoco (see / / / / / /
reverse). Will attend special meeting. / /
</TABLE>
SIGNATURE(S) DATE
------------------------------------------ ----------------
NOTE: Please sign exactly as name appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such.
- --------------------------------------------------------------------------------
Please carefully detach here and return this proxy in the enclosed envelope
[GRAPHIC]
Dear Stockholder:
A special meeting of stockholders of Atlantic Richfield Company will be held on
August 30, 1999 to vote on the proposed adoption of the merger agreement among
ARCO, BP Amoco and a U.S. subsidiary of BP Amoco. We urge you to promptly
complete, sign, date and return the proxy card in the envelope provided OR take
advantage of new and convenient ways by which you can vote your shares either by
telephone or via the Internet. This eliminates the need to return the proxy
card.
To vote shares by telephone or via the Internet, you must have your proxy card
and social security number available. The series of numbers that appear on the
top of your proxy card must be used to access the system.
1. To vote by telephone: On a touch-tone telephone call 1-877-779-8683 toll free
from the US and Canada.
2. To vote via the Internet: Access the World Wide Web site
http://www.eproxyvote.com/arc.
Voting by telephone or via the Internet is available 24 hours a day, 7 days a
week.
Your vote by telephone or via the Internet authorizes the named proxies in the
same manner as if you completed, signed, dated and mailed the proxy card. If you
choose to vote your shares by telephone or via the Internet, there is no need
for you to mail back your proxy card.
YOUR VOTE IS IMPORTANT. THANK YOU FOR VOTING.
