<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
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
VASTAR RESOURCES, INC.
- --------------------------------------------------------------------------------
(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)(l) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(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 state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] 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:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
[VASTAR RESOURCES, INC. LOGO]
VASTAR RESOURCES, INC.
NOTICE OF
ANNUAL MEETING
OF STOCKHOLDERS
TO BE HELD
ON MAY 21, 1997
AND PROXY STATEMENT
PLEASE COMPLETE, SIGN, DATE AND RETURN
YOUR PROXY PROMPTLY
<PAGE> 3
VASTAR RESOURCES, INC.
15375 MEMORIAL DRIVE
HOUSTON, TEXAS 77079
April 9, 1997
Dear Stockholder:
You are cordially invited to join us at the 1997 Annual Meeting of Stockholders
on Wednesday, May 21, 1997, in the Main Conference Room of Vastar Resources,
Inc., 15375 Memorial Drive, Houston, Texas, beginning at 9:30 a.m., local time.
It is important that your shares be voted whether or not you plan to be present
at the meeting. Please complete, sign, date and return the enclosed form of
proxy promptly. If you attend the meeting and wish to vote your shares
personally, you may revoke your proxy and vote in person.
This booklet includes the Notice of the Meeting and the Proxy Statement, which
contains information about the formal business to be acted upon by the
stockholders. The meeting will also feature a report on the operations of your
Company, followed by a question and answer period.
Sincerely yours,
/s/ MICHAEL E. WILEY
Chairman of the Board
/s/ CHARLES D. DAVIDSON
President and Chief Executive Officer
<PAGE> 4
VASTAR RESOURCES, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 21, 1997
TO THE STOCKHOLDERS:
The 1997 Annual Meeting of Stockholders of Vastar Resources, Inc. ("Vastar" or
the "Company") will be held in the Main Conference Room of Vastar Resources,
Inc., 15375 Memorial Drive, Houston, Texas 77079, on Wednesday, May 21, 1997, at
9:30 a.m., local time, for the following purposes, as more fully described in
the attached Proxy Statement:
(1) To elect eight directors to hold office for a one-year term;
(2) To approve the appointment of Coopers & Lybrand L.L.P. as independent
auditors for the Company for the year 1997; and
(3) To transact such other business as may properly come before the meeting.
The Board of Directors has fixed March 24, 1997, as the record date for the
meeting. Accordingly, only stockholders of record of the common stock, $0.01 par
value, of the Company ("Common Stock") at the close of business on such date are
entitled to vote at the meeting.
Each such stockholder of record will receive a form of proxy pertaining to the
shares of Common Stock of the Company registered in his or her name. Each
participant in the Company's Capital Accumulation and Savings Plans will also
receive a form of proxy pertaining to shares of Common Stock credited to his or
her account in the plans.
YOU ARE URGED TO READ THE PROXY STATEMENT; THEN COMPLETE, SIGN AND DATE THE FORM
OF PROXY AND RETURN IT IN THE ENCLOSED, SELF-ADDRESSED, POSTAGE-PAID ENVELOPE.
/s/ ALBERT D. HOPPE
Albert D. Hoppe Houston, Texas
Secretary April 9, 1997
<PAGE> 5
VASTAR RESOURCES, INC.
15375 MEMORIAL DRIVE
HOUSTON, TX 77079
------------------------
PROXY STATEMENT
APRIL 9, 1997
------------------------
INTRODUCTION
The accompanying proxy is solicited by the Board of Directors of Vastar
Resources, Inc. ("Vastar" or the "Company"). The proxy may be revoked by the
stockholder at any time prior to the time it is voted by giving notice of such
revocation either personally or in writing to the Secretary of Vastar. Shares
represented by a properly executed proxy will be voted in accordance with the
instructions of the stockholder indicated thereon. In the absence of
instructions in such proxy, the persons named as proxies therein will vote FOR
the election of the nominees for director listed in this Proxy Statement and FOR
the approval of the appointment of Coopers & Lybrand L.L.P. as independent
auditors for the Company for the year 1997. As to other items of business that
may come before the meeting, such persons will vote in accordance with their
best judgment.
VOTING SECURITIES
Holders of record of outstanding common stock, $0.01 par value, of the
Company ("Common Stock") at the close of business on March 24, 1997 (the "Record
Date") will be entitled to one vote per share. There were 97,260,551 shares of
Common Stock outstanding on the Record Date. Fractional shares will not be
entitled to be voted. The presence, in person or by proxy, of stockholders
entitled to cast at least a majority of the votes that all stockholders are
entitled to cast shall constitute a quorum. The approximate date on which this
Proxy Statement and the form of proxy were first sent to stockholders was April
9, 1997.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS; CONTROL OF THE COMPANY
The following is the only person known by the Company to own beneficially
more than five percent of any class of the Company's voting securities as of the
Record Date:
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
NAME AND ADDRESS BENEFICIAL PERCENT
TITLE OF CLASS OF BENEFICIAL OWNER OWNERSHIP OF CLASS
-------------- ------------------- ------------ --------
<S> <C> <C> <C>
Common Stock......................... Atlantic Richfield Company 80,000,001(a) 82.3%
515 South Flower Street
Los Angeles, California 90071
</TABLE>
- ---------------
(a) Sole voting power, sole dispositive power.
Under applicable provisions of the Delaware General Corporation Law and the
Company's Second Restated Certificate of Incorporation, Atlantic Richfield
Company, a Delaware corporation ("ARCO"), is able, acting alone, to elect the
entire Board of Directors of the Company and to approve any action requiring
stockholder approval. ARCO's current level of ownership of the outstanding
voting stock precludes any acquisition of control of the Company not favored by
ARCO. ARCO has informed the Company that it intends to vote its shares in favor
of the eight nominees to the Board of Directors and for the approval of Coopers
& Lybrand L.L.P. as independent auditors for the year 1997.
<PAGE> 6
The Company and ARCO entered into an agreement, dated as of May 19, 1994,
granting ARCO certain rights as a stockholder of the Company. In order to allow
ARCO to continue to include the Company as part of its "affiliated group" for
federal income tax purposes, ARCO has been granted, pursuant to such agreement,
the cumulative, continuing right to purchase from the Company at the then-
current market price such number of shares of Common Stock or preferred stock,
or both, as may be necessary to preserve that status.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the number of shares of the Company's Common
Stock ("Vastar Common Stock") and the number of shares of ARCO Common Stock,
$2.50 par value ("ARCO Common Stock"), owned beneficially as of February 1,
1997, by each of Vastar's directors, Named Executive Officers (as hereinafter
defined) and all of the Company's directors and executive officers as a group.
Neither the directors or executive officers named below, nor all of the
Company's directors and executive officers as a group, beneficially owned any
other equity securities of the Company or ARCO, except as disclosed in the
footnotes to the table. The percentage of shares of any class of equity
securities of the Company or ARCO beneficially owned by any director or
executive officer named below or by all of the Company's directors and executive
officers as a group does not exceed 1% of the class so owned. Unless otherwise
noted, each individual has sole voting and investment power.
<TABLE>
<CAPTION>
SHARES OF VASTAR COMMON STOCK SHARES OF ARCO COMMON
OWNED BENEFICIALLY AS OF STOCK OWNED BENEFICIALLY
NAME FEBRUARY 1, 1997 AS OF FEBRUARY 1, 1997(E)
---- ----------------------------- -------------------------
<S> <C> <C>
Jimmie D. Callison....................... 5,000(a) 0
Terry G. Dallas.......................... 300 15,704(f)
Charles D. Davidson...................... 87,148(b)(c) 938
Linda G. Havard.......................... 100 11,554(f)(g)(h)
Albert D. Hoppe.......................... 26,916(b)(d) 731
Marie L. Knowles......................... 0 39,750(f)(g)
William A. Lang.......................... 16,015(b)(c) 1,102(f)
Robert C. LeVine......................... 6,000(a) 0
William D. Schulte....................... 5,500(a) 0
Steven J. Shapiro........................ 124,294(b)(c) 600
Michael E. Wiley......................... 181,095(b)(c) 873
All directors and executive officers as a
group, including those named above..... 515,694(b)(c)(d) 72,628(f)(g)
</TABLE>
- ---------------
(a) Includes 5,000 shares for each of Messrs. Callison, LeVine and Schulte which
they have the right to acquire through the exercise of stock options granted
under the Company's Stock Option Plan for Outside Directors.
(b) Includes 85,955, 26,616, 11,213, 122,307, 179,050 and 503,467 shares which
Messrs. Davidson, Hoppe, Lang, Shapiro and Wiley, and all directors and
officers as a group, including those just named, respectively, have the
right to acquire currently or within 60 days of February 1, 1997, through
the exercise of stock options covering Vastar Common Stock ("Vastar
Options").
(c) Includes shares held by the trustees under the Vastar Capital Accumulation
Plan II and the Vastar Savings Plan II.
(d) Includes 300 shares held by Mr. Hoppe which are subject to shared voting and
investment power with his spouse.
(e) Includes shares held by the trustees under the Vastar Capital Accumulation
Plan II, Vastar Savings Plan II, Atlantic Richfield Capital Accumulation
Plan II and Atlantic Richfield Savings Plan II, except for Messrs. Callison,
LeVine and Schulte.
2
<PAGE> 7
(f) Includes 12,066, 8,436, 30,030 and 736 shares which Mr. Dallas, Mrs. Havard,
Mrs. Knowles and Mr. Lang, respectively, have the right to acquire currently
or within 60 days of February 1, 1997, through the exercise of stock options
covering ARCO Common Stock. Also includes 2,261, 1,098, 5,617 and 133 shares
which are issuable in respect of dividend share credits allocated to stock
options covering ARCO Common Stock that Mr. Dallas, Mrs. Havard, Mrs.
Knowles and Mr. Lang, respectively, have the right to acquire upon the
exercise, surrender or expiration of the stock options covering ARCO Common
Stock reported above.
(g) Includes 1,190 and 1,322 shares held by the spouses of Mrs. Havard and Mrs.
Knowles, respectively, acquired pursuant to the Atlantic Richfield Capital
Accumulation Plan II and Atlantic Richfield Savings Plan II. Mrs. Havard
disclaims beneficial ownership of these shares held by her spouse. Includes
225 and 1,922 shares which the spouses of Mrs. Havard and Mrs. Knowles,
respectively, have the right to acquire currently or within 60 days of
February 1, 1997, through the exercise of stock options covering ARCO Common
Stock. Also includes 10 and 319 shares which are issuable in respect of
dividend share credits allocated to stock options covering ARCO Common Stock
that the spouses of Mrs. Havard and Mrs. Knowles, respectively, have the
right to acquire upon the exercise, surrender or expiration of the stock
options covering ARCO Common Stock reported above. The spouses of Mrs.
Havard and Mrs. Knowles have sole voting and dispositive power over all
shares reported to be held by them in footnotes (f) and (g).
(h) Mrs. Havard's term of office as a Director of the Company expires as of the
date of the 1997 Annual Meeting of Stockholders.
ELECTION OF DIRECTORS
PROPOSAL 1 ON PROXY CARD
On March 26, 1997, the Board of Directors reduced the number of directors
constituting the entire Board from nine to eight and selected the nominees
listed below, each of whom were recommended to the Board by the Nominating
Committee (described below), for election to a term of one year. Each of the
nominees is currently a director of the Company and was elected at the 1996
Annual Meeting of Stockholders for a one-year term (except for Mrs. Knowles, who
was appointed by the Board in December 1996 to fill a vacancy created by the
retirement of Ronald J. Arnault).
All nominees have indicated a willingness to serve as a director, but if
any of them should decline or be unable to act as a director, the persons named
as proxies in the accompanying proxy will vote for the election of such nominee
or nominees as may be recommended by the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF THE
NOMINEES LISTED BELOW. PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE SO
VOTED UNLESS STOCKHOLDERS SPECIFY OTHERWISE ON THEIR PROXIES.
The following biographical information is furnished with respect to each of
the nominees. The information includes age as of May 21, 1997, the date of the
Annual Meeting, present position, if any, with Vastar, period served as a
director, and other business experience during the past five or more years.
<TABLE>
<S> <C>
[PHOTO OF JIMMIE D. JIMMIE D. CALLISON, 64
CALLISON] Director
Mr. Callison has been a Director of the Company since January 1995. He served as
Vice President of Schlumberger Limited from 1989 to 1995, President of Dowell
Schlumberger Incorporated from 1987 to 1988 and Executive Vice President of
Dowell Schlumberger Incorporated from 1984 to 1989. He joined the Dowell Division
of the Dow Chemical Company (which later became Dowell Schlumberger) in 1957.
</TABLE>
3
<PAGE> 8
<TABLE>
<S> <C>
[PHOTO OF TERRY G. TERRY G. DALLAS, 46
DALLAS] Director
Mr. Dallas has been a Director of the Company since January 1994. He has been a
Senior Vice President of ARCO since November 1996 and the Treasurer of ARCO since
January 1994. He was Vice President of ARCO from June 1993 to November 1996,
serving as Vice President, Planning from June 1993 to January 1994. He served as
Assistant Treasurer, Corporate Finance of ARCO from 1990 to 1993, and was the
Manager, Finance, Planning and Control of ARCO British, Ltd. from 1988 to 1990.
[PHOTO OF CHARLES D. CHARLES D. DAVIDSON, 47
DAVIDSON] President, Chief Executive Officer and Director
Mr. Davidson was elected President and Chief Executive Officer in March 1997 and
has been a Director of the Company since March 1994. From September 1993 to March
1997, he served as a Senior Vice President of the Company and from December 1992
to October 1993, he held the position of Senior Vice President of the Eastern
District for ARCO Oil and Gas Company. From 1988 to December 1992, he held
various positions with ARCO Alaska, Inc. Mr. Davidson joined ARCO in 1972.
[PHOTO OF MARIE L. MARIE L. KNOWLES, 50
KNOWLES] Director
Mrs. Knowles has been a Director of the Company since December 1996. She has been
a Director and an Executive Vice President and the Chief Financial Officer of
ARCO since July 1996. She served as a Senior Vice President of ARCO and President
of ARCO Transportation Company from June 1993 to July 1996. She served as Vice
President and Controller of ARCO from July 1990 to May 1993 and Vice President of
Finance, Control and Planning, of ARCO International Oil and Gas Company from
July 1988 to July 1990. Mrs. Knowles is also a Director of ARCO Chemical Company
and Phelps Dodge Corporation.
[PHOTO OF ROBERT C. ROBERT C. LEVINE, 64
LeVINE] Director
Mr. LeVine has been a Director of the Company since July 1994. Mr. LeVine has
been a private consultant for petroleum investment since his retirement in
February 1993 from the position of Managing Director for J.P. Morgan Investment
Management, Inc., which he held from 1981 to 1993. He served as First Vice
President of the Energy Group for E.F. Hutton & Co. from 1974 to 1981; as a Vice
President and oil analyst for Wertheim & Co. from 1972 to 1974; and as Manager,
Investor Relations for ARCO from 1969 to 1972.
[PHOTO OF WILLIAM D. WILLIAM D. SCHULTE, 64
SCHULTE] Director
Mr. Schulte has been a Director of the Company since July 1994. Mr. Schulte has
been a private investor since his retirement from the position of Vice Chairman
of KPMG Peat Marwick on December 31, 1990. He served as Vice Chairman -- Western
Region from 1986 to 1990 and previously served as Managing Partner of the Los
Angeles office from 1979 to 1986. He joined Peat Marwick in 1961. Mr. Schulte is
also a Director of H. F. Ahmanson & Company, Santa Anita Operating Company and
Santa Anita Realty Enterprises, Inc.
</TABLE>
4
<PAGE> 9
<TABLE>
<S> <C>
[PHOTO OF STEVEN J. STEVEN J. SHAPIRO, 45
SHAPIRO] Senior Vice President, Chief Financial Officer and Director
Mr. Shapiro has been a Senior Vice President and the Chief Financial Officer of
the Company since December 1993 and a Director of the Company since January 1994.
He was Treasurer of the Company from January 1994 to December 1995. He was the
President of ARCO Coal Australia Inc. from October 1991 to December 1993.
Previously, he held the position of Vice President of Planning of ARCO from 1990
to October 1991. From 1988 to 1990, he was Assistant Treasurer for ARCO, serving
in both Los Angeles and London. Mr. Shapiro joined ARCO in 1977.
[PHOTO OF MICHAEL E. MICHAEL E. WILEY, 46
WILEY] Chairman of the Board
Mr. Wiley has been a Director of the Company since September 1993 and was elected
Chairman of the Board in December 1996. He has been an Executive Vice President
of ARCO since March 1997. He was President of the Company from September 1993 to
March 1997 and Chief Executive Officer from January 1994 to March 1997. He held
the position of Senior Vice President of ARCO from June 1993 to June 1994. He
held the position of President of ARCO Oil and Gas Company from June to October
1993. Previously, from 1991 to 1993, he was a Vice President of ARCO and Manager
of ARCO Exploration and Production Technology. From 1989 to 1991, he was Vice
President of ARCO Oil and Gas Company's Southern District. Mr. Wiley joined ARCO
in 1972.
</TABLE>
5
<PAGE> 10
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is certain information about the executive officers (as
such term is defined in Rule 3b-7 promulgated under the Securities Exchange Act
of 1934, as amended) of the Company as of April 1, 1997.
<TABLE>
<CAPTION>
NAME, AGE AND PRESENT BUSINESS EXPERIENCE DURING PAST
POSITION WITH THE COMPANY FIVE YEARS AND PERIOD SERVED AS OFFICER (A)(B)
------------------------- ----------------------------------------------
<S> <C>
Charles D. Davidson, 47........... Mr. Davidson was elected President and Chief Executive
President, Chief Executive Officer in March 1997 and has been a Director of the Company
Officer and Director since March 1994. From September 1993 to March 1997, he
served as a Senior Vice President of the Company and from
December 1992 to October 1993, he held the position of
Senior Vice President of the Eastern District for ARCO Oil
and Gas Company. From 1988 to December 1992, he held various
positions with ARCO Alaska, Inc. Mr. Davidson joined ARCO in
1972.
Steven J. Shapiro, 45............. Mr. Shapiro has been a Senior Vice President and the Chief
Senior Vice President, Financial Officer of the Company since December 1993 and a
Chief Financial Officer Director of the Company since January 1994. He was Treasurer
and Director of the Company from January 1994 until December 1995. He was
the President of ARCO Coal Australia Inc. from October 1991
to December 1993. Previously, he held the position of Vice
President of Planning of ARCO from 1990 to October 1991.
From 1988 to 1990, he was Assistant Treasurer for ARCO
serving in both Los Angeles and London. Mr. Shapiro joined
ARCO in 1977.
William A. Lang, 48............... Mr. Lang was elected a Senior Vice President in January
Senior Vice President 1997. He was a Vice President of the Company from March 1994
until January 1997 and has been President of Vastar Gas
Marketing, Inc. (formerly ARCO Natural Gas Marketing, Inc.)
since April 1992. Prior to joining ARCO in 1992, Mr. Lang
was Director of Marketing and Transportation Services for
Tenneco Gas from 1986 to 1992.
Robert P. Strode, 40.............. Mr. Strode was elected a Vice President in February 1997. He
Vice President held the position of Director, Exploration, ARCO British
Limited from January 1996 to February 1997. From June 1994
to January 1996, he was Vice President, Exploration and
Land, ARCO Alaska, Inc. From September 1993 to June 1994, he
was North Alaska Exploration Manager, ARCO Alaska, Inc. From
1991 to September 1993, he was Manager,
Exploration-Offshore, for ARCO Oil and Gas Company and, from
1986 to 1991, he was District Geophysicist, both onshore and
offshore, of ARCO Oil and Gas Company. Mr. Strode joined
ARCO in 1979.
Albert D. Hoppe, 52............... Mr. Hoppe has been Vice President and General Counsel since
Vice President, General May 1, 1994 and Secretary of the Company since May 25, 1994.
Counsel and Secretary He served as the General Attorney for ARCO Coal Company from
June 1992 through April 1994. Previously, from 1976 until
1992, he held various positions in the ARCO legal
department. Prior to joining ARCO in 1976, he was an
Assistant United States Attorney in Kansas City, Missouri.
Joseph P. McCoy, 46............... Mr. McCoy has been a Vice President and the Controller of
Vice President and the Company since June 1994 and was designated Principal
Controller Accounting Officer, effective July 1, 1994. He held the
position of Vice President of Finance, Planning and Control
of ARCO Alaska, Inc. from November 1989 to May 1994.
Previously, he was Assistant Controller of ARCO from
February 1987 to November 1989. From 1984 to 1987, Mr. McCoy
served as Controller of ARCO Coal Company and then as
Controller of ARCO Transportation Company. Mr. McCoy joined
ARCO in 1974.
</TABLE>
6
<PAGE> 11
- ---------------
(a) ARCO division names used in the descriptions of business experience of
executive officers of the Company are the names which were in effect at the
time such officers held such positions. In some instances these ARCO
divisions have been combined or reorganized and, accordingly, activities
thereof are presently conducted under different division names.
(b) The Bylaws of the Company provide that each officer shall hold office until
the officer's successor is elected or appointed and qualified or until the
officer's death, resignation or removal by the Board of Directors.
COMPENSATION OF EXECUTIVE OFFICERS DURING 1994, 1995 AND 1996
During 1994, 1995 and 1996, the executive officers named in the tables
included below (herein sometimes referred to as the "Named Executive Officers")
were employees of Vastar and participated in Vastar's executive benefit plans,
except as otherwise set forth in the footnotes.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
----------------------------------------- SECURITIES
OTHER UNDERLYING
ANNUAL VASTAR ALL OTHER
NAME AND SALARY BONUS COMPENSATION OPTIONS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($)(2) ($)(3) (#)(4) ($)
------------------ ---- -------- -------- ------------ ------------ ------------
(A) (B) (C) (D) (E) (G) (I)
<S> <C> <C> <C> <C> <C> <C>
Michael E. Wiley........... 1996 $380,000 $290,000 $ 9,335 76,500 $ 62,027(5)
Chairman of the Board(1) 1995 $365,000 $314,000 $ 7,700 62,300 $ 62,579(6)
1994 $315,000 $260,000 $ 41,984 253,303 $ 56,248(7)
Charles D. Davidson........ 1996 $252,000 $165,000 $ 21,770 30,600 $ 42,883(5)
President and Chief 1995 $252,000 $160,000 $ 10,412 17,300 $ 38,373(6)
Executive Officer(1) 1994 $252,000 $139,000 $ 32,876 119,423 $ 41,400(7)
William A. Lang............ 1996 $192,858 $130,000 $ 8,033 23,000 $ 36,934(5)
Senior Vice President 1995 $171,655 $ 81,000 $ 18,627 8,650 $ 28,406(6)
1994 $174,377 $ 76,000 $ 7,996 18,100 $ 16,450(7)
Steven J. Shapiro.......... 1996 $243,251 $136,000 $ 10,727 23,000 $ 39,164(5)
Senior Vice President 1995 $243,251 $146,000 $ 37,262 17,300 $164,624(6)
and Chief Financial
Officer 1994 $243,251 $122,000 $117,164 167,584 $ 50,785(7)
Albert D. Hoppe............ 1996 $185,808 $ 84,000 $ 2,493 11,500 $ 32,259(5)
Vice President, General 1995 $185,808 $ 84,000 $ 47,635 8,650 $ 28,796(6)
Counsel and Secretary 1994 $181,932 $ 69,000 $ 8,052 38,208 $ 35,653(7)
</TABLE>
- ---------------
(1) Mr. Wiley resigned from and Mr. Davidson was elected to the positions of
President and Chief Executive Officer effective March 31, 1997. Mr. Wiley
was President and Chief Executive Officer during all of 1996.
(2) The cash bonuses for 1994, 1995 and 1996 performance were paid under the
Vastar Annual Incentive Plan and were approved by Vastar's Compensation
Committee in March 1995, 1996 and 1997, respectively.
(3) Includes tax gross-ups in respect of financial counseling reimbursements and
certain relocation expense reimbursements, the amounts reimbursed for the
payment of foreign taxes and the amount of incremental interest accrued
under the Company's Executive Deferral Plan that exceeds 120% of a specified
Internal Revenue Service rate. The Company's financial counseling and
relocation expense reimbursement is increased by an amount to cover the
state and federal income tax
7
<PAGE> 12
obligations of the recipient associated with the reimbursement, including an
additional amount, based on maximum applicable federal and state income tax
rates.
(4) Represents Vastar Options granted under Vastar's Executive Long-Term
Incentive Plan (the "LTIP") in 1996 and 1995 and the LTIP and Conversion
Option Agreements in 1994, except for Mr. Lang who did not enter into a
Conversion Option Agreement.
(5) Includes 1996 contributions to Vastar's Executive Supplementary Savings
Plan, incremental premiums for Vastar's Executive Medical Plan, Vastar's
financial counseling reimbursements, imputed income in respect of Vastar's
Long-Term Disability Plan and certain amounts in respect of Vastar's
Executive Life Insurance Plan as follows:
<TABLE>
<CAPTION>
MR. MR. MR. MR. MR.
WILEY DAVIDSON LANG SHAPIRO HOPPE
------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C>
Executive Supplementary Savings Plan.... $30,400 $20,160 $15,429 $ 19,460 $14,865
Incremental Executive Medical Plan
premiums.............................. $ 8,554 $ 8,554 $ 8,554 $ 8,554 $ 8,554
Financial counseling reimbursements..... $ -- $ 2,300 $ 5,000 $ -- $ 1,950
Long-Term Disability Plan imputed
income................................ $ 8,444 $ 2,716 $ 5,488 $ 2,314 $ 1,291
Executive Life Insurance Plan........... $14,629 $ 9,153 $ 2,463 $ 8,836 $ 5,599
</TABLE>
(6) Includes 1995 contributions to Vastar's Executive Supplementary Savings
Plan, incremental premiums for Vastar's Executive Medical Plan, Vastar's
financial counseling reimbursements, imputed income in respect of Vastar's
Long-Term Disability Plan, certain amounts in respect of Vastar's Executive
Life Insurance Plan and ARCO executive foreign relocation expenses as
follows:
<TABLE>
<CAPTION>
MR. MR. MR. MR. MR.
WILEY DAVIDSON LANG SHAPIRO HOPPE
------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C>
Executive Supplementary Savings Plan.... $29,200 $20,160 $13,732 $ 19,460 $14,865
Incremental Executive Medical Plan
premiums.............................. $ 8,554 $ 8,554 $ 8,554 $ 8,554 $ 8,554
Financial counseling reimbursements..... $ 5,700 $ -- $ -- $ 9,000 $ --
Long-Term Disability Plan imputed
income................................ $ 8,161 $ 2,333 $ 4,652 $ 2,094 $ 1,157
Executive Life Insurance Plan........... $10,964 $ 7,326 $ 1,468 $ 7,043 $ 4,220
Executive foreign relocation expenses... $ -- $ -- $ -- $118,473 $ --
</TABLE>
(7) Includes 1994 contributions to Vastar's Executive Supplementary Savings
Plan, incremental premiums for Vastar's Executive Medical Plan, Vastar's
financial counseling reimbursements, imputed income in respect of Vastar's
Long-Term Disability Plan, certain amounts in respect of Vastar's Executive
Life Insurance Plan and ARCO foreign housing and service payments as
follows:
<TABLE>
<CAPTION>
MR. MR. MR. MR. MR.
WILEY DAVIDSON LANG SHAPIRO HOPPE
------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C>
Executive Supplementary Savings Plan.... $25,200 $20,160 $ 6,739 $ 19,539 $14,555
Incremental Executive Medical Plan
premiums.............................. $ 8,554 $ 8,554 $ 4,277 $ 8,554 $ 8,554
Financial counseling reimbursements..... $ 5,700 $ 4,500 $ -- $ -- $ 8,055
Long-Term Disability Plan imputed
income................................ $ 7,318 $ 2,061 $ 4,386 $ 2,178 $ 1,072
Executive Life Insurance Plan........... $ 9,476 $ 6,125 $ 1,048 $ 5,952 $ 3,417
Foreign housing and service payments.... $ -- $ -- $ -- $ 14,562 $ --
</TABLE>
8
<PAGE> 13
VASTAR OPTION GRANTS FOR 1996
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------
PERCENT OF TOTAL POTENTIAL REALIZABLE VALUE AT
NUMBER OF OPTIONS ASSUMED ANNUAL RATES OF
SECURITIES GRANTED TO EXERCISE STOCK PRICE APPRECIATION FOR
UNDERLYING VASTAR OR BASE OPTION TERM(2)
OPTIONS EMPLOYEES PRICE -----------------------------
NAME GRANTED(#) FOR 1996 ($/SH) EXPIRATION DATE 5% 10%
---- ---------- ---------------- -------- --------------- ------------- -------------
(A) (B) (C) (D) (E) (F) (G)
<S> <C> <C> <C> <C> <C> <C>
Mr. Wiley............ 76,500(1) 14.51% $29.688 March 6, 2007 $1,428,408 $3,619,368
Mr. Davidson......... 30,600(1) 5.80% $29.688 March 6, 2007 $ 571,363 $1,447,747
Mr. Lang............. 23,000(1) 4.36% $29.688 March 6, 2007 $ 429,456 $1,088,176
Mr. Shapiro.......... 23,000(1) 4.36% $29.688 March 6, 2007 $ 429,456 $1,088,176
Mr. Hoppe............ 11,500(1) 2.18% $29.688 March 6, 2007 $ 214,728 $ 544,088
Stock Price
3/6/97 Grant(3).... $ 48.36 $ 77.00
</TABLE>
- ---------------
(1) Represents stock options granted pursuant to the LTIP on March 6, 1997. Such
options become exercisable in 25% annual increments beginning on March 6,
1998. These ten-year options are accompanied by certain tax withholding
rights and may be canceled upon an optionee's termination of employment
under certain specified circumstances. The Compensation Subcommittee has the
right, in its sole discretion, to accelerate exercisability of these options
upon a change of control of the Company and in certain other circumstances.
(2) These columns present hypothetical future value of Vastar Common Stock
obtainable upon exercise of the stock options net of the option's exercise
price, assuming that the market price of Vastar Common Stock appreciates at
a five and ten percent compound annual rate over the ten-year term of the
options. The five and ten percent rates of stock price appreciation are
presented as examples pursuant to the rules and regulations of the
Securities and Exchange Commission (the "Commission") and do not necessarily
reflect management's assessment of Vastar's future stock price performance.
The potential realizable values presented are not intended to indicate the
value of the stock options.
(3) Based on the market price of Vastar Common Stock on the March 6, 1997, grant
date, which was $29.688 per share.
AGGREGATED VASTAR STOCK OPTION EXERCISES IN
1996 AND YEAR-END OPTION VALUES
(AS OF DECEMBER 31, 1996)
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS AT
SHARES OPTIONS AT YEAR-END YEAR-END(3)
ACQUIRED VALUE ----------------------------- ---------------------------
ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME (#) ($) (#) (#) ($) ($)
---- ----------- -------- ----------- ------------- ----------- -------------
(A) (B) (C) (D) (E)
<S> <C> <C> <C> <C> <C> <C>
Mr. Wiley............ 0 $0 144,275(1) 171,329(1) $1,539,410 $1,485,401
Mr. Davidson......... 0 $0 77,268(1) 59,456(1) $ 851,465 $ 472,884
Mr. Lang............. 0 $0 7,025(1) 19,725(1) $ 51,072 $ 156,197
0 $0 736(2) 0 $ 17,881 $ 0
Mr. Shapiro.......... 0 $0 113,620(1) 71,265(1) $1,382,390 $ 533,833
Mr. Hoppe............ 0 $0 22,266(1) 24,592(1) $ 188,514 $ 185,079
</TABLE>
- ---------------
(1) Represents Vastar stock options.
(2) Represents ARCO stock options. Each ARCO stock option carries with it the
potential right to a cash payment in respect of dividend share credits. The
fair market value of ARCO Common Stock on December 31, 1996, was $132.50.
For illustrative purposes only, assuming these options had been
9
<PAGE> 14
exercised on December 31, 1996, the hypothetical aggregate value of Mr.
Lang's in-the-money and out-of-the-money ARCO stock options (including the
value of dividend share credits) was $34,342.
(3) The fair market value of Vastar Common Stock on December 31, 1996, was
$38.00 per share.
ESTIMATED VASTAR RETIREMENT BENEFITS
The following table shows estimated annual pension benefits payable to
officers and other key employees of the Company assuming retirement from Vastar
on January 1, 1997, at age 65 under the provisions of the Vastar Resources, Inc.
Retirement Plan II and the Supplementary Executive Retirement Plan
(collectively, the "Vastar Retirement Plan") currently in effect.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
APPROXIMATE ANNUAL BENEFIT
FOR YEARS OF MEMBERSHIP SERVICE INDICATED(2)(3)
-------------------------------------------------------------
REMUNERATION(1) 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
--------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$1,000,000.................... $229,839 $306,452 $383,065 $459,678 $536,291
900,000.................... 206,739 275,652 344,565 413,478 482,391
800,000.................... 183,639 244,852 306,065 367,278 428,491
700,000.................... 160,539 214,052 267,565 321,078 374,591
600,000.................... 137,439 183,252 229,065 274,878 320,691
500,000.................... 114,339 152,452 190,565 228,678 266,791
400,000.................... 91,239 121,652 152,065 182,478 212,891
300,000.................... 68,139 90,852 113,565 136,278 159,991
200,000.................... 45,039 60,052 75,065 90,078 105,091
100,000.................... 21,939 29,252 36,565 43,878 51,191
</TABLE>
- ---------------
(1) The covered compensation for which retirement benefits are computed is the
average of the participant's highest three consecutive years of base salary
plus Annual Incentive Plan awards. Base salary and Annual Incentive Plan
awards are set forth in columns (c) and (d) of the Summary Compensation
Table.
(2) The amounts shown in the above table are based upon certain assumptions,
including retirement of the employee on January 1, 1997, and payment of the
benefit under the basic form of allowance provided under the Vastar
Retirement Plan (payment for the life of the employee only, with a
guaranteed minimum payment period of 60 months). The amounts will change if
the payment is made under any other form of allowance permitted by the
Vastar Retirement Plan, or if an employee's retirement occurs after January
1, 1997, because the Social Security integration level of such employee (one
of the factors used in computing the annual retirement benefits) may change
during the employee's subsequent years of membership service. The benefits
shown are not subject to deduction for Social Security benefits or other
offset amounts.
(3) As of December 31, 1996, the credited years of service under the Vastar
Retirement Plan for the Named Executive Officers were: Mr. Wiley, 24.58; Mr.
Davidson, 24.58; Mr. Hoppe, 20.33; Mr. Shapiro, 19.50; and Mr. Lang, 4.75.
10
<PAGE> 15
PERFORMANCE GRAPH
COMPARISON OF CUMULATIVE TOTAL RETURN SINCE INITIAL PUBLIC OFFERING
The performance graph below compares the cumulative total stockholder
return of the Company with the cumulative total return of the S&P 500 Stock
Index and a Comparator Group of independent oil and gas companies selected by
Vastar(1) since June 27, 1994, the date of Vastar's Initial Public Offering
("IPO").
<TABLE>
<CAPTION>
Measurement Period Vastar Comparator Group S&P 500
<S> <C> <C> <C>
6/27/94 $100.0 $100.0 $100.0
6/30/94 $104.9 $ 98.4 $ 99.3
12/31/94 $ 89.1 $ 81.8 $102.7
6/30/95 $111.2 $ 90.0 $121.8
12/31/95 $114.9 $100.3 $137.7
6/30/96 $135.9 $116.4 $149.9
12/31/96 $138.7 $127.4 $167.1
</TABLE>
- ---------------
(1) The Comparator Group is composed of the following companies: Anadarko
Petroleum Corporation, Apache Corporation, Burlington Resources Inc., Enron
Oil & Gas Company, The Louisiana Land and Exploration Company, Noble
Affiliates, Inc., Parker & Parsley Petroleum Company and Santa Fe Energy
Resources, Inc.
(2) Assumes initial investment of $100 and reinvestment of all dividends. The
Comparator Group is weighted for market capitalization as of the beginning
of each six months for which information is provided above.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company's compensation programs are administered by the Compensation
Committee of the Board of Directors (the "Compensation Committee"), composed of
Mrs. Knowles, Chairperson, and Messrs. Dallas, LeVine and Schulte, none of whom
are officers or employees of Vastar, and the Compensation Subcommittee, composed
of Mr. LeVine, Chairman, and Mr. Schulte, who are neither officers nor employees
of ARCO or Vastar. The Compensation Committee is responsible for administering
the Annual Incentive Plan ("AIP") and for reviewing and approving other forms of
executive compensation and benefits, while the Compensation Subcommittee is
responsible for administering Vastar's Executive Long-Term Incentive Plan
("LTIP").
COMPENSATION PHILOSOPHY
Vastar's executive compensation philosophy is to provide competitive levels
of compensation in order to attract, motivate and retain talented executives.
The program is also intended to align the interests and individual performance
of the Company's executive officers with the interests of the
11
<PAGE> 16
Company's stockholders by linking a significant portion of each executive
officer's compensation directly to the Company's performance.
The Compensation Committee reviewed the compensation practices and
financial and operational performance of a selected number of publicly traded
companies (the "Comparator Group") that the Compensation Committee believes are
comparable to Vastar. The Comparator Group, composed of eight independent oil
and gas companies, is the same Comparator Group used in the Performance Graph on
page 11 of this Proxy Statement. After consideration of the Company's
performance relative to the Comparator Group, individual performance and the
factors described below, the Compensation Committee (or the Compensation
Subcommittee, as appropriate) determined appropriate base pay levels for 1997
and annual incentive award and long-term incentive award levels for the
Company's executive officers for 1996 performance.
COMPONENTS OF EXECUTIVE COMPENSATION
Base Salaries
Base salaries are targeted slightly above the median of the Comparator
Group and are set at levels considered appropriate in light of the scope of
responsibilities of each executive officer's position. Base salaries are
reviewed each year and are generally adjusted relative to the executive
officer's responsibilities, individual performance and competitive salaries for
similar positions within the Comparator Group.
Annual Incentive Plan Awards
Vastar's AIP is intended to motivate and reward key employees based on
Company and individual performance. Under the plan, award opportunities vary by
individual position and are initially set as a percentage of base salary. The
specific target percentage for an executive officer is determined using the
Comparator Group's median bonus award levels for similar positions. However, the
amount a particular executive may ultimately earn is dependent on the Company's
performance relative to the Comparator Group, the individual's position and
responsibilities relative to similar positions at Comparator Group companies and
individual performance. In determining awards under the AIP, the Compensation
Committee utilizes two components, weighted equally: a quantitative formula of
four financial and operational measures of the Company's performance; and a
discretionary component which includes the consideration of certain other
performance criteria and the overall performance of the Company. The formula
component is comprised of four equally weighted measures of Company performance:
the Company's operating costs and the ratio of discretionary cash flow to net
revenue, both measured on a relative basis to the Comparator Group; and the
Company's reserve replacement ratio and reserve replacement cost averages over a
three-year period compared to internally developed targets. The Compensation
Committee set threshold, target and stretch performance criteria for each
measure. Under the formula component, the Company's 1996 performance met or
exceeded the stretch performance criteria established by the Compensation
Committee in January of 1996 for all measures, except for reserve replacement
costs (three-year average) as to which the Company's performance was slightly
above the threshold. The discretionary component is comprised of other
performance criteria, including the Company's total stockholder return ("TSR")
relative to the Comparator Group, the results of the Company's cost management
efforts, the Company's overall performance relative to the Comparator Group and
other standardized measures of oil and gas company performance, such as cash
flow, net income, oil and gas production, exploration performance and
acquisition activity. As to the discretionary component, the Compensation
Committee did not apply any relative weight to such factors or use any specific
quantitative formula in arriving at its decisions.
Long-Term Incentive Plan Awards
Vastar's LTIP provides for the award of stock options which the
Compensation Subcommittee believes focuses the efforts of the Company's
executive officers on long-term growth in the Company's value. Stock options
align the interests of executive officers and stockholders by providing value to
the executive officers through stock price appreciation. The Compensation
Subcommittee makes its final decisions on stock option awards during the first
quarter of each year. The grants made on March 6,
12
<PAGE> 17
1997, were determined after consideration of the Company's performance relative
to the Comparator Group, the executive officer's position and responsibilities
relative to similar positions within the Company and at Comparator Group
companies and individual performance. The Compensation Subcommittee did not
apply any relative weight to Company performance factors or any specific
quantitative formulas in arriving at its LTIP award decisions for 1996. However,
the Compensation Subcommittee did consider the individual's total compensation
relative to similar positions at Comparator Group companies and made adjustments
to reward individuals, consistent with the Company's compensation philosophy of
targeting total executive compensation above the median of the Comparator Group,
for well above average performance.
An outside compensation consultant reviewed the determinations of the
Compensation Committee and Compensation Subcommittee, as appropriate, with
respect to base pay levels for 1997 and AIP and LTIP awards for 1996
performance. The review included an assessment of Vastar's compensation levels
and Company performance relative to the Comparator Group. The consultant
concluded that Vastar's executive compensation program was consistent with the
Company's philosophy of providing compensation opportunities above the median
provided by the Comparator Group for well above average performance.
CHIEF EXECUTIVE OFFICER COMPENSATION
Michael E. Wiley was the Company's Chief Executive Officer during 1996.(1)
In determining Mr. Wiley's 1996 compensation, the Compensation Committee or
Compensation Subcommittee, as appropriate, applied the methodology for
determining AIP, LTIP and base salary previously described. In exercising their
discretion with respect to AIP and LTIP awards, the Compensation Committee and
the Compensation Subcommittee, as appropriate, recognized several substantial
accomplishments in 1996. These accomplishments included the replacement of 144
percent of Vastar's 1996 production, a successful acquisitions program,
increased cash flow and net income and the Company's continued ability to
control operating costs. The Compensation Committee and Compensation
Subcommittee recognized that reserve replacement costs were up in 1996, due
primarily to the Company's up-front investments required to establish a presence
in the deepwater Gulf of Mexico, as well as higher cost of rigs and related
services. The Compensation Committee and Compensation Subcommittee also noted in
their deliberations that Vastar's TSR performance was 21 percent for 1996.
However, due to strong TSR performance of the Comparator Group, the Company
placed sixth among this group.
Based on this analysis, on March 6, 1997, the Compensation Committee or
Compensation Subcommittee, as appropriate, implemented the following
compensation program for Mr. Wiley:
- Mr. Wiley's base salary of $420,000 was not adjusted. Due to his
increased responsibilities, his base salary was increased by 10.5 percent
in December 1996, corresponding with his election to the position of
Chairman of the Board. Mr. Wiley's salary is slightly below the median
for CEOs in the Comparator Group.
- An AIP award of $290,000 was approved for Mr. Wiley's 1996 performance.
This award is lower than his award in 1995 and reflects the Company's
performance and accomplishments in 1996 described above, but also takes
into consideration that certain year-to-year performance is down
slightly. This places the AIP award above the median for CEO's in the
Comparator Group.
- An LTIP award was approved which was targeted at a level that positions
Mr. Wiley's total compensation for 1996 at approximately the 75th
percentile of the Comparator Group. Mr. Wiley was awarded 76,500 stock
options. These options will reward Mr. Wiley for his achievement of the
Company's 1996 goals and represent an increased portion of his total
compensation placed at risk with the aim of focusing additional attention
on improved TSR performance relative to the Comparator Group.
- ---------------
1 Mr. Wiley resigned from the positions of President and Chief Executive Officer
on March 31, 1997.
13
<PAGE> 18
The Compensation Committee and Compensation Subcommittee, as appropriate,
oversees the compensation program for Vastar's other Named Executive Officers.
Base salary increases ranging from approximately five to 22 percent were made
for the Named Executive Officers to reflect changing market conditions and/or
increased responsibility as is consistent with the Company's compensation
philosophy. AIP and LTIP awards were targeted such that total compensation for
such Named Executive Officers averaged near the 75th percentile of the
Comparator Group.
DEDUCTIBLE COMPENSATION LIMITATION
Under Section 162(m) of the Internal Revenue Code, public companies are
precluded from receiving a tax deduction on compensation paid to a Named
Executive Officer in excess of one million dollars, unless the compensation
meets certain requirements. Vastar's stock option awards under the LTIP comply
with the provisions of Section 162(m), allowing the Company to deduct
compensation paid to a Named Executive Officer pursuant to such awards. Although
performance-based, Vastar's AIP is not currently structured to meet the specific
requirements of Section 162(m).
Marie L. Knowles, Chairperson
Terry G. Dallas
Robert C. LeVine
William D. Schulte
BOARD OF DIRECTORS
DIRECTORS' MEETINGS
An annual meeting of the Board of Directors will be held each year in
conjunction with the annual meeting of the stockholders for the purposes of
organization, election or appointment of officers and the transaction of other
business. Regular meetings of the Board are held at such pre-determined times as
the Board may specify. Special meetings may be called by the Chairman of the
Board, the President or a majority of the directors in office. The Company's
Bylaws permit action to be taken without a meeting if all members of the Board
consent to such action in writing. The Board of Directors held six meetings in
1996.
EXECUTIVE COMMITTEE
Except as prohibited by Delaware law, the Executive Committee has and may
exercise all the authority of the Board of Directors in the management of the
business of the Company in the interim between meetings of the Board of
Directors. The Executive Committee held three meetings in 1996.
The Executive Committee presently consists of Mr. Wiley, Chairman, Mrs.
Knowles and Messrs. Davidson and Shapiro.
AUDIT COMMITTEE
The objectives of the Audit Committee are to (i) assist the Board of
Directors in fulfilling its fiduciary responsibilities relating to the Company's
financial reporting standards and practices, (ii) determine the adequacy of, and
promote the Company's continued emphasis on, managerial and financial control
systems, (iii) maintain open, continuing and direct communication between the
Board of Directors and both the Company's independent public accountants and its
internal auditors and (iv) initiate any special investigations of conflicts of
interest and compliance with federal, state and local laws and regulations,
including the Foreign Corrupt Practices Act, as may be warranted. The Audit
Committee also reviews at least once a year the terms of all material agreements
between the Company and ARCO (including their respective subsidiaries and
affiliates) to assure that such agreements and the transactions provided for
therein, taken as a whole, are fair to the Company and its stockholders. The
independent accountants and the internal auditors have full and free access to
the Audit Committee and meet with it, with and
14
<PAGE> 19
without management being present, to discuss all appropriate matters. No member
of the Audit Committee is an officer or employee of the Company or of ARCO
(including their respective subsidiaries and affiliates). The Audit Committee
held three meetings in 1996.
The Audit Committee presently consists of Mr. Schulte, Chairman, and
Messrs. Callison and LeVine.
COMPENSATION COMMITTEE AND COMPENSATION SUBCOMMITTEE
The Compensation Committee of the Board of Directors reviews and approves
employee compensation plans and such other benefits as it deems advisable and
when appropriate makes recommendations to the Board as to management succession
plans. The Compensation Subcommittee administers the Company's LTIP. No member
of the Compensation Committee is an employee of the Company. No member of the
Compensation Subcommittee is an employee of the Company or ARCO, and no member
of either committee is eligible to participate in any benefit plan of the
Company that is administered by the Compensation Committee or the Compensation
Subcommittee. See "Compensation Committee Interlocks and Insider Participation."
Certain members of the Compensation Committee and the Compensation Subcommittee
do, however, participate in the Retirement Plan for Outside Directors, Stock
Option Plan for Outside Directors and the Deferral Plan for Outside Directors.
See "Board of Directors -- Compensation of Directors." The Compensation
Committee held four meetings in 1996. The Compensation Subcommittee held two
meetings in 1996.
The Compensation Committee presently consists of Mrs. Knowles, Chairperson,
and Messrs. Dallas, LeVine and Schulte. The Compensation Subcommittee consists
of Mr. LeVine, Chairman, and Mr. Schulte.
ENVIRONMENT, HEALTH AND SAFETY COMMITTEE
The Environment, Health and Safety Committee reviews and assesses the
Company's policies, procedures and practices relating to (i) the protection of
the environment and the health and safety of employees, customers, contractors
and the public, (ii) compliance with applicable laws and regulations, and (iii)
development of Company environmental, health and safety goals and objectives,
and when appropriate makes recommendations to the Board as to such policies,
procedures and practices. The Environment, Health and Safety Committee held
three meetings in 1996.
The Environment, Health and Safety Committee presently consists of Mr.
Callison, Chairman, Mr. Davidson and Mrs. Havard.
FINANCE COMMITTEE
The function and responsibility of the Finance Committee is to review and
make recommendations to the Board as to proposals for issuance of securities by
the Company to the public and all commercial borrowings (other than project
financings), proposed projects, acquisitions and divestitures over $25 million,
budgets and long-range plans, the Company's capital structure and dividend
policy and the entry into new lines of business in an unrelated industry or
transactions involving the issuance or sale of capital stock of the Company or
the purchase of the capital stock of any other entity, and other projects,
proposals and activities submitted from time to time to the Finance Committee by
the Board of Directors. The Finance Committee also has all the powers and
authority of the Board of Directors in the management of the affairs of the
Company in the interim between meetings of the Board of Directors. The Finance
Committee was created in December 1996 and as a result did not hold any meetings
in 1996.
The Finance Committee presently consists of Mrs. Knowles, Chairperson, Mrs.
Havard and Messrs. Dallas, Shapiro and Wiley.
NOMINATING COMMITTEE
The Nominating Committee of the Board of Directors considers and makes
recommendations to the Board as to the number of directors constituting the
entire Board, the names of persons whom it
15
<PAGE> 20
concludes should be considered for Board membership and the selection, tenure
and retirement of directors. The Nominating Committee will consider nominees
recommended by stockholders. Such recommendations should be submitted to the
Secretary of the Company. The Nominating Committee held two meetings in 1996.
The Nominating Committee presently consists of Mr. Wiley, Chairman, Mrs.
Knowles and Messrs. LeVine and Shapiro.
COMPENSATION OF DIRECTORS
Directors' Fees
Directors who are employees of the Company or of ARCO are not paid any fees
or additional compensation for service as members of the Board or any committee
thereof. Directors who are not employees of the Company or of ARCO or their
respective subsidiaries ("Outside Directors") receive an annual retainer of
$25,000, plus $1,000 for each Board or committee meeting attended, and are
reimbursed for travel and other related expenses incurred in attending such
meetings. In addition, each Outside Director who serves as Chairman of any of
the above-described committees or subcommittees of the Board of Directors
receives an additional $5,000 per year for such service. Outside Directors are
not eligible to participate in the Company's stock option or other benefit plan
programs, but may participate in the plans described below. The plans described
below are administered by committees composed of persons selected by the Board
of Directors who are not members of the Board of Directors.
Stock Option Plan for Outside Directors
The Vastar Stock Option Plan for Outside Directors provides that each newly
elected Outside Director will be granted ten-year nonqualified stock options to
purchase 5,000 shares of Common Stock at an exercise price per share equal to
the IPO price of the Common Stock for directors elected prior to the
consummation of the Company's IPO which was completed in July 1994, or equal to
the fair market value of Common Stock on the date of grant for directors elected
thereafter. The total number of shares of Common Stock which can be issued under
the Stock Option Plan for Outside Directors is 75,000. No stock options may be
granted under the plan after December 31, 2004.
Deferral Plan for Outside Directors
The Deferral Plan for Outside Directors permits Outside Directors to defer
up to 100 percent of their annual retainer and board meeting fees and any
committee chairmanship and committee meeting fees to which they are entitled.
Interest accrued in 1996 on deferrals made under the plan totaled $8,430 for Mr.
LeVine and $5,135 for Mr. Callison. Mr. Schulte did not maintain a deferral
account under the plan during 1996.
Retirement Plan for Outside Directors
Under the Retirement Plan for Outside Directors, Outside Directors who have
completed 36 months of service as a member of the Board are eligible to receive
a retirement benefit upon attainment of age 65 or retirement from the Board of
Directors, whichever is later. The normal form of retirement benefit is a
monthly allowance equal to the monthly equivalent of the Outside Director's
annual retainer. The retirement benefit may be received for a "payment period"
equal to the number of months an eligible director serves on the Board, except
that Outside Directors who have completed 180 months of service on the Board are
entitled to a lifetime benefit. Death benefits equal to 50 percent of the
Outside Director's accrued benefit (with a maximum of 180 months) are payable to
the Outside Director's designated beneficiary.
16
<PAGE> 21
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has entered into a number of agreements with ARCO. ARCO owns
80,000,001 shares or approximately 82.3 percent of the Company's Common Stock.
Mr. Wiley, the Chairman of the Company's Board, is an Executive Vice President
of ARCO. Mrs. Knowles, a Director of the Company, is a Director and an Executive
Vice President and the Chief Financial Officer of ARCO. Mr. Dallas, a Director
of the Company, is a Senior Vice President and the Treasurer of ARCO. Mrs.
Havard, a Director of the Company, is a Senior Vice President of ARCO Global
Energy Ventures, Inc., a subsidiary of ARCO. See "Compensation Committee
Interlocks and Insider Participation -- Transactions Between the Company and
ARCO" for a description of these agreements.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee presently consists of Mrs. Knowles, Chairperson,
and Messrs. Dallas, LeVine and Schulte. The Compensation Subcommittee consists
of Mr. LeVine, Chairman, and Mr. Schulte. None of such persons are officers or
employees of the Company or any of its subsidiaries.
Mrs. Knowles is a Director and an Executive Vice President and the Chief
Financial Officer of ARCO and Mr. Dallas is a Senior Vice President and the
Treasurer of ARCO.
TRANSACTIONS BETWEEN THE COMPANY AND ARCO
In October 1993, ARCO transferred to the Company (then ARCO's wholly-owned
subsidiary) the producing properties and developed and undeveloped acreage that
comprise substantially all of the Company's assets. In connection therewith, the
Company issued additional shares of Vastar Common Stock to ARCO, resulting in
the ownership by ARCO of 80,000,001 shares representing all of the issued and
outstanding Common Stock prior to June 27, 1994 (the date of the commencement of
Vastar's IPO), and approximately 82.3 percent of the outstanding Common Stock at
the Record Date for the Annual Meeting of Stockholders to which this Proxy
Statement relates.
In conjunction therewith, the Company and ARCO entered into a number of
agreements for the purpose of defining the ongoing relationship between them.
These agreements were developed in connection with the establishment of the
Company by ARCO and therefore were not the result of arm's-length negotiations
between independent parties. Because of the complexity of the various
relationships between the Company and ARCO (including their respective
subsidiaries), there can be no assurance that each of such agreements, or the
transactions provided for therein, has been or will be effected on terms at
least as favorable to the Company as could have been obtained from unaffiliated
third parties.
Subsequent to the Company's IPO, additional or modified agreements,
arrangements and transactions have been entered into by the Company, ARCO and
their respective subsidiaries, and additional or modified agreements,
arrangements and transactions may be entered into between such parties in the
future. Any such future agreements, arrangements and transactions will be
determined through negotiation between the Company and ARCO or their respective
subsidiaries, as the case may be. The Audit Committee of the Board of Directors
of the Company, none of the members of which are affiliated with the Company or
ARCO, except as Vastar directors or Vastar and/or ARCO stockholders, has adopted
policies and procedures for review of the terms of all material contracts and
agreements between the Company and ARCO, and periodically reviews the
application of such policies and procedures. See "Board of Directors -- Audit
Committee."
The following is a summary of the material arrangements and transactions
effective during or occurring in 1996 between the Company and ARCO or their
respective subsidiaries.
Technology Assignments and Licenses
In connection with the formation of the Company, ARCO agreed to transfer
certain technology and related intellectual property requested by the Company,
effective on October 1, 1993, through four
17
<PAGE> 22
technology transfer agreements and one intellectual property license agreement.
These agreements cover certain technology and intellectual property owned or
otherwise controlled by ARCO in the oil and gas exploration, drilling and
production areas in general, and in particular, commercially used technology in
the geophysical, geological, geotechnical and oceanographic areas, data
processing, data management and computer-based analytical techniques.
The agreements provide the Company with the beneficial use of all such
transferred technology and intellectual property. The method used to effect
these transfers depended on whether ARCO owned such technology and intellectual
property and whether such technology and intellectual property is used by other
ARCO divisions or subsidiaries. For the most part, ARCO provided the Company
with full ownership, an undivided ownership interest or a paid-up, nonexclusive
license. In all cases where ARCO owned such technology and intellectual
property, ARCO retained the rights to use and benefit from same. The term of the
intellectual property license agreement will continue in effect so long as
Vastar is not in material default under certain provisions thereof. The four
technology transfer agreements and one intellectual property license agreement
discussed above are on file with the Commission and the preceding discussion is
qualified in its entirety by reference to such agreements as so filed.
Services Agreements
The Company and ARCO have entered into a number of agreements under which
ARCO provides various services to the Company and the Company provides certain
services to ARCO. The principal agreements are (i) the ARCO Exploration and
Production Technology ("AEPT") Technical Services Agreement, effective as of
October 1, 1993, and (ii) the Corporate Services Agreement, effective as of
January 1, 1994.
The services that ARCO provides the Company under the AEPT Technical
Services Agreement include a variety of oil and gas technical services. The
services that ARCO provides the Company under the Corporate Services Agreement
include telecommunications, computer services, internal audit, financial
reporting, cash management, short-term investment services, banking and finance
services, employee benefits administration, certain tax and legal services,
aviation and public affairs. The services that the Company may provide ARCO
under the Corporate Services Agreement include audit, tax and certain other
services as agreed.
In 1996, the Company paid ARCO aggregate fees of $11.0 million for services
performed by ARCO under the foregoing agreements. The fees for services under
the above agreements are based on the actual cost of providing such services.
The AEPT Technical Services Agreement is for an indefinite term and can be
terminated by either party on 30 days' written notice. Either party may
terminate any type of service that it receives under the Corporate Services
Agreement at any time upon 60 days' prior written notice. The entire Corporate
Services Agreement or any part thereof can be terminated by either party upon 90
days' prior written notice after October 1, 1996, except in the case of the
employee information system provided by ARCO, under which ARCO must give Vastar
180 days' notice to terminate such service. The above-discussed agreements are
on file with the Commission and the preceding discussion is qualified in its
entirety by reference to such agreements as so filed.
Insurance
ARCO has agreed to provide insurance coverage to the Company as part of the
group of entities insured under ARCO's policies. The insurance provided under
this agreement is customary for the industry and does not fully cover all
potential hazards. The coverages and deductibles may be higher than typically
maintained by other independent oil and gas companies. The insurance includes
public liability, workers' compensation, marine liability, property damage,
business interruption, directors' and officers' liability, fiduciary liability
and surety bonds. The annual charge to the Company to be included in such
coverage is based upon an allocation of the costs by ARCO of the various
policies and totaled $4.3 million in 1996. The charge for insurance will be
reallocated annually based upon ARCO's cost for the various lines of insurance
and the Company's loss experience and exposure basis. The Company may
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<PAGE> 23
elect to supplement or to obtain its own insurance coverage in the future and
may, in such event, terminate the insurance coverage from ARCO after giving
proper notice with respect to the next expiration date of existing policies.
Natural Gas and Crude Oil Purchase and Sale Agreements
Vastar Gas Marketing, Inc. ("Vastar Gas"), a subsidiary of the Company, and
ARCO entered into a one-year contract, effective January 1, 1994, for the sale
of substantially all of the Company's natural gas liquids ("NGLs") production.
In January 1995, this contract was extended on a month-to-month basis and in
March 1996 Vastar Gas terminated the contract. Pursuant to such contract, the
pricing for the NGLs production reflected standard industry terms for similar
contracts and was intended to reflect the net price Vastar Gas would obtain if
it marketed its NGLs on a term basis to end users.
Vastar Gas provides fuel management services for the natural gas
requirements of certain California cogeneration facilities partially owned by
ARCO or its subsidiaries, including Midway-Sunset Cogeneration Company. In
addition, for long-term gas supply contracts signed prior to the October 1, 1993
formation of Vastar, as well as for certain gas contracts entered into prior to
May 16, 1994, ARCO has provided performance guarantees for Vastar Gas. These
guarantees will continue in effect until the underlying contracts expire. There
are no ARCO guarantees on contracts entered into on or after May 16, 1994.
Vastar and/or its subsidiaries also engage in purchases and sales of
natural gas, NGLs and crude oil at market related prices with certain other ARCO
affiliates (other than the Company and its subsidiaries) and divisions.
During 1996, the Company's revenues from these transactions with ARCO and
such affiliates were $270.5 million, or approximately eight percent of the
Company's sales and other operating revenues. The Company's purchases from ARCO
and such affiliates during 1996 were $23.8 million, or approximately one percent
of the Company's total purchases. Certain of the above-described Natural Gas and
NGLs Purchase and Sale Agreements are on file with the Commission and the
preceding discussion is qualified, as applicable, by reference to such
agreements as so filed.
Leases
Vastar's principal executive office is located in Houston, Texas, where it
has entered into a lease with ARCO for approximately 280,000 square feet of a
building owned by ARCO at 15375 Memorial Drive. The lease is for a term of ten
years with options to extend for two additional five-year periods. The rent of
$294,508 per month was set based upon the rate paid by the other tenant of the
building, who is unrelated to ARCO. Under certain conditions, Vastar's lease
rent may be reestablished at then-current market rates for comparable office
space in Houston. If the Company and ARCO cannot agree on a market rate, the
lease provides for arbitration. Vastar also has a right of first offer for any
space in the building which becomes vacant or for purchase of the building
should ARCO decide to sell. Vastar provides on-site property management services
for the office building in Houston, for which ARCO has agreed to pay Vastar a
management fee of $100,000 per year.
In 1996, Vastar paid approximately $3.2 million to ARCO pursuant to such
lease agreement and received $100,000 in management fees.
Cross-Indemnification Agreement
In connection with ARCO's transfer in October 1993 of certain oil and gas
producing properties to the Company, together with certain undeveloped acreage
and assets and liabilities related to such properties and acreage (all such
properties, acreage and related assets referred to as the "Subject Properties"),
the Company and ARCO executed a Cross-Indemnification Agreement, effective
October 1, 1993 (the "Cross-Indemnification Agreement"). In the
Cross-Indemnification Agreement, the Company agreed to indemnify ARCO against
(i) any and all liabilities incurred before or after October 1, 1993, the
effective date of that certain General Conveyance and Assumption Agreement,
dated
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<PAGE> 24
October 8, 1993, as amended, by and between the Company and ARCO (the
"Conveyance") that are associated with the ownership or operation of the Subject
Properties (including, among other things, environmental liabilities), except
for certain scheduled litigation and other liabilities, (ii) all liabilities or
obligations relating to any ARCO bonus, retirement, pension, profit sharing,
stock bonus, thrift, stock option, incentive or other benefit plan (any such
plan, an "ARCO benefit plan") in respect of any ARCO employee who leaves ARCO
and enters the employ of Vastar, excluding retirement benefits accrued prior to
leaving the employ of ARCO for any person who enters the employ of Vastar after
the IPO, (iii) liabilities arising under guarantees by ARCO of the performance
or payment by Vastar Gas of any past, present or future natural gas marketing
contract between Vastar Gas and any third party, (iv) any and all liabilities at
any time recorded as such on the financial statements of Vastar and (v) costs of
borrowing, carrying and repaying debt incurred by Vastar. In addition, Vastar is
liable for any sales and use taxes, conveyance, transfer and recording fees and
real estate transfer stamps or taxes imposed on any transfer of the Subject
Properties ("Transfer Taxes"). All other taxes (other than income taxes, which
are addressed in the Tax Sharing Agreement as hereinafter defined and described)
attributable to the Subject Properties imposed in respect of oil, natural gas or
other hydrocarbons or minerals (including severance, production and excise
taxes) will be apportioned between ARCO and the Company, with ARCO paying all
such taxes accrued in the ordinary course of business, attributable to ownership
of the Subject Properties prior to October 1, 1993, and contemporaneously
reflected on ARCO's records and the Company being responsible for paying all
other such taxes. Any and all other out-of-pocket expenses, taxes or fees (other
than Transfer Taxes) incident to or arising out of the preparation or
consummation of the transactions contemplated by the Conveyance will be paid by
the party incurring such costs.
In the Cross-Indemnification Agreement, ARCO agreed to indemnify the
Company against (i) any and all liabilities (a) retained by ARCO in connection
with the Conveyance or (b) indemnified by ARCO under the Tax Sharing Agreement
and (ii) liabilities under ARCO benefit plans other than those assumed by Vastar
as described in clause (ii) of the preceding paragraph. The
Cross-Indemnification Agreement is on file with the Commission and the preceding
discussion is qualified in its entirety by reference to such agreement as so
filed.
Tax Sharing Agreement
The Company and its subsidiaries (the "Company Group") join with ARCO and
its domestic subsidiaries (the "ARCO Group" and, together with the Company
Group, the "ARCO Tax Group") in the filing of a consolidated federal income tax
return. As a member of the ARCO Tax Group, the Company is jointly and severally
liable for the consolidated federal income tax liability of the ARCO Tax Group.
The Company Group may also be included in certain state and local income or
franchise tax returns of members of the ARCO Group. The Company Group has
entered into a tax sharing agreement with ARCO (the "Tax Sharing Agreement")
effective as of October 1, 1993, relating to these taxes. In the Tax Sharing
Agreement, ARCO agreed to indemnify the Company for (i) federal, state and local
income and franchise tax liabilities that relate to periods or portions thereof
ending on or before October 1, 1993, (ii) federal income tax liabilities in
excess of those computed under the Tax Sharing Agreement to be the Company
Group's share of such tax liabilities, and (iii) certain state and local income
and franchise tax liabilities that may be incurred by the Company Group,
provided, in each case, that the Company has made tax sharing payments in
accordance with the Tax Sharing Agreement.
Pursuant to the Tax Sharing Agreement, the Company pays to ARCO, subject to
certain adjustments, the amounts of federal income taxes, including alternative
minimum taxes, that the Company would have to pay if the Company Group were a
separate federal consolidated group. The Company pays such amount without regard
to the amount of the ARCO Tax Group consolidated tax liability. Tax credits of
the Company Group provided under Sections 29 ("Section 29 Tax Credits") and 43
of the Internal Revenue Code that reduce the current tax liability of the ARCO
Tax Group may be utilized by the Company to reduce the Company Group's tax
sharing payment for such year even if such credits would not be currently usable
on a separate return basis. To the extent that such credits exceed the Company
Group's tax sharing payment liability for a taxable year prior to January 1,
1997 and could not then be
20
<PAGE> 25
refunded to the Company Group pursuant to the Amendment (as defined and
described below), such excess credits were carried forward and could be used to
reduce the Company Group's tax sharing payment for subsequent taxable years in
which ARCO and the Company join in filing a consolidated federal income tax
return. Similar tax sharing provisions, except for the special tax credit
provisions noted above, apply under the Tax Sharing Agreement to state and local
taxes with respect to jurisdictions in which a member of the Company Group files
a consolidated, combined or unitary return with a member of the ARCO Group.
The Company and ARCO amended the Tax Sharing Agreement effective June 1,
1995 (the "Amendment") to allow the Company to use its Section 29 Tax Credits to
reduce its federal income tax payments to ARCO below zero and receive cash
refunds from ARCO when ARCO can use such credits provided that such credits are
generated by production from properties acquired by the Company in the ordinary
course of business on or after June 1, 1995 ("Newly Acquired Properties").
However, the Company's ability to utilize Section 29 Tax Credits generated from
Newly Acquired Properties to reduce its federal income tax payments below zero
and receive cash refunds from ARCO is limited by the Amendment to a maximum of
$9 million in 1995 and $15 million thereafter. Pursuant to the Amendment, Vastar
accrued a tax refund of $3.8 million for credits generated in 1996 from Newly
Acquired Properties.
Subsequent to year-end 1996, ARCO and Vastar agreed to a second amendment
to the Tax Sharing Agreement, effective January 1, 1997 (the "Second
Amendment"). The Second Amendment removes certain limitations under the original
agreement and generally allows Vastar to receive payment for all Section 29 Tax
Credits in the year generated, provided, however, that refunds attributable to
credits from Newly Acquired Properties are still subject to the limitations
discussed in connection with the Amendment above. In return, the Company agreed
to a 3.25 percent reduction in the value of the Section 29 Tax Credits generated
from properties acquired by the Company before June 1, 1995. ARCO and Vastar
also agreed to apply the same 3.25 percent reduction to the $61.4 million of
Section 29 Tax Credits carried forward as of December 31, 1996, in exchange for
immediate payment upon execution of the Second Amendment. Pursuant to the Second
Amendment, Vastar received a payment from ARCO of $59.4 million on March 20,
1997. Tax credits, including Section 29 Tax Credits, that are not used in the
current year pursuant to the Tax Sharing Agreement, as amended, will generally
be carried forward and used in a subsequent year.
Payments under the Tax Sharing Agreement generally are made on each date on
which a quarterly payment of estimated tax for the ARCO consolidated group is
due, with any final settlement made after the consolidated, combined or unitary
return is filed. The Company is required to pay additional taxes to ARCO in the
event that the federal, state or local income tax liability attributable to the
Company Group is increased after audit or otherwise. The Company is entitled to
a refund of federal, state or local income taxes to the extent that a refund
received by the ARCO Tax Group is attributable to the Company Group. Refunds of
credits from Newly Acquired Properties and pursuant to the Second Amendment are
to be calculated quarterly and will generally be due within 60 days of the
estimated federal income tax payment due date for that quarter.
ARCO continues to have all the rights of a common parent of a consolidated
group, is the sole and exclusive agent for the Company in any and all matters
relating to the federal income tax liability of the Company, has sole and
exclusive responsibility for the preparation and filing of the consolidated
federal and consolidated, combined or unitary state income tax returns (or
amended returns) and has the exclusive power to contest or compromise any
asserted tax adjustment or deficiency and to file, litigate or compromise any
claim for refund on behalf of the Company Group.
Copies of the Tax Sharing Agreement and the Amendment are on file with the
Commission and the preceding discussion is qualified, as applicable, by
reference to such documents as so filed.
Corporate Opportunities
In order to address certain potential conflicts of interest between the
Company and ARCO, the Company's Second Restated Certificate of Incorporation
(the "Charter") contains provisions regulating
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<PAGE> 26
and defining the conduct of certain affairs of the Company as they may involve
ARCO. The Charter recognizes and provides that ARCO and the Company may (i)
engage in the same or similar activities or lines of business, (ii) do business
with the same customers and suppliers or (iii) employ or otherwise engage any
person as a director, officer, employee or agent. The Charter further recognizes
that the Company and ARCO may have an interest in the same business
opportunities and provides that the Company and ARCO may agree upon a method for
allocating such business opportunities among them and their respective
subsidiaries and affiliates. To address such potential conflicts, the Company
and ARCO have entered into the Share Purchase Option and Business Opportunities
Agreement, dated as of May 19, 1994. Pursuant to such agreement, the Company and
ARCO have agreed that when an opportunity is offered to an officer and/or
director of the Company who is also an officer and/or director of ARCO in
writing, solely in his or her designated capacity with one of the two companies,
such opportunity shall belong to whichever company was so designated. Otherwise,
a business opportunity first offered (i) to any person who is an officer or an
officer and director of the Company, and who is also a director of ARCO shall
belong to the Company, (ii) to any person who is a director of the Company and
who is also an officer and/or director of ARCO shall belong to ARCO, (iii) to
any person who is an officer, but not a director, of both the Company and ARCO
shall belong to ARCO, (iv) to any person who is an officer and director of both
the Company and ARCO shall belong to ARCO, and (v) to any person who is an
officer or an officer and director of the Company and who is also an officer or
an officer and director of ARCO shall belong to ARCO. In the case of any
business opportunity not specifically allocated by the foregoing (whether
because of the means by which it arose or was published, or otherwise), such
business opportunity may be pursued by either the Company or ARCO. The party to
which a business opportunity is allocated pursuant to the agreement shall have
the right to provide the same to any of its subsidiaries or affiliates or other
entities under its control. A party may pursue a business opportunity allocated
under such agreement to the other party if an officer of such other party
advises that such other party (and its subsidiaries and controlled entities) has
no interest in pursuing such business opportunity.
Certain Other Agreements Between ARCO and Vastar
On May 19, 1994, the Company and ARCO entered into an agreement granting
ARCO certain rights as a stockholder of the Company. In order to allow ARCO to
continue to include the Company as part of the ARCO Tax Group as described under
"Tax Sharing Agreement" above, ARCO was granted the cumulative, continuing right
to purchase from the Company, at the then-current market price (as defined),
such number of shares of the Company's Common Stock or preferred stock, or both,
as ARCO may determine to be necessary to preserve that status. ARCO and the
Company have also entered into a 30-year Registration Rights Agreement, pursuant
to which the Company has granted ARCO "demand" registration rights at ARCO's
sole expense. Copies of such agreements are on file with the Commission and the
preceding discussion is qualified in its entirety by reference to such
agreements as so filed.
PROPOSAL TO APPROVE THE APPOINTMENT OF INDEPENDENT AUDITORS
PROPOSAL 2 ON PROXY CARD
The Board of Directors has appointed Coopers & Lybrand L.L.P., independent
accountants, to audit the consolidated financial statements of the Company and
its subsidiaries for the year ending December 31, 1997. The firm has acted as
the independent auditors for ARCO, the Company's principal stockholder, for many
years and for ARCO's subsidiaries and affiliates, including ARCO Chemical
Company and Lyondell Petrochemical Company. In addition, from time to time, the
firm performs consulting work for the Company and for ARCO. The firm has no
other relationship with the Company or ARCO or any of their subsidiaries or
affiliates except the existing professional relationships of independent
accountants.
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<PAGE> 27
Representatives of Coopers & Lybrand L.L.P. will be present at the Annual
Meeting and will have the opportunity to make a statement if they desire to do
so. These representatives will also be available to respond to appropriate
questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE
APPOINTMENT OF COOPERS & LYBRAND L.L.P. PROXIES SOLICITED BY THE BOARD OF
DIRECTORS WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY OTHERWISE.
VOTING PROCEDURES
The affirmative vote of the holders of a majority of the Company's voting
stock present in person or by proxy and entitled to vote at the Annual Meeting
of Stockholders at which a quorum is present is required for the election of
directors. Votes cast by proxy or in person at the Annual Meeting will be
tabulated by the election inspectors appointed for the meeting. Abstentions and
broker non-votes (as hereafter defined) will be counted as present by the
election inspectors for the purpose of determining the presence of a quorum. For
the purpose of computing the vote required for the approval of the election of
directors, the election inspectors will treat shares held by a stockholder who
abstains from voting as being "present" and "entitled to vote" on the matter
and, thus, an abstention has the same legal effect as a vote against the matter.
However, in the case of a broker non-vote or where a stockholder withholds
authority from his proxy to vote the proxy as to a particular matter, such
shares will not be treated as "present" and "entitled to vote" on the matter,
and, thus, a broker non-vote or the withholding of a proxy's authority will have
no effect on the outcome of the vote on the matter. A "broker non-vote" refers
to shares of the Company's Common Stock represented at the meeting in person or
by proxy by a broker or nominee, where such broker or nominee (i) has not
received voting instructions on a particular matter from the beneficial owners
or persons entitled to vote and (ii) does not have the discretionary voting
power on such matter.
OTHER BUSINESS
The Board of Directors is not aware of any other matters to be presented at
the Annual Meeting. If any other matters should properly come before the
meeting, the persons named as proxies in the enclosed proxy form will vote the
proxies in accordance with their best judgment.
VOTING OF STOCK IN PLAN ACCOUNTS
The Company's Capital Accumulation and Savings Plans permit plan
participants to direct the plan trustees how to vote the Common Stock allocated
to their accounts. The trustee for each such plan will vote all shares of Common
Stock for which no participant directions are received in the same proportion as
all those shares of Common Stock for which directions are received.
PROXY SOLICITATION
The expense of soliciting proxies will be paid by the Company.
Solicitations will be made primarily through the use of the mails; in addition,
some of the officers and other employees of the Company may solicit proxies
personally, by telephone and by mail, if deemed appropriate. Brokers and
nominees will be requested to obtain voting instructions from beneficial owners
of stock registered in their names.
STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
In order to be considered for inclusion in the Company's proxy statement
relating to the 1998 Annual Meeting of Stockholders, a stockholder proposal must
be received by the Company no later than December 10, 1997. Such proposals
should be addressed to the Secretary at Vastar Resources, Inc., 15375 Memorial
Drive, Houston, Texas 77079.
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<PAGE> 28
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires that certain of the Company's directors and officers, and any person
who owns more than ten percent of a registered class of the Company's equity
securities, file reports of ownership and changes in ownership with the
Securities and Exchange Commission (the "Commission") and with the New York
Stock Exchange. Such directors, officers and greater than ten percent
stockholders are required by Commission rules and regulations to furnish the
Company with copies of all Section 16(a) forms they file.
On the basis of forms and representations submitted by the directors and
officers of the Company and persons who own more than ten percent of a
registered class of the Company's equity securities, all Forms 3, 4 and 5
showing ownership of and changes of ownership in the Company's equity securities
during 1996 were timely filed as required by Section 16(a) of the Exchange Act,
except that with respect to an initial statement of beneficial ownership of
equity securities on Form 3 which was timely filed by W.A. Lang, a Senior Vice
President of the Company, a small number of shares were inadvertently omitted
from the totals reported on such Form due to an administrative error by the
Company. The Form 3 was amended to correct the error.
ADDITIONAL INFORMATION AVAILABLE
The Company files an Annual Report on Form 10-K with the Commission.
Stockholders may obtain a copy of this report and any amendments thereto
(without exhibits), without charge, by writing to the Company's Investor
Relations Department, Vastar Resources, Inc., 15375 Memorial Drive, Houston,
Texas 77079, Telephone: (281) 584-3536. Copies of exhibits will be furnished
upon prepayment of 25 cents per page.
By order of the Board of Directors
/s/ ALBERT D. HOPPE
Albert D. Hoppe
Secretary
Houston, Texas
April 9, 1997
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<PAGE> 29
SKU# 1325PS97
<PAGE> 30
DETACH HERE
[VASTAR RESOURCES, INC.
LOGO APPEARS HERE] VASTAR RESOURCES, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF THE COMPANY FOR THE ANNUAL MEETING
MAY 21, 1997
P The undersigned, revoking previous proxies relating to these shares,
hereby acknowledges receipt of the Notice and Proxy Statement dated April
R 9, 1997, in connection with the Annual Meeting of Stockholders to be held
at 9:30 a.m. on May 21, 1997, in the Main Conference Room of Vastar
O Resources, Inc., 15375 Memorial Drive, Houston, Texas, and hereby
appoints Michael E. Wiley, Steven J. Shapiro and Albert D. Hoppe, and
X each of them (with full power to act alone), the attorneys and proxies of
the undersigned, with power of substitution to each, to vote all shares
Y of the Common Stock of VASTAR RESOURCES, INC. (the "Company") registered
in the name provided herein which the undersigned is entitled to vote at
the 1997 Annual Meeting of Stockholders, and at any adjournments thereof,
with all the powers the undersigned would have if personally present.
Without limiting the general authorization hereby given, said proxies
are, and each of them is, instructed to vote or act as follows on the
proposals proposed by the registrant set forth in said Proxy Statement.
Proposal 1.
Election of all 8 Directors (or if any nominee is not available for
election, such substitute as the Board of Directors may designate).
NOMINEES:
Jimmie D. Callison, Terry G. Dallas, Charles D. Davidson, Marie L.
Knowles, Robert C. LeVine, William D. Schulte, Steven J. Shapiro and
Michael E. Wiley.
Proposal 2.
Approval of appointment of Coopers & Lybrand L.L.P. as independent
auditors.
SEE REVERSE SIDE. IF YOU WISH TO VOTE IN ACCORDANCE WITH THE BOARD OF
DIRECTORS' RECOMMENDATIONS, JUST SIGN ON THE REVERSE SIDE. YOU NEED NOT
MARK ANY BOXES.
----------------
CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE SIDE
----------------
<PAGE> 31
DETACH HERE
[X] PLEASE MARK
VOTES AS IN
THIS EXAMPLE.
THIS PROXY WHEN EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN. IF NO
DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF DIRECTORS
AND FOR PROPOSAL 2.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2.
1. Election of Directors FOR WITHHELD
(See reverse). [ ] [ ]
[ ] ______________________________________
For all nominees except as noted above
2. Approval of Independent Auditors. FOR AGAINST ABSTAIN
[ ] [ ] [ ]
MARK HERE
FOR ADDRESS [ ]
CHANGE AND
NOTE AT LEFT
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.
Signature:_________________________________________ Date:____________________
Signature:_________________________________________ Date:____________________
<PAGE> 32
[VASTAR RESOURCES, INC.
LOGO APPEARS HERE] VASTAR RESOURCES, INC.
P PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF THE COMPANY FOR THE ANNUAL MEETING
R MAY 21, 1997
O The undersigned, revoking previous proxies relating to these shares,
hereby acknowledges receipt of the Notice and Proxy Statement dated April
X 9, 1997, in connection with the Annual Meeting of Stockholders to be held
at 9:30 a.m. on May 21, 1997, in the Main Conference Room of Vastar
Y Resources, Inc., 15375 Memorial Drive, Houston, Texas, and hereby appoints
Michael E. Wiley, Steven J. Shapiro and Albert D. Hoppe, and each of them
(with full power to act alone), the attorneys and proxies of the
undersigned, with power of substitution to each, to vote all shares of the
Common Stock of VASTAR RESOURCES, INC. (the "Company") registered in the
name provided herein which the undersigned is entitled to vote at the 1997
Annual Meeting of Stockholders, and at any adjournments thereof, with all
the powers the undersigned would have if personally present. Without
limiting the general authorization hereby given, said proxies are, and
each of them is, instructed to vote or act as follows on the proposals
proposed by the registrant set forth in said Proxy Statement.
Proposal 1.
Election of all 8 Directors (or if any nominee is not available for
election, such substitute as the Board of Directors may designate).
NOMINEES:
Jimmie D. Callison, Terry G. Dallas, Charles D. Davidson, Marie L. Knowles,
Robert C. LeVine, William D. Schulte, Steven J. Shapiro and Michael E.
Wiley.
Proposal 2.
Approval of appointment of Coopers & Lybrand L.L.P. as independent
auditors.
The number of shares specified on the reverse side of this proxy
represents the aggregate number of shares held for your account in the
Vastar Resources, Inc. Capital Accumulation and/or Savings Plans or in
certain employee benefit plans of Atlantic Richfield Company or ARCO
Chemical Company. This proxy covers all shares credited to your account in
these plans.
SEE REVERSE SIDE. IF YOU WISH TO VOTE IN ACCORDANCE WITH THE BOARD OF
DIRECTORS' RECOMMENDATIONS, JUST SIGN ON THE REVERSE SIDE. YOU NEED NOT
MARK ANY BOXES.
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CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE
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<PAGE> 33
PLEASE MARK YOUR
[X] VOTES AS IN THIS
EXAMPLE
THIS PROXY WHEN EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN. IF NO
DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF DIRECTORS AND
FOR PROPOSAL 2.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2.
FOR WITHHELD
1. Election of Directors (See reverse). [ ] [ ]
For, except vote withheld from the following nominee(s):
_________________________________________________________
FOR AGAINST ABSTAIN
2. Approval of Independent Auditors. [ ] [ ] [ ]
MARK HERE FOR [ ]
ADDRESS
CHANGE AND
NOTE AT LEFT
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.
_________________________________________
_________________________________________
SIGNATURE(S) DATE
