<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________
FORM 10-Q
________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
________________
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
COMMISSION FILE NUMBER 1-13108
________________
VASTAR RESOURCES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
________________
DELAWARE 95-4446177
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
15375 MEMORIAL DRIVE
HOUSTON, TEXAS 77079
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
__________________
(281) 584-6000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
__________________
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO
SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
--- ---
NUMBER OF SHARES OF COMMON STOCK, $.01 PAR VALUE, OUTSTANDING AS OF
MARCH 31, 1998: 97,310,627.
<PAGE>
PART I. FINANCIAL INFORMATION
VASTAR RESOURCES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
----------------
(Millions of dollars, 1998 1997
except per share amounts) ----- -----
<S> <C> <C>
REVENUES
Net sales and other operating
revenues............................. $217.4 $281.7
Earnings from equity affiliate......... 5.3 --
Other revenues......................... 20.7 1.9
------ ------
Net revenues..................... 243.4 283.6
------ ------
EXPENSES
Operating expenses..................... 34.5 32.7
Exploration expenses................... 68.2 70.8
Selling, general and administrative
expenses............................. 12.0 14.7
Taxes other than income taxes.......... 13.0 14.6
Depreciation, depletion and
amortization......................... 70.5 70.6
Interest............................... 12.6 13.0
------ ------
Total expenses................... 210.8 216.4
------ ------
Income before income taxes............. 32.6 67.2
Income tax (benefit) provision......... (15.4) 4.3
------ ------
Net income....................... $ 48.0 $ 62.9
====== ======
Basic earnings per share............... $ 0.49 $ 0.65
====== ======
Diluted earnings per share............. $ 0.49 $ 0.65
====== ======
Cash dividends paid per share
of common stock....................... $0.075 $0.075
====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
-1-
<PAGE>
VASTAR RESOURCES, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
-------- --------
(Millions of dollars)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 8.4 $ 10.2
Accounts receivable:
Trade................................................ 82.6 132.5
Related parties...................................... 88.7 111.6
Inventories............................................ 11.2 9.9
Prepaid expenses and other assets...................... 35.0 24.7
-------- --------
Total current assets................................. 225.9 288.9
Oil and gas properties and equipment, net............... 1,656.9 1,591.4
Other long-term assets.................................. 48.0 44.5
-------- --------
Total assets........................................ $1,930.8 $1,924.8
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable:
Trade................................................ $ 202.1 $ 248.6
Related party........................................ 9.6 60.7
Accrued liabilities.................................... 72.1 50.2
-------- --------
Total current liabilities........................... 283.8 359.5
Long-term debt.......................................... 715.7 672.1
Deferred liabilities and credits........................ 205.3 213.6
Deferred income taxes................................... 179.6 174.1
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $.01 par value; authorized, 110,000,000
shares; issued and outstanding, 97,310,627 shares
as of March 31, 1998 and 97,304,127 shares as of
December 31, 1997...................................... 1.0 1.0
Capital in excess of par value of stock................. 455.1 454.9
Accumulated earnings.................................... 90.3 49.6
-------- --------
Total stockholders' equity............................ 546.4 505.5
-------- --------
Total liabilities and stockholders' equity......... $1,930.8 $1,924.8
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
-2-
<PAGE>
VASTAR RESOURCES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
------------------
1998 1997
(Millions of dollars) ----- -----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................. $ 48.0 $ 62.9
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization................. 70.5 70.6
Deferred income taxes.................................... 5.5 64.3
Dry hole expense and undeveloped leasehold amortization.. 35.8 33.2
Gain on asset sales...................................... (17.9) ---
Net change in accounts receivable, inventories
and accounts payable.................................... (26.1) 81.0
Other.................................................... (20.5) (13.2)
Earnings from equity affiliate........................... (5.3) --
------- -------
Net cash provided by operating activities.................. 90.0 298.8
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to oil and gas properties and equipment,
including dry hole costs.................................. (171.3) (142.7)
Proceeds from asset sales.................................. 40.5 0.1
Other...................................................... 2.5 0.1
------- -------
Net cash used by investing activities...................... (128.3) (142.5)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt issuance...................... 68.3 75.0
Repayments of long-term debt............................... (24.7) (223.1)
Dividends paid............................................. (7.3) (7.3)
Other...................................................... 0.2 --
------- -------
Net cash provided (used) by financing activities........... 36.5 (155.4)
------- -------
Net change in cash and cash equivalents.................... (1.8) 0.9
Cash and cash equivalents at beginning of period........... 10.2 21.9
------- -------
Cash and cash equivalents at end of period................. $ 8.4 $ 22.8
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
-3-
<PAGE>
VASTAR RESOURCES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. INTRODUCTION.
The foregoing information is unaudited and has been prepared from the
records of Vastar Resources, Inc. ("Vastar" or the "Company"). In the opinion of
management, the financial information reflects all adjustments (consisting only
of items of a normal recurring nature) necessary for a fair presentation of the
Company's financial position and results of operations in conformity with
generally accepted accounting principles. Such statements are presented in
accordance with the requirements of Regulation S-X, which does not require all
disclosures normally required by generally accepted accounting principles or
those normally required on Form 10-K. These interim financial statements should
be read in conjunction with the annual financial statements for the year ended
December 31, 1997, and the Notes thereto contained in the Company's Form 10-K
for the year ended December 31, 1997. Certain previously reported amounts have
been restated to conform with classifications adopted in 1998.
NOTE 2. NET SALES AND OTHER OPERATING REVENUES.
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
----------
(Millions of dollars) 1998 1997
-------- ---------
<S> <C> <C>
Sales and other operating revenues:
Unrelated parties.................. $ 216.6 $1,035.7
Related parties (1)................ 191.3 68.8
------- --------
Total........................... 407.9 1,104.5
Less:
Purchases (2)...................... (188.6) (799.1)
Delivery expense................... (1.9) (23.7)
------- --------
Net sales and
other operating revenues........... $ 217.4 $ 281.7
======= ========
</TABLE>
- -----------------
(1) The weighted average lifting and purchase cost per Mcfe associated with
proprietary production and third-party purchased volumes multiplied by the
related party sales volumes results in average costs of $161.2 million and
$41.8 million for the three months ended March 31, 1998 and 1997,
respectively.
(2) Includes purchases from related parties at a cost of $23.9 million and
$5.2 million for the three months ended March 31, 1998 and 1997, respectively.
-4-
<PAGE>
VASTAR RESOURCES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
Note 3. Southern Company Energy Marketing, L.P. ("SCEM").
SCEM is a strategic marketing alliance created by the Company and Southern
Energy, Inc. ("SEI"). Through its subsidiaries, Vastar currently holds a 40
percent interest in SCEM, and SEI, through its subsidiaries, currently holds a
60 percent interest. SCEM is engaged in the business of trading and marketing
natural gas, electricity and other energy-related commodities. SCEM provides
energy and energy-related commodities, products and services to wholesale and
retail customers in North America.
The Company is accounting for its interest in SCEM using the equity method
of accounting. Transactions with SCEM are conducted on the basis of normal
commercial relationships, at prevailing market prices.
The following are condensed financial data, on a 100 percent basis, of SCEM:
(Millions of dollars)
Statement of Income for the three months ended March 31, 1998:
Gross sales.............................................. $2,090.1
Gross profit............................................. $ 16.6
Operating income........................................ $ 2.3
Balance Sheet as of March 31, 1998:
Current assets.......................................... $1,733.3
Total assets............................................ $1,750.3
Current liabilities..................................... $1,680.4
Stockholders' equity.................................... $ 69.9
Vastar's equity in net income of SCEM for the three
months ended March 31, 1998.......................... $ 5.3
As a result of the agreement by SCEM to provide certain minimum
distributions to the Company, in 1998 the Company's earnings from SCEM exceed
its 40 percent interest in SCEM's net income. For additional details regarding
SCEM, refer to the Company's Report on Form 10-K for the year ended December 31,
1997.
-5-
<PAGE>
VASTAR RESOURCES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
NOTE 4. EXPLORATION EXPENSES.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
(Millions of dollars) 1998 1997
-------- -----------
<S> <C> <C>
Dry hole costs................................. $ 27.0 $ 26.4
Geological and geophysical..................... 21.3 27.0
Undeveloped leasehold amortization............. 8.8 6.8
Staff.......................................... 10.1 8.5
Lease rentals.................................. 1.0 2.1
-------- -----------
Total........................................ $ 68.2 $ 70.8
======== ===========
</TABLE>
NOTE 5. EARNINGS PER SHARE.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
-------- -----------
<S> <C> <C>
Basic EPS:
Income available to common shareholders
(millions of dollars)....................... $ 48.0 $ 62.9
Average shares of stock outstanding.......... 97,305,210 97,260,759
Basic EPS...................................... $ 0.49 $ 0.65
Diluted EPS:
Income available to common shareholders
(millions of dollars)....................... $ 48.0 $ 62.9
Incremental shares assuming the exercise
of stock options.............................. 397,160 161,537
Average shares of stock outstanding plus
effect of dilutive securities............. 97,702,370 97,422,296
Diluted EPS.................................... $ 0.49 $ 0.65
</TABLE>
-6-
<PAGE>
VASTAR RESOURCES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
NOTE 6. COMMITMENTS AND CONTINGENCIES.
The Company and its subsidiaries are involved in a number of lawsuits, all
of which have arisen in the ordinary course of the Company's business. The
Company believes that any ultimate liability resulting from any of these suits
will not have a material adverse effect on its financial position or results of
operations.
The operations and financial position of Vastar continue to be affected from
time to time in varying degrees by domestic and foreign political developments
as well as legislation and regulations pertaining to restrictions on oil and gas
production, imports and exports, natural gas regulation, taxes, environmental
regulations and cancellation or impairment of contract rights. Both the
likelihood of such occurrences and their overall effect on the Company vary
greatly and are not predictable. These uncertainties are part of a number of
items that Vastar has taken and will continue to take into account in
periodically establishing accounting reserves.
Vastar and Atlantic Richfield Company ("ARCO") have agreements whereby
Vastar has agreed to indemnify ARCO against certain claims or liabilities to
which ARCO could be subject relating to ARCO's historical ownership and
operation of the properties transferred by ARCO to Vastar upon the formation of
Vastar, including liabilities under laws relating to the protection of the
environment and liabilities arising out of certain litigation. ARCO has agreed
to indemnify Vastar with respect to other claims and liabilities and other
litigation matters not related to Vastar's business or properties as reflected
in its consolidated financial statements.
In September 1996, the Company entered into a contract with Diamond Offshore
Drilling Company for the major upgrade and operation of a semisubmersible
drilling rig, Ocean Victory, for a three-year deepwater drilling program in the
Gulf of Mexico. In November 1997, the Company commenced its Gulf of Mexico
deepwater drilling program using the Ocean Victory, with the spudding of the
King Prospect (Mississippi Canyon 764). In February 1998, Mississippi Canyon
764 was decisioned a discovery. The well was drilled to about 17,000 feet, when
an engine room fire on the drilling rig caused drilling operations to be
suspended. As of March 31, 1998, the rig was in dry dock in Mobile, Alabama,
undergoing repairs. According to the rig's owner, Diamond Offshore, the rig
should be available to resume drilling operations in early summer. Before any
reimbursement from partners or potential partners, costs incurred with respect
to this contract along with other contracts for committed support equipment are
expected to be $54.0 million, $54.0 million and $44.2 million for the years
1998, 1999 and 2000, respectively.
In connection with SCEM's marketing and risk activities, Vastar and SEI have
agreed to guarantee certain obligations of SCEM. The total amount of guarantees
which can be issued is set by the Board of Governors of SCEM. Vastar and SEI
have agreed, subject to certain limitations, to indemnify each other for their
respective pro rata share of any amount paid in connection with these
guarantees. Each company's pro rata share is equal to their respective
percentage ownership in the Venture at the time the guaranteed obligation is
incurred. In addition, Vastar's obligation to indemnify SEI, in any year, is
limited, subject to certain limitations, to the amount which Vastar has received
from SCEM in excess of the minimum distributions for that year.
-7-
<PAGE>
VASTAR RESOURCES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
NOTE 6. COMMITMENTS AND CONTINGENCIES - continued.
Similarly, if Vastar has not received its minimum distribution from SCEM in any
year, SEI has agreed to indemnify Vastar, subject to certain limitations, for
all amounts paid by Vastar under these guarantees for that year.
The Company has significant credit risk exposure to SCEM. SEI, a wholly-
owned subsidiary of The Southern Company, has not yet obtained a credit rating
from any nationally recognized statistical rating organization. The credit risk
exposure consists of three principal items. First, SCEM has promised to make
certain minimum distributions to Vastar. SEI has guaranteed this obligation as
well as the amounts due to Vastar upon the exercise of Vastar's option to sell
its remaining interest on January 1, 2003. Second, SCEM is obligated to pay and
SEI has guaranteed payment for gas purchased under the Gas Purchase and Sale
Agreement between the Company and SCEM, pursuant to which Vastar has agreed to
sell substantially all of its natural gas production to SCEM. Third, Vastar has
been indemnified by SEI, with certain limitations, with respect to amounts which
Vastar may be required to pay under guarantees which Vastar has issued to secure
certain obligations of SCEM. If at December 31, 1998, SEI has not obtained and
does not thereafter maintain in effect an investment grade rating, SEI has
agreed to provide certain credit enhancements to secure the payment of SCEM's
obligations under the Gas Purchase and Sale Agreement and the minimum
distributions. For additional details regarding SCEM, refer to the Company's
Report on Form 10-K for the year ended December 31, 1997.
The Company has performed and continues to perform ongoing credit
evaluations of its other customers and generally does not require collateral on
its credit sales. Any amounts anticipated as uncollectible are charged to
income and credited to a valuation account. The amounts included in the
allowance for uncollectible accounts receivable at March 31, 1998 and 1997, were
insignificant.
NOTE 7. TAXES.
The (benefit) provision for taxes on income is comprised of the following:
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
------------------
(Millions of dollars) 1998 1997
-------- --------
<S> <C> <C>
Federal:
Current............................ $(21.3) $(60.8)
Deferred........................... 5.2 63.7
------ ------
Total federal.................... (16.1) 2.9
------ ------
State:
Current............................ 0.4 0.8
Deferred........................... 0.3 0.6
------ ------
Total state...................... 0.7 1.4
------ ------
Total income tax (benefit) provision $(15.4) $ 4.3
====== ======
</TABLE>
-8-
<PAGE>
VASTAR RESOURCES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
NOTE 7. TAXES - (continued).
A reconciliation of the income tax (benefit) provision with tax at the
federal statutory rate for the specified period is as follows:
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
----------------
(Millions of dollars) 1998 1997
------- -------
<S> <C> <C>
Income before taxes............ $ 32.6 $ 67.2
====== ======
Tax at the statutory rate...... $ 11.4 $ 23.5
Increase (reduction) in taxes
resulting from:
State income taxes (net
of federal effect).... 0.4 0.9
Tax credits and other.... (27.2) (20.1)
------ ------
Income tax (benefit)
provision................ $(15.4) $ 4.3
====== ======
</TABLE>
During the first quarter of 1997, 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 ARCO is also able to utilize the credits
in that year. 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. Accordingly, Vastar received a payment from ARCO of $59.4
million on March 20, 1997. First quarter 1997 federal tax provision included a
$(59.4) million current tax benefit and a $61.4 million deferred tax expense
related to the payment received by Vastar in the first quarter of 1997 with
respect to the tax credit carry forward as of December 31, 1996. For additional
details see the Company's Report on Form 10-K for the year ended
December 31, 1997.
Section 29 tax credits generated from properties acquired by the Company on
or after June 1, 1995, are allowed at 100 percent of the statutory rate in the
year such credits are used by ARCO (or, if earlier, by the Company on a pro
forma return). However, refunds of such credits are limited to $15 million
annually for years after 1995. 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 subsequent tax years. For further information on the
Tax Sharing Agreement, refer to the Company's Report on Form 10-K for the year
ended December 31, 1997.
-9-
<PAGE>
VASTAR RESOURCES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
NOTE 8. LONG-TERM DEBT.
Long-term debt is comprised of the following:
<TABLE>
<CAPTION>
March 31, December 31,
(Millions of dollars) 1998 1997
--------------- ------------
<S> <C> <C>
8.75% Notes, due in 2005......... $149.5 $149.4
6.95% Notes, due in 2006......... 75.0 75.0
6.96% Notes, due in 2007......... 75.0 75.0
6.39% Notes, due in 2008......... 50.0 ---
Commercial Paper................. 366.2 372.7
------ ------
Total............................ $715.7 $672.1
====== ======
</TABLE>
In April 1998, Vastar issued $100 million of 6.00% Putable/Callable Notes
due April 20, 2010 Putable/Callable April 20, 2000. The Notes were issued under
the Indenture, dated as of January 1, 1995, as supplemented by the Supplemental
Indenture, dated May 18, 1995, and as further supplemented by the Second
Supplemental Indenture dated April 16, 1998. The net proceeds of $99.9 million
were used to pay down debt incurred under the Company's Commercial Paper
Program. In addition, the Company sold its call option under the notes to Union
Bank of Switzerland, London branch, and received $2.3 million, which was also
used to pay down debt incurred under the Company's Commercial Paper Program.
NOTE 9. SUBSEQUENT EVENT.
On April 16, 1998, the Company declared a quarterly dividend of $0.075 per
share of common stock, payable on June 2, 1998, to stockholders of record
on May 8, 1998.
-10-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
IMPACT OF THE MARKETING ALLIANCE.
In August 1997, the Company entered into a Formation Agreement with Southern
Energy, Inc., formerly known as SEI Holdings, Inc., ("SEI"), to combine certain
natural gas and power trading and marketing operations of the two companies and
create a new energy services company. The new company is named Southern Company
Energy Marketing L.P. ("SCEM" or the "Venture"). Through its subsidiaries,
Vastar currently holds a 40 percent interest in the Venture, and SEI, through
its subsidiaries, currently holds a 60 percent interest. Pursuant to a two-phase
closing, SCEM began gas marketing effective September 1, 1997, and power
marketing effective January 1, 1998. The Company did not contribute its crude
oil or natural gas liquids marketing businesses to the Venture.
The Company is accounting for its interest in the Venture using the equity
method of accounting. Therefore, the Company's consolidated results after
September 1, 1997, no longer reflect the majority of its gas marketing
activities in the individual line items of the financial statements. For more
details on the transaction refer to the Company's Report on Form 10-K for the
year ended December 31, 1997.
Due to this change in accounting method for the gas marketing business, the
pro forma statistical and financial results for the first quarter of 1997 have
been provided to reflect results as if the equity method of accounting had been
used during that time period. This pro forma information is provided for
information only. It is based on historical information and does not reflect the
actual results that would have occurred had the venture been in existence during
this time period.
RESULTS OF OPERATIONS.
Sales and production volumes and average price statistics for the
specified periods are as follows:
Three Months Ended
March 31,
--------------------------------
Pro forma As Reported
1998 1997 1997
------ ------ ------
Natural gas
Sales (MMcfd)*....................... 1,300 1,177 3,667
Production (MMcfd)................... 902 874 874
Average sales price (per Mcf)*....... $ 1.90 $ 2.40 $ 2.64
Average wellhead price (per Mcf)..... $ 1.92 $ 2.31 $ 2.31
Crude oil
Sales (MBbld)*....................... 120.2 98.2 98.2
Production (MBbld)................... 36.1 33.8 33.8
Average realized price (per Bbl)*.... $17.09 $24.14 $24.14
Natural gas liquids ("NGLs")
Production (MBbld)................... 15.5 17.3 17.3
Average realized price (per Bbl)..... $10.99 $15.51 $15.51
Total production (MMcfed)*............ 1,212 1,181 1,181
- ---------------------
* As used in this Form 10-Q the terms "Bcf," "MMcf" and "Mcf" mean billion,
million and thousand cubic feet, respectively; the terms "Bcfd," "MMcfd" and
"Mcfd" mean billion, million and thousand cubic feet per day, respectively;
the terms "MMBbl" and "MBbl" mean million and thousand barrels, respectively;
the term "Bbl" means barrel; the terms "MMBbld" and "MBbld" mean million and
thousand barrels per day, respectively; the term "MMcfed" means million cubic
feet equivalent per day. In calculating Mcf and Bbl equivalents, one Bbl is
deemed to equal to six Mcf.
-11-
<PAGE>
RESULTS OF OPERATIONS - (continued).
The following table sets forth the statement of income for the specified
periods:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------------------
Pro forma As Reported
(Millions of dollars) 1998 1997 1997
------ ------ ------
<S> <C> <C> <C>
REVENUES
Natural gas
Sales..................................... $ 222.0 $ 254.2 $ 872.7
Purchases................................. (75.3) (80.4) (666.8)
Delivery expense.......................... (0.1) --- (21.5)
------ ------- -------
Net sales - natural gas................ 146.6 173.8 184.4
------ ------- -------
Crude oil
Sales..................................... 166.9 200.3 200.3
Purchases................................. (110.0) (125.2) (125.2)
Delivery expense.......................... (1.4) (1.6) (1.6)
------ ------- -------
Net sales - crude oil.................. 55.5 73.5 73.5
------ ------- -------
NGLs and other
Sales..................................... 19.0 31.5 31.5
Purchases and other costs................. (3.7) (7.7) (7.7)
------ ------- -------
Net sales - NGLs and other............. 15.3 23.8 23.8
------ ------- -------
Net sales and other operating
revenues................................ 217.4 271.1 281.7
Earnings from equity affiliate.............. 5.3 7.3 ---
Other revenues.............................. 20.7 1.9 1.9
------ ------- -------
Net revenues........................... 243.4 280.3 283.6
------ ------- -------
EXPENSES
Operating expenses.......................... 34.5 32.7 32.7
Exploration expenses........................ 68.2 70.8 70.8
Selling, general and administrative
expenses.................................. 12.0 11.5 14.7
Taxes other than income taxes............... 13.0 14.5 14.6
Depreciation, depletion and
amortization.............................. 70.5 70.6 70.6
Interest.................................... 12.6 13.0 13.0
------ ------- -------
Total expenses............................ 210.8 213.1 216.4
------ ------- -------
Income before income taxes.................. 32.6 67.2 67.2
Income tax (benefit) provision.............. (15.4) 4.3 4.3
------ ------- -------
Net income.................................. $ 48.0 $ 62.9 $ 62.9
====== ======= =======
</TABLE>
-12-
<PAGE>
FIRST QUARTER 1998 vs. PRO FORMA FIRST QUARTER 1997.
For the purpose of this analysis, the first quarter 1998 results are being
compared to the pro forma first quarter 1997 results.
Net income for the first quarter of 1998 was $48.0 million, compared to
$62.9 million for the first quarter of 1997. The 24 percent decrease in earnings
was primarily the result of lower commodity prices.
Natural gas sales decreased by 13 percent to $222.0 million in the first
quarter of 1998 as compared to the same period last year. The lower revenues
were primarily the result of lower commodity prices, partially offset by an
increase in production available for sale. Natural gas purchases during the
first quarter of 1998 decreased by six percent from the same period last year
primarily as a result of lower commodity prices.
Average natural gas wellhead prices for the first quarter of 1998 decreased
$0.39 per Mcf from first quarter of 1997 to $1.92 per Mcf. The lower price
realization is due to reduced market demand as reflected in the first quarter
1998 average price for Henry Hub of $2.21 per Mcf compared to $2.97 per Mcf in
the first quarter of last year. Partially offsetting this impact were:
(1) smaller realized hedging losses. The first quarter of 1998 included $1.1
million in losses compared to $15.9 million in the same period last year
and;
(2) reduced basis differentials (effectively higher prices) in the first
quarter of 1998 for gas production from the San Juan Basin.
First quarter 1998 natural gas production increased by 28 MMcfd from the
same period last year. This increase was primarily a result of the start-up of
1997 discoveries at High Island 117 and Ship Shoal 105/126 and the start-up of
High Island A-23. These increases more than offset natural field declines.
Crude oil sales in the first quarter of 1998 decreased $33.4 million from the
same period last year, primarily as a result of a significant decrease in crude
oil sales prices, partially offset by higher production available for sale.
First quarter 1998 crude oil production was up seven percent to 36.1 MBbld
from first quarter 1997 levels primarily as a result of production volume
increases at Ship Shoal 105/126 which more than offset natural field declines.
Net sales for natural gas liquids ("NGLs") and other products were down for
the first quarter of 1998 as compared to the same period last year. The decrease
is a result of a 29 percent decrease in average NGL realized prices and a
decrease in NGL production available for sale. Lower production resulted from
(1) the Company's election to bypass processing in favor of selling the wet gas
stream due to the favorable natural gas price market and (2) lower third-party
volumes being received at the inlet of the gas plants in which the Company owns
an interest.
Other revenues increased during the first quarter of 1998 as compared to the
same period last year primarily as a result of the $17.7 million pre-tax gain
associated with the $40.0 million payment received in connection with the
transaction which resulted in the creation of SCEM.
Taxes other than income taxes also decreased in the first quarter of 1998 as
compared to the first quarter of 1997. The decrease in product prices resulted
in lower taxable values on the Company's production.
The income tax benefit of $15.4 million in the first quarter of 1998 was
greater than in the same period last year because of lower pre-tax earnings
and higher tax credits. The income tax benefit for the first quarter of 1998 and
the provision for the first quarter of 1997 included the net benefit of $27.3
million and $20.2 million, respectively, of Internal Revenue Code Section 29 tax
credits for non-conventional fuels. The increase in tax credits in the first
quarter of 1998 as compared to the first quarter of 1997 was primarily a result
of increased tax credit-eligible production in the San Juan Basin, acquisitions
of tax credit-eligible properties in the last three quarters of 1997 and the
first quarter of 1998 and a favorable adjustment of $1.7 million in the first
quarter of 1998 related to 1997 tax credits.
-13-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES.
In the first quarter of 1998, cash flow from operations was $90.0 million,
compared to $298.8 million for the same period in 1997. This decrease was due,
in part, to lower product prices and higher working capital requirements during
the first quarter of 1998 as compared to the first quarter of 1997. In the first
quarter 1997, the Company also received a one-time payment from ARCO of $59.4
million related to the monetization of certain tax credit carry forwards
pursuant to an amendment of the Tax Sharing Agreement between the Company and
ARCO.
Net cash used in investing activities in 1998 was $128.3 million, a decrease
over the first quarter 1997, primarily as a result of the proceeds received in
connection with the second closing of the transaction that resulted in the
creation of SCEM.
The following table summarizes the Company's capital investments for the
comparative periods.
CAPITAL SPENDING SUMMARY
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
<S> <C> <C>
(Millions of dollars) 1998 1997
------- -------
Exploratory drilling.................... $ 51.1 $ 26.6
Development drilling.................... 69.8 40.4
Property acquisitions................... 35.9 62.3
Other additions......................... 14.5 13.4
------- -------
Total additions to property,
plant and equipment................... 171.3 142.7
Geological and geophysical.............. 21.3 27.0
------- -------
Total capital program............... $ 192.6 $ 169.7
======= =======
</TABLE>
Exploratory drilling costs increased in the first quarter of 1998 as
compared to the first quarter of 1997 primarily as the result of Gulf of Mexico
deepwater drilling which is more costly than Gulf of Mexico outer continental
shelf drilling and a higher number of wells being drilled.
Property acquisition costs in the first quarter of 1998 were lower as
compared to the same period last year primarily as a result of lower undeveloped
leasehold acquisitions. First quarter 1998 property acquisitions included
approximately $38.6 million for the purchase of 24 tracts in the March 18, 1998,
Outer Continental Shelf ("OCS") Central Gulf of Mexico Oil and Gas Lease Sale
169. The Company was apparent high bidder on each of these tracts and the
prescribed award review process of the Minerals Management Service of the U.S.
Department of Interior is ongoing with respect to some of the tracts. During the
first quarter of 1997, the Company spent $58.0 million in the March 5, 1997, OCS
Gulf of Mexico Oil and Gas Lease Sale 166.
Cash flow provided by financing activities was $36.5 million in the first
quarter of 1998, which included a $43.6 million increase of long-term debt (net
of payments).
In April 1998, Vastar issued $100 million of 6.00% Putable/Callable Notes
due April 20, 2010 Putable/Callable April 20, 2000. The Notes were issued under
the Indenture, dated as of January 1, 1995, as supplemented by the Supplemental
Indenture, dated May 18, 1995, and as further supplemented by the Second
Supplemental Indenture dated April 16, 1998. The net proceeds of $99.9 million
were used to pay down debt incurred under the Company's Commercial Paper
Program. In addition, the Company sold its call option under the notes to Union
Bank of Switzerland, London branch and received $2.3 million, which was also
used to pay down debt incurred under the Company's Commercial Paper Program.
-14-
<PAGE>
The Company's ratio of earnings to fixed charges for the three months ended
March 31, 1998 and 1997 was 3.6 and 6.2, respectively. This ratio was computed
by dividing earnings by fixed charges. For this purpose, earnings include
income before income taxes and fixed charges. Fixed charges include interest
and amortization of debt expenses and the estimated interest component of rental
expense.
RISK MANAGEMENT AND MARKET-SENSITIVE INSTRUMENTS.
From time to time, the Company uses various hedging arrangements,
predominantly natural gas and crude oil price swaps, to manage the Company's
exposure to price risk from its natural gas and petroleum liquids production.
These hedging arrangements have the effect of locking in for specified periods
(at predetermined prices or ranges of prices) the prices the Company will
receive for the volumes to which the hedge relates. As a result, while these
hedging arrangements are structured to reduce the Company's exposure to
decreases in price associated with the hedged commodity, they can also limit the
benefit the Company might otherwise have received from any price increases
associated with the hedged commodity. The Company does not hold or issue
financial instruments for trading purposes.
In 1997, Vastar Gas Marketing, Inc. ("Vastar Gas") used certain financial
instruments, such as natural gas price swaps and futures, to manage its fixed-
price purchase and sale commitments, as well as to provide fixed-price physical
commitments as a service to its customers and suppliers. Vastar Gas generally
balanced its fixed-price physical and financial purchase and sales contracts in
terms of contract volumes and timing of delivery obligations in accordance with
specific guidelines relative to the amount of these net open positions. In
addition, certain internal controls monitored such positions against such
guidelines.
SCEM uses certain financial instruments, such as natural gas and power price
swaps and futures, to manage its fixed-price purchase and sale commitments, as
well as to provide fixed-price commitments as a service to its customers and
suppliers. It is possible that net open positions will exist from time to time
and, as a result, SCEM has established specific guidelines relative to its net
open positions. In addition, SCEM has set up certain internal controls to
monitor its positions against these guidelines which are required to be and have
been approved by the Company. However, to the extent that SCEM has an open
position, SCEM is exposed to risk from fluctuating market prices.
The Company realized approximately $1.9 million and $8.3 million of pre-tax
losses in the first quarter of 1998 and 1997, respectively, as a result of all
its hedging transactions for natural gas and crude oil.
-15-
<PAGE>
The following table summarizes the Company's open positions as of March 31,
1998.
Product and Location Time Period Average Volume Range of Prices
- -------------------- ------------------- --------- ---------------------
Gas/Henry Hub 4/1/98 to 12/31/98 227 MMcfd $1.95 - $2.65 per Mcf
The fair value (deferred pre-tax loss or gain to the Company)
for the hedged transactions for the remainder of 1998 would be a $25.1 million
loss for natural gas. This loss calculation is based on forward price quotes
from brokers and NYMEX forward prices as of April 1, 1998, which averaged $2.56
per Mcf for the balance of 1998. There were no outstanding oil hedges as of
March 31, 1998. The actual gains or losses realized by the Company from such
hedges may vary significantly from the foregoing amounts due to the fluctuation
of prices in the commodity markets. For example, a hypothetical ten percent
increase in the forward price quotes would increase the unrealized loss for 1998
by approximately $13.0 million for natural gas. In order to calculate the
hypothetical loss, the relevant parameters of the futures contracts are the type
of commodity, the delivery price and the delivery location; due to the short
period before expiration, time value of money is ignored in the calculation.
This analysis only includes the commodity derivative instrument and not the
exposure related to the underlying commodity. Natural gas prices fluctuated
between $2.00 per Mcf and $2.35 per Mcf (Henry Hub) and crude oil prices
fluctuated between $13.23 per Bbl and $17.83 per Bbl (WTI-at-Cushing) during the
first quarter of 1998.
The Company has long-term contracts with certain cogeneration facilities
which have an average remaining life of 12 years. These contracts cover an
average of 74 MMcfd of the Company's natural gas production for the remainder of
the year at an average price of $2.51 per Mcf.
During the first quarter of 1998, the Company's long-term sales commitments
did not exceed the total of proprietary production and other natural gas
production controlled through call rights with third-party producers and
marketing agreements with the Company's royalty owners.
The Company's Commercial Paper Program is subject to interest rate risk. An
increase in interest rates could increase interest expense. For example, a ten
percent increase in London Interbank Offered Rate (a benchmark pursuant to which
the Company's interest rates may be set) would have increased interest expense
for the first quarter of 1998 by $0.6 million. Vastar may periodically elect to
enter into interest rate swap agreements with the objective of managing interest
rate risk by converting the interest rate on variable rate debt to a fixed rate.
Vastar has not entered into nor does it have any interest rate swaps outstanding
at March 31, 1998.
------------------------
Management cautions against projecting any future results based on
present earnings levels because of economic uncertainties, the extent and form
of existing or future governmental regulations and other possible actions by
governments.
The foregoing financial information is unaudited and has been prepared
from the books and records of the Company. In the opinion of Management, the
financial information reflects all adjustments, consisting only of normal
recurring adjustments, necessary for the fair presentation of the financial
position, results of operations and cash flows in conformity with generally
accepted accounting principles.
-16-
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
There have been no material developments with respect to the Company's
legal proceedings as previously reported in the Company's Report on Form 10-K
for the period ending December 31, 1997, except with respect to Laura Lyon, et
al. v. Amoco Production Company, et al., Case Number 93-CV-130. Documents
reflecting the complete settlement in this case have been executed by all
parties and all of the federal cases have been dismissed with prejudice. The
court has rendered a judgment in favor of Vastar and all other defendants in the
remaining Lyon state court case.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
4 Second Supplemental Indenture, dated as of April 16, 1998,
by and among the Company, Harris Trust and Savings Bank,
as trustee and Bank of Montreal Trust Company, as paying
agent
10.1 Amendment No. 5 to Vastar Resources, Inc. Savings Plan,
effective as of February 1, 1998
10.2 Amendment No. 5 to Vastar Resources, Inc. Savings Plan II,
effective as of February 1, 1998
12 Computation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
(b) Reports on Form 8-K.
No Current Reports on Form 8-K were filed during the quarter ended
March 31, 1998 and through the date hereof.
-17-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VASTAR RESOURCES, INC.
(Registrant)
Dated: May 8, 1998 /s/ Joseph P. McCoy
------------------------------
Joseph P. McCoy
Vice President and Controller
(Duly Authorized Officer and
Principal Accounting Officer)
-18-
<PAGE>
Exhibit Index
Exhibit No. Description
- ----------- ---------------------------------------------------------
4 Second Supplemental Indenture, dated as of April 16, 1998,
by and among the Company, Harris Trust and Savings Bank,
as trustee and Bank of Montreal Trust Company, as paying
agent
10.1 Amendment No. 5 to Vastar Resources, Inc. Savings Plan,
effective as of February 1, 1998
10.2 Amendment No. 5 to Vastar Resources, Inc. Savings Plan II,
effective as of February 1, 1998
12 Computation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
<PAGE>
EXHIBIT 4
SECOND SUPPLEMENTAL INDENTURE
(Dated as of April 16, 1998)
-----------------------------
VASTAR RESOURCES, INC.
AND
HARRIS TRUST AND SAVINGS BANK,
As Trustee
AND
BANK OF MONTREAL TRUST COMPANY,
As Paying Agent
-----------------------------
(Supplemental to Indenture dated as of January 1, 1995, as supplemented on
May 18, 1995)
<PAGE>
This SECOND SUPPLEMENTAL INDENTURE (the "Supplemental Indenture"),
dated as of April 16, 1998 (the "Execution Date"), by and among Vastar
Resources, Inc., a Delaware corporation (the "Company"), Harris Trust and
Savings Bank, an Illinois banking corporation, as trustee (the "Trustee") and
Bank of Montreal Trust Company, as paying agent (the "Paying Agent").
WHEREAS, the Company and NationsBank of Texas, N.A. (the "Resigned
Trustee"), entered into an indenture, dated as of January 1, 1995 (the "Original
Indenture"), providing for the issuance by the Company from time to time of the
Company's unsecured debentures, notes or other evidences of indebtedness; and
WHEREAS, the Company, the Resigned Trustee, the Trustee and the Paying
Agent, entered into an indenture supplemental to the Indenture, dated as of May
18, 1995, providing for the resignation of the Resigned Trustee and the
appointment of the Trustee and the Paying Agent (the Original Indenture as
supplemented on May 18, 1995, hereinafter referred to as the "Indenture"); and
WHEREAS, Section 301 of the Indenture provides that the aggregate
principal amount of Securities which may be authenticated and delivered pursuant
to the Indenture is unlimited; and
WHEREAS, Section 301 of the Indenture provides that the terms of any
issuance of Securities under the Indenture shall be established in one or more
indentures supplemental thereto prior to any such issuance;
NOW, THEREFORE, pursuant to the Indenture and in consideration of the
covenants herein contained, it is agreed as follows (words and phrases not
otherwise defined in this Supplemental Indenture shall have the meaning given
thereto in the Indenture):
Section 1. The Securities. There shall be a series of Securities designated
"6% Putable/Callable Notes due April 20, 2010" (the "Notes"), limited in
aggregate principal amount to $100,000,000. The Notes shall be in substantially
the form attached hereto as Annex I and incorporated herein by this reference.
The maturity date of the Notes, the rate or rates at which the Notes shall bear
interest, and the other terms of the Notes are as set forth in Annex I hereto
and, to the extent not therein set forth, as provided in the following sections.
2
<PAGE>
Section 2. (a) Call Option. The Company, or any successor and assign (in such
capacity, the "Callholder"), has the right to purchase the Notes, issued
pursuant to the prospectus supplement dated as of April 16, 1998 (the
"Prospectus Supplement") in whole but not in part on April 20, 2000 (the "Coupon
Reset Date") (the "Call Option"), at a price equal to 100% of the principal
amount thereof (the "Call Price"), by giving Notice to the Trustee ("Call
Notice"). Unpaid interest accrued to but excluding the Coupon Reset Date will be
paid by the Company on such date to the holders on the most recent Record Date.
In the event of the exercise of the Call Option, (i) the Callholder shall
deliver immediately available funds equal to the Call Price to the Trustee not
later than 2:00 p.m., New York time, on the Business Day prior to the Coupon
Reset Date for payment of the Call Price on the Coupon Reset Date and (ii) the
holders of the Notes shall be required to deliver the Notes to the Callholder
against payment therefor on the Coupon Reset Date. Upon delivery of the Call
Price, subject to the provisions of paragraph (c) below, all of the Notes will
be delivered to the account of the Callholder by book-entry through the
facilities of DTC and the Trustee will make payment to the DTC participant of
each holder's Notes, by book-entry through DTC by the close of business on the
Coupon Reset Date. If the Callholder shall fail to pay the Call Price by 2:00
p.m., New York time, on the Business Day prior to the Call Date, then (A) the
Call Option shall immediately terminate and (B) no amount shall be payable as a
result of such termination.
(b) Notice. The Callholder must deliver irrevocable, written notice
(the "Call Notice") to the Trustee of its exercise of the Call Option prior to
4:00 p.m., New York time, no later than fifteen (15) calendar days prior to the
Coupon Reset Date.
(c) Termination of Call Option. If, at any time on or prior to the
exercise of the Call Option, (i) an Event of Default with respect to the Notes
shall have occurred or (ii) an "Event of Default" with respect to any senior
indebtedness of the Company shall have occurred as such Event of Default is
defined in any note, indenture, credit agreement or other similar document
relating to such senior indebtedness and as a result of such Event of Default
the Company is required to repay with respect to such indebtedness more than
$25,000,000, then (A) the Call Option shall terminate and (B) no amount shall be
payable as a result of such termination.
(d) Successors and Assigns. The Callholder may at any time assign
its rights and obligations under the Call Option; provided that (i) it assigns
its rights and obligations in whole and not in part and (ii) it provides the
Trustee with written
3
<PAGE>
notice of such assignment contemporaneously with such assignment. Upon receipt
of notice of assignment, the Trustee agrees to treat the assignee as Callholder
for all purposes hereunder. The Callholder may assign its rights under the Call
Option without notice to, or consent of, the holders of the Notes.
Section 2. Put Option. If the Call Option has not been exercised, or in the
event the Callholder is not required or fails to deliver the Call Price to the
Trustee by 2:00 p.m., New York time, on the Business Day prior to the Coupon
Reset Date, the Trustee will be required, for and on behalf of the holders of
the Notes, to exercise the option to put the Notes to the Company pursuant to
the Put Option. Upon exercise of the Put Option, the Company will be required to
purchase all of the Notes on the Coupon Reset Date, at a purchase price equal to
100% of the entire principal amount thereof (the "Put Redemption Price"). Unpaid
interest accrued to but excluding the Coupon Reset Date will be paid by the
Company on such date to the holders on the most recent Record Date preceding the
Coupon Reset Date. The Put Option will be exercised automatically by the
Trustee, on behalf of the holders, if the Call Option has not been exercised. If
the Put Option is exercised, the Company will deliver the Put Redemption Price
to the Trustee by no later than 12:00 noon, New York time, on the Coupon Reset
Date and the holders of Notes will be required to deliver the Notes to the
Company against payment therefor on the Coupon Reset Date through the facilities
of DTC. No holder of Notes or any interest therein shall have the right to
consent or object to the Trustee's exercise of the Put Option. By its purchase
of Notes, each holder irrevocably agrees that the Trustee shall exercise the Put
Option relating to such Notes for and on behalf of such holder as provided
herein.
Section 3. (a) Appointment of Calculation Agent. The Company hereby appoints
UBS Securities LLC, a limited liability company organized under the laws of the
State of New York (together with the corporation or other entity, if any, into
which UBS Securities LLC may be merged, converted or consolidated in accordance
with clause (j) below, "UBS") as its calculation agent hereunder (in such
capacity, the "Calculation Agent"), and UBS as such Calculation Agent hereby
accepts that appointment, as the Company's agent for the purpose of calculating
the Coupon Reset Rate (as defined below) in accordance with the procedures set
forth herein.
(b) Coupon Reset Process. If the Callholder has exercised the
Call Option in accordance with the procedures set forth above, the Company and
the Calculation Agent shall complete the following steps in order to determine
the interest rate (the "Coupon Reset Rate") to be paid on the Notes from and
including the Coupon Reset Date to but excluding April 20, 2010 (the "Final
Maturity Date").
4
<PAGE>
The Company and the Calculation Agent shall use reasonable efforts to cause
the actions contemplated below to be completed in as timely a manner as
possible.
(i) The Company shall provide the Calculation Agent with a
list (the "Dealer List"), no later than seven Business Days prior to
the Coupon Reset Date, containing the names and addresses of five
dealers (each a "Dealer"), one of which shall be UBS or its successor
as Calculation Agent, from which it desires the Calculation Agent to
obtain the Bids (as defined below) for the purchase of the Notes. As
used herein, "Business Day" means each Monday, Tuesday, Wednesday,
Thursday and Friday which is not a day on which banking institutions
in The City of New York generally are authorized or obligated by law
or executive order to close.
(ii) Within one Business Day following receipt by the
Calculation Agent of the Dealer List, the Calculation Agent shall
provide to each Dealer on the Dealer List (a) a copy of the Prospectus
dated November 18, 1994 and a copy of the Prospectus Supplement dated
April 16, 1998, (b) a copy of the form of Notes and (c) a written
request that each such Dealer submit a Bid to the Calculation Agent by
12:00 noon, New York time (the "Bid Deadline"), on the third Business
Day prior to the Coupon Reset Date (the "Bid Date"). "Bid" shall mean
an irrevocable written offer given by a Dealer for the purchase of all
the Notes subject to the exercise of the Call Option settling on the
Coupon Reset Date, and shall be quoted by such Dealer as a stated
yield to maturity on the Notes ("Yield to Maturity"). Concurrently
with the delivery of the documents made pursuant to the first sentence
of this clause (ii), the Calculation Agent shall also provide each
Dealer with (a) the name of the Company, (b) an estimate of the
Purchase Price (which shall be stated as a United States Dollar amount
and be calculated by the Calculation Agent in accordance with clause
(iii) below), (c) the principal amount and maturity of the Notes and
(d) the method by which interest will be calculated on the Notes.
(iii) The entire purchase price to be paid by any Dealer for
the Notes (the "Purchase Price") shall be equal to (a) the entire
principal amount of the Notes plus (b) a premium (the "Notes Premium")
which shall be equal to the excess, if any, of (x) the discounted
present value
5
<PAGE>
to the Coupon Reset Date of a bond with a maturity of April 20, 2010
which has an interest rate of 5.443%, semi-annual interest payments on
each April 20 and October 20, commencing October 20, 2000, on a
principal amount of $100,000,000, and assuming a discount rate equal
to the Treasury Rate (discounting to be on a semi-annual basis), over
(y) $100,000,000. "Treasury Rate" means the per annum rate equal to
the offer side yield to maturity of the current on-the-run 10-year
United States Treasury Security per Telerate page 500 at 11:00 a.m.,
New York time, on the Bid Date (or such other date or time that may be
agreed upon by the Company and the Calculation Agent) or, if such rate
does not appear on Telerate page 500 at such time, the rates on GovPx
End-of-Day Pricing at 3:00 p.m., New York time, on the Bid Date (or
such other date or time that may be agreed upon by the Company and the
Calculation Agent).
(iv) Immediately following receipt of the Bids, and in no event
later than 12:30 p.m., New York time, on the Bid Date, the Calculation
Agent shall provide written notice to the Company setting forth (a)
the names of each of the Dealers from whom the Calculation Agent
received Bids on the Bid Date, (b) the Bid submitted by each such
Dealer and (c) the Purchase Price as determined pursuant to paragraph
(iii) hereof. Except as provided below, the Calculation Agent shall,
on the Bid Date, select from the Bids received the Bid with the lowest
Yield to Maturity (the "Selected Bid") and establish the Coupon Reset
Rate at a rate equal to the interest rate which would amortize the
Notes Premium fully over the term of the Notes at the Yield to
Maturity indicated by the Selected Bid; provided, however, that if the
Calculation Agent has not received a Bid from a Dealer by the Bid
Deadline, the Selected Bid shall be the lowest of all Bids received by
such time; and provided, further that if any two or more of the lowest
Bids submitted are equivalent, the Company shall in its sole
discretion select any of such equivalent Bids (and such selected Bid
shall be the Selected Bid). The Calculation Agent shall notify the
Dealer that submitted the Selected Bid by 12:30 p.m., New York time,
on the Bid Date that its Bid has been selected.
(v) Immediately after calculating the Coupon Reset Rate, and in
no event later than 12:30 p.m., New York time, on the Bid Date, the
Calculation Agent shall provide written notice to the Company
6
<PAGE>
and the Trustee, setting forth the Coupon Reset Rate. The Company
shall thereafter establish the Coupon Reset Rate as the new interest
rate on the Notes, effective from and including the Coupon Reset Date,
by delivering an officers' certificate to the Trustee on or before the
Coupon Reset Date.
(vi) the Callholder shall sell the Notes to the Dealer that
made the Selected Bid at the Purchase Price, such sale to be settled
on the Coupon Reset Date in immediately available funds.
(c) Termination of Call Option. If the Calculation Agent
determines, following the exercise of the Call Option, that (i) since the
delivery of the Call Notice, an Event of Default with respect to the Notes, or
an event which, with the giving of notice or the passage of time, or both, would
constitute an Event of Default with respect to the Notes, shall have occurred
and be continuing, (ii) since the delivery of the Call Notice, a Market
Disruption Event (as defined below) has occurred or (iii) fewer than two Dealers
have provided Bids in a timely manner substantially as provided above, the Call
Option will automatically terminate, and the Trustee will exercise the Put
Option on behalf of the holders. "Market Disruption Event" shall mean any of
the following, as determined by both the Calculation Agent and the Company: (i)
a suspension or material limitation in trading in securities generally on the
New York Stock Exchange or the establishment of minimum prices on such exchange;
(ii) a general moratorium on commercial banking activities declared by either
federal or New York State authorities; (iii) any material adverse change in the
existing financial, political or economic conditions in the Unites States of
America; (iv) an outbreak or escalation of major hostilities involving the
United States of America or the declaration of a national emergency or war by
the United States of America; or (v) any material disruption of the U.S.
government securities market, U.S. corporate bond market, or U.S. federal wire
system.
(d) Rights and Liabilities of Calculation Agent. The Calculation
Agent shall incur no liability for, or in respect of, any action taken, omitted
to be taken or suffered by it in reliance upon any certificate, affidavit,
instruction, notice, request, direction, order, statement or other paper,
document or communication reasonably believed by it to be genuine. Any order,
certificate, affidavit, instruction, notice, request, direction, statement or
other communication from the Company made or given by it and sent, delivered or
directed to the Calculation Agent under, pursuant to, or as permitted by, any
provision of this Indenture shall be sufficient for purposes of this Indenture
if such communication is in writing and signed by any
7
<PAGE>
officer or attorney-in-fact of the Company. The Calculation Agent may consult
with counsel satisfactory to it and the advice of such counsel shall constitute
full and complete authorization and protection of the Calculation Agent with
respect to any action taken, omitted to be taken or suffered by it hereunder in
good faith and in accordance with and in reliance upon the written advice of
such counsel.
(e) Right of Calculation Agent to Own Notes, etc. The Calculation
Agent and its officers, employees and shareholders, may become owners of, or
acquire any interests in, Notes, with the same rights as if the Calculation
Agent were not the Calculation Agent hereunder. The Calculation Agent may
engage in, or have an interest in, any financial or other transaction with the
Company or any of its affiliates as if the Calculation Agent were not the
Calculation Agent hereunder.
(f) Duties of Calculation Agent. In acting under this Indenture in
connection with the Notes, the Calculation Agent shall be obligated only to
perform such duties as are specifically set forth herein and no other duties or
obligations on the part of the Calculation Agent, in its capacity as such, shall
be implied by this Indenture. In acting under this Indenture, the Calculation
Agent (in its capacity as such) assumes no obligation towards, or any
relationship of agency or trust for or with, the holders of the Notes.
(g) Termination, Resignation or Removal of Calculation Agent. The
Company may at any time appoint a new Calculation Agent other than the incumbent
Calculation Agent if Reasonable Cause exists at such time by giving written
notice to the incumbent Calculation Agent and specifying the date when the
termination shall become effective. "Reasonable Cause" shall mean the failure
or inability of the incumbent Calculation Agent to perform any obligations it
may have hereunder for any reason. The incumbent Calculation Agent may resign
at any time as Calculation Agent, such resignation to be effective ten (10)
Business Days after delivery to the Company and the Trustee of notice of such
resignation. In that event, the Company shall appoint a successor Calculation
Agent.
(h) Appointment of Successor Calculation Agent. Any successor
Calculation Agent appointed pursuant to the provisions of the foregoing
paragraph (g) shall execute and deliver to the predecessor Calculation Agent and
to the Company an instrument accepting such appointment and thereupon such
successor Calculation Agent shall, without any further act or instrument, become
vested with all the rights, immunities, duties and obligations of the
Calculation Agent, with like effect as if originally named as the initial
Calculation Agent hereunder, and the
8
<PAGE>
predecessor Calculation Agent shall thereupon be obligated to transfer and
deliver, and such successor Calculation Agent shall be entitled to receive and
accept, copies of any available records maintained by the predecessor
Calculation Agent in connection with the performance of its obligations
hereunder.
(i) Indemnification. The Company shall indemnify and hold harmless
UBS or any successor Calculation Agent, and their respective officers and
employees from and against all actions, claims, damages, liabilities, losses and
reasonable expenses (including reasonable legal fees and expenses) relating to
or arising out of actions or omissions in its capacity as Calculation Agent
hereunder, except actions, claims, damages, liabilities, losses and expenses
caused by the bad faith, negligence or wilful misconduct of UBS or any successor
Calculation Agent, or their respective officers or employees. This clause (i)
shall survive the termination of this Indenture and the payment in full of all
obligations under the Notes, whether by redemption, repayment or otherwise.
(j) Merger, Consolidation or Sale of Business by Calculation Agent.
Any corporation or other entity into which the Calculation Agent may be merged,
converted or consolidated, or any corporation or other entity resulting from any
merger, conversion or consolidation to which the Calculation Agent may be a
party, or any corporation or other entity to which the Calculation Agent may
sell or otherwise transfer all or substantially all of its business, shall, to
the extent permitted by applicable law, become the Calculation Agent under this
Indenture without the execution of any document or any further act by the
parties hereto.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture
to be duly executed, and their respective corporate seals to be hereunto affixed
and attested, all as of the date and year first above written.
VASTAR RESOURCES, INC.
as Company
Attest: By: /s/ Daniel D. Hawk
---------------------------------
/s/ Jon Edelfelt Title: Treasurer
- ---------------------------- ------------------------------
HARRIS TRUST AND SAVINGS BANK,
as Trustee
Attest: By: /s/ Therese Gaballah
---------------------------------
/s/ Frances Rusakowsky Title:
- ---------------------------- ------------------------------
BANK OF MONTREAL TRUST COMPANY,
as Paying Agent
Attest: By: /s/ Therese Gaballah
---------------------------------
/s/ Frances Rusakowsky Title:
- ---------------------------- ------------------------------
10
<PAGE>
ANNEX I
FORM OF NOTE
11
<PAGE>
FORM OF NOTE
------------
UNLESS THIS CERTIFICATE IS PRESENTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY (55 WATER STREET, NEW YORK, NEW YORK) TO
THE ISSUER OR ITS AGENT FOR THE REGISTRATION OF
TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR
SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY AND
ANY PAYMENT IS MADE TO CEDE & CO., ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE
BY OR TO ANY PERSON IS WRONGFUL SINCE THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.
VASTAR RESOURCES, INC.
PUTABLE/CALLABLE NOTE
(FIXED RATE)
REGISTERED PRINCIPAL AMOUNT
No. $100,000,000
INTEREST PAYABLE EACH APRIL 20 AND OCTOBER 20 AND AT MATURITY
CUSIP 922380AC4
ORIGINAL ISSUE DATE: APRIL 20, 1998
INITIAL INTEREST RATE: 6%
MATURITY DATE: APRIL 20, 2010
COUPON RESET DATE: APRIL 20, 2000
CALCULATION AGENT: UBS Securities LLC
OTHER PROVISIONS: As set forth on Exhibit A to this Note.
<PAGE>
VASTAR RESOURCES, INC., a Delaware corporation (herein called the "Company"),
for value received, hereby promises to pay to Cede & Co. or registered assigns,
the principal amount of ONE HUNDRED MILLION U.S. DOLLARS on the Maturity Date
set forth above at the office or agency of the Company for such payment in The
City of New York, in such coin or currency of the United States of America as at
the time of payment shall be legal tender for the payment of public and private
debts, and to pay interest on said principal amount until maturity at the rate
per annum (on the basis of a 360-day year consisting of twelve 30-day months or
as otherwise provided above) equal to the Initial Interest Rate shown above
until the Coupon Reset Date and thereafter at a rate determined in accordance
with the provisions set forth on Exhibit A to this Note attached hereto under
"Coupon Reset Process" and on the reverse hereof, at such office or agency, in
like coin or currency, semi-annually on April 20 and October 20 of each year or
as otherwise provided above (each an "Interest Payment Date"), until the date on
which payment of said principal amount has been made or duly provided for, and
on such date. Unless otherwise provided above, such interest shall be payable
from the date hereof or from the most recent date to which interest has been
paid. Except as otherwise provided below or in the Indenture hereinafter
referred to and in the next sentence, the interest payable hereon on any April
20, or October 20, or such other date on which interest hereon is payable shall
be payable to the person in whose name this Note is registered on the fifteenth
calendar day (whether or not a Business Day) immediately preceding such April 20
or October 20 (the "Record Date"), or such other date on which interest hereon
is payable and may be paid, at the option of the Company, by check mailed to the
person entitled thereto at his address appearing in the Note Register (as
defined in the Indenture hereinafter referred to). Any such interest not so
punctually paid or duly provided for will forthwith cease to be payable to the
holder on such Record Date and may either be paid to the person in whose name
this Note (or one or more predecessor notes) is registered at the close of
business on a special record date (the "Special Record Date") for the payment of
such defaulted interest to be fixed by the Trustee, notice whereof shall be
given to the holder of this Note not less than 10 days prior to such Special
Record Date. Interest payable hereon on the Maturity Date set forth above shall
be payable to the same person to whom the principal amount hereof shall be
payable. Unless otherwise specified above, if the date of this Note is between
the last calendar day of the month next preceding an April 20, or October 20, or
other interest payment date and on April 20, or October 20, then the first
payment of interest hereon shall be made on the April 20 or October 20 following
the next succeeding Record Date to the registered owner on such Record Date. If
any Interest Payment Date or the Maturity Date falls on a day that is not a
Business Day, payment of principal or interest will be made on the next Business
Day as if it were made on the date such payment was due, and no interest will
accrue on the amount so payable for the period from and after such Interest
Payment Date or the Maturity Date, as the case may be.
Unless the Certificate of Authentication hereon has been executed by the
Trustee by the manual signature of one of its authorized officers, this Note
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
The provisions of this Note are continued on the reverse hereof and on
Exhibit A attached hereto and such continued provisions shall for all purposes
have the same effect as though fully set forth at this place.
2
<PAGE>
IN WITNESS WHEREOF, VASTAR RESOURCES, INC. has caused this Instrument to be
signed manually or by facsimile signature by its Chairman of the Board of
Directors, a Vice Chairman of the Board of Directors, President, a Member of the
Office of the President or one of its Vice Presidents and by its Treasurer or
one of its Assistant Treasurers or its Secretary or one of its Associate or
Assistant Secretaries, and a facsimile of its corporate seal to be affixed
hereunto or imprinted hereon.
VASTAR RESOURCES, INC.
By
----------------------------------
Name:
Title:
By
----------------------------------
Associate Secretary
<PAGE>
[FORM OF REVERSE OF NOTE]
This Note is a Global Security evidencing a portion of a duly authorized
issue of notes of the Company, designated generally as its Putable/Callable
Notes (the "Notes"). The Notes are all issued or to be issued under and
pursuant to the Indenture dated as of January 1, 1995 as supplemented by the
Supplemental Indenture dated as of May 18, 1995 and the Second Supplemental
Indenture dated as of April 16, 1998 (collectively, the "Indenture"), duly
executed and delivered by Harris Trust and Savings Bank, as trustee (the
"Trustee") and the Bank of Montreal Trust Company, as paying agent, to which
Indenture and all indentures supplemental thereto reference is hereby made for a
description of the rights, limitation of rights, obligations, duties and
immunities thereunder of the Trustee, the Company and the holders of the Notes.
The Notes constitute a single series for purposes of the Indenture.
In case an Event of Default, as defined in the Indenture, with respect to
the Notes shall have occurred and be continuing, the principal hereof may be
declared, and upon such declaration shall become, due and payable, in the
manner, with the effect and subject to the conditions provided in the Indenture.
The Indenture provides that the holders of a majority in aggregate principal
amount of the Notes at the time outstanding may on behalf of the holders of all
of the Notes waive any past default under the Indenture and its consequences,
except a default in the payment of principal of or interest on any of the Notes,
in the manner and to the extent provided in the Indenture.
The Indenture contains provisions permitting the Company and the Trustee,
with the consent of the holders of not less than a majority in aggregate
principal amount of the Notes at the time outstanding, evidenced as in the
Indenture provided, to execute supplemental indentures adding any provisions to
or changing in any manner or eliminating any of the provisions of the Indenture
or of any supplemental indenture or modifying in any manner the rights of the
holders of the Notes; provided, however, that no such supplemental Indenture
shall (i) extend the fixed maturity of any Note, or reduce the principal amount
thereof, or reduce the rate or extend the time of payment of interest thereon,
or make the principal thereof or interest thereon payable in any coin or
currency other than that hereinabove provided, without the consent of the holder
of each Note so affected, or (ii) reduce the aforesaid percentage of Notes, the
holders of which are required to consent to any such supplemental indenture,
without the consent of the holders of all Notes then outstanding.
No reference herein to the Indenture and no provision of this Note or of
the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditioned, to pay the principal of and interest on this Note at
the time and place and at the rate and in the coin or currency herein
prescribed.
The Notes are issuable as registered Notes only, in the denomination of
$1,000 and any larger denomination which is an integral multiple of $1,000
approved by the Company, such approval to be evidenced by the execution thereof.
This Note is transferable by the registered holder hereof in person or by
his attorney duly authorized in writing on the books of the Company at the
office or agency to be maintained by the Company for that purpose in The City of
New York, but only in the manner subject to the limitations and upon payment of
any tax or governmental charge for which the Company may require reimbursement
as provided in the Indenture, and upon surrender and cancellation of this Note.
Subject to limitations set forth in the Indenture, upon any registration of
transfer, a new registered Note or Notes, of authorized
4
<PAGE>
denomination or denominations, and in the same aggregate principal amount, will
be issued to the transferee in exchange therefor.
The Company, the Trustee, any paying agent, and any Note registrar may deem
and treat the registered holder hereof as the absolute owner of this Note
(whether or not this Note shall be overdue and notwithstanding any notations of
ownership or other writing hereon made by anyone other than the Note registrar)
for the purpose of receiving payment of or on account of the principal hereof
and interest due hereon, as herein provided and for all other purposes, and
neither the Company nor the Trustee nor any paying agent nor any Note registrar
shall be affected by any notice to the contrary.
No recourse shall be had for the payment of the principal of or interest on
this Note, or for any claim based hereon, or otherwise in respect hereof, or
based on or in respect of the Indenture or any indenture supplemental thereto,
against any incorporator, stockholder, officer or director, as such past,
present or future, of the Company or of any successor corporation, whether by
virtue of any constitution, statute or rule of law, or by the enforcement of any
assessment or penalty or otherwise, all such liability being, by the acceptance
hereof and as part of the consideration for the issue hereof, expressly waived
and released.
Notwithstanding any other provision of this Note, unless and until it is
exchanged in whole or in part for Notes in definitive form, this Global Security
representing all or a portion of the Notes may not be transferred except as a
whole by the Depositary for such Notes to a nominee of such Depositary or by a
nominee of such Depositary to such Depositary or another nominee to a successor
Depositary for these Notes or a nominee of such successor Depositary.
The Notes are not redeemable prior to maturity but are subject to the Call
Option and are entitled to the Put Option described on Exhibit A to this Note.
5
<PAGE>
This Note shall be deemed to be a contract made under the laws of the State
of New York, and for all purposes shall be construed in accordance with the laws
of said State.
CERTIFICATE OF AUTHENTICATION
Dated: April 21, 1998
This is one of the Notes of the series designated herein issued under the
within-mentioned Indenture.
HARRIS TRUST AND SAVINGS BANK
as Trustee
By:
--------------------------------
Name:
Title:
6
<PAGE>
---------------------------------
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face of
this instrument, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM - as tenants in common UNIF GIFT MIN ACT ____ Custodian ____
TEN ENT - as tenants by the entries (Cust) (Minor)
JT TEN - as joint tenants with
right of survivorship _______________
and not as tenants (State)
in common
Additional abbreviations may also be used though not in the above list.
7
<PAGE>
FOR VALUE RECEIVED the undersigned hereby
sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING OF ASSIGNEE {............} ________________________________
(Please print or
__________________________________________________________________________
typewrite name and address of assignee)
the within Note of Beneficial Corporation and hereby does irrevocably constitute
and appoint_____________________________________________________________________
Attorney to transfer the said Note on the books of the within-mentioned Company,
with full power of substitution in the premises.
Dated: _________________ __________________________________________________
NOTICE: The signature to this assignment must
correspond with the name as written upon the face
of the Note in every particular without alteration
or enlargement or any change whatever.
__________________________________________________
8
<PAGE>
EXHIBIT A
OTHER PROVISIONS
CALL OPTION; PUT OPTION
The Company and any of its assigns, including, but not limited to, Union
Bank of Switzerland, London branch (the "Callholder") has the right to purchase
this Note in whole but not in part on the Coupon Reset Date (as defined above)
(the "Call Option"), at a price equal to 100% of the principal amount hereof
(the "Call Price"), by giving notice to the Trustee (the "Call Notice"). Unpaid
interest accrued to but excluding the Coupon Reset Date will be paid by the
Company on such date to the holders on the most recent Record Date preceding the
Coupon Reset Date. In order to exercise the Call Option, the Callholder must
deliver the Call Notice to the Trustee, in writing, prior to 4:00 p.m., New York
time, no later than 15 calendar days prior to the Coupon Reset Date. In the
event of exercise of the Call Option, then (i) the Callholder shall deliver
immediately available funds equal to the Call Price to the Trustee not later
than 2:00 p.m., New York time, on the Business Day prior to the Coupon Reset
Date, for payment of the Call Price on the Coupon Reset Date and (ii) the
holders of the Notes shall be required to deliver the Notes to the Callholder
against payment therefor on the Coupon Reset Date through the facilities of the
Depositary.
If the Callholder elects to exercise the Call Option, the obligation of the
Callholder to pay the Call Price is subject to certain conditions precedent
including the following: (i) since the date of the Call Notice, no Event of
Default (as defined in the Indenture) with respect to the Notes, or any event
which, with the giving of notice or passage of time, or both would constitute an
Event of Default with respect to the Notes, shall have occurred and be
continuing; (ii) since the date of the Call Notice, no Market Disruption Event
(as defined below) shall have occurred; and (iii) since the date of the Call
Notice, two or more Dealers (as defined below) shall have provided timely Bids
(as defined below) in the manner described below under "Coupon Reset Process."
No holder of Notes or any interest therein shall have any rights or claims
against the Callholder as a result of the Callholder purchasing or not
purchasing the Notes.
If the Call Option has not been exercised, or in the event the Callholder
is not required or fails to deliver the Call Price to the Trustee by 2:00 p.m.,
New York time, on the Business Day prior to the Coupon Reset Date, the Trustee
will, for and on behalf of the holders of the Notes, exercise the put option
(the "Put Option") by giving the Company notice of such exercise not later than
the close of business on the Business Day prior to the Coupon Reset Date. Upon
exercise of the Put Option, the Company will be required to purchase all of the
Notes on the Coupon Reset Date, at a purchase price equal to 100% of the entire
principal amount thereof (the "Put Redemption Price"). Unpaid interest accrued
to but excluding the Coupon Reset Date will be paid by the Company on such date
to the holders on the most recent Record Date preceding the Coupon Reset Date.
The Put Option will be exercised automatically by the Trustee, on behalf of the
holders, if the Call Option has not been exercised. If the Put Option is
exercised, the Company will deliver the Put Redemption Price to the Trustee,
together with the accrued and unpaid interest due on the Coupon Reset Date, by
no later than 12:00 noon, New York time, on the Coupon Reset Date and the
holders of Notes will be required to deliver the Notes to the Company against
payment therefor on the Coupon Reset Date through the facilities of the
Depositary. No holder of Notes or any interest therein has the right to consent
or object to the Trustee's exercise of the Put Option. By its purchase of this
Note, the
1
<PAGE>
holder irrevocably agrees that the Trustee shall exercise the Put
Option relating to this Note for and on behalf of the holder as provided herein.
COUPON RESET PROCESS
If the Callholder has exercised the Call Option as set forth above under
"Call Option; Put Option," the Company and the Calculation Agent shall complete
the following steps in order to determine the interest rate to be paid on the
Notes from and including the Coupon Reset Date to the Maturity Date. The
Company and the Calculation Agent shall use reasonable efforts to cause the
actions contemplated below to be completed in as timely a manner as possible.
(a) The Company shall provide the Calculation Agent with a list (the
"Dealer List"), no later than seven Business Days prior to the Coupon Reset
Date, containing the names and addresses of five dealers (each, a "Dealer"), one
of which shall be UBS Securities LLC, or its successor as Calculation Agent,
from which it desires the Calculation Agent to obtain the Bids (as defined
below) for the purchase of the Notes. As used herein, "Business Day" means any
day other than a Saturday, a Sunday or a day on which banking institutions in
The City of New York are authorized or obligated by law, executive order or
governmental decree to close.
(b) Within one Business Day following receipt by the Calculation Agent of
the Dealer List, the Calculation Agent shall provide to each Dealer on the
Dealer List (i) a copy of the Prospectus dated November 18, 1994 and a copy of
the Prospectus Supplement dated April 16, 1998 relating to the offering of the
Notes, (ii) a copy of the form of Notes and (iii) a written request that each
Dealer submit a Bid to the Calculation Agent by 12:00 noon, New York time (the
"Bid Deadline"), on the third Business Day prior to the Coupon Reset Date (the
"Bid Date"). "Bid" shall mean an irrevocable written offer given by a Dealer
for the purchase of all the Notes subject to the exercise of the Call Option
settling on the Coupon Reset Date, and shall be quoted by such Dealer as a
stated yield to maturity on the Notes (the "Yield to Maturity"). The
Calculation Agent shall also provide each Dealer with (i) the name of the
Company, (ii) an estimate of the Purchase Price (as defined below) (which shall
be stated as a United States dollar amount and be calculated by the Calculation
Agent in accordance with clause (c) below), (iii) the principal amount and
maturity of the Notes and (iv) the method by which interest will be calculated
on the Notes.
(c) The entire purchase price to be paid by any Dealer for the Notes (the
"Purchase Price") shall be equal to (i) the entire principal amount of the Notes
plus (ii) a premium (the "Notes Premium") which shall be equal to the excess, if
any, of (A) the discounted present value to the Coupon Reset Date of a bond,
with a maturity of April 20, 2010 which has an interest rate of 5.443%, semi-
annual interest payments on each April 20 and October 20, commencing October 20,
2000, and a principal amount of $100,000,000, and assuming a discount rate equal
to the Treasury Rate (as defined below), over (B) $100,000,000. "Treasury Rate"
means the per annum rate equal to the offer side yield to maturity of the
current on-the-run 10-year United States Treasury Security per Telerate page 500
at 11:00 a.m., New York time, on the Bid Date (or such other date or time that
may be agreed upon by the Company and the Calculation Agent), or, if such rate
does not appear on Telerate page 500 at such time, the rates on GovPx End-of-Day
Pricing at 3:00 p.m., New York time, on the Bid Date (or such other date or time
that may be agreed upon by the Company and the Calculation Agent).
2
<PAGE>
(d) Immediately following receipt of the Bids, and in no event later than
12:30 p.m., New York time, on the Bid Date, the Calculation Agent shall provide
written notice to the Company, setting forth (i) the names of each of the
Dealers from whom the Calculation Agent received Bids on the Bid Date, (ii) the
Bid submitted by each such Dealer and (iii) the Purchase Price as determined
pursuant to paragraph (c) above. Except as provided below, the Calculation Agent
shall on the Bid Date select from the Bids received the Bid with the lowest
Yield to Maturity (the "Selected Bid") and establish the Coupon Reset Rate for
the Notes at a rate equal to the interest rate which would amortize the Notes
Premium fully over the term of the Notes at the Yield to Maturity indicated by
the Selected Bid; provided, however, that if the Calculation Agent has not
received a Bid from a Dealer by the Bid Deadline, the Selected Bid shall be the
lowest of all Bids received by such time and provided, further that if any two
or more of the lowest Bids submitted are equivalent, the Company shall in its
sole discretion select any of such equivalent Bids (and such selected Bid shall
be the Selected Bid). The Calculation Agent shall notify the Dealer that
submitted the Selected Bid by 12:30 p.m., New York time, on the Bid Date that
its Bid has been selected.
(e) Immediately after calculating the Coupon Reset Rate, and in no event
later than 12:30 p.m., New York time, on the Bid Date, the Calculation Agent
shall provide written notice to the Company and the Trustee, setting forth such
Coupon Reset Rate. The Company shall thereafter establish the Coupon Reset Rate
as the new interest rate on the Notes, effective from and including the Coupon
Reset Date, by delivering an officers' certificate to the Trustee on or before
the Coupon Reset Date.
(f) The Callholder shall sell the Notes to the Dealer that made the
Selected Bid at the Purchase Price, such sale to be settled on the Coupon Reset
Date in immediately available funds.
If the Calculation Agent determines (which determination must be reflected
in a written notice delivered by the Calculation Agent to the Company and the
Trustee no later than 2:00 p.m., New York time, on the Business Day prior to the
Coupon Reset Date) that (i) since the delivery of the Call Notice, an Event of
Default with respect to the Notes, or an event which, with the giving of notice
or the passage of time, or both, would constitute an Event of Default with
respect to the Notes, shall have occurred and be continuing, (ii) since the
delivery of the Call Notice, a Market Disruption Event (as described below) has
occurred or (iii) fewer than two Dealers have provided Bids in a timely manner
substantially as provided above, the Call Option will automatically terminate,
and the Trustee will exercise the Put Option on behalf of the holders. "Market
Disruption Event" shall mean any of the following, as determined by both the
Calculation and the Company: (i) a suspension or material limitation in trading
in securities generally on the New York Stock Exchange or the establishment of
minimum prices in such exchange; (ii) a general moratorium on commercial banking
activities declared by either federal or New York State authorities; (iii) any
material adverse change in the existing financial, political or economic
conditions in the United States of America; (iv) an outbreak or escalation of
major hostilities involving the United States of America or the declaration of a
national emergency or war by the United States of America; or (v) any material
disruption of the U.S. government securities market, U.S. corporate bond market
or U.S. federal wire system.
3
<PAGE>
EXHIBIT 10.1
AMENDMENT NO. 5
TO
VASTAR RESOURCES, INC. SAVINGS PLAN
__________________________
Pursuant to the power of amendment reserved therein, the Vastar Resources, Inc.
Savings Plan (the "Plan") is hereby amended effective as of February 1, 1998:
A new Section 16 is added to the Plan to read as follows:
"SECTION 16
TRANSFER OF VOLUNTARY CONTRIBUTIONS
16.1 TRANSFER OF FUNDS
An Employee or Former Employee may elect to transfer such individual's
entire voluntary contribution account from the Vastar Resources, Inc.
Retirement Plan to the Plan in accordance with procedures approved by the
Plan Administrative Committee and the Administrator of the Vastar
Resources, Inc. Retirement Plan. The Member contributions transferred
pursuant to this Section 16 shall be deposited in the Member's Account
allocable to Member contributions contributed after December 31, 1986.
16.2 STATUS OF FUNDS
Funds in the voluntary contribution account of Vastar Resources, Inc.
Retirement Plan are being transferred to the Plan pursuant to the elective
transfer rules of Treas. Reg. 1.411(d)-4, Q&A-3. As such, these funds will
not be subject to any of the Joint and Survivor or other annuity provisions
of the Vastar Resources, Inc. Retirement Plan and will be distributable
only in a lump sum in accordance with the provisions of the Plan."
Executed this 25th day of March, 1998.
ATTEST VASTAR RESOURCES, INC.
/s/ JONATHAN D. EDELFELT /s/ JEFFREY M. BENDER
BY:_________________________ BY:_______________________
JONATHAN D. EDELFELT JEFFREY M. BENDER
Associate Secretary Vice President
Human Resources
<PAGE>
EXHIBIT 10.2
AMENDMENT NO. 5
TO
VASTAR RESOURCES, INC. SAVINGS PLAN II
__________________________
Pursuant to the power of amendment reserved therein, the Vastar Resources, Inc.
Savings Plan II (the "Plan") is hereby amended effective as of February 1, 1998:
A new Section 16 is added to the Plan to read as follows:
"SECTION 16
TRANSFER OF VOLUNTARY CONTRIBUTIONS
16.1 Transfer of Funds
An Employee or Former Employee may elect to transfer such individual's
entire voluntary contribution account from the Vastar Resources, Inc.
Retirement Plan II to the Plan in accordance with procedures approved by
the Plan Administrative Committee and the Administrator of the Vastar
Resources, Inc. Retirement Plan II. The Member contributions transferred
pursuant to this Section 16 shall be deposited in the Member's Account
allocable to Member contributions contributed after December 31, 1986.
16.2 Status of Funds
Funds in the voluntary contribution account of Vastar Resources, Inc.
Retirement Plan II are being transferred to the Plan pursuant to the
elective transfer rules of Treas. Reg. 1.411(d)-4, Q&A-3. As such, these
funds will not be subject to any of the Joint and Survivor or other
annuity provisions of the Vastar Resources, Inc. Retirement Plan II and
will be distributable only in a lump sum in accordance with the
provisions of the Plan."
Executed this 25th day of March, 1998.
ATTEST VASTAR RESOURCES, INC.
BY: /s/ Jonathan D. Edelfelt By: /s/ Jeffrey M. Bender
------------------------- -------------------------
JONATHAN D. EDELFELT JEFFREY M. BENDER
Associate Secretary Vice President
Human Resources
<PAGE>
VASTAR RESOURCES, INC.
EXHIBIT 12
STATEMENT SETTING FORTH DETAIL OF COMPUTATION OF
RATIO OF EARNINGS TO FIXED CHARGES
(Unaudited)
For the three
months ended
March 31,
-------------
(Millions of dollars, 1998 1997
except ratio amounts) ----- ------
Income from continuing operations
before income taxes, minority
interest and cumulative effect of
change in accounting principle(1)....... $32.6 $67.2
Fixed Charges:
Interest expense charged to income,
and portion of rentals
representative of interest(2)........... 12.6 13.0
Capitalized Interest.................... ----- ------
Total fixed charges..................... 12.6 13.0
----- ------
Earnings (1) + (2) $45.2 $80.2
===== ======
Ratio of earnings to fixed charges 3.6 6.2
===== ======
The Company has no issuances of preferred stock.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
Notes: Vastar Resources, Inc: Financial Data Schedule as of the three months
ending March 31, 1998. This schedule contains summary financial information
extracted from the Consolidated Statement of Income and the Consolidate Balance
Sheet and is qualified in its entirety by reference to such financial
statements.
Rule 5-03-04 specifically does not address SG&A costs as a requirement in the
FDS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 8,400
<SECURITIES> 0
<RECEIVABLES> 171,300
<ALLOWANCES> 0
<INVENTORY> 11,200
<CURRENT-ASSETS> 225,900
<PP&E> 5,327,200
<DEPRECIATION> 3,670,300
<TOTAL-ASSETS> 1,930,800
<CURRENT-LIABILITIES> 283,800
<BONDS> 715,700
0
0
<COMMON> 1,000
<OTHER-SE> 545,400
<TOTAL-LIABILITY-AND-EQUITY> 1,930,800
<SALES> 217,400
<TOTAL-REVENUES> 243,400
<CGS> 118,000
<TOTAL-COSTS> 186,200
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,600
<INCOME-PRETAX> 32,600
<INCOME-TAX> (15,400)
<INCOME-CONTINUING> 48,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 48,000
<EPS-PRIMARY> 0.49
<EPS-DILUTED> 0.49
</TABLE>
