<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant To Section 14(a) Of
The Securities Exchange Act Of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X]Preliminary Proxy Statement
[_]CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE
14A-6(E)(2))
[_]Definitive Proxy Statement
[_]Definitive Additional Materials
[_]Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
Vastar Resources, Inc.
----------------------------------------------------------
(Name of Registrant as Specified in its Charter)
----------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_]No fee required.
[X]Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, par value $0.01 per share, of Vastar Resources, Inc.
----------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
17,757,936(a)
----------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
$83(a)
----------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
$1,591,807,058(a)
----------------------------------------------------------
(5) Total fee paid:
$318,362(a)
----------------------------------------------------------
<PAGE>
(a) As of June 12, 2000, there were 17,757,936 shares of common stock, par
value $0.01 per share ("Common Stock"), of Vastar Resources, Inc.
("Vastar") outstanding and owned by stockholders other than Atlantic
Richfield Company ("ARCO"). The filing fee was determined by adding (x)
the product of (i) the number of shares of Common Stock that are
proposed to be acquired in the merger and (ii) the merger consideration
of $83 in cash per share of Common Stock, plus (y) $117,898,370 payable
to holders of stock options granted by Vastar to purchase shares of
Common Stock in exchange for the cancellation of such options ((x) and
(y) together, the "Total Consideration"). The payment of the filing
fee, calculated in accordance with Regulation 240.0-11 under the
Securities Exchange Act of 1934, as amended, equals one-fiftieth of one
percent of the Total Consideration.
[_]Fee paid previously with preliminary materials.
[_]Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------------------
(3) Filing Party:
----------------------------------------------------------------------
(4) Date Filed:
----------------------------------------------------------------------
<PAGE>
Vastar Resources, Inc.
15375 Memorial Drive
Houston, Texas 77079
, 2000
Dear Stockholder:
The Board of Directors of Vastar Resources, Inc. has agreed to a merger in
which BP Amoco will acquire the remaining approximately 18.1% of Vastar
outstanding stock it does not presently own. If the merger is completed, Vastar
stockholders, other than BP Amoco, will receive $83 for each share of Vastar
common stock.
We cannot complete the merger unless Vastar stockholders vote to approve it.
The merger must be approved by the holders of at least two-thirds of our common
stock not owned by BP Amoco. We will hold a special meeting of our stockholders
to vote on the merger. The meeting will be held in the main conference room of
Vastar Resources, Inc., 15375 Memorial Drive, Houston, Texas 77079, on ,
2000, at 9:00 a.m. local time. If you fail to vote, the effect will be a vote
against the merger.
On March 16, 2000, our Board of Directors received a proposal from BP Amoco to
acquire the publicly owned shares of Vastar for $71 per share. Our Board of
Directors formed a special committee of its independent directors to evaluate
the proposal. On May 23, 2000, after over a month of negotiations with BP
Amoco, the special committee unanimously recommended to the Board of Directors,
and the board unanimously approved, a merger in which Vastar stockholders,
other than BP Amoco, will receive $83 per share.
The $83 per share merger proposal recognizes Vastar's historical and
prospective ability to create differential stockholder value. I believe that
the $83 per share price is a testament to the achievements of Vastar's
employees who have made Vastar one of the best-performing independent oil and
gas companies, a fact that has been widely recognized by our industry as well
as the financial community. I am very proud of our record of building value for
stockholders.
This document provides you with detailed information about the proposed merger.
You are encouraged to read this entire document before you decide how you wish
to vote. In addition, this document incorporates other important information
that is not included in this document. You may obtain this information without
charge by directing your request to the address listed on page 88. To obtain
timely delivery of the information, please request documents by , 2000.
Your vote is very important. To vote your shares, you may use the enclosed
proxy card or attend the special stockholder meeting and vote your shares in
person. If you are a participant in Vastar's Capital Accumulation Plan, you
should also receive a copy of this proxy statement and a proxy card from the
plan trustee. On the proxy card for the plan, you can give directions to the
plan trustee on how the shares of common stock credited to your account should
be voted. If your shares are held in "street name", i.e., in the name of a
broker, bank or other record holder, you must either direct the record holder
as to how to vote your shares or obtain a proxy from the record holder to vote
at the special meeting.
<PAGE>
I, along with the entire Board of Directors, urge you to vote "FOR" the
adoption and approval of the merger agreement and authorization of the merger.
Sincerely yours,
/s/ Charles D. Davidson
Chairman of Board, President
and Chief Executive Officer
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the merger, passed upon the merits or
fairness of the merger, or passed upon the adequacy or accuracy of the
disclosure in this document. Any representation to the contrary is a criminal
offense.
This proxy statement dated , 2000 and the accompanying form of proxy are
first being mailed to stockholders on or about , 2000.
<PAGE>
Vastar Resources, Inc.
Notice of Special Meeting of Stockholders
to be held
, 2000
To the Stockholders of Vastar Resources, Inc.:
A special meeting of stockholders of Vastar Resources, Inc. will be held in the
main conference room of our principal executive offices located at 15375
Memorial Drive, Houston, Texas 77079, on , , 2000, at 9:00 a.m., local
time. The purposes of the special meeting are:
. to consider and vote on a proposal to approve and adopt the Agreement and
Plan of Merger, dated as of May 24, 2000, among Atlantic Richfield
Company ("ARCO"), Kernel Holdings Inc., a wholly owned subsidiary of
ARCO, and Vastar, providing for the merger of Kernel with and into
Vastar;
. after the merger, Vastar will be a wholly owned subsidiary of ARCO,
which is an indirect subsidiary of BP Amoco p.l.c.;
. this proposal must be approved by the holders of a majority of our
outstanding common stock;
. because BP Amoco owns approximately 81.9% of our outstanding common
stock and BP Amoco will vote in favor of this proposal, approval is
assured;
. to permit the holders of our common stock, other than BP Amoco, to
consider and vote separately on a proposal to authorize the merger of
Kernel with and into Vastar;
. this proposal must be approved by the holders of at least two-thirds
of our outstanding common stock that is not owned by BP Amoco; and
. to transact any other business as may properly come before the meeting.
The Board of Directors has fixed , 2000 as the record date for the meeting.
Only common stockholders of record at the close of business on , 2000 may
vote at the meeting.
Vastar has postponed its normally scheduled annual meeting. If the merger is
not approved, a subsequent stockholders meeting will be held to conduct the
business normally conducted at our annual meeting.
If you are a stockholder of record you should receive a proxy card with this
proxy statement. On the proxy card, you can give directions on how the shares
of common stock of Vastar registered in your name should be voted. If you are a
participant in Vastar's Capital Accumulation Plan you should also receive a
proxy card with this proxy statement from the plan trustee. On the proxy card
for the plan, you can give directions to the plan trustee on how the shares of
common stock credited to your account should be voted. If a bank, broker or
other record holder holds shares you own, you should receive instructions from
them on how to vote your shares.
We urge you to read this proxy statement; then complete, sign and date the
proxy card and return it in the enclosed self-addressed postage-paid envelope.
/s/ Albert D. Hoppe
Albert D. Hoppe Houston, Texas
Secretary , 2000
<PAGE>
SUMMARY TERM SHEET
The following summarizes the most material terms of the merger of Vastar
Resources, Inc. with a subsidiary of BP Amoco p.l.c. It does not contain all
information that may be important to consider when evaluating the merits of the
merger. We encourage you to read this proxy statement and the documents we have
incorporated by reference in their entirety before voting. We have included
section references to direct you to a more complete description of the topics
discussed in this summary.
. BP Amoco currently owns approximately 81.9% of the outstanding shares of
our common stock. BP Amoco proposes a merger in which Vastar stockholders
other than BP Amoco will receive $83 per share in cash, without interest.
Please read "Special Factors--Background of the Merger" beginning on page
4.
. This is a "going private" transaction. As a result of the merger:
. BP Amoco will own our entire equity interest;
. you will no longer have any interest in our future earnings or
growth;
. we will no longer be a public company; and
. our common stock will no longer be traded on the New York Stock
Exchange.
Please read "Special Factors--Certain Effects of the Merger" beginning on page
38.
. A special committee of independent directors has determined that the
merger is fair to and in the best interest of our stockholders other than
BP Amoco, and has recommended to the full Board of Directors that the
merger be approved. Please read "Special Factors--Fairness of the Merger;
Recommendation of the Special Committee of the Board of Directors"
beginning on page 11.
. The special committee received an opinion from each of Salomon Smith
Barney Inc. and Petrie Parkman & Co., Inc., its financial advisors, that
as of May 23, 2000 and on the basis of, and subject to, the matters
reviewed with the special committee, the $83 per share merger price was
fair from a financial point of view to our stockholders other than BP
Amoco and its affiliates. Please read "Special Factors--Opinions of
Financial Advisors to the Special Committee" beginning on page 17.
. Acting on the recommendation of the special committee, the Board of
Directors has unanimously approved the merger agreement and the merger
and recommends that you vote "FOR" the merger. Please read "Special
Factors--Recommendation of the Board of Directors" beginning on page 14.
. The merger must be authorized by the holders of at least two-thirds of
the outstanding shares of our common stock not owned by BP Amoco. Please
read "The Special Meeting--Vote Required" beginning on page 1 and "The
Merger Agreement-- Conditions" beginning on page 82.
. In addition, Delaware law entitles stockholders who do not vote in favor
of the merger and who fulfill other procedural requirements to a judicial
appraisal of the fair value of their shares. Please read "Dissenters'
Rights of Appraisal" beginning on page 85.
. Your receipt of cash in the merger generally will be a taxable
transaction to you. Please read "Special Factors--U.S. Federal Income Tax
Consequences" beginning on page 51.
i
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: What will I receive in the merger?
A: As a holder of Vastar stock, you will receive $83 per share in cash, without
interest, in exchange for each share of Vastar common stock that you own. If
you own employee stock options to purchase our common stock, you will be
entitled to receive, for each share of common stock subject to the employee
stock option, the difference between $83 and the exercise price of the
option, without interest.
Q: What vote is required for the Vastar stockholders to approve the merger?
A: Two votes are required to approve the merger:
1) Approval of the merger and adoption of the merger agreement by the
affirmative vote of holders of a majority of our outstanding shares of
common stock. Because BP Amoco will vote for adoption, satisfaction of
this requirement is assured.
2) Authorization of the merger pursuant to Delaware General Corporation
Law Section 203(a) by the affirmative vote of holders of at least two-
thirds of our outstanding shares, other than shares held by BP Amoco.
If you do not vote your shares, the effect will be to vote against the
merger. Please read "The Special Meeting--Voting Procedures" beginning on page
2.
Q: What is the status of BP Amoco's acquisition of ARCO, and how does it
affect Vastar?
A: On April 18, 2000, BP Amoco completed its acquisition of ARCO. As a result
of this acquisition, BP Amoco now owns, through ARCO, approximately 81.9%
of our common stock. This was a change of control of Vastar. When BP
Amoco's acquisition of ARCO was completed, the Chairman of the Board of
Vastar, Michael E. Wiley, and three additional members of the Board of
Directors of Vastar, Terry G. Dallas, Marie L. Knowles and Donald R.
Voelte, Jr., resigned. The Board of Directors then reduced the size of the
Board of Directors to five members: Charles D. Davidson, Chairman, Jimmie
D. Callison, Robert C. LeVine, Steven J. Shapiro and William D. Schulte.
For a description of the relationship between BP Amoco, ARCO, and Vastar,
see "Special Factors--Transactions and Relationships between Vastar, ARCO
and BP Amoco" beginning on page 43.
Q: Why is my Board of Directors recommending the merger?
A: A special committee of three independent directors evaluated the fairness of
the merger. The special committee negotiated the terms of the merger and
recommended that the full Board of Directors approve the merger. For a more
complete description of the factors considered by the special committee, see
"Special Factors--Fairness of the Merger; Recommendation of the Special
Committee of the Board of Directors" beginning on page 11.
Q: Why was the special committee formed?
A: Your Board of Directors formed the special committee to protect your
interests in evaluating and negotiating the terms of the merger agreement.
The special committee independently selected and retained legal and
financial advisors to assist it in the negotiation. For a description of
these events, see "Special Factors--Background of the Merger" beginning on
page 4.
Q: Does BP Amoco have the financial resources to make payment?
A: Yes. BP Amoco will be financing the merger from the proceeds of the sale of
most of ARCO's Alaskan businesses, which it completed earlier this year. See
"Special Factors--Source and Amount of Funds; Financing for the Merger"
beginning on page 51 for more information about how BP Amoco will finance
the merger.
ii
<PAGE>
Q: Is the financial condition of BP Amoco relevant to my decision on how to
vote?
A: Your shares will be purchased in the merger for cash and the merger is not
subject to any financing condition. Because BP Amoco has sufficient cash to
finance the merger, we do not believe that its financial condition is
relevant to your decision on how to vote.
Q: When do you expect to complete the merger?
A: We are working toward completing the merger as quickly as possible. We hope
to complete the merger on or shortly after the date of the special meeting.
However, we cannot assure you as to when or if the merger will occur.
Q: What do I need to do with my proxy card?
A: After you have carefully read this document, indicate on your proxy card how
you want to vote. Sign, date and mail the proxy card in the enclosed prepaid
return envelope as soon as possible, so that your shares may be represented
and voted at the special meeting.
Q: If my broker holds my shares in "street name," will my broker vote my shares
for me?
A: Your shares will not be voted unless you follow the directions your broker
sends to you regarding how to vote your shares.
Q: Can I change my vote after I have mailed my signed proxy card?
A: Yes. You can change your vote at any time before your proxy is voted. To do
so, send a later dated, signed proxy card to Vastar's Secretary at 15375
Memorial Drive, Houston, Texas 77079 before the meeting, or attend the
meeting in person and vote. For a description of voting procedures, see "The
Special Meeting--Voting Procedures" on page 2.
Q: Where can I find more information about the companies?
A: Vastar, BP Amoco and ARCO file reports and other information with the SEC.
You may read and copy this information at the SEC's public reference
facilities. Please call the SEC at 1-800-SEC-0330 for information about
these facilities. This information is also available at the Internet site
the SEC maintains at www.sec.gov and at the offices of the New York Stock
Exchange. You can also request copies of these documents from Vastar, BP
Amoco or ARCO. See "Where You Can Find More Information" on page 88.
Q: Who is entitled to vote at the special meeting?
A: Holders of record of Vastar common stock as of the close of business on ,
2000 are entitled to vote at the special meeting. Each Vastar stockholder
has one vote for each share of Vastar common stock owned on , 2000.
Q: What is the location, date and time of the special meeting?
A: The special meeting will be held in the main conference room at Vastar's
headquarters, located at 15375 Memorial Drive, Houston, Texas 77079, on ,
, 2000, at 9:00 a.m. local time. If the special meeting is adjourned for
any reason, we will give you notice of the new date and time. See "The
Special Meeting" on page 1.
iii
<PAGE>
Q: Should I send my Vastar stock certificates now?
A: No. After the merger is completed, ARCO's payment agent will send you
written instructions for exchanging your shares of Vastar common stock. You
must return your Vastar stock certificates as described in the instructions
to receive the cash payment in connection with the merger.
If you have further questions, you may contact:
Vastar Resources, Inc.
Investor Relations
15375 Memorial Drive
Houston, Texas 77079
(281) 584-3477
You may also contact our proxy solicitor:
Innisfree M&A, Incorporated
501 Madison Avenue, 20th Floor
New York, New York 10022
(212) 750-5833
iv
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SUMMARY TERM SHEET........................................................ i
QUESTIONS AND ANSWERS ABOUT THE MERGER.................................... ii
THE SPECIAL MEETING....................................................... 1
Purpose................................................................. 1
Voting by Proxy......................................................... 1
Who Can Vote............................................................ 1
Vote Required........................................................... 1
Voting Procedures....................................................... 2
Other Business.......................................................... 2
Voting of Stock in Plan Accounts........................................ 2
Proxy Solicitation...................................................... 2
Stockholder Proposals for Next Annual Meeting........................... 3
SPECIAL FACTORS........................................................... 4
Background of the Merger................................................ 4
Fairness of the Merger; Recommendation of the Special Committee of the
Board of Directors..................................................... 11
Recommendation of the Board of Directors................................ 14
BP Amoco's Purpose and Reasons for the Merger........................... 15
Position of BP Amoco Regarding Fairness of the Merger................... 16
Opinions of Financial Advisors to the Special Committee................. 17
Financial Analysis of the Financial Advisor to BP Amoco................. 32
Certain Effects of the Merger........................................... 38
Plans for Vastar After the Merger....................................... 39
Conduct of the Business of Vastar if the Merger is not Completed........ 40
Interests of Certain Persons in the Merger.............................. 40
Transactions and Relationships Between Vastar, ARCO, and BP Amoco....... 43
Source and Amount of Funds; Financing for the Merger.................... 51
U.S. Federal Income Tax Consequences.................................... 51
Regulatory Matters...................................................... 52
Accounting Treatment of the Merger...................................... 52
Provisions for Unaffiliated Security Holders............................ 52
Fees and Expenses....................................................... 53
FINANCIAL INFORMATION..................................................... 54
Selected Historical Financial Data...................................... 54
Comparative Per Share Data.............................................. 54
MARKET PRICES AND DIVIDEND INFORMATION.................................... 55
FINANCIAL PROJECTIONS..................................................... 56
FORWARD-LOOKING STATEMENTS................................................ 58
General................................................................. 58
Volatility and Level of Hydrocarbon Commodity Prices.................... 58
Production Rates and Reserve Replacement................................ 59
Reserve Estimates....................................................... 59
Laws and Regulations.................................................... 59
Drilling and Operating Risks............................................ 60
Competition............................................................. 60
Natural Gas Marketing Matters........................................... 61
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
THE PARTIES............................................................... 62
Vastar Resources, Inc................................................... 62
BP Amoco p.l.c.......................................................... 62
BP America Inc.......................................................... 63
Atlantic Richfield Company.............................................. 63
Kernel Holdings, Inc.................................................... 64
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............ 65
DIRECTORS AND EXECUTIVE OFFICERS OF VASTAR................................ 67
DIRECTORS AND EXECUTIVE OFFICERS OF BP AMOCO.............................. 69
Directors and Executive Officers of BP Amoco p.l.c. .................... 69
Directors and Executive Officers of BP America.......................... 74
Directors and Executive Officers of ARCO................................ 75
Directors and Executive Officers of Kernel.............................. 76
THE MERGER AGREEMENT...................................................... 77
Structure and Completion of the Merger.................................. 77
Effect of the Merger on Capital Stock................................... 77
Payment Procedures ..................................................... 77
Dissenters' Rights...................................................... 78
Representations and Warranties.......................................... 78
Ordinary Course of Business Covenant.................................... 79
Actions to be Taken to Complete the Merger.............................. 80
Stock Options........................................................... 81
Expenses................................................................ 81
Benefits and Other Matters.............................................. 81
Conditions.............................................................. 82
Termination............................................................. 83
Miscellaneous Provisions................................................ 84
DISSENTERS' RIGHTS OF APPRAISAL........................................... 85
INDEPENDENT PUBLIC ACCOUNTANTS............................................ 87
WHERE YOU CAN FIND MORE INFORMATION....................................... 88
APPENDIX A Agreement and Plan of Merger, dated as of May 24, 2000,
among Atlantic Richfield Company, Kernel Holdings, Inc. and
Vastar Resources, Inc.
APPENDIX B Opinion of Petrie Parkman & Co., Inc.
APPENDIX C Opinion of Salomon Smith Barney Inc.
APPENDIX D Section 262 of the Delaware General Corporation Law
</TABLE>
ii
<PAGE>
THE SPECIAL MEETING
Purpose
This proxy statement is furnished to Vastar stockholders in connection with
the solicitation of proxies on behalf of Vastar's Board of Directors for use
at the special meeting to be held on , 2000, at the time and place
specified in the attached notice, or at any adjournments or postponements
thereof.
At the special meeting, the stockholders of Vastar will be asked to
consider and vote upon the approval and adoption of the merger agreement and
authorization of the merger.
Acting on the recommendation of the special committee, the Board of
Directors of Vastar has:
. unanimously determined that the merger agreement and the merger are fair
to, and in the best interests of, Vastar's stockholders other than BP
Amoco;
. unanimously approved the merger agreement and authorization of the
merger;
. unanimously recommended that stockholders vote "FOR" approval and
adoption of the merger agreement and authorization of the merger.
Voting by Proxy
If you return a signed proxy card but do not provide voting instructions,
the persons named as proxies on the proxy card will vote for the approval and
adoption of the merger agreement and authorization of the merger. You may
revoke your proxy at any time before it is voted by:
. giving notice, in person or in writing, to the Secretary of Vastar;
. delivering to the Secretary a duly executed proxy bearing a later date;
or
. attending the special meeting and voting in person.
Your attendance at the special meeting will not, in and of itself, revoke
your proxy. Unless you revoke your proxy, it will be voted in accordance with
the instructions on your proxy card.
For other items of business that come before the meeting, the persons named
as proxies will vote in accordance with their best judgment.
Who Can Vote
If you are listed on our stockholder register as a holder of Vastar common
stock at the close of business on , 2000, you are entitled to vote your
shares at the special meeting of stockholders. , 2000 is the record date.
There were shares of common stock outstanding on , 2000. Each
share is entitled to one vote, but you will not be entitled to vote any
fractional shares you hold.
Vote Required
The merger agreement will be approved and adopted and the merger will be
authorized at the special meeting only if:
(1) the holders of a majority of our outstanding common stock who are
entitled to vote at the special meeting are present in person or by
proxy at the meeting;
(2) the holders of a majority of our outstanding shares of common stock
vote for approval and adoption of the merger agreement and the merger;
and
(3) the holders of at least two-thirds of our outstanding shares of common
stock which are not owned by BP Amoco, voting separately, vote to
authorize the merger.
1
<PAGE>
BP Amoco will be present at the meeting and will vote for approval of the
merger agreement and the merger, so (1) and (2) above are assured.
All of the directors and executive officers of Vastar intend to vote to
authorize the merger, primarily for the reasons that motivated the special
committee to recommend the merger.
The merger will not be completed, and you will not receive the $83 per share
merger consideration, if the two-thirds vote described in (3) above is not
received. Your vote is very important.
Voting Procedures
The Board of Directors has appointed election inspectors for the special
meeting who will tabulate the votes. In tabulating the votes, abstentions and
broker non-votes will be counted as present by the election inspectors for the
purpose of determining the presence of a quorum.
For the purpose of computing the vote required for approval of the merger
agreement and authorization of the merger, the election inspectors will treat
shares held by a stockholder who abstains from voting as being entitled to vote
on the matter. Thus, an abstention has the same legal effect as a vote against
the matter.
In the case of a broker non-vote, or if a stockholder withholds authority
from his proxy to vote the proxy on the merger, the shares represented by the
proxy will be treated as entitled to vote on the merger. Thus, a broker non-
vote or the withholding of a proxy's authority will also have the same legal
effect as a vote against the matter. A "broker non-vote" refers to shares of
common stock represented at the meeting by a bank, broker or a nominee, when
the bank, broker or nominee has not received voting instructions from persons
entitled to vote and does not have discretionary voting power.
Other Business
The Board of Directors is not aware of any other matters to be presented at
the special meeting of stockholders. If any other matters should properly come
before the special meeting, the persons named as proxies in the enclosed proxy
card will vote the proxies in accordance with their best judgment.
Voting of Stock in Plan Accounts
Our Capital Accumulation Plan permits plan participants to direct the plan
trustee on how to vote the common stock allocated to their accounts. If the
trustee does not receive participant directions for shares held by it, those
shares will be voted in the same proportion as the shares of common stock for
which directions are received.
Proxy Solicitation
We will pay all expenses of soliciting the proxies described in this proxy
statement. Solicitations will be made primarily by mail but some of our
officers and other employees may solicit proxies personally, by telephone and
by mail, if deemed appropriate. Brokers and nominees will be requested to
obtain voting instructions from beneficial owners of stock registered in their
names.
Vastar has retained Innisfree M&A, Incorporated to assist in distributing
these proxy materials and, if requested by us, making telephone calls and
otherwise assisting us in soliciting votes to authorize the merger, at an
estimated cost of $10,000 plus their reasonable out-of-pocket expenses.
2
<PAGE>
Stockholder Proposals for Next Annual Meeting
An annual meeting of stockholders will be held only if the merger agreement
is not approved or the merger is not authorized as described in this proxy
statement. Rule 14a-8 promulgated under the Securities and Exchange Act of
1934, as amended, requires that we include certain stockholder proposals in our
proxy statement for an annual stockholders' meeting if the proposal is
submitted prior to the deadline calculated under the rule. If stockholders
desire their proposal to be considered for inclusion in our proxy statement
relating to the next annual stockholders' meeting (which will be held only if
the merger is not authorized as described in this proxy statement), we must
receive the proposal in a reasonable time before we begin to print our proxy
materials. We expect that this reasonable time would not exceed 120 calendar
days before the scheduled date of the meeting.
If a stockholder desires a matter to be considered at an annual meeting and
his or her proposal is not submitted for inclusion in our proxy statement by
the deadline described above, the matter could still be considered at the
meeting if the notice procedures outlined in our bylaws are followed.
Information regarding the matter would not, however, be contained in our proxy
statement relating to the meeting. Our bylaws provide that only stockholders of
record entitled to vote at an annual meeting of stockholders may nominate a
person for election to the Board of Directors or propose other business to be
considered by the stockholders at an annual meeting. These stockholders must
send us a written notice of the nomination or proposal. Because the date of an
annual meeting, if an annual meeting is held, would be more than sixty days
after the anniversary date of last year's annual meeting, notice by the
stockholder to be timely must be delivered not earlier than the ninetieth day
prior to the date of the annual meeting and not later than the later of the
sixtieth day prior to the date of the annual meeting or the tenth day after
public announcement of the date of the meeting. We have filed our bylaws with,
and a copy of these bylaws can be obtained from, the SEC.
Please address all notices to the Secretary of Vastar Resources, Inc., 15375
Memorial Drive, Houston, Texas 77079.
3
<PAGE>
SPECIAL FACTORS
Background of the Merger
Vastar was formed in 1993 by ARCO as the cornerstone of ARCO's program to
reorganize its natural gas and crude oil exploration and production assets
located in the "lower 48" United States. Shortly after formation of Vastar,
ARCO sold 17,250,000 shares of Vastar's common stock to the public and ARCO
retained ownership of 80,000,001 shares of Vastar common stock. In general,
ARCO and Vastar have operated complementary businesses and have not competed
with each other.
On April 1, 1999, ARCO and BP Amoco announced that they had agreed to a
business combination in which BP Amoco would acquire ARCO. Because BP Amoco
operated a large oil exploration and production business that competed directly
with Vastar, Vastar engaged Fried, Frank, Harris, Shriver & Jacobson (who we
refer to as "Fried Frank") to provide advice to Vastar's management and Board
of Directors on potential conflicts of interest and other matters related to BP
Amoco's pending acquisition of ARCO.
Vastar was concerned regarding BP Amoco's potential access to competitively
sensitive information concerning Vastar as a result of BP Amoco potentially
having representatives on Vastar's Board of Directors. Vastar was also
concerned about the difficulty it would face in planning and executing its
capital budgets and drilling program, particularly in the deepwater sections of
the Gulf of Mexico, where it was competing directly with BP Amoco. As one
consequence of these concerns, BP Amoco and Vastar negotiated and signed a
confidentiality agreement on April 14, 1999.
In April 1999, Dr. Byron Grote, Executive Vice President of BP Amoco, had a
conversation with Mr. Charles Davidson, Chief Executive Officer of Vastar,
during which Dr. Grote stated that BP Amoco had made no determination as to its
plans with regard to Vastar or ARCO's ownership interest in Vastar, in the
event that BP Amoco's acquisition of ARCO was completed. Dr. Grote, Mr.
Davidson and their respective staffs subsequently had many conversations and a
number of meetings focused on a number of issues which might arise following
the completion of BP Amoco's acquisition of ARCO.
In April 1999, BP Amoco retained Morgan Stanley & Co. Limited to review BP
Amoco's strategic alternatives in relation to the approximate 81.9% Vastar
stockholding which BP Amoco would indirectly own after its acquisition of ARCO
and, at BP Amoco's option, to act as its financial adviser in relation to any
transaction subsequently decided upon by BP Amoco. During the following period
of approximately six months, Morgan Stanley provided to BP Amoco management, in
both written and presentation form, a number of analyses of alternative
strategies involving either the acquisition of the publicly held minority
interest in Vastar or the disposal of ARCO's approximately 81.9% interest,
together with a "do nothing" alternative. These analyses were based upon
published financial and market information.
Following May 1999, Vastar and BP Amoco continued to discuss aspects of the
relationship between Vastar and BP Amoco following completion of BP Amoco's
acquisition of ARCO, including a process for financial reporting on Vastar's
performance, possible placement of BP Amoco personnel into Vastar, arrangements
to deal with possible statutory limitations on the amount of federal oil and
gas leases which could be held, and processes to deal with possible application
of federal bidding restrictions on the sale of offshore federal lease acreage.
During the summer of 1999, Vastar sought assurance from BP Amoco as to how
Vastar's employee benefit plans would operate after the completion of BP
Amoco's acquisition of ARCO, in light of the fact that some provisions of the
agreement for BP Amoco's acquisition of ARCO excluded
4
<PAGE>
Vastar's employees from the assurances given by BP Amoco in that agreement to
all other employees of ARCO and its subsidiary companies. Subsequently, BP
Amoco requested information, that was not available to it during the
negotiation of the agreement for BP Amoco's acquisition of ARCO, concerning the
operation of Vastar's benefit plans and trusts. On the understanding that
Vastar would not permit additional funds to be irrevocably contributed to its
change-of-control trusts, BP Amoco provided Vastar both orally and in writing
substantially similar assurances as were provided to ARCO regarding treatment
of ARCO's benefit programs.
During the summer of 1999, amendments were made to Vastar's benefits plans
to add enhanced protections and to clarify that certain existing protections
were available to Vastar employees in the context of a change in control
occurring subsequent to BP Amoco's acquisition of ARCO, which includes the
merger. As a result of these amendments, a Vastar employee is entitled to
severance benefits if the employee experiences a "Qualifying Termination," as
that term is defined in the plans, during the twenty-four months from the date
of the merger. The Executive Deferral Plan was amended to provide that BP
Amoco's acquisition of ARCO would not trigger a termination of future deferrals
under this plan, but a subsequent change in control, such as the merger, would
trigger such a termination. Vastar's Annual Incentive Plan was also amended to
provide that BP Amoco's acquisition of ARCO would not trigger an automatic
payment under the plan, but that participants would be entitled to payments
within 60 days after a Qualifying Termination during the 24-month period after
the closing of BP Amoco's acquisition of ARCO or if earlier, a subsequent
change in control, such as the merger, whether or not there is a Qualifying
Termination.
Vastar also made general amendments to its benefit plans to bring them into
parity with ARCO's benefit plans. Specifically, the Special Termination
Allowance Plan, the Medical Plans, the Executive Deferral Plan and the
Supplemental Executive Retirement Plan were amended to conform the continuation
of coverage and change in control provisions to the extent appropriate to
ARCO's plans and to make other changes to protect the benefits which would
accrue to participants upon completion of BP Amoco's acquisition of ARCO or a
subsequent change in control, such as the merger.
In addition, the Executive Deferral Plan and Supplemental Executive
Retirement Plan Grantor Trust and the Change of Control Welfare Trust were
amended to provide that BP Amoco's acquisition of ARCO would not require
additional funding of the trusts so long as BP Amoco owns a controlling
interest in Vastar, and causes Vastar to fulfill the obligations to Vastar's
officers, directors and employees with respect to compensation and benefits.
The amendment to the trusts further provided that in the event of a subsequent
change in control, Vastar reserves the right to add additional funds to fund
the trusts if BP Amoco is not complying with its obligations.
During the period from the announcement of BP Amoco's pending acquisition of
ARCO until the winter of 1999, Vastar's management thought that the two most
likely alternatives following BP Amoco's acquisition of ARCO would be for
Vastar to remain an approximately 81.9% owned subsidiary of ARCO or for BP
Amoco to acquire Vastar's publicly held shares. Vastar's management also
explored several less likely scenarios involving continuation of Vastar as a
going concern, including the sale of ARCO's majority interest to third parties
or the public, or an exchange of assets with BP Amoco. During this period,
Vastar received no indication from BP Amoco regarding its potential interest in
any of these alternatives.
In September 1999, Vastar retained Petrie Parkman & Co., Inc. and in
December 1999 Vastar retained Salomon Smith Barney Inc. Both firms were asked
to review Vastar's strategic alternatives and to provide financial advisory and
investment banking services to Vastar as Vastar considered the various
potential results of BP Amoco's pending acquisition of ARCO. These services
could also include identifying and, if appropriate, assisting in an acquisition
or other transaction involving Vastar.
5
<PAGE>
In December 1999, Vastar and BP Amoco entered into agreements which would be
effective upon the completion of BP Amoco's acquisition of ARCO. These
agreements would modify existing arrangements concerning various accounting,
land administration, technical and corporate services ARCO provided to Vastar.
Prior to execution of these agreements, there were a number of meetings and
telephone conversations between BP Amoco's staff and Vastar's staff to discuss
arrangements to modify the existing service agreements to take into account,
among other things, the potential conflict of interest between BP Amoco and
Vastar in the provision of these services.
In early February 2000, the U.S. Federal Trade Commission filed suit to halt
BP Amoco's acquisition of ARCO. Around mid-February 2000, BP Amoco began
discussing a consent decree with the FTC which would permit BP Amoco to
complete its acquisition of ARCO.
Late in February 2000, BP Amoco management determined that, on completion of
its acquisition of ARCO, its likely preferred strategy with respect to Vastar
would be to have ARCO seek to acquire the Vastar stock held by the public.
Accordingly, Morgan Stanley was requested to review data relating to Vastar and
prepare a financial valuation analysis. On February 29, 2000, representatives
from Morgan Stanley presented BP Amoco senior management representatives with
the financial valuation analyses that are described more fully below under the
heading "--Financial Analysis of the Financial Advisor to BP Amoco" beginning
on page 32.
At a BP Amoco board meeting on March 9, 2000, BP Amoco senior management
made a presentation to the board of the current and historical market prices of
Vastar's common stock and a range of valuations of Vastar's worth, and advised
the board of its intention to propose to Vastar a buy out of the shares of its
common stock held by the public.
On March 15, 2000, Sir John Browne, Dr. Byron Grote and representatives of
Morgan Stanley discussed and agreed that a proposal should be made to the Board
of Directors of Vastar for the purchase of the shares of its common stock held
by the public, contingent upon completion of BP Amoco's acquisition of ARCO.
Sir John Browne, as Chief Executive Officer of BP Amoco, had delegated
authority from BP Amoco's Board of Directors to make this proposal.
Early in the morning of March 16, 2000, Sir John Browne telephoned Mr.
Charles Davidson, the Chief Executive Officer of Vastar, and informed him of BP
Amoco's decision that ARCO would seek to acquire the shares of Vastar common
stock held by the public for $71 per share, contingent upon completion of BP
Amoco's acquisition of ARCO. Shortly after that telephone conversation, BP
Amoco faxed to the Vastar Board of Directors a letter outlining BP Amoco's
proposal.
6
<PAGE>
The text of the letter is set forth below.
Board of Directors,
Vastar Resources, Inc.,
c/o Mr. Charles D. Davidson,
15375 Memorial Drive,
Houston, Texas 77079,
U.S.A.
March 16, 2000
Dear Sirs and Madam,
As you know, BP Amoco p.l.c. ("BP Amoco") entered into an Agreement
and Plan of Merger, dated as of March 31, 1999, with Atlantic Richfield
Company ("ARCO") pursuant to which a wholly owned subsidiary of BP
Amoco is to merge into ARCO (the "Merger") and ARCO is to become a
wholly owned subsidiary of BP Amoco. As a result BP Amoco will become
the ultimate beneficial owner of the shares of common stock, par value
$.01 per share ("Vastar Shares"), of Vastar Resources, Inc. ("Vastar")
currently owned by ARCO, which shares constitute slightly more than 80%
of the Vastar Shares currently outstanding.
Subject to reaching an appropriate agreement with the Federal Trade
Commission permitting the closing of the Merger (which agreement we
currently expect to occur on or before the end of this month) and the
closing of the Merger itself (which we would expect to occur a week or
so thereafter), BP Amoco has determined that ARCO should seek to
acquire the Vastar Shares not currently owned by ARCO (the "Minority
Vastar Shares"). Vastar would then become a wholly owned subsidiary of
ARCO and therefore could be fully integrated with ARCO and BP Amoco's
other operations without any obligation on the part of BP Amoco to
consider the interests of any shareholders other than its own. To that
end, shortly after the Merger closes BP Amoco intends to cause ARCO to
make a cash tender offer for the Minority Vastar Shares at a price of
$71.00 per Vastar Share, net to the seller. This price exceeds the all-
time high closing price for the Vastar Shares of $69.9375 reached on
August 19, 1999 and represents a premium of approximately 14% to the
closing price for the Vastar Shares on March 14, 2000 and an
approximately 31% premium to the average closing price for the prior 30
trading days. In our view this price represents a full and fair price
to the minority shareholders of Vastar.
We expect that you will wish to appoint a Special Committee
consisting of directors who are independent of ARCO and BP Amoco and
who are not officers of Vastar to evaluate our offer and make a
recommendation with respect to it to the holders of the Minority Vastar
Shares and that the Special Committee will wish to retain independent
financial and legal advisors to assist in this process. We urge that
you and they do so promptly. Our legal advisors are preparing a draft
offer to purchase and will provide it to you promptly after the Merger
closes. We would like to have the recommendation of the Vastar Board of
Directors for our offer, and we therefore seek to initiate discussions
with your representatives as soon as practicable.
Because of the importance of the proposal contained herein to the
holders of the Minority Vastar Shares, we intend to make public the
contents of this letter prior to the opening of trading on the New York
Stock Exchange on March 16, 2000.
Byron Grote will lead the BP Amoco/ARCO team on this transaction. He
may be reached at 011-44-171-[ . . . ]. Our financial and legal
advisors for this purpose are Morgan
7
<PAGE>
Stanley & Co. and Sullivan & Cromwell. The leaders of their respective
teams are Steve Munger who may be reached at Morgan Stanley & Co.
Incorporated, 1585 Broadway, New York, N.Y. 10036, telephone number
(212) [ . . . ] and Simon Robey who may be reached at Morgan Stanley
and Co. Limited, 25 Cabot Square, Canary Wharf, London E14 4QA,
England, telephone number 011-44-171-[ . . . ], and Ben Stapleton who
may be reached at Sullivan & Cromwell, 125 Broad Street, New York, New
York 10004, telephone number (212) [ . . . ]. If you have any questions
regarding this proposal, please contact Mr. Grote or one of our
advisors.
We look forward to working with you toward the successful completion
of this transaction.
Yours faithfully,
/s/ Peter B. P. Bevan
P.B.P. BEVAN
Group General Counsel
BP Amoco p.l.c.
On March 16, 2000, Vastar issued a press release confirming receipt of this
letter and announcing that its Board of Directors was forming a special
committee whose members were not employees of BP Amoco, ARCO, Vastar or any of
their respective affiliates. Shortly after the March 16, 2000 announcement, Dr.
Grote told Mr. Davidson in a telephone conversation that BP Amoco did not
intend to seek to appoint any of its employees as directors of Vastar during
the pendency of BP Amoco's proposal. Dr. Grote had made it clear to Mr.
Davidson that BP Amoco would not be interested in a third-party sale of Vastar.
On March 16 and 17, 2000, six purported class action lawsuits were filed
against Vastar, all of its directors (including the members of the special
committee), ARCO and BP Amoco in the Court of Chancery of the State of Delaware
in and for New Castle County. The lawsuits were consolidated as In re Vastar
Resources, Inc. Shareholder Litigation, Consolidated C.A. No. 17888, and each
alleged that the initial $71 offer by BP Amoco for Vastar's publicly held
shares of common stock was unfair, and that none of the members of Vastar's
Board of Directors were capable of negotiating a fair transaction with BP
Amoco. The plaintiffs in these lawsuits sought an injunction against the
proposed transaction, rescission or rescissory damages, and damages and an
accounting for the benefits obtained as a result of unlawful conduct.
On March 20, 2000, Vastar's Board of Directors met to discuss the BP Amoco
proposal and establish a special committee of directors, consisting of Jimmie
D. Callison, Robert C. LeVine, and William D. Schulte, to consider BP Amoco's
proposal. None of the members of the special committee is an officer or
employee of BP Amoco, ARCO, Vastar or any of their respective affiliates. The
Vastar Board of Directors formed the special committee for the purpose of
considering, evaluating and negotiating the proposed transaction with BP Amoco
on behalf of the public stockholders and making a recommendation to the Vastar
Board of Directors. The Vastar Board of Directors also authorized the special
committee to retain, at Vastar's expense, independent financial and legal
advisors.
On March 20, 2000, the special committee held its initial meeting in which
it retained Fried Frank as its legal advisor and authorized Vastar to retain a
public relations firm. The special committee decided to review written
proposals from investment banks before retaining financial advisors. After
reviewing written proposals from four investment banks, on March 21, 2000, the
special committee retained Petrie Parkman and Salomon Smith Barney as financial
advisors in connection with BP Amoco's proposal. In addition, the special
committee retained legal counsel in Delaware.
8
<PAGE>
On March 23, 2000, Vastar issued a press release announcing that it had
formed the special committee and that the special committee had retained
financial advisors and legal counsel.
On March 29, 2000, the special committee met with representatives of Petrie
Parkman, Salomon Smith Barney and Fried Frank. Members of Vastar's senior
management were also present by invitation. The purpose of the meeting was to
review the preliminary views of Vastar's management and the special committee's
financial advisors on valuation, and the views of the special committee's
financial and legal advisors on negotiation strategy. Representatives of Fried
Frank reviewed the responsibilities and legal duties of the special committee.
Petrie Parkman and Salomon Smith Barney reviewed with the special committee
their preliminary valuation of Vastar. Management of Vastar made a presentation
to the special committee regarding Vastar's business plan for the next ten
years, which we refer to as the "10-Year Business Plan", and its deepwater
drilling program. For a description of the 10-Year Business Plan, see
"Financial Projections" beginning on page 56.
At the March 29, 2000 meeting, the special committee concluded that a higher
price per share should be sought from BP Amoco. The special committee requested
that the special committee's legal and financial advisors prepare a recommended
negotiating strategy, including a draft presentation to BP Amoco, and report
back to the special committee before opening communications with BP Amoco or
its representatives.
On April 4, 2000, the special committee met with Petrie Parkman, Salomon
Smith Barney and Fried Frank. Members of Vastar's senior management were
present by invitation. The special committee's financial advisors reviewed with
the special committee their negotiating strategy for an upcoming meeting with
BP Amoco and its financial and legal advisors. After a discussion of
negotiating strategy and tentative conclusions on valuation, the special
committee authorized its financial and legal advisors to open negotiations, on
behalf of the special committee, with BP Amoco and its representatives.
On April 13, 2000, representatives of Petrie Parkman, Salomon Smith Barney
and Fried Frank met with representatives of Morgan Stanley and Sullivan &
Cromwell, BP Amoco's financial and legal advisors, respectively.
Representatives of Petrie Parkman, Salomon Smith Barney and Morgan Stanley
discussed the special committee's views on the valuation of Vastar. Morgan
Stanley subsequently provided to BP Amoco a report on these discussions. The
special committee's financial advisors also extended an invitation to BP Amoco
and its advisors to attend a presentation by Vastar's management of the 10-Year
Business Plan and its deepwater drilling program.
On April 13, 2000, Vastar also publicly reported first quarter earnings and
declared a regular quarterly cash dividend of $0.075 per share.
On April 18, 2000, BP Amoco completed its acquisition of ARCO and thereby
acquired indirect ownership of 80,000,001 shares, or approximately 81.9%, of
Vastar's common stock. After BP Amoco's acquisition of ARCO, Vastar's Chairman
of the Board, Michael E. Wiley, and three other directors, Terry G. Dallas,
Marie L. Knowles and Donald R. Voelte, Jr., each of whom was an ARCO executive,
resigned from Vastar's Board of Directors. The Board of Directors then reduced
the size of the board to five members: Jimmie D. Callison, Charles D. Davidson,
Robert C. LeVine, Steven J. Shapiro and William D. Schulte. Mr. Davidson,
Vastar's President and Chief Executive Officer was elected as Chairman of the
Board of Directors.
On April 27, 2000, Vastar announced that an exploratory well testing its
Entrada prospect, located on Garden Banks block 782 in the Gulf of Mexico, made
a significant deepwater discovery. Vastar also noted, however, that additional
drilling would be needed to fully determine the potential of this discovery.
9
<PAGE>
On April 28, 2000, Vastar announced postponement of its annual meeting of
stockholders pending further developments related to BP Amoco's acquisition
proposal.
On May 1, 2000, Vastar management and representatives of Petrie Parkman,
Salomon Smith Barney and Fried Frank met with BP Amoco management and
representatives of Morgan Stanley and Sullivan & Cromwell. At this meeting,
Vastar management presented the 10-Year Business Plan and its deepwater
drilling program. Prior to the meeting, Vastar and BP Amoco had entered into a
confidentiality agreement pursuant to which Vastar agreed to provide BP Amoco
and its representatives with specified information regarding Vastar on the
condition that the information be kept confidential.
Following the meeting on May 1, Morgan Stanley requested an opportunity to
present its and BP Amoco's views on the valuation of Vastar to the special
committee's financial advisors. This presentation was made at a meeting on May
5, 2000 with representatives of Petrie Parkman and Salomon Smith Barney. Petrie
Parkman and Salomon Smith Barney agreed to report to the special committee on
Morgan Stanley's presentation, and written copies of Morgan Stanley's
presentation were delivered to members of the special committee.
On May 8, 2000, the special committee met with its legal and financial
advisors to discuss Morgan Stanley's valuation analysis of Vastar. After
discussion, the special committee remained of the opinion that Vastar had a
significantly higher per share valuation than BP Amoco's merger proposal. The
special committee authorized its financial advisors to respond to Morgan
Stanley's valuation presentation. On May 12, 2000, the special committee's
financial advisors responded to Morgan Stanley's valuation analyses reaffirming
the special committee's view that BP Amoco's merger proposal did not adequately
value Vastar.
On May 19, 2000, the special committee's financial and legal advisors met
with BP Amoco's financial and legal advisors to discuss further the parties'
respective views on the appropriate per share price for a transaction involving
Vastar. During these discussions, the special committee's financial advisors,
on behalf of the special committee, negotiated for a higher per share price in
the proposed merger, subject to settlement of the stockholder litigation.
On May 19, 2000, subsequent to these discussions, Mr. LeVine, Chairman of
the special committee, and Dr. Byron Grote, Executive Vice President of BP
Amoco, reached a tentative agreement on a price of $83 per share, subject to
negotiation of a mutually acceptable merger agreement, approval by the entire
special committee and settlement of the stockholder litigation.
To avoid uncertainties regarding the applicability of Section 203 of the
Delaware General Corporation Law, the special committee and BP Amoco had
earlier decided to structure any transaction as a cash merger subject to
approval by holders of at least two-thirds of Vastar's outstanding stock, other
than stock held by BP Amoco, rather than as a tender offer as proposed in BP
Amoco's March 16, 2000 letter.
On May 19, 2000, Sullivan & Cromwell delivered a draft merger agreement to
Fried Frank. Between May 19 and May 24, 2000, the special committee, Vastar
management, BP Amoco management and representatives of Fried Frank and Sullivan
& Cromwell negotiated the non-price terms of the draft merger agreement. During
this period, Vastar and BP Amoco agreed that Vastar should amend Vastar's
benefit plans to bring the Vastar plans into parity with ARCO's benefit plans,
including changes since summer 1999. In addition, BP Amoco and Vastar agreed to
conform the interest crediting rate and distribution option elections in the
Deferral Plan for Outside Directors to those currently contained in Vastar's
Executive Deferral Plan.
10
<PAGE>
On May 23, 2000, the special committee met with representatives of Petrie
Parkman, Salomon Smith Barney and Fried Frank. Members of Vastar's senior
management were present by invitation. Representatives of Fried Frank reviewed
the special committee's legal duties, legal issues in connection with the draft
merger agreement and the status of stockholder litigation related to BP Amoco's
proposal. Representatives of Petrie Parkman and Salomon Smith Barney presented
their financial analyses of BP Amoco's $83 per share merger proposal.
Representatives of each of Petrie Parkman and Salomon Smith Barney delivered
an oral opinion (each of which was subsequently confirmed in writing) that as
of May 23, 2000, and, on the basis of and subject to the matters discussed with
the special committee, the proposed $83 per share cash price was fair, from a
financial point of view, to Vastar's stockholders other than BP Amoco and its
affiliates. The special committee unanimously:
. determined that the proposed merger was fair to, advisable and in the
best interests of Vastar and its stockholders, other than BP Amoco;
. recommended that the Vastar Board of Directors approve the merger
agreement; and
. recommended that the Vastar Board of Directors recommend adoption of the
merger agreement and authorization of the merger by Vastar's
stockholders.
On May 23, 2000, immediately following the special committee meeting,
Vastar's Board of Directors met and received the recommendation of the special
committee. The Vastar Board of Directors determined that the proposed merger
was fair to, advisable and in the best interests of Vastar and its
stockholders. The Board of Directors unanimously voted to approve the merger
agreement and recommend that Vastar stockholders adopt the merger agreement and
authorize the merger.
On May 23, 2000, the parties to the stockholder litigation agreed in
principle on a settlement of the litigation, and executed a memorandum of
understanding to reflect the terms of the settlement. The parties agreed that
the $83 per share price approved by Vastar's Board of Directors on May 23, 2000
is fair, adequate and reasonable consideration for the shares of Vastar's
common stock held by the public. The parties also agreed to enter into a
settlement agreement, cooperate in public disclosures related to the
settlement, and use best efforts to gain approval of the settlement from the
Delaware courts. Without any admission of fault by any defendant, the
memorandum of understanding provides for a dismissal of all claims with
prejudice and a release in favor of all defendants of any and all claims that
have been or could have been asserted by the plaintiffs or any members of the
purported class. The memorandum of understanding also provides that the
defendants will not oppose an application by the plaintiffs' counsel to the
Delaware court for an aggregate award of fees and expenses in an amount not to
exceed $2.1 million, which will be paid by Vastar. The settlement is subject
to, among other things, completion of confirmatory discovery by the plaintiffs,
execution of a settlement agreement, final approval of the settlement by the
Delaware court, and completion of the merger.
On May 24, 2000, the merger agreement was signed. Vastar and BP Amoco each
issued a press release announcing the merger agreement.
Fairness of the Merger; Recommendation of the Special Committee of the Board of
Directors
The special committee believes that the merger is fair to and in the best
interests of Vastar's stockholders, other than BP Amoco. The special committee
unanimously recommended that Vastar's Board of Directors approve and adopt the
merger agreement and that the Vastar Board of Directors recommend adoption of
the merger agreement and authorization of the merger by stockholders. In
reaching these conclusions, the special committee considered the following
positive factors:
. the belief that the $83 per share merger consideration is attractive in
light of Vastar's historical and current financial performance, results
of operations, prospects, business
11
<PAGE>
strategy, and competitive position in its industry, and in light of
general economic and stock market conditions;
. the special committee's belief, based on among other things the detailed
financial and valuation advice provided to the special committee by its
financial advisors during the period from March 29 to May 23, 2000, that
the $83 per share merger consideration:
. represented an attractive multiple of historical and projected
earnings per share and cash flow per share,
. compared very favorably to implied per share valuations based on
financial and market statistics for a broad range of companies engaged
in the oil and gas exploration and production business in the United
States,
. compared very favorably to implied per share valuations based on
recent acquisitions of oil and gas exploration and production
businesses in the United States,
. compared very favorably to implied per share valuations based on asset
valuation methodologies conventionally employed to value oil and gas
exploration and production businesses in the United States, and
. was within the ranges of value produced by a number of risk adjusted
discounted cash flow analyses based on Vastar's 10-Year Business Plan;
. the opinions of the financial advisors to the special committee,
described in detail under "--Opinions of Financial Advisors to the
Special Committee" beginning on page 17, that, as of May 23, 2000 and on
the basis of and subject to the matters reviewed with the special
committee, the $83 per share merger price was fair from a financial point
of view to the stockholders of Vastar other than BP Amoco and its
affiliates;
. the historical market prices of Vastar's common stock and recent trading
activity, including the substantial equity premiums implied by the $83
per share merger consideration of 31.5% and 59.0%, respectively, over
Vastar's stock prices one day and one month prior to the initial
announcement of BP Amoco's proposal on March 16, 2000;
. that the increase in the market price of Vastar's common stock following
the initial BP Amoco proposal may have reflected, in part, anticipation
of a possible acquisition by BP Amoco, rather than a higher intrinsic
value for Vastar common stock;
. the special committee's arm's-length negotiations with BP Amoco, which
resulted in an increase in the merger consideration from $71 to $83 per
share, and the judgment of the special committee that, based upon the
negotiations that had transpired, a price higher than $83 per share could
not likely be obtained;
. BP Amoco's ownership of approximately 81.9% of Vastar's currently
outstanding common stock and the fact that, as a practical matter, no
alternative to the merger could be effected without the support of BP
Amoco;
. that BP Amoco's control of Vastar, if Vastar were to continue as a
separate company with public ownership, would create numerous potential
conflict of interest and corporate opportunity issues, including:
. monitoring and controlling the flow of competitively sensitive
information from Vastar to BP Amoco, and
. planning and implementing Vastar's capital budget and exploration
programs, particularly with respect to deepwater exploration and
production in the Gulf of Mexico;
. that these potential conflict of interest and corporate opportunity
issues could constitute a significant distraction to Vastar's management
and independent directors, impair stock market analysts' valuation of
Vastar's common stock, and depress its market price;
12
<PAGE>
. the prospect of eliminating conflicts of interest and corporate
opportunity concerns and realizing marketing, operating and
administrative efficiencies as a result of Vastar's operations being
conducted as a wholly owned part of BP Amoco;
. the fact that there are no unusual requirements or conditions to the
merger, that the consideration to be paid in the merger is all cash, and
that BP Amoco has the financial resources to complete the merger
expeditiously;
. the requirement that the merger be approved by holders of at least two-
thirds of the outstanding shares of common stock other than those owned
by BP Amoco;
. the composition of the membership of the special committee, and its
empowerment by Vastar to retain legal counsel and financial advisors
selected by it; and
. the availability of appraisal rights under Delaware law for stockholders,
as described below under "Dissenters' Rights of Appraisal" beginning on
page 85.
The special committee also considered the following adverse factors
associated with the merger:
. that Vastar's stock price had increased from $71.625, after the
announcement of the initial BP Amoco offer, to $79.75 on the day prior to
the announcement of the $83 per share merger, and had traded as high as
$82.50 during that period;
. that some of the discounted cash flow analyses based on Vastar's 10-Year
Business Plan had produced valuations substantially in excess of $83 per
share, including some over $100 per share, although the special committee
also considered that these valuations depended to a considerable extent
on projections of very strong and uninterrupted growth that would require
a continuation of Vastar's prior pattern of drilling successes in
deepwater Gulf of Mexico;
. that because BP Amoco desired to retain its approximate 81.9% equity
interest in Vastar and had indicated no intent to offer any of its
interest in Vastar for sale to a third party, public stockholders were
not afforded an opportunity to participate in any control premium that
might have been generated by the sale of the entire company to a third
party;
. that the proposed merger will be a taxable transaction for Vastar
stockholders other than BP Amoco; and
. that the public stockholders of Vastar would have no ongoing equity
participation in the surviving corporation following the merger, meaning
that the public stockholders would cease to participate in Vastar's
future earnings or growth, if any, or to benefit from increases, if any,
in the value of their Vastar stock.
The special committee believed that the ranges of implied per share
valuations generated by the valuation methodologies used by Petrie Parkman and
the valuation methodologies used by Salomon Smith Barney in their valuation
analyses on May 23, 2000 were more reflective of the fair value of Vastar than
the net book value of the Vastar common stock or liquidation value of Vastar's
business. For this reason the special committee did not attribute importance
to net book value or possible liquidation values.
The special committee also considered the advantages and disadvantages of
the only apparently available alternative to the acquisition of the public
stockholder interest in Vastar by BP Amoco, which was Vastar continuing as a
majority-owned subsidiary of BP Amoco with a less than 20% public ownership.
In the view of the special committee, the principal advantage of continuing
Vastar as a majority-owned, public subsidiary of BP Amoco was that it would
allow public stockholders to continue to participate in any growth in the
value of Vastar's equity. The disadvantages of Vastar continuing as a
13
<PAGE>
majority-owned, public subsidiary that were considered by the special committee
included the inability to achieve many of the benefits of taking Vastar private
discussed above, and exposure to the risks and uncertainties attendant to being
a greater than 80% owned subsidiary of a major direct competitor. The special
committee concluded that under all of the relevant circumstances and in light
of the proposed $83 per share price, the disadvantages of continuing Vastar as
a majority-owned subsidiary of BP Amoco significantly outweighed the
advantages, and accordingly that alternative was rejected under the prevailing
circumstances.
In view of the large number of factors considered by the special committee
in connection with the evaluation of the merger and the complexity of these
matters, the special committee did not consider it practicable to, nor did it
attempt to, quantify, rank or otherwise assign relative weights to the specific
factors it considered in reaching its decision, nor did it evaluate whether
these factors were of equal importance. In addition, each member of the special
committee may have given different weight to the various factors. The special
committee held extensive discussions with, and relied on the experience and
expertise of, Petrie Parkman and Salomon Smith Barney with respect to the
quantitative and qualitative analysis of the financial terms of the merger. The
special committee conducted a discussion of, among other things, the factors
described above, including asking questions of Vastar's management and the
special committee's financial and legal advisors, and reached the conclusion
that the merger was advisable and in the best interests of Vastar and its
stockholders, other than BP Amoco.
Recommendation of the Board of Directors
The Board of Directors unanimously approved the merger agreement, believes
that the merger is fair to and in the best interests of the stockholders of
Vastar, other than BP Amoco, and unanimously recommends adoption and approval
of the merger agreement and authorization of the merger by the Vastar
stockholders at the special meeting. The Board of Directors considered the
following factors in deciding to recommend that stockholders vote "FOR" the
adoption and approval of the merger agreement and authorization of the merger:
. the recommendation of the special committee;
. the factors referred to above as having been taken into account by the
special committee; and
. the fact that the merger consideration and the terms of the merger were
the result of arm's-length negotiations between the special committee and
representatives of BP Amoco and their respective advisors.
In view of the variety of factors considered by the Board of Directors, the
Board of Directors did not find it practicable to, and it did not, quantify or
otherwise attempt to assign specific or relative weights to the factors
considered in making its determination. In considering the factors described
above, individual members of the Board of Directors may have given different
weight to different factors.
The Board of Directors believes that the merger is procedurally fair
because, among other things:
. the special committee consisted entirely of non-management, independent
directors appointed by the Board of Directors to represent solely the
interests of Vastar's stockholders, other than BP Amoco;
. the special committee retained and was advised by its own independent
financial advisors, Petrie Parkman and Salomon Smith Barney, to assist it
in evaluating the merger and provide it with financial advice;
14
<PAGE>
. the special committee retained and was advised by its own independent
legal counsel, Fried Frank;
. the special committee engaged in extensive negotiations and deliberations
in evaluating the merger and merger consideration;
. the merger consideration and the other terms and conditions of the merger
agreement resulted from active arm's-length bargaining between the
special committee and representatives of BP Amoco and their respective
advisors;
. even though the special committee consisted of directors of Vastar and
was therefore not completely unaffiliated with Vastar, committees of
independent directors are a commonly used mechanism that is recognized
under applicable law to ensure fairness in transactions of this type; and
. authorization of the merger requires the affirmative vote of the holders
of at least two-thirds of the outstanding shares of Vastar common stock
not owned by BP Amoco.
In view of the foregoing, the Board of Directors believes that sufficient
procedural safeguards exist to ensure fairness of the merger and to permit the
special committee to effectively represent the interests of Vastar's
stockholders, other than BP Amoco, and therefore, additional unaffiliated
representatives to act on behalf of those stockholders are not necessary.
BP Amoco's Purpose and Reasons for the Merger
BP Amoco believes that because Vastar's businesses are complementary to
those of BP Amoco and its subsidiaries, BP Amoco could obtain certain operating
benefits and cost savings by integrating some of Vastar's operations into BP
Amoco and its subsidiaries. BP Amoco also wishes to integrate Vastar fully into
BP Amoco's worldwide strategic planning.
Therefore, BP Amoco is undertaking the merger in order to acquire all of the
outstanding shares of Vastar common stock that it does not already own. Because
BP Amoco does not own the entire equity interest in Vastar, Vastar is required
by law to be managed by its Board of Directors in the best interests of all of
Vastar's stockholders, rather than just BP Amoco and its stockholders, and BP
Amoco, as the majority stockholder, has certain legal duties to the minority
stockholders of Vastar. Because each decision made by BP Amoco that could
affect Vastar must be made with a view to its effect on the minority
stockholders, BP Amoco's flexibility in dealing with Vastar may be materially
restricted. At the present time, BP Amoco's only cash return on its investment
in Vastar is the dividends it receives on the Vastar shares it owns. If Vastar
were wholly owned by BP Amoco, decisions could be made regarding Vastar's
operations and the use of Vastar's substantial cash flow could be made without
possible limitations arising out of public ownership of Vastar stock.
In addition, BP Amoco believes that maintaining the New York Stock Exchange
listing of Vastar common stock and the registration of Vastar common stock
under the Securities Exchange Act of 1934, as amended, imposes direct and
indirect compliance costs and administrative burdens on Vastar that divert
management's time and resources. These compliance costs and administrative
burdens would be eliminated if the merger were completed.
The primary benefit of the merger to the stockholders, other than BP Amoco,
is that they are being afforded an opportunity to sell all their shares at a
price which, in the opinion of BP Amoco, is fair to those holders and fully
reflects the value of Vastar. However, stockholders who do sell their shares
will cease to have any equity interest in Vastar and will cease to participate
in its earnings and future growth. For a further discussion of the effects of
the merger, see "--Certain Effects of the Merger" beginning on page 38.
15
<PAGE>
If the merger is effected, holders of shares who have neither voted in favor
of the merger nor consented to the merger in writing may elect to exercise
appraisal rights under Section 262 of the Delaware General Corporation Law. For
a description of these rights, see "Dissenters' Rights of Appraisal" beginning
on page 85 and Appendix D to this proxy statement.
Position of BP Amoco Regarding Fairness of the Merger
Because BP Amoco currently beneficially owns approximately 81.9% of the
outstanding shares of Vastar, BP Amoco is deemed an "affiliate" of Vastar that
is engaging in a Rule 13e-3 transaction under Rule 13e-3 of the Exchange Act.
Accordingly, BP Amoco is required to consider the fairness of the merger to
Vastar's stockholders, other than BP Amoco.
BP Amoco believes that the merger and the $83 per share merger consideration
are fair to the holders, other than BP Amoco, of Vastar's common stock. The
amount of the merger consideration was determined by the management of BP Amoco
after considering the factors set forth below and following negotiations with
the special committee. The factors considered by the management of BP Amoco
included the following:
. the historical and projected financial performance of Vastar;
. that the $83 per share merger consideration represents approximately a
31.5% premium over the closing price for the Vastar common stock on March
15, 2000, the last full trading day prior to announcement of BP Amoco's
intention that ARCO acquire the shares that it did not own, and
approximately a 19% premium over the highest closing price ever for the
Vastar common stock prior to BP Amoco's announcement;
. that the merger is not subject to a financing condition;
. that the merger provides the public stockholders who are considering
selling their Vastar common stock with the opportunity to exchange their
shares for $83 per share without incurring the transaction costs
typically associated with market sales;
. that the merger is structured so that the approval of the holders of at
least two-thirds of the outstanding Vastar common stock, other than stock
held by BP Amoco, is required as a condition to completion of the merger;
. the ability of stockholders who object to the merger to obtain "fair
value" for their shares if they exercise and perfect their appraisal
rights under the Delaware General Corporation Law;
. that BP Amoco has sufficient stock ownership to control a disposition of
Vastar and informed Vastar that it would not be interested in a third-
party sale of Vastar; and
. notwithstanding that Petrie Parkman's opinion and Salomon Smith Barney's
opinion, each dated May 23, 2000, were provided solely for the
information and assistance of the special committee and that BP Amoco is
not entitled to rely on those opinions, the fact that the special
committee received opinions from each of Petrie Parkman and Salomon Smith
Barney to the effect that, as of the date of such opinions and based on
and subject to the matters reviewed with the special committee, the $83
per share cash consideration to be received in the merger by the holders
of Vastar common stock, other than BP Amoco and its affiliates, was fair,
from a financial point of view, to such holders.
In addition to the factors discussed above, BP Amoco considered the
information and analyses presented by its financial advisor, Morgan Stanley.
Morgan Stanley was not requested to and did not provide any opinion as to the
fairness of the merger or the merger consideration to BP Amoco or its
stockholders, or the holders of Vastar common stock other than BP Amoco. This
information and analyses is summarized below under "--Financial Analysis of the
Financial Advisor to BP Amoco" beginning on page 32.
16
<PAGE>
BP Amoco did not find it practicable to, and therefore did not, quantify or
otherwise assign relative weights to the individual factors it considered in
reaching its conclusion as to fairness.
Opinions of Financial Advisors to the Special Committee
Petrie Parkman & Co., Inc.
The special committee engaged Petrie Parkman as its financial advisor in
April 2000 to provide advisory and investment banking services in connection
with a potential transaction involving Vastar and ARCO and/or its affiliates.
On May 23, 2000, Petrie Parkman rendered to the special committee its oral
opinion that, as of that date and based upon and subject to the matters
reviewed with the special committee, the $83 per share merger consideration was
fair from a financial point of view to the holders of Vastar common stock other
than BP Amoco and its affiliates. The opinion was subsequently confirmed in
writing on May 23, 2000.
Vastar has agreed to pay Petrie Parkman engagement and advisory fees of
$2,000,000. In addition, upon the completion of the merger, Petrie Parkman will
be entitled to a fee of $3,150,000 which is based upon the consideration to be
received by Vastar stockholders, other than BP Amoco and its affiliates, in the
merger. In addition, Vastar has agreed to reimburse Petrie Parkman for its
reasonable out-of-pocket expenses incurred in connection with rendering
financial advisory services, including fees and disbursements of its legal
counsel. Vastar has agreed to indemnify Petrie Parkman and its officers,
directors, agents, employees and controlling persons for certain costs,
expenses, losses, claims, damages and liabilities related to or arising out of
its rendering of services under its engagement as financial advisor.
The full text of Petrie Parkman's opinion dated May 23, 2000, which contains
a description of the assumptions made, the procedures followed, the matters
considered and the limits of the scope of review undertaken by Petrie Parkman
in rendering its opinion, is attached as Appendix B to this proxy statement and
is incorporated in this document by reference. The summary of the Petrie
Parkman opinion set forth below is qualified in its entirety by reference to
the full text of the opinion. Vastar stockholders are encouraged to, and
should, read the Petrie Parkman opinion carefully and in its entirety.
Petrie Parkman's opinion was provided to the special committee for its use
and benefit and addresses only the fairness from a financial point of view of
the consideration to be paid to the public stockholders of Vastar in connection
with the merger, as of the date the opinion was rendered. Petrie Parkman's
opinion does not address the merits of the underlying decision by Vastar to
engage in the merger and does not constitute a recommendation to any
stockholder as to how that stockholder should vote at the Vastar special
meeting. Petrie Parkman's opinion and its presentation to the special committee
were among many factors taken into consideration by the special committee in
making the special committee's recommendation to the Board of Directors to
approve and recommend the merger.
Copies of Petrie Parkman's May 23, 2000 presentation to the special
committee are available for inspection and copying at Vastar's principal
executive office during regular business hours by any public stockholder or its
representative who has been so designated in writing, and will be provided to
any public stockholder upon written request at the expense of the requesting
party. The presentation is also filed as an exhibit to Vastar's and BP Amoco's
Schedule 13E-3, copies of which may be obtained from the SEC. See "Where You
Can Find More Information" beginning on page 88.
In arriving at its opinion, Petrie Parkman, among other things:
. reviewed certain publicly available business and financial information
relating to Vastar and its consolidated subsidiaries, including
17
<PAGE>
. its Annual Reports on Form 10-K and related audited financial
statements for the fiscal years ended December 31, 1998 and December
31, 1999; and
. its unaudited financial statements for the fiscal quarter ended
March 31, 2000;
. reviewed certain estimates of the reserves of Vastar and its
consolidated subsidiaries, including
. estimates of proved oil and gas reserves as of December 31, 1999
prepared by the management and staff of Vastar, including proved
reserves audited by Ryder Scott Company, L. P.; and
. unaudited estimates of additional oil and gas reserves (reserves not
classified as proved) prepared by the management and staff of Vastar
as of December 31, 1999;
. analyzed certain historical and projected financial and operating data
of Vastar and its consolidated subsidiaries prepared by Vastar's
management and staff;
. discussed Vastar's current and projected operations and prospects with
Vastar's management and staff;
. reviewed the historical trading history of Vastar common stock;
. compared recent stock market capitalization indicators for Vastar with
recent stock market capitalization indicators for certain other publicly
traded independent energy companies;
. compared the financial terms of the merger agreement with the financial
terms of other transactions that Petrie Parkman deemed to be relevant;
. reviewed a draft dated May 23, 2000 of the merger agreement; and
. reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as Petrie
Parkman deemed necessary or appropriate.
In preparing its opinion, Petrie Parkman assumed and relied on the accuracy
and completeness of all information supplied or otherwise made available to
it, discussed with or reviewed by or for it, or publicly available, and did
not assume any responsibility for independently verifying such information.
Petrie Parkman further relied upon the assurances of the management of Vastar
that they were not aware of any facts that would make the information provided
to Petrie Parkman incomplete or misleading in any material respect.
With respect to projected financial and operating data furnished to or
discussed with Petrie Parkman, Petrie Parkman assumed that the data had been
reasonably prepared on bases reflecting the best currently available estimates
and judgment of the management and staff of Vastar as to the future financial
and operational performance and business prospects of Vastar and its
consolidated subsidiaries.
With respect to the estimates of proved and additional oil and gas
reserves, Petrie Parkman assumed that they had been reasonably prepared on
bases reflecting the best available estimates and judgments of the management
and staff of Vastar and Ryder Scott Company, L. P. relating to the oil and gas
properties of Vastar and its consolidated subsidiaries.
Petrie Parkman did not make an independent evaluation or appraisal of the
assets or liabilities of Vastar and its consolidated subsidiaries, except for
the estimates of proved and additional oil and gas reserves referred to above,
Petrie Parkman was not furnished with such an evaluation or appraisal. In
addition, Petrie Parkman did not assume any obligation to conduct, and did not
conduct, any physical inspection of the properties or facilities of Vastar and
its consolidated subsidiaries.
18
<PAGE>
In developing its opinion, Petrie Parkman relied upon Vastar as to certain
legal, tax, and accounting aspects of the transaction contemplated by the
merger agreement. Petrie Parkman assumed that the merger agreement executed and
delivered by the parties contained identical financial and economic terms and
otherwise was substantially similar to the draft merger agreement reviewed by
Petrie Parkman. Petrie Parkman further assumed that the merger would be
consummated on the terms and conditions contemplated in the merger agreement.
Petrie Parkman's opinion was rendered on the basis of conditions in the
securities markets and the oil and gas markets prevailing as of May 23, 2000
and the condition and prospects, financial and otherwise, of Vastar as they had
been represented to Petrie Parkman as of that date or as they were reflected in
the materials and discussions described above.
The following is a summary of the financial analyses performed by Petrie
Parkman in connection with the preparation of its opinion dated May 23, 2000
and presented to the special committee.
The summaries of financial analyses include information presented in tabular
format. In order to fully understand the financial analyses performed by Petrie
Parkman, the tables must be read together with the text accompanying each
summary. The tables alone do not constitute a complete description of the
financial analyses. Considering the data set forth in the tables without
considering the full narrative description in the financial analyses, including
the methodologies and assumptions underlying the analyses, could create a
misleading or incomplete view of the financial analyses performed by Petrie
Parkman.
Discounted Cash Flow Analysis. Petrie Parkman conducted a discounted cash
flow analysis for the purpose of determining the reference range of the equity
value per share of Vastar common stock. Petrie Parkman calculated the net
present value of estimates of future after-tax cash flows for Vastar's oil and
gas reserve assets based on the proved and additional reserve estimates
referred to above and for its non-reserve assets utilizing information provided
by Vastar.
Petrie Parkman evaluated four scenarios in which the principal variables
were oil and gas prices. The four pricing scenarios, which were Pricing Case I,
Pricing Case II, Pricing Case III, and the Strip Pricing Case, were based on
benchmarks for spot sales of West Texas Intermediate crude oil and for spot
sales of Henry Hub gas. The Strip Pricing Case was based upon the publicly
available average of oil and gas futures contract prices quoted on the New York
Mercantile Exchange. Petrie Parkman applied appropriate quality and
transportation adjustments to these benchmarks.
Benchmark oil prices for Pricing Cases I, II and III were projected to be
$17.00, $19.00 and $22.00 per barrel, respectively, starting in 2000 and were
escalated annually following 2000 at the rate of 3%. Year 2000 oil prices for
Pricing Cases I, II, and III were based on the blended average of actual oil
prices through May 19, 2000 and the benchmark scenarios for the remainder of
2000. Benchmark oil prices for the Strip Pricing Case were projected to be
$28.54, $24.48, $21.52, $19.40, and $19.08 for the years 2000, 2001, 2002,
2003, and 2004, respectively, and were escalated annually following 2004 at the
rate of 3%.
Benchmark gas prices for Pricing Cases I, II and III were projected to be
$2.30, $2.50 and $2.70 per million British thermal units, respectively, for
2000 and were escalated annually following 2000 at the rate of 3%. Year 2000
gas prices for Pricing Cases I, II, and III were based on the blended average
of actual oil prices through May 19, 2000 and the benchmark scenarios for the
remainder of 2000. Benchmark gas prices for the Strip Pricing Case were
projected to be $3.48, $3.40, $3.06, and $2.96 for the years 2000, 2001, 2002,
and 2003, respectively, and were escalated annually following 2003 at the rate
of 3%. Operating and capital costs were escalated at 3% per year.
19
<PAGE>
Applying various after-tax discount rates depending on reserve category to
the after-tax cash flows, assuming a carry-over of Vastar's existing tax
positions and deducting long-term debt, the discounted cash flow analysis
indicated the following reference ranges for the equity value per fully diluted
share of Vastar common stock.
<TABLE>
<CAPTION>
Pricing Case Pricing Case Pricing Case
I II III Strip Pricing
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Equity Reference Value
Range
per Common Share...... $32.63-$48.44 $42.90-$61.50 $56.67-$79.22 $44.19-$61.78
</TABLE>
Based upon the foregoing, Petrie Parkman selected a composite equity reference
value range per fully diluted share of Vastar common stock of $53.00 to $68.00.
Property Transactions Analysis. Petrie Parkman reviewed selected publicly
available information related to 105 announced oil and gas property
transactions and proprietary information related to six oil and gas property
acquisition transactions between January 1997 and May 2000 in the Gulf of
Mexico, Gulf Coast, Mid Continent, and San Juan Basin/Rocky Mountain regions.
Petrie Parkman calculated purchase price multiples of equivalent reserves for
the acquired assets in each transaction and selected appropriate benchmark
multiples to Vastar's corresponding proved reserve figures to yield asset
reference value ranges for Vastar's proved reserves. The number of transactions
per region and the maximum, mean and minimum implied multiples in these
transactions are set forth in the following chart, together with certain
benchmark multiples chosen by Petrie Parkman as a result of these analyses.
When we refer to oil and gas in "equivalents," we are doing so to compare
quantities of oil with quantities of gas or to express these different
commodities in a common unit. The term "Mcfe" means thousand cubic feet
equivalent. The term "BbI" means barrel. In calculating Mcf and Bbl
equivalents, we use a generally recognized standard in which one Bbl is equal
to six Mcf.
<TABLE>
<CAPTION>
Gulf of Mid San Juan/
Mexico Continent Rockies Gulf Coast
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Number of Transactions........ 23 33 12 43
Purchase Price of
Reserves/Proved Reserves
($/Mcfe)
Maximum..................... $1.46 $1.42 $0.86 $1.63
Mean........................ $1.06 $0.79 $0.67 $0.81
Minimum..................... $0.71 $0.40 $0.35 $0.20
Benchmark Multiples ($/Mcfe).. $1.00-$1.40 $0.85-$1.05 $0.75-$0.85 $1.00-$1.25
</TABLE>
Petrie Parkman multiplied the benchmark multiples set forth above to Vastar's
proved reserve figures and, after adjusting for Vastar's non-reserve assets,
determined an enterprise reference value range. Petrie Parkman then deducted
long-term debt and added net working capital to such enterprise reference value
range and divided the resulting figure by the diluted number of shares of
Vastar common stock outstanding to arrive at a reference range for the equity
value per fully diluted share of Vastar common stock of $45.87-$59.04.
20
<PAGE>
Company Transaction Analysis. Petrie Parkman reviewed selected publicly
available information on the following 11 company acquisition transactions and
offers for control involving companies in the oil and gas exploration and
production industry that took place between January 1997 and May 2000:
<TABLE>
<CAPTION>
Acquiror or Bidder for Date of
Control Target Announcement
------------------------ ------------------------------------ -----------------
<S> <C> <C>
Anadarko Petroleum
Corporation Union Pacific Resources Group Inc. April 3, 2000
Burlington Resources
Inc. Poco Petroleums Ltd. August 16, 1999
Snyder Oil Corporation Santa Fe Energy Resources, Inc. January 14, 1999
Kerr-McGee Corp. Oryx Energy Company October 15, 1998
Devon Energy Corporation Northstar Energy Company June 29, 1998
USX-Marathon Group Tarragon Oil & Gas May 30, 1998
Atlantic Richfield
Company Union Texas Petroleum Holdings, Inc. May 4, 1998
Union Pacific Resources
Group Inc. Norcen Energy Resources January 26, 1998
Sonat, Inc. Zilkha Energy Company November 24, 1997
Burlington Resources
Inc. Louisiana Land & Exploration Company July 17, 1997
Mesa Inc. Parker & Parsley Petroleum Company April 7, 1997
</TABLE>
Using publicly available information, Petrie Parkman calculated purchase
price of equity multiples of discretionary cash flow and total investment,
which Petrie Parkman defined for the purposes of this analysis as purchase
price of equity plus net obligations assumed, as a multiple of earnings before
interest, taxes, depreciation, depletion and amortization and exploration
expense (which we refer to as "EBITDAX") for the target company in each
transaction. Petrie Parkman also calculated the implied purchase price of
reserves, which Petrie Parkman defined for the purposes of this analysis as
total investment less undeveloped acreage value and other assets at book
value, as a multiple of equivalent proved reserves for the target company in
each transaction and as a multiple of standardized measure of future net cash
flows (which we refer to as "Standardized Value"). The maximum, mean, median
and minimum implied multiples in these transactions are set forth below,
together with benchmark multiples chosen by Petrie Parkman as a result of
these analyses.
<TABLE>
<CAPTION>
Implied Multiples in Recent
Transactions
---------------------------- Benchmark
Minimum Median Mean Maximum Range
------- ------ ----- ------- -----------
<S> <C> <C> <C> <C> <C>
Discretionary Cash Flow................ 3.4x 6.0x 6.5x 9.0x 7.5-8.5x
EBITDAX................................ 5.4x 7.2x 7.7x 11.0x 7.5-9.0x
Equivalent Proved Reserves
($/Mcfe).............................. $0.82 $1.06 $1.28 $3.15 $1.00-$1.50
Standardized Value..................... 1.0x 1.8x 1.8x 2.6x 2.0-2.3x
</TABLE>
Petrie Parkman applied the benchmark multiples to Vastar's historical
discretionary cash flow, EBITDAX, equivalent proved reserves, and Standardized
Value.
Petrie Parkman also performed a premium analysis, which compared the offer
price per target company share with the target company's share price for the
periods of one day, 30 days and 60 days prior to the public announcement of
the offer. The maximum, mean, median, and minimum premiums (which Petrie
Parkman defined for the purposes of this analysis as excess of offer price
over target company's price, stated as a percentage above the target company's
share price), together with benchmark premiums chosen by Petrie Parkman as a
result of such analyses, for these periods were as follows:
<TABLE>
<CAPTION>
Implied Premiums in Recent
Transactions
---------------------------- Benchmark
Minimum Median Mean Maximum Range
------- ------ ----- ------- ---------
<S> <C> <C> <C> <C> <C>
One Day Prior......................... -8.5% 28.5% 28.9% 50.6% 20%-30%
30 Days Prior......................... 3.6% 35.8% 35.8% 76.0% 30%-40%
60 Days Prior......................... -17.3% 29.8% 28.6% 61.9% 25%-35%
</TABLE>
21
<PAGE>
Petrie Parkman applied the range of benchmark premiums to the corresponding
prices of Vastar common stock.
After selecting a composite enterprise reference value range and deducting
long-term debt, adding working capital and dividing by the fully diluted number
of shares of Vastar common stock outstanding, the resulting composite reference
range for the equity value per fully diluted share of Vastar common stock was
$69.74-$79.71.
Capital Market Comparison. Using publicly available information, Petrie
Parkman calculated market capitalization multiples of historical and estimated
discretionary cash flow for selected publicly traded companies. Petrie Parkman
also calculated enterprise value multiples of historical and estimated EBITDAX,
proved reserves, and Standardized Value for those companies. Multiples of
estimated discretionary cash flow and EBITDAX were based upon projected
discretionary cash flow and EBITDAX published by equity research analysts.
Petrie Parkman defined market capitalization for purposes of this analysis as
market value of common equity. Petrie Parkman obtained the enterprise value of
each company by adding the sum of its long-term and short-term debt to the sum
of the market value of its common equity, the market value of its preferred
stock (or, if not publicly traded, liquidation or book value) and the book
value of its minority interest in other companies and subtracting net working
capital.
Petrie Parkman determined that the following companies were relevant to an
evaluation of Vastar based upon Petrie Parkman's view of the comparability to
Vastar of these companies' operating and financial characteristics:
. Anadarko Petroleum Corporation . Newfield Exploration Company
. Apache Corporation . Noble Affiliates, Inc.
. Burlington Resources Inc. . Pioneer Natural Resources Company
. Devon Energy Corporation . Union Pacific Resources Group Inc.
. EOG Resources, Inc. . Unocal Corporation
Petrie Parkman selected and applied the following transaction parameters to
Vastar's historical and estimated cash flow, and the following enterprise
valuation multiples to Vastar's historical and estimated EBITDAX, proved
reserves and Standardized Value to estimate a range of enterprise reference
values for Vastar:
<TABLE>
<CAPTION>
Measure Transaction Parameters
------- ----------------------
<S> <C>
Market capitalization as a multiple of last twelve
months discretionary cash flow...................... 7.5x-8.5x
Market capitalization as a multiple of 2000 estimated
discretionary cash flow............................. 6.5x-7.5x
Market capitalization as a multiple of 2001 estimated
discretionary cash flow............................. 6.0x-7.0x
Enterprise value as a multiple of last twelve months'
EBITDAX............................................. 8.0x-9.0x
Enterprise value as a multiple of 2000 estimated
EBITDAX............................................. 6.5x-7.5x
Enterprise value as a multiple of 2001 estimated
EBITDAX............................................. 6.5x-7.5x
Enterprise value per 1999 Mcfe of proved reserves.... $1.40-$2.00
Enterprise value as a multiple of 12-31-99
Standardized Value.................................. 1.9-2.2x
</TABLE>
From the enterprise reference value ranges implied by these multiples,
Petrie Parkman determined a composite enterprise reference value range. After
deducting long term debt from the composite enterprise reference value range
and adding net working capital to the composite enterprise reference value
range and dividing by the fully diluted number of shares of Vastar common stock
outstanding, the composite reference range for the equity value per fully
diluted share of Vastar common stock was $69.74-$75.72.
22
<PAGE>
Going Concern Analysis. Petrie Parkman projected the potential financial
performance of Vastar without giving effect to the merger for the ten year
period beginning on January 1, 2000 using Pricing Cases I, II, III and the
Strip Pricing Case referred to in the subsection entitled "Discounted Cash Flow
Analysis" above. Petrie Parkman prepared these projections using information
and projections prepared or provided by Vastar management and additional
assumptions based upon discussions with Vastar management regarding potential
future operating and financial performance.
For each pricing case, Petrie Parkman evaluated two scenarios, a "debt
repayment case" and a "tactical acquisition case" in which the principal
variable was the use of cash flow in excess of budgeted capital expenditures.
In the debt repayment case, excess cash flow was assumed to be used to repay
existing indebtedness or invested in short-term marketable securities. In the
tactical acquisition case, $250 million of producing properties were assumed to
be acquired each year at an acquisition cost of $1.00/Mcfe, with the
acquisition cost escalated at 3% annually.
Petrie Parkman calculated a range of terminal enterprise values by applying
terminal multiples of 1.9x, 2.0x and 2.1x to projected 2009 Standardized Value.
Estimated 2009 debt and net working capital were deducted from projected 2009
enterprise value to estimate the 2009 equity value of Vastar. Petrie Parkman
applied an after-tax discount rate of 15% to terminal equity values to
determine reference ranges for the equity value. Throughout its analysis,
Petrie Parkman used Vastar's existing tax position.
From the reference ranges for equity value implied by this analysis, Petrie
Parkman determined a composite reference range for the equity value per fully
diluted share of Vastar common stock of $75.00 to $85.00 in the debt repayment
case, and $80.00 to $90.00 in the tactical acquisition case.
Analysis of Precedent Minority Squeeze-Out Transactions. Petrie Parkman
analyzed the premiums paid in 45 precedent transactions since 1988 in which the
acquiror already owned 50.1% or more of the outstanding stock of the company to
be acquired at the time of the offer. In 13 of these precedent transactions,
the acquiror owned more than 80% of the acquired company's stock. Petrie
Parkman also analyzed the premiums paid in all 45 of the precedent
transactions, and separately for this subset of 13 precedent transactions,
based on the acquired company's closing price per common share one day prior to
the announcement of the transaction and one month prior to such announcement.
With respect to the financial information for the companies involved in these
precedent transactions, Petrie Parkman relied on information available in
public documents and reports published by Securities Data Corporation. The
following table sets forth the results of these analyses as well as those
derived by Petrie Parkman for Vastar based on the merger price of $83 per
share:
<TABLE>
<CAPTION>
50.1%+Owned by 80.0%+Owned by
Acquiror Acquiror Vastar
--------------------- ----------------- ---------
(45 Transactions) (13 Transactions)
--------------------- ----------------- Merger
Range Median Range Median Price $83
-------------- ------ ---------- ------ ---------
<S> <C> <C> <C> <C> <C>
Premium to Market Price One
Day Before Initial Offer.... (17.8%)-100.0% 19.9% 0.0%-43.7% 19.4% 31.5%
Premium to Market One Month
Before Initial Offer........ (5.9%)-101.7% 29.2% 1.1%-54.5% 21.5% 59.0%
</TABLE>
The description set forth above constitutes a summary of the analyses
employed and factors considered by Petrie Parkman in rendering its opinion to
the special committee. Petrie Parkman believes that its analyses must be
considered as a whole and that selecting portions of its analyses, without
considering all analyses and factors, could create an incomplete view of the
process underlying its opinion. The preparation of a fairness opinion is a
complex, analytical process involving various determinations as to the most
appropriate and relevant methods of financial analysis and the application of
those methods to the particular circumstances and is not necessarily
susceptible to partial analysis or summary description.
23
<PAGE>
In arriving at its opinion, Petrie Parkman did not attribute any particular
weight to any analysis considered by it, but rather made qualitative judgments
as to the significance and relevance of each analysis. Any estimates resulting
from the analyses are not necessarily indicative of actual values, which may be
significantly more or less favorable than as set forth in this document.
In addition, analyses based on forecasts of future results are not
necessarily indicative of future results, which may be significantly more or
less favorable than suggested by these analyses. Estimates of reference values
of companies do not purport to be appraisals or necessarily reflect the prices
at which companies may actually be sold. Because the estimates are inherently
subject to uncertainty and based upon numerous factors or events beyond the
control of the parties and Petrie Parkman, Petrie Parkman cannot assure you
that the estimates will prove to be accurate.
No company used in the analysis of other publicly traded companies nor any
transaction used in the analyses of comparable transactions is identical to
Vastar or the proposed merger. Accordingly, these analyses must take into
account differences in the financial and operating characteristics of the
selected publicly traded companies and differences in the structure and timing
of the selected transactions and other factors that would affect the public
trading value and acquisition value of the companies considered.
Petrie Parkman, as part of its investment banking business, is continually
engaged in the evaluation of energy-related businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. The special committee selected
Petrie Parkman as its financial advisor because it is an internationally
recognized investment banking firm that has substantial experience in
transactions similar to the proposed merger. Petrie Parkman has in the past
provided financial advisory services to Vastar and ARCO and has received
customary fees for these services. In the ordinary course of business, Petrie
Parkman or its affiliates may trade in the debt or equity securities of Vastar
for the accounts of its customers and, accordingly, may at any time hold a long
or short position in such securities.
Salomon Smith Barney Inc.
Salomon Smith Barney was retained to act as financial advisor to the special
committee in connection with the proposed merger. Pursuant to Salomon Smith
Barney's engagement letter with the special committee, dated April 1, 2000,
Salomon Smith Barney rendered to the special committee an oral opinion on May
23, 2000, which was subsequently confirmed in writing on May 24, 2000, to the
effect that, based upon and subject to the considerations and limitations set
forth in the opinion, its work described below and other factors it deemed
relevant, as of May 23, 2000, the consideration to be received in the proposed
merger was fair, from a financial point of view, to the holders of Vastar
common stock, other than BP Amoco and its affiliates.
Pursuant to Salomon Smith Barney's engagement letter, Vastar agreed to pay
Salomon Smith Barney $2,500,000 in engagement and advisory fees, for its
services rendered to the special committee in connection with the merger. In
addition, upon the closing of the transaction, Salomon Smith Barney will be
entitled to a fee of $3,150,000, which is based on the consideration to be
received by the holders of Vastar common stock, other than BP Amoco and its
affiliates, in the merger. Vastar has also agreed to reimburse Salomon Smith
Barney for its reasonable travel and other out-of-pocket expenses incurred in
connection with its engagement, including the reasonable fees and disbursements
of its counsel, and to indemnify Salomon Smith Barney against liabilities and
expenses relating to or arising out of its engagement, including liabilities
under the federal securities laws.
The full text of Salomon Smith Barney's opinion, which sets forth the
assumptions made, general procedures followed, matters considered and limits on
the review undertaken, is included as Appendix C to this proxy statement and is
incorporated by reference in this
24
<PAGE>
document. The summary of Salomon Smith Barney's opinion set forth below is
qualified in its entirety by reference to the full text of the opinion. You are
urged to read Salomon Smith Barney's opinion carefully and in its entirety.
Salomon Smith Barney's advisory services and opinion were provided for the
information of the special committee in its evaluation of the proposed merger
and did not constitute a recommendation of the proposed merger or a
recommendation to any stockholder as to how that stockholder should vote at the
special meeting.
Copies of Salomon Smith Barney's May 23, 2000 presentation to the special
committee are available for inspection and copying at Vastar's principal
executive office during regular business hours by any public stockholder or its
representative who has been so designated in writing, and will be provided to
any public stockholder upon written request at the expense of the requesting
party. The presentation is also filed as an exhibit to Vastar's and BP Amoco's
Schedule 13E-3, copies of which may be obtained from the SEC. See "Where You
Can Find More Information" beginning on page 88.
In arriving at its opinion, Salomon Smith Barney reviewed a draft of the
merger agreement, dated May 23, 2000, and held discussions with senior
officers, directors and other representatives and advisors of Vastar concerning
the businesses, operations and prospects of Vastar. Salomon Smith Barney
examined publicly available business and financial information relating to
Vastar as well as financial forecasts and other information and data for Vastar
which were provided to or otherwise discussed with Salomon Smith Barney by the
management of Vastar. Salomon Smith Barney reviewed the financial terms of the
merger as set forth in the merger agreement in relation to, among other things,
current and historical market prices and trading volumes of Vastar common
stock, the historical and estimated earnings and other operating data of Vastar
and the capitalization and financial condition of Vastar.
Salomon Smith Barney also considered other publicly available information
relating to financial terms of transactions that it considered relevant in
evaluating the proposed merger and publicly available information relating to
the businesses of other companies whose operations Salomon Smith Barney
considered relevant in evaluating those of Vastar. In addition, Salomon Smith
Barney conducted other analyses and examinations and considered other
information and financial, economic and market criteria that it deemed
appropriate in arriving at its opinion.
In rendering its opinion, Salomon Smith Barney assumed and relied, without
independent verification, upon the accuracy and completeness of all financial
and other information and data publicly available or furnished to or otherwise
reviewed by or discussed with Salomon Smith Barney and further relied on the
assurances of the management of Vastar that they were not aware of any facts
that would make any of such information inaccurate or misleading.
With respect to financial forecasts and other information and data provided
to or otherwise reviewed by or discussed with it, Salomon Smith Barney was
advised by the management of Vastar that such forecasts and other information
and data had been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the management of Vastar as to the future
financial performance of Vastar. Salomon Smith Barney expressed no view with
respect to these forecasts and other information and data or the assumptions on
which they were based.
Salomon Smith Barney did not make and was not provided with an independent
evaluation or appraisal of Vastar's assets or liabilities (contingent or
otherwise), nor did Salomon Smith Barney make any physical inspection of
Vastar's properties or assets. Salomon Smith Barney assumed the final terms of
the merger agreement would not vary materially from those set forth in the May
23, 2000 draft. Salomon Smith Barney further assumed that the merger would be
completed in accordance with the terms of the merger agreement, without waiver
of any of the conditions to the merger contained in the merger agreement.
25
<PAGE>
Salomon Smith Barney was not asked to consider, and its opinion did not
address, the relative merits of the merger as compared to any alternative
business strategies that might exist for Vastar or the effect of any other
transaction in which Vastar might engage. Salomon Smith Barney was advised that
BP Amoco, which beneficially owned approximately 81.9% of the outstanding
common stock of Vastar, had informed Vastar that it was unwilling to sell the
common stock of Vastar owned by it, and accordingly Salomon Smith Barney was
not requested to and did not solicit alternative business combinations that
might otherwise be available for Vastar. Salomon Smith Barney's opinion
necessarily was based on information available to it, and financial, stock
market and other conditions and circumstances existing and disclosed to Salomon
Smith Barney as of May 23, 2000.
In connection with rendering its opinion, Salomon Smith Barney made a
presentation to the special committee on May 23, 2000 with respect to the
material analyses performed by Salomon Smith Barney in evaluating the fairness
of the consideration to be received by the holders of Vastar common stock in
the proposed merger, other than BP Amoco and its affiliates. The following is a
summary of that presentation. The summary includes information presented in
tabular format. In order to understand fully the financial analyses used by
Salomon Smith Barney, these tables must be read together with the text of each
summary. The tables alone do not constitute a complete description of the
financial analyses. The following quantitative information, to the extent it is
based on market data, is, except as otherwise indicated, based on market data
as it existed at or prior to May 19, 2000, and is not necessarily indicative of
current or future market conditions.
Public Market Trading Comparison--Competitor Group. Salomon Smith Barney
compared financial, operating and stock market information, and forecasted
financial information for Vastar, with the same information for selected
publicly traded independent oil and gas exploration and production companies.
The selected comparable companies Salomon Smith Barney considered were:
. Anadarko Petroleum Corporation . Devon Energy Corporation
(pro forma for the acquisition . EOG Resources, Inc.
of Union Pacific Resources) . Kerr-McGee Corp.
. Apache Corporation . Louis Dreyfus Natural Gas Corp.
. Barrett Resources Corporation . Newfield Exploration Company
. Burlington Resources Inc. . Noble Affiliates, Inc.
. Chesapeake Energy Corporation . Pioneer Natural Resources Company
. Cross Timbers Oil Company . Unocal Corporation
Salomon Smith Barney used forecasted financial information for the selected
comparable companies in the course of these analyses that was based on
information published by First Call Corporation, which compiles summaries of
financial forecasts published by various investment banking firms. With respect
to Vastar, Salomon Smith Barney used forecasted financial information that was
based on information provided by management as well as commodity pricing
information published by First Call Corporation.
For each of the selected comparable companies, Salomon Smith Barney derived
and compared the ratio of:
. the company's equity value as of May 19, 2000 to its estimated cash flow
for 2000;
. the company's equity value as of May 19, 2000 to its estimated cash flow
for 2001;
. the company's firm value (defined as diluted equity value less cash and
option proceeds plus indebtedness, such amounts based on management
estimates as of March 31, 2000) to its estimated EBITDAX for 2000;
. the company's firm value to its estimated EBITDAX for 2001; and
. the company's firm value per Mcfe of proved reserves as of December 31,
1999.
26
<PAGE>
The following table sets forth the results of these calculations as well as
those derived by Salomon Smith Barney for Vastar at the merger price of $83 per
share:
<TABLE>
<CAPTION>
Vastar at
Range Median Merger Price
------------- ------ ------------
<S> <C> <C> <C>
Equity value as a multiple of estimated cash
flow for 2000............................... 3.0x - 8.2x 5.4x 7.8x
Equity value as a multiple of estimated cash
flow for 2001............................... 2.8x - 7.9x 5.4x 7.8x
Firm value as a multiple of estimated EBITDAX
for 2000.................................... 4.1x - 9.1x 6.8x 8.5x
Firm value as a multiple of estimated EBITDAX
for 2001.................................... 4.5x - 9.2x 6.5x 8.5x
Firm value per Mcfe of proved reserves....... $0.84 - $3.62 $1.41 $2.25
</TABLE>
Based on the information derived for the selected comparable companies and
the estimated cash flow of Vastar for 2000 and 2001, Salomon Smith Barney
derived reference ranges for the implied equity value per share of Vastar
common stock of $67.99 to $78.45 based on estimated cash flow for 2000 and
$63.11 to $73.63 based on estimated cash flow for 2001.
Based on the information derived for the selected comparable companies and
the estimated EBITDAX of Vastar for 2000 and 2001, Salomon Smith Barney derived
reference ranges for the implied equity value per share of Vastar common stock
of $66.65 to $77.36 based on estimated EBITDAX for 2000 and $61.40 to $72.13
based on estimated EBITDAX for 2001.
Based on the information derived from the comparable companies and the
proved reserves of Vastar, Salomon Smith Barney derived a reference range for
the implied equity value per share of Vastar common stock of $52.57 to $72.88.
Based on all of these ranges, Salomon Smith Barney applied its judgment and
established a combined reference range for the implied equity value per share
of Vastar common stock of $70.00 to $76.00.
Public Market Trading Comparison--Regional Pure Plays. Salomon Smith Barney
compared financial, operating and stock market information, and forecasted
financial information for Vastar, with the same information for selected
publicly traded independent oil and gas exploration and production companies
with operations concentrated in the three geographic regions of the United
States where Vastar's operations are concentrated. The geographic regions and
the selected comparable companies considered by Salomon Smith Barney were:
Gulf of Mexico/Gulf Coast:
. Basin Exploration, Inc. . EOG Resources, Inc.
. Chieftain International, Inc. . Burlington Resources Inc.
. Stone Energy Corporation . Noble Affiliates, Inc.
. Newfield Exploration Company
. The Houston Exploration Company Rockies:
. Meridian Resource Corporation . Patina Oil & Gas Corporation
. Barrett Resources Corporation
Onshore: . HS Resources, Inc.
. Chesapeake Energy Corporation . Evergreen Resources, Inc.
. Louis Dreyfus Natural Gas Corp. . Tom Brown, Inc.
Salomon Smith Barney used forecasted financial information for the selected
comparable companies in these regions in the course of these analyses that was
based on information published by First Call Corporation. With respect to
Vastar, Salomon Smith Barney used forecasted financial information that was
based on information provided by management as well as commodity pricing
information published by First Call Corporation.
27
<PAGE>
For each of the selected comparable companies within each region, Salomon
Smith Barney derived and compared the range of ratios of:
. the company's equity value to its estimated cash flow for 2000;
. the company's equity value to its estimated cash flow for 2001;
. the company's firm value to its estimated EBITDAX for 2000;
. the company's firm value to its estimated EBITDAX for 2001; and
. the firm value per Mcfe of proved reserves as of December 31, 1999.
The following table sets forth the results of these calculations as well as
those derived by Salomon Smith Barney for Vastar at the merger price of $83 per
share:
<TABLE>
<CAPTION>
Gulf of Mexico/
Gulf Coast On-Shore Rockies Vastar
------------------ ------------------ ------------------ at Merger
Range Median Range Median Range Median Price
----------- ------ ----------- ------ ----------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Equity value as a
multiple of estimated
cash flow for 2000..... 2.6x-7.0x 4.9x 3.0x-6.4x 5.3x 3.2x-16.5x 7.4x 7.8x
Equity value as a
multiple of estimated
cash flow for 2001..... 2.9x-6.3x 4.4x 2.8x-6.3x 5.3x 2.8x-11.4x 6.5x 7.8x
Firm value as a multiple
of estimated EBITDAX
for 2000............... 4.5x-7.3x 6.8x 5.1x-6.8x 6.7x 5.2x-15.8x 8.6x 8.5x
Firm value as a multiple
of estimated EBITDAX
for 2001............... 4.2x-7.7x 6.1x 4.8x-6.6x 6.5x 4.7x-11.2x 7.7x 8.5x
Firm value per Mcfe of
proved reserves........ $1.71-$3.62 $1.94 $1.21-$2.00 $1.36 $0.66-$1.67 $1.05 $2.25
</TABLE>
Based on information derived from these comparable companies and estimated
cash flow of Vastar for 2000 and 2001, Salomon Smith Barney derived reference
ranges for the implied equity value per share of Vastar common stock of $64.44
to $74.90 based on estimated cash flow for 2000 and $60.41 to $70.99 based on
estimated cash flow for 2001.
Based on the information derived for these comparable companies and the
estimated EBITDAX of Vastar for 2000 and 2001, Salomon Smith Barney derived
reference ranges for the implied equity value per share of Vastar common stock
of $64.37 to $74.04 based on estimated EBITDAX for 2000 and $58.18 to $67.90
based on estimated EBITDAX for 2001.
Based on information derived from these comparable companies and the proved
reserves of Vastar, Salomon Smith Barney derived a reference range for the
implied equity value per share of Vastar of $70.86 to $89.13.
Based on all of these ranges, Salomon Smith Barney applied its judgment and
established a combined reference range for the implied equity value per share
of Vastar common stock of $68.00 to $74.00.
Precedent Oil and Gas Transaction Analysis. Salomon Smith Barney reviewed
publicly available information for 13 pending or completed merger or
acquisition transactions in the oil and gas industry announced since April 7,
1997 and involving at least one publicly traded company. The precedent
transactions considered by Salomon Smith Barney were the following (in each
case, the acquired company's name is listed first and the acquiror's name is
listed second):
. Union Pacific Resources Group, . PennzEnergy Company/Devon Energy
Inc. /Anadarko Petroleum Corporation
Corporation
. Monument Oil and Gas plc/LASMO
. Poco Petroleums Ltd./Burlington plc
Resources Inc.
. Oryx Energy Company/Kerr-McGee
. Saga Petroleum ASA/Norsk Hydro Corporation
ASA/Statoil
28
<PAGE>
. Tarragon Oil & Gas Ltd./USX- . Zilkha Energy Company/Sonat Inc.
Marathon Group
. Louisiana Land &
. Union Texas Petroleum/Atlantic Exploration/Burlington Resources
Richfield Company Inc.
. Norcen Energy Resources/Union . MESA Inc./Parker & Parsley
Pacific Resources Petroleum
. United Meridian Corp./Ocean
Energy, Inc.
With respect to the financial information for the companies involved in the
precedent transactions, Salomon Smith Barney relied on information available in
public documents, equity research reports published by certain investment banks
and First Call Corporation estimates. With respect to Vastar, the forecasted
financial information used by Salomon Smith Barney was based on information
provided by management as well as commodity pricing information published by
First Call Corporation.
For each of the selected precedent transactions, Salomon Smith Barney
derived the ratio of:
. the equity value of the acquired company implied by the transaction value
to the acquired company's estimated cash flow for the twelve-month period
following the announcement of the transaction based on public sources
prior to the announcement (which we refer to in the table below as
"Estimated Cash Flow");
. the firm value implied by the transaction value to the acquired company's
EBITDAX for the last twelve-month period for which financial results were
available prior to the announcement (which we refer to in the table below
as "LTM EBITDAX");
. the firm value implied by the transaction value to the acquired company's
estimated EBITDAX for the twelve-month period following the announcement
of the transaction based on public sources prior to the announcement
(which we refer to in the table below as "Estimated EBITDAX"); and
. the firm value of the acquired company implied by the transaction value
per Mcfe of its proved reserves as of the end of the company's last
fiscal year immediately preceding the announcement.
The following table sets forth the results of these analyses as well as
those derived by Salomon Smith Barney for Vastar at the merger price of $83 per
share:
<TABLE>
<CAPTION>
Vastar
at
Merger
Range Median Price
----------- ------ ------
<S> <C> <C> <C>
Equity value as a multiple of estimated cash
flow............................................ 2.9x-9.4x 6.3x 7.8x
Firm value as a multiple of LTM EBITDAX.......... 3.7x-14.2x 7.1x 10.4x
Firm value as a multiple of estimated EBITDAX.... 1.9x-10.1x 7.0x 8.5x
Firm value per Mcfe of proved reserves........... $0.87-$3.04 $1.09x $2.25x
</TABLE>
Based on information derived from the precedent transactions and estimated
cash flow of Vastar for 2000, Salomon Smith Barney derived a reference range
for the implied equity value per share of Vastar common stock of $73.22 to
$83.68.
Based on the information derived for the precedent transactions and EBITDAX
of Vastar for the last twelve months prior to the announcement of the
transaction, Salomon Smith Barney derived a reference range for the implied
equity value per share of Vastar common stock of $66.03 to $74.78.
29
<PAGE>
Based on information derived from the precedent transactions and estimated
EBITDAX of Vastar for 2000, Salomon Smith Barney derived a reference range for
the implied equity value per share of Vastar common stock of $72.01 to $82.72.
Based on the information derived from the precedent transactions and the
proved reserves of Vastar as of December 31, 1999, Salomon Smith Barney derived
a reference range for the implied equity value per share of Vastar common stock
of $42.42 to $72.88.
Based on all of these ranges, Salomon Smith Barney applied its judgment and
established a combined reference range for the implied equity value per share
of Vastar common stock of $71.00 to $81.00.
Going-Concern Discounted Cash Flow Analysis. Using a discounted cash flow
methodology, Salomon Smith Barney calculated a range of implied per share
equity values of Vastar based on the estimated unlevered free cash flows that
Vastar could produce on a stand-alone basis, which includes management's
projections using commodity prices used by Vastar in its long range plan (which
we refer to as "LRP Prices"), and commodity prices based on New York Mercantile
Exchange forward commodity strip prices as of May 15, 2000 for oil through
fiscal year 2006 and gas through fiscal year 2003, and assuming 2% increases
for each fiscal year thereafter (which we refer to as "NYMEX Prices"). We refer
to this set of projections as the "Base Case."
Salomon Smith Barney also calculated additional ranges of implied per share
equity values based on the estimated unlevered free cash flows that Vastar
could produce on a stand-alone basis, based on management's Base Case
projections with the adjustments described below. Salomon Smith Barney
discounted these cash flows by a range of discount rates representing the
weighted average cost of capital from 9.5% to 10.5%. These calculations
resulted in implied per share equity values of Vastar common stock which ranged
as follows:
. from $80 to $97 using LRP Prices (with the upper range increasing to
$113 using NYMEX Prices) for the Base Case;
. from $70 to $84 using LRP Prices (with the upper range increasing to $97
using NYMEX Prices) for the Base Case and reducing the impact of
management's projected opportunity and deepwater accretion wedges by
50%;
. from $60 to $83 using LRP Prices (with the upper range increasing to
$100 using NYMEX Prices) for the Base Case and reducing management's
projected deepwater exploration and accretion wedge reserves, production
and EBITDAX by 10%;
. from $72 to $89 using LRP Prices (with the upper range increasing to
$106 using NYMEX Prices) for the Base Case and increasing deepwater
exploration wedge capital by 33%;
. from $84 to $102 using LRP Prices (with the upper range increasing to
$118 using NYMEX Prices) for the Base Case and adding the value of the
Entrada prospect as a known (i.e., certain) instead of a chance-weighted
development.
Based on all of these ranges, Salomon Smith Barney applied its judgment and
established a combined reference range for the implied equity value per share
of Vastar common stock of $80 to $95.
Analysis of Precedent Minority Squeeze-Out Transactions. Salomon Smith
Barney analyzed the premiums paid in 45 precedent transactions since 1988 in
which the acquiror already owned 50.1% or more of the outstanding stock of the
company to be acquired at the time of the offer. In 13 of these precedent
transactions, the acquiror already owned more than 80% of the acquired
company's stock. Salomon Smith Barney analyzed the premiums paid in all 45 of
the precedent transactions, and separately for this subset of 13 precedent
transactions, based on the acquired company's
30
<PAGE>
closing price per common share one day prior to the announcement of the
transaction and one month prior to such announcement. With respect to the
financial information for the companies involved in these precedent
transactions, Salomon Smith Barney relied on information available in public
documents and reports published by Securities Data Corporation. The following
table sets forth the results of these analyses as well as those derived by
Salomon Smith Barney for Vastar based on the $83 per share merger price:
<TABLE>
<CAPTION>
50.1% + Owned by 80.0% + Owned by
Acquiror Acquiror Vastar
--------------------- ----------------- ------
(45 Transactions) (13 Transactions)
--------------------- ----------------- Merger
Range Median Range Median Price
-------------- ------ ---------- ------ ------
<S> <C> <C> <C> <C> <C>
Premium to Market Price One Day
Before Initial Offer........... (17.8%)-100.0% 19.9% 0.0%-43.7% 19.4% 31.5%
Premium to Market One Month
Before Initial Offer........... (5.9%)-101.7% 29.2% 1.1%-54.5% 21.5% 59.0%
</TABLE>
The preceding discussion is a summary of the material financial analyses
furnished by Salomon Smith Barney to the special committee, but it does not
purport to be a complete description of the analyses performed by Salomon Smith
Barney or of its presentations to the special committee. The preparation of
financial analyses and fairness opinions is a complex process involving
subjective judgments and is not necessarily susceptible to partial analysis or
summary description. Salomon Smith Barney made no attempt to assign specific
weights to particular analyses or factors considered, but rather made
qualitative judgments as to the significance and relevance of all the analyses
and factors considered and determined to give its fairness opinion as described
above.
Accordingly, Salomon Smith Barney believes that its analyses, and the
summary set forth above, must be considered as a whole, and that selecting
portions of the analyses and of the factors considered by Salomon Smith Barney,
without considering all of the analyses and factors, could create a misleading
or incomplete view of the processes underlying the analyses conducted by
Salomon Smith Barney and its opinion. With regard to the selected comparable
companies and precedent transactions analyses summarized above, Salomon Smith
Barney selected comparable public companies and precedent transactions on the
basis of various factors, including the size and similarity of the business;
however, no company utilized as a comparison in these analyses is identical to
Vastar and no precedent transaction is identical to the proposed merger.
As a result, these analyses are not purely mathematical, but also take into
account differences in financial and operating characteristics of the subject
companies and other factors that could affect the public trading value of the
subject companies and transactions to which Vastar and the proposed merger are
being compared. In its analyses, Salomon Smith Barney made numerous assumptions
with respect to Vastar, industry performance, general business, economic,
market and financial conditions and other matters, many of which are beyond the
control of Vastar. Any estimates contained in Salomon Smith Barney's analyses
are not necessarily indicative of actual values or predictive of future results
or values, which may be significantly more or less favorable than those
suggested by these analyses. Estimates of values of companies do not purport to
be appraisals or necessarily to reflect the prices at which companies may
actually be sold. Because these estimates are inherently subject to
uncertainty, none of Vastar, the special committee, the Vastar Board of
Directors, Salomon Smith Barney or any other person assumes responsibility if
future results or actual values differ materially from the estimates.
Salomon Smith Barney's analyses were prepared solely as part of Salomon
Smith Barney's analysis of the fairness of the consideration to be received in
the proposed merger by holders of Vastar common stock, other than BP Amoco and
its affiliates, and were provided to the special committee in that connection.
The opinion of Salomon Smith Barney was only one of the factors taken into
consideration by the special committee in making its determination to recommend
the merger agreement and the proposed merger.
31
<PAGE>
Salomon Smith Barney is an internationally recognized investment banking
firm engaged in, among other things, the valuation of businesses and their
securities in connection with mergers and acquisitions, restructurings,
leveraged buyouts, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. The special committee
selected Salomon Smith Barney to act as its financial advisor on the basis of
Salomon Smith Barney's international reputation and Salomon Smith Barney's
familiarity with Vastar. Salomon Smith Barney and its predecessors and
affiliates have previously provided and currently are providing investment
banking services to Vastar and BP Amoco unrelated to the merger, for which
Salomon Smith Barney has received and will receive customary compensation.
In the ordinary course of its business, Salomon Smith Barney and its
affiliates may actively trade or hold the securities of Vastar, BP Amoco and
affiliates for their own accounts and for the accounts of customers and,
accordingly, may at any time hold a long or short position in those securities.
Salomon Smith Barney and its affiliates, including Citigroup Inc. and its
affiliates, may maintain relationships with Vastar, BP Amoco and their
respective affiliates.
Financial Analysis of the Financial Advisor to BP Amoco
In April 1999, BP Amoco retained Morgan Stanley to review BP Amoco's
strategic alternatives in relation to the approximately 81.9% of Vastar common
stock which BP Amoco would indirectly own after its acquisition of ARCO, and,
at BP Amoco's option, to act as its financial advisor in relation to any
transaction subsequently decided upon by BP Amoco. During the following period
of approximately six months, Morgan Stanley provided to BP Amoco management, in
both written and presentation form, a number of analyses of alternative
strategies involving either the acquisition of the publicly held minority
interest in Vastar or the disposal of ARCO's approximately 81.9% interest.
These analyses were based upon published financial and market information.
On February 29, 2000, at a meeting with Sir John Browne, Chief Executive
Officer of BP Amoco, Morgan Stanley discussed certain financial analyses and
delivered an initial report. On May 5, 2000, Morgan Stanley delivered an
updated presentation of its views to Petrie Parkman and Salomon Smith Barney,
as part of the process of discussions between BP Amoco and Vastar concerning
the merger. References to the "report" are to Morgan Stanley's report dated May
5, 2000. The analyses contained in the report are summarized below. The report
updated the February 29, 2000 report, except with respect to the discounted
cash flow analysis and pro forma impact analysis, each analysis of which is
also summarized below.
Copies of the report are available for inspection and copying at the
principal executive offices of BP Amoco during regular business hours by any
public stockholder or its representative who has been so designated in writing,
and will be provided to any such stockholder or representative upon written
request at the expense of the requesting party. The report is also filed as an
exhibit to Vastar's and BP Amoco's Schedule 13E-3, copies of which may be
obtained from the SEC. See "Where You Can Find More Information" beginning on
page 88. The description of the analyses performed by Morgan Stanley set forth
below is qualified by reference to the report.
In preparing the report, Morgan Stanley, among other things:
. reviewed certain publicly available financial statements and other
publicly available information of BP Amoco and Vastar;
. reviewed certain financial projections and presentation materials
prepared by Vastar's management;
. reviewed the likely pro forma impact of the transaction on BP Amoco's
future earnings and cash flow per American Depositary Share;
. reviewed the reported historical prices and trading activity for Vastar
common stock;
. compared the financial performance and the prices and trading activity of
Vastar common stock with that of other publicly traded companies that it
deemed generally comparable to Vastar;
32
<PAGE>
. reviewed the financial terms, to the extent publicly available, of
transactions that it deemed generally comparable to the merger and of
certain transactions involving companies that it deemed generally
comparable to Vastar;
. participated in discussions among representatives of BP Amoco, Vastar,
Petrie Parkman, Salomon Smith Barney, Sullivan & Cromwell, and Fried
Frank; and
. performed other analyses and considered other factors as Morgan Stanley
deemed appropriate.
Morgan Stanley was not requested to, and did not provide, any opinion as to
the fairness of the merger to BP Amoco or its stockholders, or to Vastar or its
stockholders other than BP Amoco. In preparing the report, Morgan Stanley
assumed and relied, without independent verification, upon the accuracy and
completeness of the information reviewed by or discussed with it. Morgan
Stanley did not make any independent valuation or appraisal of Vastar's assets
or liabilities, and it was not provided with any independent valuations or
appraisals. The report was necessarily based on information available to Morgan
Stanley as of, and economic, market and other conditions as in effect on, May
5, 2000. While Morgan Stanley provided advice to BP Amoco with respect to the
merger, Morgan Stanley did not recommend any specific consideration to BP Amoco
or that any specific consideration constituted the only appropriate
consideration for Vastar's shares.
Morgan Stanley's advisory services were provided for the information of BP
Amoco in its evaluation of the merger and the report is not intended to be, nor
does it constitute, a recommendation to any Vastar stockholder as to how that
stockholder should vote at the special meeting.
The following is a brief summary of all material analyses performed by
Morgan Stanley. Certain of these summaries of financial analyses include
information presented in tabular format. In order to understand fully the
financial analyses used by Morgan Stanley, the tables must be read together
with the text of each summary. The tables alone do not constitute a complete
description of the financial analysis.
Discounted Cash Flow Analysis. Morgan Stanley generated estimates of future
cash flows for Vastar for the period 2000-2010, based on publicly available
information and Morgan Stanley estimates. Morgan Stanley then determined the
present value of such cash flows using various discount rates which reflected
Morgan Stanley's judgment regarding the appropriate weighted average cost of
capital for Vastar. The terminal value in 2010 was calculated using an exit
EBITDAX multiple of 6.0x to 7.5x. This valuation was adjusted for Vastar's net
debt, and divided by the fully diluted number of Vastar shares to give an
equity discounted cash flow valuation per share.
The following table summarizes Morgan Stanley's calculated discounted cash
flow values per share for Vastar and resulting merger price premium to the
discounted cash flow values.
<TABLE>
<CAPTION>
Percentage
Premium of
$83 Merger
Equity Price to
Discounted Discounted
Cash Flow Cash Flow
Value Value
per Share per Share
------------- ------------
<S> <C> <C> <C> <C>
Exit EBITDAX Multiple.......................... 6.0x 7.5x 6.0x 7.5x
Discount Rate
9.0%........................................... $47.29 $53.93 75.5% 53.9%
10.0%.......................................... $43.03 $49.03 92.9% 69.2%
</TABLE>
The results of this analysis were presented in Morgan Stanley's initial
report dated February 29, 2000, but not in the report, as this analysis was
superceded by Morgan Stanley's discounted cash flow analysis carried out on the
basis of the first five years of Vastar's 10-Year Business Plan
33
<PAGE>
projections as provided to Morgan Stanley on May 1, 2000. Morgan Stanley
determined the present value of such cash flows using various discount rates
which reflected Morgan Stanley's judgment regarding the appropriate weighted
average cost of capital for Vastar.
The terminal value in 2004 was calculated using three methods:
. an exit reserve multiple of $7.5--$9.5 per barrel of oil equivalent (BOE)
of reserves;
. an exit cash flow multiple of 4.5x to 6.0x; and
. an exit EBITDAX multiple of 5.5x to 6.5x.
The resulting valuations were adjusted for Vastar's net debt, and divided by
the fully diluted number of Vastar shares to give an equity discounted cash
flow valuation per share. The following table summarizes Morgan Stanley's
calculated discounted cash flow values per share for Vastar and resulting
merger price premium to the discounted cash flow values, on the basis of the
first five years of Vastar's 10-Year Business Plan.
<TABLE>
<CAPTION>
Equity
Discounted Percentage Premium of
Cash Flow $83 Merger Price to
Value per Discounted Cash
Share Flow Value per Share
------------ ---------------------
<S> <C> <C> <C> <C>
Exit Reserve Multiple
Range..................................... $7.5 $9.5 $7.5 $9.5
Value per share........................... $ 55 $ 71 50.9% 16.9%
Exit Cash Flow Multiple
Range..................................... 4.5x 6.0x 4.5x 6.0x
Value per share........................... $ 46 $ 61 80.4% 36.0%
Exit EBITDAX Multiple
Range..................................... 5.5x 6.5x 5.5x 6.5x
Value per share........................... $ 58 $ 69 43.1% 20.2%
</TABLE>
Additionally, Morgan Stanley undertook a qualitative review of the first
five years of Vastar's 10-Year Business Plan and the assumptions underlying it
and concluded that the first five years of Vastar's 10-Year Business Plan
implied that Vastar would substantially outperform its historical track record,
and that of its peers, requiring a number of successes to be achieved for the
first five years of Vastar's 10-Year Business Plan to be realized.
Precedent Transactions Analysis. Morgan Stanley used publicly available
information to calculate multiples of selected financial data paid in certain
precedent transactions in the oil and gas sector, and applied such multiples to
comparable financial data of Vastar.
Morgan Stanley selected the following nine acquisitions of exploration and
production companies which took place since January 1998 involving the
acquisition of companies which Morgan Stanley judged to be generally comparable
to that of Vastar:
. Anadarko Petroleum Corporation's acquisition of Union Pacific Resources,
announced April 3, 2000;
. Talisman Energy Inc.'s acquisition of Rigel Energy Corporation, announced
August 23, 1999;
. Burlington Resources Inc.'s acquisition of Poco Petroleums Ltd.,
announced August 16, 1999;
. Devon Energy Corporation's acquisition of PennzEnergy Company, announced
May 20, 1999;
. Snyder Oil Corporation's acquisition of Santa Fe Energy Resources, Inc.,
announced January 14, 1999;
34
<PAGE>
. Ocean Energy Inc.'s acquisition of Seagull Energy Corporation, announced
November 25, 1998;
. Kerr-McGee Corporation's acquisition of Oryx Energy Corporation,
announced October 15, 1998;
. ARCO's acquisition of Union Texas Petroleum Holdings, Inc., announced May
4, 1998;
. Union Pacific Resources Group Inc. acquisition of Norcen Energy
Resources, announced January 26, 1998.
For the company being acquired in these transactions, Morgan Stanley
determined the amounts of:
. barrels of oil equivalent on a six thousand cubic feet to one barrel
basis ("BOE") of reserves;
. cash flow; and
. EBITDAX forecast for the year following the transaction.
For selected acquisitions of exploration and production assets and companies
in the principal areas of Vastar's operation (Gulf of Mexico, Texas, and Mid-
Continent) since 1996, Morgan Stanley determined the amounts of BOE of
reserves. Morgan Stanley then calculated the multiples of such amounts paid in
each of the precedent transactions and applied multiples derived from such
calculations of:
. $7-$8 per BOE of reserves;
. 5.5-6.5 forecast cash flow; and
. 6.0-7.0x forecast EBITDAX
to data for Vastar derived from publicly available information.
The following table summarizes the value ranges per share derived from
applying the above described multiples and compares the merger price to those
value ranges.
<TABLE>
<CAPTION>
Percentage
Premium of
$83 Merger
Value Range Price to
Per Share Value Range
------------- -----------
<S> <C> <C> <C> <C>
Implied Valuation Range............................... $51.00 $61.00 62.7% 36.1%
</TABLE>
Morgan Stanley also used publicly available information to calculate the
premiums paid over unaffected stock prices in certain minority squeeze out
transactions occurring since 1992. Morgan Stanley observed that the median
premium paid for those transactions ranged from 18%-25%, depending on the
method used to calculate the unaffected stock price.
Comparable Companies Analysis. Morgan Stanley selected the following
publicly traded companies engaged in businesses, which Morgan Stanley judged to
be comparable to that of Vastar:
. Anadarko Petroleum Corporation . Noble Affiliates Inc.
. Apache Corporation . Ocean Energy, Inc.
. Burlington Resources Inc. . Pioneer Natural Resources
. Devon Energy Corporation Company
. EOG Resources Inc. . Santa Fe Snyder Corporation
. Kerr McGee Corp. . Union Pacific Resources Group
. Murphy Oil Corporation Inc.
. Unocal Corporation.
35
<PAGE>
Morgan Stanley determined the market capitalization for each of the
companies based on the closing price per share as of May 3, 2000, using
publicly available information. Morgan Stanley then arrived at a range of
comparable company multiples by:
. dividing such market capitalizations by projected cash flows;
. dividing such market capitalizations plus net debt by EBITDAX in each
case for the year 2000 based upon estimates compiled by FirstCall; and
. by dividing such market capitalizations plus net debt by BOE of
reserves.
Based upon its judgment of comparability, Morgan Stanley applied multiples
derived from such analysis ranging between
. 4.5x-6.0x Vastar's 2000 estimated cash flow, based upon estimates
compiled by FirstCall,
. $7.50-$9.50 per Vastar's BOE reserves based on publicly available
information,
. 5.5x-6.5x Vastar's 2000 EBITDAX, estimated by Morgan Stanley.
The following table summarizes the value ranges per share derived from
applying the above described multiples and compares the $83 per share merger
consideration to those value ranges.
<TABLE>
<CAPTION>
Percentage
Premium of $83
Merger Price
Value Range to
Per Share Value Range
----------- ---------------
<S> <C> <C> <C> <C>
Implied Valuation Range.......................... $ 47 $ 61 76.6% 36.1%
</TABLE>
Break Up Valuation Analysis. Morgan Stanley developed as an alternative
valuation method for Vastar a break-up valuation analysis of its assets. In
doing so, Morgan Stanley derived a value for Vastar's proved reserves by
applying multiples paid per BOE in selected relevant precedent transactions to
each principal component of Vastar's assets on a geographical basis, namely the
San Juan and Rockies region, the MidContinent region, the Gulf Coast region and
the Gulf of Mexico region.
In addition, Morgan Stanley valued Vastar's exploration acreage using the
average of multiples paid per acre for each exploration region of $104 to $143,
on a weighted average basis, and 25% of proved reserves valued at $6-$7 per
BOE.
After adjusting for the value of tax credits under Section 29 of the
Internal Revenue Code, working capital, and other assets and liabilities as
disclosed in Vastar's financial statements for the period to December 31, 1999,
the last data available at the time the analysis was conducted, the resulting
valuation range was divided by the fully diluted number of shares of Vastar
common stock to give an equity value per share described in the table below.
<TABLE>
<CAPTION>
Percentage
Premium of $83
Merger
Value Range Price to Value
Per Share Range
----------- ---------------
<S> <C> <C> <C> <C>
Implied Valuation Range........................... $ 34 $ 43 144.1% 93.0%
</TABLE>
Pro Forma Impact Analysis. Morgan Stanley analyzed the pro forma effects of
the combination and computed the resulting accretion or dilution to the
combined enterprise's projected earnings per share, cash earnings per share and
cash flow per share during 2000 and 2001. These computations were done using
projections of income and cash flow for BP Amoco, ARCO and Vastar, reflecting
the consensus of analysts' forecasts as published by First Call. The analysis
indicated that the transaction would be dilutive to earnings per share and
accretive to cash flow per share of BP Amoco's American Depositary Shares in
2000 and 2001, as compared to estimates for BP Amoco on a stand alone basis.
The results of this analysis were presented in Morgan Stanley's initial report
dated February 29, 2000, but not in the report.
36
<PAGE>
The preceding discussion is a summary of the material financial analyses
furnished by Morgan Stanley to BP Amoco, but it does not purport to be a
complete description of the analyses performed by Morgan Stanley or of its
presentation to BP Amoco. The preparation of financial analyses is a complex
process involving subjective judgments, and is not necessarily susceptible to
partial analysis or summary description. Morgan Stanley made no attempt to
assign specific weights to particular analyses or factors considered, but,
rather, made qualitative judgments as to the significance and relevance of all
the analyses and factors considered. Accordingly, Morgan Stanley believes that
its analyses, and the summary set forth above, must be considered as a whole,
and that selecting portions of the analyses and of the factors considered by
Morgan Stanley, without considering all of the analyses and factors, could
create a misleading or incomplete view of the processes underlying the analyses
conducted by Morgan Stanley.
With regard to the comparable companies analyses summarized above, Morgan
Stanley selected comparable public companies on the basis of various factors,
including the size and similarity of the line of business; however, no company
utilized as a comparison in these analyses summarized above is identical to
Vastar. As a result, these analyses are not purely mathematical, but also take
into account differences in financial and operating characteristics of the
subject companies and other factors that could affect the public trading value
of the subject companies to which Vastar is being compared.
In its financial analyses, Morgan Stanley made numerous assumptions with
respect to Vastar, industry performance, general business, economic, market and
financial conditions, and other matters, many of which are beyond the control
of Vastar. Any estimates contained in Morgan Stanley's analyses are not
necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than those suggested
by these analyses. Estimates of values of companies do not purport to be
appraisals or necessarily to reflect the prices at which companies may actually
be sold. Because these estimates are inherently subject to uncertainty, none of
BP Amoco, the BP Amoco Board of Directors, Vastar, the Vastar Board of
Directors, Morgan Stanley or any other person assumes responsibility if future
results or actual values differ materially from the estimates.
Morgan Stanley's analyses were prepared solely as part of Morgan Stanley's
analysis of the merger and were provided to BP Amoco's senior management in
that connection. The report was only one of the factors taken into
consideration by BP Amoco in making its determination that the merger and the
merger price are fair to the Vastar stockholders other than BP Amoco.
BP Amoco retained Morgan Stanley to act as its financial advisor in
connection with the merger based upon, among other things, its experience and
expertise in investment banking, as well as its knowledge and experience in the
oil and gas industry. Morgan Stanley is a nationally recognized investment
banking and advisory firm. Morgan Stanley, as part of its investment banking
business, is continuously engaged in the valuation of businesses and securities
in connection with mergers and acquisitions, negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted
securities, private placements and valuations for corporate and other purposes.
Morgan Stanley is a full service securities firm engaged in securities
trading and brokerage activities, financing and financial advisory services in
addition to its investment banking activities. In the ordinary course of its
trading, brokerage, and financing activities, Morgan Stanley or its affiliates
may at any time hold long or short positions, and may trade or otherwise effect
transactions, for its own account or the accounts of its customers, in debt or
equity securities or senior loans of Vastar, BP Amoco or their affiliates.
Morgan Stanley has, from time to time in the past, provided financial advice
and other services to BP Amoco and Vastar.
Engagement Letter with Morgan Stanley. Pursuant to Morgan Stanley's
engagement letter, BP Amoco agreed to pay Morgan Stanley an announcement fee,
upon announcement of any transaction
37
<PAGE>
to acquire the shares of Vastar that BP Amoco does not already own, of
$2,000,000. If the merger is completed, BP Amoco has agreed to pay Morgan
Stanley a transaction fee of $ against which the announcement fee will be
credited. The full transaction fee is payable on completion of the merger. In
addition, BP Amoco also has agreed to reimburse Morgan Stanley for its
reasonable travel and other out-of-pocket expenses incurred in connection with
its engagement and to indemnify Morgan Stanley against certain liabilities and
expenses relating to or arising out of its engagement.
Certain Effects of the Merger
The merger will result in BP Amoco owning 100% of the shares of Vastar
common stock and Vastar becoming a wholly owned subsidiary of ARCO. The merger
will also have the following effects.
Participation in Future Growth. If the merger is completed, you will not
have the opportunity to participate in the future earnings, profits and growth
of Vastar and will not have the right to vote on corporate matters relating to
Vastar. If the merger is completed, BP Amoco, as the ultimate parent company of
Vastar, will indirectly own a 100% interest in the net book value and net
earnings of Vastar and will benefit from any future increase in the value of
Vastar. Similarly, BP Amoco will bear the risk of any decrease in the value of
Vastar after the merger and you will not face the risk of a decline in the
value of Vastar after the completion of the merger.
Effect on the Market for Shares of Vastar Common Stock. If the merger is
completed, the number of shares of Vastar common stock that might otherwise
trade publicly will be reduced to zero and the number of holders of shares of
Vastar common stock will be reduced to one. This will cause the listing of the
shares on the NYSE to be terminated. In addition, Vastar could terminate the
registration of the Vastar common stock under the Exchange Act, in which case
Vastar would no longer be required to continue to make filings with the SEC or
otherwise to comply with the SEC's reporting rules for public companies.
Delisting of the Shares of Vastar Common Stock on the NYSE. The shares of
Vastar common stock are currently listed on the NYSE. According to the NYSE's
published guidelines, the NYSE will consider delisting shares if, among other
things, the number of publicly held shares (excluding shares held by officers,
directors, their immediate families and other holders of 10% or more of the
shares) is less than 600,000, there are fewer than 400 stockholders (or, if the
average trading volume for the most recent 12 months is less than 100,000
shares, with fewer than 1,200 stockholders), or the aggregate market value of
publicly-held shares (excluding shares held by officers, directors, their
immediate families and other holders of 10% or more of the shares), subject to
certain adjustments based upon market conditions, is less than $8,000,000. As
of the close of business on June 1, 2000, there were 91 holders of record of
shares, not including beneficial holders of Vastar common stock in street name,
and there were 97,740,137 shares outstanding. BP Amoco intends to seek to have
the shares delisted as soon as possible after completion of the merger.
Deregistration of the Shares of Vastar Common Stock under the Exchange
Act. The shares of Vastar common stock are currently registered under the
Exchange Act. Registration may be terminated by Vastar upon application to the
SEC if the outstanding shares are not listed on a national securities exchange
and if there are fewer than 300 holders of record of shares. Termination of the
registration of the shares under the Exchange Act would substantially reduce
the information required to be furnished by Vastar to its stockholders and
would make certain provisions of the Exchange Act no longer applicable to
Vastar. These include the short-swing profit recovery provisions of Section
16(b) and the requirement to furnish proxy statements in connection with
stockholders' meetings pursuant to Section 14(a) and the related requirement to
furnish an annual report to stockholders.
BP Amoco intends to seek to cause Vastar to apply for termination of
registration of Vastar's shares as soon as possible after completion of the
merger, if the requirements for termination of
38
<PAGE>
registration are met. Even if the registration of the shares of Vastar common
stock under the Exchange Act is terminated, the requirement that Vastar file
periodic reports under Section 13 of the Exchange Act would remain applicable
if its currently outstanding debt securities were to be registered under the
Exchange Act.
Margin Regulations. Shares of Vastar common stock are currently "margin
securities" under the regulations of the Board of Governors of the Federal
Reserve System which means that, among other things, brokers may extend credit
on the collateral of the shares for purposes of buying, carrying or trading in
securities. Depending upon factors such as the number of record holders of the
shares and the number and market value of publicly held shares, following the
purchase of shares pursuant to the merger the shares of Vastar common stock
might no longer constitute "margin securities" for purposes of the Federal
Reserve Board's margin regulations and therefore could no longer be used as
collateral for credit extended by brokers. In addition, if the registration of
the shares of Vastar common stock under the Exchange Act were terminated, the
shares would no longer constitute "margin securities."
Plans for Vastar After the Merger
BP Amoco intends that its existing worldwide management principles,
consisting of a system of international management reporting relationships
within business segments, will be applied to Vastar. BP Amoco expects to find
overlaps between the functions that Vastar currently performs and those that BP
Amoco's personnel currently perform. BP Amoco anticipates that these overlaps
are likely to be of particular significance for personnel at Vastar's
headquarters in Houston, Texas, and that many of the functions performed within
Vastar's headquarters will be absorbed into BP Amoco's operations, with
consequent reductions in staff.
BP Amoco's management has begun and intends to continue a study of Vastar
and its assets, corporate structure, capitalization, operations, properties,
policies, management and personnel to determine what changes would be desirable
following completion of the merger in order to organize and integrate Vastar's
activities with those of BP Amoco and its other subsidiaries. In particular, BP
Amoco may study the possibility of changing Vastar's Board of Directors by
changing the number or term of directors, and may also consider selling some
assets of Vastar or changing its present dividend rate and policy, indebtedness
and capitalization. BP Amoco expressly reserves the right to make any changes
that it deems necessary or appropriate in light of its review or in light of
future developments.
Except as otherwise described in this proxy statement, if BP Amoco completes
the merger, it intends to maintain Vastar as an indirect wholly owned
subsidiary, and it does not at this time have any current plans or proposals
which relate to or would result in:
. an extraordinary corporate transaction, such as a merger, reorganization
or liquidation involving Vastar,
. a sale or transfer of a material amount of Vastar's assets,
. or any other material change in Vastar's corporate structure or business.
Also, although BP Amoco anticipates that a substantial portion of Vastar's
senior management may leave Vastar following the merger, BP Amoco does not at
this time have any current plans or proposals which relate to or would result
in any change in Vastar's management, except as otherwise described in this
proxy statement.
39
<PAGE>
Conduct of the Business of Vastar if the Merger is not Completed
If the merger is not completed, Vastar's Board of Directors expects that
Vastar's current management will continue to operate Vastar's business
substantially as presently operated. Vastar's board is not presently
considering any other alternative.
Interests of Certain Persons in the Merger
When you consider the recommendation of the Vastar Board of Directors in
favor of the merger and the merger agreement, you should keep in mind that the
executive officers of Vastar and members of the Board of Directors have
interests in the merger that are in addition to the interests of other
stockholders of Vastar generally. The additional interests of Vastar's
executive officers arise primarily because there are change of control
provisions in Vastar's compensation and benefit plans that are tied to their
compensation levels. The merger agreement, however, does not provide directors
or executive officers with any right of continued employment or any special
bonuses. The special committee and the Board of Directors were aware of these
potential or actual conflicts of interest and considered them along with other
matters when they determined to recommend the merger.
Messrs. LeVine, Schulte and Callison, who are not employees of Vastar or BP
Amoco or its affiliates, were elected to the special committee. Mr. LeVine, as
Chairman of the special committee, received $45,000 for his service on the
special committee and Messrs. Schulte and Callison each received $40,000.
Indemnification. ARCO has agreed in the merger agreement that all rights to
indemnification and limitations on liability existing in favor of any
indemnitee, including all directors and executive officers of Vastar, in
respect of acts or omissions on or prior to the completion of the merger as
provided in Vastar's certificate of incorporation and bylaws of Vastar or an
agreement between an indemnitee and Vastar in effect as of the date of the
merger agreement, will continue in full force and effect in accordance with
their terms.
For six years after the completion of the merger, ARCO has agreed to
indemnify the officers or directors of Vastar with respect to all of their acts
or omissions in their capacities as officers or directors of Vastar in
connection with the approval of the merger agreement, and to the same extent
indemnified as set forth in the preceding paragraph, with respect to all other
actions or omissions by them in their capacities as officers or directors of
Vastar, or taken by them at the request of Vastar or any of its subsidiaries.
For the same period, ARCO will procure the provision of directors' and
officers' liability insurance in respect of acts or omissions occurring prior
to the completion of the merger covering the persons covered by Vastar's
directors' and officers' liability insurance policy on specified terms. The
liability insurance procured by ARCO may provide "first dollar" coverage,
without any requirement to first seek indemnification from Vastar or ARCO.
Change of Control. Vastar's Board of Directors has adopted various
arrangements that apply generally to employees, including its executive
officers, which become operative only upon a change of control of Vastar. On
April 18, 2000, when BP Amoco's acquisition of ARCO was completed a change of
control of Vastar occurred. Thus, many of the severance benefits described
below that are contingent on involuntary or constructive termination of
employment after a change in control accrued as of April 18, 2000. The proposed
merger between Vastar and BP Amoco as described in this proxy statement will
also be a change of control as defined under these arrangements. The merger
would extend the ending date until which the severance benefits described below
are available as a result of an involuntary or constructive termination of
employment. Prior to the merger, such benefits are available for terminations
prior to April 18, 2002 (i.e., two years from the completion of BP Amoco's
acquisition of ARCO). After the merger, these benefits will be available until
the second anniversary of completion of the merger. The only material benefits
which accrue to our executive officers exclusively as a result of the merger,
and to which such persons did not already have a right as a result of the
completion of BP Amoco's acquisition of ARCO on April 18, 2000, is the payment
under the Annual Incentive Plan described below.
40
<PAGE>
Stock Options. On April 18, 2000, the closing date of BP Amoco's
acquisition of ARCO, all unexercisable stock options granted to Vastar's
employees, including Vastar's executive officers, under our Executive Long-
Term Incentive Plan, as amended, became exercisable. No additional stock
options have been granted to Vastar's executive officers since April 18, 2000,
and thus, since all stock options held by Vastar's directors and executive
officers granted under any Vastar stock option plan are currently exercisable,
the merger as described in this proxy statement will not provide Vastar's
directors and executive officers with any additional benefit with respect to
stock options.
As required by the merger agreement, prior to completion of the merger,
Vastar and ARCO will take appropriate action so that all stock options granted
under Vastar stock option plans, whether or not then exercisable, will be
cancelled and the holders of such stock options will be entitled to receive an
amount in cash equal to the product of:
. the total number of shares subject to the stock option; and
. the excess of $83 over the exercise price per share of the stock option.
Vastar will withhold from this payment applicable taxes and any other
amounts as required by law.
Severance and Other Benefits. Executive officers whose employment is
involuntarily or constructively terminated within 24 months following the
merger will receive severance benefits that include:
(1) an enhancement of the normal retirement benefit, known as the "5+5,"
that adds five years of age and five years of service to the normal
retirement benefit, payable in the form of a lump sum or an annuity;
(2) a severance benefit equal to the product of one and one-half weeks of
base pay for each year of continuous service, capped at 36 weeks of
pay, payable in a lump sum;
(3) a cash payment equal to the excess, if any, by which the greater of:
(a) the amount equal to a multiple of the executive's total current
compensation (three times for Messrs. Davidson, Gobe and Shapiro and
two times for Messrs. Bender, Hoppe and McCoy and Mrs. Pierce); or
(b) our basic severance allowance, which is a cash allowance equal to 3
weeks of base pay for each year of continuous service with a maximum
of 72 weeks;
exceeds the sum of the present values of (1) plus (2) above, current
compensation for this purpose being defined as annualized current base
salary plus the greater of the amount of the average cash bonus paid
during the last three years or the executive's most recent bonus paid
prior to the change of control;
(4) the continuation of health, dental and life insurance coverage for 36
months (for Messrs. Davidson, Gobe and Shapiro) or 24 months (for
Messrs. Bender, Hoppe and McCoy and Mrs. Pierce); and
(5) a tax gross-up payment, if any of the preceding payments are deemed to
give rise to an excise tax obligation under Internal Revenue Code
Section 4999.
41
<PAGE>
The sum of the present values of (1), (2) and (3) above constitutes the
severance allowances detailed in the chart below. For purposes of the
presentation in the table below, a lump sum payout has been assumed, and the
amount shown has been calculated as the present value of that lump sum amount
on October 31, 2000, using a discount rate of 5.85%.
In addition, upon completion of the merger, each participant in our Annual
Incentive Plan (which we refer to as the "AIP"), including each of our
executive officers, will receive (regardless of whether his or her employment
is involuntarily or constructively terminated) an award under the AIP equal to
50% of target bonus under the AIP for the year in which the closing occurs, if
the closing occurs in the first six months of the calendar year, or 100% of the
target bonus, if the closing occurs within the second six months of the
calendar year.
For purposes of estimating the benefits set forth in the table below,
several assumptions have been made:
<TABLE>
<S> <C>
Completion of the merger: August 1, 2000
Termination date of employment: October 31, 2000
Retirement date: November 1, 2000
</TABLE>
Based on these assumptions, the table below shows the estimated cash value
of the severance-related benefits to be received by each of our executive
officers:
<TABLE>
<CAPTION>
Severance AIP
Allowances Payment
---------- --------
<S> <C> <C>
Jeffrey M. Bender........................................ $ 880,862 $ 69,300
Charles D. Davidson...................................... $2,985,254 $278,400
Phillip A. Gobe.......................................... $1,462,500 $117,000
Albert D. Hoppe.......................................... $ 991,713 $ 79,100
Joseph P. McCoy.......................................... $ 835,652 $ 68,171
Pamela S. Pierce......................................... $ 659,919 $ 67,550
Steven J. Shapiro........................................ $1,557,001 $126,450
</TABLE>
Severance allowances are only payable upon involuntary or constructive
termination.
In addition to benefits related to the change of control, upon involuntary
or constructive termination of employment each of the named executive officers
will receive normal retirement benefits, including payments under the
retirement plan, the supplementary executive retirement plan and the executive
deferral plan. The date of actual receipt of certain of the retirement benefits
will depend on the individual's age and length of membership service at the
time of termination and on individual payout elections. Based on the
assumptions set forth above, the table below shows the credited years of
membership service that each of our executive officers has in the Vastar
Retirement Plan and Supplementary Executive Retirement Plan:
<TABLE>
<CAPTION>
Years of
Membership
Service in
our
Retirement
Plans at
October 31,
2000
------------
Years Months
----- ------
<S> <C> <C>
Mr. Bender...................................................... 25 10
Mr. Davidson.................................................... 28 5
Mr. Gobe........................................................ 24 10
Mr. Hoppe....................................................... 24 2
Mr. McCoy....................................................... 26 1
Mrs. Pierce..................................................... 23 5
Mr. Shapiro .................................................... 23 4
</TABLE>
The table above does not include the 5 years of service which would accrue
as a result of the 5+5 benefit described above.
42
<PAGE>
Mr. Davidson and Mr. Shapiro have also entered into letter agreements with
Vastar under which Vastar agreed to negotiate in good faith with these officers
at the time they consider appropriate concerning additional benefits, if any,
which they believe should be paid to them upon their termination of employment
within 24 months after a change of control of Vastar and which they believe are
suitable for someone in their position and which are consistent with those
benefits paid in similar circumstances to other similarly situated executives
at other companies, and with the past practice of Vastar and ARCO. As of the
date of this proxy statement, Vastar has not agreed to provide Mr. Davidson or
Mr. Shapiro benefits in addition to those described above.
Transactions and Relationships Between Vastar, ARCO, and BP Amoco
Vastar has various relationships with BP Amoco and its affiliates and, in
particular, ARCO. The discussion below describes certain relationships which
currently exist between Vastar, BP Amoco and their respective affiliates
including ARCO.
Transactions and Relationships Between Vastar and BP Amoco and its Affiliates
Other Than ARCO
Technical Services Agreement. Vastar and BP Amoco Corporation, a subsidiary
of BP Amoco, have entered into an agreement effective April 18, 2000, pursuant
to which BP Amoco may provide and Vastar may request that oil and gas technical
services be performed on Vastar's behalf by BP Amoco. This agreement is
intended to replace the technical services agreement between Vastar and ARCO
described below. The April 18, 2000 agreement can be terminated upon 30 days'
advance written notice by either party.
Memorandum of Understanding Relating to Corporate Services. Vastar and BP
Amoco have entered into a memorandum of understanding, dated as of December 31,
1999, regarding the services which would be provided by BP Amoco and its
subsidiaries. The memorandum applies to the services referenced in the
corporate services agreement between ARCO and Vastar, described below. The
agreement states that, except as provided in the Memorandum of Understanding
relating to accounting and administration, described below, Vastar will not
look to BP Amoco to provide any services under the corporate services agreement
except certain computer services, employee information and payroll services,
government and public affairs services and other services mutually agreed to by
the parties in the future. This agreement may be terminated by either party
upon reasonable notice.
Memorandum of Understanding--Accounting and Administration. Vastar and BP
Amoco entered into an memorandum of understanding regarding the services which
were to be provided by BP Amoco and its subsidiaries after completion of BP
Amoco's acquisition of ARCO relating to accounting and administration. The
memorandum applies to the accounting and administrative services referenced in
the corporate services agreement between ARCO and Vastar described below and
sets forth the informal understandings of the parties of how services would be
provided by BP Amoco to Vastar.
Ordinary Course of Business Transactions. Vastar and BP Amoco have had
various relationships and transactions in the ordinary course of conducting
their respective oil and gas exploration, production and marketing businesses.
The following is a summary of the activities which have occurred since January
1, 1998:
In the ordinary course of our business, we often own oil and gas exploration
and/or production properties jointly with one or more other parties, including
affiliates of BP Amoco. As to some of these properties, we are the operator and
receive payments (called "joint interest receivables") from the other owners
for their share of the costs of exploration and/or production, transportation
and
43
<PAGE>
related items. As to other properties, another party is operator and we pay to
such party our share of these costs (called "joint interest payables"). In
connection with these relationships, we enter into various agreements with such
parties, including affiliates of BP Amoco. Agreements with affiliates of BP
Amoco are entered into on terms consistent with industry practice and include
the following:
. area of mutual interest agreements in which the parties have described a
geographical area within which they agree to share certain additional
leases acquired by any of them in the future;
. confidentiality agreements in which the parties agree to disclose certain
information and keep such information confidential;
. joint operating agreements in which the parties agree on the terms for
the operation of an oil and gas property; and
. construction, operating, compression, and other agreements incident to
the operation of oil and gas properties.
The joint interest payables from Vastar to affiliates of BP Amoco for the
first quarter of 2000 and in 1999 and 1998 were approximately $2.9 million,
$5.6 million and $8.3 million, respectively. Joint interest receivables from
affiliates of BP Amoco for the first quarter of 2000 and in 1999 and 1998 were
approximately $2.9 million, $7.7 million and $2.7 million, respectively. In
February 2000, we also purchased from an affiliate of BP Amoco a platform at
High Island A-5 in the Gulf of Mexico for approximately $3.2 million. In 1998,
we also paid a total of approximately $2.6 million to an affiliate of BP Amoco
for the purchase of oil and gas properties in Texas and Oklahoma upon our
exercise of preferred purchase rights with respect to these properties.
In the ordinary course of their respective businesses, both Vastar and BP
Amoco engage in the purchase and sale of natural gas, crude oil and natural gas
liquids between the companies and their respective affiliates. Sales by Vastar
to affiliates of BP Amoco for the first quarter of 2000 and in 1999 and 1998
for these commodities were approximately $15.6 million, $62.6 million and $63.4
million, respectively. Sales by affiliates of BP Amoco to Vastar for the first
quarter of 2000 and in 1999 and 1998 for these commodities were approximately
$6.1 million, $9.6 million and $7.9 million, respectively. Southern Company
Energy Marketing L.P., a strategic marketing alliance between us and Southern
Energy, Inc., also trades oil, gas and other commodities with affiliates of BP
Amoco at market prices. We own a 40% interest in Southern Company Energy
Marketing. For the first quarter of 2000 and in 1999 and 1998, Southern Company
Energy Marketing's sales to affiliates of BP Amoco were approximately $26.9
million, $54.4 million and $49.5 million, respectively. Southern Company Energy
Marketing's purchases from affiliates of BP Amoco for the same periods were
approximately $26.1 million, $50.6 million and $58.7 million, respectively.
Southern Company Energy Marketing also engages in financial transactions with
affiliates of BP Amoco such as financial hedges. As of May 31, 2000, the mark-
to-market value of these transactions was approximately $2.0 million.
Vastar and affiliates of BP Amoco engage in other transactions in the
ordinary course of business. Such transactions primarily include transportation
on pipelines owned by the other company or their affiliates. For the first
quarter of 2000 and in 1999 and 1998, Vastar received approximately $0.1
million, $0.5 million and less than $0.1 million respectively, from affiliates
of BP Amoco in other revenues. For the same periods, Vastar paid to affiliates
of BP Amoco approximately $0.2 million, $2.2 million and $1.3 million,
respectively, in other expenses.
New Tax Sharing Agreement. Vastar and BP America Inc. entered into a new tax
sharing agreement, effective as of April 18, 2000. For a description of this
agreement, see "--Transactions and Relationships Between Vastar and ARCO--Tax
Sharing Agreement" beginning on page 48.
44
<PAGE>
Transactions and Relationships Between Vastar and ARCO
In October 1993, ARCO transferred to Vastar the producing properties and
developed and undeveloped acreage that comprise a substantial portion of our
assets. At the time of the transfer, Vastar was a wholly owned subsidiary of
ARCO. In conjunction with this property transfer, we issued additional shares
of common stock to ARCO.
Vastar and ARCO have entered into a number of agreements. Some of these
agreements were developed in connection with ARCO's formation of Vastar.
Therefore, they were not the result of arm's-length negotiations between
independent parties. After our initial public offering, we have entered into
additional or modified agreements, arrangements and transactions with ARCO.
Historically, at least once a year, our audit committee has reviewed the terms
of all material agreements between Vastar and ARCO to assure that these
agreements, taken as a whole, are fair to Vastar and its stockholders.
The following is a summary of the certain arrangements and transactions
effective during or occurring in the last two years between Vastar and ARCO
and/or their respective subsidiaries.
Acquisition of Gulf of Mexico Properties. In October 1998, we acquired
interests in 23 producing fields on the Gulf of Mexico shelf through a three-
company transaction involving Vastar, ARCO and Mobil Exploration & Producing
U.S. Inc. The net purchase price, comprised of cash and the assumption of debt,
was approximately $437 million (after certain post-closing adjustments).
In this three-way transaction, we purchased all the stock of Vastar
Offshore, Inc. from ARCO. Simultaneously with this purchase, Vastar Offshore
exchanged properties that Vastar Offshore had owned in California for the Gulf
of Mexico properties described above which were owned by Mobil. Vastar Offshore
was named Western Midway Company when it was a subsidiary of ARCO. The
properties we acquired included interests in 93 platforms with 295 active wells
and interests in over 80 lease blocks in the central and western Gulf of
Mexico. We also acquired interests in pipelines, gathering lines and a
shorebase in Cameron, Louisiana. We paid approximately $137 million in cash to
ARCO at the closing of the transaction in October 1998. At closing, Vastar
Offshore owed an additional $300 million to ARCO, which we caused Vastar
Offshore to repay on March 23, 1999. Vastar Offshore also paid ARCO
approximately $14.7 million in interest on this indebtedness in 1999.
Technology Assignments and Licenses. In connection with the formation of
Vastar, ARCO transferred technology and related intellectual property requested
by Vastar through four technology transfer agreements and one intellectual
property license agreement. These agreements cover technology and intellectual
property which ARCO owns or controls in the oil and gas exploration, drilling
and production areas in general, and in particular, technology in the
geophysical, geological, geotechnical and oceanographic areas, data processing,
data management and computer-based analytical techniques.
The agreements allow us to use the technology and intellectual property. The
nature of the rights granted to us depended on whether ARCO owned the property
outright or had rights to the property under a license, and on whether the
property was or would be used by other ARCO divisions or subsidiaries. For the
most part, ARCO provided Vastar with ownership outright, an undivided ownership
interest or a paid-up, nonexclusive license. In all cases where ARCO owned the
property, ARCO retained for itself the rights to use the property. The licenses
granted by ARCO to Vastar do not expire or terminate unless we are in material
default under the license.
Additionally, during 1999, Vastar and ARCO entered into a software license
agreement under which ARCO licensed to us the right to use additional software
used for generating technical and administrative data and reports. This
software had been used by ARCO to provide certain processed
45
<PAGE>
data and reports to us pursuant to the services agreements we describe below.
Using the software, we will now be preparing those reports. The license
agreement provided that the licenses are irrevocable, except that the license
that permits us to modify and use some of the computer source codes can be
revoked by ARCO if ARCO owns less than 50% of Vastar. We agreed to pay ARCO
$0.5 million for this license.
Services Agreements. Vastar and ARCO have entered into the following
agreements under which Vastar and ARCO provided services to each other:
. the ARCO exploration and production technology technical services
agreement, effective as of October 1, 1993; and
. the corporate services agreement, effective as of January 1, 1994.
ARCO provided oil and gas technical services under the technical services
agreement and provided certain services under the corporate services agreement,
including:
. telecommunications;
. computer services;
. internal audit services;
. employee payroll processing;
. employee benefits administration;
. public affairs services; and
. other services, as agreed on.
In connection with the technical services agreement on October 27, 1999, we
entered into an assignment of rights agreement with ARCO under which ARCO
assigned to us rights to intellectual property that ARCO developed for us under
the agreement. We made no payment to ARCO for this assignment.
For the first quarter of 2000 and in 1999 and 1998, we paid ARCO
approximately $1.4 million, $9.7 million and $12.2 million, respectively, for
services ARCO performed under these service agreements. ARCO provided these
services at its cost. Upon BP Amoco's acquisition of ARCO, these agreements
were modified as indicated in the description of Vastar's relationship with
affiliates of BP Amoco other than ARCO.
Insurance. ARCO has provided insurance coverage to us as part of the group
of companies that ARCO's policies insure. The insurance provided is customary
for the industry but does not fully cover all potential hazards. Coverage and
deductibles may be higher than typically maintained by other independent oil
and gas companies. The insurance includes public liability, workers'
compensation, marine liability, property damage, business interruption,
directors' and officers' liability, fiduciary liability and surety bonds. Any
of these policies can be terminated by ARCO on 30 days' notice. Our annual
charge for this insurance is based on an allocation by ARCO of the costs of the
various policies. The charge paid to ARCO by us was approximately $2.9 million,
$3.3 million and $3.1 million for the first quarter of 2000 and in 1999 and
1998, respectively. Our allocation is reassessed annually based on ARCO's cost
for the various lines of insurance and our loss experience and exposure basis.
In certain cases, we have elected, and in the future may elect, to supplement
or to obtain insurance coverage in addition to or other than coverage under
ARCO's policies. We may terminate insurance coverage under ARCO's policies
after giving proper notice.
On April 18, 2000, the effective date of BP Amoco's acquisition of ARCO, our
directors' and officers' liability insurance policy which had been provided to
us through ARCO terminated. We replaced this policy with a policy we obtained
from unrelated third-party insurance companies with substantially the same
coverages.
46
<PAGE>
Natural Gas and Crude Oil Purchase and Sale Agreements. Vastar Gas
Marketing, Inc., and Southern Company Energy Marketing L.P., provide fuel
management services for the natural gas requirements of cogeneration facilities
located in California which are partially owned by ARCO or its subsidiaries.
In addition, ARCO has provided performance guarantees for certain contracts
under which Vastar Gas or Southern Company Energy Marketing is required to sell
gas to unrelated parties. These guarantees will continue in effect until the
underlying contracts expire. There are no ARCO guarantees on contracts entered
into after May 15, 1994. During the first quarter of 2000 and in 1999 and 1998,
our approximate revenues from these transactions with ARCO and its affiliates
were less than $0.1 million, $2.3 million and $119.8 million, respectively. Our
purchases from ARCO and its affiliates during the same periods were zero,
approximately $0.5 million and $32.9 million, respectively.
From time to time, Vastar also engages in purchases and sales of natural gas
and crude oil at market-related prices with certain other ARCO subsidiaries and
divisions.
Pipeline Agreements. Effective November 1, 1999, we purchased three lateral
pipelines from ARCO Pipe Line Company for $350,000. In addition, we entered
into a five-year throughput agreement to transport production on ARCO Pipe Line
Company's South Pass 60 main line in Plaquemines Parish, Louisiana. During the
first quarter of 2000 and in 1999 and 1998, we paid ARCO approximately $1.0
million, $2.2 million and $3.2 million, respectively, for transportation
services under this agreement and other transportation agreements with ARCO
Pipe Line Company.
Building Lease. Vastar's principal office is in Houston, Texas, where we
lease approximately 330,000 square feet of a building at 15375 Memorial Drive.
This building was owned by ARCO until September 1999. In 1999 and 1998, we paid
approximately $2.7 million and $3.8 million, respectively to ARCO under the
lease agreement. In connection with our lease, we provided on-site property
management services for the office building for which ARCO paid us a management
fee of $71,000 and $100,000 for the same periods.
In connection with the sale of the building by ARCO to an unrelated third
party, we executed agreements with ARCO under which:
. we agreed to terminate the existing lease agreement and a property
management agreement with ARCO and to execute a new ten-year lease
agreement with the new landlord;
. ARCO agreed to pay us approximately $5.0 million as consideration for
terminating the lease and the property management agreement, entering
into a new lease agreement under which the rent was increased to a
current fair market rent (i.e., $272,771 per month for the first three
years), and making other concessions; and
. if in the last quarter of 2003, the then current fair market rent for the
building is greater or less than the rent payable under the new lease, we
or ARCO agreed to make a payment to the other, as appropriate, such that
the rental cost to us during the remainder of the term of the new lease
approximates 95% of the then current fair market rent.
Cross-Indemnification Agreement. In connection with ARCO's transfer to us in
October 1993 of oil and gas producing properties and undeveloped acreage and
related assets and liabilities, we executed a cross-indemnification agreement
with ARCO, under which we agreed to indemnify ARCO against:
. any and all liabilities associated with the ownership or operation of the
properties transferred to us by ARCO, including environmental
liabilities, with the exception of specific litigation stated in the
agreement and other exceptions stated in the agreement;
47
<PAGE>
. all liabilities or obligations relating to any ARCO employee benefits
plan for any ARCO employee who leaves ARCO and enters the employ of
Vastar, except for ARCO retirement benefits accrued under ARCO's plan by
employees who transferred to Vastar after our initial public offering,
which was completed in July 1994;
. liabilities arising under any guarantees by ARCO which ARCO executed to
guarantee the performance or payment by Vastar Gas of any natural gas
marketing contract between Vastar Gas and any third party;
. any and all liabilities at any time recorded as of October 1, 1993 on our
financial statements; and
. the costs of borrowing, carrying and repaying any of our debt.
In addition, we agreed to be liable for any sales and use taxes, conveyance,
transfer and recording fees and real estate transfer stamps or taxes imposed on
any transfer of the properties. We agreed that all other taxes, except income
taxes, imposed in respect of oil, natural gas or other hydrocarbons or minerals
were to be apportioned between ARCO and us with ARCO paying all the taxes
attributable to ownership of the properties prior to October 1, 1993 and Vastar
being responsible for paying all other taxes.
In the cross-indemnification agreement, ARCO agreed to indemnify us
against:
. any and all liabilities:
. retained by ARCO in the agreement or in the agreements transferring
the properties; or
. as to which ARCO indemnified us under the tax sharing agreement
described below; and
. liabilities under ARCO benefit plans, other than those assumed by us.
Tax Sharing Agreement. Vastar and its subsidiaries are parties to a tax
sharing agreement with ARCO that applies generally to all business activity
prior to April 18, 2000. Vastar has signed a replacement tax sharing agreement
with BP America Inc. that is effective as of April 18, 2000.
For taxable years ending on and before April 18, 2000, Vastar and its
subsidiaries joined or will join with ARCO and its domestic subsidiaries in
filing consolidated federal income tax returns. As a result, we are jointly and
severally liable for the consolidated federal income tax liability of ARCO and
its domestic subsidiaries prior to that date. For taxable years ending on and
before April 18, 2000, Vastar and its subsidiaries could also be included in
certain state and local income or franchise tax returns of ARCO or its domestic
subsidiaries. Under the tax sharing agreement with ARCO, ARCO agreed to
indemnify us for:
. federal, state and local income and franchise tax liabilities that relate
to periods on or before October 1, 1993;
. federal income tax liabilities in excess of our share of such tax
liabilities as computed under the agreement; provided that we have made
payments required under the agreement; and
. certain state and local income and franchise tax liabilities that may be
incurred by us and/or our subsidiaries; provided and to the extent that
we have made payments required under the agreement for our state and
local tax liabilities.
Pursuant to the tax sharing agreement, we paid ARCO, with certain
modifications, the amounts of federal income taxes, including alternative
minimum taxes, that we would have to pay if we and our subsidiaries were a
separate federal consolidated tax group. We agreed to pay these amounts without
regard to the amount of the consolidated tax liability of ARCO and its domestic
subsidiaries.
48
<PAGE>
Tax credits under Section 29 of the Internal Revenue Code can be used to
reduce the ARCO consolidated tax group's regular income tax liability after
foreign tax credits, but not below the ARCO consolidated tax group's tentative
minimum tax liability. To the extent that Section 29 tax credits are not used
by the ARCO consolidated tax group due to this limitation, they are generally
carried forward, as minimum tax credits, to be used in a subsequent year. To
the extent that the Section 29 tax credits generated in a year exceed the Arco
consolidated tax group's regular income tax liability after foreign tax
credits, those Section 29 tax credits are not allowed to be carried forward.
Under the tax sharing agreement with ARCO, we were able to use Section 29
tax credits generated from properties acquired before June 1, 1995 to reduce
our federal income tax payments to ARCO, including a reduction below zero that
resulted in a refund from ARCO, by the greater of the amount of these credits
which could be used by Vastar if its tax liability were calculated on a stand-
alone tax basis and the amount of these credits used by the ARCO consolidated
tax group, in each case, less a 3.25% discount. The tax sharing agreement with
ARCO allowed Vastar to receive 100% of the value of its Section 29 tax credits
generated from properties acquired on or after June 1, 1995 so long as tax
credits were used on the ARCO consolidated tax group's return and the maximum
annual refund for such tax credits did not exceed $15 million. Section 29 tax
credits that were not used by us in the current year under the tax sharing
agreement with ARCO could generally be carried forward and used in subsequent
tax years.
Payments under the agreement were generally made on each date on which a
quarterly payment of estimated tax was due, with any final settlement made
after the consolidated, combined or unitary return is filed. We are required to
pay additional taxes to ARCO if the federal, state or local income tax
liability attributable to us and our subsidiaries increases after an audit or
for any other reason. If a refund received by ARCO is attributable to us, we
are entitled to the refund.
The agreement appointed ARCO as our sole and exclusive agent in all matters
relating to our federal income tax liability. ARCO also had sole and exclusive
responsibility to prepare and file with the tax authorities the federal and
state income tax returns (including any amendments to these returns) that were
subject to the tax sharing agreement. These powers included the exclusive right
to contest or compromise any asserted tax adjustment or deficiency and to file,
litigate or compromise any claim for refund on our behalf.
During the third quarter of 1999, we entered into a third amendment to the
tax sharing agreement with ARCO, which implemented certain tax assumptions made
in a stock purchase agreement entered into with ARCO in 1998. Under that stock
purchase agreement, we agreed to acquire the stock of Vastar Offshore, Inc.
(formerly called Western Midway Company) from ARCO for $470 million, which
amount was later adjusted after closing to approximately $437 million. We also
agreed that, for the purposes of the tax sharing agreement, our tax basis in
the Vastar Offshore assets on the closing date of the acquisition would be
equal to approximately $437 million. ARCO agreed to indemnify and hold us
harmless in the event that our actual tax basis is determined to be less than
that amount.
The third amendment also changed a provision in the tax sharing agreement
dealing with the compensation due to us for our Section 29 tax credits in the
event we were no longer consolidated with ARCO for federal income tax purposes
(which we refer to as "deconsolidation"). Under the tax sharing agreement prior
to the third amendment, we were entitled to be paid for our Section 29 tax
credits that are being carried forward on the ARCO consolidated tax group's
return in the event of deconsolidation, but only to the extent those tax
credits were also being carried forward on Vastar's pro forma federal income
tax return (i.e., the pro forma federal income tax return that is prepared by
Vastar pursuant to the tax sharing agreement as if Vastar were not part of the
ARCO consolidated
49
<PAGE>
tax group). In the event of deconsolidation, the third amendment allows us to
be paid for our Section 29 tax credits carried forward on the ARCO consolidated
tax group's return whether or not we are also carrying forward those credits on
Vastar's pro forma federal income tax return.
As noted above, Vastar entered into the new tax sharing agreement effective
April 18, 2000. That agreement contains all of the material provisions included
in the tax sharing agreement with the following modifications. The new tax
sharing agreement allows Vastar in certain circumstances the option of
receiving a cash payment equal to the discounted value of certain of its
Section 29 tax credits, notwithstanding the fact that such credits have not
reduced the BP America consolidated tax group's liability. Vastar may exercise
this option with respect to all or any portion of its Section 29 tax credits
that are being carried forward by the BP America consolidated tax group for the
taxable years 2000, 2001 and 2002, provided however, that the option is not
applicable to Section 29 tax credits generated from properties acquired by
Vastar after 1999. The discounted value that applies if the option is exercised
varies with each taxable year and is the only compensation that will be paid to
Vastar. The discounted value for the taxable years 2000, 2001 and 2002 is 85%,
88% and 90%, respectively. The option is not applicable for any taxable year
beginning after 2002. In exchange for the option, Vastar agreed that its
Section 29 tax credit carry forwards will not have a priority over other BP
America group members' Section 29 tax credit carry forwards that are
attributable to credits generated on or after April 18, 2000.
The new tax sharing agreement increases the maximum annual refund for
Section 29 tax credits from properties acquired on or after June 1, 1995 to $20
million.
Corporate Opportunities. To address potential conflicts of interest,
provisions of our certificate of incorporation regulate the conduct of our
affairs as they may involve ARCO and its subsidiaries. This certificate of
incorporation recognizes and provides that ARCO and Vastar may:
. engage in the same or similar activities or lines of business;
. do business with the same customers and suppliers; and
. employ or otherwise engage any person as a director, officer, employee or
agent.
Our certificate of incorporation further recognizes that ARCO and Vastar may
have an interest in the same business opportunities and provides that we may
agree on a method for allocating those opportunities between each other. To
address such potential conflicts, we entered into the share purchase option and
business opportunities agreement with ARCO. Under this agreement, when an
opportunity is offered in writing to someone who is an officer and/or director
of both Vastar and ARCO, solely in his or her designated capacity with one of
the two companies, the opportunity will belong to the company to whom the
opportunity was addressed. If neither Vastar nor ARCO is designated, a business
opportunity first offered:
. to any person who is an officer or an officer and director of Vastar and
who is also a director of ARCO, shall belong to Vastar;
. to any person who is a director of Vastar and who is also an officer
and/or director of ARCO, shall belong to ARCO;
. to any person who is an officer, but not a director, of both Vastar and
ARCO, shall belong to ARCO;
. to any person who is an officer and director of both Vastar and ARCO,
shall belong to ARCO; and
. to any person who is an officer or an officer and director of Vastar and
who is also an officer or an officer and director of ARCO, shall belong
to ARCO.
50
<PAGE>
In the case of any business opportunity not specifically allocated by those
provisions, either Vastar or ARCO may pursue the business opportunity. If the
party to which a business opportunity is allocated under the agreement advises
the other that it has no interest in pursuing an opportunity, the other party
may pursue the opportunity.
Agreement Relating to Preferential Right to Purchase Vastar Common Stock. In
the share purchase option and business opportunities agreement described above
we have agreed to grant ARCO certain rights to purchase our common stock. Under
our agreement, ARCO has a right to purchase from time to time the number of
shares of common stock or preferred stock, or both, as may be necessary to
allow it to continue to include us as part of its consolidated federal tax
group. The purchase price for this stock would be the market price at the time
of the purchase.
Source and Amount of Funds; Financing for the Merger
BP Amoco estimates that the total amount of funds required to purchase all
of the outstanding shares of Vastar common stock, other than those already
owned by BP Amoco, under the merger agreement and to pay related fees and
expenses will be approximately $ . BP Amoco has obtained these funds
through ARCO's receipt on April 26, 2000 of the majority of the cash sum of
$6.5 billion, together with up to an additional $500 million based on a formula
tied to the price of crude oil, due to it for the sale of its Alaskan
businesses to Phillips Petroleum Company. BP Amoco will ensure that the funds
required to purchase the shares of Vastar common stock are available to ARCO as
necessary.
U.S. Federal Income Tax Consequences
The following is a summary of material U.S. federal income tax
considerations relevant to beneficial owners whose shares of Vastar common
stock are converted to cash in the merger. This summary is based upon laws,
regulations, rulings and decisions currently in effect, all of which are
subject to change possibly with retroactive effect, and is not applicable to BP
Amoco. The summary does not address beneficial owners of shares of common stock
in whose hands the shares are not capital assets within the meaning of Section
1221 of the Internal Revenue Code of 1986, as amended, nor does it address
beneficial owners of common stock who received the shares as part of a hedging,
"straddle," conversion or other integrated transaction, upon conversion of
securities or exercise of warrants or other rights to acquire shares, or
pursuant to the exercise of employee stock options or otherwise as
compensation, and may not apply to certain types of beneficial owners of common
stock (such as insurance companies, tax-exempt organizations, financial
institutions, broker-dealers) who may be subject to special rules. This summary
does not address the U.S. federal income tax consequences to a beneficial owner
of common stock who, for U.S. federal income tax purposes, is a nonresident
alien individual, a foreign corporation, a foreign partnership or a foreign
estate or trust, nor does it consider the effect of any foreign, state or local
tax laws or estate and gift tax laws. Furthermore, the discussion does not
address the tax treatment of beneficial owners of common stock who exercise
dissenters' rights in the merger.
The U.S. federal income tax consequences set forth below are included for
general information purposes only. Because individual circumstances may differ,
each beneficial owner of shares of Vastar common stock should consult such
beneficial owner's own tax advisor to determine the applicability of the rules
discussed below to such beneficial owner and the particular tax effects to such
beneficial owner of the merger, including the application and effect of state,
local and other tax laws.
51
<PAGE>
The receipt of cash for shares of Vastar common stock pursuant to the merger
will be a taxable transaction for U.S. federal income tax purposes. In general,
for U.S. federal income tax purposes, a beneficial owner of shares of common
stock will recognize capital gain or loss in an amount equal to the difference
between the beneficial owner's adjusted tax basis in the shares of common stock
converted to cash in the merger and the amount of cash received. A beneficial
owner's adjusted basis in the shares of common stock generally will equal the
beneficial owner's purchase price for such shares of common stock. Gain or loss
must be determined separately for each block of common stock (i.e., common
stock acquired at the same cost in a single transaction) converted to cash in
the merger. Such gain or loss will be capital gain or loss.
Net capital gain recognized by non-corporate taxpayers from the sale of
property held more than one year will generally be taxed at a rate not to
exceed 20% for U.S. federal income tax purposes. Net capital gain from property
held for one year or less will be subject to tax at ordinary income tax rates.
In addition, capital gains recognized by a corporate taxpayer will be subject
to tax at the ordinary income tax rates applicable to corporations. In general,
capital losses are deductible only against capital gains and are not available
to offset ordinary income. However, individual taxpayers are allowed to offset
a limited amount of capital losses against ordinary income.
Payments in connection with the merger may be subject to "backup
withholding" at a rate of 31%, unless a beneficial owner of common stock:
. comes within certain exempt categories (generally including
corporations, financial institutions and certain foreign individuals);
or
. provides a certified taxpayer identification number on Form W-9 and
otherwise complies with the backup withholding rules.
Backup withholding is not an additional tax but merely an advance payment;
any amounts so withheld may be credited against the U.S. federal income tax
liability of the beneficial owner subject to the withholding and may be
refunded to the extent it results in an overpayment of tax. Each beneficial
owner of common stock should consult with its own tax advisor as to its
qualification for exemption from backup withholding and the procedure for
obtaining this exemption.
Regulatory Matters
We do not believe that any material federal or state regulatory approvals,
filings or notices are required in connection with the merger other than
approvals, filings or notices required under federal securities laws and the
filing of a certificate of merger with the Secretary of State of the State of
Delaware.
Accounting Treatment of the Merger
The merger will be accounted for as an "acquisition" in accordance with
generally accepted accounting practice in the United Kingdom and as a
"purchase" in accordance with generally accepted accounting principles in the
United States. Consequently, the aggregate consideration paid by BP Amoco in
connection with the merger will be allocated to the assets and liabilities of
Vastar based upon their fair values, with any excess being treated as goodwill.
Provisions for Unaffiliated Security Holders
Neither Vastar nor BP Amoco, BP America, ARCO or Kernel has made any
provision to grant unaffiliated stockholders of Vastar access to the corporate
files of Vastar or BP Amoco or to obtain counsel or appraisal services at their
expense.
52
<PAGE>
Fees and Expenses
Except as disclosed in this proxy statement and as set forth in the merger
agreement, all fees and expenses incurred in connection with the merger, the
merger agreement and any other transactions contemplated thereby will be paid
by the party incurring such fees and expenses, except that Vastar and BP Amoco
will share equally all expenses relating to the printing, filing and mailing of
this proxy statement and all other related regulatory filing fees. Estimated
fees and expenses to be incurred by Vastar and BP Amoco, BP America, ARCO and
Kernel in connection with the merger are as follows (in millions):
<TABLE>
<S> <C>
Filing Fees......................................................... $
Financial Advisors' Fees and Expenses (estimated total for BP Amoco
and the special committee).........................................
Legal Fees and Expenses (estimated total for BP Amoco and the
special committee).................................................
Accounting Fees and Expenses........................................
Payment Agent Fees..................................................
Printing and Mailing Costs..........................................
Miscellaneous.......................................................
---
Total.............................................................
===
</TABLE>
53
<PAGE>
FINANCIAL INFORMATION
Selected Historical Financial Data
The following table sets forth summary historical consolidated financial
data for Vastar as of and for the three months ended March 31, 2000 and 1999
and as of and for each of the years ended December 31, 1999 and 1998.
This data and the comparative per share data set forth below have been
derived from, and should be read in conjunction with, the audited consolidated
financial statements and other financial information contained in Vastar's
Annual Report on Form 10-K for the year ended December 31, 1999 and the
unaudited consolidated interim financial information contained in Vastar's
Quarterly Report on Form 10-Q for the three months ended March 31, 2000,
including the notes thereto. These documents are incorporated by reference in
this proxy statement. See "Where You Can Find More Information" on page 88.
<TABLE>
<CAPTION>
Three months For the years
ended March 31, ended December 31,
----------------- -------------------
2000 1999 1999 1998
-------- -------- --------- ---------
(millions of dollars, except per
share amounts, ratios and shares
outstanding)
<S> <C> <C> <C> <C>
Income Statement Data:
Net sales and other operating revenue.. $ 338.4 $ 221.2 $ 1,107.2 $ 887.0
Total expenses (excluding income
taxes)................................ 269.6 244.8 990.4 889.9
Net income............................. 77.4 19.0 213.1 136.4
Ratio of earnings to fixed charges....... 5.7 0.8 3.2 1.8
Balance Sheet Data:
Current assets......................... $ 271.8 $ 226.9 $ 307.1 $ 292.9
Non-current assets..................... 2,475.5 2,305.8 2,402.9 2,281.1
Current liabilities.................... 333.5 225.5 342.9 250.5
Non-current liabilities................ 1,535.5 1,680.0 1,561.1 1,708.3
Stockholders' equity................... 878.3 627.2 806.0 615.2
Cash dividends declared per common
share................................. $ 0.075 $ 0.075 $ 0.30 $ 0.30
Average shares of common stock
outstanding (in millions)............... 97.7 97.4 97.5 97.4
</TABLE>
Comparative Per Share Data
The following table sets forth certain historical per share data for Vastar.
Basic and diluted earnings per common share and book value per share is
presented for the three months ended March 31, 2000 and 1999 and for each of
the years ended December 31, 1999 and 1998.
<TABLE>
<CAPTION>
For the
years
Three Months ended
ended March December
31, 31,
------------- -----------
2000 1999 1999 1998
------ ------ ----- -----
<S> <C> <C> <C> <C>
Net income per share:
Basic............................................... $ 0.79 $ 0.20 $2.19 $1.40
Diluted............................................. $ 0.78 $ 0.19 $2.16 $1.39
Book value per share.................................. $ 8.99 $ 6.42 $8.27 $6.30
</TABLE>
Book value per share is not a term defined by generally accepted accounting
principles. Book value per share is calculated by dividing stockholders' equity
by the average number of shares of common stock outstanding.
54
<PAGE>
MARKET PRICES AND DIVIDEND INFORMATION
The principal market in which shares of Vastar common stock are traded is
the New York Stock Exchange (ticker symbol: VRI). The table below sets forth,
for the calendar quarters indicated, the high and low sale prices of Vastar
common stock, as reported on the New York Stock Exchange composite tape. On
June 1, 2000, the approximate number of holders of record of common stock was
91 and the high price per share was $81.4375 and the low price per share was
$81.3125.
The declaration and payment of dividends are at the discretion of our Board
of Directors and the amount thereof will depend on our results of operations,
financial condition, contractual restrictions, cash requirements, future
prospects and other factors our Board of Directors deem relevant. In addition,
the agreement relating to our $1.1 billion bank credit facility contains
financial and other covenants, including covenants that may, under specified
circumstances, have the effect of limiting our ability to pay dividends.
<TABLE>
<CAPTION>
Per
Share
Cash
Dividend
High Low Paid
-------- -------- --------
<S> <C> <C> <C>
1998
First Quarter........................................ $43.4375 $31.75 $0.075
Second Quarter....................................... 48.625 41.0625 0.075
Third Quarter........................................ 47.3125 37.5625 0.075
Fourth Quarter....................................... 48.9375 38.50 0.075
1999
First Quarter........................................ 52.3125 37.875 0.075
Second Quarter....................................... 59.00 45.875 0.075
Third Quarter........................................ 70.50 51.6875 0.075
Fourth Quarter....................................... 65.1875 51.9375 0.075
2000
First Quarter........................................ 75.8125 47.3125 0.075
Second Quarter (April 1 to , 2000).............
</TABLE>
On March 15, 2000, the last full trading day prior to the public
announcement of BP Amoco's intention to acquire all of the publicly owned
shares of Vastar common stock, the reported closing price on the NYSE was
$63.125 per share. On May 23, 2000, the last full trading day prior to the
public announcement of the execution of the merger agreement, the reported
closing price on the NYSE was $79.75.
55
<PAGE>
FINANCIAL PROJECTIONS
Vastar does not, as a matter of course, make public forecasts or projections
as to future sales, earnings or other income statement data, cash flows or
balance sheet and financial position information. However, because Vastar made
its 10-Year Business Plan available to the special committee, BP Amoco, Petrie
Parkman, Salomon Smith Barney and Morgan Stanley, we include the following
summary of the 10-Year Business Plan in this proxy statement.
Vastar's management prepared the 10-Year Business Plan. The 10-Year Business
Plan does not reflect any of the effects of the merger or other changes that
may in the future be deemed appropriate concerning Vastar and its assets,
business, operations, properties, policies, corporate structure, capitalization
or management in light of the circumstances then existing. Vastar believes that
the assumptions Vastar's management used as the basis for the 10-Year Business
Plan were reasonable at the time the 10-Year Business Plan was prepared, given
the information Vastar's management had at that time.
The 10-Year Business Plan was not prepared with a view toward public
disclosure or compliance with published guidelines of the Securities Exchange
Commission or the American Institute of Certified Public Accountants regarding
forward-looking information or generally accepted accounting principles.
Neither Vastar's independent auditors, nor any other independent accountants
have compiled, examined or performed any procedures with respect to the
prospective financial information contained in the 10-Year Business Plan, nor
have they expressed any opinion or given any form of assurance on the 10-Year
Business Plan or its achievability. Vastar's independent auditors assume no
responsibility for, and disclaim any association with, this prospective
financial information. The special committee, BP Amoco, Petrie Parkman, Salomon
Smith Barney and Morgan Stanley may have varied some of the assumptions
underlying the 10-Year Business Plan for purposes of their analyses.
Furthermore, the 10-Year Business Plan:
. necessarily makes numerous assumptions, many of which are beyond the
control of Vastar and may prove not to have been, or may no longer be,
accurate;
. except as otherwise indicated, does not reflect revised prospects for
Vastar's businesses, changes in general business and economic
conditions, or any other transaction or event that has occurred or that
may occur and that was not anticipated at the time it was prepared;
. is not necessarily indicative of current values or future performance,
which may be significantly more favorable or less favorable than as set
forth below; and
. should not be regarded as a representation that it will be achieved.
The 10-Year Business Plan is not a guarantee of performance. It involves
risks, uncertainties and assumptions. The future financial results and
stockholder value of Vastar may materially differ from those expressed in the
10-Year Business Plan due to factors that are beyond Vastar's ability to
control or predict. We cannot assure you that the 10-Year Business Plan will be
realized or that Vastar's future financial results will not materially vary
from the 10-Year Business Plan. We do not intend to update or revise the 10-
Year Business Plan.
The 10-Year Business Plan is a forward-looking statement. For information on
factors which may cause Vastar's future financial results to materially vary,
see "Forward-Looking Statements" beginning on page 58.
56
<PAGE>
The material portions of the 10-Year Business Plan are set forth below:
<TABLE>
<CAPTION>
Projected Fiscal Year
----------------------------------------------
2000 2001 2002 2003 2005 2009
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net income (in millions)....... $ 382 $ 371 $ 316 $ 414 $ 615 $1,272
Discretionary cash flow (in
millions)..................... $1,123 $1,123 $1,193 $1,407 $1,789 $3,676
Capital (in millions).......... $ 850 $1,164 $1,367 $1,254 $1,668 $3,853
Ratio of net debt as a ratio to
discretionary cash flow....... 0.7 0.9 1.1 0.9 0.7 0.5
Gas production, millions of
cubic feet per day............ 1,120 1,213 1,327 1,531 1,782 2,004
Crude oil, condensate, and
natural gas liquid production,
thousands of barrels per day.. 63 64 67 110 149 448
Annual production growth, %.... 4% 6% 8% 27% 12% 15%
Reserves at end of year,
trillions of cubic feet
equivalent.................... 4.7 5.5 6.4 7.2 8.3 14.8
</TABLE>
In the 10-Year Business Plan:
. Gas and oil prices are based on March 10, 2000 New York Mercantile
Exchange futures contract prices through 2003 for gas and 2006 for oil
then increasing at 2% per year thereafter;
. King, Horn Mountain, and Mirage Deepwater discoveries are modeled as
success cases, and therefore these cases are not chance weighted for the
possibility of commercial failure;
. Vastar's deepwater exploration program is assumed to consist of 47
prospects drilled over ten years, with a 40% success rate;
. outside of deepwater, Vastar's exploration, development, and acquisition
program assumptions and results are based on historical trends and
budgets; and
. cash flow in excess of that needed to fund the programs described above
is assumed to be used to fund unidentified capital opportunities at a
14-16% rate of return, and to pay down debt.
In the 10-Year Business Plan, discretionary cash flow is derived by adjusting
net income for the pre-tax effects of exploration expenses, depreciation,
depletion and amortization, and the change in deferred income taxes.
Discretionary cash flow is not a term defined by generally accepted accounting
principles and should not be considered as an alternative to net cash provided
by operating activities.
57
<PAGE>
FORWARD-LOOKING STATEMENTS
General
We are including the following discussion to inform you generally of some of
the risks and uncertainties that can affect Vastar and to take advantage of the
"safe harbor" protection for forward-looking statements afforded under federal
securities laws.
From time to time, Vastar's management or persons acting on our behalf make
forward-looking statements to inform existing and potential security holders
about Vastar. These statements may include projections and estimates concerning
the timing and success of specific projects and Vastar's future income, oil and
gas production, oil and gas reserves and reserve replacement and capital
spending. Forward-looking statements are generally accompanied by words such as
"estimate," "project," "predict," "believe," "expect," "anticipate," "plan,"
"goal" or other words that convey the uncertainty of future events or outcomes.
In addition, sometimes we will specifically describe a statement as being a
forward-looking statement and refer to this section. These statements by their
nature are subject to risks, uncertainties and assumptions and will be
influenced by various factors. Should any of the assumptions underlying a
forward-looking statement prove incorrect, actual results could vary
materially.
Except for the historical information contained in this proxy statement, the
matters discussed in this proxy statement are forward-looking statements that
are subject to risks, uncertainties and assumptions. Actual results could
differ materially based on numerous factors, including those set forth below.
We believe the factors discussed below are important factors that could
cause actual results to differ materially from those expressed in a forward-
looking statement made in this proxy statement or elsewhere by us or on our
behalf. The factors listed below are not necessarily all of the important
factors. Unpredictable or unknown factors not discussed below could also have
material adverse effects on actual results. We do not intend to update our
description of important factors each time a potential important factor arises.
You should be aware that important factors not described below could affect the
accuracy of our forward-looking statements and you should use caution and
common sense when analyzing our forward-looking statements.
Volatility and Level of Hydrocarbon Commodity Prices
Historically, natural gas, crude oil and natural gas liquids prices have
been volatile. These prices rise and fall based on changes in market demand and
changes in the political, regulatory and economic climate and other factors
that affect commodities markets generally. Some of our projections and
estimates are based on assumptions as to the future prices of these
commodities. These price assumptions are used for planning purposes. We expect
our assumptions will change over time and that actual prices in the future may
differ from our estimates. Any substantial or extended decline in the actual
prices of natural gas, crude oil and/or NGLs could have a material adverse
effect on:
. our financial position and results of operations (including reduced cash
flow and borrowing capacity);
. the quantities of natural gas, natural gas liquids and crude oil reserves
that we can economically produce;
. the quantity of estimated proved reserves that may be attributed to our
properties;
. our ability to fund our capital program; and
. the full utilization of tax credits under Section 29 of the Internal
Revenue Code.
58
<PAGE>
Production Rates and Reserve Replacement
Projecting future rates of oil and gas production is inherently imprecise.
Producing oil and gas reservoirs generally have declining production rates.
Production rates depend on a number of factors, including geological,
geophysical and engineering factors, weather, production curtailments or
restrictions, prices for natural gas, natural gas liquids and crude oil,
available transportation capacity, market demand and the political, economic
and regulatory climate.
Another factor affecting production rates is our ability to replace
depleting reservoirs with new reserves through exploration success or
acquisitions. Exploration success is difficult to predict, particularly over
the short term, where results can vary widely from year to year. Moreover, our
ability to replace depleting reserves over an extended period depends not only
on the total volumes found, but also on the cost of finding and developing new
reserves. Depending on the general price environment for natural gas, natural
gas liquids and crude oil, our finding and development costs may not justify
the use of resources to explore for and develop new reserves. We cannot assure
you as to the level or timing of success, if any, that we will be able to
achieve in finding and developing or acquiring additional reserves, or that any
of our acquisitions will be successful or, if unsuccessful, that a failure will
not have an adverse effect on our financial condition, results of operations
and cash flows.
Reserve Estimates
Our forward-looking statements may be predicated on our estimates of our oil
and gas reserves. All of Vastar's reserve data in this proxy statement or
otherwise made by or on behalf of Vastar are estimates. Reservoir engineering
is a subjective process of estimating underground accumulations of oil and
natural gas that cannot be measured in an exact way due to numerous inherent
uncertainties. Projecting future rates of production and the timing of future
development expenditures is also inexact. In addition, the accuracy of any
reserve estimate is a function of the quality of available data and of
engineering and geological interpretation and judgment. Therefore, it is common
that estimates made by different engineers will vary. The results of drilling,
testing and production after the date of an estimate may also require a
revision of that estimate, and these revisions may be material. As a result,
reserve estimates are generally different from the quantities of oil and gas
that are ultimately recovered.
Laws and Regulations
Our forward-looking statements are generally based on the assumption that
the legal and regulatory environment will remain stable. Changes in the legal
and/or regulatory environment could have a material adverse effect on our
future results of operations and financial condition. Our ability to
economically produce and sell our oil and gas production is affected and could
possibly be restrained by a number of legal and regulatory factors, including
federal, state and local laws and regulations affecting:
. oil and gas production, including allowable rates of production by well
or proration unit;
. taxes applicable to us and/or our production;
. the amount of oil and gas available for sale;
. the availability of adequate pipeline and other transportation and
processing facilities; and
. the marketing of competitive fuels.
Our operations are also subject to extensive federal, state and local laws
and regulations relating to the generation, storage, handling, emission,
transportation and discharge of materials into the
59
<PAGE>
environment. These environmental laws and regulations continue to change and
may become more onerous or restrictive in the future. Our forward-looking
statements are generally based upon the expectation that we will not be
required in the near future to expend amounts to comply with environmental laws
and regulations that are material in relation to our total capital expenditures
program. However, inasmuch as such laws and regulations are frequently changed,
we are unable to accurately predict the ultimate cost of such compliance.
Drilling and Operating Risks
Our drilling operations are subject to various risks common in the industry,
including cratering, explosions, fires and uncontrollable flows of oil, gas or
well fluids. In addition, approximately half of our operations are currently
offshore and subject to the additional hazards of marine operations, such as
loop currents, capsizing, collision and damage or loss from severe weather. Our
drilling operations are also subject to the risk that no commercially
productive natural gas or oil reserves will be encountered. The cost of
drilling, completing and operating wells is often uncertain, and drilling
operations may be curtailed, delayed or canceled as a result of a variety of
factors, including drilling conditions, pressure or irregularities in
formations, equipment failures or accidents and adverse weather conditions.
Competition
Vastar's forward-looking statements are generally based on a stable
competitive environment. Competition in the oil and gas industry is intense in
the lower 48 states. We actively compete for reserve acquisitions and
exploration leases and licenses, as well as in the gathering and marketing of
natural gas, crude oil and natural gas liquids. Our competitors include the
major oil companies, independent oil and gas concerns, individual producers,
natural gas, crude oil and natural gas liquids marketers and major pipeline
companies, as well as participants in other industries supplying energy and
fuel to industrial, commercial and individual consumers. To the extent our
competitors have greater financial resources than currently available to us, we
may be disadvantaged in effectively competing for certain reserves, leases and
licenses. Recently announced consolidations in the industry may enhance the
financial resources of some of our competitors.
From time to time, the level of industry activity may result in a tight
supply of labor or equipment required to operate and develop oil and gas
properties. The availability of drilling rigs and other equipment, as well as
the level of rates charged, may affect our ability to compete and achieve
success in our exploration and production activities.
In marketing our production, we compete with other producers and marketers
on such factors as deliverability, price, contract terms and quality of product
and service. Southern Company Energy Marketing, the 40% owned venture through
which most of our natural gas is marketed, competes with the same types of
competitors and on the same basis described above. It also competes in the
power and other energy businesses with other energy producers and marketers.
Competition for the sale of power and other energy commodities among competing
suppliers is influenced by various factors, including price, availability,
technological advancements, reliability and creditworthiness. In making
projections with respect to natural gas, natural gas liquids, crude oil and
power marketing, we assume no material decrease in the availability of these
commodities for purchase.
We believe that the location of our properties, our expertise in
exploration, drilling and production operations, the experience of our
management and the efforts and expertise of Southern Company Energy Marketing
generally enable us to compete effectively. In making projections with respect
to numerous aspects of our business, we generally assume that there will be no
material change in competitive conditions that would adversely affect us.
60
<PAGE>
Natural Gas Marketing Matters
In connection with the formation and operation of Southern Company Energy
Marketing, we entered into agreements with Southern Company Energy Marketing
and subsidiaries of The Southern Company. We therefore have credit exposure to
these companies and their affiliates. For more detailed information relating to
these arrangements and exposure, see the information under the heading
"Marketing" of Items 1 and 2, "Business and Properties," and Notes 5 and 13 of
the Notes to Consolidated Financial Statements in, Vastar's Annual Report on
the Form 10-K for the year ended December 31, 1999.
In making projections with respect to a variety of financial and other
matters, we assume that:
. we will receive annual minimum cash distributions owed to us by Southern
Company Energy Marketing;
. we will have the ability to meet our minimum monthly quantity obligations
under the gas purchase and sale agreement with Southern Company Energy
Marketing;
. Southern Company Energy Marketing will pay for the gas delivered to them
under the gas purchase and sale agreement; and
. we will not be required to make payment on any guarantee which we have
issued to secure obligations of Southern Company Energy Marketing or, to
the extent we make any payment on a guarantee, we will receive the
indemnification payments from Southern Energy to which we are entitled.
61
<PAGE>
THE PARTIES
Vastar Resources, Inc.
Vastar Resources, Inc. was incorporated in Delaware in September 1993.
Vastar is one of the leading independent oil and gas (non-integrated)
exploration and production companies in the United States. Our exploration and
production operations are concentrated in four premier producing regions of the
United States--the Gulf of Mexico, Gulf Coast, San Juan Basin and Mid-
Continent. We market most of our natural gas nationwide through Southern
Company Energy Marketing L.P., a limited partnership in which we currently own
a 40% interest. We directly market crude oil and natural gas liquids
nationwide.
Vastar primarily draws from an inventory of internally generated prospects
to find and develop oil and gas reserves using, where appropriate, cost-
effective advances in technology to reduce the risks associated with oil and
gas exploration and development. As of December 31, 1999, our proved reserves
were approximately 4,074 billion cubic feet equivalent. Of this amount,
approximately 65% are gas reserves and 35% are crude oil, condensate and
natural gas liquids reserves. Our 1999 capital spending was $664 million. We
operate our business and report all of our operations as one business segment.
BP Amoco, through ARCO, owns 80,000,001 shares or approximately 81.9%, of
our outstanding common stock.
Our principal executive office is located at 15375 Memorial Drive, Houston,
Texas 77079. Our telephone number is (281) 584-6000.
Vastar has not during the past five years been convicted in a criminal
proceeding, nor has it been a party to any judicial or administrative
proceeding that resulted in a judgment, decree or final order enjoining Vastar
from future violations of, or prohibiting the activities subject to, federal or
state securities laws, or a finding of any violation of federal or state
securities laws.
BP Amoco p.l.c.
BP Amoco was created on December 31, 1998 by the merger of Amoco Corporation
of the United States and The British Petroleum Company p.l.c. of the United
Kingdom (which we refer to as "BP p.l.c."). Following this merger, Amoco
Corporation became a wholly owned subsidiary of BP p.l.c. and was renamed BP
Amoco Corporation, and BP p.l.c. was renamed BP Amoco p.l.c. Amoco Corporation
was incorporated in Indiana in 1889 and BP p.l.c. was incorporated in 1909 in
England. On April 18, 2000, BP Amoco became the ultimate owner of all of the
common stock of ARCO. BP Amoco's worldwide headquarters and principal executive
offices are currently located at Britannic House, 1 Finsbury Circus, London,
EC2M 7BA, United Kingdom (Telephone 011-44-171-496-4000). Amoco's former head
office in Chicago, Illinois, is the headquarters for BP Amoco's North American
refining, marketing and transportation businesses.
BP Amoco's main businesses are Exploration and Production, Refining and
Marketing, Chemicals and Gas and Power. Exploration and Production's activities
include oil and natural gas exploration and field development and production
(upstream activities), together with pipeline transportation and initial
processing (midstream activities). The activities of Refining and Marketing
include oil supply and trading as well as refining and marketing (downstream
activities). Chemicals activities include petrochemicals manufacturing and
marketing. Gas and Power's activities include the marketing of BP Amoco's gas
reserves and its participation in power production facilities. BP Amoco
provides high quality technological support for all its businesses through its
research and engineering activities. BP Amoco has well established operations
in Europe, the United States, Canada, South America, Australasia and parts of
Africa.
62
<PAGE>
BP Amoco has not during the past five years been convicted in a criminal
proceeding, nor has it been a party to any judicial or administrative
proceeding that resulted in a judgment, decree or final order enjoining BP
Amoco from future violations of, or prohibiting the activities subject to,
federal or state securities laws, or a finding of any violation of federal or
state securities laws.
BP America Inc.
BP America Inc. is a wholly owned subsidiary of BP Amoco and the immediate
parent corporation of ARCO. BP America was incorporated in Delaware in 1974. By
1978, it had acquired effective control of The Standard Oil Company, an Ohio
Corporation, and was engaged either directly or through its subsidiary
companies in all phases of the petroleum industry, primarily in the United
States. Subsequent to a tender offer made in 1987, BP America acquired full
ownership of The Standard Oil Company. Following a BP Amoco internal
restructuring in April 2000, BP America became the immediate parent company of
BP Amoco Corporation and ARCO. By virtue of these restructurings, BP America
now owns, either itself or through its subsidiaries, substantially all of the
BP Amoco group of companies' assets in the United States, together with
substantial assets in other parts of the world.
The principal office and business address of BP America is located at 200
East Randolph Drive, Chicago, Illinois 60601, telephone number (312) 856-6111.
BP America has not during the past five years been convicted in a criminal
proceeding, nor has it been a party to any judicial or administrative
proceeding that resulted in a judgment, decree or final order enjoining BP
America from future violations of, or prohibiting the activities subject to,
federal or state securities laws, or a finding of any violation of federal or
state securities laws.
Atlantic Richfield Company
ARCO became an indirect subsidiary of BP Amoco on April 18, 2000. ARCO began
operations in 1866 as the Atlantic Petroleum Storage Company. ARCO's present
name was adopted in 1966 after Richfield Oil Corporation was merged into ARCO.
Sinclair Oil Corporation was merged into ARCO in 1969. ARCO acquired The
Anaconda Company in 1977. ARCO became a Delaware corporation in 1985. ARCO
acquired Union Texas Petroleum Holdings, Inc. in 1998. ARCO's principal
executive offices are currently located at the ARCO Center, 333 South Hope
Street, Los Angeles, California 90071. Its telephone number is (213) 486-3511.
ARCO, through itself and its subsidiaries, owns substantial exploration and
production assets in the Gulf of Mexico and the Mid-continent in the United
States (largely through its approximately 81.9% ownership of Vastar), the
United Kingdom North Sea, Indonesia, Venezuela, China and Algeria. It also owns
substantial downstream refining and marketing assets in the western United
States.
ARCO has not during the past five years been convicted in a criminal
proceeding, nor has it been a party to any judicial or administrative
proceeding that resulted in a judgment, decree or final order enjoining ARCO
from future violations of, or prohibiting the activities subject to, federal or
state securities laws, or a finding of any violation of federal or state
securities laws.
Additional information concerning ARCO is set forth in ARCO's Annual Report
on Form 10-K for the year ended December 31, 1999 and additional information
concerning BP Amoco is set forth in BP Amoco's Annual Report on Form 20-F for
the year ended December 31, 1999 and subsequent Quarterly Reports on Form 6-K,
which reports may be obtained from the SEC and the NYSE in the manner set forth
with respect to information concerning Vastar in "Where You Can Find More
Information" beginning on page 88.
63
<PAGE>
Kernel Holdings, Inc.
Kernel was incorporated in Delaware on May 12, 2000 as a wholly owned
subsidiary of ARCO in connection with the proposed merger. Kernel has not been
engaged in any business activities other than those in connection with the
merger. The principal office and business address of Kernel is c/o ARCO, ARCO
Center, 333 South Hope Street, Los Angeles, California 90071 (Telephone (213)
486-3511).
Since its incorporation, Kernel has not been convicted in a criminal
proceeding, nor has it been a party to any judicial or administrative
proceeding that resulted in a judgment, decree or final order enjoining Kernel
from future violations of, or prohibiting the activities subject to, federal or
state securities laws, or a finding of any violation of federal or state
securities laws.
64
<PAGE>
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of June 1, 2000, the only person known to us to beneficially own more
than 5% of our common stock was:
<TABLE>
<CAPTION>
Amount of
Title of Name and Address of Beneficial Percent
Class Beneficial Owner Ownership of Class
-------- ------------------- ---------- --------
<S> <C> <C> <C>
Common Stock BP Amoco p.l.c. 80,000,001 81.9%
Britannic House
1 Finsbury Circus
London EC2M 7BA, England
</TABLE>
Although BP Amoco beneficially owns these shares, ARCO owns these shares
directly. ARCO has both the voting power and the power to dispose of these
shares. It does not share this power with any other person.
ARCO is able, acting alone, to elect the entire Board of Directors of Vastar
and to approve any action requiring stockholder approval, except that the
merger must be authorized by at least two-thirds of our outstanding common
stock not owned by BP Amoco. BP Amoco's level of ownership of our common stock
precludes any acquisition of control of Vastar, unless favored by BP Amoco.
The table below lists the number of shares of equity securities of Vastar
and BP Amoco beneficially owned by the following persons:
. each of our directors;
. our Chairman of the Board, President and Chief Executive Officer;
. the four highest-paid executive officers as of December 31, 1999 (other
than our Chairman of the Board, President and Chief Executive Officer);
and
. all of Vastar's directors and executive officers as a group.
The date we chose to determine beneficial ownership was June 1, 2000. Equity
securities beneficially owned by a person as of a particular date include
shares directly or indirectly owned by that person on that date and shares
which that person has the right to acquire within 60 days of that date. On June
1, 2000, no Vastar director or executive officer beneficially owned more than
1% of any class of equity securities of Vastar or BP Amoco. In addition, all of
the equity securities owned by our directors and officers as a group did not
exceed 1% of any class of equity securities of Vastar or BP Amoco. Except as we
have indicated in the footnotes to this table, each individual has sole voting
and investment power (i.e., the power to sell, pledge, etc.) over the shares
indicated.
<TABLE>
<CAPTION>
Shares of Vastar BP Amoco American
Common Stock Depositary Shares
Beneficially Owned Beneficially
as of Owned as of
Name June 1, 2000(1)(2) June 1, 2000(2)(3)(4)
---- ------------------ ---------------------
<S> <C> <C>
Jimmie D. Callison.................... 5,000 0
Charles D. Davidson................... 321,588 3,076
Phillip A. Gobe....................... 58,250 34,341
Albert D. Hoppe....................... 59,879 2,401
Robert C. LeVine...................... 6,500 1,312
William D. Schulte.................... 6,000 0
Steven J. Shapiro..................... 222,457 1,978
Robert P. Strode(5)................... 87 576
All directors and executive officers
as a group, including those listed
above (11 persons)................... 898,171 61,092
</TABLE>
65
<PAGE>
--------
(1) Some of the Vastar common stock reported as beneficially owned in this
column is obtainable on June 1, 2000 only through the exercise of stock
options. The number of these stock options held by the persons listed below
who appear in the table is as follows:
<TABLE>
<S> <C>
Callison............................. 5,000
Davidson............................. 319,628
Gobe................................. 58,250
Hoppe................................ 59,879
LeVine............................... 5,000
Schulte.............................. 5,000
Shapiro.............................. 220,423
Strode............................... 0
Directors and executive officers as a
group (11 persons).................. 883,984
</TABLE>
(2) Some of the Vastar common stock and BP Amoco American Depository Shares
reported in these columns are held for the account of the person listed in
the table by the trustees under our Capital Accumulation Plan.
(3) Some of the BP Amoco American Depositary Shares reported as beneficially
owned in this column are obtainable on June 1, 2000 only through the
exercise of stock options. The number of these stock options held by the
persons listed below who appear in the table is as follows:
<TABLE>
<S> <C>
Gobe.................................. 29,552
Directors and executive officers as a
group (11 persons)................... 35,262
</TABLE>
(4) Mr. Gobe (and another officer included in the total for directors and
executive officers as a group who is not named above) each holds 1,640
American Depository Shares of BP Amoco in a joint tenant account and, as a
result, shares voting and investment power with respect to those shares
with his respective spouse.
(5) Mr. Strode resigned from Vastar on March 18, 2000.
Except as set forth in this proxy statement, none of Vastar, BP Amoco, BP
America, ARCO or Kernel nor, to the best of their knowledge, any of the persons
listed under "Directors and Executive Officers of Vastar" and "Directors and
Executive Officers of BP Amoco" of this proxy statement, nor any associate or
majority owned subsidiary of any of those persons or entities, beneficially
owns or has a right to acquire any shares of Vastar common stock or has engaged
in any transactions in shares of Vastar common stock in the past 60 days.
66
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS OF VASTAR
The following persons are the executive officers and/or directors of Vastar
as of the date of this proxy statement. None of these persons has been
convicted in a criminal proceeding during the past five years (excluding
traffic violations or similar misdemeanors), nor has any of these persons been
a party to any judicial or administrative proceeding during the past five years
that resulted in a judgment, decree or final order enjoining the person from
future violations of, or prohibiting activities subject to, federal or state
securities laws or a finding of any violation of federal or state securities
laws. Each of the directors and executive officers of Vastar is a citizen of
the United States of America, and has his or her principal business address at
15375 Memorial Drive, Houston, Texas 77079 (Telephone: (281) 584-6000).
<TABLE>
<CAPTION>
Name and Present
Position with Vastar Business Experience During Past Five Years and Period Served
-------------------- ------------------------------------------------------------
<S> <C>
Charles D. Davidson..... Mr. Davidson was elected Chairman of the Board on April 18,
Chairman of the Board, 2000. Mr. Davidson was elected President and Chief Executive
President and Chief Officer in March 1997 and has been a Director of Vastar since
Executive Officer March 1994. From September 1993 to March 1997, he served as a
Senior Vice President of Vastar and, from December 1992 to
October 1993, he held the position of Senior Vice President of
the Eastern District for ARCO Oil and Gas Company. From 1988 to
December 1992, he held various positions with ARCO Alaska, Inc.
Mr. Davidson joined ARCO in 1972.
Jimmie D. Callison...... Mr. Callison has been a director since January 1995. He served
Director as Vice President of Schlumberger Limited from 1989 to 1995,
President of Dowell Schlumberger Incorporated from 1987 to 1988,
and Executive Vice President of Dowell Schlumberger Incorporated
from 1984 to 1989. He joined the Dowell Division of the Dow
Chemical Company (which later became Dowell Schlumberger) in
1957.
Robert C. LeVine........ Mr. LeVine has been a director since July 1994. Mr. LeVine has
Director been a private investor since his retirement in February 1993
from the position of Managing Director for J.P. Morgan
Investment Management, Inc., which he held from 1981 to 1993. He
served as First Vice President of the Energy Group for E.F.
Hutton & Co. from 1974 to 1981; as a Vice President and oil
analyst for Wertheim & Co. from 1972 to 1974; and as Manager,
Investor Relations for ARCO from 1969 to 1972.
William D. Schulte...... Mr. Schulte has been a director since July 1994. Mr. Schulte has
Director been a private investor since his retirement from the position
of Vice Chairman of KPMG, LLP on December 31, 1990. He served as
Vice Chairman-- Western Region from 1986 to 1990 and previously
served as Managing Partner of the Los Angeles office from 1979
to 1986. He joined Peat Marwick in 1961. Mr. Schulte is also a
director of Washington Mutual, Inc.
Steven J. Shapiro....... Mr. Shapiro has been Senior Vice President and Chief Financial
Senior Vice President, Officer of Vastar since December 1993 and a Director of Vastar
Chief Financial Officer since January 1994. He also served as Treasurer of Vastar from
and Director January 1994 until December 1995. He was the President of ARCO
Coal Australia, Inc. from October 1991 to December 1993.
Previously, he held the position of Vice President of Planning
of ARCO from 1990 to October 1991. From 1988 to 1990, he was
Assistant Treasurer for ARCO, serving in both Los Angeles and
London. Mr. Shapiro joined ARCO in 1977.
</TABLE>
67
<PAGE>
<TABLE>
<CAPTION>
Name and Present
Position with Vastar Business Experience During Past Five Years and Period Served
-------------------- ------------------------------------------------------------
<S> <C>
Phillip A. Gobe......... Mr. Gobe has been a Senior Vice President of Production for
Senior Vice President Vastar since May 1997. From March 1995 to May 1997, he served as
Vice President, Human Resources of ARCO International Oil and
Gas Company. From June 1993 to March 1995, he was the Vice
President, Human Resources of ARCO Alaska, Inc. Before these
assignments, Mr. Gobe served as Operations Manager--Prudhoe Bay
of ARCO from October 1991 to June 1993. Before October 1991, Mr.
Gobe held various positions of increasing responsibility with
ARCO. Mr. Gobe joined ARCO in 1976.
Jeffrey M. Bender....... Mr. Bender has been Vice President of Human Resources for Vastar
Vice President of Human since October 1993. From February 1990 to October 1993, he held
Resources the position of Manager, Organizational and Human Resource
Development for ARCO Oil and Gas Company. Prior to that, he held
a variety of HR management positions with increasing
responsibility with ARCO Chemical, ARCO Metals and ARCO
Petroleum Products Company. Mr. Bender joined ARCO in 1975.
Albert D. Hoppe......... Mr. Hoppe has been Vice President, General Counsel and Secretary
Vice President, General of Vastar since May 1994. He served as General Attorney for ARCO
Counsel and Secretary Coal Company, Denver, Colorado, from June 1992 through April
1994. Previously, from September 1976 until June 1992, he held
various positions in the ARCO legal department in Dallas and
Houston, Texas. Before joining ARCO in 1976, he was an Assistant
United States Attorney in Kansas City, Missouri.
Joseph P. McCoy......... Mr. McCoy has been Vice President and Controller of Vastar since
Vice President and June 1994 and was designated Principal Accounting Officer,
Controller effective July 1994. He held the position of Vice President of
Finance, Planning and Control of ARCO Alaska, Inc. from November
1989 to May 1994. Previously, he was Assistant Controller of
ARCO from February 1987 to November 1989. From 1984 to February
1987, Mr. McCoy served as Controller of ARCO Coal Company and
then as Controller of ARCO Transportation Company. Mr. McCoy
joined ARCO in 1974.
Pamela S. Pierce........ Mrs. Pierce has been Vice President of Business Development for
Vice President of Vastar since February 1996. From January 1993 to February 1996,
Business Development she held the position of Offshore Business Unit Manager for ARCO
and subsequently Vastar. She held the position of Vice President
of Safety, Health, Environmental and External Affairs for ARCO
Oil and Gas Company from September 1991 to January 1993. Prior
assignments included Manager of Operations and Technical
Services, and various positions of increasing responsibility
with ARCO and ARCO Alaska, Inc. Mrs. Pierce joined ARCO in 1977.
</TABLE>
68
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS OF BP AMOCO
Directors and Executive Officers of BP Amoco p.l.c.
The following persons are the executive officers and/or directors of BP
Amoco as of the date of this proxy statement. None of these persons has been
convicted in a criminal proceeding during the past five years (excluding
traffic violations or similar misdemeanors), nor has any of these persons been
a party to any judicial or administrative proceeding during the past five years
that resulted in a judgment, decree or final order enjoining the person from
future violations of, or prohibiting activities subject to, federal or state
securities laws or a finding of any violation of federal or state securities
laws. Unless otherwise specified, each of the directors and executive officers
of BP Amoco is a citizen of the United Kingdom, and has his or her principal
business address at Britannic House, 1 Finsbury Circus, London, England EC2M7BA
(Telephone: 011-44-171-496-4000).
<TABLE>
<CAPTION>
Name and Present Position
with BP Amoco,
and Address and Citizenship, if Business Experience During Past
Applicable Five Years and Period Served
------------------------------- -------------------------------
<C> <S>
Peter D. Sutherland, Mr. Sutherland has served as non-executive
Non-Executive Chairman Chairman of BP Amoco since 1999, and
Citizen of Ireland previously served as non-executive Chairman
of The British Petroleum Company p.l.c.
from 1997 to 1998. He has served as the
Chairman and Managing Director of Goldman
Sachs International Limited since 1995 and
as non-executive director of
Telefonaktiebalaget LM Ericsson since 1996
and Investor AB since 1995. He served as a
director of ABB AB of Switzerland in 1999,
and as a director of Delta Air Lines, Inc.
between 1995 and 1997. He was Director
General of the World Trade Organisation in
1995 and Chairman and non-executive
director of Allied Irish Banks p.l.c. from
1995 to 1997.
Sir Ian Prosser, Mr. Prosser has been non-executive Deputy
Non-Executive Deputy Chairman Chairman of BP Amoco from 1999 to the
20 North Audley Street present. He was a non-executive director of
London, England The British Petroleum Company p.l.c. from
W1Y 1WE 1997 to 1998. Mr. Prosser has been Chairman
and CEO of Bass p.l.c. since 1987 and a
non-executive director of SmithKline
Beecham p.l.c. since 1999. He also served
as a non-executive director of Lloyds TSB
Group p.l.c. from 1995 to 1999 and The
Boots Company p.l.c. from 1984 to 1996.
Sir John Browne, Mr. Browne has been Group Chief Executive
Group Chief Executive and an executive director of BP Amoco since
and Executive Director 1999. He served as Group Chief Executive
and a Managing Director of The British
Petroleum Company p.l.c. from 1995 to 1998.
He has been a non-executive director of The
Goldman Sachs Group Inc. since 1999, a
member of the Supervisory Board of Daimler-
Chrysler Corporation since 1998 and a non-
executive director of Intel Corporation
Inc. since 1997. Between 1996 and 1999 he
served as a non-executive director of
SmithKline Beecham p.l.c. and between 1993
and 1996 served as a non-executive director
of Redland PLC.
</TABLE>
69
<PAGE>
<TABLE>
<CAPTION>
Name and Present Position
with BP Amoco,
and Address and Citizenship, if Business Experience During Past
Applicable Five Years and Period Served
------------------------------- -------------------------------
<C> <S>
Rodney F. Chase, Mr. Chase has been Deputy Group Chief
Deputy Group Chief Executive Executive and an executive director of BP
and Executive Director Amoco since 1999, and was the Deputy Group
Chief Executive and a Managing Director of
The British Petroleum Company p.l.c. from
1995 to 1998. He has served as a non-
executive director of Diageo p.l.c. since
1999 and The BOC Group p.l.c. since 1995.
Dr. John G. S. Buchanan, Dr. Buchanan has been the Chief Financial
Chief Financial Officer Officer and an executive director of BP
and Executive Director Amoco since 1999 and was previously the
Chief Financial Officer and a Managing
Director of The British Petroleum Company
p.l.c. from 1996 to 1998. Dr. Buchanan was
Group Treasurer and Chief Executive, BP
Finance, of The British Petroleum Company
p.l.c. from 1995 to 1996. He has also
served as a non-executive director of The
Boots Company p.l.c. since 1997.
W. Douglas Ford, Mr. Ford has served as an executive
Chief Executive, Refining and director of BP Amoco since earlier this
Marketing and Executive Director year. He has served as the Chief Executive,
United States Citizen Refining and Marketing, of BP Amoco since
1999. Previously, he served as an Executive
Vice President of Amoco Corporation from
1994 to 1998. He has also served as a
director of USG Corporation since 1996.
Dr. Christopher S. Gibson-Smith, Dr. Gibson-Smith has been the Executive
Executive Director, Policies and Director, Policies and Technology of BP
Technology Amoco since 1999 and was previously a
Managing Director of The British Petroleum
Company p.l.c. from 1997 to 1998. He served
as Chief Operating Officer of BP Chemicals
between 1995 and 1997. He has also served
as a non-executive director of Lloyds TSB
Group p.l.c. since 1999.
Richard L. Olver, Mr. Olver has served as Chief Executive,
Chief Executive, Exploration Exploration and Production and as an
and Production and Executive executive director of BP Amoco since 1999.
Director Mr. Olver previously served as Chief
Executive, Exploration and Production and a
Managing Director of The British Petroleum
Company p.l.c. between 1998 and 1999. He
was Deputy Chief Executive of BP
Exploration between 1995 and 1997 and has
been a non-executive director of Reuters
Group p.l.c. (formerly Reuters Holdings
p.l.c.) since 1997.
Bryan K. Sanderson, Mr. Sanderson has served as the Chief
Chief Executive, Chemicals and Executive, Chemicals and as an executive
Executive Director director of BP Amoco since 1999. Mr.
Sanderson was previously Chief Executive,
BP Chemicals and a managing director of The
British Petroleum Company p.l.c. from 1992
to 1998. He served as a non-executive
director of Sunderland p.l.c. from 1997 to
1998 and as non-executive Chairman of that
company since 1998. He has served as a non-
executive director of Corus Group p.l.c.
(formerly British Steel p.l.c.) since 1994.
</TABLE>
70
<PAGE>
<TABLE>
<CAPTION>
Name and Present Position
with BP Amoco,
and Address and Citizenship, if Business Experience During Past
Applicable Five Years and Period Served
------------------------------- -------------------------------
<C> <S>
Ruth S. Block, Ms. Block has been a non-executive director
Non-Executive Director of BP Amoco since 1999. She has served as a
United States Citizen non-executive Director of a number of
Alliance Capital Mutual Funds since before
1995. She has served as a director of
ECOLAB, Inc. since 1985. Between 1986 and
1998, she was a director of Amoco
Corporation.
John H. Bryan, Mr. Bryan has been a non-executive director
Non-Executive Director of BP Amoco since 1999, and was previously
United States Citizen a director of Amoco Corporation from 1982
Three First National Plaza to 1998. He has served as Chairman and
Chicago, IL 60602 Chief Executive officer of Sara Lee
Corporation since 1976. He has been a
director of Bank One since 1998, General
Motors Corporation since 1993 and The
Goldman Sachs Group Inc. since 1999.
Erroll B. Davis, Jr. Mr. Davis has been a non-executive director
Non-Executive Director of BP Amoco since 1999, and previously
United States Citizen served as a director of Amoco Corporation
222 West Washington Avenue from 1991 to 1998. He is currently the
Madison, WI 53703 Chairman, President and Chief Executive
Officer of Alliant Energy, a position he
has held since earlier this year. He has
also served as President and Chief
Executive Officer of WPL Holdings Inc.
since 1990 and Wisconsin Power and Light
Company since 1988. He has served as a
director of PPG Industries, Inc. since
1994.
Richard J. Ferris, Mr. Ferris has served as a non-executive
Non-Executive Director director of BP Amoco since 1999 and
United States Citizen previously served as a director of Amoco
Corporation from 1981 to 1998. He served as
Co-Chairman and as a director of Doubletree
Corporation from 1995 to 1997. He is
presently a director of The Proctor and
Gamble Company and a director of Promus
Hotel Corporation, and previously served as
a director of Candlewood Hotel Corporation.
Judith C. Hanratty, Ms. Hanratty has been the Company Secretary
Company Secretary of BP Amoco since 1999, and was previously
United Kingdom and the Company Secretary of The British
New Zealand Citizen Petroleum Company p.l.c. between 1995 and
1998. She is also a nominated member of the
Council of Lloyds, a position she has held
since 1998. She has been a member of the
U.K. Competition Commission since 1997 and
a Governor of the College of Law,
Guildford, Surrey, since 1995. She has been
an Honorary Fellow of Lucy Cavendish
College since 1994. Between 1995 and 1997
she served as a non-executive director of
London Electricity p.l.c.
</TABLE>
71
<PAGE>
<TABLE>
<CAPTION>
Name and Present Position
with BP Amoco,
and Address and Citizenship, if Business Experience During Past
Applicable Five Years and Period Served
------------------------------- -------------------------------
<C> <S>
Charles F. Knight, Mr. Knight has been a non-executive
Non-Executive Director director of BP Amoco since 1999 and was
United States Citizen previously a non-executive director of The
8000 W. Florissant British Petroleum Company p.l.c. since
St. Louis, MO 63136 1987. He has been the Chairman and Chief
Executive Officer of Emerson Electric
Company since 1973. He has served as a
director of each of SBC Communications
(formerly Southwestern Bell Corporation)
since 1974, Anheuser-Busch Companies Inc.
since 1987, IBM Corporation since 1993 and
Morgan Stanley Dean Witter since 1999.
Floris A. Maljers, Mr. Maljers has been a non-executive
Non-Executive Director director of BP Amoco since 1999 and was
Citizen of the Netherlands previously a director of Amoco Corporation
since 1994. He has served as the Chairman
of Utrecht Medical University Centre since
1994 and as a member of the Supervisory
Board of Vendex N.V. since 1996. He served
as non-executive Chairman of Philips
Electronics N.V. from 1993 to 1999. He has
also been a director of Diageo p.l.c. since
1994, a member of the Supervisory Board of
SHV Holding since 1996 and a member of the
Supervisory Board of KLM Royal Dutch
Airlines since 1991.
Dr. Walter E. Massey, Mr. Massey has been a non-executive
Non-Executive Director director of BP Amoco since 1999 and was
United States Citizen previously a director of Amoco Corporation
830 Westview Drive, S.W. since 1993. He has served as President of
Atlanta, GA 30314 USA Morehouse College since 1995, and as a
director of Bank of America Corporation and
Motorola, Inc. since 1993 and McDonald's
Corporation since 1998.
H. Michael P. Miles, Mr. Miles has been a non-executive director
Non-Executive Director of BP Amoco since 1999 and was previously a
4 Cockspur Street London, non-executive director of The British
London, England EC4 Petroleum Company p.l.c. since 1994. He
served as a non-executive director of
Johnson Matthey plc between 1990 and 1997
and has served as Chairman of that company
since 1997. He served as an executive
director of Swire Group between 1988 and
1999 and has been a non-executive director
of Ing Barings Holdings Limited since 1995
and Balfour Beatty p.l.c. since 1996.
Sir Robin Nicholson, Mr. Nicholson has been a non-executive
Non-Executive Director director of BP Amoco since 1999 and was
previously a non-executive director of The
British Petroleum Company p.l.c. since
1987. He served as Chairman of Pilkington
Optronics Limited between 1986 and 1999 and
as an executive director of Pilkington
p.l.c. between 1986 and 1996. He has served
as a non-executive director of Rolls Royce
p.l.c. since 1986.
</TABLE>
72
<PAGE>
<TABLE>
<CAPTION>
Name and Present Position
with BP Amoco,
and Address and Citizenship, if Business Experience During Past
Applicable Five Years and Period Served
------------------------------- -------------------------------
<C> <S>
Michael H. Wilson, Mr. Wilson has been a non-executive
Non-Executive Director director of BP Amoco since 1999 and
Canadian Citizen previously served as a director of Amoco
Royal Bank Plaza Corporation from 1993 to 1998. He has
South Tower--4th Floor served as the Chairman of Michael Wilson
Toronto, Ontario International since 1993 and Vice Chairman
M5J 2W7 of RBC Dominion Securities, Inc. since
1995. He has also served as a director of
Manulife Financial Company since 1995 and
Rio Algom Limited since 1996.
Sir Robert Wilson, Mr. Wilson has been a non-executive
Non-Executive Director director of BP Amoco since 1999 and
6 St. James' Square previously served as a non-executive
London, England director of The British Petroleum Company
SW17 4LD p.l.c. since 1998. He has served as the
Executive Chairman of Rio Tinto p.l.c.
since 1997 and previously served as a
director of that company since 1987. He has
been the Chairman of Rio Tinto Ltd. since
1999 and previously served as a director of
that company since 1990. He served as a
non-executive director of The Boots Company
p.l.c. between 1991 and 1998 and has been a
non-executive director of Diageo p.l.c.
since 1998.
Lord Wright of Richmond, Lord Wright has been a non-executive
Non-Executive Director director of BP Amoco since 1999 and
previously served as a non-executive
director of The British Petroleum Company
p.l.c. from 1991 to 1998. He served as a
non-executive director of Barclays Bank
p.l.c. from 1991 to 1997, a non-executive
director of BAA p.l.c. from 1992 to 1998
and an Advisory Director of Unilever p.l.c.
from 1991 to 1999. He has served as a non-
executive director of DeLa Rue p.l.c. since
1991.
</TABLE>
73
<PAGE>
Directors and Executive Officers of BP America
The following persons are the executive officers and/or directors of BP
America as of the date of this proxy statement. None of these persons has been
convicted in a criminal proceeding during the past five years (excluding
traffic violations or similar misdemeanors), nor has any of these persons been
a party to any judicial or administrative proceeding during the past five years
that resulted in a judgment, decree or final order enjoining the person from
future violations of, or prohibiting activities subject to, federal or state
securities laws or a finding of any violation of federal or state securities
laws. Unless otherwise specified, each of the directors and executive officers
of BP America is a citizen of the United States of America, and has his or her
principal business address at 200 East Randolph Drive, Chicago, Illinois 60601
(Telephone: (312) 856-6111).
<TABLE>
<CAPTION>
Name and Present Position
with BP America, and Address and Business Experience During Past
Citizenship if Applicable Five Years And Period Served
-------------------------------- -------------------------------
<C> <S>
Robert D. Agdern, Mr. Agdern has been President of ARCO and
President, Director BP America since earlier this year, and is
also President of BP Amoco Corporation. He
was previously Vice President and General
Counsel of BP America Inc. and BP Amoco
Corporation from 1999 to 2000. He has
worked as an attorney at Amoco Corporation
(now BP Amoco Corporation) since 1975. Mr.
Agdern also currently serves as a director
of Kernel Holdings.
Eileen A. Kamerick, Ms. Kamerick has been Vice President
Chief Financial Officer Finance, the Americas, and Chief Financial
and Vice President Officer of BP Amoco Corporation and Vice
President and Chief Financial Officer of BP
America since 1999. She is also the Vice
President and Chief Financial Officer of
ARCO. Previously, she served as a Senior
Financial Manager at Amoco Corporation from
1993 to 1996, Director of Banking and
Financial Services at Amoco Corporation
from 1996 to 1997, Vice President and
Treasurer of IMC Global Inc., Vice
President and Treasurer of Whirlpool
Corporation in 1997, Vice President and
General Counsel of G.E. Capital--Auto
Financial Services from 1997 to 1998, and
Vice President and Treasurer of Amoco
Corporation from 1998 to 1999.
John F. Campbell, Mr. Campbell has served as the Senior Vice
Director President--Human Resources of BP Amoco
Corporation since 1999. Prior to that, he
served in the same capacity at Amoco
Corporation from 1998 to 1999. He was
previously Vice President--Human Resources,
Chemicals at Amoco Corporation from 1994 to
1998. Mr. Campbell also currently serves as
a director of BP America, ARCO and Kernel.
James G. Nemeth, Mr. Nemeth has served as Vice President and
Director General Tax Officer of BP Amoco Corporation
and BP America Inc. since 1999 and in the
same capacity at ARCO since earlier this
year. He was Head of Taxation for BP
Australia Ltd. from 1993 to 1996 and
General Tax Officer at BP America from 1996
to 1999. Mr. Nemeth also currently serves
as a director of BP America, BP Amoco
Corporation, ARCO and Kernel.
</TABLE>
74
<PAGE>
Directors and Executive Officers of ARCO
The following persons are the executive officers and/or directors of ARCO as
of the date of this proxy statement. None of these persons has been convicted
in a criminal proceeding during the past five years (excluding traffic
violations or similar misdemeanors), nor has any of these persons been a party
to any judicial or administrative proceeding during the past five years that
resulted in a judgment, decree or final order enjoining the person from future
violations of, or prohibiting activities subject to, federal or state
securities laws or a finding of any violation of federal or state securities
laws. Unless otherwise specified, each of the directors and executive officers
of ARCO is a citizen of the United States of America, and has his or her
principal business address at 333 South Hope Street, Los Angeles, California
90071 (Telephone: (213) 486-3511).
<TABLE>
<CAPTION>
Name and Present
Position with ARCO Business Experience During Past
and Address, if Applicable Five Years and Period Served
-------------------------- -------------------------------
<C> <S>
Robert D. Agdern, Please refer to the information above under
President, Director the heading "Directors and Executive
200 E. Randolph Drive, Officers of BP America".
Chicago, IL 60601
Eileen A. Kamerick, Please refer to the information above under
Chief Financial Officer the heading "Directors and Executive
and Vice President Officers of BP America".
200 E. Randolph Drive,
Chicago, IL 60601
James G. Nemeth, Please refer to the information above under
Director, Vice President the heading "Directors and Executive
and General Tax Officer Officers of BP America".
200 E. Randolph Drive,
Chicago, IL 60601
David H. Welch, Mr. Welch has served as Business Unit
Executive Vice President Leader, Gulf of Mexico Deepwater
501 Westlake Park Blvd. Development at BP Amoco and Executive Vice
Houston, TX 77253 President at ARCO since earlier this year,
having previously served as Business Unit
Leader, Gulf of Mexico Deepwater
Development and Production, at BP Amoco
since 1999. Previously, he was Chief
Negotiator, Exploration and Production at
Altura from 1995 to 1996, Vice President of
Amoco Gulf Corporation later in 1996 and
President of Amoco Gulf Corporation and a
Vice President of Amoco Corporation from
1997 to 1998.
Roger E. Williams, Mr. Williams has been Vice President of
Executive Vice President U.S. Marketing Programs for BP Amoco
28301 Ferry Road Corporation since 1999 and Executive Vice
Warrenville, IL 60555 President of ARCO since earlier this year.
Previously he served at Amoco Corporation
as General Manager, Distillate Business
Unit, from 1995 to 1996 and Vice President
Commercial Sales from 1997 to 1998.
John F. Campbell, Please refer to the information above under
Director the heading "Directors and Executive
200 E. Randolph Drive Officers of BP America".
Chicago, IL 60601
</TABLE>
75
<PAGE>
Directors and Executive Officers of Kernel
The following persons are the executive officers and/or directors of Kernel
as of the date of this proxy statement. None of these persons has been
convicted in a criminal proceeding during the past five years (excluding
traffic violations or similar misdemeanors), nor has any of these persons been
a party to any judicial or administrative proceeding during the past five years
that resulted in a judgment, decree or final order enjoining the person from
future violations of, or prohibiting activities subject to, federal or state
securities laws or a finding of any violation of federal or state securities
laws. Each of the directors and executive officers of Kernel is a citizen of
the United States of America, and has his or her principal business address at
200 East Randolph Drive, Chicago, Illinois 60601 (Telephone: (312) 856-6111).
<TABLE>
<CAPTION>
Name and Present Position Business Experience During Business
with Kernel Holdings Address
------------------------- -----------------------------------
<C> <S>
Robert D. Agdern, Director, President Please refer to the information above
under the heading "Directors and
Executive Officers of BP America".
John F. Campbell, Director Please refer to the information above
under the heading "Directors and
Executive Officers of BP America".
James G. Nemeth, Director Please refer to the information above
under the heading "Directors and
Executive Officers of BP America".
</TABLE>
76
<PAGE>
THE MERGER AGREEMENT
The following is a summary of the material provisions of the merger
agreement, a copy of which is attached as Appendix A to this proxy statement.
This summary is qualified in its entirety by reference to the full text of the
merger agreement. The merger agreement is incorporated into this proxy
statement by reference.
Structure and Completion of the Merger
The merger agreement provides for the merger of Kernel, a wholly owned
subsidiary of ARCO, with and into Vastar, at which time Kernel's separate
corporate identity will end and Kernel will cease to exist. At the effective
time of the merger, Vastar will be the surviving corporation and will be a
wholly owned subsidiary of ARCO.
The closing of the merger will take place on the first business day
following the waiver or fulfillment of all of the conditions to the merger in
the merger agreement, other than those conditions that by their nature are to
be satisfied at the closing of the merger. The merger may also occur on another
date agreed upon by Vastar and ARCO.
The completion of the merger will occur when a certificate of merger has
been filed by Vastar and ARCO with the Secretary of State of Delaware or at any
later time specified in the certificate of merger.
Effect of the Merger on Capital Stock
At the completion of the merger, as a result of the merger, each share of
Vastar common stock issued and outstanding immediately prior to the completion
of the merger, other than those shares listed below as excluded shares, will be
automatically converted into the right to receive and become exchangeable for
$83 in cash without interest, which represents the merger consideration for the
shares. At the completion of the merger, all shares of Vastar common stock will
no longer be outstanding and will be cancelled and retired and will cease to
exist, and each certificate formerly representing the shares, other than those
listed below, will thereafter represent only the right to receive the merger
consideration.
The shares of Vastar common stock that will not be converted into the merger
consideration (which we refer to as "excluded shares") are:
. shares that are owned by ARCO, Kernel or any other direct or indirect
subsidiary of BP Amoco, which are not held on behalf of third parties;
. shares that are owned by Vastar or any subsidiary of Vastar, which are
not held on behalf of third parties; and
. shares that are owned by stockholders exercising appraisal rights
pursuant to Section 262 of the DGCL (we refer to these shares as
"dissenting shares").
Each excluded share will by virtue of the merger cease to be outstanding, and
will be cancelled and retired without payment of any consideration, and will
cease to exist.
Payment Procedures
Prior to the date of the closing of the merger, ARCO will select a payment
agent for the merger. ARCO will arrange for the payment agent to receive
sufficient funds to provide all necessary payments to holders of shares, other
than excluded shares, that are issued and outstanding immediately prior to the
completion of the merger. ARCO or Vastar (following the merger) will pay all
charges and expenses, including those of the payment agent, in connection with
the exchange of cash for shares.
77
<PAGE>
As soon as practicable, but no more than five business days after the
completion of the merger, ARCO will instruct the payment agent to mail to each
holder of a share certificate, other than excluded shares, a letter of
transmittal and instructions to effect the surrender of the certificates in
exchange for the merger consideration.
When you surrender to the payment agent your Vastar stock certificate(s)
with the letter of transmittal, you will be paid in cash the amount you are
entitled to under the merger agreement, without interest. After the completion
of the merger, there will not be any transfers of the shares that were
outstanding immediately prior to the completion of the merger on Vastar's stock
transfer books.
Any portion of the funds provided by ARCO to the payment agent for payment
of the merger consideration that remains unclaimed by Vastar stockholders for
180 days after the completion of the merger will be paid to ARCO. After that
time, any stockholders who have not complied with the merger agreement to
obtain payment of the merger consideration may only request payment for their
shares from ARCO. None of BP Amoco, ARCO, Vastar, the payment agent or any
other person will be liable to any former stockholders for any amount properly
delivered to a public official pursuant to applicable abandoned property,
escheat or similar laws.
Dissenters' Rights
Dissenting shares will not be converted into or represent the right to
receive the merger consideration. Holders of dissenting shares will be entitled
to receive payment of the fair value of their shares in accordance with Section
262 of the Delaware General Corporation Law (which we refer to as the "DGCL"),
except that all dissenting shares held by stockholders who fail to perfect or
withdraw or lose their rights to dissent under Section 262 of the DGCL will be
deemed to have been converted into and to represent only the right to receive
the $83 per share merger consideration. For a description of dissenters'
rights, see "Dissenters' Rights of Appraisal" beginning on page 85.
Vastar has agreed to give ARCO:
. prompt notice of any written demands for fair value received by Vastar,
withdrawals of those demands, and any other related instruments served
pursuant to the DGCL and received by Vastar; and
. the opportunity to direct all negotiations and proceedings with respect
to demands for fair value under the DGCL.
Vastar may not voluntarily make any payment with respect to any demands for
fair value for dissenting shares or settle, or offer to settle, any such
demands, without ARCO's consent.
Representations and Warranties
The merger agreement contains various representations and warranties by each
of Vastar, ARCO and Kernel. The representations of Vastar relate to, among
other things:
. the proper organization, valid existence and good standing of Vastar, and
the requisite corporate authority to own its properties and carry on its
business;
. the capital structure of Vastar;
. the corporate authority to execute, deliver and perform its obligations
under the merger agreement and to complete the merger, and the
enforceability of the merger agreement;
. the approval of the merger agreement by the Board of Directors of Vastar,
the Board of Directors' declaration that the merger is advisable, and its
recommendation that stockholders vote in favor of adoption of the merger
agreement;
78
<PAGE>
. the delivery of the opinions of Vastar's financial advisors;
. notices, reports, consents or other filings that Vastar must make with
any governmental entity in connection with the merger agreement and the
merger;
. the absence of breaches or violations of the certificate of incorporation
or bylaws of Vastar or its subsidiaries, or of material breaches or
violations of any agreements to which Vastar or such subsidiary is a
party or any license or permit to which Vastar is subject, any liens or
claims, that will be caused by the execution of the merger agreement and
the completion of the merger;
. the delivery by Vastar to ARCO of reports filed by Vastar with the SEC,
Vastar's financial statements, and the accuracy of the information
contained in those reports and financial statements;
. Vastar's conduct of its business in the ordinary and usual course, and
the absence of adverse changes to Vastar;
. Vastar's material compliance with all applicable laws, including the
proper holding of all intellectual property rights necessary to conduct
its business;
. Vastar's employee benefit plans; and
. the employment of brokers and finders, and fees due to such parties.
The representations of ARCO and Kernel relate to, among other things:
. the proper organization, valid existence and good standing of ARCO and
Kernel, and the requisite corporate authority to own their properties and
carry on their businesses;
. the corporate authority to execute, deliver and perform their obligations
under the merger agreement and to complete the merger, and the
enforceability of the merger agreement;
. notices, reports, consents or other filings that are required to be made
by ARCO, Kernel or companies affiliated with BP Amoco with any
governmental entity in connection with the merger agreement and the
merger;
. the absence of breaches or violations of the certificate of incorporation
or bylaws of ARCO or Kernel, or of material breaches or violations of any
agreements to which ARCO or Kernel is a party, or any license or permit
to which ARCO or Kernel is subject;
. the employment of brokers and finders, and fees due to such parties; and
. the availability to ARCO at the completion of the merger of all the funds
necessary to complete the merger.
Ordinary Course of Business Covenant
Vastar has agreed in the merger agreement that prior to the completion of
the merger, it will operate its business in the ordinary and usual course. In
particular, Vastar has agreed as to itself and its subsidiaries that it will
use its reasonable best efforts to preserve its business organization intact
and maintain its existing business relationships, and that it will not:
. issue or dispose of any capital stock it owns;
. amend its certificate of incorporation or bylaws;
. split, combine or reclassify its outstanding shares of capital stock;
. declare, set aside or pay any dividends and other than regular quarterly
cash dividends not in excess of $0.075 per share;
79
<PAGE>
. repurchase, redeem or otherwise acquire, except in connection with the
Vastar Resources, Inc. Capital Accumulation Plan, any shares of its
capital stock or any securities convertible into or exchangeable for any
shares of its capital stock;
. issue, sell, pledge, dispose or encumber any shares or other securities
convertible into or exchangeable for shares (except for shares issuable
pursuant to options outstanding under Vastar's benefit plans);
. other than in the ordinary and usual course of business, pledge or
dispose of or encumber any property or assets or incur or modify any
material indebtedness (except for borrowings under Vastar's commercial
paper program, an existing credit agreement and uncommitted bank lines of
credit);
. make or authorize any capital expenditures other than in the ordinary and
usual course of business as contemplated by Vastar's calendar year 2000
capital appropriations and spending budgets;
. acquire or invest in any other entity except as contemplated by Vastar's
calendar year 2000 capital appropriations and spending budgets;
. modify, terminate, or enter into any compensation and benefit plans or
increase the salary, wage, bonus or other compensation of any employees
except increases occurring in the ordinary course of business;
. settle any material litigation or, except in the ordinary and usual
course of business, amend or terminate any of its material contracts or
waive any material contract rights or claims;
. make any tax election or permit any insurance policy naming it as a
beneficiary or loss-payable payee to be terminated except in the ordinary
course of business;
. take any action or omit to take any action that would cause any of its
representations and warranties in the merger agreement to become untrue
in any material respect; or
. enter into an agreement to do any of the things listed above.
Actions to be Taken to Complete the Merger
In the merger agreement, Vastar and ARCO each agreed to take all necessary
action to complete the merger, including sharing information with each other in
order to file all necessary documents with third parties and governmental
entities.
In particular, Vastar and ARCO each agreed that the information they have
supplied for inclusion or incorporation by reference in this proxy statement
and the Schedule 13E-3 to be filed with the SEC in connection with the merger
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated in these documents or necessary to make the
statements in these documents, in light of the circumstances under which they
were made, not misleading. Vastar and ARCO have also agreed to ensure that this
proxy statement and the Schedule 13E-3 comply as to form in all material
respects with the applicable provisions of all applicable securities laws and
regulations. Vastar agreed to promptly prepare and file this proxy statement,
and Vastar and ARCO agreed promptly to prepare and file the Schedule 13E-3.
Vastar agreed to take all action necessary to convene a stockholders meeting
promptly after the date of the merger agreement, in order for Vastar's
stockholders to consider and vote upon the adoption of the merger agreement and
the authorization of the merger. Vastar also agreed that its Board of Directors
would recommend that its stockholders, other than BP Amoco, vote in favor of
adoption of the merger agreement.
80
<PAGE>
Vastar and ARCO each agreed that, upon a request by the other party, it
would furnish the other with all information concerning itself, its
subsidiaries, directors, officers and stockholders and other matters as may be
reasonably necessary in connection with the preparation of this proxy
statement, the Schedule 13E-3 or any other filing or notice made by or on
behalf of Vastar, ARCO or any of their respective subsidiaries to any third
party or any governmental entity in connection with the merger. Vastar and ARCO
each agreed to keep the other apprised of the status of matters relating to
completion of the merger, including promptly furnishing the other with copies
of notice or other communications received by them from any third party or
governmental entity with respect to the merger. Vastar agreed to promptly give
notice to ARCO of any change that is reasonably likely to result in a material
adverse effect to Vastar.
Vastar has agreed to provide ARCO's representatives with reasonable access
to its records prior to the completion of the merger, except as may otherwise
be required by law or prohibited under Vastar's contractual obligations with
third parties, and to furnish ARCO and its representatives all information
concerning its business that ARCO may reasonably request.
Vastar and ARCO agreed to consult with each other prior to making any public
announcements with respect to the merger or the effect of the merger on
Vastar's employees, and prior to making any filings with any third party or any
governmental entity with respect to the merger, except as may be required by
law or by obligations pursuant to any listing agreement with or rules of any
national securities exchange.
Stock Options
Vastar and ARCO will take all actions that are necessary so that immediately
prior to the completion of the merger, each stock option granted by Vastar to
buy shares of its common stock, whether or not then exercisable, will be
cancelled and only entitle the holder thereof to receive an amount in cash
equal to the total number of shares subject to the option multiplied by the
excess of $83 over the exercise price per share of the option.
Expenses
ARCO will pay all charges and expenses, including those of the payment
agent, in connection with the exchange of Vastar common stock for the $83 per
share merger consideration. Whether or not the merger is completed, all costs
and expenses incurred in connection with the merger are to be paid by the party
incurring that expense, except that expenses incurred in connection with the
filing fee for the Schedule 13E-3 and printing and mailing this proxy statement
to Vastar's stockholders will be shared equally by Vastar and ARCO.
Benefits and Other Matters
The merger agreement provides that Vastar and ARCO intend that the
compensation and benefit programs to be provided by BP Amoco for current and
former employees of Vastar will be no less favorable in the aggregate than what
is provided to similarly situated U.S. employees of BP Amoco.
For at least one year following the completion of the merger, ARCO will
provide to current and former employees and directors of Vastar and its
subsidiaries compensation and benefits that are at least as favorable in the
aggregate as the compensation and benefits they were entitled to receive
immediately prior to the completion of the merger, although with respect to
employees of Vastar who are subject to collective bargaining, all benefits will
be provided in accordance with the applicable collective bargaining or other
labor agreements. The merger agreement also provides that all incentive plans
will, after the completion of the merger, be substantially performance-based.
81
<PAGE>
ARCO has agreed to maintain Vastar's outplacement policies and financial
counseling policies that were in effect as of the date of the merger agreement
for two years following the completion of the merger.
Following the completion of the merger, ARCO will, and will cause BP Amoco
to, recognize service with Vastar and any of its subsidiaries prior to the
completion of the merger for all purposes under any benefit plans of BP Amoco,
to the same extent as if that service had been rendered to BP Amoco. ARCO will
also, and will direct BP Amoco to, recognize appropriate out-of-pocket expenses
of each employee or former employee of Vastar and its subsidiaries for purposes
of determining that individual's and former employee's deductible and co-
payment expenses under medical benefit plans maintained by BP Amoco. ARCO will
waive or cause to be waived any pre-existing condition limitation under any
welfare benefit plan maintained by BP Amoco in which employees of Vastar will
be eligible to participate on or following the completion of the merger to the
extent such pre-existing condition limitation was waived or satisfied under the
comparable plan of Vastar or its subsidiaries.
After the completion of the merger, ARCO will honor or cause its
subsidiaries, including Vastar or its subsidiaries, to honor existing
employment, change of control, severance and termination agreements between
Vastar or any of its subsidiaries, and any officer, director or employee of
such company.
Conditions
The respective obligations of Vastar, ARCO and Kernel to effect the merger
are subject to the satisfaction or waiver prior to the completion of the merger
of each of the following conditions:
. the adoption of the merger agreement and the authorization of the merger
by the affirmative vote of the holders of a majority of the outstanding
shares, including those held by BP Amoco, and by the holders of at least
two-thirds of the shares of Vastar common stock, other than shares held
by BP Amoco, in each case in accordance with applicable law and the
certificate of incorporation and bylaws of Vastar;
. other than the certificate of merger to be filed in relation to the
merger, all filings, consents or approvals required to be made or
obtained by Vastar or BP Amoco with any governmental entity in
connection with the merger agreement and merger must have been made or
obtained, except for those that the failure to make or obtain are not
reasonably likely to have a material adverse effect on Vastar;
. no governmental entity shall have enacted or proposed any law,
regulation or order that is in effect and restrains completion of the
merger, or is reasonably likely to have a material adverse effect on
Vastar; and
. no governmental entity or any other person shall have instituted any
proceeding that is still in effect or continuing on the closing date or
threatened to institute any proceeding seeking the enactment of any such
law, regulation or order.
The obligations of ARCO and Kernel to effect the merger are also subject to
the satisfaction or waiver by ARCO at or prior to the completion of the merger
of each of the following conditions, and the receipt by ARCO of a certificate
signed on behalf of Vastar by an executive officer of Vastar to that effect:
. the representations and warranties of Vastar that are qualified with
respect to materiality set forth in the merger agreement must be true,
in each case as of the date of the merger agreement and as of the
closing date as though made on and as of the closing date (except to the
extent any representation or warranty expressly speaks as of an earlier
date);
82
<PAGE>
. representations and warranties of Vastar that are not qualified with
respect to materiality must be true or, if not true their failure to be
true in the aggregate must not be reasonably likely to have a material
adverse effect on Vastar; and
. Vastar must have performed in all material respects all its obligations
under the merger agreement at or prior to the closing date.
The obligation of Vastar to effect the merger is also subject to the
satisfaction or waiver by Vastar at or prior to the completion of the merger of
each of the following conditions, and the receipt by Vastar of a certificate
signed on behalf of ARCO and Kernel by an executive officer of ARCO to that
effect:
. the representations and warranties that are qualified with respect to
materiality of ARCO and Kernel must be true, in each case as of the date
of the merger agreement and as of the closing date of the merger as
though made on and as of that closing date (except to the extent any
representation or warranty expressly speaks as of an earlier date);
. representations and warranties of ARCO and Kernel that are not qualified
with respect to materiality must be true or, if not true, their failure
to be true in the aggregate must not reasonably be likely to have a
material adverse effect on ARCO; and
. each of ARCO and Kernel must have performed in all material respects all
the obligations required to be performed by it under the merger agreement
at or prior to the closing date of the merger.
As used in the merger agreement, with respect to conditions for completion
of the merger, a "material adverse effect" means, with respect to Vastar, any
change, event or effect that has a material adverse effect on Vastar's
financial condition, properties, business or results of operations or on
Vastar's ability to perform its obligations under the merger agreement, except
in either case, a decline or deterioration in the economy in general or
changes, events or effects that generally affect the industry in which Vastar
operates. With respect to ARCO, "material adverse effect" means any change,
event or effect that has a material adverse effect on ARCO's ability to perform
its obligations under the merger agreement.
Termination
The merger agreement may be terminated and the merger abandoned at any time
prior to the completion of the merger, including after approval of the merger
agreement and the authorization of the merger at the Vastar stockholders
special meeting, by mutual written consent of Vastar and ARCO by action of
their respective Boards of Directors.
The merger agreement may be terminated and the merger abandoned at any time
prior to the completion of the merger by action of the Board of Directors of
either Vastar or ARCO if:
. the merger has not been completed by December 31, 2000, although this
provision may not be used to terminate the merger agreement by a party
that has breached the merger agreement in a manner that proximately
contributes to the failure of the merger to be completed;
. the required votes of Vastar's stockholders to approve the merger are not
obtained at the stockholders meeting; or
. any law, regulation or order permanently restraining completion of the
merger shall become final and non-appealable.
83
<PAGE>
The merger agreement may be terminated and the merger abandoned at any time
prior to the completion of the merger by action of the Board of Directors of
Vastar if there has been a breach of any representation, warranty, covenant or
agreement made by ARCO or Kernel in the merger agreement, such that the
conditions to the merger in the merger agreement relating to ARCO's and
Kernel's representations, warranties and obligations would not be satisfied,
and that breach or condition is not curable or, if curable, is not cured within
30 days after written notice of the breach is given by Vastar to ARCO.
The merger agreement may be terminated and the merger abandoned at any time
prior to the completion of the merger by action of the Board of Directors of
ARCO if there has been a breach of any representation, warranty, covenant or
agreement made by Vastar in the merger agreement, such that the conditions to
completion of the merger in the merger agreement relating to Vastar's
representations, warranties and obligations would not be satisfied and that
breach or condition is not curable or, if curable, is not cured within 30 days
after written notice thereof is given by ARCO to Vastar.
In the event of termination of the merger agreement and the abandonment of
the merger, the merger agreement, with the exception of a limited number of
provisions will become void with no liability on the part of any party to the
merger agreement. However, a party may still be liable for damages if the
termination of the merger agreement results from that party's willful breach of
the merger agreement.
Miscellaneous Provisions
Whenever the merger agreement requires ARCO to take any action, that
requirement is deemed to include an undertaking on the part of BP America to
cause ARCO or another affiliate of BP Amoco to take that action. Whenever the
merger agreement requires a subsidiary of Vastar to take any action, that
requirement is deemed to include an undertaking on the part of Vastar to cause
that subsidiary to take the action.
The merger agreement also contains customary provisions addressing the
following matters:
. survival of certain provisions in the event of the completion of the
merger or the termination of the merger agreement;
. the modification or amendment of the merger agreement, the ability of the
parties to assign the merger agreement, and the ability of the parties to
waive conditions that are for their benefit;
. the choice of Delaware law to govern the agreement and the waiver of a
jury trial; and
. the fact that except for some sections relating to stock options,
indemnification, directors' and officers' insurance and employee
benefits, the merger agreement is not intended to give any rights or
remedies to any third parties.
84
<PAGE>
DISSENTERS' RIGHTS OF APPRAISAL
Under Section 262 of DGCL, if you do not vote your outstanding shares of
Vastar common stock in favor of the approval and adoption of the merger
agreement, you will be entitled to dissent and elect to have the fair value of
your shares, exclusive of any element of value arising from the accomplishment
or expectation of the merger, judicially determined and paid to you in cash.
The following discussion is not a complete statement of the law pertaining
to appraisal rights under the DGCL and is qualified in its entirety by the full
text of Section 262, which is provided as Appendix D to this proxy statement.
All references in Section 262 and in this summary to a "stockholder" are to the
record holder of the shares of Vastar common stock as to which appraisal rights
are asserted. If you have a beneficial interest in shares of common stock held
of record in the name of another person, such as a broker or nominee, you must
act promptly to cause the record holder to follow properly the steps summarized
below and in a timely manner to perfect your appraisal rights.
Under Section 262, where a proposed merger is to be submitted for approval
at a meeting of stockholders, as in the case of the special meeting of Vastar
stockholders described in this proxy statement, the corporation, not less than
20 days prior to the meeting, must notify each of its stockholders entitled to
appraisal rights that such appraisal rights are available and include in such
notice a copy of Section 262. This proxy statement is that notice to you, and
the applicable statutory provisions of the DGCL are attached to this proxy
statement as Appendix D. If you wish to exercise such appraisal rights or wish
to preserve the right to do so, you should review carefully Section 262 and
seek advice of legal counsel, since failure to comply fully with the procedures
of that Section will result in the loss of appraisal rights.
If you wish to exercise the right to dissent from the merger and demand
appraisal under Section 262 of the DGCL, you must satisfy each of the following
conditions:
. You must deliver to Vastar a written demand for appraisal of your shares
before the vote on the merger at the special meeting, which demand will
be sufficient if it reasonably informs Vastar of your identity, the
identity of the record holder of your shares if different, and that you
intend to demand the appraisal of your shares.
. You must not vote in favor of the merger agreement. Because a proxy that
does not contain voting instructions will, unless revoked, be voted in
favor of the merger agreement, if you vote by proxy and wish to exercise
appraisal rights, you must vote against the merger agreement or abstain
from voting on the merger agreement.
. You must continuously hold your shares from the date of making your
demand through the effective time of the merger. If you hold shares of
common stock on the date the written demand for appraisal is made but
thereafter transfer your shares prior to the effective time of the
merger, you will lose any right to appraisal in respect of the shares.
Neither voting in person or by proxy against, abstaining from voting on or
failing to vote on the proposal to approve and adopt the merger agreement will
constitute a written demand for appraisal within the meaning of Section 262.
The written demand for appraisal must be in addition to and separate from any
such proxy or vote.
Only a holder of record of shares of Vastar common stock issued and
outstanding immediately prior to the effective time of the merger is entitled
to assert appraisal rights for the shares of common stock registered in that
holder's name. A demand for appraisal should be executed by or on behalf of the
stockholder of record, fully and correctly, as that stockholder's name appears
on such stock certificates, should specify the stockholder's name and mailing
address, the number of shares of common stock owned and that the stockholder
intends thereby to demand appraisal of the stockholder's common stock.
85
<PAGE>
If your shares are owned of record in a fiduciary capacity, such as by a
trustee, guardian or custodian, execution of the demand should be made in that
capacity. If your shares are owned of record by more than one person as in a
joint tenancy or tenancy in common, the demand should be executed by or on
behalf of all owners. An authorized agent, including one or more joint owners,
may execute a demand for appraisal on behalf of a stockholder; however, the
agent must identify the record owner or owners and expressly disclose the fact
that, in executing the demand, the agent is acting as agent for the owner or
owners.
A record holder such as a broker who holds shares as nominee for several
beneficial owners may exercise appraisal rights with respect to the shares held
for one or more beneficial owners while not exercising those rights with
respect to the shares held for one or more other beneficial owners; in such
case, the written demand should set forth the number of shares as to which
appraisal is sought, and where no number of shares is expressly mentioned, the
demand will be presumed to cover all shares held in the name of the record
owner. If you hold your shares in brokerage accounts or other nominee forms and
wish to exercise appraisal rights, you are urged to consult with your broker to
determine the appropriate procedures for the making of a demand for appraisal
by such a nominee.
A stockholder who elects to exercise appraisal rights pursuant to Section
262 should mail or deliver a written demand to Vastar Resources, Inc., 15375
Memorial Drive, Houston, Texas 77079, Attention: Secretary.
Within ten days after the completion of the merger, the surviving
corporation must send a notice as to the effectiveness of the merger to each
former Vastar stockholder who has made a written demand for appraisal in
accordance with Section 262 and who has not voted in favor of the merger
agreement. Within 120 days after the completion of the merger, but not
thereafter, either Vastar or any holder of dissenting shares who has complied
with the requirements of Section 262 may file a petition in the Delaware
Chancery Court demanding a determination of the value of all dissenting shares
held by dissenting stockholders. Vastar is under no obligation to and has no
present intent to file a petition for appraisal, and you should not assume that
Vastar will file such a petition or that Vastar will initiate any negotiations
with respect to the fair value of the shares. Accordingly, if you desire to
have your shares appraised, you should initiate any petitions necessary for the
perfection of your appraisal rights within the time periods and in the manner
prescribed in Section 262.
Within 120 days after the effective time, any stockholder who has complied
with the provisions of Section 262 to that point in time will be entitled to
receive from Vastar, upon written request, a statement setting forth the
aggregate number of shares not voted in favor of the merger agreement and with
respect to which demands for appraisal have been received and the aggregate
number of holders of the shares. Vastar must mail this statement to the
stockholder within 10 days of receipt of the request or within 10 days after
expiration of the period for delivery of demands for appraisals under Section
262, whichever is later.
A stockholder timely filing a petition for appraisal with the Court of
Chancery must deliver a copy to Vastar, which will then be obligated within 20
days to provide the Delaware Court of Chancery with a duly verified list
containing the names and addresses of all stockholders who have demanded
appraisal of their shares. After notice to the stockholders, the Delaware Court
of Chancery is empowered to conduct a hearing on the petition to determine
which stockholders are entitled to appraisal rights. The Delaware Court of
Chancery may require stockholders who have demanded an appraisal for their
shares and who hold stock represented by certificates to submit their
certificates to the Register in Chancery for notation thereon of the pendency
of the appraisal proceedings, and if any stockholder fails to comply with the
requirement, the Delaware Court of Chancery may dismiss the proceedings as to
that stockholder.
After determining the stockholders entitled to an appraisal, the Delaware
Court of Chancery will appraise the "fair value" of their shares, exclusive of
any element of value arising from the
86
<PAGE>
accomplishment or expectation of the merger, together with a fair rate of
interest, if any, to be paid upon the amount determined to be the fair value.
The costs of the action may be determined by the Delaware Chancery Court and
taxed upon the parties as the Delaware Chancery Court deems equitable. Upon
application of a holder of dissenting shares, the Delaware Chancery Court may
also order that all or a portion of the expenses incurred by any stockholder in
connection with the appraisal proceeding, including, without limitation,
reasonable attorneys' fees and the fees and expenses of experts, be charged pro
rata against the value of all of the shares entitled to appraisal. If you
consider seeking appraisal, you should be aware that the fair value of your
shares as determined under Section 262 could be more than, the same as or less
than the $83 per share you would receive pursuant to the merger agreement if
you did not seek appraisal of your shares. You should also be aware that
investment banking opinions are not opinions as to fair value under Section
262.
In determining fair value and, if applicable, a fair rate of interest, the
Delaware Chancery Court is to take into account all relevant factors. In
Weinberger v. UOP, Inc., the Delaware Supreme Court discussed the factors that
could be considered in determining fair value in an appraisal proceeding,
stating that "proof of value by any techniques or methods which are generally
considered acceptable in the financial community and otherwise admissible in
court" should be considered, and that "fair price obviously requires
consideration of all relevant factors involving the value of a company." The
Delaware Supreme Court stated that, in making this determination of fair value,
the court must consider market value, asset value, dividends, earnings
prospects, the nature of the enterprise and any other facts that could be
ascertained as of the date of the merger that throw any light on future
prospects of the merged corporation. In Weinberger, the Delaware Supreme Court
stated that "elements of future value, including the nature of the enterprise,
which are known or susceptible of proof as of the date of the merger and not
the product of speculation, may be considered." Section 262 provides that fair
value is to be "exclusive of any element of value arising from the
accomplishment or expectation of the merger."
Any stockholder who has duly demanded an appraisal in compliance with
Section 262 will not, after the completion of the merger, be entitled to vote
the shares subject to such demand for any purpose or to receive payment of
dividends or other distributions on those shares (except dividends or other
distributions payable to holders of record of shares as of a record date prior
to the completion of the merger).
You may withdraw your demand for appraisal and accept the $83 per share
merger consideration by delivering to Vastar a written withdrawal of your
demand for appraisal, except that:
. any attempt to withdraw made more than 60 days after the completion of
the merger will require written approval of Vastar; and
. no appraisal proceeding in the Delaware Chancery Court will be dismissed
as to any stockholder without the approval of the Delaware Chancery
Court, and that approval may be conditioned upon the terms as the
Delaware Chancery Court deems just.
If Vastar does not approve your request to withdraw a demand for appraisal
when the approval is required or if the Delaware Chancery Court does not
approve the dismissal of an appraisal proceeding, you would be entitled to
receive only the appraised value determined in any appraisal proceeding, which
value could be lower than the $83 per share merger consideration.
INDEPENDENT PUBLIC ACCOUNTANTS
The consolidated balance sheet of Vastar and its subsidiaries as of December
31, 1999 and 1998, and the related consolidated statements of income,
stockholders' equity, and cash flows for the years ended December 31, 1999 and
1998 included in Vastar's Annual Report on Form 10-K for the years ended
December 31, 1999 and 1998 and incorporated by reference in this proxy
statement, have been audited by PricewaterhouseCoopers LLP, independent
auditors, in accordance with auditing standards generally accepted in the
United States.
87
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
Vastar, BP Amoco and ARCO file reports, proxy statements and other
information with the Securities Exchange Commission under the Exchange Act.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. You may read and copy this information at the following
locations of the SEC:
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, New York 10048 Suite 1400
Chicago, Illinois 60661-
2511
You may also obtain copies of this information by mail from the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, at prescribed rates. The SEC also maintains an Internet world wide
web site that contains reports, proxy statements and other information about
issuers, including Vastar, BP Amoco and ARCO, who file electronically with the
SEC. The address of that site is http://www.sec.gov. You can also inspect
reports, proxy statements and other information about each of Vastar, BP Amoco
and ARCO at the offices of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005.
The SEC allows Vastar to "incorporate by reference" information into this
document. This means that we can disclose important information to you by
referring you to another document filed separately with the SEC. The
information incorporated by reference is considered to be a part of this
document, except for any information that is superseded by information that is
included directly in this document.
This document incorporates by reference the documents listed below that
Vastar has previously filed with the SEC. They contain important information
about Vastar and our financial condition. Some of these filings have been
amended by later filings, which are also listed.
Vastar SEC Filings (File No. 1-13108) Description or Period/As of Date
Annual Report Form 10-K Year ended December 31, 1999.
Amendment to Annual Report Form Provides information regarding
10-K/A, dated May 1, 2000 executive compensation.
Quarterly Report on Form 10-Q Quarter ended March 31, 2000.
Current Report on Form 8-K, dated Discloses postponement of annual
April 28, 2000 meeting pending future results
related to BP Amoco's proposal.
Current Report on Form 8-K, dated Discloses underwater drilling
April 27, 2000 discovery in the Gulf of Mexico.
Current Report on Form 8-K, dated Discloses the resignation of four
April 18, 2000 ARCO executives from the Board and
appointment of Charles Davidson as
Chairman of the Board of
Directors.
88
<PAGE>
We incorporate by reference any additional documents that we may file with
the SEC under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act between the
date of this document and the date of the Vastar special meeting.
We will provide, without charge, to each person to whom this proxy statement
is delivered, upon written or oral request of such person and by first class
mail or other equally prompt means within one business day of receipt of such
request, a copy of any and all information that has been incorporated by
reference, without exhibits. You may obtain a copy of these documents and any
amendments thereto by writing to our Investor Relations Department at the
following address: Vastar Resources, Inc., 15375 Memorial Drive, Houston, Texas
77079, Telephone: (281) 584-3477. We will furnish copies of exhibits for 25
cents per page, prepaid.
We have not authorized anyone to give any information or make any
representation about the merger or us that differs from, or adds to, the
information in this document or in our documents that are publicly filed with
the SEC. Therefore, if anyone does give you different or additional
information, you should not rely on it.
The information contained in this document speaks only as of , 2000
unless the information specifically indicates that another date applies.
By order of the Board of Directors
/s/ Albert D. Hoppe
Secretary
Houston, Texas
, 2000
89
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
Among
ATLANTIC RICHFIELD COMPANY,
KERNEL HOLDINGS, INC.
and
VASTAR RESOURCES, INC.
Dated as of May 24, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
RECITALS
ARTICLE I
Definitions
ARTICLE II
The Merger; Closing; Effective Time
2.1. The Merger......................................................... A-4
2.2. Closing............................................................ A-4
2.3. Effective Time..................................................... A-4
ARTICLE III
Certificate of Incorporation and Bylaws of the Surviving Corporation
3.1. The Certificate of Incorporation................................... A-4
3.2. The Bylaws......................................................... A-4
ARTICLE IV
Officers and Directors of the Surviving Corporation
4.1. Directors.......................................................... A-5
4.2. Officers........................................................... A-5
ARTICLE V
Effect of the Merger on Capital Stock; Payment Procedures
5.1. Effect on Capital Stock............................................ A-5
(a) Merger Consideration.......................................... A-5
(b) Cancellation of Excluded Shares............................... A-5
(c) Merger Sub.................................................... A-5
5.2. Payment Procedures................................................. A-5
(a) Payment Agent................................................. A-5
(b) Procedures for Payment........................................ A-5
(c) Lost, Stolen or Destroyed Certificates........................ A-6
(d) Termination of the Payment Fund............................... A-6
5.3. Dissenters' Rights................................................. A-6
ARTICLE VI
Representations and Warranties
6.1. Representations and Warranties of the Company...................... A-6
(a) Organization, Good Standing and Qualification................. A-6
(b) Capital Structure............................................. A-7
(c) Corporate Authority; Approval and Fairness.................... A-7
(d) Governmental Filings; No Violations........................... A-8
(e) Company Reports; Financial Statements......................... A-8
(f) Absence of Certain Changes.................................... A-9
(g) Compliance with Laws; Permits................................. A-9
</TABLE>
A-i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
(h) Employee Benefits............................................ A-9
(i) Brokers and Finders.......................................... A-10
6.2. Representations and Warranties of Parent and Merger Sub........... A-10
(a) Organization, Good Standing and Qualification................ A-10
(b) Corporate Authority.......................................... A-10
(c) Governmental Filings; No Violations.......................... A-10
(d) Brokers and Finders.......................................... A-11
(e) Financing.................................................... A-11
ARTICLE VII
Covenants
7.1. Interim Operations................................................ A-11
7.2. Information Supplied.............................................. A-12
7.3. Stockholders Meeting.............................................. A-12
7.4. Filings; Other Actions; Notification.............................. A-13
7.5. Access............................................................ A-13
7.6. Publicity......................................................... A-14
7.7. Stock Options..................................................... A-14
7.8. Expenses.......................................................... A-14
7.9. Indemnification; Directors' and Officers' Insurance............... A-14
7.10. Benefits and Other Matters........................................ A-15
7.11. List of Certain Contracts......................................... A-16
ARTICLE VIII
Conditions
8.1. Conditions to Each Party's Obligation to Effect the Merger........ A-16
(a) Stockholder Approval......................................... A-16
(b) Regulatory Consents.......................................... A-16
(c) Litigation................................................... A-16
8.2. Conditions to Obligations of Parent and Merger Sub................ A-17
(a) Representations and Warranties............................... A-17
(b) Performance of Obligations of the Company.................... A-17
8.3. Conditions to Obligation of the Company........................... A-17
(a) Representations and Warranties............................... A-17
(b) Performance of Obligations of Parent and Merger Sub.......... A-17
ARTICLE IX
Termination
9.1. Termination by Mutual Consent..................................... A-17
9.2. Termination by Either the Company or Parent....................... A-18
9.3. Termination by the Company........................................ A-18
9.4. Termination by Parent............................................. A-18
9.5. Effect of Termination and Abandonment............................. A-18
ARTICLE X
Miscellaneous and General
10.1. Survival.......................................................... A-18
10.2. Modification or Amendment......................................... A-18
</TABLE>
A-ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
10.3. Waiver of Conditions.............................................. A-18
10.4. Counterparts...................................................... A-19
10.5. GOVERNING LAW AND VENUE; WAIVER OF JURY TRIAL..................... A-19
10.6. Notices........................................................... A-19
10.7. Entire Agreement.................................................. A-20
10.8. No Third Party Beneficiaries...................................... A-20
10.9. Obligations of Parent and of the Company.......................... A-20
10.10. Severability...................................................... A-20
10.11. Interpretation.................................................... A-20
10.12. Assignment........................................................ A-21
Exhibit A--Certificate of Incorporation of Merger Sub
</TABLE>
A-iii
<PAGE>
AGREEMENT AND PLAN OF MERGER (hereinafter called this "Agreement" ), dated
as of May 24, 2000, among Vastar Resources, Inc., a Delaware corporation (the
"Company" ), Atlantic Richfield Company, a Delaware corporation ("Parent" ),
and Kernel Holdings, Inc., a Delaware corporation and a wholly owned subsidiary
of Parent ("Merger Sub," the Company and Merger Sub sometimes being hereinafter
collectively referred to as the "Constituent Corporations" ).
RECITALS
WHEREAS, of the issued and outstanding shares of the Common Stock, par value
$0.01 per share, of the Company (each a "Share" and, collectively, the
"Shares" ), Parent currently owns 80,000,001 Shares or approximately 81.9% of
the Shares;
WHEREAS, the Special Committee has unanimously recommended that the
Company's board of directors approve the Merger and this Agreement;
WHEREAS, the respective board of directors of each of Parent, Merger Sub and
the Company has unanimously approved the merger of Merger Sub with and into the
Company (the "Merger" ) upon the terms and subject to the conditions set forth
in this Agreement and has approved this Agreement; and
WHEREAS, the Company, Parent and Merger Sub desire to make certain
representations, warranties, covenants and agreements in connection with this
Agreement.
NOW, THEREFORE, in consideration of the premises, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto agree as follows:
ARTICLE I
Definitions
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Article I:
"Affiliate" means with respect to any Person, any director or executive
officer of such Person and any other Person which would constitute an
"affiliate" of such Person within the meaning of Rule 12b-2 under the Exchange
Act.
"Agreement" shall have the meaning set forth in the Preamble.
"Audit Date" shall have the meaning set forth in Section 6.1(e).
"Bankruptcy and Equity Exception" shall have the meaning set forth in
Section 6.1(c)(i).
"BPA" means BP Amoco p.l.c., a company organized under the laws of England
and Wales.
"BPA Companies" means Parent, Merger Sub and any other Affiliate of BPA
except the Company and its Subsidiaries.
"Bylaws" shall have the meaning set forth in Section 3.2.
"Certificate" shall have the meaning set forth in Section 5.1(a).
"Charter" shall have the meaning set forth in Section 3.1.
A-1
<PAGE>
"Closing" shall have the meaning set forth in Section 2.2.
"Closing Date" shall have the meaning set forth in Section 2.2.
"Company" shall have the meaning set forth in the Preamble.
"Company Disclosure Schedule" shall have the meaning set forth in Section
6.1.
"Company Material Adverse Effect" means any change, event or effect that has
a material adverse effect on the financial condition, properties, business or
results of operations of the Company and its Subsidiaries taken as a whole or
on the Company's ability to perform its obligations under this Agreement,
except in either case, a decline or deterioration in the economy in general or
changes, events or effects that generally affect the industry in which the
Company and its Subsidiaries operate.
"Company Option" shall have the meaning set forth in Section 6.1(b).
"Company Requisite Vote" shall have the meaning set forth in Section
6.1(c)(i).
"Company Reports" shall have the meaning set forth in Section 6.1(e).
"Company SEC Filings" shall have the meaning set forth in Section 6.1(g).
"Compensation and Benefit Plans" shall have the meaning set forth in Section
6.1(h).
"Confidentiality Agreement" means the Confidentiality Agreement, dated as of
May 1, 2000, between BPA and the Company.
"Constituent Corporations" shall have the meaning set forth in the Preamble.
"Contract" means any agreement, lease, contract, note, mortgage, indenture,
arrangement or other obligation.
"Delaware Certificate of Merger" shall have the meaning set forth in Section
2.3.
"DGCL" shall have the meaning set forth in Section 2.1.
"Dissenting Shares" shall have the meaning set forth in Section 5.1(a).
"Dissenting Stockholders" shall have the meaning set forth in Section
5.1(a).
"Effective Time" shall have the meaning set forth in Section 2.3.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Excluded Shares" shall have the meaning set forth in Section 5.1(a).
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"GAAP" means United States generally accepted accounting principles.
"Governmental Entity" means any (i) nation, state, county, city, town,
village, district, or other jurisdiction of any nature, (ii) federal, state,
local, municipal, foreign, or other government; (iii) governmental or quasi-
governmental authority of any nature (including any governmental agency,
branch, department, official, or entity and any court or other tribunal) or
(iv) body exercising, or entitled to exercise, any administrative, executive,
judicial, legislative, police, regulatory, or taxing authority or power of any
nature (including any self-regulatory organization or national securities
exchange).
A-2
<PAGE>
"Indemnitees" shall have the meaning set forth in Section 7.9(b).
"Law" means any federal, state, local, foreign or international law,
statute, ordinance, rule, regulation, treaty, judgment, order, injunction,
decree, arbitration award, agency requirement, license or permit of any
Governmental Entity.
"Merger" shall have the meaning set forth in the Recitals.
"Merger Consideration" shall have the meaning set forth in Section 5.1(a).
"Merger Sub" shall have the meaning set forth in the Preamble.
"NYSE" means the New York Stock Exchange, Inc.
"Order" shall have the meaning set forth in Section 8.1(c).
"Parent" shall have the meaning set forth in the Preamble.
"Parent Disclosure Schedule" shall have the meaning set forth in Section
6.2.
"Parent Material Adverse Effect" means any change, event or effect that has
a material adverse effect on Parent's ability to perform its obligations under
this Agreement.
"Payment Agent" shall have the meaning in Section 5.2(a).
"Payment Fund" shall have the meaning set forth in Section 5.2(a).
"Person" means any individual, corporation, general or limited partnership,
limited liability company, joint venture, estate, trust, association,
organization, Governmental Entity or other entity of any kind or nature.
"Preferred Shares" shall have the meaning set forth in Section 6.1(b).
"Proxy Statement" shall have the meaning set forth in Section 7.2.
"Representatives" shall have the meaning set forth in Section 7.5.
"Schedule 13E-3" shall have the meaning set forth in Section 7.2.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Shares" shall have the meaning set forth in the Recitals.
"Special Committee" means the Special Committee of the Board of Directors of
the Company established to consider Parent's proposal.
"Stock Plan" shall have the meaning set forth in Section 6.1(b).
"Stockholders Meeting" shall have the meaning set forth in Section 7.3.
"Subsidiary" means, with respect to the Company, Parent or Merger Sub, as
the case may be, any entity, whether incorporated or unincorporated, of which
at least a majority of the securities or ownership interests having by their
terms ordinary voting power to elect a majority of the board of directors or
other persons performing similar functions is directly or indirectly owned or
controlled by
A-3
<PAGE>
such party or by one or more of its respective Subsidiaries or by such party
and any one or more of its respective Subsidiaries but shall not include
Southern Company Energy Marketing L.P.
"Surviving Corporation" shall have the meaning set forth in Section 2.1.
"Tax" (including, with correlative meaning, the terms "Taxes", and
"Taxable") means all federal, state, local and foreign income, profits,
franchise, gross receipts, environmental, customs duty, capital stock,
severances, stamp, payroll, sales, employment, unemployment, disability, use,
property, withholding, excise, production, value added, occupancy and other
taxes, duties or assessments of any nature whatsoever, together with all
interest, penalties and additions imposed with respect to such amounts and any
interest in respect of such penalties and additions.
"Voting Debt" shall have the meaning set forth in Section 6.1(b).
ARTICLE II
The Merger; Closing; Effective Time
2.1. The Merger. At the Effective Time, upon the terms and subject to the
conditions set forth in this Agreement, Merger Sub shall be merged with and
into the Company and the separate corporate existence of Merger Sub shall
thereupon cease. The Company shall be the surviving corporation in the Merger
(sometimes hereinafter referred to as the "Surviving Corporation"), and the
separate corporate existence of the Company with all its rights, privileges,
immunities, powers and franchises shall continue unaffected by the Merger,
except as set forth in Articles III and IV. The Merger shall have the effects
specified in the Delaware General Corporation Law, as amended (the "DGCL").
2.2. Closing. The closing of the Merger (the "Closing") shall take place (i)
at the offices of Sullivan & Cromwell, 125 Broad Street, New York, New York at
9:00 A.M. on the first business day after which the last to be fulfilled or
waived of the conditions set forth in Article VIII (other than those conditions
that by their nature are to be satisfied at the Closing, but subject to the
fulfillment or waiver of those conditions) shall be satisfied or waived in
accordance with this Agreement or (ii) at such other place and time and/or on
such other date as the Company and Parent may agree in writing (the "Closing
Date").
2.3. Effective Time. As soon as practicable following the Closing, the
Company and Parent will cause a Certificate of Merger (the "Delaware
Certificate of Merger") to be executed, acknowledged and filed with the
Secretary of State of Delaware as provided in Section 251 of the DGCL. The
Merger shall become effective at the time when the Delaware Certificate of
Merger has been duly filed with the Secretary of State of Delaware, unless such
Delaware Certificate of Merger specifies a later effective date in which event
the Merger shall become effective on such later date (the "Effective Time").
ARTICLE III
Certificate of Incorporation and Bylaws of the Surviving Corporation
3.1. The Certificate of Incorporation. The certificate of incorporation of
Merger Sub set forth in Exhibit A as in effect immediately prior to the
Effective Time shall be the certificate of incorporation of the Surviving
Corporation (the "Charter"), until duly amended as provided therein or by
applicable Law.
3.2. The Bylaws. The bylaws of Merger Sub in effect at the Effective Time
shall be the bylaws of the Surviving Corporation (the "Bylaws"), until
thereafter amended as provided therein or by applicable Law.
A-4
<PAGE>
ARTICLE IV
Officers and Directors of the Surviving Corporation
4.1. Directors. The directors of Merger Sub at the Effective Time shall,
from and after the Effective Time, be the directors of the Surviving
Corporation until their successors have been duly elected or appointed and
qualified or until their earlier death, resignation or removal in accordance
with the Charter and the Bylaws.
4.2. Officers. The officers designated by Parent prior to or at the
Effective Time shall, from and after the Effective Time, be the officers of the
Surviving Corporation until their successors have been duly elected or
appointed and qualified or until their earlier death, resignation or removal in
accordance with the Charter and the Bylaws.
ARTICLE V
Effect of the Merger on Capital Stock; Payment Procedures
5.1. Effect on Capital Stock. At the Effective Time, as a result of the
Merger and without any action on the part of the holder of any capital stock of
the Company:
(a) Merger Consideration. Each Share issued and outstanding immediately
prior to the Effective Time (other than Shares owned by the Parent, Merger
Sub or any other direct or indirect Subsidiary of BPA or Shares that are
owned by the Company or any direct or indirect Subsidiary of the Company
and in each case not held on behalf of third parties or Shares ("Dissenting
Shares") that are owned by stockholders ("Dissenting Stockholders")
exercising appraisal rights pursuant to Section 262 of the DGCL (each, an
"Excluded Share" and collectively, "Excluded Shares")) shall be converted
into, and become exchangeable for $83.00 (the "Merger Consideration"). At
the Effective Time, all Shares shall no longer be outstanding and shall be
cancelled and retired and shall cease to exist, and each certificate (a
"Certificate") formerly representing any of such Shares (other than
Excluded Shares) shall thereafter represent only the right to the Merger
Consideration.
(b) Cancellation of Excluded Shares. Each Excluded Share shall, by
virtue of the Merger and without any action on the part of the holder
thereof, cease to be outstanding, shall be cancelled and retired without
payment of any consideration therefor and shall cease to exist.
(c) Merger Sub. At the Effective Time, each share of Common Stock, par
value $0.01 per share, of Merger Sub issued and outstanding immediately
prior to the Effective Time shall be converted into one share of Common
Stock, par value $0.01 per share, of the Surviving Corporation.
5.2. Payment Procedures.
(a) Payment Agent. Prior to the Closing Date, Parent shall select a payment
agent, which Person shall be reasonably satisfactory to the Company, to act as
payment agent for the Merger (the "Payment Agent"). Parent shall make available
or cause to be made available to the Payment Agent amounts sufficient in the
aggregate to provide all funds necessary for the Payment Agent to make payments
pursuant to Section 5.2(b) hereof to holders of Shares (other than Excluded
Shares) issued and outstanding immediately prior to the Effective Time (the
"Payment Fund"). Parent or the Surviving Corporation shall pay all charges and
expenses, including those of the Payment Agent, in connection with the exchange
of cash for Shares.
(b) Procedures for Payment. As soon as practicable after the Effective Time
(but in no event more than five business days thereafter), Parent shall
instruct the Payment Agent to mail to each holder of a Certificate or
Certificates evidencing Shares (other than Excluded Shares) (i) a letter of
A-5
<PAGE>
transmittal (which shall include a Substitute Form W-9 and shall specify that
delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon proper delivery of such Certificates to the Payment
Agent) and (ii) instructions to effect the surrender of the Certificates in
exchange for the Merger Consideration. Each holder of Shares upon surrender to
the Payment Agent of such holder's Certificate(s) with the letter of
transmittal, duly executed, and such other customary documents as may be
required pursuant to such instructions, shall be paid in cash the amount to
which such holder is entitled, pursuant to this Agreement, as payment of the
Merger Consideration (without any interest accrued thereon). After the
Effective Time, there shall be no transfers on the stock transfer books of the
Company of the Shares that were outstanding immediately prior to the Effective
Time.
(c) Lost, Stolen or Destroyed Certificates. In the event any Certificate
shall have been lost, stolen or destroyed, upon the making of an affidavit of
that fact by the Person claiming such Certificate to be lost, stolen or
destroyed and, if required by Parent, the posting by such Person of a bond in
customary amount as indemnity against any claim that may be made against it
with respect to such Certificate, the Payment Agent will pay in exchange for
such lost, stolen or destroyed Certificate the Merger Consideration payable in
respect thereof pursuant to this Agreement.
(d) Termination of the Payment Fund. Any portion of the Payment Fund that
remains unclaimed by the stockholders of the Company for 180 days after the
Effective Time, shall be paid to Parent and any stockholders of the Company who
have not complied with this Article shall thereafter look only to Parent for
payment for their Shares upon due surrender of their Shares, in each case,
without any interest thereon. Notwithstanding the foregoing, none of BPA,
Parent, the Surviving Corporation, the Payment Agent or any other Person shall
be liable to any former holder of Shares for any amount properly delivered to a
public official pursuant to applicable abandoned property, escheat or similar
Laws.
5.3. Dissenters' Rights. Notwithstanding any other provision of this
Agreement to the contrary, Dissenting Shares shall not be converted into or
represent the right to receive the Merger Consideration. Dissenting
Stockholders shall be entitled to receive payment of the fair value of such
shares in accordance with Section 262 of the DGCL, except that all Dissenting
Shares held by Dissenting Stockholders who shall have failed to perfect or who
effectively shall have withdrawn or lost their rights to dissent under such
Section 262 of the DGCL shall thereupon be deemed to have been converted into
and to represent only the right to receive, as of the Effective Time, the
Merger Consideration, without any interest thereon, upon surrender of the
Certificates evidencing such Shares. The Company shall give Parent (i) prompt
notice of any written demands for fair value received by the Company,
withdrawals of such demands, and any other related instruments served pursuant
to the DGCL and received by the Company and (ii) the opportunity to direct all
negotiations and proceedings with respect to demands for fair value under the
DGCL. The Company shall not, except with the prior written consent of Parent,
voluntarily make any payment with respect to any demands for fair value for
Dissenting Shares or offer to settle, or settle, any such demands.
ARTICLE VI
Representations and Warranties
6.1. Representations and Warranties of the Company. Except as set forth in
the disclosure schedule delivered to Parent by the Company on or prior to
entering into this Agreement (the "Company Disclosure Schedule"), the Company
hereby represents and warrants to Parent and Merger Sub that:
(a) Organization, Good Standing and Qualification. Each of the Company
and its Subsidiaries is a corporation duly organized, validly existing and
in good standing under the laws of its respective jurisdiction of
organization and has all requisite corporate or similar power and
A-6
<PAGE>
authority to own and operate its properties and assets and to carry on its
business as presently conducted and is qualified to do business and is in
good standing as a foreign corporation in each jurisdiction where the
ownership or operation of its assets or properties or conduct of its
business requires such qualification, except where the failure to be so
organized, qualified or in good standing, or to have such power or
authority when taken together with all other such failures, is not
reasonably likely to have a Company Material Adverse Effect. The Company
has made available to Parent a complete and correct copy of the certificate
of incorporation and bylaws of the Company and the comparable governing
instruments of any of its Subsidiaries, each as amended to date. The
Company's certificate of incorporation and bylaws and the comparable
governing instruments of any of its Subsidiaries so made available are in
full force and effect.
(b) Capital Structure. The authorized capital stock of the Company
consists of 110,000,000 Shares, of which 97,724,637 Shares were outstanding
as of the close of business on May 22, 2000, and 20,000,000 shares of
Preferred Stock, $0.01 par value per share (the "Preferred Shares"), of
which no shares were outstanding as of the close of business on May 22,
2000. All of the outstanding Shares have been duly authorized and are
validly issued, fully paid and nonassessable. The Company has no Shares or
Preferred Shares reserved for issuance, except that, as of May 22, 2000,
there were approximately 2,162,442 Shares reserved for issuance pursuant to
the Company's Executive Long-Term Incentive Plan, 393,893 Shares reserved
for issuance pursuant to the Company's Stock Option Conversion Agreement
and 15,000 Shares reserved for issuance under the Stock Option Plan for
Outside Directors (collectively, the "Stock Plans"). The Company Disclosure
Schedule contains a correct and complete list of each outstanding option to
purchase Shares under the Stock Plans (each a "Company Option"), including
the holder, date of grant, exercise price and number of Shares subject
thereto. Each of the outstanding shares of capital stock or other
securities of each of the Company's Subsidiaries is duly authorized,
validly issued, fully paid and nonassessable and owned by the Company
and/or a direct or indirect wholly owned subsidiary of the Company, free
and clear of any lien, pledge, security interest, claim or other
encumbrance. Except as set forth above, there are no preemptive or other
outstanding rights, options, warrants, conversion rights, stock
appreciation rights, redemption rights, repurchase rights, agreements,
arrangements, calls, commitments or rights of any kind that obligate the
Company or any of its Subsidiaries to issue or sell any shares of capital
stock or other securities of the Company or any of its Subsidiaries or any
securities or obligations convertible or exchangeable into or exercisable
for, or giving any Person a right to subscribe for or acquire, any shares
of capital stock or securities of the Company or any of its Subsidiaries,
and no securities or obligations evidencing such rights are authorized,
issued or outstanding. The Company does not have outstanding any bonds,
debentures, notes or other obligations the holders of which have the right
to vote (or are convertible into or exercisable for shares of capital stock
or other securities having the right to vote) with the stockholders of the
Company on any matter ("Voting Debt").
(c) Corporate Authority; Approval and Fairness. (i) The Company has all
requisite corporate power and authority and has taken all corporate action
necessary in order to execute, deliver and perform its obligations under
this Agreement and to consummate the Merger, subject only to (x) approval
of this Agreement and the Merger by the affirmative vote of the holders of
a majority of the outstanding Shares and (y) approval of this Agreement by
the affirmative vote of the holders of at least two-thirds ( 2/3) of the
outstanding Shares which are not owned by the BPA Companies as required
pursuant to Section 203(a)(3) of the DGCL ((x) and (y) together, the
"Company Requisite Vote"). This Agreement is a valid and legally binding
agreement of the Company enforceable against the Company in accordance with
its terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity principles
(the "Bankruptcy and Equity Exception").
A-7
<PAGE>
(ii) The board of directors of the Company has (A) unanimously approved
this Agreement and the Merger and the other transactions contemplated
hereby and declared this Agreement to be advisable and (B) unanimously
recommended that the holders of the Shares, other than the BPA Companies,
vote in favor of adoption of this Agreement and authorization of the Merger
contemplated hereby. The Special Committee has received the opinions of its
financial advisors, Petrie Parkman & Co., Inc. and Salomon Smith Barney
Inc., each to the effect that, as of the date of such opinion, the
consideration to be received by the holders of the Shares in the Merger is
fair from a financial point of view to such holders (other than the BPA
Companies), copies of which opinions shall be delivered to Parent. It is
agreed and understood that such opinions are solely for the benefit of the
Special Committee and may not be relied on by BPA, Parent or Merger Sub.
(d) Governmental Filings; No Violations. (i) Other than the filings
and/or notices (A) pursuant to Section 2.3, (B) under the Exchange Act
and/or the Securities Act, (C) required to be made with the NYSE, (D)
typically made with a Governmental Entity having jurisdiction over the
ownership or operation of the Company's assets in connection with
transactions contemplated under this Agreement, including, without
limitation, the United States Minerals Management Service and (E) any
filings and/or notices required to be made by the BPA Companies, no
notices, reports or other filings are required to be made by the Company or
any of its Subsidiaries with, nor are any consents, registrations,
approvals, permits or authorizations required to be obtained by the Company
or any of its Subsidiaries from, any Governmental Entity in connection with
the execution and delivery of this Agreement by the Company and the
consummation by the Company of the Merger and the other transactions
contemplated hereby, except those that the failure to make or obtain are
not, individually or in the aggregate, reasonably likely to have a Company
Material Adverse Effect.
(ii) The execution, delivery and performance of this Agreement by the
Company do not, and the consummation by the Company of the Merger and the
other transactions contemplated hereby will not, constitute or result in
(A) a breach or violation of, or a default under, the certificate of
incorporation or bylaws of the Company or the comparable governing
instruments of any of its Subsidiaries, (B) a breach or violation of, a
default under, or the acceleration of any obligations or the creation of a
lien, pledge, security interest or other encumbrance on the assets of the
Company or any of its Subsidiaries (with or without notice, lapse of time
or both) pursuant to, any Contract binding upon the Company or any of its
Subsidiaries or any Law or governmental or non-governmental permit or
license to which the Company or any of its Subsidiaries is subject or (C)
any change in the rights or obligations of any party under any of the
Contracts to which the Company or any of its Subsidiaries is a party,
except, in the case of clause (B) or (C) above, for any breach, violation,
default, acceleration, creation or change that, individually or in the
aggregate, is not reasonably likely to have a Company Material Adverse
Effect.
(e) Company Reports; Financial Statements. The Company has delivered to
Parent each registration statement, report, proxy statement or information
statement prepared by it since December 31, 1999 (the "Audit Date"),
including the Company's Annual Report on Form 10-K for the year ended
December 31, 1999 in the form (including exhibits, annexes and any
amendments thereto) filed with the SEC (collectively, including any such
reports filed subsequent to the date hereof and as amended, the "Company
Reports"). As of their respective dates, (or, if amended, as of the date of
such amendment) the Company Reports did not, and any Company Reports filed
with the SEC subsequent to the date hereof will not, contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements made therein, in
light of the circumstances in which they were made, not misleading. Each of
the consolidated balance sheets included in or incorporated by reference
into the Company Reports (including the related notes and schedules) fairly
presents, or will fairly present, the consolidated financial position of
the Company and its Subsidiaries as
A-8
<PAGE>
of its date and each of the consolidated statements of income and of
changes in financial position included in or incorporated by reference into
the Company Reports (including any related notes and schedules) fairly
presented, or will fairly present, the results of operations, retained
earnings and changes in financial position, as the case may be, of the
Company and its Subsidiaries for the periods set forth therein (except in
each case as may be indicated in the notes thereto and, in the case of
unaudited statements, subject to normal year-end audit adjustments that
will not be material in amount or effect), in each case in accordance with
GAAP consistently applied during the periods involved, except as may be
noted therein.
(f) Absence of Certain Changes. Except as disclosed in the Company
Reports filed prior to the date hereof, since the Audit Date the Company
and its Subsidiaries have conducted their respective businesses only in,
and have not engaged in any transaction other than according to, the
ordinary and usual course of such businesses and there has not been (i) any
change, event or effect that, individually or in the aggregate, is
reasonably likely to have a Company Material Adverse Effect; (ii) any
material damage, destruction or other casualty loss with respect to any
material asset or property owned, leased or otherwise used by the Company
or any of its Subsidiaries, whether or not covered by insurance; (iii) any
declaration, setting aside or payment of any dividend or other distribution
in cash, stock or property in respect of the capital stock of the Company,
other than dividends from its direct or indirect wholly-owned Subsidiaries
and other than in the case of the Company, regular quarterly cash dividends
not in excess of $0.075 per Share; or (iv) any change by the Company in
accounting principles, practices or methods except as required by GAAP.
Since March 31, 1999, neither the Company nor any of its Subsidiaries has
terminated, established, adopted, entered into, made any new grants or
awards under, amended or otherwise modified, any Compensation and Benefit
Plans or increased the salary, wage, bonus or other compensation payable,
or that could become payable, by the Company or any of its Subsidiaries to
any employees except increases occurring in the ordinary and usual course
of business (which shall include normal periodic performance reviews and
related compensation and benefit increases) and except as authorized or
approved in writing prior to such action by Parent or BPA;
(g) Compliance with Laws; Permits. Except as set forth in registration
statements, reports, proxies or information Statements filed by the Company
with the SEC ("Company SEC Filings") prior to the date hereof, the
businesses of each of the Company and its Subsidiaries have not been, and
are not being, conducted in material violation of any Laws. Except as set
forth in the Company SEC Filings filed prior to the date hereof, no
investigation or review by any Governmental Entity with respect to the
Company or any of its Subsidiaries is pending or, to the knowledge of the
officers of the Company, threatened, nor has any Governmental Entity
indicated an intention to conduct the same, except for those the outcome of
which are not, individually or in the aggregate, reasonably likely to have
a Company Material Adverse Effect. To the knowledge of the executive
officers of the Company, no material change is required in the Company's or
any of its Subsidiaries' processes, properties or procedures in connection
with any such Laws, and the Company has not received any notice or
communication of any material noncompliance with any such Laws that has not
been cured as of the date hereof. The Company and its Subsidiaries each has
all permits, licenses, trademarks, patents, trade names, copyrights,
service marks, franchises, variances, exemptions, orders and other
governmental authorizations, consents and approvals necessary to conduct
its business as presently conducted except those the absence of which are
not, individually or in the aggregate, reasonably likely to have a Company
Material Adverse Effect.
(h) Employee Benefits. (i) Set forth in Section 6.1(h) of the Company
Disclosure Schedule are all significant compensation and benefit plans,
contracts, policies or arrangements currently in effect covering current or
former employees of the Company and its Subsidiaries and current or former
directors of the Company, including, but not limited to, "employee benefit
plans" within the meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1974, as
A-9
<PAGE>
amended ("ERISA"), and deferred compensation, stock option, stock purchase,
stock appreciation rights, stock based, incentive and bonus plans (the
"Compensation and Benefit Plans"). True and complete copies of all
Compensation and Benefit Plans, including, but not limited to, any trust
instruments and insurance contracts forming a part of any Compensation and
Benefit Plan, and all amendments thereto have been provided to Parent.
(ii) Neither the Company nor any of its Subsidiaries has any obligations
for retiree health and life benefits under any Compensation and Benefit
Plan. The Company or the Subsidiaries may amend or terminate any such
benefits at any time without incurring any liability thereunder.
(iii) None of the execution and delivery of this Agreement by the
Company, the performance by the Company of its obligations hereunder, the
consummation of the transactions contemplated by this Agreement nor any
other action taken or failed to be taken by the Company prior to the
execution of this Agreement will (a) limit the Company's right, in its sole
discretion, to administer, amend or terminate any Compensation and Benefit
Plan or any related trust instrument, (b) entitle any employees of the
Company or any of its Subsidiaries to severance pay, (c) accelerate the
time of payment or vesting or trigger any payment or funding (through a
grantor trust or otherwise) of compensation, benefits or awards under,
increase the amount payable or trigger any other material obligation
pursuant to, any of the Compensation and Benefit Plans or (d) result in any
breach or violation of, or a default under, any of the Compensation and
Benefit Plans.
(i) Brokers and Finders. Neither the Company nor any of its officers,
directors or employees has employed any broker or finder or incurred any
liability for any brokerage fees, commissions or finders, fees in
connection with the Merger or the other transactions contemplated in this
Agreement except that the Company has employed Petrie Parkman & Co., Inc.
and Salomon Smith Barney Inc. as financial advisors to the Special
Committee, the arrangements with which have been disclosed to Parent prior
to the date hereof.
6.2. Representations and Warranties of Parent and Merger Sub. Except as set
forth in the corresponding sections or subsections of the disclosure schedule
delivered to the Company by Parent on or prior to entering into this Agreement
(the "Parent Disclosure Schedule"), Parent and Merger Sub each hereby represent
and warrant to the Company that:
(a) Organization, Good Standing and Qualification. Each of Parent and
Merger Sub is a corporation duly organized, validly existing and in good
standing under the laws of its respective jurisdiction of organization and
has all requisite corporate or similar power and authority to own and
operate its properties and assets and to carry on its business as presently
conducted. Parent has made available to the Company a complete and correct
copy of Parent's and Merger Sub's certificates of incorporation and bylaws,
each as amended to the date hereof. Parent's and Merger Sub's certificates
of incorporation and bylaws as so made available are in full force and
effect. Merger Sub was formed for the purpose of effecting the Merger and
has conducted no other business.
(b) Corporate Authority. No vote of holders of capital stock of Parent
is necessary to approve this Agreement and the Merger and the other
transactions contemplated hereby. Each of the Parent and Merger Sub has all
requisite corporate power and authority and has taken all corporate action
necessary in order to execute, deliver and perform its obligations under
this Agreement and to consummate the Merger and Parent, as sole stockholder
of Merger Sub, has duly adopted this Agreement. This Agreement is a valid
and legally binding agreement of Parent and Merger Sub, enforceable against
each of Parent and Merger Sub in accordance with its terms, subject to the
Bankruptcy and Equity Exception.
(c) Governmental Filings; No Violations. (i) Other than the filings
and/or notices (A) pursuant to Section 2.3, (B) under the Securities Act
and/or the Exchange Act and (C) required
A-10
<PAGE>
to be made with the NYSE, no notices, reports or other filings are required
to be made by BPA, Parent, Merger Sub or any other BPA Company with, nor
are any consents, registrations, approvals, permits or authorizations
required to be obtained by BPA, Parent, Merger Sub or any other BPA Company
from, any Governmental Entity in connection with the execution and delivery
of this Agreement by Parent and Merger Sub and the consummation by Parent
and Merger Sub of the Merger and the other transactions contemplated
hereby, except those that the failure to make or obtain are not,
individually or in the aggregate, reasonably likely to have a Parent
Material Adverse Effect.
(ii) The execution, delivery and performance of this Agreement by Parent
and Merger Sub do not, and the consummation by Parent and Merger Sub of the
Merger and the other transactions contemplated hereby will not, constitute
or result in (A) a breach or violation of, or a default under, the
certificate of incorporation or bylaws of Parent and Merger Sub or (B) a
breach or violation of, or a default under, any Contract binding upon
Parent or Merger Sub or any Law or governmental or non-governmental permit
or license to which Parent or Merger Sub is subject, except, in the case of
clause (B) above, for any breach, violation or default that, individually
or in the aggregate, is not reasonably likely to have a Parent Material
Adverse Effect.
(d) Brokers and Finders. Neither Parent, Merger Sub nor any of their
respective officers, directors or employees has employed any broker or
finder or incurred any liability for any brokerage fees, commissions or
finders, fees in connection with the Merger or the other transactions
contemplated by this Agreement, except that Parent has employed Morgan
Stanley Dean Witter as its financial advisor.
(e) Financing. Parent will have at the Effective Time all the funds
necessary to consummate the Merger and the transactions contemplated by
this Agreement. In no event shall the receipt of or availability of any
funds or financing by Parent or any other BPA Company be a condition to any
of Parent's obligations hereunder or consummation of the Merger.
ARTICLE VII
Covenants
7.1. Interim Operations. Except as set forth in the Company Disclosure
Schedule, the Company covenants and agrees as to itself and its Subsidiaries
that, after the date hereof and prior to the Effective Time (unless Parent
shall otherwise approve in writing and except as otherwise expressly
contemplated by this Agreement):
(a) the business of it and its Subsidiaries shall be conducted in the
ordinary and usual course and, to the extent consistent therewith, it and
its Subsidiaries shall use their respective reasonable best efforts to
preserve its business organization intact and maintain its existing
relations and goodwill with customers, suppliers, distributors, creditors,
lessors, employees and business associates;
(b) it shall not (i) issue, sell, pledge, dispose of or encumber any
capital stock owned by it in any of its Subsidiaries; (ii) amend its
certificate of incorporation or bylaws; (iii) split, combine or reclassify
its outstanding shares of capital stock; (iv) declare, set aside or pay any
dividend payable in cash, stock or property in respect of any capital stock
other than dividends from its direct or indirect wholly-owned Subsidiaries
and other than in the case of the Company, regular quarterly cash dividends
not in excess of $0.075 per Share; or (v) repurchase, redeem or otherwise
acquire, except in connection with the Vastar Resources, Inc. Capital
Accumulation Plan, or permit any of its Subsidiaries to purchase or
otherwise acquire, any shares of its capital stock or any securities
convertible into or exchangeable or exercisable for any shares of its
capital stock;
A-11
<PAGE>
(c) neither it nor any of its Subsidiaries shall (i) issue, sell,
pledge, dispose of or encumber any shares of, or securities convertible
into or exchangeable or exercisable for, or options, warrants, calls,
commitments or rights of any kind to acquire, any shares of its capital
stock of any class or any Voting Debt or any other property or assets
(other than, in the case of the Company, Shares issuable pursuant to
options outstanding on the date hereof under the Vastar Resources, Inc.
Capital Accumulation Plan or the Stock Plans); (ii) other than in the
ordinary and usual course of business, transfer, lease, license, guarantee,
sell, mortgage, pledge, dispose of or encumber any other property or assets
(including capital stock of any of its Subsidiaries) or incur or modify any
material indebtedness or other liability (except for borrowings under the
Company's (x) commercial paper program, (y) Credit Agreement, dated as of
May 5, 1995, among the Company, the Banks which are parties thereto, the
Co-Agents listed therein and Morgan Guaranty Trust Company of New York, as
Agent, as amended to date and (z) uncommitted bank lines of credit, which
in each case are in the ordinary course of business consistent with past
practice); (iii) make or authorize or commit for any capital expenditures
other than in the ordinary and usual course of business pursuant to the
calendar year 2000 capital appropriations/spending budgets set forth in the
Company Disclosure Schedule; or (iv) by any means, make (except as
contemplated by the Calendar Year 2000 Capital appropriations/spending
budget set forth in the Company Disclosure Schedule) any acquisition of, or
investment in, assets or stock of or other interest in, any other Person or
entity;
(d) neither it nor any of its Subsidiaries shall terminate, establish,
adopt, enter into, make any new grants or awards under, amend or otherwise
modify, any Compensation and Benefit Plans or increase the salary, wage,
bonus or other compensation of any employees except increases occurring in
the ordinary and usual course of business (which shall include normal
periodic performance reviews and related compensation and benefit
increases);
(e) neither it nor any of its Subsidiaries shall file, settle or
compromise any material claims or litigation or, except in the ordinary and
usual course of business, modify, amend or terminate any of its material
Contracts or waive, release or assign any material rights or claims;
(f) neither it nor any of its Subsidiaries shall make any Tax election
or permit any insurance policy naming it as a beneficiary or loss-payable
payee to be cancelled or terminated except in the ordinary and usual course
of business;
(g) neither it nor any of its Subsidiaries shall take any action or omit
to take any action that would cause any of its representations and
warranties herein to become untrue in any material respect; and
(h) neither it nor any of its Subsidiaries will authorize or enter into
an agreement to do any of the foregoing.
7.2. Information Supplied. The Company and Parent each agrees, as to itself
and its Subsidiaries, that none of the information supplied or to be supplied
by it or its Subsidiaries for inclusion or incorporation by reference in (i)
the proxy statement to be filed with the SEC by the Company (the "Proxy
Statement") or (ii) the Schedule 13E-3 (the "Schedule 13E-3") to be filed with
the SEC by the Company and Parent (and certain Affiliates of Parent), in each
case in connection with the transaction contemplated by this Agreement, will,
at the time the Proxy Statement is mailed to stockholders of the Company,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. The
Company will cause the Proxy Statement and the Company and Parent will cause
the Schedule 13E-3 to comply as to form in all material respects with the
applicable provisions of the Securities Act and the rules and regulations
thereunder.
7.3. Stockholders Meeting. The Company will take, in accordance with
applicable Law and its certificate of incorporation and bylaws, all action
necessary to convene a meeting of holders of
A-12
<PAGE>
Shares (the "Stockholders Meeting") as promptly as practicable after the date
hereof (but not prior to 20 business days after the date the Proxy Statement is
mailed to stockholders of the Company) to consider and vote upon the adoption
of this Agreement and the authorization of the Merger contemplated hereby.
Except as may otherwise be required by Law, the Company's board of directors
shall recommend that the holders of the Shares, other than the BPA Companies,
vote in favor of adoption of this Agreement and authorization of the Merger
contemplated hereby and shall take all lawful action to solicit such approvals.
7.4. Filings; Other Actions; Notification. (a) The Company shall promptly
after the date hereof prepare and file with the SEC the Proxy Statement, and
the Company and Parent shall promptly after the date hereof prepare and file
with the SEC the Schedule 13E-3. Thereafter, the Company shall promptly mail
the Proxy Statement to the stockholders of the Company, and the Company shall
give notice of the Stockholders Meeting to the stockholders of the Company.
(b) The Company and Parent shall cooperate with each other and use (and
shall cause their respective Subsidiaries to use) their respective reasonable
best efforts to take or cause to be taken all actions, and do or cause to be
done all things, necessary, proper or advisable on its part under this
Agreement and applicable Laws to consummate and make effective the Merger and
the other transactions contemplated by this Agreement as soon as practicable,
including preparing and filing as promptly as practicable all documentation to
effect all necessary notices, reports and other filings and to obtain as
promptly as practicable all consents, registrations, approvals, permits and
authorizations necessary or advisable to be obtained from any third party
and/or any Governmental Entity in order to consummate the Merger or any of the
other transactions contemplated by this Agreement. Subject to applicable Laws
relating to the exchange of information, the Company and Parent shall have the
right to review in advance, and to the extent practicable each will consult the
other on, all the information relating to the Company or Parent, as the case
may be, and any of their respective Subsidiaries, that appears in any filing
made with, or written materials submitted to, any third party and/or any
Governmental Entity in connection with the Merger and the other transactions
contemplated by this Agreement. In exercising the foregoing right, each of the
Company and Parent shall act reasonably and as promptly as practicable.
(c) The Company and Parent each shall, upon request by the other, furnish
the other with all information concerning itself, its Subsidiaries, directors,
officers and stockholders and such other matters as may be reasonably necessary
or advisable in connection with the Proxy Statement, the Schedule 13E-3 or any
other statement, filing, notice or application made by or on behalf of the
Company, Parent or any of their respective Subsidiaries to any third party
and/or any Governmental Entity in connection with the Merger and the
transactions contemplated by this Agreement.
(d) The Company and Parent each shall keep the other apprised of the status
of matters relating to completion of the transactions contemplated hereby,
including promptly furnishing the other with copies of notice or other
communications received by the Company or Parent, as the case may be, or any of
its Subsidiaries, from any third party and/or any Governmental Entity with
respect to the Merger and the other transactions contemplated by this
Agreement.
(e) The Company shall give prompt notice to Parent of any change that is
reasonably likely to result in a Company Material Adverse Effect.
7.5. Access. Upon reasonable notice, and except as may otherwise be required
by applicable Law, or prohibited pursuant to the Company's contractual
obligations with third parties, the Company shall (and shall cause its
Subsidiaries to) afford the Parent's officers, employees, counsel, accountants
and other authorized representatives ("Representatives") reasonable access,
during normal business hours throughout the period prior to the Effective Time,
to the Company's properties, books, Contracts and records and, during such
period, the Company shall (and shall
A-13
<PAGE>
cause its Subsidiaries to) furnish promptly to the Parent and its
Representatives all information concerning its business, properties and
personnel as may reasonably be requested, provided that no investigation
pursuant to this Section shall affect or be deemed to modify any representation
or warranty made by the Company. All requests for information made pursuant to
this Section shall be directed to an executive officer of the Company or such
Person as may be designated by the Company's officers.
7.6. Publicity. The Company and Parent each shall consult with each other
prior to issuing any press releases or otherwise making public announcements
with respect to the Merger and the other transactions contemplated by this
Agreement or the effect thereof on the Company's employees and prior to making
any filings with any third party and/or any Governmental Entity with respect
thereto, except in each case as may be required by Law or by obligations
pursuant to any listing agreement with or rules of any national securities
exchange.
7.7. Stock Options. Prior to the Effective Time, the Company and Parent
shall take such actions as may be necessary such that immediately prior to the
Effective Time each Company Option, whether or not then exercisable, shall be
cancelled and only entitle the holder thereof, as soon as reasonably
practicable after surrender thereof, to receive an amount in cash equal to the
product of (x) the total number of Shares subject to the Company Option and (y)
the excess of the Merger Consideration over the exercise price per Share under
such Company Option.
7.8. Expenses. Parent shall pay all charges and expenses, including those of
the Payment Agent, in connection with the transactions contemplated in Article
V. Whether or not the Merger is consummated, all costs and expenses incurred in
connection with this Agreement and the Merger and the other transactions
contemplated by this Agreement shall be paid by the party incurring such
expense, except that expenses incurred in connection with the filing fee for
the Schedule 13E-3 and printing and mailing the Proxy Statement shall be shared
equally by the Company and Parent.
7.9. Indemnification; Directors' and Officers' Insurance. (a) Parent agrees
that all rights to indemnification and all limitations on liability existing in
favor of any Indemnitee (as defined below) in respect of acts or omissions of
such Indemnitees on or prior to the Effective Time as provided in the
certificate of incorporation and bylaws of the Company or an agreement between
an Indemnitee and the Company or its Subsidiaries in effect as of the date
hereof shall continue in full force and effect in accordance with the terms
thereof.
(b) For six years after the Effective Time, Parent shall indemnify and hold
harmless the individuals who on or prior to the Effective Time were officers or
directors of the Company (the "Indemnitees" ) (i) with respect to all acts or
omissions by them in their capacities as officers or directors of the Company
in connection with the approval of this Agreement and the transactions
contemplated hereby and (ii) to the same extent indemnified as set forth in
Section 7.9(a), with respect to all other actions or omissions by them in their
capacities as officers or directors of the Company, or taken by them at the
request of, the Company or any of its Subsidiaries. In the event any claim in
respect of which indemnification is available pursuant to the foregoing
provisions is asserted or made within such six-year period, all rights to
indemnification shall continue until such claim is disposed of or all
judgments, orders, decrees or other rulings in connection with such claim are
duly satisfied.
(c) For six years after the Effective Time, Parent shall procure the
provision of directors' and officers' liability insurance in respect of acts or
omissions occurring prior to the Effective Time covering each such Person
currently covered by the Company's directors' and officers' liability insurance
policy on terms set forth in the Parent Disclosure Schedule. Such liability
insurance
A-14
<PAGE>
procured by Parent may provide "first dollar" coverage, without any requirement
to first seek indemnification from the Surviving Corporation or Parent.
(d) The obligations of BP Amoco under this Section 7.9 shall not be
terminated or modified in such a manner as to adversely affect any Indemnitee
to whom this Section 7.9 applies without the consent of such affected
Indemnitee (it being expressly agreed that the Indemnitees to whom this Section
7.9 applies shall be third party beneficiaries of this Section 7.9.
7.10. Benefits and Other Matters.
(a) It is the specific intention of the Company and the Parent that the
compensation and benefit programs (including annual and long-term incentive
programs) to be provided by BPA and the BPA Companies for current and former
employees of the Company will be no less favorable in the aggregate than is
provided to similarly situated U.S. employees of BPA and the BPA Companies.
(b) For at least one year following the Effective Time, Parent shall provide
or cause to be provided to current and former employees and directors of the
Company and its Subsidiaries compensation and benefits that are at least as
favorable in the aggregate (taking into account the benefits provided pursuant
to this Section 7.10) as the compensation and benefits they were entitled to
receive immediately prior to the Effective Time (including, without limitation,
benefits pursuant to qualified and non-qualified retirement plans, savings
plans, medical plans and programs, deferred compensation arrangements,
incentive plans, and retiree benefit plans, policies and arrangements);
provided, however, that, with respect to employees who are subject to
collective bargaining, all benefits shall be provided in accordance with the
applicable collective bargaining or other labor agreements; and provided,
further, that all incentive, bonus and similar plans shall after the Effective
Time be substantially performance-based.
(c) Parent shall cause the Company's outplacement policies and, for
executives, financial counseling policies, as in effect as of the date hereof,
to be maintained for two years following the Effective Time.
(d) Following the Effective Time, Parent shall, and shall cause BPA and the
BPA Companies to, recognize service with the Company and any of its respective
Subsidiaries and any predecessor entities which prior to the date hereof has
been recognized by the Company and/or such Subsidiaries and predecessor
entities (including service with Parent or its affiliates) prior to the
Effective Time for all purposes (including, without limitation, eligibility to
participate, vesting, benefit accrual, eligibility to commence benefits and
severance) under any benefit plans of BPA or the BPA Companies in which the
particular employee or former employee of the Company or its respective
Subsidiaries participates to the same extent as if such service had been
rendered to BPA or any of the BPA Companies; provided however, that the
foregoing shall not result in any duplication of benefits for the same period
of service. From and after the Effective Time, Parent shall, and shall cause
BPA and the BPA Companies to, recognize any and all appropriate out-of-pocket
expenses of each employee or former employee of the Company and its
Subsidiaries for purposes of determining such employee's and former employee's
(including their beneficiaries and dependents) deductible and co-payment
expenses under BPA or any of the BPA Companies medical benefit plans. Parent
shall waive, or cause to be waived, and shall cause BPA and the BPA Companies
to waive, or cause to be waived, any pre-existing condition limitation under
any welfare benefit plan maintained by BPA or any of the BPA Companies in which
employees of Company and its Subsidiaries (and their respective eligible
dependents) will be eligible to participate on or following the Effective Time
to the extent such pre-existing condition limitation was waived or satisfied
under the comparable plan of the Company or its Subsidiaries.
(e) From and after the Effective Time, Parent shall honor, fulfill and
discharge, or shall cause its Subsidiaries or the Company or its Subsidiaries
to honor, fulfill and discharge, in accordance with its
A-15
<PAGE>
terms, each existing employment, change of control, severance and termination
agreement between the Company or any of its Subsidiaries, and any officer,
director or employee of such company, including without limitation (i) all
legal and contractual obligations pursuant to outstanding retirement plans,
including, but not limited to, the enhanced retirement provisions contained in
Section 30 of the Company's Retirement Plan, salary and bonus deferral plans,
vested and accrued benefits and similar employment and benefit arrangements and
agreements in effect as of the Effective Time, including, but not limited to,
all the "change of control" provisions under the plans, programs, policies and
agreements listed in Section 6.1(h) of the Company Disclosure Schedule, each as
amended to date or as shall be amended pursuant to or as described in Section
7.1(d) of the Company Disclosure Schedule, and (ii) all vacation, personal and
sick days accrued by employees of the Company and its Subsidiaries as of the
Effective Time. Parent acknowledges that the consummation of the Merger will
constitute a "change of control" as respectively defined under the plans,
programs, policies and agreements listed in Section 6.1(h) of the Company
Disclosure Schedule.
(f) From and after the Effective Time, Parent shall cause the Company and
its successor, if any, to continue to recognize, and cooperate in good faith
with, the Special Plan Administrator of the Company's Amended and Restated
Executive Deferral Plan and Supplemental Executive Benefit Plans Trust
Agreement and the Company's Welfare Plans Trust Agreement, each as amended to
date.
7.11. List of Certain Contracts. Within 14 days after the date hereof, the
Company shall provide Parent with a correct and complete list of all material
Contracts of the Company and/or its Subsidiaries pursuant to which consents or
waivers are or may be required prior to the consummation of the transactions
contemplated by this Agreement.
ARTICLE VIII
Conditions
8.1. Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger is subject to the
satisfaction or waiver at or prior to the Effective Time of each of the
following conditions:
(a) Stockholder Approval. This Agreement shall have been duly adopted
and the Merger shall have been duly authorized, in each case by the
relevant holders of Shares constituting the Company Requisite Vote in
accordance with applicable Law and the certificate of incorporation and
bylaws of the Company.
(b) Regulatory Consents. Other than the filing provided for in Section
2.3, all notices, reports and other filings required to be made prior to
the Effective Time by the Company or any of its Subsidiaries or Parent or
any other BPA Company with, and all consents, registrations, approvals,
permits and authorizations required to be obtained prior to the Effective
Time by the Company or any of its Subsidiaries or Parent or any other BPA
Company from, any Governmental Entity in connection with the execution and
delivery of this Agreement and the consummation of the Merger and the other
transactions contemplated hereby by the Company, Parent and Merger Sub
shall have been made or obtained (as the case may be), except those that
the failure to make or to obtain are not, individually or in the aggregate,
reasonably likely to have a Company Material Adverse Effect.
(c) Litigation. No Governmental Entity of competent jurisdiction shall
have enacted, proposed, issued, promulgated, enforced or entered any
statute, law, ordinance, rule, regulation, judgment, decree, injunction or
other order (whether temporary, preliminary or permanent) that (i) is in
effect and restrains, enjoins or otherwise prohibits consummation of the
Merger or the other
A-16
<PAGE>
transactions contemplated by this Agreement or (ii) which is reasonably
likely to have a Company Material Adverse Effect (in each case of (i) or
(ii), an "Order" ), and no Governmental Entity or any other Person shall
have instituted any proceeding (that is still in effect or continuing on
the Closing Date) or threatened to institute any proceeding seeking any
such Order.
8.2. Conditions to Obligations of Parent and Merger Sub. The obligations of
Parent and Merger Sub to effect the Merger are also subject to the satisfaction
or waiver by Parent at or prior to the Effective Time of each of the following
conditions:
(a) Representations and Warranties. The representations and warranties
of the Company set forth in this Agreement (i) to the extent qualified by
Company Material Adverse Effect or any other materiality qualification
shall be true and correct and (ii) to the extent not qualified by Company
Material Adverse Effect or any other materiality qualification shall be
true and correct, in each case as of the date of this Agreement and as of
the Closing Date as though made on and as of the Closing Date (except to
the extent any such representation or warranty expressly speaks as of an
earlier date), provided, however, that this clause (ii) shall be deemed
satisfied so long as any failure(s) of such representations and warranties
to be true and correct, taken together, are not, individually or in the
aggregate, reasonably likely to have a Company Material Adverse Effect, and
Parent shall have received a certificate signed on behalf of the Company by
an executive officer of the Company to such effect;
(b) Performance of Obligations of the Company. The Company shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Closing Date, and Parent
shall have received a certificate signed on behalf of the Company by an
executive officer of the Company to such effect.
8.3. Conditions to Obligation of the Company. The obligation of the Company
to effect the Merger is also subject to the satisfaction or waiver by the
Company at or prior to the Effective Time of each of the following conditions:
(a) Representations and Warranties. The representations and warranties
of Parent and Merger Sub set forth in this Agreement (i) to the extent
qualified by Parent Material Adverse Effect or any other materiality
qualification shall be true and correct and (ii) to the extent not
qualified by Parent Material Adverse Effect or any other materiality
qualification shall be true and correct, in each case as of the date of
this Agreement and as of the Closing Date as though made on and as of the
Closing Date (except to the extent any such representation or warranty
expressly speaks as of an earlier date), provided, however, that this
clause (ii) shall be deemed satisfied so long as any failure(s) of such
representations and warranties to be true and correct, taken together, are
not, individually or in the aggregate, reasonably likely to have a Parent
Material Adverse Effect, and the Company shall have received a certificate
signed on behalf of Parent and Merger Sub by an executive officer of Parent
to such effect;
(b) Performance of Obligations of Parent and Merger Sub. Each of Parent
and Merger Sub shall have performed in all material respects all
obligations required to be performed by it under this Agreement at or prior
to the Closing Date, and the Company shall have received a certificate
signed on behalf of Parent and Merger Sub by an executive officer of Parent
to such effect.
ARTICLE IX
Termination
9.1. Termination by Mutual Consent. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, whether before
or after the approval by stockholders of the Company referred to in Section
8.1(a), by mutual written consent of the Company and Parent by action of their
respective Boards of Directors.
A-17
<PAGE>
9.2. Termination by Either the Company or Parent. This Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time by action of the Board of Directors of either the Company or Parent if (i)
the Merger shall not have been consummated by December 31, 2000, (ii) the
Company Requisite Vote shall not have been obtained at the Stockholders Meeting
or at any adjournment or postponement thereof or (iii) any Order permanently
restraining, enjoining or otherwise prohibiting consummation of the Merger
shall become final and non-appealable (whether before or after the Company
Requisite Vote has been obtained); provided, that the right to terminate this
Agreement pursuant to clause (i) above shall not be available to any party that
has breached in any respect its obligations under this Agreement in any manner
that shall have proximately contributed to the occurrence of the failure of the
Merger to be consummated.
9.3. Termination by the Company. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, whether before
or after the Company Requisite Vote has been obtained, by action of the Board
of Directors of the Company if there has been a breach of any representation,
warranty, covenant or agreement made by Parent or Merger Sub in this Agreement,
or any such representation and warranty shall have become untrue after the date
of this Agreement, such that Section 8.3(a) or 8.3(b) would not be satisfied
and such breach or condition is not curable or, if curable, is not cured within
30 days after written notice thereof is given by the Company to Parent.
9.4. Termination by Parent. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time by action of the Board
of Directors of Parent if there has been a breach of any representation,
warranty, covenant or agreement made by the Company in this Agreement, or any
such representation and warranty shall have become untrue after the date of
this Agreement, such that Section 8.2(a) or 8.2(b) would not be satisfied and
such breach or condition is not curable or, if curable, is not cured within 30
days after written notice thereof is given by Parent to the Company.
9.5. Effect of Termination and Abandonment. In the event of termination of
this Agreement and the abandonment of the Merger pursuant to this Article IX,
this Agreement (other than as set forth in Section 10.1) shall become void and
of no effect with no liability on the part of any party hereto (or of any of
its directors, officers, employees, agents, legal and financial advisors or
other representatives); provided, however, no such termination shall relieve
any party hereto of any liability or damages resulting from any willful breach
of this Agreement.
ARTICLE X
Miscellaneous and General
10.1. Survival. This Article X and the agreements of the Company, Parent and
Merger Sub contained in Sections 5.2 (Payment Procedures), 7.7 (Stock Options),
7.8 (Expenses), 7.9 (Indemnification; Directors' and Officers' Insurance) and
7.10 (Benefits and Other Matters) shall survive the consummation of the Merger.
This Article X, the agreements of the Company, Parent and Merger Sub contained
in Section 7.8 (Expenses) and Section 9.5 (Effect of Termination and
Abandonment) shall survive the termination of this Agreement. All other
representations, warranties, covenants and agreements in this Agreement shall
not survive the consummation of the Merger or the termination of this
Agreement.
10.2. Modification or Amendment. Subject to the provisions of applicable
Law, at any time prior to the Effective Time, the parties hereto may modify or
amend this Agreement, by written agreement executed and delivered by duly
authorized officers of each of the respective parties.
10.3. Waiver of Conditions. The conditions to each of the parties'
obligations to consummate the Merger are for the sole benefit of such party and
may be waived by such party in whole or in part to the extent permitted by
applicable Law.
A-18
<PAGE>
10.4. Counterparts. This Agreement may be executed in any number of
counterparts, each such counterpart being deemed to be an original instrument,
and all such counterparts shall together constitute the same agreement.
10.5. GOVERNING LAW AND VENUE; WAIVER OF JURY TRIAL. (a) THIS AGREEMENT
SHALL BE DEEMED TO BE MADE IN AND IN ALL RESPECTS SHALL BE INTERPRETED,
CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAW OF THE STATE OF
DELAWARE WITHOUT REGARD TO THE CONFLICT OF LAW PRINCIPLES THEREOF. The parties
hereby irrevocably submit to the jurisdiction of the courts of the State of
Delaware and the Federal courts of the United States of America located in the
State of Delaware solely in respect of the interpretation and enforcement of
the provisions of this Agreement and of the documents referred to in this
Agreement, and in respect of the transactions contemplated hereby, and hereby
waive, and agree not to assert, as a defense in any action, suit or proceeding
for the interpretation or enforcement hereof or of any such document, that it
is not subject thereto or that such action, suit or proceeding may not be
brought or is not maintainable in said courts or that the venue thereof may not
be appropriate or that this Agreement or any such document may not be enforced
in or by such courts, and the parties hereto irrevocably agree that all claims
with respect to such action or proceeding shall be heard and determined in such
a Delaware State or Federal court. The parties hereby consent to and grant any
such court jurisdiction over the person of such parties and over the subject
matter of such dispute and agree that delivery of process or other papers in
connection with any such action or proceeding in the manner provided in Section
10.6 or in such other manner as may be permitted by law shall be valid and
sufficient service thereof.
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE
UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND
THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY
RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND
ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN
THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH PARTY
UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH
PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH PARTY HAS BEEN INDUCED TO
ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION 10.5.
10.6. Notices. Any notice, request, instruction or other document to be
given hereunder by any party to the others shall be in writing and delivered
personally or sent by registered or certified mail, postage prepaid, or by
facsimile:
if to Parent or Merger Sub:
BP Amoco p.l.c.
Brittanic House
1 Finsbury Circus
London EC2M 7BA
England
Attention: G. Richard Bradley, Esq.
fax: 011-44-171-496-4571
with a copy to:
Benjamin F. Stapleton, Esq.,
Sullivan & Cromwell,
125 Broad Street, New York, NY 10004
fax: (212) 558-3588.
A-19
<PAGE>
if to the Company:
Vastar Resources, Inc.
15375 Memorial Drive
Houston, Texas 77079
Attention: Charles Davidson
Fax: (281) 584-3555
with a copy to:
Charles M. Nathan, Esq.,
Fried, Frank, Harris, Shriver & Jacobson,
One New York Plaza, New York, NY 10004
Fax: (212) 859-4000.
or to such other persons or addresses as may be designated in writing by the
party to receive such notice as provided above.
10.7. Entire Agreement. This Agreement (including any exhibits hereto), the
Company Disclosure Schedule, the Parent Disclosure Schedule and the
Confidentiality Agreement constitute the entire agreement, and supersede all
other prior agreements, understandings, representations and warranties both
written and oral, among the parties, with respect to the subject matter hereof.
10.8. No Third Party Beneficiaries. Except as provided in Article V and
Sections 7.7 (Stock Options), 7.9 (Indemnification; Directors' and Officers'
Insurance) and 7.10 (Benefits and Other Matters) (except for 7.10(i) and
7.10(ii)), this Agreement is not intended to confer upon any Person other than
the parties hereto any rights or remedies hereunder.
10.9. Obligations of Parent and of the Company. Whenever this Agreement
requires Parent to take any action, such requirement shall be deemed to include
an undertaking on the part of BP America Inc. to cause Parent or another BPA
Company to take such action. Whenever this Agreement requires a Subsidiary of
the Company to take any action, such requirement shall be deemed to include an
undertaking on the part of the Company to cause such Subsidiary to take such
action and, after the Effective Time, on the part of the Surviving Corporation
to cause such Subsidiary to take such action.
10.10. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability or the other provisions hereof. If any
provision of this Agreement, or the application thereof to any Person or any
circumstance, is invalid or unenforceable, (a) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be
valid and enforceable, the intent and purpose of such invalid or unenforceable
provision and (b) the remainder of this Agreement and the application of such
provision to other Persons or circumstances shall not be affected by such
invalidity or unenforceability, nor shall such invalidity or unenforceability
affect the validity or enforceability of such provision, or the application
thereof, in any other jurisdiction.
10.11. Interpretation. (a) The table of contents and headings herein are for
convenience of reference only, do not constitute part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions hereof.
Where a reference in this Agreement is made to a Section or Exhibit, such
reference shall be to a Section of or Exhibit to this Agreement unless
otherwise indicated. Whenever the words "include," "includes" or "including"
are used in this Agreement, they shall be deemed to be followed by the words
"without limitation."
(b) Whenever this Agreement refers to the Subsidiaries of Parent and/or BPA,
the term Subsidiaries shall not include in its meaning the Company and/or any
Subsidiaries of the Company.
A-20
<PAGE>
10.12. Assignment. This Agreement shall not be assignable by operation of
Law or otherwise; provided, however, that Parent may designate, by written
notice to the Company, another wholly owned direct or indirect Subsidiary to be
a Constituent Corporation in lieu of Merger Sub, in which event all references
herein to Merger Sub shall be deemed references to such other Subsidiary,
except that all representations and warranties made herein with respect to
Merger Sub as of the date of this Agreement shall be deemed representations and
warranties made with respect to such other Subsidiary as of the date of such
designation.
A-21
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties hereto as of the date first written
above.
Vastar Resources, Inc.
/s/ Charles D. Davidson
By: ____________________________________
Name: Charles D. Davidson
Title:President and Chief Executive
Officer
Atlantic Richfield Company
/s/ Robert D. Agdern
By: ____________________________________
Name: Robert D. Agdern
Title:President
Kernel Holdings, Inc.
/s/ Robert D. Agdern
By: ____________________________________
Name: Robert D. Agdern
Title:President
BP America Inc.
Solely with respect to Section 10.9
/s/ Robert D. Agdern
By: ____________________________________
Name: Robert D. Agdern
Title:President
A-22
<PAGE>
APPENDIX B
May 23, 2000
The Special Committee of the Board of Directors
Vastar Resources, Inc.
15375 Memorial Drive
Houston, Texas 77079
Members of the Special Committee:
Atlantic Richfield Company, a Delaware corporation ("ARCO"), Kernel
Holdings, Inc., a Delaware corporation and a wholly owned subsidiary of ARCO
("Merger Sub"), and Vastar Resources, Inc., a Delaware corporation ("Vastar"),
propose to enter into an agreement and plan of merger (the "Merger
Agreement"), which provides for, among other things, the merger (the "Merger")
of Merger Sub with and into Vastar. Approximately 81.9% of the shares of
Vastar common stock, par value $0.01 per share ("Vastar Common Stock") on a
fully-diluted basis, are owned by ARCO. Upon consummation of the Merger, each
issued and outstanding share of Vastar Common Stock owned by Vastar
shareholders (other than shares of Vastar Common Stock owned by ARCO, Merger
Sub or any other direct or indirect subsidiary of ARCO or shares of Vastar
Common Stock that are owned by Vastar or any direct subsidiary of Vastar and,
in each case, not held on behalf of third parties) (such shareholders being
hereinafter referred to as the "Public Shareholders") shall be converted into,
and become exchangeable for, $83.00 (the "Consideration").
You have requested our opinion as to whether the Consideration is fair from
a financial point of view to the Public Shareholders.
In arriving at our opinion, we have, among other things:
1. reviewed certain publicly available business and financial
information relating to Vastar and its consolidated subsidiaries, including
(a) the Annual Reports on Form 10-K and related audited financial
statements for the fiscal years ended December 31, 1998 and December 31,
1999, and (b) the unaudited financial statements for the fiscal quarter
ended March 31, 2000;
2. reviewed certain estimates of the reserves of Vastar and its
consolidated subsidiaries, including (a) estimates of proved oil and gas
reserves as of December 31, 1999 prepared by the management and staff of
Vastar, including proved reserves audited by Ryder Scott Company, L.P., and
(b) unaudited estimates of additional oil and gas reserves (reserves not
classified as proved) prepared by the management and staff of Vastar as of
December 31, 1999;
3. analyzed certain historical and projected financial and operating
data of Vastar and its consolidated subsidiaries prepared by the management
and staff of Vastar;
4. discussed the current and projected operations and prospects of
Vastar and its consolidated subsidiaries with the management and staff of
Vastar;
5. reviewed the historical trading history of Vastar Common Stock;
6. compared recent stock market capitalization indicators for Vastar
with recent stock market capitalization indicators for certain other
publicly traded independent energy companies;
7. compared the financial terms of the Merger Agreement with the
financial terms of certain other transactions that we deemed to be
relevant;
8. reviewed a draft dated May 23, 2000 of the Merger Agreement; and
9. reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we have
deemed necessary or appropriate.
B-1
<PAGE>
In preparing our opinion, we have assumed and relied upon, without assuming
any responsibility for verification, the accuracy and completeness of any
information supplied or otherwise made available to us by Vastar. We have
further relied upon the assurances of the management of Vastar that it is
unaware of any facts that would make the information provided to us incomplete
or misleading in any material respect. With respect to projected financial and
operating data, we have assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgment of the
management and staff of Vastar relating to the future financial and operational
performance and business prospects of Vastar and its consolidated subsidiaries.
With respect to the estimates of proved and additional oil and gas reserves, we
have assumed that they have been reasonably prepared on bases reflecting the
best available estimates and judgments of the management and staff of Vastar
and Ryder Scott Company, L.P. relating to the oil and gas properties of Vastar
and its consolidated subsidiaries. We have not made an independent evaluation
or appraisal of the assets or liabilities of Vastar and its consolidated
subsidiaries nor, except for the estimates of proved and additional oil and gas
reserves referred to above, been furnished with such an evaluation or
appraisal. In addition, we have not assumed any obligation to conduct, nor have
we conducted, any physical inspection of the properties or facilities of Vastar
or any of its consolidated subsidiaries.
In developing our opinion, we have relied upon Vastar as to certain legal,
tax, and accounting aspects of the transaction contemplated by the Merger
Agreement. We have assumed that the Merger Agreement executed and delivered by
the parties will contain identical financial and economic terms and otherwise
be substantially similar to the draft Merger Agreement reviewed by us. We have
further assumed that the Merger will be consummated on the terms and conditions
contemplated in the Merger Agreement.
Our opinion relates solely to the fairness from a financial point of view of
the Consideration to be received by the Public Shareholders. This opinion is
for the use and benefit of the Special Committee of the Board of Directors of
Vastar and does not constitute a recommendation to any Public Shareholder as to
how such shareholder should vote on the Merger. We have not been asked to
consider, and this opinion does not address, the after-tax consequences of the
Merger to any particular Public Shareholder or other shareholder of Vastar. As
you are aware, we have acted as financial advisor to the Special Committee of
the Board of Directors of Vastar and we will receive a fee from Vastar for
rendering this opinion, a substantial portion of which is contingent upon the
consummation of the Merger. We have also, in the past, provided financial
advisory services to Vastar and ARCO and have received customary fees for such
services. In the ordinary course of business, we or our affiliates may trade in
the debt or equity securities of Vastar for the accounts of our customers and,
accordingly, may at any time hold a long or short position in such securities.
Our opinion is rendered on the basis of conditions in the securities markets
and the oil and gas markets prevailing as of the date hereof and the condition
and prospects, financial and otherwise, of Vastar as they have been represented
to us as of the date hereof or as they were reflected in the materials and
discussions described above.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Consideration is fair from a financial point of view to the
Public Shareholders.
Very truly yours,
PETRIE PARKMAN & CO., INC.
B-2
<PAGE>
APPENDIX C
[LOGO OF SALOMON SMITH BARNEY]
May 23, 2000
The Special Committee of the Board of Directors
Vastar Resources, Inc.
15375 Memorial Drive
Houston, TX 77079
Ladies and Gentlemen:
You have requested our opinion as to the fairness, from a financial point
of view, to the holders of the common stock, par value $0.01 per share (the
"Company Common Stock"), of Vastar Resources, Inc. (the "Company"), other than
Atlantic Richfield Company ("Parent") and its affiliates, of the consideration
to be received by such holders in connection with the proposed merger (the
"Merger") of the Company with Kernel Holdings, Inc. ("Merger Sub"), a wholly
owned subsidiary of Parent, pursuant to the Agreement and Plan of Merger (the
"Agreement") to be entered into by and among the Company, Parent and Merger
Sub as of May 23, 2000.
As more specifically set forth in the Agreement, and subject to the terms
and conditions thereof, upon the consummation of the Merger each outstanding
share of Company Common Stock (other than Company Common Stock held by Parent
and its affiliates, which Company Common Stock will be cancelled) will be
converted into the right to receive $83.00 in cash (the "Merger
Consideration").
In arriving at our opinion, we reviewed a draft of the Agreement dated May
23, 2000, and held discussions with certain senior officers, directors and
other representatives and advisors of the Company and certain senior officers
and other representatives and advisors of Parent concerning the businesses,
operations and prospects of the Company. We examined certain publicly
available business and financial information relating to the Company as well
as certain financial forecasts and other information and data for the Company
which were provided to or otherwise discussed with us by the management of the
Company. We reviewed the financial terms of the Merger as set forth in the
Agreement in relation to, among other things: current and historical market
prices and trading volumes of Company Common Stock; the historical and
projected earnings and other operating data of the Company; and the
capitalization and financial condition of the Company. We considered, to the
extent publicly available, the financial terms of certain other similar
transactions recently effected that we considered relevant in evaluating the
Merger and analyzed certain financial, stock market and other publicly
available information relating to the businesses of other companies whose
operations we considered relevant in evaluating those of the Company. In
addition to the foregoing, we conducted such other analyses and examinations
and considered such other information and financial, economic and market
criteria as we deemed appropriate in arriving at our opinion.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information and data publicly available or furnished to or otherwise reviewed
by or discussed with us and have further relied upon the assurances of
management of the Company and Parent that they are not aware of any facts that
would make any of such information inaccurate or misleading. With respect to
financial forecasts and other information and data provided to or otherwise
reviewed by or discussed with us, we have been advised by the management of
the Company that such forecasts and other information and data were reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the management of the Company as to the future financial
performance of the Company. We
C-1
<PAGE>
express no view with respect to such forecasts and other information and data
or the assumptions on which they were based. We have not made or been provided
with an independent evaluation or appraisal of the assets or liabilities
(contingent or otherwise) of the Company nor have we made any physical
inspection of the properties or assets of the Company. We have assumed that the
final terms of the Agreement will not vary materially from those set forth in
the draft reviewed by us. We have further assumed that the Merger will be
consummated in accordance with the terms of the Agreement, without waiver of
any of the conditions precedent to the Merger contained in the Agreement.
We were not requested to consider, and our opinion does not address, the
relative merits of the Merger as compared to any alternative business
strategies that might exist for the Company or the effect of any other
transaction in which the Company might engage. We were advised that Parent,
which beneficially owns approximately 82% of the outstanding shares of Company
Common Stock, had informed the Special Committee that it was unwilling to sell
the Company Common Stock beneficially owned by it, and accordingly we were not
requested to and we did not solicit alternative business combinations that
might otherwise be available for the Company. Our opinion necessarily is based
upon information available to us and financial, stock market and other
conditions and circumstances existing and disclosed to us as of the date
hereof.
Salomon Smith Barney Inc. is acting as financial advisor to the Company in
connection with the Merger and will receive a fee for our services, a
significant portion of which is contingent upon consummation of the Merger. We
have in the past provided investment banking services to the Company and Parent
and the affiliates of Parent, and currently are providing investment banking
services to Parent and its affiliates, unrelated to the Merger, for which we
have received and will receive compensation. In the ordinary course of our
business, we and our affiliates may actively trade or hold the securities of
the Company and Parent and the affiliates of Parent for our own account or for
the account of our customers and, accordingly, may at any time hold a long or
short position in such securities. Salomon Smith Barney Inc. and its affiliates
(including Citigroup Inc. and its affiliates) may maintain relationships with
the Company, Parent and their respective affiliates.
Our advisory services and the opinion expressed herein are provided for the
information of the Special Committee of the Board of Directors of the Company
in its evaluation of the Merger and our opinion is not intended to be and does
not constitute a recommendation of the Merger to the Company or a
recommendation to any stockholder as to how such stockholder should vote on any
matters relating to the Merger.
Based upon and subject to the foregoing, our experience as investment
bankers, our work as described above and other factors we deemed relevant, we
are of the opinion that, as of the date hereof, the Merger Consideration to be
received in the Merger by the holders of Company Common Stock (other than
Parent and its affiliates) is fair, from a financial point of view, to such
holders.
Very truly yours,
/S/ Salomon Smith Barney Inc.
SALOMON SMITH BARNEY INC.
C-2
<PAGE>
APPENDIX D
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
(S) 262 APPRAISAL RIGHTS. (a) Any stockholder of a corporation of this
State who holds shares of stock on the date of the making of a demand pursuant
to subsection (d) of this section with respect to such shares, who
continuously holds such shares through the effective date of the merger or
consolidation, who has otherwise complied with subsection (d) of this section
and who has neither voted in favor of the merger or consolidation nor
consented thereto in writing pursuant to (S) 228 of this title shall be
entitled to an appraisal by the Court of Chancery of the fair value of the
stockholder's shares of stock under the circumstances described in subsections
(b) and (c) of this section. As used in this section, the word "stockholder"
means a holder of record of stock in a stock corporation and also a member of
record of a nonstock corporation; the words "stock" and "share" mean and
include what is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation; and the words
"depository receipt" mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions thereof, solely
of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to
be effected pursuant to (S) 251 (other than a merger effected pursuant to (S)
251(g) of this title), (S) 252, (S) 254, (S) 257, (S) 258, (S) 263 or (S) 264
of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of (S) 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to (S)(S)
251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock (or depository
receipts in respect thereof) or depository receipts at the effective
date of the merger or consolidation will be either listed on a national
securities exchange or designated as a national market system security
on an interdealer quotation system by the National Association of
Securities Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
D-1
<PAGE>
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (S) 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of such
stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of
such stockholder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such stockholder's
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must
do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or
resulting corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in
favor of or consented to the merger or consolidation of the date that the
merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to (S) 228 or
(S) 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second
D-2
<PAGE>
notice need only be sent to each stockholder who is entitled to appraisal
rights and who has demanded appraisal of such holder's shares in accordance
with this subsection. An affidavit of the secretary or assistant secretary
or of the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who
has complied with subsections (a) and (d) hereof and who is otherwise entitled
to appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw such stockholder's demand for appraisal and to accept the terms
offered upon the merger or consolidation. Within 120 days after the effective
date of the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10
days after such stockholder's written request for such a statement is received
by the surviving or resulting corporation or within 10 days after expiration of
the period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery or notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the
D-3
<PAGE>
Court shall take into account all relevant factors. In determining the fair
rate of interest, the Court may consider all relevant factors, including the
rate of interest which the surviving or resulting corporation would have had to
pay to borrow money during the pendency of the proceeding. Upon application by
the surviving or resulting corporation or by any stockholder entitled to
participate in the appraisal proceeding, the Court may, in its discretion,
permit discovery or other pretrial proceedings and may proceed to trial upon
the appraisal prior to the final determination of the stockholder entitled to
an appraisal. Any stockholder whose name appears on the list filed by the
surviving or resulting corporation pursuant to subsection (f) of this section
and who has submitted such stockholder's certificates of stock to the Register
in Chancery, if such is required, may participate fully in all proceedings
until it is finally determined that such stockholder is not entitled to
appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the merger or consolidation
as provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the
Court of Chancery shall be dismissed as to any stockholder without the approval
of the Court, and such approval may be conditioned upon such terms as the Court
deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
D-4
<PAGE>
[Vastar Resources, Inc. Logo Appears Here]
VASTAR RESOURCES, INC.
Proxy Solicited on Behalf of the Board of Directors of the Company
for the Special Meeting , 2000
The undersigned, revoking previous proxies relating to these shares, hereby
acknowledges receipt of the Notice and Proxy Statement dated ,
2000, in connection with the Special Meeting of Stockholders to be held at
a.m. on , 2000, in
, Houston, Texas, and hereby appoints Charles D. Davidson, Steven J.
Shapiro and Albert D. Hoppe, and each of them (with full power to act alone),
the attorneys and proxies of the undersigned, with power of substitution to
each, to vote all shares of the Common Stock of VASTAR RESOURCES, INC.
registered in the name provided herein which the undersigned is entitled to
vote at the Special Meeting of Stockholders, and at any adjournments thereof,
with all the powers the undersigned would have if personally present. Without
limiting the general authorization hereby given, said proxies are, and each of
them is, instructed to vote or act as follows on the proposals proposed by
Vastar set forth in said Proxy Statement.
Proposal 1: Approval, pursuant to Section 251 of the Delaware General
Corporation Law, of the Agreement and Plan of Merger, dated as of May 24,
2000, among Atlantic Richfield Company, Kernel Holdings, Inc. and Vastar
Resources, Inc. providing for the merger of Kernel with and into Vastar.
Proposal 2: Authorization, pursuant to Section 203(a)(3) of the Delaware
General Corporation Law, of the merger of Kernel, with and into Vastar.
SEE REVERSE SIDE. If you wish to vote in
accordance with the Board of Directors' VASTAR RESOURCES, INC.
recommendations, just sign on the reverse P. O. BOX 11203
side. You need not mark any boxes. NEW YORK, N.Y. 10203-0203
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
SEE REVERSE SIDE
<PAGE>
This Proxy when executed will be voted in the manner directed herein. If no
direction is made, this Proxy will be voted FOR Proposals 1 and 2.
The Board of Directors recommends a vote FOR Proposals 1 and 2.
1. Approval of the Agreement and Plan of Merger, providing for the merger
of Kernel with and into Vastar.
FOR [_] AGAINST [_] ABSTAIN [_]
2. Authorization of the merger of Kernel with and into Vastar.
FOR [_] AGAINST [_] ABSTAIN [_]
Change of Address and
or Comments Mark Here [_]
Please sign exactly as name appears
hereon. Joint owners should each
sign. When signing as attorney,
executor, administrator, trustee or
guardian, please give full title as
such.
Dated: ,
2000
-------------------------------------
Signature
-------------------------------------
Signature
Votes must be indicated
(x)in Black or Blue ink. [X]
(Please sign, date and return this proxy in the enclosed postage prepaid
envelope.)
<PAGE>
[Vastar Resources, Inc. Logo Appears Here]
VASTAR RESOURCES, INC.
Instruction Card Solicited by Fidelity Management Trust Company
for the Special Meeting , 2000
The undersigned, revoking previous proxies relating to these shares, hereby
acknowledges receipt of the Notice and Proxy Statement dated , 2000, in
connection with the Special Meeting of Stockholders to be held at a.m. on
, 2000, in , Houston, Texas, and hereby directs Fidelity
Management Trust Company ("Fidelity") to appoint Charles D. Davidson, Steven J.
Shapiro and Albert D. Hoppe, and each of them (with full power to act alone),
the attorneys and proxies of the undersigned, with power of substitution to
each, to vote all shares of the Common Stock of VASTAR RESOURCES, INC. credited
to the account of the undersigned at the Special Meeting of Stockholders, and
at any adjournments thereof, with all the powers Fidelity would have if
personally present. Without limiting the general authorization hereby given,
said proxies are, and each of them is, instructed to vote or act as follows on
the proposals proposed by Vastar set forth in said Proxy Statement.
Proposal 1: Approval, pursuant to Section 251 of the Delaware General
Corporation Law, of the Agreement and Plan of Merger, dated as of May 24,
2000, among Atlantic Richfield Company, Kernel Holdings, Inc. and Vastar
Resources, Inc. providing for the merger of Kernel with and into Vastar.
Proposal 2: Authorization, pursuant to Section 203(a)(3) of the Delaware
General Corporation Law, of the merger of Kernel with and into Vastar.
The number of shares specified on the reverse side of the proxy represents
the aggregate number of shares held for your account in the Vastar Resources,
Inc. Capital Accumulation Plan or in certain employee benefit plans of BP Amoco
p.l.c. This card covers all shares credited to your account in these plans.
SEE REVERSE
SIDE
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
<PAGE>
[X]Please mark your votes
as in this example.
If no direction is made, if the card is not signed, or if the card is not
received by , 2000, the shares credited to your account will
be voted in proportion to directions received by Fidelity.
1. Approval of the Agreement and Plan of Merger, providing for the merger
of Kernel with and into Vastar.
FOR [_] AGAINST [_] ABSTAIN [_]
2. Authorization of the merger of Kernel with and into Vastar.
FOR [_] AGAINST [_] ABSTAIN [_]
Please sign exactly as name appears
hereon.
DATE ________________________________
SIGNATURE
