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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K/A
AMENDMENT NO. 1
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(Mark One)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-13108
Vastar Resources, Inc.
(Exact name of registrant as specified in its charter)
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Delaware 95-4446177
(State or other jurisdiction of (I.R.S. Employee identification No.)
incorporation or organization)
15375 Memorial Drive
Houston, Texas 77079
(Address of principal executive offices) (Zip Code)
(281) 584-6000
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
Common Stock, Par Value $.01 Per Share New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of the registrant's common equity held by non-
affiliates on April 18, 2000, based on the closing price on the New York Stock
Exchange composite tape on that date of $77 13/16, was $1,375,976,490.
As of April 18, 2000, there were 97,697,387 shares of Common Stock
outstanding.
The registrant hereby amends the following items, financial statements,
exhibits or other portions of its Annual Report on Form 10-K for the fiscal
year ended December 31, 1999 as set forth in the pages attached hereto:
Part III, Items 10, 11, 12 and 13
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PART III
ITEM 10. Directors and Executive Officers of the Registrant
BOARD OF DIRECTORS
On April 18, 2000, the combination of BP Amoco p.l.c. ("BP Amoco") and
Atlantic Richfield Company ("ARCO") was completed (the "Combination"). As a
result of the Combination, BP Amoco indirectly owns, through a subsidiary,
81.9 percent of our common stock and a change of control of Vastar Resources,
Inc. ("Vastar" or the "Company") has occurred.
Simultaneous with the consummation of the Combination, 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 thereafter reduced the size of
the board of directors to five positions which are occupied by the remaining
members of the board of directors. The board of directors also elected Charles
D. Davidson as Chairman of the Board. As of the date hereof, the board of
directors consists of the following members: Charles D. Davidson, Chairman,
Jimmie D. Callison, Robert C. LeVine, Steven J. Shapiro and William D.
Schulte.
On March 16, 2000, BP Amoco advised Vastar's board of directors of its
intention to acquire, for $71.00 per share, the approximately 17.7 million
shares, or 18.1 percent, of Vastar's common stock that are publicly traded.
The proposal was conditional on the completion of the Combination. Vastar has
formed a special committee of independent directors to evaluate the proposal.
On April 25, 2000, Vastar's board of directors voted unanimously to postpone
the Annual Meeting of Stockholders scheduled for May 17, 2000. A new meeting
date has not been set.
Set forth below is certain information about our directors as of April 18,
2000. The information includes the director's:
. age;
. present position, if any, with Vastar;
. period served as a director; and
. other business experience during the past five or more years.
Jimmie D. Callison, 67
Director
Mr. Callison has been a director since January 1995. He served as Vice
President of Schlumberger Limited from 1989 to 1995, President of Dowell
Schlumberger Incorporated from 1987 to 1988, and Executive Vice President of
Dowell Schlumberger Incorporated from 1984 to 1989. He joined the Dowell
Division of the Dow Chemical Company (which later became Dowell Schlumberger)
in 1957.
Charles D. Davidson, 50
Chairman of the Board, President and Chief Executive Officer
Mr. Davidson was elected Chairman of the Board on April 18, 2000. He was
elected President and Chief Executive Officer in March 1997 and has been a
director since March 1994. From September 1993 to March 1997, he served as a
Senior Vice President. From December 1992 to October 1993, he was 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.
Robert C. LeVine, 67
Director
Mr. LeVine has been a director since July 1994. Mr. LeVine has 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.
1
William D. Schulte, 67
Director
Mr. Schulte has been a director since July 1994. Mr. Schulte has been a
private investor since his retirement from the position of Vice Chairman of
KPMG, LLP on December 31, 1990 where he served as Vice Chairman--Western
Region from 1986 to 1990 and as Managing Partner of the Los Angeles office
from 1979 to 1986. He joined KPMG in 1961. Mr. Schulte is also a director of
Washington Mutual, Inc.
Steven J. Shapiro, 48
Senior Vice President, Chief Financial Officer and Director
Mr. Shapiro has been Senior Vice President and Chief Financial Officer
since December 1993 and a director since January 1994. He was also Treasurer
from January 1994 to December 1995. He was the President of ARCO Coal
Australia, Inc. from October 1991 to December 1993. Previously, he held the
position of Vice President of Planning of ARCO from 1990 to October 1991. From
1988 to 1990, he was Assistant Treasurer for ARCO, serving in both Los Angeles
and London. Mr. Shapiro joined ARCO in 1977.
Each of the above-listed directors was elected at our May 19, 1999 annual
stockholders' meeting, to serve until the next annual meeting of stockholders
or until a successor is duly elected or his resignation or removal.
EXECUTIVE OFFICERS
Information regarding our executive officers is included in Part I of our
Annual Report on Form 10-K. Such information is hereby incorporated by
reference into this Item 10 and is correct as of the date hereof except for as
follows. Mr. Strode resigned from the Company on March 18, 2000. Mr. Wiley
resigned from the Company on April 18, 2000. Mr. Davidson was elected to the
additional position of Chairman of the Board on April 18, 2000.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires certain of
our officers and directors, and persons who own more than 10 percent of a
registered class of Vastar's equity securities, to file reports of ownership
and changes in ownership with the SEC and with the New York Stock Exchange.
These reports are made on SEC Forms 3, 4 and 5. Such officers, directors and
greater than 10 percent stockholders are required by SEC regulation to furnish
us with copies of all Section 16(a) forms they file.
On the basis of reports and representations submitted by our directors,
executive officers and more than 10 percent stockholders, all Forms 3, 4 and 5
showing ownership of and changes of ownership in our equity securities during
1999 were timely filed with the SEC as required by Section 16(a) of the
Exchange Act, except that Michael E. Wiley may have missed 11 filing deadlines
relating to a total of approximately 20 shares acquired by him from time to
time pursuant to the automatic dividend reinvestment feature of the ARCO
Capital Accumulation Plan. Mr. Wiley was Vastar's Chairman of the Board until
his resignation on April 18, 2000.
2
ITEM 11. Executive Compensation
COMPENSATION OF EXECUTIVE OFFICERS
The following table describes the compensation paid to Mr. Davidson and the
top four highest-paid executive officers of Vastar, other than Mr. Davidson,
in 1997, 1998 and 1999.
Summary Compensation Table
Long Term
Compensation
Annual Compensation Awards
----------------------------------- ------------
Securities
Other Annual Underlying All Other
Name and Salary Bonus Compensation Vastar Compensation
Principal Position Year ($)(1) ($) ($) Options (#) ($)(2)
------------------ ---- -------- -------- ------------ ------------ ------------
(a) (b) (c) (d) (e) (g) (i)
Charles D. Davidson..... 1999 $423,385 $529,000 $63,886 52,075 $ 61,688
Chairman of the Board,
President 1998 $383,077 $364,000 $27,125 60,530 $ 54,375
and Chief Executive
Officer 1997 $328,923 $282,000 $12,008 51,000 $ 51,010
Steven J. Shapiro....... 1999 $270,847 $238,000 $38,655 17,350 $ 51,082
Senior Vice President
and 1998 $256,731 $170,000 $18,200 22,000 $ 46,272
Chief Financial Officer 1997 $264,356 $188,000 $10,625 18,000 $ 54,010
Phillip A. Gobe......... 1999 $250,770 $227,500 $21,638 20,250 $ 41,178
Senior Vice
President(3)(4) 1998 $237,969 $155,000 $10,341 22,000 $ 38,591
1997 $240,046 $124,000 $60,055 23,000 $107,594
Robert P. Strode........ 1999 $238,077 $227,500 $ 8,709 17,350 $ 35,690
Former Senior Vice
President(4)(5) 1998 $229,616 $160,000 $ 4,932 22,000 $ 33,432
1997 $217,573 $112,000 $49,662 34,500 $ 97,073
Albert D. Hoppe......... 1999 $215,847 $150,000 $13,962 8,675 $ 38,629
Vice President, General 1998 $201,731 $100,000 $ 6,470 11,000 $ 35,642
Counsel and Secretary 1997 $207,147 $ 96,000 $ 4,626 9,000 $ 42,520
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(1) Salary is paid bi-weekly. There were 27 paydays in 1997 and 26 in each of
1998 and 1999. The apparent reduction in salary in 1998 for Messrs. Hoppe,
Gobe and Shapiro is a result of there being one additional bi-weekly
payday in 1997 than in 1998.
(2) The table below itemizes each of the items included in the "All Other
Compensation" column. The items are:
. Contributions to the Executive Supplementary Savings Plan;
. Incremental premiums paid for the Executive Medical Plan above a base
amount provided to all employees;
. Reimbursements for financial counseling services;
. Imputed income in respect of benefits under the Long-Term Disability
Plan; and
. The value of insurance premiums paid under the Executive Life Insurance
Plan.
Disability
Plan
Supplementary Medical Financial Imputed Life
Name Year Savings Plan Premiums Counseling Income Insurance
---- ---- ------------- -------- ---------- ---------- ---------
Mr. Davidson.... 1999 $33,870 $6,288 $ 500 $4,425 $16,605
1998 $30,646 $7,469 $ 971 $4,409 $10,880
1997 $26,314 $8,554 $ 500 $3,841 $11,801
Mr. Shapiro..... 1999 $21,668 $6,288 $ 6,200 $3,479 $13,447
1998 $20,539 $7,469 $ 6,200 $3,138 $ 8,926
1997 $21,149 $8,554 $11,150 $2,803 $10,354
Mr. Gobe........ 1999 $20,062 $6,288 $ 6,200 $2,523 $ 6,105
1998 $19,037 $7,469 $ 6,200 $1,932 $ 3,953
1997 $18,550 $8,918 $ 8,400 $1,473 $ 4,232
Mr. Strode...... 1999 $19,046 $6,288 $ 3,250 $2,252 $ 4,854
1998 $18,369 $7,469 $ 3,250 $1,655 $ 2,689
1997 $17,161 $8,909 $ 3,250 $1,145 $ 2,652
Mr. Hoppe....... 1999 $17,268 $6,288 $ 4,200 $2,086 $ 8,787
1998 $16,139 $7,469 $ 4,200 $1,813 $ 6,021
1997 $16,572 $8,554 $ 9,040 $1,643 $ 6,711
3
(3) Mr. Gobe began his employment with Vastar in May 1997. Generally,
compensation reported on this chart prior to his Vastar employment was
paid by ARCO for his services to ARCO.
(4) The "All Other Compensation" amounts in 1997 for Messrs. Gobe and Strode
also include $66,021 of miscellaneous moving expenses for Mr. Gobe and
$63,956 of executive foreign service and relocation expenses for Mr.
Strode.
(5) Mr. Strode began his employment with Vastar in late February 1997.
Generally, compensation reported on this chart prior to his Vastar
employment was paid by ARCO for his services to ARCO. Mr. Strode resigned
from the Company on March 18, 2000.
4
STOCK OPTIONS
The compensation subcommittee of the board of directors granted stock
options under Vastar's Executive Long-Term Incentive Plan, as amended
("LTIP"), to our officers and key employees at its meeting on March 1, 2000.
The following table shows the stock options granted to Mr. Davidson and the
four highest-paid executive officers, other than Mr. Davidson, for their 1999
performance.
Vastar Option Grants for 1999
Individual Grants
----------------------------------------------------- Potential Realizable Value
Number of at Assumed Annual Rates
Securities Percent of Total Exercise of Stock Price Appreciation
Underlying Options Granted to Or Base for Option Term
Options Vastar Employees Price Expiration ---------------------------
Name Granted (#) for 1999 ($/Sh) Date 5% 10%
- ------------------------ ----------- ------------------ -------- ------------- ------------- -------------
(a) (b) (c) (d) (e) (f) (g)
Mr. Davidson............ 52,075 13.3% $54.75 March 1, 2010 $ 1,793,046 $ 4,543,929
Mr. Shapiro............. 17,350 4.4% $54.75 March 1, 2010 $ 597,395 $ 1,513,916
Mr. Gobe(1)............. 17,350 4.4% $54.75 March 1, 2010 $ 597,395 $ 1,513,916
Mr. Strode(2)........... 17,350 4.4% $54.75 March 1, 2010 $ 597,395 $ 1,513,916
Mr. Hoppe............... 8,675 2.2% $54.75 March 1, 2010 $ 298,698 $ 756,958
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(1) The compensation subcommittee of the board of directors also granted Mr.
Gobe 2,900 stock options on December 7, 1999 under the LTIP. These options
were granted to resolve an inequity relating to his forfeiture of certain
restricted stock granted to him by his former employer, ARCO, resulting
from his agreement to join Vastar in 1997. These stock options represented
0.7% of the total options granted to Vastar employees for 1999, have an
exercise price of $53.28 and expire on December 7, 2009. The potential
realizable values for these options at 5 and 10 percent compound annual
rates of stock price appreciation for the option term are $97,174 and
$246,258, respectively.
(2) Mr. Strode resigned from the Company on March 18, 2000. As a result, the
stock options set forth on this table for Mr. Strode were cancelled.
Our LTIP stock options are ten-year options which can be exercised in 25
percent annual increments beginning on the first anniversary of the date of
grant. Each stock option is accompanied by a tax withholding right which will
allow us to withhold a portion of the common stock due to an executive on the
exercise of a stock option to pay any taxes which may be due. If the grantee
terminates his or her employment for reasons other than immediate retirement,
long-term disability or death, stock options that have been held for less than
one year or have not yet become exercisable are cancelled and stock options
which are exercisable on the date of termination of employment and which have
been held for more than one year are exercisable for 90 days after termination
of employment, unless, in each case, we determine otherwise. All stock options
set forth above automatically became exercisable on April 18, 2000 as a result
of the change of control of Vastar that occurred on the completion of the
Combination.
The last two columns on the right of the table present the hypothetical
future value of Vastar common stock which might be received on the exercise of
the stock options, net of the option's exercise price. The hypothetical value
is based on the assumption that the market price of our common stock will
appreciate at a 5 and 10 percent compound annual rate over the ten-year term
of the options. The market price of our common stock on the March 1, 2000
grant date was $54.75, and the future price of our common stock using these
same 5 and 10 percent compound annual rates over ten years would be $89.18 and
$142.01. The 5 and 10 percent rates of stock price appreciation are examples
prepared in accordance with SEC regulations and do not necessarily reflect our
assessment of our future stock price performance. These hypothetical values
presented do not necessarily indicate the value of the stock options.
5
The table below shows the number of stock options exercised in 1999 by the
executive officers listed below and the value received on exercise. The table
also shows the number and value of the remaining stock options held by each
officer and indicates whether or not the stock options were exercisable on
December 31, 1999.
Aggregated Vastar Stock Option Exercises in
1999 and Year-End Option Values
(As of December 31, 1999)
Value of In-the-Money
Shares Number of Unexercised Unexercised Options
Acquired Options at Year-End At Year-End(1)
on Value ---------------------------- ----------------------------
Exercise Realized Exercisable Unexercisable(2) Exercisable Unexercisable(2)
Name (#) ($) (#) (#) ($) ($)
---- -------- -------- ----------- ---------------- ----------- ----------------
Mr. Davidson............ 11,300 $590,375 149,148 118,405 $4,271,604 $2,487,435
Mr. Shapiro............. 17,811 $546,605 151,748 51,325 $4,285,639 $1,144,847
Mr. Gobe................ 7,000 $200,062 0 40,900 $ 0 $ 767,647
Mr. Strode(3)........... 5,000 $182,844 7,000 43,750 $ 162,719 $ 932,266
Mr. Hoppe............... 27,154 $925,213 25,542 25,662 $ 619,535 $ 572,423
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(1) The fair market value of Vastar Common Stock on December 31, 1999 was
$59.00 per share.
(2) On April 18, 2000, the Combination of BP Amoco and ARCO was completed. As
a result of the Combination, BP Amoco owns, through a subsidiary, 81.9
percent of our common stock, a change of control of Vastar has occurred
and all of the stock options set forth in this column became exercisable.
(3) Mr. Strode resigned from the Company on March 18, 2000 and on such date
29,625 of his stock options reported in this chart as unexercisable on
December 31, 1999 were cancelled.
6
ESTIMATED VASTAR RETIREMENT BENEFITS
The following table shows estimated combined annual pension benefits
payable to officers and other key employees, assuming retirement on January 1,
2000, at age 65 under the provisions of our Retirement Plan and Supplementary
Executive Retirement Plan.
Pension Plan Table
Approximate annual benefit
for years of membership service indicated
15 20 25 30 35
Remuneration Years Years Years Years Years
- ------------ ------- ------- ------- ------- -------
$1,200,000.............................. 275,947 367,930 459,912 551,894 643,877
1,100,000.............................. 252,847 337,130 421.412 505,694 589,977
1,000,000.............................. 229,747 306,330 382,912 459,494 536,077
900,000.............................. 206,647 275,530 344,412 413,294 482,177
800,000.............................. 183,547 244,730 305,912 367,094 428,277
700,000.............................. 160,447 213,930 267,412 320,894 374,377
600,000.............................. 137,347 183,130 228,912 274,694 320,477
500,000.............................. 114,247 152,330 190,412 228,494 266,577
400,000.............................. 91,147 121,530 151,912 182,294 212,677
300,000.............................. 68,047 90,730 113,412 136,094 158,777
200,000.............................. 44,947 59,930 74,912 89,894 104,877
100,000.............................. 21,847 29,130 36,412 43,694 50,977
We calculate retirement benefits by averaging the participant's highest
three consecutive years of base salary plus incentive bonuses. You can find
base salary and bonuses in columns (c) and (d) of the Summary Compensation
Table which appears previously in this Form 10-K/A.
The amounts shown above are based on the following assumptions:
. That the participant retires on January 1, 2000;
. That the retirement benefit will be paid for the life of the participant
with a guaranteed minimum payment period of 60 months; and
. The participant was 65 on January 1, 2000.
The amount of the retirement benefit would change if the payment were made
under any other form permitted by the retirement plans or if the participant's
retirement occurs after January 1, 2000. The benefits shown are not subject to
deduction for Social Security benefits or other offset amounts. See the
information presented on pages 9 and 10 hereof with respect to retirement
benefits payable upon certain terminations of employment after a change of
control.
As of December 31, 1999, the credited years of service under these plans
for the following executive officers were:
. Mr. Davidson--27 years, 7 months;
. Mr. Shapiro--22 years, 6 months;
. Mr. Gobe--24 years, 0 months;
. Mr. Strode--20 years, 1 month; and
. Mr. Hoppe--23 years, 4 months.
7
COMPENSATION OF DIRECTORS
Directors' Fees
Directors who are employees of Vastar or its affiliates do not receive fees
or additional compensation for service as members of the board or any board
committee. Directors who are not officers or employees of Vastar or its
affiliates receive an annual retainer of $25,000, plus $1,000 for each board
or committee meeting attended, and receive reimbursement for travel and other
related expenses incurred in attending such meetings. In addition, each of
these directors who serves as a committee chair receives an additional
retainer of $5,000 per year. Director status does not entitle a person to
participate in our employee stock option or other employee benefit plan
programs. Vastar officers who are directors are eligible to participate in
these programs as a result of their status as Vastar officers and employees.
Directors who are not officers or employees of Vastar or its affiliates may
participate in the plans described below which are administered by director
plan committees selected by the board of directors. The members of these
director plan committees are not members of the board of directors.
Messrs. LeVine, Schulte and Callison, who are not employees of Vastar or
its affiliates, were elected to a special committee of independent directors
which has been charged with the responsibility of evaluating the proposal made
by BP Amoco to acquire, for $71.00 per share, the approximately 17.7 million
shares, or 18.1 percent, of Vastar's common stock that are publicly traded.
Mr. LeVine, as Chairman of the special committee, will receive $45,000 for his
service on the special committee and Messrs. Schulte and Callison will each
receive $40,000.
Stock Option Plan for Outside Directors
This plan provides that each newly elected director who is not an officer
or employee of Vastar or its affiliates will be granted ten-year nonqualified
stock options to purchase 5,000 shares of common stock. For directors who were
elected prior to our initial public offering in 1994, the exercise price for
these options is $28.00 per share, which was the initial public offering price
for our common stock. For directors elected after our initial public offering,
the exercise price is the fair market value of common stock on their election
date. The total number of shares of common stock that can be issued under this
plan is 75,000. No stock options may be granted under the plan after December
31, 2004.
Deferral Plan for Outside Directors
This plan permits directors who are not officers or employees of Vastar or
its affiliates to defer up to 100 percent of their annual retainer and board
meeting fees and any committee chair and committee meeting fees. Interest
accrued in 1999 on deferrals made under the plan totaled $20,726 for Mr.
LeVine and $16,718 for Mr. Callison. Mr. Schulte does not maintain a deferral
account under the plan.
Retirement Plan for Outside Directors
Under this plan, directors who are not officers or employees of Vastar or
its affiliates and who have completed 36 months of service as a member of the
board are eligible to receive a retirement benefit. The benefit is payable at
age 65 or on retirement from the board of directors, whichever is later. The
normal form of this benefit is a monthly allowance equal to one-twelfth of the
director's annual retainer. After retirement, this benefit will be paid to the
director for the same number of months as the director served on the board.
However, directors who have served for 180 or more months prior to retirement
are entitled to this monthly benefit for life. A death benefit equal to 50
percent of the director's accrued benefit, with a maximum of 180 months, is
payable to a deceased director's designated beneficiary.
8
CHANGE OF CONTROL ARRANGEMENTS(/1/)
The board of directors has adopted certain arrangements that apply
generally to employees, including Mr. Davidson and the other top three
highest-paid executive officers(/2/) of Vastar, which become operative only
upon a change of control of Vastar.(/3/) On April 18, 2000, the Combination of
BP Amoco and ARCO was completed. As a result of the Combination, BP Amoco
indirectly owns, through a subsidiary, 81.9 percent of the common stock of
Vastar and a change of control of Vastar has occurred.
Upon the closing of the Combination, all stock options granted to Vastar's
employees (including Mr. Davidson and the three other highest-paid executive
officers(/2/) of Vastar) under our Executive Long-Term Incentive Plan, as
amended, which were not exercisable became exercisable.
Also, if any Vastar employee who has been employed by us for two years or
more is terminated under specified conditions(/4/) within two years following
a change of control, the employee will be entitled to severance, enhanced
retirement and welfare benefits. Calculation of the actual benefit payable is
derived from a formula that is based on several components of annual
compensation and the employee's position with the Company. Specifically, under
the severance program, Messrs. Davidson, Gobe, Hoppe and Shapiro would receive
a Basic Severance Payment and, if applicable, a Supplemental Severance
Payment. Their Basic Severance Payment is a cash allowance equal to 1 1/2
weeks of base pay per year of service with a minimum of 6 weeks of base pay
and a maximum of 36 weeks of base pay. In addition, if their Basic Severance
Payment and the value of the 5+5 Enhancement (described below) is less than 3
times base pay plus bonus(/5/) (for Messrs. Davidson, Gobe and Shapiro) or 2
times base pay plus bonus (for Mr. Hoppe), these officers will also be
entitled to a Supplemental Severance Payment so that the total of their Basic
Severance Payment plus the value of the 5+5 Enhancement plus the Supplemental
Severance Payment will equal 3 times or 2 times base pay plus bonus (or the
Basic STAP(/6/) if greater), as applicable. In addition, these officers would
receive (i) for the calendar year in which termination of employment occurs,
an amount equal to 50 percent of their target bonus under our Annual Incentive
Plan for that year, if termination occurs in the first six months of the year,
or 100 percent of their target bonus for that year, if termination occurs
within the second six months of the year, and (ii) a payment from us for the
amount of any excise tax liability imposed pursuant to Internal Revenue Code
Section 4999 with respect to any benefits paid to them in connection with a
change of control.
A Subsequent Change of Control (as defined in the footnote below) would
restart the two year benefit trigger window described above. Also, the bonus
target under the Annual Incentive Plan described above will be paid within
sixty days of the Subsequent Change of Control as follows (regardless of
whether a termination of employment has occurred): (i) if the Subsequent
Change of Control occurs within the first six months of the calendar year 50
percent of the target bonus will be paid, and (ii) if the Subsequent Change of
Control occurs in the second six months of the calendar year, 100 percent of
the target bonus will be paid.
In addition, if employment is terminated after a change of control under
the circumstances described above, each of Messrs. Davidson, Gobe, Hoppe and
Shapiro would be entitled to a 5+5 Enhancement to their benefits under the
Vastar Retirement Plan and the Supplemental Executive Retirement Plan. Under
the 5+5 Enhancement, the retirement benefit of each employee who participates
in Vastar's Retirement Plan and, if applicable, the Supplemental Executive
Retirement Plan, including Messrs. Davidson, Gobe, Hoppe and Shapiro, would be
adjusted so that they will be credited with an additional five years of
service to their years of service and their age will be deemed to be their
actual age plus five years of age. These retirement calculations will be based
upon the greater of the average of the participant's highest consecutive three
years of annual base pay since December 31, 1978 or his or her final base pay
as of the date of such participant's termination of employment.
Messrs. Davidson, Gobe and Shapiro would also receive welfare benefit
coverage upon termination of employment under the circumstances described
above pursuant to the Vastar-sponsored health, dental and life insurance
programs for 36 months. Under this program, Mr. Hoppe would receive 24 months
of coverage.
9
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(1) This brief description of various provisions of some of the Company's
benefit plans is qualified in its entirety by reference to the full text
of the plans.
(2) Mr. Strode resigned from the Company on March 18, 2000. As a result, he
is not entitled to any of the change of control benefits described in
this section.
(3) A "change of control" is defined as any one of seven events:
. The Incumbent Directors (individuals who, as of March 5, 1998,
constituted our board of directors and directors who are recommended or
approved by a majority of the then-Incumbent Directors) cease for any
reason to constitute a majority of our board of directors at the end of
any 12-month period;
. Consummation of a merger, reorganization or sale of all or substantially
all of our assets, except:
. when all or substantially all of our stockholders prior to the
transaction retain more than a 60 percent ownership of the resulting
entity in substantially the same proportions as their ownership
prior to the transaction;
. there is no new 20 percent (or larger percent) stockholder; and
. at least a majority of the board of directors of the resulting
entity were Incumbent Directors;
. Parent Company reduces its ownership in Vastar below 50 percent and
another entity acquires 20 percent or more of Vastar;
. Parent Company initiates a tender offer for all or substantially all of
our common stock or otherwise attains an ownership interest in Vastar of
more than 85 percent;
. our stockholders approve a complete liquidation or dissolution of Vastar;
. a change of control of ARCO occurs as defined in the ARCO 1985 Executive
Long-Term Incentive Plan; or
. a Subsequent Change of Control.
A change of control under ARCO's 1985 Long-Term Incentive Plan is defined as
any one of four events: (1) any person or group (other than ARCO or its
benefit plans) acquires 25 percent of ARCO's then-outstanding voting
securities other than pursuant to an acquisition from ARCO of up to 40 percent
that is approved by ARCO's board of directors; (2) Incumbent ARCO Directors
(directors as of July 28, 1997 and directors recommended or approved by a
majority of then-Incumbent ARCO Directors) no longer comprise a majority of
the board; (3) consummation of a merger, reorganization or sale of
substantially all ARCO's assets, provided that if such shareholders constitute
over 60 percent of the shareholders of the resulting entity and Incumbent ARCO
Directors comprise a majority of the board of directors of, and no person owns
25 percent or more of the resulting entity, then such event will not be deemed
a change of control; and (4) shareholder approval of a plan of complete
liquidation of ARCO.
A Subsequent Change of Control is defined as a change of control which occurs
after the consummation of a transaction constituting a change of control.
Parent Company means ARCO, until the consummation of the Combination between
BP Amoco and ARCO, and BP Amoco, after the consummation of the Combination.
The above definitions are summaries. Reference is made to our Executive Long-
Term Incentive Plan and all amendments and restatements thereof filed with the
SEC for the complete text of the plan.
(4) Such conditions require that the termination of employment be:
(i) an involuntary termination of employment, other than for Cause, or
(ii) a voluntary termination a result of:
(A) a ten percent or more reduction in base pay, or a ten percent or more
reduction in base pay plus target bonus;
(B) certain required relocations; or
(C) with respect to certain Vastar executives (which includes Mr.
Davidson, Gobe, Hoppe and Shapiro), a demotion to a lesser job.
(5) For this purpose, bonus means the higher of the average bonus paid to the
executive over the last three years or the executive's most recent bonus
prior to the change of control.
(6) Basic STAP means a cash allowance equal to 3 weeks of base pay per year
of service with a minimum of 12 weeks and a maximum of 72 weeks.
10
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1999, the members of our compensation committee were Michael E.
Wiley, Chair, and Terry G. Dallas, Robert C. LeVine and William D. Schulte.
During 1999, the members of our compensation subcommittee were Mr. LeVine,
Chairman, and Mr. Schulte. Except for Mr. Wiley, none of these persons are or
have ever been officers or employees of Vastar. Mr. Wiley was the President
and Chief Operating Officer of ARCO until his resignation on April 18, 2000.
In addition, Mr. Wiley, as Chairman of the Board of Vastar, was, until his
resignation on April 18, 2000, an ex officio officer of Vastar under its
bylaws and was Vastar's President and Chief Executive Officer until he
resigned on March 31, 1997. Mr. Wiley received no compensation from Vastar and
was not eligible to participate in any of our benefit plans as a result of his
serving as Chairman of the Board. As of April 18, 2000, Mr. Wiley held 350,403
stock options granted to him under Vastar's employee stock option plans when
he was an officer and employee of Vastar. At the time he received those stock
options, he was not a member of the compensation committee or the compensation
subcommittee. The following former Vastar directors held the following
positions at ARCO until their respective resignations on April 18, 2000: Mr.
Dallas, Senior Vice President and Treasurer; Mrs. Knowles, Executive Vice
President and Chief Financial Officer; and Mr. Voelte, Executive Vice
President. As of April 18, 2000, the members of our compensation committee
were Mr. Schulte, Chair, and Mr. LeVine. As of April 18, 2000, the members of
our compensation subcommittee were Mr. LeVine, Chair, and Mr. Schulte.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS
On April 18, 2000, the only person known to us to own more than 5 percent
of our common stock is:
Amount and
Nature of
Name and Address Beneficial Percent
Title of Class of Beneficial Owner Ownership of Class
-------------- ------------------------ ---------- --------
Common Stock....................... BP Amoco p.l.c. 80,000,001 81.9%
Britannic House
1 Finsbury Circus
London EC2M 7BA, England
BP Amoco has both the voting power and the power to dispose of these
shares. It does not share this power with any other person.
BP Amoco is able, acting alone, to elect the entire board of directors of
Vastar and to approve any action requiring stockholder approval. BP Amoco's
level of ownership of our common stock precludes any acquisition of control of
Vastar, unless favored by BP Amoco.
For a discussion of a proposal by BP Amoco to acquire all the publicly held
shares of Vastar common stock, see "Change in Control," below.
11
SECURITY OWNERSHIP OF MANAGEMENT
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 President and Chief Executive Officer;
. the four highest-paid executive officers in 1999 (other than our
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 April 18, 2000.
Equity securities beneficially owned by a person as of a particular date
includes 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 April 18, 2000, no Vastar director or executive officer beneficially owned
more than 1 percent 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 percent 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.
Shares of BP
Amoco American
Depositary
Shares
Beneficially
Shares of Vastar Common Stock Owned as of
Beneficially Owned as of April 18,
Name April 18, 2000(1)(2) 2000(2)(3)(4)
---- ----------------------------- --------------
Jimmie D. Callison................ 5,000 0
Charles D. Davidson............... 321,564 3,076
Phillip A. Gobe................... 58,250 34,342
Albert D. Hoppe................... 59,879 2,401
Robert C. LeVine.................. 6,500 1,312
William D. Schulte................ 6,000 0
Steven J. Shapiro................. 222,455 1,978
Robert P. Strode(5)............... 8,587 16,983
All directors and executive
officers as a
group, including those listed
above............................ 906,638 77,501
- --------
(1) Some of the Vastar common stock reported as beneficially owned in this
column is obtainable on April 18, 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:
Callison................ 5,000
Davidson................ 319,628
Gobe.................... 58,250
Hoppe................... 59,879
LeVine.................. 5,000
Schulte..................... 5,000
Shapiro..................... 220,423
Strode...................... 8,500
Directors & officers as a group.. 892,484
(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.
12
(3) Some of the BP Amoco American Depositary Shares reported as beneficially
owned in this column are obtainable on April 18, 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:
Gobe......................... 29,552
Strode....................... 14,566
Directors and officers as a
group....................... 49,827
(4) Each of Mr. Gobe and another officer included in the total for directors
and officers as a group who is not named above 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
spouse.
(5) Mr. Strode resigned from the Company on March 18, 2000.
CHANGE IN CONTROL
On April 18, 2000, the Combination of BP Amoco and ARCO was completed. As a
result of the Combination, BP Amoco indirectly owns, through a subsidiary,
81.9 percent of our Common Stock and a change of control of Vastar has
occurred.
Simultaneous with the consummation of the Combination, the Chairman of the
Board of the Company, Michael E. Wiley, and three additional members of the
board of directors of the Company, Terry G. Dallas, Marie L. Knowles and
Donald R. Voelte, Jr., resigned. The board of directors thereafter reduced the
size of the board of directors to five positions which are occupied by the
remaining members of the board of directors. The board of directors also
elected Charles D. Davidson as Chairman of the Board. As of the date hereof,
the board of directors consists of the following members: Charles D. Davidson,
Chairman, Jimmie D. Callison, Robert C. LeVine, Steven J. Shapiro and William
D. Schulte.
On March 16, 2000, BP Amoco advised Vastar's board of directors of its
intention to acquire, for $71.00 per share, the approximately 17.7 million
shares, or 18.1 percent, of Vastar's common stock that are publicly traded.
The proposal was conditional on the completion of the Combination. Vastar has
formed a special committee of independent directors to evaluate the proposal.
On April 25, 2000, Vastar's board of directors voted to postpone the Annual
Meeting of Stockholders scheduled for May 17, 2000. A new meeting date has not
been set.
13
ITEM 13. Certain Relationships and Related Transactions
RELATIONSHIPS AND RELATED TRANSACTIONS WITH BP AMOCO AND ITS AFFILIATES
We have various relationships with BP Amoco and its affiliates including
ARCO. The discussion below describes certain relationships which currently
exist between Vastar, BP Amoco and their respective affiliates including ARCO.
We expect that additional agreements will be entered into in the future
between Vastar and BP Amoco and/or their respective affiliates.
Transactions and Relationships Between Vastar and BP Amoco
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 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 (which agreement
is described below). The agreement states that, except as provided in the
Memorandum of Understanding relating to Accounting and Administrative
Services, 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.
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, 1999:
In the ordinary course of its business, we often own oil and gas
exploration and/or production properties jointly with one or more other
parties, including 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 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 BP Amoco. Agreements with 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.
14
In total, the joint interest payables in 1999 from Vastar to BP Amoco were
approximately $5.6 million. Joint interest receivables from BP Amoco for 1999
were approximately $7.7 million. In February 2000, we also purchased from BP
Amoco a platform at High Island A-5 in the Gulf of Mexico for approximately
$3.2 million.
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 BP Amoco in 1999 for these commodities were approximately $62.6
million, or approximately 3.3 percent of our sales and other operating
revenues. Sales by BP Amoco to Vastar in 1999 for these commodities were
approximately $9.6 million, or approximately 1.3 percent of our total
purchases. Southern Company Marketing Company, a strategic marketing alliance
between us and Southern Energy, Inc., also trades oil, gas and other
commodities with BP Amoco at market prices. We own a 40% interest in Southern
Company Energy Marketing. During 1999, Southern Company Energy Marketing's
revenues from these transactions with affiliates of BP Amoco were
approximately $54.4 million. Southern Company Energy Marketing's purchases
from affiliates of BP Amoco were approximately $50.6 million. Southern Company
Energy Marketing also engages in financial transactions with BP Amoco such as
financial hedges. As of April 25, 2000, the marked to market value of these
transactions was approximately $1.1 million.
Vastar and 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. In 1999, Vastar received
$525,000 from BP Amoco in other revenues. Vastar paid to BP Amoco $2.0 million
in other expenses.
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 1999 between Vastar and ARCO and/or their
respective subsidiaries. The descriptions of agreements are only summaries.
They do not describe everything contained in the agreements. Some of the items
not summarized may be important to you. If you are interested in all the terms
and conditions of any of these agreements, you should read them in their
entirety. We have filed most of these agreements with, and copies can be
obtained from, the SEC. Some of these agreements may need to be revised in
light of the completion of the Combination.
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 $437.0 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
traded with Mobil properties that Vastar Offshore had owned in California for
the above-described Gulf of Mexico properties. 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.
15
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.
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 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 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 percent of Vastar. We agreed to pay ARCO
$500,000 for this license.
Services Agreements
Vastar and ARCO have entered into the following agreements under which
Vastar and ARCO provide 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.
The term of the Technical Services Agreement is indefinite. Either party
can terminate it on 30 days' written notice. Generally, either party may
terminate any type of service under the Corporate Services Agreement at any
time on 60 days' prior written notice or terminate the entire agreement on 90
days' written notice. However, with respect to the employee information system
provided by ARCO, which is used in the administration of our employee payroll
and other benefits, ARCO must give us 180 days' notice prior to terminating
the service.
ARCO provides oil and gas technical services under the Technical Services
Agreement and provides or can provide 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.
16
The services we can provide ARCO under the Corporate Services Agreement are
audit, tax and other services, as agreed.
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.
In 1999, we paid ARCO $9.7 million for services ARCO performed under these
service agreements. ARCO provided these services at its cost. ARCO made no
payments to Vastar under the Corporate Services Agreement in 1999. See the
discussion above under the heading "Transactions and Relationships between
Vastar and BP Amoco" for a description of modifications to these agreements
which apply after the closing of the Combination between BP Amoco and ARCO
which occurred on April 18, 2000.
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 annual charge paid to ARCO by us was $3.3 million in
1999. 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 the
Combination, 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.
Natural Gas and Crude Oil Purchase and Sale Agreements
One of our subsidiaries, Vastar Gas Marketing, Inc., and a joint venture in
which we own a 40% interest, 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. Southern Company Energy Marketing is a strategic alliance
between The Southern Company and us.
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. The contracts guaranteed by ARCO were
originally entered into by Vastar Gas and certain of these contracts were
transferred to Southern Company Energy Marketing in connection with the
formation of Southern Company Energy Marketing in 1997.
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 affiliates
and divisions.
During 1999, our revenues from these transactions with ARCO and its
affiliates were $2.3 million, or less than 1.0 percent of our sales and other
operating revenue. Our purchases from ARCO and its affiliates during 1999 were
$545,000, or less than 1.0 percent of our total purchases.
17
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 1999, we paid ARCO
$407,000 for transportation services under that agreement.
Building Lease
Our 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, we paid approximately $2.7
million 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 in 1999.
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 with ARCO and
property management agreement with ARCO and to execute a new ten-year
lease agreement with the new landlord;
. ARCO agreed to pay us $5 million as consideration for (1) terminating
the lease and the property management agreement, (2) 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
(3) certain other concessions; and
. if in the last quarter of 2003, the then current fair market rent for
the building is greater or lesser than the rent payable under the new
lease, we or ARCO have 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 percent 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;
. 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.
18
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. We
agreed that all other out-of-pocket expenses, taxes or fees associated with
the consummation of the transfer of the properties to us would be paid by the
party incurring the costs.
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
The Tax Sharing Agreement is applicable to Vastar for the period that ARCO
was the common parent of the affiliated group of which Vastar is a member (the
"Affiliated Group"). ARCO remained the common parent of the Affiliated Group
immediately after the completion of the Combination. However, promptly after
the Combination closed on April 18, 2000, ARCO became a subsidiary of BP
America Inc. and as of that date is no longer the common parent of the
Affiliated Group. Therefore, the Tax Sharing Agreement applies to all business
activity prior to April 18, 2000. Vastar expects to sign a replacement tax
sharing agreement with BP America Inc. that will contain all of the material
provisions that were in the Tax Sharing Agreement between Vastar and ARCO and
with an effective date 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 such 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. Until April 18, 2000, Vastar and its subsidiaries were
parties to a Tax Sharing Agreement with ARCO, effective as of October 1, 1993,
that has been amended on several occasions. Under this agreement, 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; and
. certain state and local income and franchise tax liabilities that may
be incurred by us and/or our subsidiaries.
The right to indemnification is valid except to the extent we have not made
tax sharing payments in accordance with the agreement.
As part of the Tax Sharing Agreement, we paid ARCO 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.
19
Pursuant to the Internal Revenue Code, Section 29 tax credits can be used
to reduce the ARCO consolidated tax group's regular income tax liability after
foreign tax credits (the "Regular Tax"), 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 to be used in a subsequent
year. To the extent that the Section 29 tax credits generated in a year exceed
the Regular Tax, the excess Section 29 tax credits are not allowed to be
carried forward.
Under the Tax Sharing Agreement, we were able to use Section 29 tax credits
to reduce our federal income tax payments to ARCO by the greater of (i) the
amount of these credits which could be used by Vastar if its tax liability was
calculated on a stand-alone tax basis and (ii) the amount of these credits
used by the ARCO consolidated tax group, in each case, less a 3.25 percent
discount on certain credits. Section 29 tax credits that were not used by us
in the current year under the tax sharing agreement can 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 for ARCO and its domestic subsidiaries was
due, with any final settlement made after the consolidated, combined or
unitary return is filed. We were 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 were 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. The Third Amendment implemented certain tax
assumptions made in a Stock Purchase Agreement entered into with ARCO in 1998.
Under the 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 (the Adjusted Purchase Price). 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 the Adjusted Purchase
Price. ARCO agreed to indemnify and hold us harmless in the event that our
actual tax basis is determined to be less than the Adjusted Purchase Price.
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
("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 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.
Corporate Opportunities
To address potential conflicts of interest, provisions of our Second
Restated Certificate of Incorporation regulate the conduct of our affairs as
they may involve ARCO. 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.
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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 among 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.
In the case of any business opportunity not specifically allocated above,
whether because of the means by which it arose or was published, or otherwise,
either Vastar or ARCO may pursue the business opportunity. The party to which
a business opportunity is allocated under the agreement has the right to allow
any of its subsidiaries or affiliates or other entities under its control to
pursue the opportunity. If one party to 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.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
VASTAR RESOURCES, INC.
Date: April 28, 2000 By: /s/ Steven J. Shapiro
--------------------------------- -----------------------------------
Steven J. Shapiro
Senior Vice President and Chief
Financial Officer
(Principal Financial Officer)
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