<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1999
------------------
Commission File Number : 001-14575
VISTA ENERGY RESOURCES, INC.
----------------------------
(Exact name of registrant as specified in its charter)
Delaware 75-2766114
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
550 West Texas Avenue, Suite 700, Midland, Texas 79701
------------------------------------------------ -----
(Address of principal executive offices) (Zip Code)
(915) 570-5045
--------------
(Registrant's telephone number, including area code)
NONE
----
(Former name, former address and former fiscal year,
if changed since last report)
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 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 the number of shares outstanding of each of the issuers classes of
common stock, as of the latest practicable date:
Class Outstanding as of November 1, 1999
Common stock, $.01 par value 16,367,328
<PAGE> 2
VISTA ENERGY RESOURCES, INC.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
----
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets
at September 30, 1999 (Unaudited) and December 31, 1998 (Audited) 3
Unaudited Consolidated Statement of Operations
for the Three and Nine Months Ended September 30, 1999 and 1998 4
Unaudited Consolidated Statement of Cash Flows
for the Nine Months Ended September 30, 1999 and 1998 5
Notes to Unaudited Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
PART II. OTHER INFORMATION 21
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VISTA ENERGY RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS SEPTEMBER 30, DECEMBER 31,
1999 1998
------------ ------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 20,623 $ --
Accounts receivable:
Oil and gas sales 3,685,493 1,498,727
Trade 636,578 900,401
Other 273,365 262,218
------------ ------------
Total current assets 4,616,059 2,661,346
PROPERTY AND EQUIPMENT:
Oil and gas properties, based on successful efforts accounting 92,010,743 86,970,665
Other 566,830 529,771
------------ ------------
92,577,573 87,500,436
Less accumulated depreciation, depletion and amortization (34,462,776) (30,956,448)
------------ ------------
Property and equipment, net 58,114,797 56,543,988
OTHER ASSETS, NET 901,607 537,983
------------ ------------
Total Assets $ 63,362,463 $ 59,743,317
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable 4,380,516 2,829,495
Accrued expenses 462,633 259,117
------------ ------------
Total current liabilities 4,843,149 3,088,612
LONG-TERM DEBT 52,633,740 50,730,894
DEFERRED TAX LIABILITY 431,117 350,000
OTHER LONG-TERM LIABILITIES 205,116 205,116
STOCKHOLDERS' EQUITY:
Common Stock, par value $.01 per share;
Authorized - 50,000,000 shares; issued 16,367,328 at September 163,736 163,736
30, 1999 and December 31, 1998, respectively; (212,070) (212,070)
Treasury Stock - 6,300 shares
Additional paid in capital 25,071,099 25,071,099
Retained earnings (deficit) (19,503,424) (19,654,070)
------------ ------------
Total stockholders' equity 5,519,341 5,368,695
------------ ------------
Total liabilities and stockholders' equity $ 63,632,463 $ 59,743,317
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE> 4
VISTA ENERGY RESOURCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES:
Oil and gas sales $ 4,371,641 $ 1,927,397 $ 12,856,692 $ 5,984,676
------------ ------------ ------------ ------------
Total revenues 4,371,641 1,927,397 12,856,692 5,984,676
COSTS AND EXPENSES:
Lease Operating 1,795,863 838,347 4,655,601 2,777,877
Exploration Costs 14,082 25,458 52,850 25,458
Depreciation, depletion and amortization 1,381,387 267,575 3,593,750 1,229,601
General and administrative 512,743 563,976 1,480,879 1,184,641
Amortization of Unit Option Awards -- 21,326 -- 214,303
------------ ------------ ------------ ------------
Total costs and expenses 3,704,075 1,716,682 9,783,080 5,431,880
------------ ------------ ------------ ------------
Operating income 667,566 210,715 3,073,612 552,796
Gain (loss) on sale of property 77,112 (146,464) 147,141 (339,362)
Interest income 3,195 -- 8,172 --
Interest expense (1,012,315) (356,162) (3,047,674) (1,070,123)
Other income, net 37,898 20,616 50,512 60,907
------------ ------------ ------------ ------------
NET INCOME (LOSS) BEFORE TAXES (226,544) (271,295) 231,763 (795,782)
Income tax expense (benefit):
Current -- -- -- --
Deferred (79,290) -- 81,117 --
Pro Forma benefit (provision) for taxes -- 94,953 -- 278,524
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (147,254) $ (176,342) $ 150,646 $ (517,258)
============ ============ ============ ============
Earnings (loss) per share:
Basic $ (.01) $ (.01) $ .01 $ (.05)
============ ============ ============ ============
Diluted $ (.01) $ (.01) $ .01 $ (.05)
============ ============ ============ ============
Weighted Average Shares Outstanding - Basic 16,348,798 11,903,506 16,324,624 11,903,506
============ ============ ============ ============
Weighted Average Shares Outstanding - Diluted 16,348,798 11,903,506 16,324,624 11,903,506
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE> 5
VISTA ENERGY RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1999 1998
------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) before pro forma tax expense $ 150,646 $ (795,782)
Adjustments to reconcile net income (loss)
before taxes to cash provided by
operating activities:
Depreciation, depletion and amortization 3,506,328 1,229,601
Amortization of deferred borrowing costs 87,422
Provision for income tax 81,117 --
Amortization of unit option awards -- 214,303
Other assets (451,046) (444,426)
(Gain) Loss on sale of property (147,141) 339,362
Changes in working capital
Decrease (increase) in accounts receivable (1,922,943) 253,189
Decrease (increase) in other current assets (11,147) (373,597)
Decrease (increase) in accounts payable and accrued expenses 1,754,537 16,875
------------ ------------
Net cash provided by (used in) operating activities 3,047,773 439,525
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (5,265,215) (2,427,927)
Proceeds from sales of property and Equipment 335,219 544,364
------------ ------------
Net cash used in investing activities (4,929,996) (1,883,563)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of borrowings (1,017,154) --
Proceeds from issuance of debt 2,920,000 1,000,000
------------ ------------
Net cash provided by financing activities 1,902,846 1,000,000
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 20,623 (444,038)
CASH AND CASH EQUIVALENTS:
Beginning of period -- 527,129
------------ ------------
End of period $ 20,623 $ 83,091
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE> 6
VISTA ENERGY RESOURCES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
1. ORGANIZATION:
Organization
Vista Energy Resources, Inc. and its subsidiaries (collectively,
"Vista" or the "Company") is a Delaware corporation whose common stock is
listed and traded on the American Stock Exchange. The Company was incorporated
in May 1998 for the purpose of continuing and consolidating the operations of
Vista Resources Partners, L.P., a Texas limited partnership (the "Vista
Partnership"), and Midland Resources, Inc., a publicly traded Texas corporation
("Midland Resources"). The merger of the Vista Partnership and Midland
Resources (the "Midland Merger") was completed on October 28, 1998. The Company
is an independent oil and gas company engaged in the acquisition, exploration,
production and development of oil and natural gas primarily in the Permian
Basin of West Texas and Southeastern New Mexico and the onshore Gulf Coast
region of South Texas.
Vista Resources I, Inc., a Texas corporation (the "General Partner"),
now a wholly-owned subsidiary of the Company, serves as the sole general
partner of the Vista Partnership. Vista Resources, Inc., a wholly owned
subsidiary of the Company ("Vista Resources"), currently serves as the operator
of properties in which the Company or its subsidiaries acquires or otherwise
owns operating working interests.
On October 28, 1998, pursuant to the terms of an Exchange Agreement
dated June 15, 1998 (the "Exchange Agreement"), the Company acquired all of the
outstanding partnership interests of the Vista Partnership and all of the
outstanding shares of common stock of the General Partner in exchange for
shares of Common Stock of the Company (the "Conversion"). The Conversion was
accounted for as a transfer of assets and liabilities between affiliates under
common control and resulted in no change in carrying values of these assets and
liabilities. The Conversion and other transactions contemplated by the Exchange
Agreement were consummated immediately prior to the closing of the Midland
Merger. As a result of the Conversion and the Midland Merger, security holders
of Midland Resources acquired 4,470,123 shares or 27.3 percent of the
outstanding "Common Stock" of the Company, and security holders of the Vista
Partnership acquired 11,903,506 shares of Common Stock, or 72.7 percent.
Accordingly, the accompanying financial statements include the results of
operations of the Company and Midland Resources since October 28, 1998, and the
results of the Vista Partnership prior to that date.
6
<PAGE> 7
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
In management's opinion, the accompanying consolidated financial
statements contain all adjustments necessary to present fairly the financial
position as of September 30, 1999 and related results of operations for the
three and nine months ended September 30, 1999 and 1998, and cash flows as
September 30, 1999 and 1998, respectively, of the Company and its wholly-owned
subsidiaries. All significant intercompany transactions and balances have been
eliminated in preparation of the consolidated financial statements.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted in this Form 10-Q pursuant to the
rules and regulations of the Securities and Exchange Commission. These
consolidated financial statements should be read in conjunction with the audited
financial statements and notes thereto included in the Company's 1998 Form 10-K.
3. SIGNIFICANT ACQUISITIONS OF OIL AND GAS PROPERTIES AND OTHER ASSETS:
1999 Acquisitions
The Company made no material asset acquisitions during the first nine
months of 1999.
1998 Acquisitions
On October 28, 1998, the Company completed the Conversion and the
Midland Merger (see Note 1). The Company issued 4,470,123 shares of common
stock and 995,375 warrants with an exercise price of $4.00 to the Midland
Resources shareholders and warrant holders and assumed 261,800 Midland
Resources employee options (which expired without exercise in February 1999).
The Company also assumed 2,522,670 Midland Resources warrants to effect the
Midland Merger. In connection with the Midland Merger, the Company issued
11,903,506 shares of common stock and 8,563,028 warrants with an exercise price
of $4.00 to the Vista Partnership's existing partners so that the security
holders of the Vista Partnership would own 72.7 percent of the Company's
outstanding stock and warrants. The estimated value recorded for the
consideration paid to the Midland Resources shareholders was based on the
market value of the Midland Resources securities at the announcement of the
Midland Merger on May 26, 1998.
7
<PAGE> 8
The allocation of the purchase price for the assets acquired and liabilities
assumed was as follows:
<TABLE>
<S> <C>
Working capital $ (895,132)
Oil and gas properties $ 37,296,391
Debt assumed $ (10,445,394)
Deferred income taxes $ (6,910,351)
--------------
Purchase Price $ 19,045,514
==============
</TABLE>
From the announcement of the Midland Merger in May 1998 to the closing
in October 1998, the trading price of the Midland Resources common stock
declined. In addition, oil prices decreased significantly from May 1998 to
December 1998. Accordingly, at December 31, 1998 the Company recorded a
significant impairment charge to the allocated value of oil and gas properties
recorded in purchase accounting for the Midland Merger. The total impairment
recognized related to the properties acquired from Midland Resources was
approximately $22.2 million.
On December 18, 1998 (effective date of October 1, 1998), the Company
acquired working interests ranging from 65 percent to 85 percent in a group of
oil and gas producing leases from IP Petroleum Company, Inc. and certain of its
working interest partners. These leases are located primarily in the War-Wink
area of Ward and Winkler Counties, Texas, and the interests were acquired for a
purchase price of $19.1 million (the "IP Acquisition"). Collectively, the
Midland Merger and the IP Acquisition are referred to herein as the "1998
Acquisitions."
Pro Forma Condensed Statements of Operations
The following unaudited Pro Forma Condensed Combined Statements of
Operations for the nine months ended September 30, 1998 give effect to the 1998
Acquisitions as if the acquisitions had been consummated at January 1, 1998.
The unaudited pro forma data is presented for illustrative purposes only and is
not necessarily indicative of the operating results that would have occurred
had the transactions been consummated at the dates indicated, nor are they
necessarily indicative of future operating results.
Pro Forma Condensed Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
For the nine months ended September 30,
---------------------------------------
1998
-------------
<S> <C>
Total revenues $ 13,349,358
Net income (loss) (1,111,429)
Basic Net income (loss) (.07)
Diluted Earnings per share (.07)
</TABLE>
8
<PAGE> 9
4. LONG-TERM DEBT:
As of September 30, 1999, $52.6 million was outstanding under a $100
million revolving Credit Agreement dated December 18, 1998, and accompanying
note (the "Credit Facility") with BankBoston subject to a borrowing base which
is redetermined on a semi-annual basis. The borrowing base at September 30,
1999, was $55 million. The next scheduled borrowing base redetermination is
scheduled for February 28, 2000. Borrowings under the Credit Facility are to be
used for the acquisition and development of oil and gas properties and for
other Company purposes.
The Company has two options with respect to interest rate elections on
borrowings under the Credit Facility. The Company may either elect an interest
rate equal to (i) the Alternate Base Rate plus the Applicable Margin ("Prime
Basis") or (ii) a Eurodollar rate (i.e., London Interbank Offered Rate) plus
the Applicable Margin ("LIBOR Basis"). The Applicable Margin (as defined in the
Credit Facility) will be adjusted for Borrowing Base usage. The LIBOR Basis
option provides for one-, two-, three-, six- and twelve-month interest
periods. At September 30, 1999, the effective interest rate on the amount
outstanding was 7.59 percent.
Unless otherwise extended by BankBoston, the Credit Facility converts
to a three-year fully amortizing term loan at December 15, 2001.
The obligations of the Company under the Credit Facility are secured
by a first lien deed of trust on the Company's interests in certain of its oil
and gas properties.
The Credit Facility contains two financial covenants including a
minimum current ratio, including available borrowings, of 1:1 and an interest
coverage to EBITDA test (2.0 to 1.0 for the four-fiscal quarter period ending
December 31, 1998; 2.25 to 1.0 for the four-fiscal quarter period ending March
31, 1999; and 2.5 to 1.0 for each four-fiscal quarter period thereafter). The
Credit Facility also includes covenants which, among other things, restrict the
incurrence of additional indebtedness and the sale or acquisition of oil and
gas properties above certain levels without the consent of the lender.
Effective as of December 23, 1997, the Company entered into an
interest rate swap accounted for as a hedge with any realized gains or losses
appropriately recorded as interest expense (See Note 7 for further discussion
of hedge accounting.). The swap consists of a $10 million notional amount of
indebtedness at a fixed swap rate of 6.02 percent three-month LIBOR for the
Company. The term of this swap ends on December 23, 1999. Effective as of
January 1, 1999, this interest rate swap was assigned to BankBoston. In
conjunction with such assignment the terms of the swap were modified to reduce
the fixed swap rate from 6.02 percent to 5.65 percent and to extend the term of
the swap until December 23, 2000, at the option of BankBoston.
9
<PAGE> 10
5. COMMITMENTS AND CONTINGENCIES:
Litigation
At December 31, 1998, the Company was a Defendant in a lawsuit filed
on July 31, 1995, styled Manna Oil & Gas, Inc., Dobbs Oil & Gas, Inc. v.
Midland Resources, Inc. , Miresco Inc., Midland Resources Operating Company,
Inc., Cause No. 40,677. The case involved disputes with a non-operating
interest owner concerning the operation of certain Gulf Coast properties
located in Copano Bay, Aransas County, Texas, wherein the Company owns a 68
percent working interest and is the operator of the properties. The lawsuit was
settled in February 1999 by the Company acquiring all of the interests of the
Plaintiffs in the subject properties for a net purchase price of $0.7 million.
The Company and its subsidiaries are, from time to time, involved in
various other lawsuits and certain governmental proceedings arising in the
ordinary course of business.
6. EARNINGS PER SHARE:
Effective December 31, 1997, the Company adopted the provisions of
SFAS 128, "Earnings Per Share", which prescribes standards for computing and
presenting earnings per share ("EPS") and supersedes APB Opinion 15, "Earnings
Per Share."
The computation of basic and diluted earnings (loss) per share were
identical for the nine months ended September 30, 1999, and for the years ended
December 31, 1998 and 1997 due to the following:
Options to purchase 261,800 shares of common stock were outstanding
since October 28, 1998, but were not included in the computation of
diluted EPS because the options' exercise price was greater than the
average market price of the Common Stock. All outstanding options
expired in February 1999.
Warrants to purchase 12,081,073 shares of Common Stock were not
included in the computation of EPS as they are antidilutive as a
result of the Company's net loss for the year ended December 31, 1998.
All of these warrants, 11,811,073 of which expire on November 1, 2002,
with the remaining warrants expiring from March 1999 through June
2002, were still outstanding at December 31, 1998.
As the Conversion was not completed until October 28, 1998, there were
no potentially dilutive equity securities outstanding at either
December 31, 1997 and 1996.
EPS has been calculated for all periods presented as if the Conversion
had been completed on January 1, 1996.
10
<PAGE> 11
7. PRICE RISK MANAGEMENT:
Commodity Price Hedging Instruments
The Company periodically uses derivative financial instruments to
manage crude oil and natural gas price risk. These instruments qualify as
hedges under generally accepted accounting principles and are properly recorded
as adjustments to oil and gas sales in the consolidated statements of
operations. In order to qualify for hedge accounting, each financial instrument
must be initially designated as a hedge, must appropriately reduce the price
risk and must have correlation to the commodity being hedged. If an instrument
does not qualify as a hedge, then it is accounted for as a speculative
transaction. It is the Company's policy not to engage in speculative
transactions of this nature. The Company's realized gains and losses
attributable to its price risk management activities was ($1.4) million for the
first nine months of 1999 as compared to ($.5) million for the same period in
1998.
Set forth below is the contract amount and material terms of all crude
oil hedging instruments held by the Company at September 30, 1999 (monthly
volumes are expressed in Bbls and all prices are expressed in the calendar
monthly average of daily NYMEX closing prices for Light Sweet Crude Oil):
<TABLE>
<CAPTION>
TRADE DATE TYPE TRANSACTION MONTHLY VOLUME PUT FLOOR PRICE CALL CEILING PRICE TERM
---------- ---------------- -------------- --------------- ------------------ -----------------
<S> <C> <C> <C> <C> <C>
12-11-98 Swap 40,000 $14.20 Bbl $14.20 Bbl 8-1-99 to 6-30-00
04-19-99 Collar 20,000 $15.00 Bbl $17.00 Bbl 1-1-00 to 6-30-00
04-19-99 Collar 40,000 $15.00 Bbl $16.85 Bbl 7-1-00 to 12-31-00
</TABLE>
Set forth below is the contract amount and material terms of all NYMEX
natural gas hedging instruments held by the Company at September 30, 1999
(monthly volumes are expressed in MMBtus and prices are expressed in the
monthly NYMEX (Henry Hub) closing price for natural gas):
<TABLE>
<CAPTION>
TRADE DATE TYPE TRANSACTION MONTHLY VOLUME PUT FLOOR PRICE CALL CEILING PRICE TERM
---------- ---------------- -------------- --------------- ------------------ ------------------
<S> <C> <C> <C> <C> <C>
08-20-98 Collar 40,000 $2.25 Mcf $2.42 Mcf 1-1-99 to 12-31-99
11-12-98 Collar 50,000 $2.25 Mcf $2.51 Mcf 1-1-99 to 12-31-99
08-20-98 Collar 40,000 $2.17 Mcf $2.55 Mcf 1-1-99 to 12-31-99
12-28-98 Swap 50,000 $2.01 Mcf $2.01 Mcf 1-1-99 to 12-31-99
01-12-98 Swap 120,000 $2.12 Mcf $2.12 Mcf 1-1-00 to 12-31-00
02-08-99 Swap 120,000 $2.35 Mcf $2.35 Mcf 1-1-01 to 12-31-01
</TABLE>
The Company also hedges from time to time the basis for its natural
gas production which depends upon the location of its gas production. Such
basis hedges are immaterial to the financial performance of the Company.
Interest Rate Swap Agreement
Effective as of December 23, 1997, the Company entered into an
interest rate swap accounted for as a hedge with any realized gains or losses
appropriately recorded as interest
11
<PAGE> 12
expense. The swap consists of a $10 million notional amount of indebtedness at
a fixed swap rate of 6.02 percent based on the three-month LIBOR for the
Company. The term of this swap ends on December 23, 1999. Effective as of
January 1, 1999, this interest rate swap was assigned to BankBoston. In
conjunction with such assignment the terms of the swap were modified to reduce
the fixed swap rate from 6.02 percent to 5.65 percent and to extend the term of
the swap until December 23, 2000, at the option of BankBoston.
8. SUBSEQUENT EVENT:
On October 8, 1999, the Company and Prize Energy Corp., a Delaware
corporation ("Prize"), entered into a definitive agreement to merge the two
companies. The transaction will create a mid-size independent oil and gas
company with assets valued in excess of $450 million. The combined company's
focused growth strategy is concentrated on the acquisition and exploitation of
oil and gas properties in its core operating areas of the Permian Basin of West
Texas and Southeastern New Mexico, onshore Gulf Coast area of Texas and
Louisiana and the Mid-Continent area of Western Oklahoma and the Texas
panhandle.
Under the terms and conditions of the Agreement and Plan of Merger
between the Company and Prize, Prize would become a wholly-owned subsidiary of
the Company in exchange for 58.2 million shares of common stock of the Company
(with such number of shares being subject to adjustment in order to reflect a
proposed reverse stock split) and 27.7 million shares of to be created Series A
6% Convertible Preferred Stock of the Company (with such number of shares being
subject to adjustment in order to reflect a proposed reverse stock split). The
Company's outstanding warrants will remain outstanding in accordance with their
terms. The transaction is to be structured as a reorganization for tax purposes
and will result in the current holders of common stock of the Company owning
approximately 16% of the outstanding common stock of the combined company and
the holders of common stock and preferred stock of Prize collectively owning
(on a fully converted basis) approximately 84% of the outstanding common stock
of the combined company upon completion of the merger.
The combined company will be headquartered in the Dallas, Texas area
with operating offices in Midland and Victoria, Texas and Elmore City,
Oklahoma. The combined company will have a capital structure consisting of
approximately 74.6 million shares of common stock outstanding (with such number
of shares being subject to adjustment in order to reflect a proposed reverse
stock split), approximately $30 million of convertible preferred securities and
approximately $195 million of net long-term debt.
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
Certain information included in this quarterly report on Form 10-Q
and other materials filed by the Company with the SEC contain forward-looking
statements that involve risks and uncertainties that could cause actual results
to differ from projected results. Such statements address activities, events or
developments that the Company expects, believes, projects, intends or
anticipates will or may occur, including such matters as future capital,
development and exploration expenditures (including the amount and nature
thereof), drilling of wells, reserve estimates (including estimates of future
net revenues associated with such reserves and the present value of such future
net revenues), future production of oil and natural gas, future sales prices
for oil and gas production, business strategies, expansion and acquisition,
obtaining financial or industry partners for prospect or program development,
or marketing of oil and natural gas. Factors that could cause actual results to
differ materially are described, among other places, in this 10-Q and under the
caption "Results of Operations." Without limiting the Cautionary Disclosures so
described, Cautionary Disclosures include, among others: general economic
conditions, the market price of oil and natural gas, the risks associated with
exploration, the Company's ability to find, acquire, market, develop and
produce new properties, operating hazards inherent to the oil and natural gas
business, uncertainties in the estimation of proved reserves and in the
projection of future rates of production and timing of development
expenditures, the strength and financial resources of the Company's
competitors, the Company's ability to find and retain skilled personnel,
climatic conditions, labor relations, availability and cost of material and
equipment, environmental risks, the results of financing efforts, and
regulatory developments. All written and oral forward-looking statements
attributable to the Company or persons acting on its behalf are expressly
qualified in their entirety by the Cautionary Disclosures. The Company
disclaims any obligation to update or revise any forward-looking statement to
reflect events or circumstances occurring hereafter or to reflect the
occurrence of anticipated or unanticipated events.
THE FORMATION OF VISTA
Vista Energy Resources, Inc. (the "Company") is a Delaware corporation
whose common stock is listed and traded on the American Stock Exchange. The
company was formed in May 1998 for the purpose of merging Vista Resources
Partners, L.P. , a Texas limited partnership (the "Vista Partnership"), and
Midland Resources, Inc., a publicly traded Texas corporation ("Midland
Resources"). Such merger occurred on October 28, 1998 (the "Midland Merger").
The Company is an oil and gas exploration and production company with ownership
interests in oil and gas properties located principally in the Permian Basin of
West Texas and Southeastern New Mexico and the onshore Gulf Coast region of
Texas.
In accordance with the provisions of Accounting Principles Board
("APB") No. 16 Business Combinations, the merger of the Vista Partnership and
Midland Resources was
13
<PAGE> 14
accounted for as a purchase by the Company (formerly the Vista Partnership). As
a result, the historical financial statements for the Company are those of the
Vista Partnership.
FINANCIAL PERFORMANCE
The Company reported a net income or (loss) of ($.1) million ($ .01
per share) and $.2 million ($ .01 per share) for the three and nine months
ended September 30, 1999, respectively, as compared to a net loss of ($ .2)
million ($ .01 per share) and ($ .5) million ($ .05 per share) for the same
periods in 1998. As discussed more fully in "Results of Operations" below, the
Company's financial performance for the three months ended September 30, 1999,
was negatively impacted by the following items: (i) increase in gross
production costs due to the addition of properties acquired in the 1998
Acquisitions (hereinafter defined); and (ii) an increase in interest expense as
a result of the additional indebtedness incurred in respect of the 1998
Acquisitions.
Net cash provided by operating activities was $ 3.0 million during
nine months ended September 30, 1999, as compared to net cash provided by
operating activities of $ .4 million for the same period in 1998. This increase
was primarily attributable to increases in production from the properties
acquired in the 1998 Acquisitions and production increases from the Company's
success in its 1998 and 1999 drilling and recompletion program offset by
increased gross production costs and interest expense as a result of the
additional properties acquired and indebtedness incurred in respect of the 1998
Acquisitions.
The Company strives to maintain its outstanding indebtedness at a
moderate level in order to provide sufficient financial flexibility to fund
future opportunities. The Company's total book capitalization at September 30,
1999, was $58.1 million, consisting of total long-term debt of $52.6 million
and owners' equity of $5.5 million. Debt as a percentage of total book
capitalization was 90 percent at September 30, 1999, which was essentially the
same as at December 31, 1998.
DRILLING RESULTS
During the first nine months of 1999, the Company has continued its
emphasis on development, exploration and production activities, with a primary
focus on the exploitation of its current portfolio of drilling locations.
During the first nine months of 1999, the Company participated in the drilling
and completion of 11 gross development wells and four gross exploration wells.
None of these wells were in progress at December 31, 1998. Of the 15 wells
drilled during the nine months ended September 30, 1999, 13 were completed
successfully which resulted in a 87 percent success rate. In addition to the
wells completed in the first nine months of 1999, the Company had four wells in
progress at September 30, 1999.
14
<PAGE> 15
ACQUISITION ACTIVITIES
1999 Acquisitions - Although various acquisition candidates were
evaluated during the first nine months of 1999, no material asset acquisitions
were made during such time period.
On October 8, 1999, the Company and Prize Energy Corp., a Delaware
corporation ("Prize"), entered into a definitive agreement to merge the two
companies. The transaction will create a mid-size independent oil and gas
company with assets valued in excess of $450 million. The combined company's
focused growth strategy is concentrated on the acquisition and exploitation of
oil and gas properties in its core operating areas of the Permian Basin of West
Texas and Southeastern New Mexico, onshore Gulf Coast area of Texas and
Louisiana and the Mid-Continent area of Western Oklahoma and the Texas
panhandle.
Under the terms and conditions of the Agreement and Plan of Merger
between the Company and Prize, Prize would become a wholly-owned subsidiary of
the Company in exchange for 58.2 million shares of common stock of the Company
(with such number of shares being subject to adjustment in order to reflect a
proposed reverse stock split) and 27.7 million shares of to be created Series A
6% Convertible Preferred Stock of the Company (with such number of shares being
subject to adjustment in order to reflect a proposed reverse stock split). The
Company's outstanding warrants will remain outstanding in accordance with their
terms. The transaction is to be structured as a reorganization for tax purposes
and will result in the current holders of common stock of the Company owning
approximately 16% of the outstanding common stock of the combined company and
the holders of common stock and preferred stock of Prize collectively owning
(on a fully converted basis) approximately 84% of the outstanding common stock
of the combined company upon completion of the merger.
The combined company will be headquartered in the Dallas, Texas area
with operating offices in Midland and Victoria, Texas and Elmore City,
Oklahoma. The combined company will have a capital structure consisting of
approximately 74.6 million shares of common stock outstanding (with such number
of shares being subject to adjustment in order to reflect a proposed reverse
stock split), approximately $30 million of convertible preferred securities and
approximately $195 million of net long-term debt. (See Part II, Item 5 "Other
Information").
1998 Acquisitions - On October 28, 1998, the Midland Merger between
the Vista Partnership and Midland Resources was completed resulting in the
formation of the Company. As a result of the Midland Merger, Midland Resources'
security holders acquired 27.3 percent of the outstanding Common Stock of the
Company and security holders of the Vista Partnership acquired the remaining
72.7 percent of the outstanding Common Stock of the Company. In addition, upon
consummation of the Midland Merger, the Common Stock of Vista, the newly merged
company, became publicly traded on the American Stock Exchange effective
October 29, 1998.
15
<PAGE> 16
Effective as of October 1, 1998, the Company acquired working
interests ranging from 65 percent to 85 percent in a group of oil and gas
producing leases from IP Petroleum Company, Inc. and certain of its working
interest partners (the "IP Acquisition"). These leases are located primarily in
the War-Wink area of Ward and Winkler Counties, Texas, and the interests were
acquired for a purchase price of $19.1 million. The IP Acquisition closed on
December 18, 1998. The Midland Merger and the IP Acquisition are sometimes
collectively referred to herein as the "1998 Acquisitions."
RESULTS OF OPERATIONS
Oil and Gas Production.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 4,371,641 $ 1,927,397 $ 12,856,692 $ 5,984,676
Costs and expenses:
Production costs 1,795,863 838,347 4,655,601 2,777,877
Depletion 1,381,387 267,575 3,593,750 1,229,601
Exploration costs 14,082 25,458 52,850 25,458
------------ ------------ ------------ ------------
Total costs and expenses 3,191,332 1,131,380 8,302,201 4,032,936
------------ ------------ ------------ ------------
Operating profit (excluding general and
administrative expenses and
income taxes) $ 1,180,309 $ 796,017 $ 4,554,491 $ 1,951,740
============ ============ ============ ============
Production:
Oil (Bbls) 237,093 106,461 687,731 342,234
Gas (Mcf) 737,625 223,356 2,243,836 701,346
Total (BOE) 360,031 143,687 1,061,704 459,125
Average Daily Production:
Oil (Bbls) 2,577 1,157 2,519 1,254
Gas (Mcf) 8,018 2,427 8,219 2,569
------------ ------------ ------------ ------------
Total (BOE) 3,913 1,562 3,889 1,682
Average Oil Price (Per Bbl) $ 13.43 $ 11.50 $ 12.84 $ 13.50
Average Gas Price (Per Mcf) $ 1.61 $ 1.79 $ 1.80 $ 1.94
Costs (Per BOE):
Lease operating expense $ 4.10 $ 4.86 $ 3.66 $ 5.03
Production taxes $ .89 $ .98 $ .73 $ 1.02
------------ ------------ ------------ ------------
Total production costs $ 4.99 $ 5.84 $ 4.39 $ 6.05
Depletion $ 3.84 $ 1.86 $ 3.38 $ 2.68
</TABLE>
Oil and Gas Revenues. Revenues from oil and gas operations totaled
$4.3 million and $12.9 million for the three and nine months ended September
30, 1999, compared to $2.0 and $6.0 million for the same periods in 1998,
representing an increase of 115 percent and 115 percent, respectively. The
increase is primarily attributable to the 1998 Acquisitions and increases in
production due to the Company's successful exploitation activities in 1998 and
1999, offset by decreased average prices being received for the nine month
period for both oil and gas production (as a result of the oil and gas price
hedges the Company had in place during the first nine months of 1999). The
average oil prices received (inclusive of hedging activities) for the three and
nine months ended September 30, 1999, was $13.43 and $12.84, respectively,
compared to $11.50 and $13.50 for the three and nine months ended September 30,
1998, while the average gas price received (inclusive of hedging activities)
was $1.61 and $1.80 for the three and nine months ended September 30, 1999,
respectively, compared to $1.79 and $1.94 for the same periods in 1998.
16
<PAGE> 17
Average daily oil production increased 123 percent and 101 percent to
2,577 Bbls and 2,519 Bbls for the three and nine months of 1999 from 1,157 Bbls
and 1,254 Bbls for the same period of 1998; and average daily gas production
increased 231 percent and 220 percent to 8,018 Mcf and 8,219 Mcf from 2,427 Mcf
and 2,569 Mcf for the same period.
Hedging Activities. The oil and gas prices that the Company reports is
based on the actual prices received for the commodities adjusted for the
results of any of the Company's hedging activities. The Company periodically
enters into commodity derivative contracts (i.e., swaps and collars) in order
to (i) reduce the effect of the volatility of price changes on the commodities
the Company produces and sells; (ii) support the Company's annual capital
budgeting and expenditure plans; and (iii) lock in prices to protect the
economics related to certain capital projects. Set forth below is the contract
amount and material terms of all crude oil hedging instruments held by the
Company at September 30, 1999 (monthly volumes are expressed in Bbls and all
prices are expressed in the calendar monthly average of daily NYMEX closing
prices for Light Sweet Crude Oil):
<TABLE>
<CAPTION>
UNREALIZED
GAIN
(LOSS) AT
TRADE DATE TYPE TRANSACTION MONTHLY VOLUME PUT FLOOR PRICE CALL CEILING PRICE TERM SEPTEMBER 30,1999
---------- ---------------- -------------- --------------- ------------------ ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
12-11-98 Swap 40,000 $14.20 Bbl $14.20 Bbl 8-1-99 to 6-30-00 2,890,724
04-19-99 Swap 20,000 $15.00 Bbl $17.00 Bbl 1-1-00 to 6-30-00 566,380
04-19-99 Collar 40,000 $15.00 Bbl $16.85 Bbl 7-1-00 to 12-31-00 735,433
</TABLE>
Set forth below is the contract amount and material terms of all NYMEX
natural gas hedging instruments held by the Company at September 30, 1999
(monthly volumes are expressed in MMBtus and prices are expressed in the
monthly NYMEX (Henry Hub) closing price for natural gas):
<TABLE>
<CAPTION>
UNREALIZED
GAIN
(LOSS) AT
TRADE DATE TYPE TRANSACTION MONTHLY VOLUME PUT FLOOR PRICE CALL CEILING PRICE TERM SEPTEMBER 30, 1999
---------- ---------------- -------------- --------------- ------------------ ----------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
08-20-98 Collar 40,000 $2.25 Mcf $2.42 Mcf 1-1-99 to 12-31-99 37,620
11-12-98 Collar 50,000 $2.25 Mcf $2.51 Mcf 1-1-99 to 12-31-99 42,830
08-20-98 Collar 40,000 $2.17 Mcf $2.55 Mcf 1-1-99 to 12-31-99 39,011
12-28-98 Swap 50,000 $2.01 Mcf $2.01 Mcf 1-1-99 to 12-31-99 91,400
01-12-98 Swap 120,000 $2.12 Mcf $2.12 Mcf 1-1-00 to 12-31-00 796,000
02-08-99 Swap 120,000 $2.35 Mcf $2.35 Mcf 1-1-01 to 12-31-01 328,480
</TABLE>
The Company also hedges from time to time the basis for its natural
gas production which depends upon the location of its gas production. Such
basis hedges are immaterial to the financial performance of the Company.
Production Costs. Total production costs (inclusive of all lease
operating expenses and production taxes) per BOE decreased 15 percent and 28
percent to $4.99 and $4.39 during the three and nine months ended September 30,
1999, respectively, as compared to production costs per BOE of $5.84 and $6.05
during the same period of 1998. These reductions are primarily due to the
Company's continued and concentrated efforts to evaluate and reduce all
operating costs and the addition of higher margin properties acquired by the
Company in the 1998 Acquisitions.
17
<PAGE> 18
Exploration Costs. Exploration costs (which includes abandonments, dry
hole costs, and geological and geophysical costs) were $14,082 and $52,850
during the three and nine months of 1999 as compared to $25,458 and $25,458 for
the same periods in 1998 because the Company incurred certain geological and
geophysical costs during the first nine months of 1999.
General and Administrative Expense. General and administrative expense
was $.5 million and $1.5 million for the three and nine months ended September
30, 1999, as compared to $.6 million and $1.2 million for the same period ended
September 30, 1998, representing a decrease of 16 percent and an increase of 25
percent for the same periods, respectively. Such increase was primarily due to
the costs associated with the hiring of additional employees in late 1998 and
early 1999 as the Company's business has grown and due to the Company becoming
a publicly traded company in late 1998. However, on a BOE basis, the Company's
general and administrative expense was $1.43 and $1.40 per BOE for the three
and nine months ended September 30, 1998, compared to $3.93 and $2.58 per BOE
for the three and nine months ended September 30, 1999.
Interest Expense. Interest expense was $1.0 million and $3.0 million
and $.4 million and $1.1 million for the three and nine months ended September
30, 1999 and 1998, respectively. This increase is primarily due to additional
borrowings made in connection with the 1998 Acquisitions.
Depletion, Depreciation and Amortization Expense. Depletion expense
per BOE increased to $3.84 and $3.38 during the three and nine months ended
September 30, 1999, as compared to $1.86 and $2.68 during the same period in
1998. The increase in depletion expense per BOE is primarily related to the
additional properties acquired in the 1998 Acquisitions.
CAPITAL COMMITMENTS, CAPITAL RESOURCES AND LIQUIDITY
Capital Commitments. The Company's primary needs for cash are for
acquisitions, development and exploration of oil and gas properties, repayment
of principal and interest on outstanding indebtedness and working capital
obligations. The Company's cash expenditures during the first nine months of
1999 for additions to oil and gas properties totaled $ 5.3 million. This amount
includes $ 1.0 million for the acquisition of properties and $ 4.3 million for
development and exploratory drilling.
The Company's 1999 capital expenditure drilling budget has been
approved at an amount up to $11.1 million. Pursuant to this budget $9.3 million
has been allocated to exploitation and development activities and $1.8 million
to exploration activities. The Company does not budget for oil and gas property
acquisitions as they are made on a case by case basis as opportunities arise.
The 1999 budget reflects the Company's plans to drill and/or recomplete
approximately 25 oil and gas wells in 1999. The Company currently expects to
fund its 1999 capital expenditure budget primarily with internally generated
cash flow, borrowings under its bank credit facility and proceeds from the sale
of non-strategic assets.
18
<PAGE> 19
Capital Resources. The Company's primary capital resources are net
cash provided by operating activities, borrowings under its bank credit
facility and proceeds from the sale of non-strategic assets.
Financing Activities.
As of September 30, 1999, $52.6 million was outstanding under a $100
million revolving Credit Agreement dated December 18, 1998, and accompanying
note (the "Credit Facility") with BankBoston subject to a borrowing base which
is redetermined on a semi-annual basis. The borrowing base at September 30,
1999, was $55 million. The next scheduled borrowing base redetermination is
scheduled for February 28, 2000. Borrowings under the Credit Facility are to be
used for the acquisition and development of oil and gas properties and for
other Company purposes.
The Company has two options with respect to interest rate elections on
borrowings under the Credit Facility. The Company may either elect an interest
rate equal to (i) the Alternate Base Rate plus the Applicable Margin ("Prime
Basis") or (ii) a Eurodollar rate (i.e., London Interbank Offered Rate) plus
the Applicable Margin ("LIBOR Basis"). The Applicable Margin (as defined in the
Credit Facility) will be adjusted for Borrowing Base usage. The LIBOR Basis
option provides for one-, two-, three-, six- and twelve-month interest
periods. At September 30, 1999, the effective interest rate on the amount
outstanding was 7.59 percent.
Unless otherwise extended by BankBoston, the Credit Facility converts
to a three-year fully amortizing term loan at December 15, 2001.
The obligations of the Company under the Credit Facility are secured
by a first lien deed of trust on the Company's interests in certain of its oil
and gas properties.
The Credit Facility contains two financial covenants including a
minimum current ratio, including available borrowings, of 1:1 and an interest
coverage to EBITDA test (2.0 to 1.0 for the four-fiscal quarter period ending
December 31, 1998; 2.25 to 1.0 for the four-fiscal quarter period ending March
31, 1999; and 2.5 to 1.0 for each four-fiscal quarter period thereafter). The
Credit Facility also includes covenants which, among other things, restrict the
incurrence of additional indebtedness and the sale or acquisition of oil and
gas properties above certain levels without the consent of the lender.
Effective as of December 23, 1997, the Company entered into an
interest rate swap accounted for as a hedge with any realized gains or losses
appropriately recorded as interest expense (See Note 7 for further discussion
of hedge accounting.). The swap consists of a $10 million notional amount of
indebtedness at a fixed swap rate of 6.02 percent three-month LIBOR for the
Company. The term of this swap ends on December 23, 1999. Effective as of
January 1, 1999, this interest rate swap was assigned to BankBoston. In
conjunction with such assignment the terms of the swap were modified to reduce
the fixed swap rate from 6.02 percent to 5.65 percent and to extend the term of
the swap until December 23, 2000, at the option of BankBoston.
19
<PAGE> 20
Liquidity. At September 30, 1999, the Company had cash of $.02 million
on hand compared to $0 at December 31, 1998. The Company's ratio of current
assets (excluding borrowing base availability which is included, however, for
covenant purposes under the terms of the Company's Credit Facility) to current
liabilities was .95:1 at September 30, 1999 and .86:1 at December 31, 1998.
Year 2000 Readiness Disclosure. "Year 2000," or the ability of
computer systems to process dates with years beyond 1999, affects almost all
companies and organizations. Computer systems that are not Year 2000 compliant
by January 1, 2000 may cause material adverse effects to companies and
organizations that rely upon those systems. Continuity of the Company's
operations in January 2000 will not only depend upon Year 2000 compliance of
the Company's computer systems and computer-controlled equipment, but also
compliance of computer systems and computer-controlled equipment of third
parties. These third parties include oil and natural gas purchasers and
significant service providers such as electric utility companies and natural
gas plant, pipeline and gathering system operators.
The Company is in the process of reviewing its computer systems and
computer-controlled field equipment and making the necessary modifications for
Year 2000 compliance. The Company has completed modifications and testing of
its primary accounting and land computer programs. The remaining computer
systems have been inventoried and assessed.
Based on its review, remediation efforts and the results of testing to
date, the Company does not believe that timely modification of its computer
systems and computer-controlled equipment for Year 2000 compliance represents a
material risk to the Company. The Company estimates that total costs related to
Year 2000 compliance efforts will be less than $10,000, of which approximately
$3,600 has been incurred and expensed through September 30, 1999.
Despite efforts to assure that such third parties are Year 2000
compliant, the Company cannot provide assurance that all significant third
parties will achieve compliance in a timely manner. A third party's failure to
achieve Year 2000 compliance could have a material adverse effect on the
Company's operations and cash flow. The potential effect of Year 2000
non-compliance by third parties is currently unknown.
The Company has developed appropriate contingency plans in the event
it becomes aware of potential problems resulting from failure of the Company's
or of significant third party computer systems on January 1, 2000. These
contingency plans include installing backup computer systems or equipment,
temporarily replacing systems or equipment with manual processes, and
identifying alternative suppliers, service companies and purchasers.
The failure to correct a material Year 2000 problem could result in an
interruption in, or failure of, certain normal business activities or
operations. Due to the general uncertainty inherent in the Year 2000 problem,
resulting in part from the inability to ensure readiness of third parties, the
Year 2000 compliance issue could have a material adverse impact on the
Company's results of operations and financial condition.
20
<PAGE> 21
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
On October 8, 1999, the Company and Prize Energy Corp., a Delaware
corporation ("Prize"), entered into a definitive agreement to merge the two
companies. The transaction will create a mid-size independent oil and gas
company with assets valued in excess of $450 million. The combined company's
focused growth strategy is concentrated on the acquisition and exploitation of
oil and gas properties in its core operating areas of the Permian Basin of West
Texas and Southeastern New Mexico, onshore Gulf Coast area of Texas and
Louisiana and the Mid-Continent area of Western Oklahoma and the Texas
panhandle.
Under the terms and conditions of the Agreement and Plan of Merger
between the Company and Prize, Prize would become a wholly-owned subsidiary of
the Company in exchange for 58.2 million shares of common stock of the Company
(with such number of shares being subject to adjustment in order to reflect a
proposed reverse stock split) and 27.7 million shares of to be created Series A
6% Convertible Preferred Stock of the Company (with such number of shares being
subject to adjustment in order to reflect a proposed reverse stock split). The
Company's outstanding warrants will remain outstanding in accordance with their
terms. The transaction is to be structured as a reorganization for tax purposes
and will result in the current holders of common stock of the Company owning
approximately 16% of the outstanding common stock of the combined company and
the holders of common stock and preferred stock of Prize collectively owning
(on a fully converted basis) approximately 84% of the outstanding common stock
of the combined company upon completion of the merger.
Dain Rauscher Wessels is serving as the financial advisor to the
Special Committee of the Company's board of directors and has rendered its
opinion to the Company's board of directors
21
<PAGE> 22
with respect to the fairness, from a financial point of view, of the merger
consideration to be issued by the Company. The Company's and Prize's respective
boards of directors unanimously approved the proposed merger. Also, the merger
is subject to approval by a majority vote of the outstanding shares of both
companies as well as other customary closing conditions. The Company intends to
file a registration statement covering the securities to be issued in the
merger with the Securities and Exchange Commission as soon as practicable.
After such registration statement is declared effective, a prospectus, which
will also serve as the proxy statement in connection with the merger, will be
distributed to the stockholders of the Company and Prize. The offering of
securities pursuant to the proposed merger will be made only by means of such
prospectus/proxy statement. Completion of the merger is anticipated to occur in
the fourth quarter of 1999. The combined company is expected to be called Prize
Energy Corp. and is expected to trade on the American Stock Exchange under the
ticker symbol of PRZ.
The combined company will be headquartered in the Dallas, Texas area
with operating offices in Midland and Victoria, Texas and Elmore City,
Oklahoma. The combined company will have a capital structure consisting of
approximately 74.6 million shares of common stock outstanding (with such number
of shares being subject to adjustment in order to reflect a proposed reverse
stock split), approximately $30 million of convertible preferred securities and
approximately $195 million of net long-term debt.
The executive management team of Prize will serve as the executive
management team of the combined company. Philip B. Smith will be Chairman and
Chief Executive Officer and Lon C. Kile will be President and Chief Operating
Officer of the combined company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) *2.1 Agreement and Plan of Merger dated as of October 8,
1999, among Vista Energy Resources, Inc., PEC Acquisition
Corp. and Prize Energy Corp.
10.1 Vista Energy Resources, Inc. Severance Benefit Plan,
Effective October 8, 1999
10.2 Consulting and Termination Agreement dated as of October 8,
1999, by and among Prize Energy Corp., Vista Energy
Resources, Inc. and C. Randall Hill
10.3 Consulting and Termination Agreement dated as of October 8,
1999, by and among Prize Energy Corp., Vista Energy
Resources, Inc. and Steven D. Gray
10.4 Consulting and Termination Agreement dated as of October 8,
1999, by and among Prize Energy Corp., Vista Energy
Resources, Inc. and R. Cory Richards
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
The Company filed a Current Report on Form 8-K dated October 15, 1999
regarding its proposed merger with Prize Energy Corp.
- ------------------------
* Included in the Registrant's Current Report on Form 8-K dated October 15,
1999 regarding its proposed merger with Prize Energy Corp. and incorporated
herein by reference.
22
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
VISTA ENERGY RESOURCES, INC.
Date: November 15, 1999 By: /s/ C. RANDALL HILL
----------------------------------
C. Randall Hill,
Chairman, Chief Executive Officer,
and Chief Financial Officer
(Principal Accounting Officer and
Duly Authorized Officer)
23
<PAGE> 24
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
*2.1 Agreement and Plan of Merger dated as of October 8,
1999, among Vista Energy Resources, Inc., PEC Acquisition
Corp. and Prize Energy Corp.
10.1 Vista Energy Resources, Inc. Severance Benefit Plan,
Effective October 8, 1999
10.2 Consulting and Termination Agreement dated as of October 8,
1999, by and among Prize Energy Corp., Vista Energy
Resources, Inc. and C. Randall Hill
10.3 Consulting and Termination Agreement dated as of October 8,
1999, by and among Prize Energy Corp., Vista Energy
Resources, Inc. and Steven D. Gray
10.4 Consulting and Termination Agreement dated as of October 8,
1999, by and among Prize Energy Corp., Vista Energy
Resources, Inc. and R. Cory Richards
27.1 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.1
EXECUTION COPY
VISTA ENERGY RESOURCES, INC.
SEVERANCE BENEFIT PLAN
EFFECTIVE OCTOBER 8, 1999
<PAGE> 2
VISTA ENERGY RESOURCES, INC.
SEVERANCE BENEFIT PLAN
ARTICLE I
DEFINITIONS
1.1 "ADMINISTAFF" means Administaff Companies, Inc., a Delaware
corporation.
1.2 "BASE PAY" means an Employee's monthly base salary or average monthly
wages computed over the three months preceding the Effective Time (if paid on an
hourly or commission basis). "Base Pay" does not include any bonus, incentive
pay, auto or travel allowance, or other such payments or compensation, or any
expense reimbursement.
1.3 "CAUSE" means, in the context of an Eligible Employee's termination or
separation from employment with the Company, such Eligible Employee's (a)
neglect, refusal or failure (other than by reason of illness, accident or other
physical or mental incapacity), in any material respect, to attend to duties as
assigned by the Company to such Eligible Employee; (b) failure in any material
respect to comply with any of the terms of such Eligible Employee's employment
with the Company; (c) failure to follow the established, reasonable and material
policies, standards, and regulations of the Company; (d) willful engagement in
misconduct injurious to the Company or to any of its subsidiaries or affiliates
or to any of its or their employees; or (e) conviction in a court of law of, or
pleading of guilty or nolo contendere to, any crime that constitutes a felony in
the jurisdiction involved, or any crime including moral turpitude.
1.4 "CODE" means the Internal Revenue Code of 1986, as amended.
1.5 "COMPANY" means Vista Energy Resources, Inc., a Delaware corporation,
and/or its wholly-owned operating subsidiary, Vista Resources, Inc.
1.6 "EFFECTIVE TIME" has the meaning set forth in the Merger Agreement.
1.7 "ELIGIBLE EMPLOYEE" means each Employee other than (a) any Employee who
is a party to a separate severance plan or agreement with the Company, and (b)
any Employee who is a party to an individual employment agreement with the
Company providing for severance benefits.
1.8 "EMPLOYEE" means any individual who is employed full-time by the
Company and who is regularly scheduled to work at least 30 hours per week for
the Company.
1.9 "GOOD REASON" means, with respect to any Eligible Employee, the
occurrence of any of the following events: (i) any substantial adverse change,
not consented to in writing by such Eligible Employee, in such Eligible
Employee's responsibilities, authorities, functions or duties; (ii) an
involuntary reduction in such Eligible Employee's Base Pay (other than a de
minimis reduction); or (iii) the relocation of the offices at which such
Eligible Employee is principally employed to a location more than thirty (30)
miles from such Eligible Employee's office at the Effective Time
1
<PAGE> 3
(provided, however, this clause (iii) shall not apply to an Eligible Employee
who relocates to the new offices and then voluntarily terminates employment).
1.10 "MERGER" means the merger of Merger Sub with and into Prize pursuant
to the Merger Agreement.
1.11 "MERGER AGREEMENT" means the Agreement and Plan of Merger dated
October 8, 1999, among the Company, Prize and Merger Sub.
1.12 "MERGER SUB" means PEC Acquisition Corp., a Delaware corporation and
wholly-owned subsidiary of the Company.
1.13 "PLAN" means the Vista Energy Resources, Inc. Severance Benefit Plan,
as amended from time to time.
1.14 "PLAN ADMINISTRATOR" means the Company.
1.15 "PRIZE" means Prize Energy Corp., a Delaware corporation.
ARTICLE II
GENERAL SEVERANCE BENEFIT
2.1 SEVERANCE BENEFIT. The Company shall provide severance benefits as set
forth in Article III to Eligible Employees, pursuant to the terms, conditions
and limitations set forth in the Plan. The Plan supersedes all prior practices,
policies, procedures and plans relating to severance benefits from the Company
and any affiliated or predecessor entities.
ARTICLE III
SEVERANCE BENEFITS
3.1 SEVERANCE BENEFITS.
(a) Each Eligible Employee who continues to provide services to the
Company through the Effective Time (or, if requested by the Company, through a
period not to exceed three months following the Effective Time) shall be
entitled to severance benefits under the Plan if the Company (or, after the
Effective Time, Administaff) terminates his or her employment (other than for
Cause) or such Eligible Employee terminates his or her employment with the
Company (or, after the Effective Time, Administaff) for Good Reason within six
months after the Effective Time.
(b) The amount of severance benefits payable to an Eligible Employee
under the Plan shall be one month of Base Pay plus an additional month of Base
Pay for each year of service with the Company or Administaff. For purposes of
calculating years of service, fractional years (calculated to the nearest month)
shall be included. For purposes of determining years of service with the
Company, service with a predecessor or affiliate of the Company, as well as
service with
2
<PAGE> 4
an entity substantially all of the assets of which were acquired by the Company,
shall not be included. Nothing in the Plan shall preclude the Plan
Administrator, in its complete discretion, from providing benefits under the
Plan in addition to those set forth in this Section 3.1.
3.2 RELEASE AND OTHER AGREEMENTS. Notwithstanding any other provision in
the Plan to the contrary, as consideration for receiving severance benefits
under the Plan, each Eligible Employee who is otherwise entitled to receive such
benefits must execute a release, and such other documents and agreements as
required by the Plan Administrator, in the form and pursuant to the procedures
established by the Plan Administrator. If an Eligible Employee fails to properly
execute such release and other documents or agreements, such Eligible Employee
shall receive no severance benefits under the Plan.
3.3 VOLUNTARY TERMINATION. Notwithstanding any other provision in the Plan
to the contrary, an Eligible Employee who voluntarily terminates employment with
the Company (or, after the Effective Time, Administaff), other than for Good
Reason, shall receive no severance benefits under the Plan.
3.4 DETERMINATION. The Plan Administrator shall determine whether an
Eligible Employee has been terminated for Cause or has terminated his or her
employment for Good Reason.
3.5 FORM OF BENEFIT. Any benefit under the Plan shall be paid in a lump
sum.
3.6 COBRA. Nothing in the Plan shall be construed to limit the right of any
Eligible Employee to any benefits required by the Consolidated Omnibus Budget
Reconciliation Act.
3.7 MAXIMUM BENEFIT. Notwithstanding any provision in the Plan to the
contrary, no amount shall be payable to any Eligible Employee under the Plan
which exceeds two years of Base Pay or which, when combined with any other
payments to such Eligible Employee, would not be deductible by the Company under
Section 280G of the Code or would subject the Eligible Employee to taxation
under Section 4999 of the Code.
ARTICLE IV
GENERAL PROVISIONS
4.1 FUNDING AND COST OF PLAN. The benefits provided herein shall be
unfunded and shall be provided from the Company's general assets. The cost of
providing benefits under the Plan shall be borne by the Company or, in
connection with the Merger, the entity which has agreed to pay for the cost of
providing benefits under the Plan.
4.2 NAMED FIDUCIARY. The Plan Administrator shall be the named fiduciary
for purposes of the Employee Retirement Income Security Act of 1974, as amended.
4.3 ADMINISTRATION. The Plan Administrator shall be responsible for the
management and control of the operation and the administration of the Plan,
including, without limitation, interpretation of the Plan, decisions pertaining
to eligibility to participate in the Plan, computation
3
<PAGE> 5
of Plan benefits, granting or denial of benefit claims, and review of claim
denials. The Plan Administrator has absolute discretion in the exercise of its
powers and responsibilities. The Company may, by action of its Chief Executive
Officer, delegate any or all of its powers and responsibilities as Plan
Administrator to an individual, a committee, or both. To the extent the Company
delegates its responsibilities and powers as Plan Administrator, the Company
shall indemnify and hold harmless each such delegate (and any other individual
acting on such delegate's behalf) against any and all expenses and liabilities
arising out of such person's administrative functions or fiduciary
responsibilities, excepting only expenses and liabilities arising out of the
person's own willful misconduct; expenses against which such person shall be
indemnified hereunder include, without limitation, the amounts of any
settlement, judgment, attorneys' fees, costs of court, and any other related
charges reasonably incurred in connection with a claim, proceeding, settlement,
or other action under the Plan.
4.4 PLAN YEAR. The Plan shall be administered on a calendar year basis.
Accordingly, the plan year shall be the twelve-consecutive-month period
commencing January 1 of each year.
4.5 AMENDMENT AND TERMINATION. Subject to the limitations provided herein,
the Plan may be amended or terminated at any time, by means of a written
instrument executed by the Chief Executive Officer of the Company. No amendment
of the Plan may be made which shall deprive any Eligible Employee of amounts
already in payment status under the Plan at the time of the amendment or of
amounts payable with respect to events occurring prior to the amendment. No
amendment of the Plan may be made for a period of six months following the
Merger which relates to benefits payable under the Plan in connection with the
Effective Time and any amendment made thereafter shall not be applicable to
events occurring prior to the amendment. Neither the Company nor its successor
may terminate the Plan for a period of six months following the Effective Time.
4.6 CLAIMS PROCEDURE AND REVIEW. Claims for benefits under the Plan shall
be made in writing to the Plan Administrator. If a claim for benefits is wholly
or partially denied, the Plan Administrator shall, within a reasonable period of
time but no later than 90 days after receipt of the claim (or 180 days after
receipt of the claim if special circumstances require an extension of time for
processing the claim), notify the claimant of the denial. Such notice shall be
in writing, be written in a manner calculated to be understood by the claimant,
contain the specific reason or reasons for denial of the claim, refer
specifically to the pertinent Plan provisions upon which the denial is based,
describe any additional material or information necessary for the claimant to
perfect the claim (and explain why such material or information is necessary),
and explain the Plan's claim review procedure. Within 60 days after the receipt
by the claimant of this notice, the claimant may file a written appeal with the
Plan Administrator. In connection with the appeal, the claimant may review plan
documents and may submit written issues and comments. The Plan Administrator
shall deliver to the claimant a written decision on the appeal promptly, but not
later than 60 days after the receipt of the claimant's appeal (or 120 days after
receipt of the claimant's appeal if there are special circumstances which
require an extension of time for processing). Such decision shall be written in
a manner calculated to be understood by the claimant, include specific reasons
for the decision, and refer specifically to the Plan provisions upon which the
decision is based. If special circumstances require an extension, up to 180 or
120 days, whichever applies, the Plan Administrator shall send written notice of
the extension. This notice shall indicate the special
4
<PAGE> 6
circumstances requiring the extension and state when the Plan Administrator
expects to render the decision.
4.7 NOT CONTRACT OF EMPLOYMENT. The adoption and maintenance of the Plan
shall not be deemed to be a contract of employment between the Company or
Administaff and any person, to be consideration for the employment of any
person, or to have any effect whatsoever on the at-will employment relationship.
Nothing in the Plan shall be deemed to give any person the right to be retained
in the employ of the Company or Administaff or to restrict the right of the
Company or Administaff to discharge any person at any time. Nothing in the Plan
shall be deemed to give the Company or Administaff the right to require any
person to remain in the employ of such Company or Administaff or to restrict any
person's right to terminate employment at any time.
4.8 GOVERNING LAW. The Plan shall be interpreted under the laws of the
State of Texas, except to the extent preempted by federal law.
4.9 GENDER; NUMBER. Wherever appropriate herein, the masculine, neuter, and
feminine genders shall be deemed to include each other, and the plural shall be
deemed to include the singular and vice versa.
4.10 OVERPAYMENT. If, due to mistake or any other reason, a person receives
benefits under the Plan in excess of what the Plan provides, that person shall
repay the overpayment to the Company in a lump sum within 30 days of notice of
the amount of overpayment. If that person fails to so repay the overpayment,
then, without limiting any other remedies available to the Company, the Company
may deduct the amount of the overpayment from any other payments or benefits
which become payable to that person under the Plan or otherwise.
4.11 HEADINGS. The headings of the Articles and Sections of the Plan are
included solely for convenience. If the headings and the text of the Plan
conflict, the text shall control. All references to Articles and Sections are to
the Plan unless otherwise indicated.
4.12 SEVERABILITY. If any provision of the Plan is held to be illegal or
invalid for any reason, that holding shall not affect the remaining provisions
of the Plan. Instead, the Plan shall be construed and enforced as if such
illegal or invalid provision had not been contained herein.
4.13 MITIGATION. An Eligible Employee will not be required to mitigate the
amount of any payment required hereunder.
4.14 WITHHOLDING. The Company (or Administaff) may withhold from any
amounts payable under the Plan any applicable federal, state, and local taxes,
and social security, medicare tax, FUTA and any other applicable payroll
withholding as the payor is required to withhold pursuant to any law or
government regulation or ruling.
5
<PAGE> 7
IN WITNESS WHEREOF, Vista Energy Resources, Inc. has executed the Vista
Energy Resources, Inc. Severance Benefit Plan this 8th day of October, 1999.
VISTA ENERGY RESOURCES, INC.
By: /s/ C. RANDALL HILL
-------------------------------------
Name: C. Randall Hill
-----------------------------------
Title: CEO
----------------------------------
WITNESS:
/s/ R. CORY RICHARDS
- -----------------------------------
Name: R. Cory Richards
-----------------------------
Title: Executive V.P.
----------------------------
6
<PAGE> 1
EXHIBIT 10.2
EXECUTION COPY
CONSULTING AND TERMINATION AGREEMENT
THIS CONSULTING AND TERMINATION AGREEMENT (this "Agreement"), dated as of
October 8, 1999, is made and entered into by and among Prize Energy Corp., a
Delaware corporation ("Prize"), Vista Energy Resources, Inc., a Delaware
corporation (the "Company"), and C. Randall Hill ("Executive").
W I T N E S S E T H:
WHEREAS, concurrently herewith, Prize, the Company and PEC Acquisition
Corp., a Delaware corporation ("Sub"), are entering into an Agreement and Plan
of Merger (as such agreement may hereafter be amended from time to time, the
"Merger Agreement"; capitalized terms used and not otherwise defined herein have
the respective meanings ascribed to them in the Merger Agreement), pursuant to
which Sub will be merged with and into Prize and Prize will become a
wholly-owned subsidiary of the Company (the "Merger");
WHEREAS, as an inducement and a condition to entering into the Merger
Agreement, Prize has required that Executive agree, and Executive has agreed, to
enter into this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties, covenants and agreements contained herein, the parties hereto,
intending to be legally bound, hereby agree as follows:
1. TERMINATION OF EMPLOYMENT ARRANGEMENT. Effective as of the Effective
Time, (a) Executive hereby tenders his resignation as an officer and director of
the Company and each of its subsidiaries and affiliates, and (b) his employment
arrangement with the Company and its subsidiaries (the "Employment Arrangement")
shall be terminated in full without any further action on the part of the
Company, any of its subsidiaries or Executive. Except as expressly provided for
in this Agreement, from and after the date of termination of the Employment
Arrangement, Executive shall not be entitled to receive any further wages,
compensation, stock options or benefits arising pursuant to the Employment
Arrangement (other than the compensation, amounts and benefits to be received by
Executive under Section 5 of this Agreement or otherwise not released by
Executive pursuant to Section 2(a) of this Agreement) or his employment
relationship with the Company or any of its subsidiaries, and Executive shall
not be entitled to any post-termination wages, compensation or benefits
(including, without limitation, severance pay, vacation pay or sick pay), except
as expressly provided in Sections 2(a) and 5 of this Agreement.
2. RELEASE OF CLAIMS.
(a) RELEASE BY EXECUTIVE. Effective as of the Effective Time, Executive
hereby releases and discharges the Released Parties from all Claims and Damages
(as those terms are defined in Section 2(c) below), including, without
limitation, those related to, arising from, or attributed to (i) Executive's
employment with, and membership on the Boards of Directors and
<PAGE> 2
committees of, the Company and its subsidiaries and affiliates and resignations
therefrom, (ii) the Employment Arrangement (including, without limitation, any
right to receive options for shares of Common Stock under the terms of the
Company's 1998 Key Employee Stock Option Plan), and (iii) any and all other acts
or omissions related to any matter at any time prior to and including the date
of termination of the Employment Arrangement; except that this release shall not
include Executive's (A) entitlement to continued group medical coverage in
accordance with the Consolidated Omnibus Budget Reconciliation Act of 1985
("COBRA"), (B) vested account balances in the Company's employee benefit plans
or warrants outstanding as of the date hereof, (C) rights with respect to shares
of capital stock of the Company owned or held by Executive, (D) rights of
Executive arising under this Agreement, (E) rights of Executive arising under
any agreement granting Executive the right to have any securities of the Company
now or hereafter owned by Executive registered under the Securities Act of 1933,
including that certain Registration Rights Agreement dated as of October 28,
1998, as such may be superseded by that certain Amended and Restated
Registration Rights Agreement dated as of the Effective Time, in each case
between the Company, certain security holders of the Company and (in the case of
the latter Agreement) Prize, (F) rights of Executive arising under the Merger
Agreement, or (G) accrued and unpaid salary and reimbursement of reasonable
business expenses attributable to the period prior to the Effective Time.
Notwithstanding the foregoing, Executive does not release or discharge the
Company and its subsidiaries from any Claims or Damages related to or arising
from Executive's capacity as an officer or director of the Company or its
subsidiaries to which Executive is entitled to be indemnified against or
reimbursed by the Company or its subsidiaries, whether by statute, contract or
otherwise, including, without limitation, his rights under that certain
Indemnification Agreement dated as of October 28, 1998, by and between the
Company and Executive.
(b) RELEASE BY THE COMPANY. Effective as of the Effective Time, the
Company hereby releases and discharges Executive from all Claims and Damages
related to, arising from or attributed to lawful acts or omissions of Executive
in the course of Executive's employment with, and membership on the Boards of
Directors of, the Company and its subsidiaries and resignations therefrom,
except that this release shall not include rights of the Company arising under
this Agreement or any illegal or fraudulent act or omission.
(c) DEFINITIONS. As used in this Section 2, the following terms shall
have meanings set forth below:
(i) "Claims" means all theories of recovery of whatever nature,
whether known or unknown, at law or in equity, of any jurisdiction,
based on acts, omissions or other matters occurring on or before the
Effective Time. This term includes, without limitation, lawsuits,
petitions, complaints, causes of action, charges, indebtedness, losses,
claims, liabilities and demands, whether arising in equity or under the
common law or under any contract, statute, regulation or ordinance. This
term also includes, without limitation, any claim of discrimination
(based on age or any other factor) under any statute or law (including,
without limitation, the Age Discrimination in Employment Act, 29 U.S.C.
Section 621, et seq.; Title VII of the Civil Rights Act of 1964, 42
U.S.C. Section 2000e, et seq.; and the Americans with Disabilities Act,
42 U.S.C. Section 12101, et seq.), and all claims asserted by Executive,
in writing or otherwise, or which could be asserted by Executive.
2
<PAGE> 3
(ii) "Damages" means all elements of relief or recovery of whatever
nature, whether known or unknown, which are recognized by the law or
equity of any jurisdiction. This term includes, without limitation,
actual, incidental, indirect, consequential, special, compensatory,
liquidated, contingent, exemplary, and punitive damages; rescission;
attorneys' fees; interest; costs; equitable relief; and expenses.
(iii) "Released Parties" means and includes the Company, Prize and
their subsidiaries and affiliates, and all of the foregoing entities'
past, present and future stockholders, directors, officers, employees,
agents, insurance carriers, employee benefit plans (and such plans'
fiduciaries, trustees, administrators and representatives),
predecessors, successors, assigns, executors, administrators, attorneys
and representatives, in both their corporate and individual capacities.
3. CONSULTING ARRANGEMENT.
(a) CONSULTING SERVICES. Effective as of the Effective Time, the Company
hereby retains Executive to render such consulting and advisory services (the
"Consulting Services") as the Company may reasonably request from time to time
during the Consultation Period (as defined in subsection (c) of this Section 3).
Executive hereby accepts such engagement and agrees to perform such services for
the Company upon the terms and conditions set forth in this Agreement. Executive
will perform the Consulting Services at such times and places as the Company,
from time to time, shall reasonably request; provided, however, that, unless
Executive agrees in advance, he shall not be required to provide more than 180
hours of Consulting Services in any calendar month. Consulting and advising via
telephone, facsimile transmission, Internet transmission and correspondence, as
well as in person, shall constitute performance of Executive's services
hereunder. The Company will reimburse Executive for reasonable out-of-pocket
expenses which Executive incurs in the course of providing the Consulting
Services. The Company shall reimburse Executive for the cost of his and his
dependants' continued medical and dental coverage incurred by Executive under
COBRA during the Consultation Period. Such reimbursement shall be contingent on
Executive electing such continued coverage in accordance with COBRA, remaining
eligible for such continued coverage and making the payments required for such
continued coverage. Notwithstanding anything in this Agreement, Executive shall
be an independent contractor with authority to select the means and method of
performing the Consulting Services. Executive shall not be an employee or agent
of the Company, Prize or any of their subsidiaries or affiliates and any action
taken by Executive which is not authorized by this Agreement or any other
agreement between the Company and Executive will not bind the Company, Prize or
any of their subsidiaries or affiliates or create any claim against the Company,
Prize or any of their subsidiaries or affiliates. Unless otherwise specifically
authorized by this Agreement or any other agreement between the Company and
Executive, Executive has no authority to transact any business or make any
representations or promises in the name of the Company, Prize or any of their
subsidiaries or affiliates.
(b) CONSIDERATION. During the Consultation Period, the Company shall pay
Executive a consulting fee of $13,750 per month, which fee shall be payable in
accordance with standard payroll practices of the Company. The above consulting
fee shall be payable on a pro rata basis for any partial month occurring during
the Consultation Period.
3
<PAGE> 4
(c) CONSULTATION PERIOD. Unless terminated at an earlier date in
accordance with subsection (d) of this Section 3, the term of the consulting
arrangement shall commence at the Effective Time and expire as of February 28,
2000 (the "Consultation Period").
(d) TERMINATION OF CONSULTING ARRANGEMENT. Notwithstanding any contrary
provision contained elsewhere in this Agreement, this Section 3, the
Consultation Period and the consulting arrangement created hereunder between the
Company and Executive may be terminated at any time prior to the expiration of
the term set forth in subsection (c) of this Section 3 by either the Company or
Executive.
4. TAX RETURN. The Company shall use its best efforts to provide to
Executive his 1999 Form W2 no later than January 31, 2000.
5. SEVERANCE. On the later of January 3, 2000, or the date that is five
days after the Effective Time, the Company shall pay Executive by wire transfer
of immediately available funds $333,333 as severance compensation.
6. SURVIVAL. The provisions of this Agreement (other than Section 3) shall
survive any termination of the consulting arrangement created pursuant to
Section 3 of this Agreement.
7. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes all
other prior agreements and understandings, both written and oral, between
Executive and any of the Company, Prize or any of their subsidiaries or
affiliates with respect to the subject matter hereof.
(b) BINDING EFFECT. This Agreement and the obligations hereunder shall
be binding upon and inure to the benefit of Executive and his heirs, guardians,
administrators and successors and the Company, Prize and their successors and
permitted assigns. No party hereto may assign any of its rights or obligations
hereunder without the prior written consent of the others.
(c) AMENDMENTS, WAIVERS, ETC. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated, except upon
the execution and delivery of a written agreement executed by the parties
hereto.
(d) NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly received if so given) by hand delivery, telegram, telex
or telecopy, or by mail (registered or certified mail, postage prepaid, return
receipt requested) or by any courier service, such as Federal Express, providing
proof of delivery. All communications hereunder shall be delivered to the
respective parties at the following addresses:
4
<PAGE> 5
If to Executive: C. Randall Hill
4624 Rosewood Drive
Midland, Texas 79707
Telephone: (915) 697-3922
If to the Company: Vista Energy Resources, Inc.
Chief Executive Officer
550 West Texas Avenue, Suite 700
Midland, Texas 79701
Telephone: (915) 570-5045
Facsimile: (915) 688-0589
If to Prize: Prize Energy Corp.
20 East 5th Street, Suite 1400
Tulsa, Oklahoma 74103
Attention: Chairman
Telephone: (918) 587-5816
Facsimile: (918) 582-1547
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
(e) SEVERABILITY. Whenever possible, each provision or portion of any
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
(f) REMEDIES CUMULATIVE. All rights, powers and remedies provided under
this Agreement or otherwise available in respect hereof at law or in equity
shall be cumulative and not alternative, and the exercise of any such right,
power or remedy by any party shall not preclude the simultaneous or later
exercise of any other right, power or remedy by such party.
(g) NO WAIVER. The failure of any party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by any other party
hereto with its obligations hereunder, and any custom or practice of the parties
at variance with the terms hereof, shall not constitute a waiver by such party
of its right to exercise any such or other right, power or remedy or to demand
such compliance.
(h) NO THIRD PARTY BENEFICIARIES. This Agreement is not intended to be
for the benefit of, and shall not be enforceable by, any person or entity who or
which is not a party hereto.
5
<PAGE> 6
(i) GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of Texas, without giving effect to the
principles of conflicts of law thereof.
(j) DESCRIPTIVE HEADINGS. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
(k) COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original, but all of which, taken together,
shall constitute one and the same Agreement.
(l) WITHHOLDINGS. The Company may withhold from any amounts payable to
Executive under this Agreement any applicable federal, state, and local taxes,
and social security, medicare tax, FUTA and any other applicable payroll
withholding which the Company is required to withhold pursuant to any law or
government regulation or ruling.
(m) TAXES. Executive agrees to comply, on a timely basis, with all tax
reporting requirements applicable to the receipt of the payments and other
compensation received hereunder and to timely pay all taxes due with respect to
such amounts.
8. TERMINATION. This Agreement shall terminate upon the termination of the
Merger Agreement without any further action on the part of any party hereto.
[Remainder of page intentionally left blank]
6
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
/s/ C. RANDALL HILL
-----------------------------------------
C. RANDALL HILL
VISTA ENERGY RESOURCES, INC.
By: /s/ STEVEN D. GRAY
-------------------------------------
Name: Steven D. Gray
-----------------------------------
Title: President
----------------------------------
PRIZE ENERGY CORP.
By: /s/ PHILIP B. SMITH
-------------------------------------
Philip B. Smith
Chairman and CEO
<PAGE> 1
EXHIBIT 10.3
EXECUTION COPY
CONSULTING AND TERMINATION AGREEMENT
THIS CONSULTING AND TERMINATION AGREEMENT (this "Agreement"), dated as of
October 8, 1999, is made and entered into by and among Prize Energy Corp., a
Delaware corporation ("Prize"), Vista Energy Resources, Inc., a Delaware
corporation (the "Company"), and Steven D. Gray ("Executive").
W I T N E S S E T H:
WHEREAS, concurrently herewith, Prize, the Company and PEC Acquisition
Corp., a Delaware corporation ("Sub"), are entering into an Agreement and Plan
of Merger (as such agreement may hereafter be amended from time to time, the
"Merger Agreement"; capitalized terms used and not otherwise defined herein have
the respective meanings ascribed to them in the Merger Agreement), pursuant to
which Sub will be merged with and into Prize and Prize will become a
wholly-owned subsidiary of the Company (the "Merger");
WHEREAS, as an inducement and a condition to entering into the Merger
Agreement, Prize has required that Executive agree, and Executive has agreed, to
enter into this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties, covenants and agreements contained herein, the parties hereto,
intending to be legally bound, hereby agree as follows:
1. TERMINATION OF EMPLOYMENT ARRANGEMENT. Effective as of the Effective
Time, (a) Executive hereby tenders his resignation as an officer and director of
the Company and each of its subsidiaries and affiliates, and (b) his employment
arrangement with the Company and its subsidiaries (the "Employment Arrangement")
shall be terminated in full without any further action on the part of the
Company, any of its subsidiaries or Executive. Except as expressly provided for
in this Agreement, from and after the date of termination of the Employment
Arrangement, Executive shall not be entitled to receive any further wages,
compensation, stock options or benefits arising pursuant to the Employment
Arrangement (other than the compensation, amounts and benefits to be received by
Executive under Section 5 of this Agreement or otherwise not released by
Executive pursuant to Section 2(a) of this Agreement) or his employment
relationship with the Company or any of its subsidiaries, and Executive shall
not be entitled to any post-termination wages, compensation or benefits
(including, without limitation, severance pay, vacation pay or sick pay), except
as expressly provided in Sections 2(a) and 5 of this Agreement.
2. RELEASE OF CLAIMS.
(a) RELEASE BY EXECUTIVE. Effective as of the Effective Time, Executive
hereby releases and discharges the Released Parties from all Claims and Damages
(as those terms are defined in Section 2(c) below), including, without
limitation, those related to, arising from, or attributed to (i) Executive's
employment with, and membership on the Boards of Directors and committees of,
the Company and its subsidiaries and affiliates and resignations therefrom, (ii)
the
<PAGE> 2
Employment Arrangement (including, without limitation, any right to receive
options for shares of Common Stock under the terms of the Company's 1998 Key
Employee Stock Option Plan), and (iii) any and all other acts or omissions
related to any matter at any time prior to and including the date of termination
of the Employment Arrangement; except that this release shall not include
Executive's (A) entitlement to continued group medical coverage in accordance
with the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"), (B)
vested account balances in the Company's employee benefit plans or warrants
outstanding as of the date hereof, (C) rights with respect to shares of capital
stock of the Company owned or held by Executive, (D) rights of Executive arising
under this Agreement, (E) rights of Executive arising under any agreement
granting Executive the right to have any securities of the Company now or
hereafter owned by Executive registered under the Securities Act of 1933,
including that certain Registration Rights Agreement dated as of October 28,
1998, as such may be superseded by that certain Amended and Restated
Registration Rights Agreement dated as of the Effective Time, in each case
between the Company, certain security holders of the Company and (in the case of
the latter Agreement) Prize, (F) rights of Executive arising under the Merger
Agreement, or (G) accrued and unpaid salary and reimbursement of reasonable
business expenses attributable to the period prior to the Effective Time.
Notwithstanding the foregoing, Executive does not release or discharge the
Company and its subsidiaries from any Claims or Damages related to or arising
from Executive's capacity as an officer or director of the Company or its
subsidiaries to which Executive is entitled to be indemnified against or
reimbursed by the Company or its subsidiaries, whether by statute, contract or
otherwise, including, without limitation, his rights under that certain
Indemnification Agreement dated as of October 28, 1998, by and between the
Company and Executive.
(b) RELEASE BY THE COMPANY. Effective as of the Effective Time, the
Company hereby releases and discharges Executive from all Claims and Damages
related to, arising from or attributed to lawful acts or omissions of Executive
in the course of Executive's employment with, and membership on the Boards of
Directors of, the Company and its subsidiaries and resignations therefrom,
except that this release shall not include rights of the Company arising under
this Agreement or any illegal or fraudulent act or omission.
(c) DEFINITIONS. As used in this Section 2, the following terms shall
have meanings set forth below:
(i) "Claims" means all theories of recovery of whatever nature,
whether known or unknown, at law or in equity, of any jurisdiction,
based on acts, omissions or other matters occurring on or before the
Effective Time. This term includes, without limitation, lawsuits,
petitions, complaints, causes of action, charges, indebtedness, losses,
claims, liabilities and demands, whether arising in equity or under the
common law or under any contract, statute, regulation or ordinance. This
term also includes, without limitation, any claim of discrimination
(based on age or any other factor) under any statute or law (including,
without limitation, the Age Discrimination in Employment Act, 29 U.S.C.
Section 621, et seq.; Title VII of the Civil Rights Act of 1964, 42
U.S.C. Section 2000e, et seq.; and the Americans with Disabilities Act,
42 U.S.C. Section 12101, et seq.), and all claims asserted by Executive,
in writing or otherwise, or which could be asserted by Executive.
2
<PAGE> 3
(ii) "Damages" means all elements of relief or recovery of whatever
nature, whether known or unknown, which are recognized by the law or
equity of any jurisdiction. This term includes, without limitation,
actual, incidental, indirect, consequential, special, compensatory,
liquidated, contingent, exemplary, and punitive damages; rescission;
attorneys' fees; interest; costs; equitable relief; and expenses.
(iii) "Released Parties" means and includes the Company, Prize and
their subsidiaries and affiliates, and all of the foregoing entities'
past, present and future stockholders, directors, officers, employees,
agents, insurance carriers, employee benefit plans (and such plans'
fiduciaries, trustees, administrators and representatives),
predecessors, successors, assigns, executors, administrators, attorneys
and representatives, in both their corporate and individual capacities.
3. CONSULTING ARRANGEMENT.
(a) CONSULTING SERVICES. Effective as of the Effective Time, the Company
hereby retains Executive to render such consulting and advisory services (the
"Consulting Services") as the Company may reasonably request from time to time
during the Consultation Period (as defined in subsection (c) of this Section 3).
Executive hereby accepts such engagement and agrees to perform such services for
the Company upon the terms and conditions set forth in this Agreement. Executive
will perform the Consulting Services at such times and places as the Company,
from time to time, shall reasonably request; provided, however, that, unless
Executive agrees in advance, he shall not be required to provide more than 180
hours of Consulting Services in any calendar month. Consulting and advising via
telephone, facsimile transmission, Internet transmission and correspondence, as
well as in person, shall constitute performance of Executive's services
hereunder. The Company will reimburse Executive for reasonable out-of-pocket
expenses which Executive incurs in the course of providing the Consulting
Services. The Company shall reimburse Executive for the cost of his and his
dependants' continued medical and dental coverage incurred by Executive under
COBRA during the Consultation Period. Such reimbursement shall be contingent on
Executive electing such continued coverage in accordance with COBRA, remaining
eligible for such continued coverage and making the payments required for such
continued coverage. Notwithstanding anything in this Agreement, Executive shall
be an independent contractor with authority to select the means and method of
performing the Consulting Services. Executive shall not be an employee or agent
of the Company, Prize or any of their subsidiaries or affiliates and any action
taken by Executive which is not authorized by this Agreement or any other
agreement between the Company and Executive will not bind the Company, Prize or
any of their subsidiaries or affiliates or create any claim against the Company,
Prize or any of their subsidiaries or affiliates. Unless otherwise specifically
authorized by this Agreement or any other agreement between the Company and
Executive, Executive has no authority to transact any business or make any
representations or promises in the name of the Company, Prize or any of their
subsidiaries or affiliates.
(b) CONSIDERATION. During the Consultation Period, the Company shall pay
Executive a consulting fee of $13,750 per month, which fee shall be payable in
accordance with standard payroll practices of the Company. The above consulting
fee shall be payable on a pro rata basis for any partial month occurring during
the Consultation Period.
3
<PAGE> 4
(c) CONSULTATION PERIOD. Unless terminated at an earlier date in
accordance with subsection (d) of this Section 3, the term of the consulting
arrangement shall commence at the Effective Time and expire as of February 28,
2000 (the "Consultation Period").
(d) TERMINATION OF CONSULTING ARRANGEMENT. Notwithstanding any contrary
provision contained elsewhere in this Agreement, this Section 3, the
Consultation Period and the consulting arrangement created hereunder between the
Company and Executive may be terminated at any time prior to the expiration of
the term set forth in subsection (c) of this Section 3 by either the Company or
Executive.
4. TAX RETURN. The Company shall use its best efforts to provide to
Executive his 1999 Form W2 no later than January 31, 2000.
5. SEVERANCE. On the later of January 3, 2000, or the date that is five
days after the Effective Time, the Company shall pay Executive by wire transfer
of immediately available funds $333,333 as severance compensation.
6. SURVIVAL. The provisions of this Agreement (other than Section 3) shall
survive any termination of the consulting arrangement created pursuant to
Section 3 of this Agreement.
7. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes all
other prior agreements and understandings, both written and oral, between
Executive and any of the Company, Prize or any of their subsidiaries or
affiliates with respect to the subject matter hereof.
(b) BINDING EFFECT. This Agreement and the obligations hereunder shall
be binding upon and inure to the benefit of Executive and his heirs, guardians,
administrators and successors and the Company, Prize and their successors and
permitted assigns. No party hereto may assign any of its rights or obligations
hereunder without the prior written consent of the others.
(c) AMENDMENTS, WAIVERS, ETC. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated, except upon
the execution and delivery of a written agreement executed by the parties
hereto.
(d) NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly received if so given) by hand delivery, telegram, telex
or telecopy, or by mail (registered or certified mail, postage prepaid, return
receipt requested) or by any courier service, such as Federal Express, providing
proof of delivery. All communications hereunder shall be delivered to the
respective parties at the following addresses:
4
<PAGE> 5
If to Executive: Steven D. Gray
4516 Bent Tree Trail
Midland, Texas 79707
Telephone: (915) 697-6505
If to the Company: Vista Energy Resources, Inc.
Chief Executive Officer
550 West Texas Avenue, Suite 700
Midland, Texas 79701
Telephone: (915) 570-5045
Facsimile: (915) 688-0589
If to Prize: Prize Energy Corp.
20 East 5th Street, Suite 1400
Tulsa, Oklahoma 74103
Attention: Chairman
Telephone: (918) 587-5816
Facsimile: (918) 582-1547
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
(e) SEVERABILITY. Whenever possible, each provision or portion of any
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
(f) REMEDIES CUMULATIVE. All rights, powers and remedies provided under
this Agreement or otherwise available in respect hereof at law or in equity
shall be cumulative and not alternative, and the exercise of any such right,
power or remedy by any party shall not preclude the simultaneous or later
exercise of any other right, power or remedy by such party.
(g) NO WAIVER. The failure of any party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by any other party
hereto with its obligations hereunder, and any custom or practice of the parties
at variance with the terms hereof, shall not constitute a waiver by such party
of its right to exercise any such or other right, power or remedy or to demand
such compliance.
(h) NO THIRD PARTY BENEFICIARIES. This Agreement is not intended to be
for the benefit of, and shall not be enforceable by, any person or entity who or
which is not a party hereto.
5
<PAGE> 6
(i) GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of Texas, without giving effect to the
principles of conflicts of law thereof.
(j) DESCRIPTIVE HEADINGS. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
(k) COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original, but all of which, taken together,
shall constitute one and the same Agreement.
(l) WITHHOLDINGS. The Company may withhold from any amounts payable to
Executive under this Agreement any applicable federal, state, and local taxes,
and social security, medicare tax, FUTA and any other applicable payroll
withholding which the Company is required to withhold pursuant to any law or
government regulation or ruling.
(m) TAXES. Executive agrees to comply, on a timely basis, with all tax
reporting requirements applicable to the receipt of the payments and other
compensation received hereunder and to timely pay all taxes due with respect to
such amounts.
8. TERMINATION. This Agreement shall terminate upon the termination of the
Merger Agreement without any further action on the part of any party hereto.
[Remainder of page intentionally left blank]
6
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
/s/ STEVEN D. GRAY
-----------------------------------------
STEVEN D. GRAY
VISTA ENERGY RESOURCES, INC.
By: /s/ C. RANDALL HILL
-------------------------------------
Name: C. Randall Hill
-----------------------------------
Title: CEO
----------------------------------
PRIZE ENERGY CORP.
By: /s/ PHILIP B. SMITH
-------------------------------------
Philip B. Smith
Chairman and CEO
<PAGE> 1
EXHIBIT 10.4
EXECUTION COPY
CONSULTING AND TERMINATION AGREEMENT
THIS CONSULTING AND TERMINATION AGREEMENT (this "Agreement"), dated as of
October 8, 1999, is made and entered into by and among Prize Energy Corp., a
Delaware corporation ("Prize"), Vista Energy Resources, Inc., a Delaware
corporation (the "Company"), and R. Cory Richards ("Executive").
W I T N E S S E T H:
WHEREAS, concurrently herewith, Prize, the Company and PEC Acquisition
Corp., a Delaware corporation ("Sub"), are entering into an Agreement and Plan
of Merger (as such agreement may hereafter be amended from time to time, the
"Merger Agreement"; capitalized terms used and not otherwise defined herein have
the respective meanings ascribed to them in the Merger Agreement), pursuant to
which Sub will be merged with and into Prize and Prize will become a
wholly-owned subsidiary of the Company (the "Merger");
WHEREAS, as an inducement and a condition to entering into the Merger
Agreement, Prize has required that Executive agree, and Executive has agreed, to
enter into this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties, covenants and agreements contained herein, the parties hereto,
intending to be legally bound, hereby agree as follows:
1. TERMINATION OF EMPLOYMENT ARRANGEMENT. Effective as of the Effective
Time, (a) Executive hereby tenders his resignation as an officer and director of
the Company and each of its subsidiaries and affiliates, and (b) his employment
arrangement with the Company and its subsidiaries (the "Employment Arrangement")
shall be terminated in full without any further action on the part of the
Company, any of its subsidiaries or Executive. Except as expressly provided for
in this Agreement, from and after the date of termination of the Employment
Arrangement, Executive shall not be entitled to receive any further wages,
compensation, stock options or benefits arising pursuant to the Employment
Arrangement (other than the compensation, amounts and benefits to be received by
Executive under Section 5 of this Agreement or otherwise not released by
Executive pursuant to Section 2(a) of this Agreement) or his employment
relationship with the Company or any of its subsidiaries, and Executive shall
not be entitled to any post-termination wages, compensation or benefits
(including, without limitation, severance pay, vacation pay or sick pay), except
as expressly provided in Sections 2(a) and 5 of this Agreement.
2. RELEASE OF CLAIMS.
(a) RELEASE BY EXECUTIVE. Effective as of the Effective Time, Executive
hereby releases and discharges the Released Parties from all Claims and Damages
(as those terms are defined in Section 2(c) below), including, without
limitation, those related to, arising from, or attributed to (i) Executive's
employment with, and membership on the Boards of Directors and committees of,
the Company and its subsidiaries and affiliates and resignations therefrom, (ii)
the
<PAGE> 2
Employment Arrangement (including, without limitation, any right to receive
options for shares of Common Stock under the terms of the Company's 1998 Key
Employee Stock Option Plan), and (iii) any and all other acts or omissions
related to any matter at any time prior to and including the date of termination
of the Employment Arrangement; except that this release shall not include
Executive's (A) entitlement to continued group medical coverage in accordance
with the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"), (B)
vested account balances in the Company's employee benefit plans or warrants
outstanding as of the date hereof, (C) rights with respect to shares of capital
stock of the Company owned or held by Executive, (D) rights of Executive arising
under this Agreement, (E) rights of Executive arising under any agreement
granting Executive the right to have any securities of the Company now or
hereafter owned by Executive registered under the Securities Act of 1933,
including that certain Registration Rights Agreement dated as of October 28,
1998, as such may be superseded by that certain Amended and Restated
Registration Rights Agreement dated as of the Effective Time, in each case
between the Company, certain security holders of the Company and (in the case of
the latter Agreement) Prize, (F) rights of Executive arising under the Merger
Agreement, or (G) accrued and unpaid salary and reimbursement of reasonable
business expenses attributable to the period prior to the Effective Time.
Notwithstanding the foregoing, Executive does not release or discharge the
Company and its subsidiaries from any Claims or Damages related to or arising
from Executive's capacity as an officer or director of the Company or its
subsidiaries to which Executive is entitled to be indemnified against or
reimbursed by the Company or its subsidiaries, whether by statute, contract or
otherwise, including, without limitation, his rights under that certain
Indemnification Agreement dated as of October 28, 1998, by and between the
Company and Executive.
(b) RELEASE BY THE COMPANY. Effective as of the Effective Time, the
Company hereby releases and discharges Executive from all Claims and Damages
related to, arising from or attributed to lawful acts or omissions of Executive
in the course of Executive's employment with, and membership on the Boards of
Directors of, the Company and its subsidiaries and resignations therefrom,
except that this release shall not include rights of the Company arising under
this Agreement or any illegal or fraudulent act or omission.
(c) DEFINITIONS. As used in this Section 2, the following terms shall
have meanings set forth below:
(i) "Claims" means all theories of recovery of whatever nature,
whether known or unknown, at law or in equity, of any jurisdiction,
based on acts, omissions or other matters occurring on or before the
Effective Time. This term includes, without limitation, lawsuits,
petitions, complaints, causes of action, charges, indebtedness, losses,
claims, liabilities and demands, whether arising in equity or under the
common law or under any contract, statute, regulation or ordinance.
This term also includes, without limitation, any claim of
discrimination (based on age or any other factor) under any statute or
law (including, without limitation, the Age Discrimination in
Employment Act, 29 U.S.C. Section 621, et seq.; Title VII of the Civil
Rights Act of 1964, 42 U.S.C. Section 2000e, et seq.; and the Americans
with Disabilities Act, 42 U.S.C. Section 12101, et seq.), and all
claims asserted by Executive, in writing or otherwise, or which could
be asserted by Executive.
2
<PAGE> 3
(ii) "Damages" means all elements of relief or recovery of whatever
nature, whether known or unknown, which are recognized by the law or
equity of any jurisdiction. This term includes, without limitation,
actual, incidental, indirect, consequential, special, compensatory,
liquidated, contingent, exemplary, and punitive damages; rescission;
attorneys' fees; interest; costs; equitable relief; and expenses.
(iii) "Released Parties" means and includes the Company, Prize and
their subsidiaries and affiliates, and all of the foregoing entities'
past, present and future stockholders, directors, officers, employees,
agents, insurance carriers, employee benefit plans (and such plans'
fiduciaries, trustees, administrators and representatives),
predecessors, successors, assigns, executors, administrators, attorneys
and representatives, in both their corporate and individual capacities.
3. CONSULTING ARRANGEMENT.
(a) CONSULTING SERVICES. Effective as of the Effective Time, the Company
hereby retains Executive to render such consulting and advisory services (the
"Consulting Services") as the Company may reasonably request from time to time
during the Consultation Period (as defined in subsection (c) of this Section 3).
Executive hereby accepts such engagement and agrees to perform such services for
the Company upon the terms and conditions set forth in this Agreement. Executive
will perform the Consulting Services at such times and places as the Company,
from time to time, shall reasonably request; provided, however, that, unless
Executive agrees in advance, he shall not be required to provide more than 180
hours of Consulting Services in any calendar month. Consulting and advising via
telephone, facsimile transmission, Internet transmission and correspondence, as
well as in person, shall constitute performance of Executive's services
hereunder. The Company will reimburse Executive for reasonable out-of-pocket
expenses which Executive incurs in the course of providing the Consulting
Services. The Company shall reimburse Executive for the cost of his and his
dependants' continued medical and dental coverage incurred by Executive under
COBRA during the Consultation Period. Such reimbursement shall be contingent on
Executive electing such continued coverage in accordance with COBRA, remaining
eligible for such continued coverage and making the payments required for such
continued coverage. Notwithstanding anything in this Agreement, Executive shall
be an independent contractor with authority to select the means and method of
performing the Consulting Services. Executive shall not be an employee or agent
of the Company, Prize or any of their subsidiaries or affiliates and any action
taken by Executive which is not authorized by this Agreement or any other
agreement between the Company and Executive will not bind the Company, Prize or
any of their subsidiaries or affiliates or create any claim against the Company,
Prize or any of their subsidiaries or affiliates. Unless otherwise specifically
authorized by this Agreement or any other agreement between the Company and
Executive, Executive has no authority to transact any business or make any
representations or promises in the name of the Company, Prize or any of their
subsidiaries or affiliates.
(b) CONSIDERATION. During the Consultation Period, the Company shall pay
Executive a consulting fee of $11,459 per month, which fee shall be payable in
accordance with standard payroll practices of the Company. The above consulting
fee shall be payable on a pro rata basis for any partial month occurring during
the Consultation Period.
3
<PAGE> 4
(c) CONSULTATION PERIOD. Unless terminated at an earlier date in
accordance with subsection (d) of this Section 3, the term of the consulting
arrangement shall commence at the Effective Time and expire as of February 28,
2000 (the "Consultation Period").
(d) TERMINATION OF CONSULTING ARRANGEMENT. Notwithstanding any contrary
provision contained elsewhere in this Agreement, this Section 3, the
Consultation Period and the consulting arrangement created hereunder between the
Company and Executive may be terminated at any time prior to the expiration of
the term set forth in subsection (c) of this Section 3 by either the Company or
Executive.
4. TAX RETURN. The Company shall use its best efforts to provide to
Executive his 1999 Form W2 no later than January 31, 2000.
5. SEVERANCE. On the later of January 3, 2000, or the date that is five
days after the Effective Time, the Company shall pay Executive by wire transfer
of immediately available funds $333,333 as severance compensation.
6. SURVIVAL. The provisions of this Agreement (other than Section 3) shall
survive any termination of the consulting arrangement created pursuant to
Section 3 of this Agreement.
7. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes all
other prior agreements and understandings, both written and oral, between
Executive and any of the Company, Prize or any of their subsidiaries or
affiliates with respect to the subject matter hereof.
(b) BINDING EFFECT. This Agreement and the obligations hereunder shall
be binding upon and inure to the benefit of Executive and his heirs, guardians,
administrators and successors and the Company, Prize and their successors and
permitted assigns. No party hereto may assign any of its rights or obligations
hereunder without the prior written consent of the others.
(c) AMENDMENTS, WAIVERS, ETC. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated, except upon
the execution and delivery of a written agreement executed by the parties
hereto.
(d) NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly received if so given) by hand delivery, telegram, telex
or telecopy, or by mail (registered or certified mail, postage prepaid, return
receipt requested) or by any courier service, such as Federal Express, providing
proof of delivery. All communications hereunder shall be delivered to the
respective parties at the following addresses:
4
<PAGE> 5
If to Executive: R. Cory Richards
1602 McClintic
Midland, Texas 79701
Telephone: (915) 683-5807
If to the Company: Vista Energy Resources, Inc.
Chief Executive Officer
550 West Texas Avenue, Suite 700
Midland, Texas 79701
Telephone: (915) 570-5045
Facsimile: (915) 688-0589
If to Prize: Prize Energy Corp.
20 East 5th Street, Suite 1400
Tulsa, Oklahoma 74103
Attention: Chairman
Telephone: (918) 587-5816
Facsimile: (918) 582-1547
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
(e) SEVERABILITY. Whenever possible, each provision or portion of any
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
(f) REMEDIES CUMULATIVE. All rights, powers and remedies provided under
this Agreement or otherwise available in respect hereof at law or in equity
shall be cumulative and not alternative, and the exercise of any such right,
power or remedy by any party shall not preclude the simultaneous or later
exercise of any other right, power or remedy by such party.
(g) NO WAIVER. The failure of any party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by any other party
hereto with its obligations hereunder, and any custom or practice of the parties
at variance with the terms hereof, shall not constitute a waiver by such party
of its right to exercise any such or other right, power or remedy or to demand
such compliance.
(h) NO THIRD PARTY BENEFICIARIES. This Agreement is not intended to be
for the benefit of, and shall not be enforceable by, any person or entity who or
which is not a party hereto.
5
<PAGE> 6
(i) GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of Texas, without giving effect to the
principles of conflicts of law thereof.
(j) DESCRIPTIVE HEADINGS. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
(k) COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original, but all of which, taken together,
shall constitute one and the same Agreement.
(l) WITHHOLDINGS. The Company may withhold from any amounts payable to
Executive under this Agreement any applicable federal, state, and local taxes,
and social security, medicare tax, FUTA and any other applicable payroll
withholding which the Company is required to withhold pursuant to any law or
government regulation or ruling.
(m) TAXES. Executive agrees to comply, on a timely basis, with all tax
reporting requirements applicable to the receipt of the payments and other
compensation received hereunder and to timely pay all taxes due with respect to
such amounts.
8. TERMINATION. This Agreement shall terminate upon the termination of the
Merger Agreement without any further action on the part of any party hereto.
[Remainder of page intentionally left blank]
6
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
/s/ R. CORY RICHARDS
-----------------------------------------
R. CORY RICHARDS
VISTA ENERGY RESOURCES, INC.
By: /s/ C. RANDALL HILL
-------------------------------------
Name: C. Randall Hill
-----------------------------------
Title: CEO
----------------------------------
PRIZE ENERGY CORP.
By: /s/ PHILIP B. SMITH
-------------------------------------
Philip B. Smith
Chairman and CEO
<TABLE> <S> <C>
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 20,623
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<RECEIVABLES> 4,595,436
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<PP&E> 92,577,573
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0
0
<COMMON> 163,736
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<TOTAL-LIABILITY-AND-EQUITY> 63,362,463
<SALES> 12,856,692
<TOTAL-REVENUES> 12,856,692
<CGS> 4,655,601
<TOTAL-COSTS> 9,783,080
<OTHER-EXPENSES> 5,127,479
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<INTEREST-EXPENSE> 3,047,674
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