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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12
</TABLE>
PRIZE ENERGY CORP.
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(Name of Registrant as Specified In Its Charter)
Not Applicable
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
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PRIZE ENERGY CORP.
3500 WILLIAM D. TATE, SUITE 200
GRAPEVINE, TEXAS 76051
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 25, 2000
To the Stockholders of
PRIZE ENERGY CORP.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Prize
Energy Corp., a Delaware corporation (formerly known as Vista Energy Resources,
Inc.) (the "Company"), will be held at the Sheraton Grand Hotel, 4440 West John
Carpenter Freeway, Irving, Texas, on Thursday, May 25, 2000, at 10:00 a.m.,
local time, for the following purposes:
1. To elect four directors of the Company for one-year terms;
2. To consider and act upon a proposal to approve the Company's 1998 Key
Employee Stock Option Plan and the amendment thereto described in the
accompanying proxy statement;
3. To consider and act upon a proposal to ratify the appointment of Ernst
& Young LLP as the independent auditor of the Company for 2000; and
4. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on April 18,
2000, as the record date for the meeting, and only holders of the Company's
common stock of record at such time will be entitled to vote at the meeting or
any adjournment thereof. A complete list of the stockholders entitled to vote at
the meeting will be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours for a period of 10 days
prior to the date of the meeting at the offices of the Company and at the time
and place of the meeting.
By Order of the Board of Directors,
Monica L. Griffin
Secretary
Grapevine, Texas
April 28, 2000
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING. WHETHER
OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE MARK, SIGN, DATE AND RETURN THE
ACCOMPANYING PROXY IN THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN
THE UNITED STATES. IF YOU DO ATTEND THE MEETING, YOU MAY WITHDRAW YOUR PROXY AND
VOTE IN PERSON.
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PRIZE ENERGY CORP.
3500 WILLIAM D. TATE, SUITE 200
GRAPEVINE, TEXAS 76051
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 25, 2000
SOLICITATION AND REVOCATION OF PROXIES
This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors of Prize Energy Corp., a Delaware corporation
(formerly known as Vista Energy Resources, Inc.) (the "Company"), of proxies to
be voted at the Annual Meeting of Stockholders of the Company to be held on May
25, 2000, or at any adjournment thereof (the "Annual Meeting"), for the purposes
set forth in the accompanying Notice of Annual Meeting. This Proxy Statement and
accompanying proxy were first forwarded on or about April 28, 2000, to
stockholders of record on April 18, 2000.
If the accompanying proxy is properly executed and returned, the shares
represented by the proxy will be voted at the Annual Meeting. If a stockholder
indicates in his or her proxy a choice with respect to any matter to be acted
upon, that stockholder's shares will be voted in accordance with such choice. If
no choice is indicated, such shares will be voted "FOR" (1) the election of all
of the nominees for directors listed below, (2) the approval of the Company's
1998 Key Employee Stock Option Plan and the amendment described herein, and (3)
ratification of the appointment of the independent auditor. A stockholder giving
a proxy may revoke it by giving written notice of revocation to the Secretary of
the Company at any time before it is voted, by executing another valid proxy
bearing a later date and delivering such proxy to the Secretary of the Company
prior to or at the Annual Meeting, or by attending the Annual Meeting and voting
in person.
The expenses of this proxy solicitation, including the cost of
preparing and mailing this Proxy Statement and accompanying proxy will be borne
by the Company. Such expenses will also include the charges and expenses of
banks, brokerage firms, and other custodians, nominees or fiduciaries for
forwarding solicitation material regarding the Annual Meeting to beneficial
owners of the Company's common stock. Solicitation of proxies may be made by
mail, telephone, personal interviews or by other means by the Board of Directors
or employees of the Company who will not be additionally compensated therefor,
but who may be reimbursed for their out-of-pocket expenses in connection
therewith.
STOCKHOLDERS ENTITLED TO VOTE
Stockholders of record at the close of business on April 18, 2000 (the
"Record Date"), will be entitled to vote at the Annual Meeting. As of the Record
Date, there were issued and outstanding 13,266,929 shares of common stock, par
value $.01 per share, of the Company ("Common Stock"). Each share of Common
Stock is entitled to one vote. There is no cumulative voting with respect to the
election of directors. The presence in person or by proxy of the holders of a
majority of the shares of Common Stock issued and outstanding at the Annual
Meeting and entitled to vote will constitute a quorum for the transaction of
business. Votes withheld from nominees for directors, abstentions and broker
non-votes will be counted for purpose of determining whether a quorum has been
reached. Votes will be tabulated by an inspector of election appointed by the
Board of Directors of the Company. With regard to the election of directors,
votes may be cast in favor of or withheld from each nominee; votes that are
withheld will have no effect on the outcome of the election of directors.
Abstentions, which may be specified on all proposals except the election of
directors, will have the effect of a negative vote. Under applicable Delaware
law, a broker non-vote will have no effect on the outcome of the election of
directors or the other proposals. As of the Record Date, the Natural Gas
Partners partnerships collectively own approximately 64% of the outstanding
shares of Common Stock. If these partnerships
<PAGE> 4
vote "FOR" the election of all of the nominees for directors listed below and
"FOR" the other proposals, all of such nominees will be elected and such other
proposals will be approved by the stockholders of the Company without regard to
the vote of any other stockholders. Each of the Natural Gas Partners
partnerships has indicated that it will vote "FOR" all of such nominees and
"FOR" the other proposals.
PROPOSAL ONE
ELECTION OF DIRECTORS
Stockholder action will be requested at the Annual Meeting with respect
to the re-election of each of the current members of the Board of Directors of
the Company (the "Board of Directors"). The Amended and Restated Certificate of
Incorporation of the Company provides that the Board of Directors shall consist
of not less than two nor more than 21 directors, as determined from time to time
by resolution of the Board of Directors. The number of directors is currently
fixed at four. The term of all of the members of the Board of Directors,
consisting of Philip B. Smith, Lon C. Kile, Kenneth A. Hersh and David R. Albin,
will expire at the Annual Meeting, and the accompanying proxy solicits your vote
for four directors. The current directors were elected to the Board of Directors
pursuant to a Voting and Shareholders Agreement. For a description of this
Agreement, see the discussion below under "Change in Control." Pursuant to this
Agreement, Philip B. Smith is the designee of the stockholders who are members
of the Company's management and Kenneth A. Hersh, David R. Albin and Lon C. Kile
are the designees of Natural Gas Partners V, L.P.
The Board of Directors has nominated Philip B. Smith, Lon C. Kile,
Kenneth A. Hersh and David R. Albin for re-election as directors, each to hold
office until the annual meeting of stockholders in 2001 and until his successor
is duly elected and qualifies, or until his earlier death, resignation or
retirement. The persons named as proxies in the accompanying proxy, who have
been designated by the Board of Directors, intend to vote, unless otherwise
instructed in such proxy, for the election of Messrs. Smith, Kile, Hersh and
Albin as directors of the Company. Should any nominee named herein become unable
for any reason to stand for election as a director of the Company, it is
intended that the persons named in such proxy will vote for the election of such
other person or persons as the Board of Directors may recommend. The Company
knows of no reason why any of the nominees will be unavailable or unable to
serve.
The affirmative vote of a plurality of the shares of Common Stock
present in person or by proxy at the Annual Meeting and entitled to vote is
required for the election of directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE FOLLOWING
NOMINEES FOR DIRECTORS.
NOMINEES FOR DIRECTORS
PHILIP B. SMITH, age 48, has been Chairman of the Board of Directors,
Chief Executive Officer, Treasurer and a Director of the Company since February
8, 2000. He is the founder of Prize Natural Resources, Inc. (formerly known as
Prize Energy Corp.) ("Old Prize"), which became a wholly-owned subsidiary of the
Company on February 8, 2000, and has been chairman of the board of directors,
chief executive officer, treasurer and a director of Old Prize since January
1999. He was also president of Old Prize during a portion of 1999. In 1996, Mr.
Smith founded a small independent oil and gas company which he managed until
1999. From 1996 until January 2000, he also served as a director of HS
Resources, Inc. and Pioneer Natural Resources Company and its predecessor, MESA,
Inc. Mr. Smith served as president, chief executive officer and a director of
Tide West Oil Company, an independent oil and gas company ("Tide West"), from
1992 until 1996. He was president and a director of Draco Petroleum, Inc., a
wholly- owned subsidiary of Tide West, from 1991 until 1996, and of Tide West
Trading & Transport Company, a wholly-owned subsidiary of Tide West ("TWTT"),
from 1989 until 1996. From 1986 until 1991, Mr. Smith was a senior vice
president of Mega Natural Gas Company, a natural gas gathering company and the
former parent company of TWTT and its predecessor companies. Prior to that time,
he held various technical and management positions at other
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independent and major oil and gas companies. He earned his M.B.A. from the
University of Tulsa and his B.S. in mechanical engineering from Oklahoma State
University.
LON C. KILE, age 44, has been President, Chief Operating Officer and a
Director of the Company since February 8, 2000. He has been president, chief
operating officer and a director of Old Prize since June 1999. From 1997 until
1999, he was executive vice president of Pioneer Natural Resources Company, an
independent oil and gas company ("Pioneer"). Mr. Kile joined Parker & Parsley
Petroleum Company, an independent oil and gas company and a predecessor to
Pioneer ("Parker & Parsley"), in 1985 and was promoted to senior vice president
in 1996. Previously, he was vice president and manager of the mid-continent
division of Parker & Parsley. Prior to that, he held the positions of vice
president-equity finance & analysis and vice president-marketing and program
administration of Parker & Parsley. Before joining Parker & Parsley, he was
employed as supervisor-senior, audit, in charge of Parker & Parsley's audit,
with Arthur Young & Co. (now Ernst & Young LLP). Mr. Kile earned his Bachelor of
Business Administration degree in accounting from Oklahoma State University.
KENNETH A. HERSH, age 36, has been a Director of the Company since
February 8, 2000. He has also been a director of Old Prize since January 1999.
From 1989 to the present, he has been a manager of the Natural Gas Partners
private equity investment funds which were organized to make equity investments
in the oil and gas industry. Previously, he was employed by the investment
banking division of Morgan Stanley & Co. Incorporated where he was a member of
the firm's energy group specializing in oil and gas financing and acquisition
transactions. Mr. Hersh earned an M.B.A. from the Stanford University Graduate
School of Business and a B.A. from Princeton University.
DAVID R. ALBIN, age 40, has been a Director of the Company since
February 8, 2000. He has also been a director of Old Prize since January 1999.
From 1988 to the present, he has been a manager of the Natural Gas Partners
private equity investment funds. Previously, he was employed as a portfolio
manager for the Bass Investment Limited Partnership, a partnership formed by the
Bass family of Fort Worth, Texas. Before joining Bass, he was a member of the
oil and gas group in Goldman, Sachs & Co.'s investment banking division. Mr.
Albin earned a B.S. in physics and an M.B.A., both from Stanford University.
COMPENSATION OF DIRECTORS
Directors who are also employees of the Company are not separately
compensated for serving on the Board of Directors or any committee thereof.
Directors who are not employees of the Company receive $250 per meeting for
their services as directors. In addition, the Company reimburses directors for
reasonable expenses incurred in connection with attending meetings of the Board
of Directors and its committees. On October 5, 1999, the Board of Directors
approved a cash payment of $10,000 to John Q. Adams, a member of the Board of
Directors until his resignation on February 8, 2000, as compensation for his
significant time commitment in connection with his duties on the special
committee of the Board of Directors utilized in connection with the merger of
the Company with Old Prize.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During 1999, the Board of Directors held two meetings. All of the
directors were present at each meeting. In addition, the Board of Directors took
action twice during 1999 by unanimous written consent. The Board of Directors
has a standing Audit Committee and a standing Compensation Committee.
During 1999, the Audit Committee was composed of John S. Foster and
John Q. Adams. The Audit Committee is currently composed of Messrs. Hersh, Kile
and Smith. The Audit Committee considers the qualifications of the independent
auditor of the Company and makes recommendations to the Board of Directors on
the engagement of the independent auditor. The Audit Committee has the
responsibility to (1) review the scope and results of the audit with the
independent auditor, (2) review with management and the independent auditor the
Company's interim and year-end financial condition and results of operations,
(3) consider the adequacy of the internal accounting, bookkeeping and other
control procedures of the Company, and (4) review any non-audit services and
special engagements to be
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performed by the independent auditor and consider the effect of such performance
on the auditor's independence. The Audit Committee also generally reviews the
terms of material transactions and arrangements, if any, between the Company and
its directors, officers and principal stockholders. The Audit Committee did not
meet during 1999.
The Compensation Committee is composed of Messrs. Hersh and Albin. The
Compensation Committee (1) monitors and administers the Company's employee
benefit plans (including the Company's 1998 Key Employee Stock Option Plan) and
executive compensation plans, practices and policies, including all salaries,
bonuses and fringe benefits, (2) makes changes in existing employee benefit
plans and executive compensation plans, and (3) formulates and adopts new
executive compensation plans. The Compensation Committee did not meet during
1999. However, the Compensation Committee took action once during 1999 by
unanimous written consent.
The Company does not have a standing Nominating Committee. The
Company's Bylaws provide that nominations of candidates for election as
directors of the Company may be made at a meeting of stockholders by or at the
direction of the Board of Directors or by any stockholder entitled to vote at
such meeting who complies with the advance notice procedures set forth therein.
These procedures require any stockholder who intends to make a nomination for
director at the meeting to deliver notice of such nomination to the Secretary of
the Company not less than 60 days nor more than 90 days before the meeting. The
notice must contain all information about the proposed nominee as would be
required to be included in a proxy statement soliciting proxies for the election
of such nominee, including such nominee's written consent to serve as a director
if so elected. If the Chairman of the meeting determines that a person is not
nominated in accordance with the nomination procedure, such nomination will be
disregarded. The Company's Bylaws provide that the annual meeting of
stockholders to be held each year will be on such date and time as may be
established by the Board of Directors. The Company intends to hold the annual
meeting each year on the fourth Thursday in May.
PROPOSAL TWO
APPROVAL OF THE COMPANY'S 1998 KEY EMPLOYEE
STOCK OPTION PLAN AND AMENDMENT NUMBER 1 THERETO
GENERAL
Stockholder action at the Annual Meeting will be requested with respect
to the approval of the Company's 1998 Key Employee Stock Option Plan and
Amendment Number 1 (the "Amendment") to such plan (as amended by the Amendment,
the "1998 Plan"). Approval of the 1998 Plan by the stockholders will allow the
Company (or a subsidiary) to avoid the potential loss of tax deductions under
Section 162(m) of the U.S. Internal Revenue Code (the "Code"). Section 162(m)
limits the deduction which the Company (or a subsidiary) may take for otherwise
deductible compensation payable to certain executive officers of the Company,
unless such compensation is performance-based, is approved by the Company's
stockholders and meets certain other criteria. Accordingly, approval of this
proposal will constitute approval of the Amendment and approval of the 1998
Plan, which will also constitute approval of the 1998 Plan by the Company's
stockholders for purposes of Section 162(m).
The primary purpose of the Amendment is to increase the total number of
shares of Common Stock available for issuance under the 1998 Plan from 128,571
shares to 500,000 shares. Under the terms of the 1998 Plan, a total of 900,000
shares of Common Stock were originally available for issuance pursuant to stock
options granted under the 1998 Plan (subject to adjustment in the event of
certain corporate adjustments such as a stock split, reverse stock split, etc.).
On February 8, 2000, under the terms of the 1998 Plan, the total number of
shares of Common Stock available for issuance pursuant to stock options granted
under the 1998 Plan was adjusted from 900,000 shares to 128,571 shares to give
effect to the Company's one-for-seven reverse Common Stock split effected on
February 8, 2000. As of April 18, 2000, there were 58,571 shares of the 128,571
shares of Common Stock available for future grants of stock options under the
1998 Plan and there were stock options for a total of 70,000 shares outstanding
under the 1998 Plan. If the
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Amendment is approved by the stockholders of the Company, the total number of
shares of Common Stock subject to outstanding stock options and reserved for
future grants of stock options under the 1998 Plan would be 500,000 shares and
represent approximately 3.8% of the Company's total outstanding shares of Common
Stock on April 18, 2000. No stock options have been exercised under the 1998
Plan since its inception.
A copy of the Amendment is attached hereto as Exhibit A. The Amendment,
which was approved by the Board of Directors on April 17, 2000, will not take
effect unless approved by the affirmative vote of the holders of a majority of
the shares of Common Stock present in person or represented by proxy at the
Annual Meeting and entitled to vote. The purpose of the 1998 Plan is to
strengthen the ability of the Company and any parent or subsidiary of the
Company to attract and retain well-qualified executive and managerial personnel
and to encourage stock ownership by such personnel in order to increase their
proprietary interest in the Company's success. The Company intends to rely
heavily upon stock options to compensate its executive and managerial personnel
and desires to have sufficient shares available for stock option grants in order
to do so because it believes that stock options encourage and reward effective
management that results in long-term corporate financial success, as measured by
stock price appreciation.
SUMMARY OF THE 1998 PLAN
The following is a summary of the principal terms and conditions of the
1998 Plan and does not purport to be complete. This summary is qualified in its
entirety by reference to the 1998 Plan, a copy of which is attached hereto as
Exhibit B.
General. On May 22, 1998, the Board of Directors adopted the 1998 Plan.
The 1998 Plan permits the granting of options to officers, directors and
employees of the Company or any parent or subsidiary of the Company. The 1998
Plan also permits the granting of non-qualified stock options to consultants of
the Company or any parent or subsidiary of the Company. A determination has not
been made as to the number of employees currently eligible for consideration as
participants in the 1998 Plan. As of April 18, 2000, the Company has four
directors and approximately 120 employees. The 1998 Plan provides that, during
any calendar year, no participant may be granted options with respect to more
than 250,000 shares of Common Stock.
The 1998 Plan is administered by the Board of Directors or any
committee designated by it (as used for the 1998 Plan, the "Committee"). The
Committee has broad discretion to administer the 1998 Plan, interpret its
provisions and adopt policies for implementing the 1998 Plan. This discretion
includes the ability to select the recipient of an option, determine the type
and amount of each option, establish the terms of each option, accelerate
vesting or exercisability of an option, determine whether performance conditions
have been satisfied and otherwise modify or amend any option under the 1998
Plan, including the ability to "reprice" options.
Options. The 1998 Plan permits the granting of the following types of
options: (a) "incentive stock options," qualified as such under the U.S. federal
income tax laws (which may be granted only to employees), and (b) stock options
that do not qualify as incentive stock options ("non-qualified stock options").
The Committee determines the exercise price of each option granted under the
1998 Plan. The exercise price for an option must not be less than the fair
market value of Common Stock on the date of grant. Stock options may be
exercised as the Committee determines, but not later than 10 years from the date
of grant in the case of incentive stock options. At the discretion of the
Committee, holders may use shares of stock to pay the exercise price, including
shares issuable upon exercise of the option. At the Committee's discretion and
subject to conditions that the Committee may impose, a participant's tax
withholding with respect to an option may be satisfied by the withholding of
shares of Common Stock issuable pursuant to the option or the delivery of
previously owned shares of Common Stock, in either case based on the fair market
value of the shares. No incentive stock option may be issued under the 1998 Plan
after the tenth anniversary of stockholder approval of the 1998 Plan.
Amendment to and Termination of the 1998 Plan. The Board of Directors
may amend, modify, suspend or terminate the 1998 Plan at any time; provided,
that no amendment may be made which shall increase the total number
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of shares of Common Stock which may be issued and sold pursuant to options
granted under the 1998 Plan unless such amendment is made by or with the
approval of the stockholders. The Board of Directors also has the right to amend
the 1998 Plan and the options outstanding thereunder, without the consent or
joinder of any optionee or other person, in such manner as may be determined
necessary or appropriate by the Board of Directors in order to cause the 1998
Plan and the options outstanding thereunder (a) to qualify as "incentive stock
options" under U.S. federal income tax laws, (b) to comply with Rule 16b-3 under
the Securities Exchange Act of 1934, as amended, or (c) to comply with Section
162(m) of the Code. Except as provided above, no amendment, modification,
suspension or termination of the 1998 Plan may alter or impair any options
previously granted under the 1998 Plan, without the consent of the holder
thereof.
Change of Control. If a change of control shall occur or the Company
shall enter into an agreement providing for a change of control, then the
Committee may declare any or all options outstanding under the 1998 Plan to be
exercisable in full at such time or times as the Committee shall determine. Each
option accelerated by the Committee pursuant to the preceding sentence shall
terminate on such date (not later than the stated exercise date) as the
Committee shall determine.
Federal Income Tax Consequences. The Company believes that, under
present U.S. federal tax laws, the following are the federal income tax
consequences generally arising with respect to options granted under the 1998
Plan to officers, directors and employees of the Company. The grant of an option
will create no tax consequences for the participant or the Company (or a
subsidiary). The participant will have no taxable income upon exercising an
incentive stock option ("ISO") (except that the alternative minimum tax may
apply) and the Company (and its subsidiaries) will receive no deduction. Upon
exercising an option other than an ISO, a participant will recognize ordinary
income equal to the difference between the exercise price and the fair market
value of the stock acquired on the date of exercise. In the case of the exercise
of a non-qualified stock option, the Company (or a subsidiary) generally will be
entitled to a deduction for the amount recognized as ordinary income by the
participant. The treatment to a participant of a disposition of shares acquired
upon the exercise of an option depends on how long the shares have been held and
on whether such shares are acquired by exercising an ISO or by exercising an
option other than an ISO. Generally, there will be no tax consequences to the
Company (or a subsidiary) in connection with a disposition of shares acquired
under an option except that the Company (or a subsidiary) will be entitled to a
deduction (and the employee will recognize ordinary income) if shares acquired
under an ISO are disposed of before the applicable ISO holding periods have been
satisfied.
In order for the amounts described above to be deductible by the
Company (or a subsidiary), such amounts must constitute reasonable compensation
for services rendered or to be rendered and must be ordinary and necessary
business expenses. The ability of the Company (or a subsidiary) to obtain a
deduction for future payments under the 1998 Plan could also be limited by the
golden parachute payment rules of Section 280G of the Code, which prevent the
deductibility of certain excess parachute payments made in connection with a
change in control of an employer- corporation. Finally, the ability of the
Company (or a subsidiary) to obtain a deduction for amounts paid under the 1998
Plan could be limited by Section 162(m) of the Code, which limits the
deductibility, for federal income tax purposes, of compensation paid to certain
executive officers of the Company to $1.0 million with respect to any such
officer during any taxable year of the Company. However, an exception applies to
this limitation in the case of certain performance-based compensation. The 1998
Plan is intended to satisfy the requirements for the performance-based
exception. The Company intends to comply with the requirements of the Code with
respect to awards under the 1998 Plan so as to be eligible for the
performance-based exception, but the Company may, in its sole discretion,
determine that in one or more cases it is in its best interests not to satisfy
the requirements for the performance-based exception.
The foregoing provides only a very general description of the
application of U.S. federal income tax laws to options under the 1998 Plan. The
summary does not address the effects of foreign, state and local tax laws.
Options Granted. As of April 18, 2000, non-qualified stock options for
a total of 70,000 shares of Common Stock at an average exercise price of $12.375
per share are outstanding under the 1998 Plan. All of these options were
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granted at the fair market value of Common Stock on the date of grant, and
expire up to 10 years after the date of grant. As of such date, no incentive
stock options have been granted under the 1998 Plan. As of such date, there were
58,571 shares available for future grants of options under the 1998 Plan: Since
inception of the 1998 Plan: (a) no options under the 1998 Plan have been
exercised and (b) options for the following number of shares have been granted
under the 1998 Plan to the named executive officers of the Company and specified
groups: Philip B. Smith (Chairman of the Board of Directors and Chief Executive
Officer), no shares; Lon C. Kile (President and Chief Operating Officer), no
shares; D. Richard Massengill (Vice President), no shares; C. Randall Hill
(former Chairman of the Board of Directors and Chief Executive Officer), no
shares; Steven D. Gray (former President), no shares; R. Cory Richards (former
Executive Vice President), no shares; all current executive officers as a group,
no shares; all current directors who are not executive officers as a group, no
shares; and all employees, excluding executive officers, as a group 70,000
shares. Future awards under the 1998 Plan are not yet determinable. The closing
price for the Common Stock on the American Stock Exchange on April 24, 2000, was
$17.50.
The affirmative vote of the holders of a majority of the shares of
Common Stock present in person or by proxy at the Annual Meeting and entitled to
vote is required for the adoption of this proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THIS
PROPOSAL.
PROPOSAL THREE
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITOR
The Board of Directors has appointed Ernst & Young LLP as the
independent auditor of the Company for the fiscal year ending December 31, 2000.
A proposal will be presented at the Annual Meeting asking the stockholders to
ratify the appointment of Ernst & Young LLP as the Company's independent
auditor. If the stockholders do not ratify the appointment of Ernst & Young LLP,
the Board of Directors will reconsider the appointment. The affirmative vote of
the holders of a majority of the shares present in person or by proxy at the
Annual Meeting and entitled to vote is required for the adoption of this
proposal.
Prior to the merger of the Company with Old Prize, Arthur Andersen LLP
had been the independent accountant for the Company and Ernst & Young LLP had
been the independent accountant for Old Prize. In conjunction with the merger,
on February 8, 2000, the Board of Directors approved the engagement of Ernst &
Young LLP as the Company's independent accountant for the fiscal year ending
December 31, 2000, to replace Arthur Andersen LLP, who was dismissed as
independent accountant of the Company after completing the audit of the Company
and its subsidiaries at December 31, 1999, and for the year then ended. On
February 8, 2000, the Board of Directors also approved the engagement of Ernst &
Young LLP as independent accountant to audit Old Prize and its subsidiaries at
December 31, 1999, and for the period then ended. The audit of the Company for
the fiscal year ended December 31, 1999, was completed on February 16, 2000.
Arthur Andersen LLP's reports on the Company's financial statements for
the fiscal years ended December 31, 1999 and 1998, did not contain an adverse
opinion or disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope or accounting principles.
In connection with the audits of the Company's financial statements for
the fiscal years ended December 31, 1999 and 1998, there were no disagreements
with Arthur Andersen LLP on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedures, which
disagreements, if not resolved to the satisfaction of Arthur Andersen LLP, would
have caused Arthur Andersen LLP to make reference to the subject matter of the
disagreements in connection with their report.
8
<PAGE> 10
The Company expects that a representative of each of Ernst & Young LLP
and Arthur Andersen LLP will be present at the Annual Meeting. Each
representative will be given the opportunity to make a statement if he or she
desires to do so and will be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF
ERNST & YOUNG LLP AS INDEPENDENT AUDITOR FOR 2000.
PRINCIPAL STOCKHOLDERS AND
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information as of April 18,
2000, regarding the ownership of Common Stock by the following:
o all persons known by the Company to be beneficial owners of more than
five percent of such stock,
o each director and nominee for director of the Company,
o each of the executive officers of the Company named in the Summary
Compensation Table below, and
o all executive officers and directors of the Company as a group.
Shares of Common Stock which were not outstanding but which could be acquired by
a person upon exercise of an option or warrant within 60 days of April 18, 2000,
are deemed outstanding for the purpose of computing the percentage of
outstanding shares of Common Stock beneficially owned by that person. These
shares, however, are not deemed to be outstanding for the purpose of computing
the percentage of outstanding shares of Common Stock beneficially owned by any
other person. Unless otherwise noted, the persons named below have sole voting
and investment power with respect to the shares indicated as beneficially owned
by them.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENTAGE
NAME OF OWNER OR IDENTITY OF GROUP OWNED OF CLASS
- ---------------------------------- ------- --------
<S> <C> <C>
Natural Gas Partners V, L.P. .......................................... 7,326,821 55.23%
125 E. John Carpenter Freeway, Suite 600
Irving, Texas 75062
Natural Gas Partners III, L.P. ........................................ 1,202,510(1) 8.73%
125 E. John Carpenter Freeway, Suite 600
Irving, Texas 75062
Natural Gas Partners II, L.P. ......................................... 879,818(2) 6.45%
125 E. John Carpenter Freeway, Suite 600
Irving, Texas 75062
</TABLE>
9
<PAGE> 11
<TABLE>
<S> <C> <C>
Pioneer Natural Resources USA, Inc. ..................................... 2,637,715 19.88%
1400 Williams Square West
5205 N. O'Connor Boulevard
Irving, Texas 75039
Philip B. Smith ......................................................... 1,471,045(3)(4) 10.35%
20 E. 5th Street, Suite 1400
Tulsa, Oklahoma 74103
Lon C. Kile ............................................................. 577,618(5) 4.18%
Kenneth A. Hersh ........................................................ 9,429,449(6) 66.69%
125 E. John Carpenter Freeway, Suite 600
Irving, Texas 75062
David R. Albin........................................................... 9,409,149(6) 66.55%
100 N. Guadalupe, Suite 205
Santa Fe, New Mexico 87501
David R. Massengill...................................................... 267,852(7) 1.98%
C. Randall Hill ......................................................... 213,160(8) 1.60%
Steven D. Gray .......................................................... 213,160(9) 1.60%
R. Cory Richards ........................................................ 117,584(10) *
All executive officers and
directors as a group (5 persons) ...................................... 11,745,964(4)(11) 73.93%
</TABLE>
- ---------------------------
* Less than one percent.
(1) Includes 503,120 shares issuable upon exercise of stock warrants currently
exercisable at an exercise price of $28.00 per share.
(2) Includes 368,109 shares issuable upon exercise of stock warrants currently
exercisable at an exercise price of $28.00 per share.
(3) Includes 946,520 shares issuable upon exercise of stock options currently
exercisable at an exercise price of $7.84 per share.
(4) Includes (a) 84,134 shares held by the Scott C. Smith Irrevocable Trust, of
which Mr. Smith is the trustee, and (b) 84,134 shares held by the Laura E.
Smith Irrevocable Trust, of which Mr. Smith is the trustee.
(5) Includes 535,702 shares issuable upon exercise of stock options currently
exercisable at an exercise price of $7.84 per share.
(6) Includes, as to Mr. Hersh, and represents as to Mr. Albin, shares
beneficially owned by Natural Gas Partners II, L.P. ("NGP II"), Natural Gas
Partners III, L.P. ("NGP III") and Natural Gas Partners V, L.P. ("NGP V").
Messrs. Hersh and Albin serve as directors of the Company and constitute
(a) two of the four managing members of each
10
<PAGE> 12
entity that serves as the ultimate general partner of NGP II and NGP III
and (b) a majority of the managing members of the entity that serves as the
ultimate general partner of NGP V. They also own interests in these Natural
Gas Partners partnerships. Accordingly, they may be deemed to beneficially
own, or otherwise control, the voting of all or some portion of the shares
owned by NGP II, NGP III and NGP V. Messrs. Hersh and Albin disclaim
beneficial ownership of these shares.
(7) Represents shares issuable upon exercise of stock options currently
exercisable at an exercise price of $7.84 per share.
(8) Includes 90,405 shares issuable upon exercise of stock warrants currently
exercisable at an exercise price of $28.00 per share. Information relating
to Mr. Hill is as of February 8, 2000.
(9) Includes 90,405 shares issuable upon exercise of stock warrants currently
exercisable at an exercise price of $28.00 per share. Information relating
to Mr. Gray is as of February 8, 2000.
(10) Includes 50,417 shares issuable upon exercise of stock warrants currently
exercisable at an exercise price of $28.00 per share. Information relating
to Mr. Richards is as of February 8, 2000.
(11) Includes 1,750,074 shares issuable upon exercise of stock options currently
exercisable at an exercise price of $7.84 per share. Also includes shares
beneficially owned by NGP II, NGP III and NGP V. Messrs. Hersh and Albin
disclaim beneficial ownership of shares beneficially owned by NGP II, NGP
III and NGP V.
CHANGE IN CONTROL
On February 8, 2000, a change in control of the Company occurred as a
result of the consummation of the merger (the "Merger") of PEC Acquisition
Corp., a wholly-owned subsidiary of the Company, with and into Old Prize, with
Old Prize as the surviving corporation. Old Prize is now a wholly-owned
subsidiary of the Company. Pursuant to the Merger, each issued and outstanding
share of Old Prize common stock was converted into 1,665.187 shares of the
Company's Common Stock and each issued and outstanding share of Old Prize
convertible preferred stock was converted into 1,665.187 shares of the Company's
convertible preferred stock. After the Merger, former Old Prize stockholders
collectively owned approximately 84% of the Company's outstanding Common Stock,
assuming conversion of the Company's convertible preferred stock. The Old Prize
stockholders were NGP V, Philip B. Smith, Scott C. Smith Irrevocable Trust,
Laura E. Smith Irrevocable Trust, Lon C. Kile, Monica L. Griffin and Pioneer
Natural Resources USA, Inc., a wholly-owned subsidiary of Pioneer ("Pioneer
USA"). The consideration paid in connection with the Merger was determined
through arms-length negotiations between executive management of Old Prize and a
special committee of the Board of Directors.
Upon completion of the Merger, on February 8, 2000, each of the
executive officers and directors of the Company resigned, except for David R.
Albin and Kenneth A. Hersh, who continued to serve as directors of the Company
following the Merger. The Board of Directors then appointed Philip B. Smith, Lon
C. Kile, Scott D. Sheffield and Mark L. Withrow to fill vacancies on the Board
of Directors. The Board of Directors also appointed the executive officers of
Old Prize to serve as the executive officers of the Company. Pursuant to the
Voting and Shareholders Agreement discussed below, Mr. Smith was the designee of
the stockholders who are members of the Company's management; Messrs. Hersh,
Albin and Kile were the designees of NGP V; and Messrs. Sheffield and Withrow
were the designees of Pioneer USA. Messrs. Sheffield and Withrow resigned as
directors of the Company, effective as of March 31, 2000. See "Certain
Transactions."
In conjunction with the Merger, on February 8, 2000, the existing
Voting and Shareholders Agreement between Old Prize, NGP V, Pioneer USA and the
other stockholders of Old Prize was terminated and the Company entered into an
agreement with the holders of Old Prize common stock and Old Prize convertible
preferred stock having substantially the same terms and conditions as the prior
agreement.
11
<PAGE> 13
Under the terms of the new Voting and Shareholders Agreement, the
parties to the agreement have the following rights to nominate and elect members
of the Company's Board of Directors:
o Stockholders who are members of the Company's management may designate
one member;
o NGP V may designate three members; and
o Pioneer USA may designate two members.
However, on the date on which Pioneer USA no longer owns at least 60% of the
shares of the Company's convertible preferred stock initially issued to it in
the Merger, or the equivalent number of shares of the Company's Common Stock
obtained upon conversion, Pioneer USA will have the right to nominate and elect
only one member of the Company's Board of Directors and NGP V will have the
right to nominate and elect four members of the Company's Board of Directors.
The provisions of the Voting and Shareholders Agreement described above
regarding election of directors terminates as to:
o any single Company management member on the first to occur of the
termination of that person's employment by the Company, the death of
that person and the date on which that person transfers Company
securities in violation of the transfer restrictions provided for in
the agreement;
o Pioneer USA on the date on which Pioneer USA no longer owns shares of
Company Common Stock and shares of Company convertible preferred
stock, which are convertible into shares of Company Common Stock, that
constitute, on an as converted basis, at least 16.7% of the Company
Common Stock outstanding; and
o all parties to the agreement on June 29, 2009.
On March 31, 2000, Pioneer USA relinquished all of its rights under the Voting
and Shareholders Agreement, including its right to designate two directors of
the Company. See "Certain Transactions."
12
<PAGE> 14
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information with respect to the
compensation of the Company's Chief Executive Officer and each of the Company's
other executive officers whose compensation, based on salary and bonus earned
during 1999, exceeded $100,000, for services in all capacities to the Company
and its subsidiaries during each of the Company's last three fiscal years.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
----------------------------------- ---------------------- ---------
SECURITIES
RESTRICTED UNDERLYING LONG-TERM
OTHER ANNUAL STOCK OPTIONS/ INCENTIVE ALL OTHER
NAME AND SALARY BONUS COMPENSATION AWARD(S) SARS PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($)(1) ($) (#) ($) ($)(2)
- ---------------------------- ---- -------- ------- ------------ ---------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
C. Randall Hill (3)........ 1999 165,000 -0- -0- -0- -0- -0- 3,600
Chief Executive Officer 1998 120,000 66,920 -0- -0- -0- -0- 2,400
1997 110,000 25,000 -0- -0- -0- -0- 2,200
Steven D. Gray (3)......... 1999 165,000 -0- -0- -0- -0- -0- 3,600
President 1998 120,000 66,920 -0- -0- -0- -0- 2,400
1997 110,000 25,000 -0- -0- -0- -0- 2,200
R. Cory Richards (3)....... 1999 137,500 -0- -0- -0- -0- -0- 3,000
Executive Vice President 1998 100,000 61,920 -0- -0- -0- -0- 2,000
and Exploration Manager 1997 82,250 13,000 -0- -0- -0- -0- 200
</TABLE>
- -------------
(1) Does not include the value of perquisites and other personal benefits
because the aggregate amount of such compensation, if any, does not exceed
the lesser of $50,000 or 10% of the total amount of annual salary and bonus
for any named individual.
(2) Represents Company contributions to the Company's 401(k) Plan.
(3) Each of Messrs. Hill and Gray resigned as a director and an executive
officer of the Company, and Mr. Richards resigned as an executive officer
of the Company, on February 8, 2000, in conjunction with the completion of
the Merger. See "Employment Agreements, Termination of Employment and
Change in Control Arrangements."
The current executive officers of the Company are Philip B. Smith,
Chairman of the Board, Chief Executive Officer and Treasurer, Lon C. Kile,
President and Chief Operating Officer, and D. Richard Massengill, Vice
President. They became the executive officers of the Company on February 8,
2000, upon completion of the Merger. During 1999, Messrs. Smith, Kile (beginning
in June 1999) and Massengill (beginning in July 1999) served as the executive
officers of Old Prize. The compensation paid to Messrs. Smith, Kile and
Massengill in 1999 by Old Prize as salaries were $72,000, $114,000 and $62,500,
respectively. In addition, Messrs. Smith, Kile and Massengill were paid bonuses
by Old Prize of $47,250, $75,938 and $32,813, respectively, for 1999.
13
<PAGE> 15
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information with respect to
options granted to the named executive officers of the Company during 1999. The
Company has never granted any stock appreciation rights.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- -------------------------------------------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/ POTENTIAL REALIZABLE VALUE
UNDERLYING SARS AT ASSUMED ANNUAL RATES
OPTIONS/ GRANTED TO OF STOCK PRICE APPRECIATION
SARS EMPLOYEES EXERCISE OR FOR OPTION TERM
GRANTED IN FISCAL BASE PRICE EXPIRATION ----------------------------
NAME (#) YEAR ($/SH) DATE 5%($) 10%($)
- -------------------------------- ----------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
C. Randall Hill................. -0- -0- -0- -0- -0- -0-
Steven D. Gray.................. -0- -0- -0- -0- -0- -0-
R. Cory Richards................ -0- -0- -0- -0- -0- -0-
</TABLE>
During 1999, Messrs. Smith, Kile and Massengill were granted stock
options for 568.417 shares, 321.707 shares and 160.854 shares of Old Prize
common stock each at an exercise price of $13,053 per share and for a term of
five years from the date of grant, respectively, under Old Prize's stock option
plan. After giving effect to the Merger and the Company's one-for-seven reverse
common stock split effected on February 8, 2000, these options are now currently
exercisable for 946,520 shares, 535,702 shares and 267,852 shares of Common
Stock, each at an exercise price of $7.84 per share.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
The following table sets forth certain information with respect to
options exercised by the named executive officers of the Company during 1999,
and the number and value of unexercised options held by such executive officers
at the end of the year. The Company has never granted any stock appreciation
rights.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
SHARES NUMBER OF SECURITIES IN-THE-MONEY
ACQUIRED UNDERLYING UNEXERCISED OPTIONS/SARS AT FY-END
ON VALUE OPTIONS/SARS AT FY-END(#) ($)
EXERCISE REALIZED ---------------------------- -------------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------- ---------- ----------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
C. Randall Hill............. -0- -0- -0- -0- -0- -0-
Steven D. Gray.............. -0- -0- -0- -0- -0- -0-
R. Cory Richards............ -0- -0- -0- -0- -0- -0-
</TABLE>
Messrs. Smith, Kile and Massengill did not exercise any stock options
for Old Prize common stock during 1999.
EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
AGREEMENTS
The Company has not entered into any employment agreements with its
executive officers.
In connection with the Merger, on October 8, 1999, the Company entered
into Termination and Consulting Agreements with each of C. Randall Hill, the
Company's then Chairman and Chief Executive Officer, Steven D. Gray, the
Company's then President, and R. Cory Richards, the Company's then Executive
Vice President. Under these agreements, each executive officer received a cash
severance payment in the amount of $333,333 following completion of the Merger.
Each executive officer also agreed, as may be requested by the Company, to
provide consulting services to the Company at a monthly compensation equal to
his current monthly compensation at the time he entered into the agreement. The
monthly compensation of each of Messrs. Hill and Gray at that time was $13,750.
Mr. Richards' monthly compensation at that time was $11,459. Under these
agreements, the consulting services terminated on February 28, 2000.
14
<PAGE> 16
REPORT ON EXECUTIVE COMPENSATION
As members of the Board of Directors, it is our responsibility to
review and set the compensation levels of the Company's executive officers,
evaluate the performance of management and consider management succession and
related matters. In addition, we administer any annual or long-term incentive
compensation plans of the Company.
The Board of Directors considers information with respect to the
reasonableness of compensation paid to executive officers of the Company, as
well as all employees of the Company and its subsidiaries in managerial
positions. The Board of Directors also takes into account how compensation
compares to compensation paid by competitors in the Company's industry as well
as the performance of the Company.
The Company's executive compensation policy is designed to attract,
motivate, reward and retain the key executive talent necessary to achieve the
Company's business objectives and contribute to the long-term success of the
Company. In order to meet these goals, the Company's compensation policy for its
executive officers focuses primarily on determining appropriate salary levels
and providing long-term stock-based incentives. To a lesser extent, the
Company's compensation policy also contemplates performance-based cash bonuses.
The executive compensation program for 1999 consisted of only one element: base
salary.
Base Salary. Base salary for executive officers is determined
principally by competitive factors and the marketplace. In determining its
recommendations for adjustments to the base salaries of officers, including the
Chief Executive Officer, for 1999, the Company focused primarily on the scope of
each officer's responsibilities, each officer's contributions to the Company's
success in moving toward its long-term goals during the year, the Company's
assessment of the quality of services rendered by the officer, comparison with
compensation for officers of comparable companies and an appraisal of the
Company's financial position.
Annual Incentive Bonus. The compensation policy of the Company is that
a part of the annual compensation of each officer should be related to and
contingent upon the performance of the Company, as well as the individual
contribution of each officer. In addition, the Board of Directors has reviewed
compensation information for executives of companies comparable to the Company
in an effort to ensure that the Company's bonuses are competitive. Because of
the cash severance payments to the executive officers of the Company upon the
completion of the Merger, none of the executive officers of the Company received
an incentive bonus for 1999.
Equity Compensation. The grant of stock options to executive officers
generally constitutes an important element of long-term compensation for
executive officers. If granted, stock options increase management's equity
ownership in the Company with the goal of ensuring that the interests of
management remain closely aligned with those of the Company's stockholders. The
Board of Directors believes that stock options in the Company provide a direct
link between executive compensation and stockholder value. By attaching vesting
requirements, stock options can also create an incentive for executive officers
to remain with the Company for the long-term. During much of 1999, the Company
was focused on finding and evaluating potential merger candidates within the oil
and gas industry. As a result, none of the executive officers of the Company
were granted stock options during 1999.
The members of the Committee believe that linking executive
compensation to corporate performance results in a better alignment of
compensation with corporate goals and stockholder interests. As performance
goals are met or exceeded, resulting in increased value to stockholders,
executive officers are to be rewarded commensurately. The members of the
Committee believe that compensation levels during 1999 adequately reflect the
compensation goals and practices of the Company.
COMPENSATION COMMITTEE
David R. Albin
Kenneth A. Hersh
15
<PAGE> 17
The Report on Executive Compensation shall not be deemed incorporated
by reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, except to the extent that the
Company specifically incorporates this information by reference, and shall not
otherwise be deemed filed under such Acts.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1999, Kenneth A. Hersh and David R. Albin, directors of the
Company, served as members of the Compensation Committee of the Board of
Directors. Messrs. Hersh and Albin serve as directors of the Company and
constitute (a) two of the four managing members of each entity that serves as
the ultimate general partner of NGP II and NGP III and (b) a majority of the
managing members of the entity that serves as the ultimate general partner of
NGP V. They also own interests in these Natural Gas Partners partnerships. Each
of these Natural Gas Partners partnerships is a more than 5% stockholder of the
Company. For information with respect to transactions involving such persons,
Old Prize and the Company, see "Certain Transactions."
PERFORMANCE GRAPH
The following graph compares the yearly percentage change in the
cumulative total stockholder return on the Company's Common Stock during the
period commencing October 29, 1998 (the date on which the Company's Common Stock
began trading publicly), and ending on December 31, 1999, with the cumulative
total return on the American Stock Exchange Market Value Index and the Dow
Jones-Secondary Oil Index. The comparison assumes $100 was invested on October
29, 1998, in the Company's Common Stock and in each of the foregoing indices and
assumes reinvestment of dividends.
[GRAPH]
<TABLE>
<CAPTION>
10/29/1998 12/98 12/99 3/00
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
PRIZE ENERGY CORP $100.00 $ 68.00 $ 64.00 $ 89.14
AMEX MARKET VALUE INDEX $100.00 $109.68 $140.12 $160.99
DOW JONES OIL COMPANIES-SECONDARY INDEX $100.00 $ 89.85 $101.58 $114.26
</TABLE>
- --------------------------------------------------------
Source: Research Data Group
16
<PAGE> 18
The above performance graph shall not be deemed incorporated by
reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, except to the extent that the
Company specifically incorporates this information by reference, and shall not
otherwise be deemed filed under such Acts.
CERTAIN TRANSACTIONS
Conversion of Convertible Preferred Stock and Repurchase of Common
Stock. On March 31, 2000, Pioneer USA converted all of the 3,984,197 shares of
Series A 6% Convertible Preferred Stock of the Company owned by it into
3,984,197 shares of Common Stock. Immediately after such conversion, also on
March 31, 2000, the Company purchased from Pioneer USA 1,346,482 of the
newly-issued shares of Common Stock for cash consideration of approximately
$18.2 million. On March 31, 2000, and before the conversion of the preferred
stock and subsequent repurchase of shares of Common Stock, the Company paid
Pioneer USA in cash the amount of $458,514 as a dividend on the preferred stock.
In conjunction with these transactions, Pioneer USA relinquished all of its
rights under the Voting and Shareholders Agreement, including its right to
designate two directors of the Company. Accordingly, Scott D. Sheffield and Mark
L. Withrow, Pioneer USA's designees on the Board of Directors, resigned as
directors of the Company, effective as of March 31, 2000. Pioneer USA and the
Company also agreed to terminate the Joint Participation Agreement discussed
below as of March 31, 2000.
Merger. For details with respect to the merger of the Company with Old
Prize, including the Voting and Shareholders Agreement entered into in
connection therewith, see "Change in Control."
At the time of the Merger, each of David R. Albin and Kenneth A. Hersh
was a director of Old Prize and also a director of the Company. In addition,
Messrs. Albin and Hersh are principal managers of, and own interests in, NGP II
and NGP III, which entities owned approximately 52% of the Company's outstanding
common stock prior to the Merger. Messrs. Albin and Hersh are also principal
managers of, and own interests in, NGP V, which owned approximately 60% of Old
Prize's outstanding shares of capital stock (common stock and convertible
preferred stock, combined) prior to the Merger.
Joint Participation Agreement. On June 29, 1999, Old Prize and Pioneer
USA entered into a Joint Participation Agreement. On February 8, 2000, Old Prize
assigned to the Company all of its rights and the Company assumed all of its
obligations under the Joint Participation Agreement. As discussed above, the
Joint Participation Agreement was terminated on March 31, 2000. Under the Joint
Participation Agreement, the Company was obligated to notify Pioneer USA of
certain opportunities to acquire oil and gas interests or securities of a
company that was engaged in the acquisition, exploitation, exploration and
development of oil and gas. In addition, the Company was obligated to notify
Pioneer USA of any decision by the Board of Directors to sell to any
unaffiliated third party direct property interests in an exploration project or
equity ownership interests in an entity owned or controlled by the Company that
owned such an exploration project, in either case, for the purpose of financing
such exploration project. Pursuant to the terms of the Joint Participation
Agreement, Pioneer USA had the right to participate, up to 50%, in any
acquisition opportunity or exploration project described above.
17
<PAGE> 19
Registration Rights Agreement. Upon completion of the Merger, the
Company entered into a Registration Rights Agreement with NGP V, Pioneer USA,
certain holders of shares of Common Stock and various holders of the Company's
outstanding warrants to purchase Common Stock. The Registration Rights Agreement
entitles the parties to certain demand, piggyback and shelf registration rights
with respect to their shares of Common Stock and provides for the payment of the
expenses of registration by the Company. In addition, the Registration Rights
Agreement grants Pioneer USA the right to include registrable securities in the
first underwritten offering of Common Stock commenced after the Merger to the
extent of the lesser of:
o shares with a value of $50 million; or
o 50% of the total number of shares to be sold in the offering, plus 50%
of any over-allotment for that offering.
Amendment to Confidentiality and Non-Compete Agreements. In connection
with the Merger, the Company amended its confidentiality and non-compete
agreements with each of C. Randall Hill and Steven D. Gray to terminate the non-
competition provisions of those agreements, effective upon completion of the
Merger.
Indebtedness of Officer. In June 1999, Old Prize issued 25 shares of
its common stock to Lon C. Kile in exchange for a note receivable in the amount
of $250,000. The note did not bear interest and was paid in full during the last
half of 1999.
Advisory Services and Indemnification Agreement. Old Prize entered into
an Advisory Services and Indemnification Agreement, dated as of January 25,
1999, as amended, with NGP V, currently a more than 5% stockholder of the
Company. Kenneth A. Hersh and David R. Albin, representatives of NGP V, also
serve as directors of the Company. According to the terms of the agreement, Old
Prize agreed to pay NGP V $150,000 per year, and reimburse NGP V for various
expenses, in consideration for certain consulting and financial advisory
services provided by NGP V and its representatives. Following the Merger, the
agreement was continued with the Company. During 1999, the Company had a similar
Advisory Services Agreement with NGP II and NGP III, each a more than 5%
stockholder of the Company, except that the annual fee was $75,000 per year.
Kenneth A. Hersh, David R. Albin and John S. Foster, representatives of NGP II
and NGP III, served as directors of the Company prior to the Merger.
Fees and Reimbursements. In connection with the formation and
organization of Old Prize in January 1999 and additional investment by NGP V in
Old Prize in June 1999, Old Prize paid fees of $560,000, in the aggregate, to
NGP V. In addition, Old Prize reimbursed NGP V for its out-of-pocket expenses
incurred in connection with these transactions. NGP V is currently a more than
5% stockholder of the Company, and its representatives, Kenneth A. Hersh and
David R. Albin, serve as directors of the Company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors and executive officers, and persons who own
more than 10% of the Common Stock, to report their initial ownership of the
Common Stock and any subsequent changes in that ownership to the SEC and the
American Stock Exchange, and to furnish the Company with a copy of each such
report. SEC regulations impose specific due dates for such reports, and the
Company is required to disclose in this Proxy Statement any failure to file by
these dates during and with respect to 1999.
To the Company's knowledge, based solely on review of the copies of
such reports furnished to the Company and representations that no other reports
were required, during and with respect to 1999, all Section 16(a) filing
requirements applicable to its officers, directors and more than 10%
stockholders were complied with.
18
<PAGE> 20
OTHER MATTERS
MATTERS WHICH MAY COME BEFORE THE ANNUAL MEETING
The Board of Directors knows of no matters other than those described
in this Proxy Statement which will be brought before the Annual Meeting for a
vote of the stockholders. If any other matter properly comes before the Annual
Meeting for a vote of the stockholders, the persons named in the accompanying
proxy will vote thereon in accordance with their best judgment. The Company's
Bylaws require that, for business to be properly brought before a meeting of
stockholders by a stockholder, notice must be received by the Secretary of the
Company not less than 60 days nor more than 90 days before the meeting. The
notice must contain a brief description of the business proposed to be brought
before the meeting and other information specified in the Company's Bylaws. If
the Chairman of the meeting determines that such business was not brought before
the meeting in accordance with such procedures, such business will not be
transacted.
PROPOSALS OF STOCKHOLDERS
Pursuant to Rule 14a-8 under the Securities Exchange Act of 1934,
proposals of stockholders intended to be presented at the Company's 2001 Annual
Meeting of Stockholders must be received at the principal executive offices of
the Company, 3500 William D. Tate, Suite 200, Grapevine, Texas 76051, on or
before December 29, 2000, to be considered for inclusion in the Company's proxy
statement and accompanying proxy for that meeting.
In accordance with the Company's Bylaws, any stockholder who intends to
present a proposal at the Company's 2001 Annual Meeting of Stockholders and has
not sought inclusion of the proposal in the Company's proxy statement and
accompanying proxy pursuant to Rule 14a-8, must provide the Company with notice
of such proposal no later than March 25, 2001, in order for such proposal to be
properly brought before the meeting.
By Order of the Board of Directors,
Monica L. Griffin
Secretary
Grapevine, Texas
April 28, 2000
19
<PAGE> 21
EXHIBIT A
AMENDMENT NUMBER 1
TO PRIZE ENERGY CORP.
(FORMERLY KNOWN AS VISTA ENERGY RESOURCES, INC.)
1998 KEY EMPLOYEE STOCK OPTION PLAN
1. Introduction. On May 22, 1998, the Board of Directors of Prize
Energy Corp. (then known as Vista Energy Resources, Inc.) (the "Company")
adopted the Vista Energy Resources, Inc. 1998 Key Employee Stock Option Plan
(the "Plan"). On April 17, 2000, the Board of Directors of the Company ratified,
affirmed and re-adopted the Plan. The Plan permits the granting of stock options
to officers, directors and employees of the Company or any parent or subsidiary
of the Company.
Under the terms of the Plan, a total of 900,000 shares of common stock
of the Company were originally available for issuance pursuant to stock options
granted under the Plan (subject to adjustment in the event of certain corporate
transactions such as a stock split, reverse stock split, etc.).
On February 8, 2000, under with the terms of the Plan, the total number
of shares of common stock of the Company available for issuance pursuant to
stock options granted under the Plan was adjusted from 900,000 shares to 128,571
shares to give effect to the Company's one-for-seven reverse common stock split
effected on February 8, 2000.
On February 8, 2000, Vista Energy Resources, Inc. changed its name to
Prize Energy Corp.
2. Purpose. The primary purpose of this Amendment is to increase the
total number of shares of common stock of the Company available for issuance
pursuant to stock options granted under the Plan from 128,571 shares to 500,000
shares, which will further enable the Company to grant stock options under the
Plan to attract and retain officers, directors and employees of the Company or
any parent or subsidiary of the Company.
3. Amendments. The Plan is hereby amended as follows:
(a) All references in the Plan to Vista Energy Resources,
Inc., other than the reference to Vista Energy Resources, Inc. in
Section 17(j) of the Plan, shall refer to Prize Energy Corp. in order
to reflect the Company's name change.
(b) In the first sentence of Section 3 of the Plan, the number
"900,000" (which has been adjusted to 128,571) is deleted and the
number "500,000" is substituted therefor.
4. No Change. Except as specifically set forth herein, this Amendment
does not change the terms of the Plan.
5. Effective Date. This Amendment shall take effect and be adopted on
the date that the stockholders of the Company approve this Amendment.
Executed this 17th day of April, 2000.
ATTEST: PRIZE ENERGY CORP. (formerly
known as Vista Energy Resources, Inc.)
/s/ Monica L. Griffin By: /s/ Philip B. Smith
- --------------------------------- ---------------------
Monica L. Griffin Philip B. Smith
Secretary Chairman of the Board and
Chief Executive Officer
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<PAGE> 22
EXHIBIT B
PRIZE ENERGY CORP.
(FORMERLY KNOWN AS VISTA ENERGY RESOURCES, INC.)
1998 KEY EMPLOYEE STOCK OPTION PLAN
1. Purpose.
Prize Energy Corp. (formerly known as Vista Energy Resources, Inc.), a
Delaware corporation (herein, together with its successors, referred to as the
"Company"), by means of this 1998 Stock Option Plan (the "Plan"), desires to
afford certain individuals and key employees of the Company and any parent
corporation or subsidiary corporation thereof now existing or hereafter formed
or acquired (such parent and subsidiary corporations sometimes referred to
herein as "Related Entities") who are responsible for the continued growth of
the Company an opportunity to acquire a proprietary interest in the Company, and
thus to create in such persons an increased interest in and a greater concern
for the welfare of the Company and any Related Entities. As used in the Plan,
the terms "parent corporation" and "subsidiary corporation" shall mean,
respectively, a corporation within the definition of such terms contained in
Sections 424(e) and 424(f), respectively, of the Internal Revenue Code of 1986,
as amended (the "Code").
The stock options described in Sections 6 and 7 (the "Options"), and
the shares of Common Stock (as hereinafter defined) acquired pursuant to the
exercise of such Options are a matter of separate inducement and are not in lieu
of any salary or other compensation for services.
2. Administration.
(a) Committee. The Board of Directors of the Company (the "Board of
Directors") shall administer the Plan with respect to all Key Employees (as
hereinafter defined) or Eligible Non-Employees (as hereinafter defined) or may
delegate all or part of its duties under this Plan to any committee appointed by
the Board of Directors (the "Committee") or to any officer or committee of
officers of the Company, subject in each case to such conditions and limitations
as the Board of Directors may establish and subject to the following sentence.
Unless a majority of the members of the Board of Directors determines otherwise:
(a) the Committee shall be constituted in a manner that satisfies the
requirements of Rule 16b-3, which Committee shall administer the Plan with
respect to all Key Employees or Eligible Non-Employees who are subject to
Section 16 of the Exchange Act in a manner that satisfies the requirements of
Rule 16b-3; and (b) the Committee shall be constituted in a manner that
satisfies the requirements of Section 162(m), which Committee shall administer
the Plan with respect to "performance-based compensation" for all Key Employees
or Eligible Non-Employees who are reasonably expected to be "covered employees"
as those terms are defined in Section 162(m). The number of persons that shall
constitute the Committee shall be determined from time to time by a majority of
all the members of the Board of Directors. Except for references in Sections
2(a), 2(b), and 2(c) and unless the context otherwise requires, references
herein to the Committee shall also refer to the Board of Directors as
administrator of the Plan for Key Employees or Eligible Non-Employees or to the
appropriate delegate of the Committee or the Board of Directors.
(b) Duration, Removal, Etc. The members of the Committee shall serve at
the pleasure of the Board of Directors, which shall have the power, at any time
and from time to time, to remove members from or add members to the Committee.
Removal from the Committee may be with or without cause. Any individual serving
as a member of the Committee shall have the right to resign from membership in
the Committee by written notice to the Board of Directors. The Board of
Directors, and not the remaining members of the Committee, shall have the power
and authority to fill vacancies on the Committee, however caused.
(c) Meetings and Actions of Committee. The Board of Directors shall
designate which of the Committee members shall be the chairman of the Committee.
If the Board of Directors fails to designate a Committee chairman, the members
of the Committee shall elect one of the Committee members as chairman, who shall
act as chairman until he ceases to be a member of the Committee or until the
Board of Directors elects a new chairman. The Committee shall hold its meetings
at those times and places as the chairman of the Committee may determine. At all
meetings of the Committee, a quorum for the transaction of business shall be
required, and a quorum shall be deemed present if at least a majority of the
members of the Committee are present. At any meeting of the Committee, each
member shall have one vote. All decisions and determinations of the Committee
shall be made by the majority vote or majority decision of all of its members
B-1
<PAGE> 23
present at a meeting at which a quorum is present; provided, however, that any
decision or determination reduced to writing and signed by all of the members of
the Committee shall be as fully effective as if it had been made at a meeting
that was duly called and held. The Committee may make any rules and regulations
as it may deem advisable for the conduct of its business that are not
inconsistent with the provisions of the Plan, the certificate of incorporation
of the Company, the by-laws of the Company, Rule 16b-3 so long as it is
applicable, and Section 162(m) so long as it is applicable.
3. Shares Available.
Subject to the adjustments provided in Section 10, the maximum
aggregate number of shares of Common Stock, $.01 par value, of the Company
("Common Stock") in respect of which Options may be granted for all purposes
under the Plan shall be 900,000 shares. If, for any reason, any shares as to
which Options have been granted cease to be subject to purchase thereunder,
including the expiration of such Option, the termination of such Option prior to
exercise, or the forfeiture of such Option, such shares shall thereafter be
available for grants under the Plan. Options granted under the Plan may be
fulfilled in accordance with the terms of the Plan with (i) authorized and
unissued shares of the Common Stock, (ii) issued shares of such Common Stock
held in the Company's treasury, or (iii) issued shares of Common Stock
reacquired by the Company in each situation as the Board of Directors or the
Committee may determine from time to time.
4. Eligibility and Bases of Participation.
Grants of Incentive Options (as hereinafter defined) and Non-Qualified
Options (as hereinafter defined) may be made under the Plan, subject to and in
accordance with Section 6, to Key Employees. As used herein, the term "Key
Employee" shall mean any employee of the Company or any Related Entity,
including officers and directors of the Company or any Related Entity who are
also employees of the Company or any Related Entity, who is regularly employed
on a salaried basis and who is so employed on the date of such grant, whom the
Committee identifies as having a direct and significant effect on the
performance of the Company or any Related Entity.
Grants of Non-Qualified Options may be made, subject to and in
accordance with Section 7, to any Eligible Non-Employee. As used herein, the
term "Eligible Non-Employee" shall mean any person or entity of any nature
whatsoever, specifically including an individual, a firm, a company, a
corporation, a partnership, a trust, or other entity (collectively, a "Person"),
that the Committee designates as eligible for a grant of Options pursuant to
this Plan because such Person performs bona fide consulting, advisory, or other
services for the Company or any Related Entity (other than services in
connection with the offer or sale of securities in a capital-raising
transaction) and the Board of Directors or the Committee determines that the
Person has a direct and significant effect on the financial development of the
Company or any Related Entity.
The adoption of this Plan shall not be deemed to give any Person a
right to be granted any Options.
Notwithstanding any other provision of this Plan to the contrary, with
respect to the grant of any Options to any Key Employee or Eligible
Non-Employee, the Committee shall first determine the number of shares in
respect of which Options are to be granted to such Key Employee or Eligible
Non-Employee and shall then cause to be granted to such Key Employee or Eligible
Non-Employee an Option exercisable for such shares. The exercise price per share
of Common Stock under each Option shall be fixed by the Committee at the time of
grant of the Option and shall equal at least 100% of the Fair Market Value of a
share of Common Stock on the date of grant.
5. Authority of Committee.
Subject to the express provisions of the Plan and any applicable law
with which the Company intends the Plan to comply, the Committee shall have the
authority, in its sole and absolute discretion, (a) to adopt, amend, and rescind
administrative and interpretive rules and regulations relating to the Plan,
including without limitation to adopt and observe such procedures concerning the
counting of Options against the Plan and individual maximums as it may deem
appropriate from time to time; (b) to determine the Key Employees or Eligible
Non-Employees to whom, and the time or times at which, Options shall be granted;
(c) to determine the amount of cash and the number of shares of Common Stock,
that shall be the subject of each Option; (d) to determine the terms and
provisions of each award evidencing Options granted
B-2
<PAGE> 24
hereunder (which need not be identical), including provisions defining or
otherwise relating to (i) the term and the period or periods and extent of
exerciseability of the Options, (ii) the extent to which the transferability of
shares of Common Stock issued or transferred pursuant to any Option is
restricted, (iii) the effect of termination of employment on the Option, and
(iv) the effect of approved leaves of absence (consistent with any applicable
regulations of the Internal Revenue Service); (e) to accelerate, pursuant to
Section 8, the time of exerciseability of any Option that has been granted; (f)
to construe the respective awards evidencing Options granted hereunder and the
Plan; (g) to make determinations of the Fair Market Value of the Common Stock
pursuant to the Plan; (h) to delegate its duties under the Plan to such agents
as it may appoint from time to time, subject to the second sentence of Section
2(a); and (i) to make all other determinations, perform all other acts, and
exercise all other powers and authority necessary or advisable for administering
the Plan, including the delegation of those ministerial acts and
responsibilities as the Committee deems appropriate. The Committee may correct
any defect, supply any omission or reconcile any inconsistency in the Plan, in
any Option, or in any awards evidencing Options granted hereunder in the manner
and to the extent it deems necessary or desirable to carry the Plan into effect,
and the Committee shall be the sole and final judge of that necessity or
desirability. The determinations of the Committee on the matters referred to in
this Section 5 shall be final and conclusive. The Committee shall not have the
power to appoint members of the Committee or to terminate, modify, or amend the
Plan. Those powers are vested in the Board of Directors.
From time to time, the Board of Directors and appropriate officers of
the Company shall be and are authorized to take whatever actions are necessary
to file required documents with governmental authorities, stock exchanges, and
other appropriate Persons to make shares of Common Stock available for issuance
pursuant to awards evidencing Options granted hereunder.
6. Incentive Options.
Subject to the express provisions of this Plan, the Committee shall
have the authority to grant incentive stock options pursuant to Section 422 of
the Code ("Incentive Options"), to grant non-qualified stock options (options
which do not qualify under Section 422 of the Code) ("Non-Qualified Options"),
and to grant both types of Options to Key Employees. No Incentive Option shall
be granted pursuant to this Plan after the earlier of ten years from the date of
adoption of the Plan or ten years from the date of approval of the Plan by the
stockholders of the Company. Notwithstanding anything in this Plan to the
contrary, Incentive Options may be granted only to Key Employees. The terms and
conditions of Incentive Options granted under this Section 6 shall be determined
from time to time by the Committee; provided, however, that Incentive Options
granted under this Section 6 shall be subject to all terms and provisions of the
Plan (other than Section 7), including the following:
(a) Option Exercise Price. Subject to Section 4, the Committee shall
establish Incentive Option exercise price at the time any Incentive
Option is granted at such amount as the Committee shall determine;
provided, that such price shall not be less than the Fair Market Value
per share of Common Stock at the date Incentive Option is granted; and
provided, further, that in the case of an Incentive Option granted to
a person who, at the time such Incentive Option is granted, owns
shares of the Company or any Related Entity which possess more than
10% of the total combined voting power of all classes of shares of the
Company or of any Related Entity, the option exercise price shall not
be less than 110% of the Fair Market Value per share of Common Stock
at the Incentive Option is granted. The Incentive Option exercise
price shall be subject to adjustment in accordance with the provisions
of Section 9 of the Plan.
(b) Payment. The price per share of Common Stock with respect to Incentive
Option exercise shall be payable at the time of such exercise. Such
price shall be payable in cash or by any other means acceptable to the
Committee, including delivery to the Company of shares of Common Stock
owned by the optionee or by the delivery or withholding of shares
pursuant to a procedure created pursuant to Section 5.d. of the Plan.
Shares delivered to or withheld by the Company in payment of Incentive
Option exercise price shall be valued at the Fair Market Value of the
Common Stock on the day preceding the date of the exercise of
Incentive Option.
B-3
<PAGE> 25
(c) Continuation of Employment. Each Incentive Option shall require the
optionee to remain in the continuous employ of the Company or any
Related Entity from the date of grant of the Incentive Option until no
more than three months prior to the date of exercise of the Incentive
Option.
(d) Exerciseability of Stock Option. Subject to Section 8, each Incentive
Option shall be exercisable in one or more installments as the
Committee may determine at the time of the grant. No Incentive Option
by its terms shall be exercisable after the expiration of ten years
from the date of grant of the Incentive Option; provided, however,
that no Incentive Option granted to a person who, at the time such
Incentive Option is granted, owns stock of the Company, or any Related
Entity, possessing more than 10% of the total combined voting power of
all classes of stock of the Company, or any Related Entity, shall be
exercisable after the expiration of five years from the date such
Incentive Option is granted.
(e) Death. If any optionee's employment with the Company or a Related
Entity terminates due to the death of such optionee, the estate of
such optionee, or a Person who acquired the right to exercise such
Incentive Option by bequest or inheritance or by reason of the death
of the optionee, shall have the right to exercise such Incentive
Option in accordance with its terms at any time and from time to time
within 180 days after the date of death unless a longer or shorter
period is expressly provided in such Incentive Option or established
by the Committee pursuant to Section 8 (but in no event after the
expiration date of such Incentive Option).
(f) Disability. If the employment of any optionee terminates because of
his Disability (as defined in Section 18), such optionee or his legal
representative shall have the right to exercise the Incentive Option
in accordance with its terms at any time and from time to time within
180 days after the date of such termination unless a longer or shorter
period is expressly provided in such Incentive Option or established
by the Committee pursuant to Section 8 (but not after the expiration
date of the Incentive Option); provided, however, that in the case of
an Incentive Option, the optionee or his legal representative shall in
any event be required to exercise the Incentive Option within one year
after termination of the optionee's employment due to his Disability.
(g) Termination for Cause; Voluntary Termination. Unless an optionee's
Incentive Option expressly provides otherwise, such optionee shall
immediately forfeit all rights under his Incentive Option, except as
to the shares of stock already purchased thereunder, if the employment
of such optionee with the Company or a Related Entity is terminated by
the Company or any Related Entity for Good Cause (as defined below) or
if such optionee voluntarily terminates employment without the consent
of the Company or any Related Entity. The determination that there
exists Good Cause for termination shall be made by the Committee
(unless otherwise agreed to in writing by the Company and the
optionee).
(h) Other Termination of Employment. If the employment of an optionee with
the Company or a Related Entity terminates for any reason other than
those specified in subsections 6(e), (f) or (g) above, such optionee
shall have the right to exercise his Incentive Option in accordance
with its terms, within 30 days after the date of such termination,
unless a longer or shorter period is expressly provided in such
Incentive Option or established by the Committee pursuant to Section 8
(but not after the expiration date of the Incentive Option); provided,
that no Incentive Option shall be exercisable more than three months
after such termination.
(i) Maximum Exercise. The aggregate Fair Market Value of stock (determined
at the time of the grant of the Incentive Option) with respect to
which Incentive Options are exercisable for the first time by an
optionee during any calendar year under all plans of the Company and
any Related Entity shall not exceed $100,000.
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<PAGE> 26
7. Non-Qualified Options.
(a) Subject to the express provisions of this Plan, the Committee shall
have the authority to grant Non-Qualified Options to Key Employees
and Eligible Non-Employees. The terms and conditions of the
Non-Qualified Options granted under this Section 7 shall be
determined from time to time by the Committee; provided, however,
that the Non-Qualified Options granted under this Section 7 shall be
subject to all terms and provisions of the Plan (other than Section
6), including the following:
(i) Option Exercise Price. Subject to Section 4, the Committee
shall establish the Non-Qualified Option exercise price at
the time any Non-Qualified Option is granted at such amount
as the Committee shall determine. The Non-Qualified Option
exercise price shall be subject to adjustment in accordance
with the provisions of Section 9 of the Plan.
(ii) Payment. The price per share of Common Stock with respect to
each Non-Qualified Option exercise shall be payable at the
time of such exercise. Such price shall be payable in cash or
by any other means acceptable to the Committee, including
delivery to the Company of shares of Common Stock owned by
the optionee or by the delivery or withholding of shares
pursuant to a procedure created pursuant to Section 5.d. of
the Plan. Shares delivered to or withheld by the Company in
payment of the Non-Qualified Option exercise price shall be
valued at the Fair Market Value of the Common Stock on the
day preceding the date of the exercise of the Non-Qualified
Option.
(iii) Exerciseability of Stock Option. Subject to Section 8, each
Non-Qualified Option shall be exercisable in one or more
installments as the Committee may determine at the time of
the grant. No Non-Qualified Option shall be exercisable after
the expiration of five years from the date of grant of the
Non-Qualified Option, unless otherwise expressly provided in
such Non-Qualified Option.
(iv) Death. If the retention by the Company or any Related Entity
of the services of any Eligible Non-Employee terminates
because of his death, the estate of such optionee, or a
Person who acquired the right to exercise such Non-Qualified
Option by bequest or inheritance or by reason of the death of
the optionee, shall have the right to exercise such
Non-Qualified Option in accordance with its terms, at any
time and from time to time within 180 days after the date of
death unless a longer or shorter period is expressly provided
in such Non-Qualified Option or established by the Committee
pursuant to Section 8 (but in no event after the expiration
date of such Non-Qualified Option).
(v) Disability. If the retention by the Company or any Related
Entity of the services of any Eligible Non-Employee
terminates because of his Disability, such optionee or his
legal representative shall have the right to exercise the
Non-Qualified Option in accordance with its terms at any time
and from time to time within 180 days after the date of the
optionee's termination unless a longer or shorter period is
expressly provided in such Non-Qualified Option or
established by the Committee pursuant to Section 8 (but not
after the expiration of the Non-Qualified Option).
(vi) Termination for Cause; Voluntary Termination. If the
retention by the Company or any Related Entity of the
services of any Eligible Non-Employee is terminated (i) for
Good Cause, (ii) as a result of removal of the optionee from
office as a director of the Company or of any Related Entity
for cause by action of the stockholders of the Company or
such Related Entity in accordance with the by-laws of the
Company or such Related Entity, as applicable, and the
corporate law of the Jurisdiction of incorporation of the
Company or such Related Entity, or (iii) as a result of the
voluntary termination by optionee of optionee's service
without the consent of the Company or any Related Entity,
then such optionee shall immediately forfeit his rights
B-5
<PAGE> 27
under his Non-Qualified Option except as to the shares of
stock already purchased. The determination that there exists
Good Cause for termination shall be made by the Committee
(unless otherwise agreed to in writing by the Company and the
optionee).
(vii) Other Termination of Relationship. If the retention by the
Company or any Related Entity of the services of any Eligible
Non-Employee terminates for any reason other than those
specified in subsections (vi)(i), (ii) or (iii) above, such
optionee shall have the right to exercise his or its
Non-Qualified Option in accordance with its terms within 30
days after the date of such termination, unless a longer or
shorter period is expressly provided in such Non-Qualified
Option or established by the Committee pursuant to Section 8
(but not after the expiration date of the Non-Qualified
Option).
(viii) Ineligibility for Other Grants. Any Eligible Non-Employee who
receives a Non-Qualified Option pursuant to this Section 7
shall be ineligible to receive any Options under any other
Section of the Plan.
8. Change of Control.
If (i) a Change of Control shall occur or (ii) the Company shall enter into
an agreement providing for a Change of Control, then the Committee may declare
any or all Options outstanding under the Plan to be exercisable in full at such
time or times as the Committee shall determine, notwithstanding the express
provisions of such Options. Each Option accelerated by the Committee pursuant to
the preceding sentence shall terminate, notwithstanding any express provision
thereof or any other provision of the Plan, on such date (not later than the
stated exercise date) as the Committee shall determine.
9. Adjustment of Shares.
Unless otherwise expressly provided in a particular Option, in the event
that, by reason of any merger, consolidation, combination, liquidation,
reorganization, recapitalization, stock dividend, stock split, split-up,
split-off, spin-off, combination of shares, exchange of shares or other like
change in capital structure of the Company (collectively, a "Reorganization"),
the Common Stock is substituted, combined, or changed into any cash, property,
or other securities, or the shares of Common Stock are changed into a greater or
lesser number of shares of Common Stock, the number and/or kind of shares and/or
interests subject to an Option and the per share price or value thereof shall be
appropriately adjusted by the Committee to give appropriate effect to such
Reorganization. Any fractional shares or interests resulting from such
adjustment shall be eliminated. Notwithstanding the foregoing, (i) each such
adjustment with respect to an Incentive Option shall comply with the rules of
Section 424(a) of the Code, and (ii) in no event shall any adjustment be made
which would render any Incentive Option granted hereunder other than an
"incentive stock option" for purposes of Section 422 of the Code. The maximum
aggregate number of shares of Common Stock in respect of which Options may be
granted under this Plan as provided for in Section 3 shall be subject to
adjustment as contemplated above.
In the event the Company is not the surviving entity of a Reorganization
(not involving a Change of Control) and, following such Reorganization, any
optionee will hold Options issued pursuant to this Plan which have not been
exercised, canceled, or terminated in connection therewith, the Company shall
cause such Options to be assumed (or canceled and replacement Options issued) by
the surviving entity or a Related Entity. A Reorganization involving a Change of
Control in which the Company is not the surviving entity shall be governed by
Section 8.
10. Assignment or Transfer.
(a) Except as otherwise expressly provided in any Non-Qualified Option, no
Option granted under the Plan or any rights or interests therein shall
be assignable or transferable by an optionee except by will or the
laws of descent and distribution, and during the lifetime of an
optionee, Options granted to him or her hereunder shall be exercisable
only by the optionee or, in the event that a legal representative has
been appointed in connection with the Disability of an optionee, such
legal representative.
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<PAGE> 28
(b) Notwithstanding any limitation on a Key Employee's or Eligible
Non-Employee's right to transfer an Option, the Committee may (in its
sole discretion) permit a Key Employee or Eligible Non-Employee to
transfer an Option, or may cause the Company to grant an Option that
otherwise would be granted to a Key Employee or Eligible Non-Employee,
in any of the following circumstances: (a) pursuant to a qualified
domestic relations order, (b) to a trust established for the benefit
of the Key Employee or Eligible Non-Employee or one or more of the
children, grandchildren, or spouse of the Key Employee or Eligible
Non-Employee, as applicable; (c) to a limited partnership in which all
the interests are held by the Key Employee or Eligible Non-Employee
and that Person's children, grandchildren or spouse; or (d) to another
Person in circumstances that the Committee believes will result in the
Option continuing to provide an incentive for the Key Employee or
Eligible Non-Employee to remain in the service of the Company or its
Subsidiaries and apply his or her best efforts for the benefit of the
Company or its Subsidiaries. If the Committee determines to allow such
transfers or issuances of Option, any Key Employee or Eligible
Non-Employee desiring such transfers or issuances shall make
application therefor in the manner and time that the Committee
specifies and shall comply with such other requirements as the
Committee may require to assure compliance with all applicable laws,
including securities laws, and to assure fulfillment of the purposes
of this Plan. The Committee shall not authorize any such transfer or
issuance if it may not be made in compliance with all applicable
federal, state and foreign securities laws. The granting of permission
for such an issuance or transfer shall not obligate the Company to
register the shares of Common Stock to be issued under the applicable
Option.
11. Compliance with Securities Laws.
The Company shall not in any event be obligated hereunder to file any
registration statement under the Securities Act or any applicable state
securities law to permit exercise of any option or to issue any Common Stock in
violation of the Securities Act or any applicable state securities law. Each
optionee (or, in the event of his death or, in the event a legal representative
has been appointed in connection with his Disability, the Person exercising the
Option) shall, as a condition to his right to exercise any Option, deliver to
the Company an agreement or certificate containing such representations,
warranties and covenants as the Company may deem necessary or appropriate to
ensure that the issuance of shares of Common Stock pursuant to such exercise is
not required hereunder to be registered under the Securities Act or any
applicable state securities law.
Certificates for shares of Common Stock, when issued, may have
substantially the following legend, or statements of other applicable
restrictions, endorsed thereon, and may not be immediately transferable:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES
LAWS. THE SHARES MAY NOT BE OFFERED FOR SALE, SOLD, PLEDGED,
TRANSFERRED OR OTHERWISE DISPOSED OF UNTIL THE HOLDER HEREOF PROVIDES
EVIDENCE SATISFACTORY TO THE ISSUER (WHICH, IN THE DISCRETION OF THE
ISSUER, MAY INCLUDE AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER)
THAT SUCH OFFER, SALE, PLEDGE, TRANSFER OR OTHER DISPOSITION WILL NOT
VIOLATE APPLICABLE FEDERAL OR STATE LAWS.
This legend shall not be required for shares of Common Stock issued
pursuant to an effective registration statement under the Securities Act and in
accordance with applicable state securities laws.
12. Withholding Taxes.
By acceptance of the Option, the optionee will be deemed to (i) agree to
reimburse the Company or Related Entity by which the optionee is employed for
any federal, state, or local taxes required by any government to be withheld or
otherwise deducted by such corporation in respect of the optionee's exercise of
all or a portion of the Option; (ii) authorize the Company or any Related Entity
by which the optionee is employed to withhold from any cash compensation paid to
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<PAGE> 29
the optionee or in the optionee's behalf, an amount sufficient to discharge any
federal, state, and local taxes imposed on the Company, or the Related Entity by
which the optionee is employed, and which otherwise has not been reimbursed by
the optionee, in respect of the optionee's exercise of all or a portion of the
Option; and (iii) agree that the Company may, in its discretion, hold the stock
certificate to which the optionee is entitled upon exercise of the Option as
security for the payment of the aforementioned withholding tax liability, until
cash sufficient to pay that liability has been accumulated, and may, in its
discretion, effect such withholding by retaining shares issuable upon the
exercise of the Option having a Fair Market Value on the date of exercise which
is equal to the amount to be withheld.
13. Costs and Expenses.
The costs and expenses of administering the Plan shall be borne by the
Company and shall not be charged against any Option nor to any employee
receiving an Option.
14. Funding of Plan.
The Plan shall be unfunded. The Company shall not be required to make any
segregation of assets to assure the payment of any Option under the Plan.
15. Other Incentive Plans.
The adoption of the Plan does not preclude the adoption by appropriate
means of any other incentive plan for employees.
16. Effect on Employment.
Nothing contained in the Plan or any agreement related hereto or referred
to herein shall affect, or be construed as affecting, the terms of employment of
any Key Employee except to the extent specifically provided herein or therein.
Nothing contained in the Plan or any agreement related hereto or referred to
herein shall impose, or be construed as imposing, an obligation on (i) the
Company or any Related Entity to continue the employment of any Key Employee,
and (ii) any Key Employee to remain in the employ of the Company or any Related
Entity.
17. Definitions.
In addition to the terms specifically defined elsewhere in the Plan, as
used in the Plan, the following terms shall have the respective meanings
indicated:
(a) "Affiliate" shall mean, as to any Person, a Person that directly, or
indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, such Person.
(b) "Board of Directors" shall have the meaning set forth in Section 2
hereof.
(c) "Change of Control" shall mean the first to occur of the following
events: (i) any sale, lease, exchange, or other transfer (in one
transaction or series of related transactions) of all or substantially
all of the assets of the Company to any Person or group of related
Persons for purposes of Section 13(d) of the Exchange Act, (ii) a
majority of the Board of Directors of the Company shall consist of
Persons who are not Continuing Directors; or (iii) the acquisition by
any Person or Group (other than Natural Gas Partners II, L.P., Natural
Gas Partners III, L.P. or any Affiliate thereof) of the power,
directly or indirectly, to vote or direct the voting of securities
having more than 50% of the ordinary voting power for the election of
directors of the Company.
(d) "Code" shall have the meaning set forth in Section 1 hereof.
(e) "Committee" shall have the meaning set forth in Section 2 hereof.
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<PAGE> 30
(f) "Common Stock" shall have the meaning set forth in Section 3 hereof.
(g) "Company" shall have the meaning set forth in Section 1 hereof.
(h) "Continuing Director" shall mean, as of the date of determination, any
Person who (i) was a member of the Board of Directors of the Company
immediately after the Effective Time or (ii) was nominated for
election or elected to the Board of Directors of the Company with the
affirmative vote of a majority of the Continuing Directors who were
members of such Board of Directors at the time of such nomination or
election.
(i) "Disability" shall mean permanent disability as defined under the
appropriate provisions of the long-term disability plan maintained for
the benefit of employees of the Company or any Related Entity who are
regularly employed on a salaried basis unless another meaning shall be
agreed to in writing by the Committee and the optionee; provided,
however, that in the case of an Incentive Option "disability" shall
have the meaning specified in Section 22(e)(3) of the Code.
(j) "Effective Time" shall mean the time that the proposed merger of
Midland Merger Co. and Midland Resources, Inc. is effective as such
merger is contemplated by that certain Agreement and Plan of Merger,
dated as of May 22, 1998, among Vista Resources Partners, L.P.,
Midland Resources, Inc., Vista Energy Resources, Inc. and Midland
Merger Co.
(k) "Eligible Non-Employee" shall have the meaning set forth in Section 4
hereof.
(l) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(m) "Fair Market Value", shall, as it relates to the Common Stock, mean
the average of the high and low prices of such Common Stock as
reported on the principal national securities exchange on which the
shares of Common Stock are then listed on the date specified herein,
or if there were no sales on such date, on the next preceding day on
which there were sales, or if such Common Stock is not listed on a
national securities exchange, the last reported bid price in the
over-the-counter market, or if such shares are not traded in the
over-the-counter market, the per share cash price for which all of the
outstanding Common Stock could be sold to a willing purchaser in an
arms length transaction (without regard to minority discount, absence
of liquidity, or transfer restrictions imposed by any applicable law
or agreement) at the date of the event giving rise to a need for a
determination. Except as may be otherwise expressly provided in a
particular Option, Fair Market Value shall be determined in good faith
by the Committee.
(n) "Good Cause", with respect to any Key Employee, shall mean (unless
another definition is agreed to in writing by the Company and the
optionee) termination by action of the Board of Directors because of:
(A) the optionee's conviction of, or plea of nolo contendere to, a
felony or a crime involving moral turpitude; (B) the optionee's
personal dishonesty, incompetence, willful misconduct, willful
violation of any law, rule, or regulation (other than minor traffic
violations or similar offenses) or breach of fiduciary duty which
involves personal profit; (C) the optionee's commission of material
mismanagement in the conduct of his duties as assigned to him by the
Board of Directors or the optionee's supervising officer or officers
of the Company or any Related Entity; (D) the optionee's willful
failure to execute or comply with the policies of the Company or any
Related Entity or his stated duties as established by the Board of
Directors or the optionee's supervising officer or officers of the
Company or any Related Entity, or the optionee's intentional failure
to perform the optionee's stated duties; (E) substance abuse or
addiction on the part of the optionee. "Good Cause", with respect to
any Eligible Non-Employee, shall mean (unless another definition is
agreed to in writing by the Company and the optionee) termination by
action of the Board of Directors because of: (A) the optionee's
conviction of, or plea of nolo contendere to, a felony or a crime
involving moral turpitude; (B) the optionee's personal dishonesty,
incompetence, willful misconduct, willful violation of any law, rule,
or regulation (other than minor traffic violations
B-9
<PAGE> 31
or similar offenses) or breach of fiduciary duty which involves
personal profit; (C) the optionee's commission of material
mismanagement in providing services to the Company or any Related
Entity; (D) the optionee's willful failure to comply with the policies
of the Company in providing services to the Company or any Related
Entity, or the optionee's intentional failure to perform the services
for which the optionee has been engaged; (E) the optionee's use of an
unlawful substance on the Company's premises or while performing the
optionee's duties or responsibilities; or (F) the optionee's willfully
making any material misrepresentation or willfully omitting to
disclose any material fact to the board of directors of the Company or
any Related Entity with respect to the business of the Company or any
Related Entity. Notwithstanding the foregoing, in the case of any
optionee who has an employment agreement with the Company or any
Related Entity that contains a definition of "Good Cause" (or any
similar definition), then during the term of such employment agreement
the definition contained in such employment agreement shall be the
applicable definition of "Good Cause" under the Plan as to such
optionee.
(o) "Incentive Options" shall have the meaning set forth in Section 6
hereof.
(p) The term "included" when used herein shall mean "including, but not
limited to".
(q) "Key Employee" shall have the meaning set forth in Section 4 hereof.
(r) "Non-Qualified Options" shall have the meaning set forth in Section 6
hereof.
(s) "Options" shall have the meaning set forth in Section 1 hereof.
(t) "Person" shall have the meaning set forth in Section 4 hereof.
(u) "Plan" shall have the meaning set forth in Section 1 hereof.
(v) "Related Entities" shall have the meaning set forth in Section 1
hereof.
(w) "Reorganization" shall have the meaning set forth in Section 9 hereof.
(x) "Rule 16b-3" shall mean Rule 16b-3, as amended, or other applicable
rules under Section 16(b) of the Exchange Act.
(y) "Section 162(m)" means Section 162(m) of the Code and the rules and
regulations adopted from time to time thereunder, or any successor law
or rule as it may be amended from time to time.
(z) "Securities Act" shall mean the Securities Act of 1933.
(aa) "Subsidiary" shall mean, with respect to any Person, any other Person
of which such first Person owns or has the power to vote, directly or
indirectly, securities representing a majority of the votes ordinarily
entitled to be cast for the election of directors or other governing
Persons.
18. Amendment of Plan.
The Board of Directors shall have the right to amend, modify, suspend or
terminate the Plan at any time; provided, that no amendment shall be made which
shall increase the total number of shares of the Common Stock which may be
issued and sold pursuant to Options granted under the Plan unless such amendment
is made by or with the approval of the stockholders. The Board of Directors
shall have the right to amend the Plan and the Options outstanding thereunder,
without the consent or joinder of any optionee or other Person, in such manner
as may be determined necessary or appropriate by the Board of Directors in order
to cause the Plan and the Options outstanding thereunder (i) to qualify as
"incentive stock options" within the meaning of Section 422 of the Code, (ii) to
comply with Rule 16b-3 (or any successor rule) under the Exchange Act (or any
successor law) and the regulations (including any temporary regulations)
promulgated
B-10
<PAGE> 32
thereunder, or (iii) to comply with Section 162(m) of the Code (or any successor
section) and the regulations (including any temporary regulations) promulgated
thereunder. Except as provided above, no amendment, modification, suspension or
termination of the Plan shall alter or impair any Options previously granted
under the Plan, without the consent of the holder thereof.
19. Individual Limitations on Awards.
No Person may be granted during any one year period, Options with respect
to more than 250,000 shares of Common Stock. If an Option is canceled, the
canceled Option shall continue to be counted against the maximum number of
shares of Common Stock for which Options may be granted to such Person under the
Plan. If, after grant, the exercise price of an Option is reduced, the
transaction shall be treated as a cancellation of the Option and the grant of a
new Option. In such case, both the Option that is deemed to be canceled and the
Option that is deemed to be granted reduce the maximum number of shares for
which Options may be granted to such Person under the Plan.
20. Effective Date.
The Plan shall become effective at the Effective Time.
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<PAGE> 33
PRIZE ENERGY CORP.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 25, 2000
The undersigned hereby appoints Philip B. Smith and Lon C. Kile, and each
of them, with full power of substitution, as proxies to represent and vote all
of the shares of Common Stock the undersigned is entitled to vote at the Annual
Meeting of Stockholders of Prize Energy Corp. to be held on the 25th day of May,
2000, at 10:00 a.m., local time, at the Sheraton Grand Hotel, 4440 West John
Carpenter Freeway, Irving, Texas, and at any and all adjournments thereof, on
all matters coming before said meeting.
PLEASE MARK, SIGN AND DATE THE PROXY ON THE OTHER SIDE AND RETURN
THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
(CONTINUED ON OTHER SIDE)
<PAGE> 34
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED PLEASE MARK
IN THE MANNER DIRECTED HEREIN BY THE STOCKHOLDER. YOUR VOTES [X]
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED AS IN THIS
"FOR" PROPOSALS 1, 2 AND 3. EXAMPLE.
<TABLE>
<S> <C> <C> <C>
THE BOARD RECOMMENDS A VOTE FOR PROPOSALS 1, 2 AND 3.
1. Election of Directors.
[ ] FOR all nominees listed at right [ ] WITHHOLD AUTHORITY to Nominees: Philip B. Smith
(except as marked to the contrary) vote for nominees listed at right Lon C. Kile
Kenneth A. Hersh
David R. Albin
INSTRUCTIONS: To withhold authority to vote for any individual nominee, write that nominee's name in
the space provided.
----------------------------------------------------------------------------------------------------
2. Approval of the Company's 1998 Key Employee Stock Option Plan and Amendment Number 1 thereto.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Ratification of Ernst & Young LLP as independent auditor of the Company for 2000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. In their discretion, the proxies are authorized to vote upon such other business as may properly come before
the meeting and any and all adjournments thereof.
</TABLE>
-------------------------------------------------------------
Signature
-------------------------------------------------------------
Signature if held jointly
Dated: , 2000
------------------------------------------------
Please sign exactly as name appears herein, date and return
promptly. When shares are held by joint tenants, both must
sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by duly
authorized officer and give title of officer. If a
partnership, please sign in partnership name by authorized
person and give title or capacity of person signing.
