FORM 10-K/A
Amendment No. 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from: to:
Commission file number: 1-8979
HONDO OIL & GAS COMPANY
(Exact name of registrant as specified in its charter)
Delaware 95-1998768
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification
Number)
10375 Richmond Avenue, Suite 900, Houston, TX 77042
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 954-4600
Securities registered pursuant to Section 12(b) of the Act:
Name of each
exchange
Title of each class on which registered
------------------- -------------------
Common stock, par American Stock
value $1 per share Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
(continued)
1
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (section 229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form
10-K. [ ]
The aggregate market value of the voting stock of the registrant held by
non-affiliates of the registrant on December 6, 1996 based on the
closing price on the American Stock Exchange of such stock on such date
was $37,971,277.
Registrant's Common Stock outstanding at December 6, 1996 was 13,776,194
shares.
DOCUMENTS INCORPORATED BY REFERENCE: None
2
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
DIRECTORS
The following is a list of the directors of the Company:
Deiter Bock: Mr. Bock, 57, became a director of the Company on November 10,
1994. He joined Lonrho Plc in February 1993 as Joint Managing Director and
Chief executive and in January 1995 became Managing Director and Chief
Executive. In November 1996, he resigned as Managing Director and Chief
Executive of Lonrho Plc and became a non-executive director. He is a director
of The Hondo Company. He is also Chairman of the Supervisory Board of Advanta
Management AG, a property development company based in Germany. He qualified as
a lawyer at Marberg University and as an accountant at Munich University. See
Item 12, Security Ownership of Management and Certain Beneficial Owners of the
Company.
John J. Hoey: Mr. Hoey, 57, became a director on June 2, 1993 and became
President and Chief Executive Officer of the Company on December 1, 1993. He is
a director and President or Managing Director of each of the Company's
subsidiaries. He is also President and sole shareholder of Beneficial Capital
Corp. of New York, an investment company with ownership in a number of public
and private companies. From 1985 to 1992, he was associated with Atlantic
Petroleum Corp. of Pennsylvania, including serving as President of Atlantic
Refining and Marketing Corporation until its sale to Sun Co. in November 1988.
From 1972 to 1984, Mr. Hoey held various executive positions in international
banking and investment companies. From 1967 to 1971 he served in the U. S.
Department of State in Saigon, South Vietnam. He is a director of GVC Corp., a
publicly-held corporation, and a trustee of the Salk Institute.
C. B. McDaniel: Mr. McDaniel, 52, became a director of the Company on November
15, 1993. He joined the Company as Counsel in June 1988 and became Secretary of
the Company on November 30, 1988. He is also Secretary or Assistant Secretary
and director of each of the Company's subsidiaries. From 1980 to 1988, he was
employed as an attorney for Atlantic Richfield Company in Houston and Dallas,
Texas, and from 1975 to 1980, he was in private practice of law in El Paso,
Texas.
Douglas G. McNair: Mr. McNair, 68, has been a director of the Company since
February 25, 1993. He is an independent consultant for international
transactions, marketing and negotiations. From 1985 to 1986 he was Vice
President and Assistant to the Chairman and Chief Executive Officer of Atlantic
Richfield Company. From 1977 to 1985, he was Vice President of Atlantic
Richfield Company and worked with that company's subsidiary, Anaconda, in
connection with international operations. From 1972 to 1977, he was Vice
President of Atlantic Richfield Company in charge of international marketing.
From 1970 to 1972, he was President and Chief Executive Officer of Atlantic
Richfield Company's Brazilian marketing subsidiary.
Nicholas J. Morrell: Mr. Morrell, 49, became a director of the Company on
November 21, 1996. He was appointed a director of Lonrho Plc in 1992, the
Deputy Managing Director in 1994, and Chief Executive in November 1996. In
1978, Mr. Morrell joined The Observer newspaper which subsequently became a
member of the Lonrho Group in 1981, becoming Managing Director in 1988 and, in
1989, was appointed Chief Executive in charge of Lonrho's printing and
publishing operations. See Item 12, Security Ownership of Management and
Certain Beneficial Owners of the Company.
John F. Price: Mr. Price, 55, became a director of the Company on November 16,
1992 and is a director of Hondo Magdalena Oil & Gas Limited. He is also
President and a director of The Hondo Company. He has been President of
3
Princess Hotels International, Inc. and Lonrho, Inc. and Executive Vice
President of Princess Properties International Limited since March 1983. He was
appointed an Associate Director of Lonrho Plc in 1991. He is a Chartered
Accountant and joined the Lonrho group in 1969. He was appointed Managing
Director of Lonrho (Zambia) Ltd. in 1974 and was Managing Director of Lonrho
(Zimbabwe) Ltd. from 1979 to 1983. See Item 12, Security Ownership of
Management and Certain Beneficial Owners of the Company.
Robert K. Steer: Mr. Steer, 66, became a director of the Company on November
10, 1994. He has been an independent consulting geologist since 1987. He
retired from Exxon Corporation in 1986 where he served as Executive Vice
President of Esso Exploration, Inc. from 1982 to 1986. From 1978 to 1981, he
was Exploration Department Manager for Exxon Corporation, and from 1974 to 1978,
he was President and Managing Director of Exxon Malaysia Inc.
R. E. Whitten: Mr. Whitten, 56, has been a director of the Company since January
19, 1988 and is director of Hondo Magdalena Oil & Gas Limited. He has been an
Executive Director of Lonrho Plc since July 1981 and became Finance Director on
January 1, 1995. He joined the Lonrho group in 1978. He is also a director of
some 50 other companies in the Lonrho group, including Princess Hotels
International, Inc. and The Hondo Company. See Item 12, Security Ownership of
Management and Certain Beneficial Owners of the Company.
EXECUTIVE OFFICERS
The following is a list of the executive officers of the Company and their
positions:
Officer Position
------- --------
John J. Hoey President, Chief Executive Officer
S. J. Urquhart Vice President and Controller
C. B. McDaniel Secretary and Counsel
S. J. Urquhart: Mr. Urquhart, 34, joined the Company on May 15, 1988 as a
Financial Analyst and became Controller of the Company on August 1, 1992. He
was appointed Vice President and Controller on May 3, 1994. He is also a
director and Vice President of each of the Company's subsidiaries and a director
of Hondo Magdalena Oil & Gas Limited. Mr. Urquhart is a Certified Public
Accountant and was employed by Ernst & Whinney (now Ernst & Young LLP) from 1984
to 1988.
For descriptions of the other executive officers of the Company, see Directors,
above.
REPORTS UNDER SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 and the rules thereunder
require the Company's officers and directors, and persons who own more than ten
percent of a registered class of the Company's equity securities, to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission and the American Stock Exchange and to furnish the Company with
copies.
Based on its review of the copies of such forms received by it, or written
representations from certain reporting persons, the Company believes that, from
October 1, 1995 to September 30, 1996, all filing requirements applicable to its
officers, directors, and greater than ten percent beneficial owners were
complied with except the following: (i) one report, covering one transaction,
was filed late by The Hondo Company and Lonrho, Inc., reflecting a previously
announced transaction with Robert O. Anderson and family; (ii) two reports
covering two transactions were filed late by Robert O. Anderson, one of which
4
reflected the previously announced transactions with Lonrho, Inc. and The Hondo
Company; and (iii) two reports, covering three transactions were filed late by
Thamesedge Ltd., individually and as the designated filer for Lonrho Plc,
Lonrho, Inc. and The Hondo Company, two of which involved inter-company share
transfers from parent to subsidiary and from subsidiary to parent and the third
involved a transfer of 14,000 shares to an individual.
Item 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------------- ------------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION(1) OPTIONS/SARS COMPENSATION(2)
POSITION YEAR ($) ($) ($) (#) ($)
------------------ ---- ------- ------ --------------- ------------ ---------------
John J. Hoey............ 1996 194,062 -- -- 22,000 9,703
Chief Executive Officer 1995 170,833 -- -- 50,000 8,542
1994 150,000 -- -- 100,000 1,875
Stanton J. Urquhart..... 1996 86,094 20,000(3) -- 8,000 4,305
Vice President 1995 73,333 -- -- 15,000 2,233
1994 58,750 -- -- 15,000 588
C.B. McDaniel........... 1996 166,018 20,000(3) -- 10,000 8,451
Secretary 1995 142,583 -- -- 20,000 7,129
1994 130,500 -- -- 20,000 6,525
- --------
(1) Includes perquisites and other personal benefits, securities or property
only if the aggregate amount of such compensation is greater than the lesser of
either $50,000 or 10% of the total of annual salary and bonus reported for the
named executive officer.
(2) The amounts in this column are the matching contributions made by the
Company under its profit sharing plan described below.
(3) This amount was paid to Messrs. Urquhart and McDaniel for relocation and in
lieu of expenses thereof.
5
OPTION/SAR GRANTS IN LAST FISCAL YEAR
POTENTIAL
REALIZABLE
VALUE AT
ASSUMED ANNUAL
RATES OF STOCK
PRICE
APPRECIATION
FOR OPTION
INDIVIDUAL GRANTS(1) TERM(2)
- ------------------------------------------------------------------------ --------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS EXERCISE
UNDERLYING GRANTED TO OR BASE
OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
---- ------------ ------------ -------- ------------ ------ -------
John J. Hoey............ 22,000 55% $14.125 May 28, 2001 85,854 189,716
S.J. Urquhart........... 8,000 20% $14.125 May 28, 2001 31,220 68,988
C.B. McDaniel........... 10,000 25% $14.125 May 28, 2001 39,025 86,235
- --------
(1) The options to Messrs. Hoey, Urquhart and McDaniel were granted on May 28,
1996 under the Company's 1993 Stock Incentive Plan (the "Plan"). Each option
became exercisable as to 50% of the total shares granted six months after the
date of grant; the remaining 50% will become exercisable 18 months after the
date of grant. In each case, the options were granted at an exercise price
equal to the fair market value of the shares (as defined in the Plan) on the
date of grant. Upon a recipient's termination of employment, options that are
not yet exercisable will terminate; options that are exercisable will terminate
three months after the termination of employment (one year in the case of death,
retirement or total disability). Each option will terminate in all events not
later than the expiration date of the option. The 1993 Stock Incentive Plan
Committee administers the Plan and may modify and amend previous options
granted, subject to the terms of the Plan.
(2) These columns present hypothetical future values of the stock obtainable
upon exercise of the options net of the option's exercise price, assuming that
the market price of the Company's common stock appreciates at a five and ten
percent compound annual rate over the five year term of the options. The five
and ten percent rates of stock price appreciation are presented as examples
pursuant to the proxy rules and do not necessarily reflect management's
assessment of the Company's future stock performance.
6
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR
VALUE
LONRHO PLC(1) HONDO OIL & GAS
------------------ ------------------ VALUE OF
NUMBER OF NUMBER OF UNEXERCISED
UNEXERCISED UNEXERCISED IN-THE-MONEY
SHARES OPTIONS/SARS AT OPTIONS/SARS AT OPTIONS/SARS AT
ACQUIRED SEPTEMBER 30, 1996 SEPTEMBER 30, 1996 SEPTEMBER 30, 1996
ON VALUE (#) (#) ($)
EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE UNEXERCISABLE
---- -------- -------- ------------------ ------------------ ------------------
John J. Hoey............ -- -- 0/100,000 80,232/11,000 172,615/37,795
S.J. Urquhart........... 7,500 75,000 0/10,000 19,000/4,000 9,125/6,239
C.B. McDaniel........... -- -- 19,832/10,000 45,000/5,000 161,875/9,109
- --------
(1) The Board of Directors of Lonrho Plc grants options to employees of
companies in which Lonrho Plc owns an interest. See Item 12, Security Ownership
of Management and Certain Beneficial Owners of the Company. The options are
granted under plans adopted and administered by Lonrho Plc.
(2) The value of unexercised in-the-money options was determined by multiplying
the value of the underlying shares at September 30, 1996 ($2.68 per share for
Lonrho Plc and $15.00 per share for Hondo Oil & Gas Company) less the amount per
share payable by the option holder upon exercise, times the number of shares
subject to the option.
LONG TERM INCENTIVE PLAN AWARDS. There were no awards made to the named
executive officers in the fiscal year ended September 30, 1996, under any long-
term incentive plan.
DEFINED BENEFIT AND ACTUARIAL PLANS. No defined benefit or actuarial plan
exists with respect to the named executive officers. The Company has made
available to all full-time administrative employees who have completed at least
one year of service a defined contribution profit sharing plan ("401(k) Plan").
Qualifying employees may contribute up to 10% of their annual earnings, but not
in excess of the maximum allowed by Internal Revenue Service regulations, and
the Company will match employee contributions up to a maximum of 5% of an
employee's annual earnings. Matching contributions made by the Company under
the 401(k) plan for the benefit of the named executive officers are included in
the Summary Compensation Table, above.
COMPENSATION OF DIRECTORS. Outside directors are paid $15,000 per year and
Messrs. McNair and Steer were paid this amount during fiscal year 1996. In
September 1995, Messrs. McNair and Steer were appointed by the Board of
Directors to a Special Committee to consider a proposed transaction with the
Company's majority shareholder, The Hondo Company. In the resolutions
appointing the Special Committee, the Board also approved compensation for the
two directors for time required for the work of the Special Committee. During
fiscal 1996, Messrs. McNair and Steer were paid $7,250 and $9,700, respectively,
for their services on the Special Committee. The Special Committee was
terminated in January 1996. Mr. Steer was also paid $4,200 during fiscal 1996
for consulting services.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS. The Company has entered into Termination Benefits Agreements
dated February 23, 1995 with Messrs. Urquhart and McDaniel. These agreements
7
provide for an extended severance benefit to the two executives in the event of
a change of control of the Company. Such benefit is payable if, within three
years after the change of control occurs (i) the Company terminates the
employment of the executive for any reason other than cause (as defined in the
agreement), death, the executive's attainment of age 65 or total and permanent
disability or (ii) the executive voluntarily terminates employment, in his
discretion, for any reason. As defined in the agreement, a "change of control"
means after February 23, 1995, (i) attaining ownership of 50% or more of the
shares of voting stock of the Company by any person or group (other than a
person or group including the executive or with whom or which the executive is
affiliated); (ii) the occurrence of a change of control required to be described
under the rules of the Securities and Exchange Commission; (iii) the sale by the
Company of 50% or more of the shares of the voting stock of its wholly-owned
subsidiary, Hondo Magdalena Oil & Gas Limited; or (iv) the sale of all or
substantially all of Hondo Magdalena Oil & Gas Limited's 30% interest in the
Opon Association Contract, Department of Santander, Colombia. A "change of
control" shall not include changes in ownership of the shares of voting stock of
the Company occurring among or between The Hondo Company, Robert O. Anderson,
Robert B. Anderson, Phelps Anderson, Lonrho, Inc., Scottsdale Princess, Inc.,
Lonrho Plc or the affiliates of any of them. The amount of the extended
severance benefit payable under the agreement is two times the executive's
average annual compensation for the last two calendar years preceding the date
upon which a change of control occurs, except that if all or part of such
benefit would be nondeductible by the Company for federal income tax purposes
because of limitations on "parachute payments," then the benefit would be
reduced to the amount so deductible. The agreements expire on February 23,
2000, if no event constituting a change of control has occurred prior to that
date. If a change of control occurs prior to February 23, 2000, then the
agreements terminate on the date that is three years after the change of control
occurs.
REPRICING OF OPTIONS/SARS. During the fiscal year ended September 30, 1996, no
adjustments or amendments of the exercise price of stock options or SARs
previously awarded to the executive officers named above were made.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS. Messrs. Price and Whitten, members of the Compensation and Benefits
Committee and the 1993 Stock Incentive Plan Committee, are President and
director, and director, respectively, of The Hondo Company and also Associate
Director and Finance Director, respectively, of Lonrho Plc. Mr. Morrell (who is
not a member of either committee) is Managing Director and Chief Executive of
Lonrho Plc. Mr. Bock is a non-executive director of Lonrho Plc and a director
of The Hondo Company. See Item 12, Security Ownership of Management and Certain
Beneficial Owners of the Company. The Company has entered into loan and certain
other transactions with Lonrho Plc and its affiliates.
On November 30, 1988, the Company made a private placement of a $75,000,000
13.5% Senior Subordinated Note to Thamesedge Ltd., a wholly owned subsidiary of
Lonrho Plc. The terms of the transaction were approved by all of the
disinterested directors of the Company upon the recommendation of a special
committee of the Board appointed to review the transaction. The terms are
substantially the same as those which were under discussion and negotiation with
an underwriter for a public offering of a similar debt instrument and were no
less favorable to the Company than could be obtained with non- affiliated
parties.
During calendar year 1991, the Company entered into and amended a loan agreement
with Lonrho Plc pursuant to which it borrowed the sum of $32,000,000. At the
time the loans were made, the interest rates were similar to that in the
Company's former working capital loan with a bank for its refining and marketing
operations. The terms of the loan, and all amendments thereto, were approved by
all of the disinterested directors of the Company and were no less favorable to
the Company than could be obtained with non-affiliated parties.
8
On December 18, 1992, the Company entered into an agreement with Lonrho Plc and
Thamesedge Ltd. to defer interest and principal payments on the loans described
above. As consideration for the deferral of interest and principal payments, the
Company granted Lonrho Plc a 5% share of the Company's net profits, as defined,
under the Opon Contract. On April 30, 1993, Lonrho Plc loaned the Company an
additional $3,000,000, and as security the Company granted to Lonrho Plc a
mortgage on certain real property. On June 25, 1993, Lonrho Plc loaned the
Company an additional $4,000,000, and as security the Company granted to Lonrho
Plc a mortgage on certain other real property. The interest rate of the new
loans was the same as that for other loans from Lonrho Plc. The terms of the
agreement to defer interest and principal payments and the terms of the new
loans were approved by all of the disinterested directors of the Company and
were no less favorable to the Company than could be obtained with non-affiliated
parties.
On December 17, 1993, Thamesedge and Lonrho Plc agreed to add interest accrued
at September 30, 1993 to principal, to reduce the annual interest rate on each
of the foregoing loans to the Company to 6% effective September 30, 1993, and to
defer principal payments on the loans. Lonrho Plc and the Company have further
agreed that, if the Company does not have sufficient cash resources to pay
interest on any of the foregoing indebtedness of the Company when due, the
Company may offer to pay such interest in shares of its common stock valued at
their market price on the day the interest is due. Thereupon Lonrho Plc may
either accept such offer or add the amount of interest then due to the remaining
outstanding principal balance of the applicable obligation. The terms of these
agreements were approved by all of the disinterested directors of the Company
and were no less favorable to the Company than could be obtained with non-
affiliated parties.
On October 18, 1994, the Company paid to Lonrho Plc $5,000,000 to repay a
portion of the loans made in calendar 1991. At the same time, Lonrho Plc
provided a $5,000,000 loan facility to the Company. On November 10, 1994,
Thamesedge and Lonrho Plc agreed to extend the maturities of all of the above
debts to not earlier than October 1, 1996. The terms of the loan facility and
the agreement to extend debt maturities were approved by all of the
disinterested directors of the Company and were no less favorable to the Company
than could be obtained with non-affiliated parties.
On December 22, 1995, Thamesedge and Lonrho Plc agreed to extend the maturities
of all the above debts to not earlier than October 1, 1997.
On March 29, 1996, Lonrho Plc assigned to Thamesedge all of its interest in the
above loans and indebtedness. On June 28, 1996, the Company and Thamesedge
entered into a Revolving Credit Agreement under which Thamesedge agreed to loan
to the Company $13.5 million. The interest rate on this loan is 13%, and
interest is payable as provided in the December 17, 1993 letter agreement
described above. The terms of the Revolving Credit Agreement were approved by
all of the disinterested directors of the Company and were no less favorable to
the Company than could be obtained with non-affiliated parties. On April 1,
1996, 197,944 shares of common stock of the Company were issued to Thamesedge in
payment of interest due of $2,375,329. Interest of $2,410,875 accrued on the
loans described above in fiscal 1996 was added to principal of the debts on
October 1, 1996.
On December 13, 1996, Thamesedge agreed to extend the maturities of all the
above debts to not earlier than January 1, 1998. As consideration for the
extensions and certain other financial undertakings, the Company has granted to
Lonrho a security interest in all of the shares of the Company's subsidiary,
Hondo Magdalena Oil & Gas Limited ("Hondo Magdalena"), and agreed to give
Thamesedge an option to convert $13.5 million of the November 1988 indebtedness
to Thamesedge into the Company's common stock. The debt will be convertible at
Lonrho's option at any time prior to maturity (January 1, 1998) at a rate of
$12.375 per share. The conversion price is 110% of the closing price of the
9
Company's common stock on December 11, 1996. The portion of the debt that may
be converted into common stock will not be secured by the pledge of the Hondo
Magdalena shares. The option to convert the debt into common stock is subject
to the approval of the Company's shareholders. If the conversion option is not
approved by the shareholders, the interest rate on the $13.5 million will revert
to 13.5%, the rate of interest on such debt prior to the December 17, 1993
letter agreement.
F. E. Wright, a subsidiary of Lonrho Plc, acts as insurance broker for the
Company's directors' and officers' liability insurance. The insurance companies
who provide the policy are those from whom coverage could be obtained by the use
of other insurance brokers. The terms of the policy are identical to the ones
which could be obtained through an independent broker. Based upon quotes
received from other brokers, management believes that F. E. Wright is able to
obtain more favorable premiums for the insurance coverage by virtue of inclusion
in the larger, group-wide programs of Lonrho Plc, and that the terms and cost of
the insurance coverage are no less favorable to the Company than could be
obtained with non-affiliated parties. During the fiscal year ended September
30, 1996, F. E. Wright received commissions of $35,625 in respect of policies
issued to the Company.
COMPENSATION AND BENEFITS COMMITTEE REPORT
To: The Board of Directors
As members of the Compensation and Benefits Committee, it is our duty to review
and determine salaries of officers, to review and approve officers' employment
contracts, and to review and establish Company policy with respect to
compensation of all employees.
For the majority of the past fiscal year, Mr. Hoey's compensation was $190,000
annually. He was also granted a new option for 22,000 shares of the Company's
common stock during the fiscal year by the 1993 Stock Incentive Plan Committee
which now administers the 1993 Stock Incentive Plan, and is composed of Messrs.
Price and Whitten. This compensation was considered to be necessary to induce
Mr. Hoey to remain as CEO of the Company, given the financial condition of the
Company and alternative opportunities that may be available to him. Also, this
compensation was intended to compensate Mr. Hoey for frequent travel to Colombia
and to reward him for his achievements on behalf of the Company. His
compensation, particularly the stock option he has been granted, is intended to
provide incentive to Mr. Hoey to continue to improve the Company's financial
condition.
The Committee has concluded that the executive officers must be compensated for
the extraordinary time and efforts required of such a small group and for
uncertainties associated with the future of the Company.
During the past fiscal year, the 1993 Stock Incentive Plan Committee made new
grants of options to Mr. Hoey for 22,000 shares, to Mr. McDaniel for 10,000
shares and to Mr. Urquhart for 8,000 shares. The 1993 Stock Incentive Plan
Committee and the Board feel there is a definite need for stock option
incentives given the present condition of the Company. Without such incentives
it might prove difficult to keep the three key executives. In making awards of
options, the 1993 Stock Incentive Plan Committee considered the amount and terms
deemed necessary to retain the executive officers, to reward them for their
efforts, and to provide a supplement to cash compensation, as well as the number
of shares available under the plan. Also, as a further means of retaining key
executives, Termination Benefits Agreements, providing for extended severance
benefits to the two officers in the event of a change of control of the Company,
were put in place in fiscal 1995 for Messrs. McDaniel and Urquhart.
An annual fee of $15,000 is paid to outside directors (Messrs. McNair and
Steer). In addition, during the fiscal year, Messrs. McNair and Steer received
10
$7,250 and $9,700, respectively, as compensation for their services on the
Special Committee appointed by the Board of Directors to consider a proposed
transaction with the Company's majority shareholder, and Mr. Steer was paid
$4,200 for his services to the Company as a consultant. Subject to the approval
of the shareholders, Messrs. McNair and Steer have been granted options for
7,000 shares each.
Compensation and Benefits Committee
Robert K. Steer, Chairman
John F. Price
R. E. Whitten
Date: January 27, 1997
The above report of the Compensation and Benefits Committee will not be deemed
to be incorporated by reference into any filing by the Company under the
Securities Act of 1933 or the Securities Exchange Act of 1934, except to the
extent that the Company specifically incorporates same by reference.
PERFORMANCE GRAPH
The following graph compares the yearly change in the Company's cumulative total
shareholder return on its common stock to that of the American Stock Exchange
Market Index and MG Industry Group 36, an industry index of companies engaged in
oil and gas exploration and production.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
OF COMPANY, INDUSTRY INDEX AND BROAD MARKET
FISCAL YEAR ENDED
----------------------------------------------------------------------
HONDO OIL & INDUSTRY BROAD
GAS CO. INDEX MARKET
- --------------------- ----------- -------- ------
Measurement Pt- 10/01/1991 $100 $100 $100
1992 $ 55.56 $ 87.32 $104.36
1993 $ 52.78 $106.88 $122.51
1994 $112.96 $115.73 $124.86
1995 $144.44 $119.96 $150.45
1996 $111.11 $139.88 $156.58
ASSUMES $100 INVESTED ON OCT. 1, 1991
ASSUMES DIVIDENDS REINVESTED
FISCAL YEAR ENDING SEP. 30, 1996
The stock price performance depicted in the above graph is not necessarily
indicative of future price performance. The Performance Graph will not be deemed
to be incorporated by reference in any filing by the Company under the
Securities Act of 1933 or the Securities Exchange Act 1934, except to the extent
that the Company specifically incorporates same by reference.
Item 12. SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS OF THE
COMPANY
The following table sets forth certain information concerning the beneficial
ownership of the Company's common stock as of January 16, 1997, by (i) each
person who is known by the Company to own beneficially more than five percent of
the Company's common stock, (ii) each nominee for director, (iii) each of the
11
Company's directors and executive officers and (iv) all directors and executive
officers of the Company as a group. Under Securities and Exchange Commission
rules, several persons may be deemed to be the beneficial owners of the same
shares. As a result, readers are urged to read the footnotes to the following
table.
PERCENTAGE
COMMON STOCK OF
BENEFICIALY OWNED COMMON STOCK
----------------- ------------
The Hondo Company....................... 10,234,596(1)(2) 74.3%
Lonrho Plc.............................. 10,234,596(1)(2) 74.3%
Lonrho, Inc............................. 10,234,596(1)(2) 74.3%
Thamesedge Ltd.......................... 10,234,596(1)(2) 74.3%
Dieter Bock............................. 0(3) --
John J. Hoey............................ 111,000 *
C. B. McDaniel.......................... 45,000 *
Douglas G. McNair....................... 15,000 *
Nicholas J. Morrell..................... 0(3) --
John F. Price........................... 0(3) --
Robert K. Steer......................... 15,000 *
S. J. Urquhart.......................... 19,000 *
R. E. Whitten........................... 0(3) --
All directors and executive officers as
a group................................ 205,000 1.5%
- --------
*less than 1%
(1) These 10,234,596 shares are owned as follows: The Hondo Company, 410 East
College Blvd., Roswell, NM 88201, 9,451,200 shares; and Thamesedge Ltd., Four
Grosvenor Place, London SW1X 7DL, England, 783,396 shares. The Hondo Company is
owned as follows: Lonrho, Inc., 805 Third Avenue, New York, New York 10022,
81.8%, and Robert O. Anderson, W. Phelps Anderson and Robert B. Anderson (the
Anderson Family), 410 East College Boulevard, Roswell, New Mexico 88201,
18.2%.
Lonrho, Inc. and Thamesedge Ltd. are indirect, wholly-owned subsidiaries of
Lonrho Plc. Because they may be deemed a group, within the meaning of Rule 13d-
5 under the Securities and Exchange Act of 1934 (the "Exchange Act"), each of
The Hondo Company, Lonrho Plc., Lonrho, Inc. and Thamesedge Ltd. may be deemed
to be the beneficial owner, within the meaning of Rule 13d-3 under the Exchange
Act, of 10,234,596 shares. Lonrho Plc, by virtue of its ownership interest in
each of The Hondo Company, Lonrho, Inc. and Thamesedge Ltd., may be deemed to
share the right to direct the voting and disposition of 10,234,596 shares which
(a) as to 9,451,200 shares, by virtue of its 81.8% ownership interests in The
Hondo Company, Lonrho, Inc. may also be deemed to be the beneficial owner with
shared voting and dispositive power (subject, as discussed in Note (2) below to
The Hondo Company's obligation to retain 800,000 shares to satisfy the rights of
the Anderson Family to require The Hondo Company to redeem the Anderson Family's
interests in The Hondo Company) and (b) as to 783,396 shares owned by Thamesedge
Ltd., Thamesedge Ltd. is also a beneficial owner.
(2) Lonrho Plc, Lonrho, Inc. and Scottsdale Princess, Inc. ("Scottsdale")
completed a transaction on January 5, 1996, through which Lonrho, Inc. now
controls The Hondo Company. Prior to the transaction, control of the Company
was effectively shared. The transaction was completed pursuant to a Revised
Settlement Agreement dated December 20, 1995, and amended January 6, 1996 and
May 14, 1996, among Lonrho Plc, Lonrho Inc., Scottsdale, The Hondo Company and
the Anderson Family. Under the Revised Settlement Agreement, among other
12
things, (a) Scottsdale acquired 25% of the issued and outstanding common stock
of The Hondo Company from Robert O. Anderson, increasing the ownership of the
Lonrho, Inc. and Scottsdale in The Hondo Company to 75% and decreasing the
ownership interest of the Anderson Family in The Hondo Company to 25%; (b)
Robert O. Anderson was released from all his guaranties of indebtedness of The
Hondo Company and the Company to Lonrho Plc; (c) the Shareholders' Agreement
dated October 17, 1986 among Lonrho, Inc., the Anderson Family and The Hondo
Company, which (while not directly related to the Company's common stock held by
The Hondo Company) required Lonrho, Inc., on the one hand, and the Anderson
Family, on the other hand, to designate an equal number of directors of The
Hondo Company, became null and void, thus enabling Lonrho, Inc. and Scottsdale,
as majority shareholders of The Hondo Company, to elect all of The Hondo
Company's directors and control The Hondo Company's policies; (d) Lonrho Plc
loaned to The Hondo Company $9.5 million and The Hondo Company repaid loans due
to the Anderson Family in the same amount; (e) all litigation between the
parties to the Revised Settlement Agreement was discontinued with prejudice; (f)
the Anderson Family agreed that their 25% interest in The Hondo Company will be
exchanged for 1,200,000 shares of common stock of the Company which they, acting
solely through Robert O. Anderson, would have the right to call at the rate of
400,000 shares annually for three consecutive years beginning January 5, 1997 in
exchange for one-third annually of their aggregate 25% interest in The Hondo
Company, while The Hondo Company has the right, beginning January 5, 1999, to
put to the Anderson Family so much of the 1,200,000 shares of common stock of
the Company which the members of the Anderson Family have not previously
required The Hondo Company to transfer in exchange for their remaining interest
in The Hondo Company; and (g) Lonrho Plc has agreed to cause The Hondo Company,
and The Hondo Company has agreed, to support Robert O. Anderson to be elected as
a director of the Company for five years; however, Mr. Anderson subsequently
resigned as a director of the Company.
On May 14, 1996, the parties to the Revised Settlement Agreement entered into a
second amendment pursuant to which The Hondo Company redeemed from the Anderson
Family approximately 1/12 of the Anderson Family's 25% interest in The Hondo
Company in exchange for 100,000 shares of the common stock of the Company.
Scottsdale, in June 1996, assigned all of its interest in The Hondo Company to
Lonrho, Inc. and has no further interest or obligation under the Revised
Settlement Agreement. On January 16, 1997, pursuant to the Revised Settlement
Agreement, The Hondo Company redeemed from the Anderson Family approximately 1/4
of the Anderson Family's original 25% interest in The Hondo Company in exchange
for 300,000 shares of the common stock of the Company.
(3) Nicholas J. Morrell is Managing Director and Chief Executive of Lonrho Plc.
Dieter Bock is a non-executive director of Lonrho Plc and a director of The
Hondo Company. John F. Price is an Associate Director of Lonrho Plc, President
of Lonrho, Inc. and President and director of The Hondo Company. R. E. Whitten
is Finance Director of Lonrho Plc and a director of Lonrho, Inc., Thamesedge
Ltd. and The Hondo Company. See Notes (1) and (2), above, Directors and
Executive Officers of Registrant in Item 10, and Compensation Committee
Interlocks and Insider Participation in Compensation Decision in Item 11. None
of these directors of the Company hold shares of the Company's common stock
individually.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See Compensation Committee Interlocks and Insider Participation in Compensation
Decisions in Item 11.
13
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the registrant has duly caused this report
on Form 10-K for the year ended September 30, 1996 to be signed on its
behalf by the undersigned, thereunto duly authorized.
HONDO OIL & GAS COMPANY
Date: January 28, 1997 By /s/ Stanton J. Urquhart
------------------------
Stanton J. Urquhart
Vice President
14