SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by Registrant: |X|
Filed by a Party other than the Registrant:
Check the appropriate Box:
|_| 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 Materials Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
Hallwood Consolidated Resources Corporation
(Name of Registrant as Specified in Its Charter)
-------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
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pursuant to Exchange Act Rule 0-11: (set forth amount on which the
filing is calculated and state how it was determined.)
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|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act Rule
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previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
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4) Date Filed:
HALLWOOD CONSOLIDATED RESOURCES CORPORATION
3710 Rawlins Street, Suite 1500
Dallas, Texas 75219
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
to Be Held May 5, 1998
To the Shareholders of HALLWOOD CONSOLIDATED RESOURCES CORPORATION:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Hallwood
Consolidated Resources Corporation (the "Company") will be held at The Four
Seasons Hotel, 21 Avenue Road, Toronto, Ontario, Canada on May 5, 1998 at 9:30
a.m. (Toronto time) for the following purposes:
1. To elect seven directors to hold office until the next annual election
of directors or until their respective successors have been duly elected and
have qualified.
2. To transact any and all other business that may properly come before the
meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on March 31, 1998 as
the Record Date for the determination of shareholders entitled to notice of and
to vote at the meeting or any adjournments thereof. Only shareholders of record
at the close of business on the Record Date are entitled to notice of and to
vote at the meeting.
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING; HOWEVER, WHETHER OR NOT
YOU EXPECT TO ATTEND THE MEETING IN PERSON, YOU ARE URGED PROMPTLY TO MARK,
SIGN, DATE AND MAIL THE ENCLOSED FORM OF PROXY IN THE ACCOMPANYING POSTAGE-PAID
ENVELOPE SO THAT YOUR SHARES OF STOCK MAY BE REPRESENTED AND VOTED IN ACCORDANCE
WITH YOUR WISHES AND IN ORDER THAT THE PRESENCE OF A QUORUM MAY BE ASSURED AT
THE MEETING. YOU HAVE THE RIGHT TO REVOKE YOUR PROXY AT ANY TIME PRIOR TO
VOTING, EITHER IN PERSON AT THE ANNUAL MEETING OR BY GIVING WRITTEN NOTICE TO
THE COMPANY IN THE MANNER PROVIDED ON THE INITIAL PAGE OF THE ENCLOSED PROXY
STATEMENT. PROMPT RETURN OF THE PROXY BY OUR SHAREHOLDERS WILL REDUCE THE TIME
AND EXPENSE OF PROXY SOLICITATION.
By Order of the Board of Directors,
Cathleen M. Osborn Secretary
March 31, 1998
Dallas, Texas
HALLWOOD CONSOLIDATED RESOURCES CORPORATION
3710 Rawlins Street, Suite 1500
Dallas, Texas 75219
Proxy Statement For
Annual Meeting of Shareholders
to be Held May 5, 1998
SOLICITATION AND REVOCABILITY OF PROXIES
The accompanying Proxy is solicited on behalf of the Board of Directors of
Hallwood Consolidated Resources Corporation (the "Company") to be voted at the
Annual Meeting of Shareholders of the Company (the "Annual Meeting") to be held
on May 5, 1998, at 9:30 a.m., at The Four Seasons Hotel, 21 Avenue Road,
Toronto, Ontario, Canada, for the purposes set forth in the accompanying Notice
of Annual Meeting, and at any adjournments thereof. This Proxy Statement and
accompanying form of Proxy are being first mailed or distributed on or about
April 9, 1998.
The accompanying form of Proxy is designed to permit each shareholder to
vote for, or to withhold voting for, (i) any or all of the nominees for election
as directors of the Company listed under Proposal 1 and (ii) to authorize the
proxies to vote in their discretion with respect to any other proposal brought
before the Annual Meeting. When a shareholder's executed and dated proxy card
specifies a choice with respect to a voting matter, the shares will be voted
accordingly. If no specification is made, the Proxy will be voted at the Annual
Meeting FOR the election of the nominees specified under the caption "Election
of Directors."
Giving a Proxy does not preclude the right to vote in person should any
shareholder giving the Proxy so desire. Any shareholder of the Company giving a
Proxy has the unconditional right to revoke his Proxy at any time prior to the
voting thereof either in person at the Annual Meeting or by giving written
notice to the Company addressed to Ms. Cathleen M. Osborn, Secretary, 4582 South
Ulster Street Parkway, Suite 1700, Denver, Colorado 80237. No notice of
revocation will be effective, however, until it has been received by the
Company, and the notice of revocation must be received at or before the Annual
Meeting.
In addition to the solicitation of Proxies by use of the mail, officers and
regular employees of the Company may solicit the return of Proxies by personal
interview, mail, telephone and telegraph. The officers and employees will not be
additionally compensated but will be reimbursed for out-of-pocket expenses.
Brokerage houses and other custodians, nominees and fiduciaries will be
requested to forward solicitation materials to the beneficial owners of stock.
The cost of preparing, printing, assembling and mailing the Notice of Annual
Meeting, this Proxy Statement, the form of Proxy and any additional material,
the cost of forwarding solicitation material to the beneficial owners of stock
and other costs of solicitation will be borne by the Company.
The Annual Report to Shareholders covering the Company's fiscal year ended
December 31, 1997, including audited financial statements, is enclosed with this
Proxy Statement. The Annual Report does not form any part of the materials for
the solicitation of Proxies.
PURPOSES OF THE MEETING
At the Annual Meeting, the shareholders will consider and vote upon the
following matters:
1. The election of seven directors to hold office until the next annual election
of directors or until their respective successors have been duly elected and
have qualified.
2. Such other and further business as may properly come before the meeting or
any adjournments thereof.
VOTING RIGHTS AND PRINCIPAL SHAREHOLDERS
General
The Board of Directors has fixed the record date for the determination of
shareholders entitled to notice of and to vote at the Annual Meeting as of the
close of business on March 31, 1998 (the "Record Date"). As of the Record Date,
there were 3,007,852 shares of Common Stock, par value $0.01 per share, issued
and outstanding.
Required Vote
The Company's Restated Certificate of Incorporation does not provide for
cumulative voting. Assuming the presence of a quorum, the affirmative vote of a
plurality of the votes cast by the holders of shares of Common Stock is
necessary for the election of directors. Votes will be counted by Registrar and
Transfer Co., the Company's transfer agent and registrar. With respect to
abstentions, the shares are considered present at the meeting for purposes of
determining a quorum and voting on a particular matter, but since they are not
affirmative votes for the matter, they will have the same effect as votes
against the matter. With respect to broker non-votes, the shares are considered
present at the meeting for purposes of determining a quorum but are not entitled
to vote on the particular matter as to which the broker does not have voting
authority.
Security Ownership of Principal Shareholders and Management
The following table sets forth information concerning the number of shares
of Common Stock of the Company owned beneficially as of the Record Date by the
persons who, to the knowledge of management, beneficially owned more than 5% of
the outstanding Common Stock.
Name and Address Amount Percent of
of Beneficial Owner Beneficially Owned Common Stock
Hallwood Energy Partners, L.P. 1,374,465 (1) 45.7
4582 S. Ulster Street Parkway
Suite 1700
Denver, Colorado 80237
Heartland Advisors, Inc. 463,460 (2) 15.4
790 North Milwaukee Street
Milwaukee, WI 53202
William Baxter Lee, III 292,800 (3) 9.7
c/o Glankler Brown, PLLC
One Commerce Square, Suite 1700
Memphis, TN 38103
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<FN>
(1) Includes 40,323 shares held by Hallwood Oil and Gas, Inc., a subsidiary of
Hallwood Energy Partners, L.P. ("HEP"). HEP has sole voting and investment
power with respect to the shares reported. The general partner of HEP is
HEPGP Ltd., a limited partnership, the general partner of which is Hallwood
G.P., Inc. (AHallwood G.P.@) The executive officers of Hallwood G.P. and
the Company are the same individuals: Anthony J. Gumbiner, William L.
Guzzetti, Russell P. Meduna and Cathleen M. Osborn.
(2) Information is from the Amendment to the Schedule 13G of Heartland Advisors
dated January 27, 1998. The Schedule 13G states that the shares are held in
investment advisory accounts of Heartland Advisors, Inc. and that the
interests of one such account, Heartland Value Fund, a series of Heartland
Group, Inc., a registered investment company, relates to more than 5% of
the Common Stock.
(3) Information is from the Schedule 13D dated November 28, 1997. </FN>
The following table sets forth information concerning the number of shares
of Common Stock of the Company owned beneficially as the Record Date by (i) each
director and executive officer of the Company who owns Common Stock and (ii)
the directors and executive officers of the Company as a group. Unless otherwise
indicated, each of the persons named has sole voting and investment power with
respect to the shares reported.
Name of Amount Percent of
Beneficial Owner Beneficially Owned Common Stock
Brian M. Troup 42,400 (3) 1.4
Anthony J. Gumbiner 1,434,065 (2)(3) 46.8
William L. Guzzetti 1,406,265 (2)(3) 46.3
Russell P. Meduna 27,459 (3) *
Robert S. Pfeiffer (1) 180 *
Cathleen M. Osborn 7,810 (3) *
All directors and executive
officers as a group
(ten individuals) 1,543,714 (2)(3) 48.7
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<FN>
* Represents less than 1% of the outstanding Common Stock.
(1) Mr. Pfeiffer resigned his position with the Company effective March 6,
1998, and his remaining options terminated on that date.
(2) Includes 1,374,465 shares beneficially owned by HEP. Mr. Gumbiner is
Chief Executive Officer and Mr. Guzzetti is President and a director
of the general partner of the general partner of HEP.
(3) The following numbers of shares issuable upon the exercise of
currently exercisable options are included in the amounts shown: Mr.
Troup, 42,400 shares; Mr. Gumbiner, 59,600 shares; Mr. Guzzetti,
31,800 shares; Mr. Meduna, 27,180 shares; and Ms. Osborn, 7,720
shares.
</FN>
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the officers
and directors of the Company, and persons who own more than ten percent of the
Common Stock, to file reports of ownership and changes in ownership with the
Securities and Exchange Commission. Officers, directors and greater than
ten-percent owners are required by SEC regulation to furnish the Company with
copies of all Section 16(a) forms they file. Based solely on its review of the
copies of such forms received by it, or written representations from certain
reporting persons that no forms were required for those persons, the Company
believes that, during the year ended December 31, 1997, all officers and
directors of the Company and greater than ten-percent beneficial owners complied
with applicable filing requirements.
ELECTION OF DIRECTORS
Nominees
At the Annual Meeting, shareholders will elect directors to serve until the
1999 Annual Meeting of Shareholders. The Bylaws of the Company provide that the
Company's Board of Directors must consist of at least one director and that the
number of directors will be determined by resolution of the Board of Directors.
By action of the Board of Directors, the number of directors has been set at
seven. The seven persons currently serving as directors of the Company have been
nominated by the Board of Directors to serve as directors of the Company until
the 1999 Annual Meeting of Shareholders and until their successors have been
duly elected and have qualified.
Unless otherwise directed on any duly executed and dated Proxy, it is the
intention of the persons named in such Proxy to nominate and to vote the shares
represented by such Proxy for the election of the nominees listed in the table
below for the office of director of the Company to hold office until their
respective successors have been duly elected and have qualified.
Year First
Name Position Elected Director
Anthony J. Gumbiner Chairman of the Board 1992
and Director
William L. Guzzetti President and Director 1991
Brian M. Troup Director 1992
John R. Isaac, Jr. Director 1992
Jerry A. Lubliner Director 1992
Bill M. Van Meter Director 1996
Hamilton P. Schrauff Director 1996
The Board of Directors does not contemplate that any of the above-named
nominees for director will refuse or be unable to accept election or to serve as
a director of the Company. Should any of them become unavailable for nomination
or election or refuse to be nominated or to accept election as a director of the
Company, then the person or persons voting the Proxy will vote the shares
represented by such Proxy for the election of such other person or persons as
may be nominated or designated by the Board of Directors. If elected as a
director of the Company, each director will hold office until his successor has
been duly elected and has qualified.
Business Experience of Directors
Anthony J. Gumbiner, 53, has served as a director of the Company since
February 1992. He has also served as Chairman of the Board of Directors of The
Hallwood Group Incorporated ("Hallwood Group"), a diversified holding company
with real estate, textile products, hotel, restaurant and energy operations,
since 1981 and as Chief Executive Officer of Hallwood Group since April 1984. He
has been Chairman of the Board since 1984 and Chief Executive Officer since 1987
of the general partner of HEP. Mr. Gumbiner has also served as Chairman of the
Board of Directors and as a director of Hallwood Holdings S.A., a Luxembourg
real estate investment company, since March 1984. He has been a director of
Hallwood Realty Corporation ("Hallwood Realty"), which is the general partner of
Hallwood Realty Partners, L.P., since November 1990. He is a Solicitor of the
Supreme Court of Judicature of England.
William L. Guzzetti, 54, has been President, Chief Operating Officer and a
director of the Company since May 1991. He has been President, Chief Operating
Officer and a director of the general partner of HEP since 1985. Mr. Guzzetti is
also an Executive Vice President of Hallwood Group and in that capacity may
devote a portion of his time to the activities of Hallwood Group, including the
management of real estate investments, acquisitions and restructurings of
entities controlled by Hallwood Group. He is a director and President of
Hallwood Realty and in that capacity may devote a portion of his time to the
activities of Hallwood Realty.
Brian M. Troup, 51, has served as a director of the Company since February
1992. He has been President and Chief Operating Officer of Hallwood Group since
April 1986, and he is a director. Mr. Troup has been a director of the general
partner of HEP since May 1984. Mr. Troup is a director of Hallwood Holdings S.A.
He is also a director of Hallwood Realty. He is an associate of the Institute of
Bankers in Scotland and a member of the Society of Investment Analysts in the
United Kingdom.
John R. Isaac, Jr., 53, has served as a director of the Company since June
1992. Since October 1997, Mr. Isaac has been Chief Executive Officer and
President of Ideas, Inc., a retail consulting company. From February 1996 to
October 1997, Mr. Isaac was President and Chief Executive Officer of Thorn
Americas, Inc., parent of Rent-A-Center USA. From March 1995 until February
1996, Mr. Isaac was President and Chief Operating Officer of Rent-A-Center USA.
From February 1991 to February 1995, Mr. Isaac was President and Chief Operating
Officer of Everything's A Dollar, a division of Value Merchants, Inc. He was
President and Chief Executive Officer of Hallwood Industries Incorporated from
August 1987 to October 1991. He was President of Tradevest, Inc., a mail order
catalog retailer, from 1986 to 1987, and a Vice President of Service Merchandise
Co., Inc., a catalog showroom retailer, from 1981 to 1986.
Jerry A. Lubliner, 43, has served as a director of the Company since June
1992. Dr. Lubliner is a medical doctor who has been in private practice since
1986. From 1986 to 1988, he was Associate Chief-Sports Medicine at the Hospital
for Joint Diseases--Orthopaedic Institute in New York. Dr. Lubliner is a Fellow
of the American Academy of Orthopaedic Surgeons.
Bill M. Van Meter, 65, has served as a director of the Company since
September 1996. From 1986 until May 1996, Mr. Van Meter was President of the
Energy Companies of ONEOK division of ONEOK Inc. Mr. Van Meter is a director of
Ponder Industries, Inc., an oil field tool company. From 1958 to 1996, Mr. Van
Meter was employed by both major and independent oil companies.
Hamilton P. Schrauff, 62, has served as a director of the Company since
September 1996. Since March 1997, he has been Chief Financial Officer of Burns
Controls Company. From March 1996 to January 1997 he was Vice President of
Capital Alliance. From August 1995 to February 1996 he was an independent
financial consultant. From October 1991 to August 1995 he was Vice President and
Chief Financial Officer of Basic Capital Management, Inc., Syntek Asset
Management, Inc., American Realty Trust Investors, Inc., Income Opportunity
Realty Trust and Transcontinental Realty Investors, Inc. From October 1991 to
February 1994 he was Executive Vice President and Chief Financial Officer of
National Income Realty Trust and Vinland Property Trust. From December 1990 to
October 1991 he was Vice President Finance-Partnership Investments of Hallwood
Group. From October 1980 to October 1990 he was Vice President Finance and
Treasurer, and from November 1976 to September 1980 he was Vice President
Finance, of Texas Oil and Gas Corporation. Mr. Schrauff is a Certified Public
Accountant and Certified Financial Planner. He is a member of the American
Institute of Certified Public Accountants, the Texas Society of Certified Public
Accountants and the Financial Executives Institute.
Business Experience of Executive Officers
Following are brief biographies of the executive officers of the Company,
other than Mr. Guzzetti.
Russell P. Meduna, 43, became Executive Vice President of the Company in
June 1992. Mr. Meduna has been Executive Vice President of the general partner
of HEP and Hallwood Petroleum, Inc. ("HPI") since October 1989. Mr. Meduna was
Vice President of HPI from April 1989 to October 1989 and Manager of Operations
from January 1989 to April 1989. He joined HPI in 1984 as Production Manager.
Prior to joining HPI, he was employed by both major and independent oil
companies. Mr. Meduna is a registered professional engineer in the States of
Colorado and Texas.
Cathleen M. Osborn, 45, became Secretary and General Counsel of the Company
in May 1992 and Vice President in June 1992. Ms. Osborn has been Vice President,
Secretary and General Counsel of the general partner of HEP and of HPI since
October 1986. She joined HPI in 1985 as senior staff attorney. Ms. Osborn is a
member of the Colorado Bar Association.
Meetings of the Board; Committees
The Board of Directors held four regularly scheduled meetings and one
special meeting during 1997. No director attended fewer than 75% of the total
number of meetings of the Board of Directors and committees of which he is a
member. The Board's Audit Committee, composed of Messrs. Isaac, Lubliner, Van
Meter and Schrauff, recommends to the Board the firm to be employed as the
Company's independent auditors and consults with, and reviews the report of, the
Company's independent auditors and HPI's financial staff. The Audit Committee
held three meetings in 1997. The Company does not have a standing nominating
committee. During 1997, the entire Board of Directors acted as the Compensation
Committee. See "Executive Compensation - Compensation of Executive Officers"
below.
EXECUTIVE COMPENSATION
Compensation of Executive Officers
The Company has no employees. Management services are provided to the
Company by HPI, an affiliate of the Company. Employees of HPI perform all duties
related to the management of the Company, including the operation of various
properties in which the Company owns an interest. The Company is charged for
management services by HPI based on an allocation procedure that takes into
account the amount of time spent on management, the number of properties owned
by the Company and the Company's performance relative to its affiliates. The
allocation procedure is applied consistently to all entities for which HPI
performs services. In 1997 the Company reimbursed HPI approximately $2,081,000,
of which $536,320 was attributable to compensation paid to executive officers of
the Company.
The following table sets forth the compensation allocated to the Company by
HPI for the years ended December 31, 1997, 1996 and 1995 paid to the Chief
Executive Officer and each of the four other most highly compensated officers
whose compensation paid by HPI exceeded $100,000 (determined for the year ended
December 31, 1997).
SUMMARY COMPENSATION TABLE
Long Term
Annual Compensation Compensation
Securities
Underlying
Options/SARs LTIP All Other
Name & Principal Position Year Salary Bonus (#) (3) Payouts Compensation (1)
Anthony J. Gumbiner (2) 1997 $ 0 $ 0 47,700 $ 0 $ 0
Chief Executive Officer 1996 125,000 0 0 0 0
1995 125,000 0 47,700 0 0
William L. Guzzetti 1997 82,535 65,677 23,850 24,855 1,919
President and Chief 1996 82,943 60,490 0 14,927 2,314
Operating Officer 1995 79,721 38,250 23,850 8,507 2,342
Russell P. Meduna 1997 66,120 50,909 22,260 24,855 1,919
Executive Vice 1996 66,448 46,874 0 14,927 1,827
President 1995 65,272 82,110 22,260 8,507 1,876
Robert S. Pfeiffer 1997 43,437 46,965 9,540 17,472 1,919
Vice President and 1996 43,652 26,082 0 10,391 1,746
Chief Financial Officer 1995 42,880 47,940 9,540 6,314 1,232
Cathleen M. Osborn 1997 42,697 45,650 9,540 17,472 1,919
Vice President and 1996 42,908 28,704 0 10,391 1,827
General Counsel 1995 42,679 48,450 9,540 6,314 1,069
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<FN>
(1) Employer contribution to 401(k) and a service award of $487 paid to Mr.
Guzzetti in 1996.
(2) For 1995 and 1996, Mr. Gumbiner had a Compensation Agreement with HPI.
$125,000 of his compensation was allocated to the Company in 1995 and 1996.
The Compensation Agreement was terminated effective December 1996. In
addition to compensation listed in the table, HPI had a consulting
agreement with Hallwood Group for 1995 and 1996, pursuant to which Hallwood
Group received an annual consulting fee of $300,000 from affiliates of HPI.
The Company paid approximately $122,000 in 1996 and $111,000 in 1995
pursuant to this arrangement. During 1997, the Company participated in a
new consulting agreement between HPI and Hallwood Group pursuant to which
Hallwood Group received a fee of $550,000 from affiliates of HPI. The
Company paid Hallwood Group approximately $372,000 in 1997 for the
Company's share of the consulting agreement. The consulting services were
provided by HSC Financial Corporation ("HSC Financial"), through the
services of Mr. Gumbiner and Mr. Troup, and Hallwood Group paid the annual
fee it received to HSC Financial. See "Compensation Committee Interlocks
and Insider Participation" below.
(3) The number of options granted in 1995 and 1997 has been adjusted to reflect
the Company's 3-for-1 stock split in August 1997.
</FN>
Option Grants in Last Fiscal Year
The following table sets forth the options to purchase Common Stock of the
Company granted to executive officers during 1997.
Option/SAR Grants in Last Fiscal Year
Potential Realized Value at
Assumed Annual Rates of Stock
Individual Grants Price Appreciate for Option Term (2)
----------------- ------------------------------------
Number of % of Total
Securities Options/SARs
Underlying Granted Exercise or 5% 10%
Options/SARs Employees in Base Price Expiration $33.12 $52.73 Share
Name Granted (1) Fiscal Year ($/Share) Date Share Price Price
Anthony J. Gumbiner 47,700 30 20.33 6/17/07 $ 609,865 $ 1,545,517
William L. Guzzetti 23,850 15 20.33 6/17/07 304,932 772,759
Russell P. Meduna 22,260 14 20.33 6/17/07 284,604 721,242
Robert S. Pfeiffer (3) 9,540 6 20.33 6/17/07 121,973 309,104
Cathleen M. Osborn 9,540 6 20.33 6/17/07 121,973 309,104
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<FN>
(1) Options have a ten-year term and vest cumulatively over three years at the
rate of 1/3 on each of the date of grant and the first two anniversaries of
the grant date. All options vest immediately in the event of certain
changes in control of the Company.
(2) Securities and Exchange Commission Rules require calculation of potential
realizable value assuming that the market price of the Common Stock
appreciates in value at 5% and 10% annualized rates. At a 5% annualized
rate of appreciation, the Common Stock price would be $33.12 at the end of
ten years. At a 10% annualized rate of appreciation, the Common Stock price
would be $52.73 at the end of ten years. No gain to an executive officer is
possible without an appreciation in Common Stock value, which will benefit
all holders of Common Stock. The actual value an executive officer may
receive depends on market prices for the Common Stock, and there can be no
assurance that the amounts reflected will actually be realized.
(3) Mr. Pfeiffer resigned from the Company effective March 6, 1998, and his
options terminated on that date.
</FN>
Option Value at December 31, 1997
No options were exercised by executive officers in 1997. The following
table sets forth the value of options held by the executive officers in both the
1995 and 1997 Option Plans.
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options/SARs at
Options/SARs at FY-End (#) FY-End ($)
Name Exercisable/Unexercisable (1) Exercisable/Unexercisable (2)
Anthony J. Gumbiner 63,600 / 31,800 805,494 / 76,956
William L. Guzzetti 31,800 / 15,900 402,747 / 38,478
Russell P. Meduna 29,680 / 14,840 375,897 / 35,913
Robert S. Pfeiffer (3) 12,720 / 6,360 161,099 / 15,391
Cathleen M. Osborn 12,720 / 6,360 161,099 / 15,391
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<FN>
(1) Options have a ten-year term and vest cumulatively over three years at the
rate of 1/3 on each of the date of grant and the first two anniversaries of
the grant date. All options vest immediately in the event of certain
changes in control of the Company. The number of options has been adjusted
to reflect the 3-for-1 stock split in August 1997.
(2) The exercise price of the options granted in 1995 is $6.67 per share, and
the exercise price of the options granted in 1997 is $20.33 per share. The
closing price of the Common Stock was $22.25 on December 31, 1997. The
exercise prices have been adjusted to reflect the 3-for-1 stock split in
August 1997.
(3) Mr. Pfeiffer resigned from the Company effective March 6, 1998, and his
remaining options terminated on that date.
</FN>
Long-Term Incentive Plan Awards
The following table describes performance units awarded to the executive
officers of the Company for 1997 under the Incentive Plan for the Company and
affiliated entities. The value of awards under each plan depends primarily on
success in drilling, completing and achieving production from new wells each
year and from certain recompletions and enhancements of existing wells. The
amounts shown below are the portion of awards under the plan allocated to the
Company.
LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
Performance or Estimated Future
Number of Other Period Payouts under Non-Stock
Name Units Until Payout Price-Based Plans
Anthony J. Gumbiner (2) 0 0 0
William L. Guzzetti 0.082 2002 $8,289 (1)
Russell P. Meduna 0.082 2002 8,289 (1)
Robert S. Pfeiffer (3) 0.056 2002 5,661 (1)
Cathleen M. Osborn 0.056 2002 5,661 (1)
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<FN>
(1) This amount represents an award under the Incentive Plan. There are no
minimum, maximum or target amounts payable under the Incentive Plan.
Payments under the awards will be equal to the indicated percentage of Plan
net cash flow from certain wells for the first five years after an award
and, in the sixth year, the indicated percentage of 80% of the remaining
net present value of estimated future production from the wells allocated
to the Plan. The amounts shown above are estimates based on estimated
reserve quantities and future prices. Because of the uncertainties inherent
in estimating quantities of reserves and prices, it is not possible to
predict cash flow or remaining net present value of estimated future
production with any degree of certainty.
(2) In addition, an award of .4200 units, with an estimated future payout of
$119,165, was made to HSC Financial, with which Mr. Gumbiner is associated.
The payout period ends in 2002.
(3) Mr. Pfeiffer resigned from the Company effective March 6, 1998, and his
award terminated on that date.
</FN>
Director Compensation
Each director of the Company who is not an officer or employee of the
Company, or a director, officer or employee of the general partner of HEP or any
entity controlled by the general partner of HEP, is paid an annual fee of
$20,000 which is proportionately reduced if the director attends fewer than four
regularly scheduled meetings of the Board of Directors during the year. During
1997, Messrs. Isaac, Lubliner, Van Meter and Schrauff were each paid $20,000. In
addition, all directors are reimbursed for their expenses in attending meetings
of the Board of Directors and committees.
Compensation Committee Interlocks and Insider Participation
The entire Board made the 1997 compensation decisions for the Company. Mr.
Gumbiner is Chief Executive Officer of the Company and serves on the
compensation committee of Hallwood Group, of which Mr. Troup is President and
Mr. Guzzetti is Executive Vice President. Mr. Gumbiner was also Chief Executive
Officer and a director of Hallwood G.P., Mr. Troup was a director of Hallwood
G.P., and Mr. Guzzetti was a director and President of Hallwood G.P. Messrs.
Gumbiner, Troup and Guzzetti served on Hallwood G.P.'s Board of Directors which
made compensation decisions in January 1997. Mr. Gumbiner is Chief Executive
Officer and a director, and Mr. Guzzetti is President and a director, of
Hallwood Realty. During 1997, Mr. Gumbiner and Mr. Guzzetti served on the
compensation committee of Hallwood Realty.
The Company participates in a financial consulting agreement between HPI
and Hallwood Group pursuant to which Hallwood Group furnishes consulting and
advisory services to HPI, the Company and their affiliates. HPI and Hallwood
Group entered into a new financial consulting agreement effective January 1,
1997. Under the terms of the new agreement, HPI and its affiliates are obligated
to pay Hallwood Group $550,000 per year until June 30, 2000. The agreement
automatically renews for successive three year terms; either party may terminate
the agreement on not less than 30 days written notice prior to the expiration of
any three year term. The new financial consulting agreement replaces both a
previous financial consulting agreement and a compensation agreement with Mr.
Gumbiner. In 1997, the consulting services were provided by HSC Financial
Corporation, through the services of Mr. Gumbiner and Mr. Troup, and Hallwood
Group paid the annual fee it received to HSC Financial. A fee of approximately
$372,000 was paid in 1997 by the Company pursuant to this arrangement. See
ASummary Compensation Table@ and footnotes for additional discussion of this
arrangement.
The Company reimburses Hallwood Group for expenses incurred on behalf of
the Company. In 1997, the Company reimbursed Hallwood Group approximately
$213,200.
The Company and HPI entered into a Management Agreement in May 1992, which
provides that HPI will perform all operations on behalf of the Company and that
the Company will reimburse HPI at its cost for direct and indirect expenses
incurred by HPI for the benefit of the Company and its properties. The indirect
expenses for which HPI is reimbursed include employee compensation, office rent,
office supplies and employee benefits. These expenses are generally allocated by
multiplying the aggregate amount of the indirect expenses incurred by HPI by the
estimated time that the employees of HPI spend on managing the Company and
dividing by the aggregate time that the employees of HPI spend on all the
entities that HPI manages. The allocation of certain components of employee
compensation also takes into account the Company's performance relative to its
affiliates and the Company's ownership interest in certain wells. See "Board
Compensation Committee Report on Executive Compensation" below. The costs
charged to the Company by HPI are reviewed annually by the independent members
of the Board of Directors of the Company. HPI does not receive any fee for its
services. The management agreement is for a period of one year, and thereafter,
the management agreement may be extended for successive one-year terms upon the
approval of the independent directors of the Company. The management agreement
has been extended through May 1998. In 1997, the Company reimbursed HPI
approximately $2,081,000 for expenses, not including payments and reimbursements
to Hallwood Group identified above.
Board Compensation Committee Report on Executive Compensation
General. The Company has no employees. All management is provided by
employees of HPI pursuant to a management agreement. These employees also
provide services to HEP and several other affiliated entities (collectively, the
"Energy Companies"). Accordingly, the Company does not directly pay any
compensation but reimburses HPI for its costs and expenses. Individual
compensation is based on the individual's responsibilities and performance
relating to all of the Energy Companies. Salaries are allocated among the Energy
Companies based on a procedure that takes into account both the amount of time
spent on management and the number of properties owned by each entity. The cash
bonus pool is allocated among the Energy Companies based upon those factors and
the entity's performance relative to all of the Energy Companies. Awards under
the long-term incentive plan are allocated based upon the ownership of the wells
included in the plan. Because the compensation paid to HPI employees is
allocated to all of the Energy Companies, it is reviewed and approved by the
Compensation Committee of the general partner of HEP and by the Compensation
Committee of the Company. The compensation of the Energy Companies' management
employees, including executive officers, is reviewed and approved at least
annually.
During 1997, all compensation decisions were made by the Board of
Directors. In 1998, the full Board of Directors has continued to act as the
Compensation Committee in determining cash bonuses paid with respect to 1997 and
the salaries to be paid and other awards made in 1998. In determining 1997
compensation of key employees, the Energy Companies' compensation levels were
compared with those of comparable companies, as reported by compensation
consultants and other industry surveys. The comparable companies consist of
twelve independent oil and gas companies selected by consultants to the Energy
Companies and are not the same as those used in preparing the performance graph
appearing elsewhere in this Proxy Statement. For 1997, the compensation of the
Energy Companies' management employees consisted of three primary components:
salary and annual bonus, cash bonus and long-term incentive plan awards.
Salary. All non-hourly employees' salaries, except salaries of officers,
and annual bonuses are determined annually based on the individual employee's
level of responsibility and comparisons to similar positions in comparable
companies. Salaries of officers and other professional employees are generally
set at approximately 69% to 90% of the average base salaries paid by those
comparable companies. When an employee's position is not standard and cannot be
compared to similar positions in comparable companies, compensation is
determined in a discretionary process, taking into consideration the components
and overall responsibility of the employee's position.
Cash Bonus. The Board has determined to award certain management employees,
including executive officers, cash bonuses based on an assessment of a number of
quantitative and qualitative factors. The primary quantitative factors are
performance in reserve replacement, considering overall reserves found and
effectiveness of capital expenditures, in comparison to the historical
performance of independent oil and gas companies as a group, the production of
existing reserves in comparison to budget and the prior year, and general and
administrative expenses and operating costs in comparison to budget. Qualitative
factors include judgments regarding the effectiveness of management and
administration. Depending on the Energy Companies' success in these areas, total
salaries and cash bonuses paid to management employees may range from 69% of the
average compensation paid to similarly situated employees in comparable
companies if the Energy Companies perform poorly to as high as 500% of the
average compensation paid by comparable companies if the Energy Companies
perform very well. Based on comparisons of the Energy Companies' performance
with the historical performance of other independent oil and gas companies as a
group as reported by generally published industry statistics, the Compensation
Committee determined that the Energy Companies had a slightly better than
average year in the overall reserves found and a slightly less than average year
in the effectiveness of capital expenditures. The Board also concluded that the
effectiveness of management and administration and control of general and
administrative expenses deserved recognition. Therefore, the cash bonuses paid
to management employees as a group were set at levels that would result in their
total annual compensation being less than that paid by comparable companies. The
aggregate cash bonuses are allocated among the key and professional employees
based on the recommendation of senior management and a determination of the
employees' relative contributions to the Energy Companies during the year.
The Long-Term Incentive Plan. The Energy Companies' long-term incentive
plan is intended to provide incentive and motivation to the Energy Companies'
key employees, including the Company's executive officers and consultants, to
increase the oil and gas reserves of the Energy Companies and to enhance the
Energy Companies' ability to attract, motivate and retain key employees and
consultants upon whom, in large measure, the success of the Energy Companies
depends. Under the Incentive Plan, the Board annually determines the portion of
the Energy Companies' collective interests in the cash flow from certain
international projects and wells drilled, recompleted or enhanced during that
year (the "Plan Year") which will be allocated to participants in the plan. The
portion allocated to participants in the plan is referred to as the Plan Cash
Flow. The Board then determines which key employees and consultants may
participate in the plan for the Plan Year and allocates the Plan Cash Flow among
the participants. Awards under the plan do not represent any actual ownership
interest in the wells. Awards are made in the Board's discretion.
Each award under the plan represents the right to receive for five years a
specified share of the Plan Cash Flow attributable to certain domestic wells
drilled, recompleted or enhanced during the Plan Year. In the sixth year after
the award, the participant is paid an amount equal to a specified percentage of
the remaining net present value of estimated future production from the wells
and the award is terminated. Cash flow from international projects, if any,
allocated to the plan is paid to participants for a ten-year period, with no
buy-out for estimated future production. There are no international projects
allocated to the 1997 Plan. Accordingly, the value of awards under the 1997 Plan
depends primarily on the Energy Companies' success in drilling, completing and
achieving production from new wells each year and from certain recompletions and
enhancements of existing wells. The percentage of the Energy Companies' cash
flow from international projects and domestic wells completed in any Plan Year
to be allocated to Plan Cash Flow each Plan Year, the percentage of the
remaining net present value of estimated future production from domestic wells
for which the participants will receive payment in the sixth year of an award,
and the amount to be awarded to individual participants is determined by the
Board each year, after taking into consideration the recommendation of the
Energy Companies' executive officers.
The awards for the 1997 Plan Year were made in March 1997. For the 1997
Plan Year, the Compensation Committee determined that the total Plan Cash Flow
would be equal to 2.4% of the cash flow of the domestic wells completed during
the Plan Year. The Compensation Committee also determined that the participants'
interests in eligible domestic wells for the 1997 Plan Year would be purchased
in the sixth year at 80% of the remaining net present value of the wells
completed in the Plan Year. The Compensation Committee also determined that the
total award would be allocated among key employees primarily on the basis of
their position with the Energy Companies.
Chief Executive Officer. The Energy Companies engaged in certain
transactions with Hallwood Group, of which Mr. Gumbiner is Chairman and Chief
Executive Officer, during 1997. In addition, the Energy Companies have a
consulting agreement with Hallwood Group effective January 1, 1997, pursuant to
which the Energy Companies pay Hallwood Group a $550,000 annual consulting fee.
In 1997, the consulting services were provided by HSC Financial Corporation,
through Mr. Gumbiner and Mr. Troup, and Hallwood Group paid the annual fee it
received to HSC Financial. Both agreements were approved by the Board of
Directors of the Company, Mr. Gumbiner abstaining. See "Compensation Committee
Interlocks and Insider Participation" above. Mr. Gumbiner also participated in
the 1997 Incentive Plan which was allocated based on the recommendation of
senior management. Mr. Gumbiner and Mr. Troup abstained from the Board's
determinations on these matters.
Members of the Compensation Committee:
Anthony J. Gumbiner
Brian M. Troup
William L. Guzzetti
Jerry A. Lubliner
John R. Isaac, Jr.
Bill M. Van Meter
Hamilton P. Schrauff
Performance Graph
Below is a line graph comparing the percentage change in the cumulative
total shareholder return on the Company's Common Stock with the cumulative total
return of the NASDAQ Industrial Index ("NASDAQ Ind. Index") and Kirkpatrick
Energy Associates Large Cap E&P Index ("KEA Large Cap E&P") for the period
December 31, 1992 through December 31, 1997. Dividend reinvestment has been
assumed.
HCRC KEA Large NASDAQ Ind.
Cap E&P Index
Dec 92 100 100 100
Dec 93 104 117 111
Dec 94 68 98 104
Dec 95 81 115 133
Dec 96 237 147 153
Dec 97 227 135 168
OTHER BUSINESS
The Board of Directors knows of no other business that may properly be, or
that is likely to be, brought before the Annual Meeting. If, however, any other
matters are properly presented, it is the intention of the persons named in the
accompanying form of Proxy to vote the shares covered thereby as they deem
advisable in their discretion.
INDEPENDENT AUDITORS
Deloitte & Touche LLP currently serves the Company as independent auditors.
Representatives of Deloitte & Touche LLP will be present at the Annual Meeting
with the opportunity to make a statement if they desire to do so and will be
available to respond to appropriate questions from shareholders.
DATE FOR RECEIPT OF SHAREHOLDER PROPOSALS
Pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as
amended, shareholders may present proper proposals for inclusion in the
Company's proxy statement and for consideration at its Annual Meeting of
Shareholders by submitting their proposals to the Company in a timely manner. In
order to be included for the 1999 Annual Meeting, shareholder proposals must be
received by the Company by November 30, 1998, which is approximately 120 days in
advance of the date the Company anticipates mailing the proxy statement for the
Company's 1999 Annual Meeting of Shareholders, and must otherwise comply with
the requirements of Rule 14a-8.
By Order of the Board of Directors
Cathleen M. Osborn
Secretary
March 31, 1998
Dallas, Texas