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:
[ ] 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 Section 240.14a-11(c) or Section
240.14a-12
HALLWOOD ENERGY CORPORATION
(Name of Registrant as Specified In Its Charter)
HALLWOOD ENERGY CORPORATION
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(j)(2) or
Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(j)(3).
[ ] 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:
........................................................................
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
........................................................................
(4) Proposed maximum aggregate value of transaction:
........................................................................
(5) Total Fee Paid:
........................................................................
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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HALLWOOD ENERGY CORPORATION
3710 Rawlins Street, Suite 1500
Dallas, Texas 75219
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
to Be Held May 14, 1996
To the Shareholders of HALLWOOD ENERGY CORPORATION:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of
Hallwood Energy Corporation (the "Company") will be held at 3710 Rawlins
Street, Suite 1500, Dallas, Texas on May 14, 1996 at 10:00 a.m. (Dallas time)
for the following purposes:
1. To elect six 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, 1996
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, 1996
Dallas, Texas
HALLWOOD ENERGY CORPORATION
3710 RAWLINS STREET, SUITE 1500
DALLAS, TEXAS 75219
PROXY STATEMENT FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 14, 1996
SOLICITATION AND REVOCABILITY OF PROXIES
The accompanying Proxy is solicited on behalf of the Board of Directors of
Hallwood Energy Corporation (the "Company") to be voted at the Annual Meeting
of Shareholders of the Company (the "Annual Meeting") to be held on May 14,
1996, at 10:00 a.m., at 3710 Rawlins Street, Suite 1500, Dallas, Texas, 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 4, 1996.
The accompanying form of Proxy is designed to permit each shareholder to
vote for, or to withhold voting for, any or all of the nominees for election
as directors of the Company listed under Proposal 1 and 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."
The Company encourages the personal attendance of shareholders at its
annual meetings, and 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, 1995, 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 six 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, 1996 (the "Record Date"). On the Record
Date, there were 792,126 shares of Common Stock issued and outstanding.
REQUIRED VOTE
The Company's Restated Articles of Incorporation prohibit 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 Boston
EquiServe (formerly known as The First National Bank of Boston) 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 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. Unless otherwise indicated, each of the persons
named has sole voting and investment power with respect to the shares
reported.
<TABLE>
<CAPTION>
AMOUNT
NAME AND ADDRESS BENEFICIALLY PERCENT OF
OF BENEFICIAL OWNER OWNED COMMON STOCK
-------------------- ----------- --------------
<S> <S> <S>
The Hallwood Group Incorporated 633,917 80
3710 Rawlins Street, Suite 1500
Dallas, Texas 75219
</TABLE>
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
(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. Mr.
Guzzetti has sole voting and investment power with respect to the shares
reported.
<TABLE>
<CAPTION>
AMOUNT
NAME OF BENEFICIALLY PERCENT OF
BENEFICIAL OWNER OWNED COMMON STOCK
---------------- ------------ --------------
<S> <S> <S>
William L. Guzzetti 285 *
All directors and
executive officers as a
group (nine individuals) 285 *
<F1>
* Represents less than 1% of the outstanding Common Stock.
</TABLE>
The table above does not include the shares of Common Stock held by The
Hallwood Group Incorporated ("Hallwood Group") of which Mr. Gumbiner is
Chairman and Chief Executive Officer and Mr. Troup is President and a
director.
Alpha Trust beneficially owns 297,167 shares of common stock (22.3% of the
outstanding common stock) of Hallwood Group, the parent of the Company, and
Epsilon Trust beneficially owns 198,112 shares of common stock (14.9%) of
Hallwood Group. Mr. Gumbiner has the power to designate and replace the
trustees of Alpha Trust, and Mr. Troup has the power to designate and replace
the trustees of Epsilon Trust. No other director or executive officer of the
Company owns any equity securities of Hallwood Group. The Company owns
267,709 shares of Common Stock (16.8%) of Hallwood Group.
The Company is general partner of Hallwood Energy Partners, L.P. (the
"Partnership") a limited partnership. Mr. Guzzetti owns 100 Class A Units of
limited partner interest and 6 Class C Units (less than .01% of each class)
and currently exercisable options to acquire 42,500 Units (less than 1%,
assuming exercise of the options) of the Partnership. Mr. Sebastian owns 400
Class A Units and 26 Class C Units (less than .01% of each class) of the
Partnership. Mr. Troup owns currently exercisable options to acquire 56,666
Class A Units (less than 1%, assuming exercise of the options) of the
Partnership, and Mr. Gumbiner owns currently exercisable options to acquire
85,000 Class A Units (less than 1%, assuming exercise of the options) of the
Partnership. No other director of the Company owns Units of the Partnership.
Executive officers of the Company, including Mr. Guzzetti, own 403 Class A
Units and 26 Class C Units and currently exercisable options to purchase
201,166 Class A Units (2%, assuming exercise of the options) of the
Partnership.
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, 1995, 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 1997 Annual Meeting of Shareholders. The Bylaws of the Company provide
that the Company's Board of Directors must consist of not fewer than three,
nor more than eleven, directors and that the number of directors, within such
limits, 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
six. The six 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 1997 Annual Meeting of Shareholders or 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.
<TABLE>
<CAPTION>
YEAR FIRST
ELECTED
NAME POSITION DIRECTOR
-------- ---------- ----------
<S> <S> <S>
Anthony J. Gumbiner Chairman of the Board and Director 1984
William L. Guzzetti President and Director 1985
Brian M. Troup Director 1984
Hans-Peter Holinger Director 1984
Rex A. Sebastian Director 1993
Nathan C. Collins Director 1995
</TABLE>
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, 51, has served as a director and as Chairman of the
Board and Chief Executive Officer of the Company since May 1984 and February
1987, respectively. He has also served as Chairman of the Board of Directors
of 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. 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
and as a director of ShowBiz Pizza Time, Inc., a company primarily engaged in
the restaurant business, since September 1988. He has been a director of
Hallwood Consolidated Resources Corporation ("HCRC") since June 1992 and 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, 52, has been President, Chief Operating Officer and a
director of the Company since February 1985. Mr. Guzzetti joined the Company
in February 1976 as Vice President, Secretary and General Counsel and served
in these positions until November 1980. He served as Senior Vice President,
Secretary and General Counsel from November 1980 until February 1985, when he
assumed his current office. 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. He is a director and President of HCRC.
Brian M. Troup, 49, has served as a director of the Company since May
1984. He has been President and Chief Operating Officer of Hallwood Group
since April 1986, and he is a director. He is a director of Hallwood
Holdings S.A. and a director of ShowBiz Pizza Time, Inc. He is also a
director of HCRC and 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.
Hans-Peter Holinger, 53, is a citizen of Switzerland. He served as
Managing Director of Interallianz Bank Zurich A.G. from 1977 to February
1993. Since February 1993, he has been the majority owner of Holinger Asset
Management AG, Zurich.
Rex A. Sebastian, 66, has served as a director of the Company since
January 1993. Mr. Sebastian is a member of the Boards of Directors of The
Phoenix Resource Companies, Inc. and Ferro Corporation. Mr. Sebastian served
as Senior Vice President--Operations of Dresser Industries, Inc. from January
1975 until his retirement in July 1985. He joined Dresser in 1966. Mr.
Sebastian is now a private investor.
Nathan C. Collins, 61, was appointed a director of the Company in March
1995. From March 1, 1995 to March 1, 1996, he was President, Chief Executive
Officer and a director of Flemington National Bank & Trust Co. in Flemington,
New Jersey. From November 1987 until December 1994, he was Chairman of the
Board of Directors, President and Chief Executive Officer of BancTexas Group
Inc. He began his banking career in August 1964 with the Valley National
Bank in Phoenix, Arizona and held various positions there, finally becoming
Executive Vice President, Senior Credit Officer and Manager of
Asset/Liability Group of the bank. Mr. Collins is now a private investor.
BUSINESS EXPERIENCE OF EXECUTIVE OFFICERS
Following are brief biographies of the executive officers of the Company,
other than Mr. Guzzetti.
Russell P. Meduna, 41, became Executive Vice President of the Company in
June 1991. He was Vice President from May 1990 until June 1991. Mr. Meduna
has been Executive Vice President of Hallwood G.P., Inc. ("HGP") and Hallwood
Petroleum, Inc. ("HPI") which are affiliates of the Company, since October
1989. Mr. Meduna was Vice President of such entities from April 1989 to
October 1989 and Manager of Operations from January 1989 to April 1989. He
joined HPI in 1984 as Production Manager. Mr. Meduna is also Executive Vice
President of HCRC. He is a registered professional engineer in the States
of Colorado and Texas.
Cathleen M. Osborn, 43, became Vice President, Secretary and General
Counsel of the Company in June 1991. Ms. Osborn has been Vice President,
Secretary and General Counsel of HGP and HPI since October 1986 and of HCRC
since June 1992. She joined HGP and HPI in 1985 as senior staff attorney.
Ms. Osborn is a member of the Colorado Bar Association.
Robert S. Pfeiffer, 39, became Chief Financial Officer of the Company in
June 1994. He has been a Vice President of the Company since June 1991.
Mr. Pfeiffer has been Vice President of HGP and HPI since October 1986 and of
HCRC since June 1992. He joined HGP and HPI in 1984. From July 1979 to May
1984, he was employed by Price Waterhouse as a senior accountant. Mr.
Pfeiffer is a member of the Colorado Society of Certified Public Accountants.
COMMITTEES; MEETINGS OF THE BOARD
The Board's Audit Committee, composed in 1995 of Messrs. Holinger,
Sebastian and Collins, recommends to the Board the firm to be employed as the
Company's and the Partnership'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 four meetings during 1995. The principal
function of the Compensation Committee is to review the compensation plans
for directors, officers and other personnel. The Compensation Committee held
one meeting in 1995 and a meeting in January 1996. At both meetings, the
entire Board of Directors acted as the Compensation Committee. See
"Executive Compensation - Board Compensation Committee Report on Executive
Compensation." The Board's Executive Committee, composed of Messrs.
Gumbiner, Troup and Guzzetti, is authorized to exercise all the authority of
the Board in the business and affairs of the Company, except as limited by
applicable law. The Board's Executive Committee held no meetings during
1995. The Board's Special Committee to act upon the Rights Plan for the
Partnership is composed of Messrs. Holinger and Sebastian, and it held one
meeting during 1995. The Company does not have a standing Nominating
Committee.
The Board of Directors held four regularly scheduled meetings and four
special meetings during 1995. 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.
EXECUTIVE COMPENSATION
COMPENSATION OF EXECUTIVE OFFICERS
The Company has no employees. Management services are provided to the
Company by HPI, an affiliated entity. Employees of HPI perform all duties
related to the management of the Company and its affiliated entities,
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.
The following table sets forth the compensation paid by HPI for the years
ended December 31, 1995, 1994 and 1993 to the Chief Executive Officer and
each of the four other most highly compensated officers (determined for the
year ended December 31, 1995).
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long Term
Annual Compensation Compensation
------------------- ------------
<S> <S> <S> <S> <S> <S>
LTIP All Other
Name & Principal Position Year Salary Bonus Payouts Compensation (1)
------------------------- ----- ---------- -------- ------------ ----------------
Anthony J. Gumbiner (2) 1995 $250,000 $ 0 $ 0 $ 0
Chief Executive Officer 1994 125,000 0 0 0
1993 0 0 0 0
William L. Guzzetti 1995 204,412 75,000 15,753 6,004
President and Chief 1994 200,240 72,800 9,449 6,004
Operating Officer 1993 200,240 65,000 5,227 6,004
Russell P. Meduna 1995 167,364 161,000 15,753 4,810
Executive Vice President 1994 164,024 24,200 9,449 4,409
1993 167,356 62,500 5,227 4,477
Robert S. Pfeiffer 1995 109,949 94,000 11,692 3,160
Vice President and 1994 107,755 25,700 6,963 3,160
Chief Financial Officer 1993 109,941 47,025 3,851 3,171
Cathleen M. Osborn 1995 109,069 95,000 11,692 3,160
Vice President and 1994 105,848 24,600 6,963 3,160
General Counsel 1993 104,353 50,000 3,851 3,027
______________________
<F1>
(1) Employer contribution to 401(k) account.
<F2>
(2) Mr. Gumbiner has a Compensation Agreement with HPI pursuant to which HPI
pays Mr. Gumbiner $250,000 per year. The Compensation Agreement was
effective August 1, 1994 and continues in effect until terminated by
either party on not less than six months' notice. In addition to
compensation listed in the table, HPI has a consulting agreement with
Hallwood Group which expires June 30, 1997, pursuant to which Hallwood
Group receives an annual consulting fee of $300,000. In 1994 and 1995,
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.
</TABLE>
In 1995, $21,034 of the compensation listed above was allocated by HPI to
the Company and $556,404 was allocated to the Partnership. In 1994, $18,594
was allocated to the Company and $426,099 was allocated to the Partnership.
In 1993, $18,684 was allocated to the Company and $471,309 was allocated to
the Partnership.
In addition to the foregoing, the Partnership and HCRC awarded options to
persons who serve as directors and officers of the Company and HCRC. Those
options are described in the separate reports filed with the Securities and
Exchange Commission by the Partnership and HCRC.
LONG-TERM INCENTIVE PLAN AWARDS
The following table describes performance units awarded to the executive
officers of the Company for 1995 under the Domestic Incentive Plan and
International 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 aggregate awards under the plans for the Company, the Partnership and
HCRC; the awards were allocated 2% to the Company, 45% to the Partnership and
53% to HCRC, based on the ownership of the wells included in the plans.
<TABLE>
LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
<CAPTION>
Number Performance or Estimated Future
of Other Period Payouts under Non-Stock
Name Units Until Payout Price-Based Plans
------ ------ -------------- -----------------------
<S> <S> <S> <S>
Anthony J. Gumbiner .30 2005 $ 0 (2)
William L. Guzzetti .15 2001 41,939 (1)
.10 2005 0 (2)
Russell P. Meduna .15 2001 41,939 (1)
.10 2005 0 (2)
Robert S. Pfeiffer .10 2001 27,959 (1)
.07 2005 0 (2)
Cathleen M. Osborn .10 2001 27,959 (1)
.07 2005 0 (2)
_______________________
<F1>
(1) This amount represents an award under the Domestic Incentive Plan.
There are no minimum, maximum or target amounts payable under the
Domestic 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. 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.
<F2>
(2) This amount represents an award under the International Incentive Plan.
There are no minimum, maximum or target amounts payable under the
International Incentive Plan. Payments under the awards will be equal
to the indicated percentage of gross revenues, net of costs of
transportation and marketing, from international projects. The
Partnership and HCRC have not recorded any proved reserves attributable
to international projects, so the current estimated future payout for
the 1995 awards is $0.
</TABLE>
DIRECTOR COMPENSATION
Each director of the Company who is not an officer or employee of, or
consultant to, the Company is entitled to receive an annual fee of $20,000
which will be proportionately reduced if the director attends fewer than four
regularly scheduled meetings of the Board of Directors during any calendar
year. In addition, all directors are reimbursed for their expenses in
attending meetings of the Board of Directors and committees. In 1995, Mr.
Sebastian received $20,000, and Messrs. Collins and Holinger each received
$15,000.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The entire Board of Directors served as the Compensation Committee of the
Company during fiscal year 1995. Mr. Gumbiner is also Chief Executive
Officer of the Company. He is a director and serves on the compensation
committee of Hallwood Group, of which Mr. Troup is President and Mr. Guzzetti
is Executive Vice President. Mr. Gumbiner is also Chief Executive Officer
and a director of HCRC, Mr. Troup is a director of HCRC, and Mr. Guzzetti is
a director and President of HCRC. The Board of HCRC made compensation
decisions for HCRC in 1995 and January 1996. Mr. Gumbiner is Chief Executive
Officer and a director, and Mr. Guzzetti is President and a director, of
Hallwood Realty. During 1994, Messrs. Gumbiner and Guzzetti served on the
compensation committee of Hallwood Realty.
HPI has a financial consulting agreement with Hallwood Group pursuant to
which Hallwood Group furnishes consulting and advisory services to the
Company and the Partnership and their affiliates. Under the terms of the
financial consulting agreement, HPI is obligated to pay Hallwood Group three
annual payments of $300,000 beginning June 30, 1994, and Hallwood Group is
obligated to furnish consulting and advisory services to HPI, the Partnership
and their affiliates through June 30, 1997. In 1995, 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. Of the $300,000 fee paid in 1995, approximately $9,160 was
paid by the Company, $156,000 was paid by the Partnership and the remainder
was paid by other affiliates.
The Company and the Partnership reimburse Hallwood Group for expenses
incurred on behalf of the Company and the Partnership. In 1995, the Company
reimbursed Hallwood Group approximately $19,000, and the Partnership
reimbursed Hallwood Group approximately $369,000.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
General. The Company's primary activity is to serve as general partner of
the Partnership, which in turn controls several other entities (collectively,
the "Energy Companies"). The Company has no employees; all management is
provided by employees of HPI which provides services to all of 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 the entity's
performance relative to all of the Energy Companies. Awards under the long-
term incentive plans are allocated based upon these factors and the ownership
of the wells included in the plans. 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 Company on behalf of the
Company. The compensation of the Energy Companies' management employees,
except salaries of officers, is reviewed and approved at least annually.
During 1995, awards under the Domestic Incentive Plan and the
International Incentive Plan and determination of salaries for management
employees other than officers were made by the full Board of Directors acting
as the Compensation Committee. In January 1996, the full Board of Directors
again acted as the Compensation Committee in determining cash bonuses paid
with respect to 1995 and the salaries to be paid and other awards made in
1996. In determining 1995 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 1995, the compensation of the Energy Companies'
management employees consisted of four primary components: salary and annual
bonus, cash bonus and long-term incentive plan awards. In addition,
directors and executive officers of the Company received options from the
Partnership and from HCRC. Those options are described in the separate
filings with the Securities and Exchange Commission by the Partnership and
HCRC.
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 are determined every three years based on
the same criteria. Salaries of officers and other professional employees are
generally set at approximately 74% 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 finding, 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 74% 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 an above-average year in overall reserves found, the effectiveness of
capital expenditures and the production of existing reserves. The Board also
concluded that the effectiveness of management and administration and control
of 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 120% of 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 Plans. During 1995, the Energy Companies' long-
term incentive plans consisted of a Domestic Incentive Plan for domestic
properties and an International Incentive Plan for international projects.
Both plans are intended to provide incentive and motivation to the Energy
Companies' key employees, including the Company's executive officers, 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 upon
whom, in large measure, the success of the Energy Companies depends.
The Domestic Incentive Plan. Under the Domestic Incentive Plan, the Board
annually determines the portion of the Energy Companies' collective interests
in the cash flow from certain 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 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 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. Accordingly, the value of awards under the 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 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 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 1995 Plan Year were made in January 1995. For the 1995
Plan Year, the Compensation Committee determined that the total Plan Cash
Flow would be equal to 1.4% of the cash flow of the wells completed during
the Plan Year. The Compensation Committee also determined that the
participants' interests for the 1995 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 total award was allocated among employees based on the
recommendation of senior management.
The International Incentive Plan. The International Incentive Plan awards
were made in January 1995. Under the Plan, awards were made entitling the
participants to receive for ten years from the date of first production an
aggregate of 3% of the gross revenues, net of the costs of transportation and
marketing, from international projects active during the 1995 Plan Year. The
Board determines which key employees may participate in the Plan for the Plan
Year and allocates the awards among the participants. Awards under the Plan
do not represent any actual ownership interests in any international projects
and are made in the Board's discretion.
Chief Executive Officer. Effective August 1, 1994, Mr. Gumbiner has a
Compensation Agreement with HPI pursuant to which HPI pays Mr. Gumbiner for
providing consultation and assistance in maintaining relationships with
foreign governments and negotiating contracts outside the United States. The
Energy Companies also engaged in certain transactions with Hallwood Group, of
which Mr. Gumbiner is Chairman and Chief Executive Officer, during 1995. In
addition, the Energy Companies have a consulting agreement with Hallwood
Group effective June 30, 1993 and expiring June 30, 1997, pursuant to which
the Energy Companies pay Hallwood Group a $300,000 annual consulting fee.
In 1995, 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 domestic and international incentive plans discussed
above, which were allocated based on the recommendation of senior management.
Mr. Gumbiner abstained from the Board's determinations on these matters.
Members of the Board Who Participated in Compensation
Decisions in January 1995 and 1996:
Anthony J. Gumbiner
Brian M. Troup
Hans-Peter Holinger
Rex A. Sebastian
William L. Guzzetti
Member of the Board Who Participated in Compensation
Decisions in January 1996:
Nathan C. Collins
PERFORMANCE GRAPH
Below is a line graph comparing the yearly percentage change in the
cumulative total shareholder return on the Company's Common Stock with the
cumulative total return of the Standard & Poor's 500 Composite Stock Index
("S&P 500") and Kirkpatrick Energy Associates Small Cap E&P Index ("KEA Small
Cap E&P") for the period beginning December 31, 1990 through December 31,
1995. Dividend reinvestment has been assumed.
<TABLE>
5 YEAR CUMULATIVE TOTAL SHAREHOLDER RETURN VS.
VARIOUS INDICES
<CAPTION>
Hallwood Energy KEA Small
Year Corporation S&P 500 Cap E&P
------ --------------- -------- ---------
<S> <S> <S> <S>
1990 100 100 100
1991 107.1429 104.2204 74
1992 108.9286 108.8756 103
1993 185.7143 116.5517 140
1994 199.2857 114.7626 133
1995 246.5581 153.9055 148
</TABLE>
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 1997 Annual Meeting, shareholder proposals
must be received by the Company by November 30, 1996, which is approximately
120 days in advance of the date the Company anticipates mailing the proxy
statement for the Company's 1997 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, 1996
Dallas, Texas
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
HALLWOOD ENERGY CORPORATION
FOR ANNUAL MEETING OF SHAREHOLDERS MAY 14, 1996
The undersigned hereby appoints WILLIAM L. GUZZETTI and CATHLEEN
M. OSBORN, and each of them, with full power of substitution,
proxies of the undersigned at the Annual Meeting of Shareholders
of Hallwood Energy Corporation, to be held at 3710 Rawlins, Suite
1500, Dallas, Texas 75219, on Tuesday, May 14, 1996 at 10:00
a.m., and at all adjournments or postponements thereof, and
hereby authorizes them to represent and to vote all of the shares
of the undersigned as fully as the undersigned could do if
personally present. Said proxies are herein specifically
authorized to vote the shares of the Company which the
undersigned is entitled to vote in the election of Directors and
to vote said shares upon such other matters as may properly come
before the Meeting or any adjournment or postponement thereof, as
the above named proxies shall determine.
The shares represented by this Proxy will be voted for Proposals
1 and 2 if no instruction to the contrary is indicated or if no
instruction is given.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
1. Election of Directors:
Nominees: For a term expiring at the 1996 Annual Meeting:
ANTHONY J. GUMBINER, BRIAN M. TROUP, WILLIAM L. GUZZETTI, HANS-
PETER HOLINGER, REX A. SEBASTIAN AND NATHAN C. COLLINS
To withhold authority to vote for any individual nominee,
write the nominee's name in the space provided below.
--------------------------------------------------------------
------ FOR ALL NOMINEES
------ WITHHOLD AUTHORITY TO VOTE FOR ALL NOMINEES
2. To transact such other business as may properly come before the
meeting and all adjournments or postponements thereof.
FOR AGAINST ABSTAIN
---- ---- ----
If no specification is made with respect hereto, such shares will be
voted FOR the election of these Directors and either for or against
such other matters as may properly come before the meeting or any
adjournment or postponement thereof, as the above named proxies may
determine.
MARK HERE FOR ADDRESS ------
CHANGE AND NOTE AT LEFT
Sign exactly as name appears on your stock certificate. When
signing as attorney, executor, administrator, guardian or corporate
official, please give your full title as such.
Signature:----------------------------------------------------------
Date:-----------------------------
Signature:----------------------------------------------------------
Date:-----------------------------
