<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 10-Q
MARK ONE
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________________ TO _____________________
FOR THE PERIOD ENDED OCTOBER 31, 1994 COMMISSION FILE NUMBER: 1-8303
_____________________
THE HALLWOOD GROUP INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 51-0261339
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3710 RAWLINS
SUITE 1500
DALLAS, TEXAS 75219
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 528-5588
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
--- ---
INDICATE BY CHECK MARK WHETHER THE REGISTRANT HAS FILED ALL DOCUMENTS AND
REPORTS REQUIRED TO BE FILED BY SECTION 12, 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 SUBSEQUENT TO THE DISTRIBUTION OF SECURITIES UNDER A PLAN
CONFIRMED BY A COURT. YES NO NOT APPLICABLE X
--- --- ---
6,383,267 SHARES OF COMMON STOCK WERE OUTSTANDING AT NOVEMBER 30, 1994,
INCLUDING 896,000 SHARES OWNED BY THE COMPANY'S HALLWOOD ENERGY CORPORATION
SUBSIDIARY.
================================================================================
Page 1
<PAGE> 2
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM NO. PART I - FINANCIAL INFORMATION PAGE
- - -------- ------------------------------ ----
<S> <C> <C>
1 Financial Statements:
Consolidated Balance Sheets as of October 31, 1994
and July 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-4
Consolidated Statements of Operations for the
Three Months Ended October 31, 1994 and 1993 . . . . . . . . . . . . . . . 5-6
Consolidated Statements of Cash Flows for the
Three Months Ended October 31, 1994 and 1993 . . . . . . . . . . . . . . . 7
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . 8-13
2 Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . . . . . . 14-17
PART II - OTHER INFORMATION
---------------------------
1 thru 6 Exhibits, Reports on Form 8-K and Signature Page . . . . . . . . . . . . . . 18-52
</TABLE>
Page 2
<PAGE> 3
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
October 31, July 31,
1994 1994
---------- ----------
(Unaudited) (Audited)
<S> <C> <C>
ASSET MANAGEMENT
REAL ESTATE
Properties, net . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,643 $ 8,119
Investments in HRP . . . . . . . . . . . . . . . . . . . . . . . . . 6,752 6,927
Mortgage loans, net . . . . . . . . . . . . . . . . . . . . . . . . . 1,917 2,021
Receivables and other assets . . . . . . . . . . . . . . . . . . . . 390 406
-------- --------
17,702 17,473
ENERGY
Oil and gas properties, net . . . . . . . . . . . . . . . . . . . . . 11,002 11,005
Current assets of HEP . . . . . . . . . . . . . . . . . . . . . . . . 1,967 2,976
Noncurrent assets of HEP . . . . . . . . . . . . . . . . . . . . . . 1,868 1,868
Receivables and other assets . . . . . . . . . . . . . . . . . . . . 1,386 1,437
-------- --------
16,223 17,286
-------- --------
TOTAL ASSET MANAGEMENT ASSETS . . . . . . . . . . . . . . . . . . 33,925 34,759
OPERATING SUBSIDIARIES
TEXTILE PRODUCTS
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,988 12,910
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,470 12,723
Property, plant and equipment, net . . . . . . . . . . . . . . . . . 8,324 8,301
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 969 982
-------- --------
36,751 34,916
HOTELS
Properties, net . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,702 22,784
Receivables and other assets . . . . . . . . . . . . . . . . . . . . 2,396 3,671
-------- --------
25,098 26,455
-------- --------
TOTAL OPERATING SUBSIDIARIES ASSETS . . . . . . . . . . . . . . . 61,849 61,371
ASSOCIATED COMPANIES
Investment in ShowBiz Pizza Time, Inc. . . . . . . . . . . . . . . . 16,693 16,444
-------- --------
TOTAL ASSOCIATED COMPANIES ASSETS . . . . . . . . . . . . . . . . 16,693 16,444
OTHER
Deferred tax asset, net . . . . . . . . . . . . . . . . . . . . . . . 5,450 5,900
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . 4,490 5,728
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . 783 1,482
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 718 1,412
Investment in insurance contracts . . . . . . . . . . . . . . . . . . -- 229
-------- --------
TOTAL OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . 11,441 14,751
-------- --------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . $123,908 $127,325
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 3
<PAGE> 4
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
October 31, July 31,
1994 1994
-------- --------
(Unaudited) (Audited)
<S> <C> <C>
ASSET MANAGEMENT
REAL ESTATE
Loans payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,715 $ 7,399
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . 270 492
-------- --------
6,985 7,891
ENERGY
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,865 7,153
Long-term obligations of HEP . . . . . . . . . . . . . . . . . . . . . 4,056 4,858
Current liabilities of HEP . . . . . . . . . . . . . . . . . . . . . . 2,420 2,470
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . 174 148
-------- --------
13,515 14,629
-------- --------
TOTAL ASSET MANAGEMENT LIABILITIES . . . . . . . . . . . . . . . . . 20,500 22,520
OPERATING SUBSIDIARIES
TEXTILE PRODUCTS
Loans payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,305 8,451
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . 8,024 6,079
-------- --------
17,329 14,530
HOTELS
Loans payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,967 12,204
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . 4,916 4,460
-------- --------
16,883 16,664
-------- --------
TOTAL OPERATING SUBSIDIARIES LIABILITIES . . . . . . . . . . . . . 34,212 31,194
ASSOCIATED COMPANIES
Loans payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,250 10,000
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . 138 26
-------- --------
TOTAL ASSOCIATED COMPANIES LIABILITIES . . . . . . . . . . . . . . 9,388 10,026
OTHER
7% Collateralized Senior Subordinated Debentures . . . . . . . . . . 26,730 26,866
13.5% Subordinated Debentures . . . . . . . . . . . . . . . . . . . . 22,902 22,902
Interest and other accrued expenses . . . . . . . . . . . . . . . . . 3,007 5,840
-------- --------
TOTAL OTHER LIABILITIES . . . . . . . . . . . . . . . . . . . . . 52,639 55,608
-------- --------
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . 116,739 119,348
CONTINGENCIES AND COMMITMENTS
STOCKHOLDERS' EQUITY
Preferred stock, $0.10 par value; authorized 500,000 shares; unissued -- --
Common stock, $0.10 par value; authorized 10,000,000 shares;
issued 6,394,709 shares at both dates;
outstanding 5,487,267 shares at both dates . . . . . . . . . . . . 639 639
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . 56,489 56,442
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . (44,156) (42,894)
Equity adjustment from foreign currency translation . . . . . . . . . 493 86
Treasury stock, 907,442 shares at both dates; at cost . . . . . . . . (6,296) (6,296)
-------- --------
TOTAL STOCKHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . 7,169 7,977
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY . . . . . . . . . . $123,908 $127,325
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 4
<PAGE> 5
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
October 31,
-------------------
1994 1993
------- -------
<S> <C> <C>
ASSET MANAGEMENT
REAL ESTATE
Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 858 $ 1,199
Rentals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171 153
Interest and discounts from mortgage loans . . . . . . . . . . . . . . . 71 94
Loss from investments in HRP . . . . . . . . . . . . . . . . . . . . . . (8) (210)
------- ------
1,092 1,236
Administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . 244 290
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . 243 331
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182 168
Provision for losses . . . . . . . . . . . . . . . . . . . . . . . . . . 11 --
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 3
------- ------
687 792
------- ------
Income from real estate operations . . . . . . . . . . . . . . . . . . 405 444
ENERGY OPERATIONS
Oil and gas revenues . . . . . . . . . . . . . . . . . . . . . . . . . . 1,463 1,519
Other income (including intercompany
amounts of $57 and $66, respectively) . . . . . . . . . . . . . . . . 157 211
------- ------
1,620 1,730
Depreciation, depletion and amortization . . . . . . . . . . . . . . . . 500 487
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 383 418
Administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . 186 245
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134 152
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 114
------- ------
1,289 1,416
------- ------
Income from energy operations . . . . . . . . . . . . . . . . . . . . 331 314
------- ------
INCOME FROM ASSET MANAGEMENT OPERATIONS . . . . . . . . . . . . . . . 736 758
OPERATING SUBSIDIARIES
TEXTILE PRODUCTS
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,986 17,984
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,888 15,608
Administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . 1,432 1,353
Selling expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 504 509
Interest (including intercompany amounts of $16 and $20, respectively) . 160 170
------- ------
16,984 17,640
------- ------
Income from textile products operations . . . . . . . . . . . . . . . 2 344
</TABLE>
See accompanying notes to consolidated financial statements.
Page 5
<PAGE> 6
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
October 31,
-------------------
1994 1993
------ ------
<S> <C> <C>
OPERATING SUBSIDIARIES (CONTINUED)
HOTELS
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,693 $3,887
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,813 3,596
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . 648 376
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 308 171
-------- --------
5,769 4,143
-------- --------
Loss from hotel operations . . . . . . . . . . . . . . . . . . . . . . (76) (256)
-------- --------
INCOME (LOSS) FROM OPERATING SUBSIDIARIES . . . . . . . . . . . . . . (74) 88
ASSOCIATED COMPANIES
Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201 578
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181 109
-------- --------
INCOME FROM ASSOCIATED COMPANIES . . . . . . . . . . . . . . . . . . . 20 469
OTHER
Fee income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106 31
Interest on short-term investments and other income . . . . . . . . . . . 46 95
-------- --------
152 126
Interest (net of intercompany amounts of $73 and $86, respectively) . . . 1,070 1,089
Administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . 468 562
-------- --------
1,538 1,651
------ -----
OTHER LOSS, NET . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,386) (1,525)
-------- --------
Loss before income taxes . . . . . . . . . . . . . . . . . . . . . . . . (704) (210)
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 558 1,130
-------- --------
NET LOSS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1,262) $ (1,340)
======== ========
PER COMMON SHARE (PRIMARY)
Net loss per common share . . . . . . . . . . . . . . . . . . . . . . $ (0.23) $( 0.24)
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 6
<PAGE> 7
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
October 31,
------------------
1994 1993
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(1,262) $(1,340)
Adjustments to reconcile net loss to net cash
(used in) operating activities:
Net change in accrued interest on 13.5% Debentures . . . . . . . . . . . . . . (2,304) (2,310)
Depreciation, depletion and amortization . . . . . . . . . . . . . . . . . . . 1,661 1,470
Undistributed income from energy affiliate . . . . . . . . . . . . . . . . . . (1,084) (1,031)
Distributions from energy affiliate . . . . . . . . . . . . . . . . . . . . . . 635 344
Net change in deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . 450 1,083
Equity in net income/(loss) of associated company/affiliate . . . . . . . . . . (193) (368)
Amortization of deferred gain from debenture exchange . . . . . . . . . . . . . (136) (144)
Proceeds from collections of mortgage loans . . . . . . . . . . . . . . . . . . 116 192
Amortization of mortgage loan discounts . . . . . . . . . . . . . . . . . . . . (12) (12)
Provision for losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 --
Net change in textile products assets and liabilities . . . . . . . . . . . . . 116 931
Net change in energy assets and liabilities . . . . . . . . . . . . . . . . . . (68) (31)
Net change in other assets and liabilities . . . . . . . . . . . . . . . . . . 50 240
------- -------
Net cash (used in) operating activities . . . . . . . . . . . . . . . . . . . (2,020) (976)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of real estate and hotel assets . . . . . . . . . . . . . . . 1,179 --
Proceeds from sale of marketable securities . . . . . . . . . . . . . . . . . . . 610 --
Capital expenditures and acquisition of real estate and hotels . . . . . . . . . (556) (396)
Investments in textile products property and equipment . . . . . . . . . . . . . (276) (194)
Proceeds from sale of insurance contracts . . . . . . . . . . . . . . . . . . . . 229 180
Net change in restricted cash for investing activities . . . . . . . . . . . . . (72) 226
Investments in energy property and equipment . . . . . . . . . . . . . . . . . . (34) (47)
Disbursements related to Integra - asset held for sale . . . . . . . . . . . . . -- (424)
Investments in associated company/affiliate . . . . . . . . . . . . . . . . . . . -- (9)
------- -------
Net cash provided by (used in) investing activities . . . . . . . . . . . . . 1,080 (664)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank borrowings and loans payable . . . . . . . . . . . . . . . . . 900 --
Repayment of bank borrowings and loans payable . . . . . . . . . . . . . . . . . (1,991) (1,766)
Net change in restricted cash for financing activities . . . . . . . . . . . . . 771 (12)
Purchase of capital stock by energy subsidiary for treasury . . . . . . . . . . . -- (1,454)
------- -------
Net cash (used in) financing activities . . . . . . . . . . . . . . . . . . . (320) (3,232)
EFFECT OF EXCHANGE RATE CHANGES ON CASH . . . . . . . . . . . . . . . . . . . . . . . 22 (3)
------- -------
NET DECREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . . (1,238) (4,875)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . 5,728 11,837
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . $ 4,490 $ 6,962
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
Page 7
<PAGE> 8
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1994
(UNAUDITED)
1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements have been prepared in accordance
with the instructions to Form 10-Q and do not include all of the information
and disclosures required by generally accepted accounting principles,
although, in the opinion of management, all adjustments considered necessary
for a fair presentation have been included. These financial statements
should be read in conjunction with the audited consolidated financial
statements and related disclosures thereto included in Form 10-K for the
fiscal year ended July 31, 1994.
2. INVESTMENTS IN ASSOCIATED COMPANIES AND AFFILIATE (DOLLAR AMOUNTS IN
THOUSANDS)
<TABLE>
<CAPTION>
As of October 31, 1994 Income (loss) from investments
------------------------ Amount at which carried at, for the three months ended
Cost or --------------------------- October 31,
Business segments and Number of ascribed October 31, July 31, ------------------------------
description of investment shares or units value 1994 1994 1994 1993
- - ----------------------------------- --------------- -------- ----------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
ASSET MANAGEMENT
REAL ESTATE AFFILIATE
HALLWOOD REALTY PARTNERS, L.P. (A)
-- General partner interest . . . -- $8,650 $ 6,752 $ 6,927 $ (8) $ (51)
-- Limited partner units . . . . . 446,345 906 -- -- -- (159)
------ -------- -------- ---- ------
Totals . . . . . . . . . . . . . $9,556 $ 6,752 $ 6,927 $ (8) $ (210)
====== ======= ======= ===== =======
ASSOCIATED COMPANIES
SHOWBIZ PIZZA TIME, INC. (B)
--Common stock . . . . . . . 1,784,193 $5,438 $16,693 $16,444 $ 201 $ 578
====== ======= ======= ===== =======
</TABLE>
(A) As of October 31, 1994, Hallwood Realty Corporation ("HRC"), a wholly
owned subsidiary of the Company, owned a 1% general partner interest,
and the Company owned a 5% limited partner interest in its Hallwood
Realty Partners, L.P. ("HRP") affiliate.
The carrying value of the Company's investment in the general partner
interest of HRP includes the value of intangible rights to provide
asset management and property management services. The former owner
initially retained the property management rights for a three-year
period following the November 1, 1990 sale. On June 1, 1991 the
Company purchased the retained property management rights from the
former owner for the balance of the three-year period, and, as of
October 31, 1993, had fully amortized the $2,475,000 cost. Beginning
November 1, 1993 the Company commenced amortization of that portion of
the general partner interest ascribed to the management rights, and for
the three months ended October 31, 1994 such amortization was $168,000.
Due to recording the Company's pro rata share of losses recorded by HRP
as prescribed by equity accounting, the carrying value of the
investment in HRP's limited partner units has been reduced to zero;
therefore, the Company no longer records its pro rata share of HRP's
losses, as the Company is not liable for any additional amounts. The
Company would have to recover such unrecognized losses, however, before
any equity income could be recognized in the future.
As further discussed in Note 4, the Company has pledged its 446,345 HRP
limited partner units to collateralize a $500,000 note payable.
(B) The Company accounts for its investment in ShowBiz Pizza Time, Inc.
("ShowBiz"), on the equity method of accounting. The Company also
records its pro-rata share of various stockholders' equity
transactions. The financial impact of ShowBiz's shareholders' equity
transactions resulted in a non-cash increase in the carrying value of
the Company's investment in ShowBiz and a corresponding increase in
additional paid-in capital in the amount of $48,000 for the three
months ended October 31, 1994.
As of October 31, 1994, the Company owned approximately 15% of ShowBiz,
and all of its ShowBiz shares are pledged to secure certain loans
payable as discussed in Note 4.
Page 8
<PAGE> 9
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1994
(UNAUDITED)
The quoted market price per share and the Company's carrying value per
share of the common shares of ShowBiz and the limited partner units of
HRP at October 31, 1994 were:
<TABLE>
<CAPTION>
AMOUNT PER SHARE
-------------------
MARKET CARRYING
PRICE VALUE
------- -------
<S> <C> <C>
ShowBiz common shares . . . . . . . . . . . . . . . . . . . . $8.25 $9.36
HRP limited partner units . . . . . . . . . . . . . . . . . . 2.87 --
</TABLE>
The general partner interest in HRP is not publicly traded.
3. LITIGATION, CONTINGENCIES AND COMMITMENTS
Reference is made to Note 18 to the consolidated financial statements
contained in Form 10-K for the fiscal year ended July 31, 1994.
4. LOANS PAYABLE
Loans payable at the balance sheet dates (in thousands):
<TABLE>
<CAPTION>
October 31, July 31,
1994 1994
----------- --------
<S> <C> <C>
Real Estate
Term loan, libor plus 2.5%, due August 1995 . . . . . . . . . $ 4,902 $ 5,399
Promissory note, 7.50%, due August 1996 . . . . . . . . . . . 1,313 1,500
Promissory note, 8%, due March 1998 . . . . . . . . . . . . . 500 500
------- -------
6,715 7,399
Textile Products
Revolving credit facility, prime + .5%, due August 1997 . . . 8,875 7,975
Equipment financing, 10%, due December 1996 . . . . . . . . . 430 476
------- -------
9,305 8,451
Hotels
Term loan, base + 2%, due December 1995 . . . . . . . . . . . 6,267 6,504
Term loan, 10%, due May 2001 . . . . . . . . . . . . . . . . . 5,200 5,200
Non-interest bearing obligation, due March 1997 . . . . . . . 500 500
------- -------
11,967 12,204
Associated Companies
Line of credit, prime + .75%, due April 1995 . . . . . . . . . 5,250 6,000
Promissory note, 5%, due March 1997 . . . . . . . . . . . . . 4,000 4,000
------- -------
9,250 10,000
------- -------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . $37,237 $38,054
======= =======
</TABLE>
Page 9
<PAGE> 10
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1994
(UNAUDITED)
Further information regarding loans payable is provided below:
Real Estate
Office-retail property. The Company's United Kingdom office-retail
property is collateral for a L.3,000,000 term loan with the London Branch of
The First National Bank of Boston ("FNBB"). At July 31, 1994 the principal
balance was L.3,500,000. An extension of the term loan was completed in
August 1994, with significant terms as follows: (i) interest rate equal to
libor plus 2.5%, (ii) maturity date of August 1995 , and (iii) reduction of
the loan to L.3,000,000 by application of a L.500,000 restricted cash
deposit.
HRP litigation settlement. The Company issued a note in the amount of
$1,500,000 to the agent for the plaintiffs in the litigation styled Equitec
Roll-up Litigation, which is discussed in Note 18 to the Company's 1994 Form
10-K. Monthly principal payments of $62,500 are required from September
1994. The outstanding balance at October 31, 1994 was $1,313,000.
Term note. In connection with the resolution of an obligation related to
the Company's hotel affiliate, Integra-A Hotel and Restaurant Company, the
Company issued a $500,000 term note. The note is secured by a pledge of all
of the Company's 446,345 HRP limited partner units.
Energy
The Company's 63%-owned (on a fully-diluted basis) Hallwood Energy
Corporation subsidiary ("HEC") has no direct indebtedness. Reflected in the
consolidated balance sheets are HEC's share of the long term obligations of
its affiliated entity, Hallwood Energy Partners, L.P. ("HEP").
Textile Products
Brookwood revolver. In December 1992, the Company's textile products
subsidiary, Brookwood Companies Incorporated ("Brookwood") entered into a
two-year revolving credit facility with The Chase Manhattan Bank, N.A.
("Chase") in the amount of $13,500,000 (the "Brookwood Revolver"). At that
time the Company agreed to subordinate its $1,000,000 remaining
intercompany bridge loan receivable from this subsidiary to the Brookwood
Revolver. The Brookwood Revolver is collateralized by accounts receivable
and the industrial equipment located in Kenyon, Rhode Island. In September
1994, the Brookwood Revolver was amended which extended the expiration date
to August 1997, reduced the interest to one-half percent over prime or
libor plus 2.25%, permitted the repayment of the Company's $1,000,000
balance of bridge financing and changed certain of the financial covenants.
The outstanding balance at October 31, 1994 was $8,875,000.
Equipment loan. In December 1991, Brookwood entered into a $900,000
equipment financing arrangement with CIT Group/Equipment Financing, Inc. The
loan matures in December 1996, bears a 10% fixed interest rate and is secured
by certain dyeing and finishing equipment. The outstanding balance at
October 31, 1994 was $430,000.
Hotels
Lido Beach Holiday Inn Hotel. In December, 1992, the Company entered into
a term loan with FNBB to provide senior debt financing on the Lido Beach
Holiday Inn Hotel in the amount of $8,000,000, for three years with an
additional two-year option (the "Term Loan"). The Term Loan is secured by the
pledge of all the capital stock of a special- purpose subsidiary, The Lido
Beach Hotel, Inc. The principal assets of this subsidiary are the
aforementioned hotel and three residential mortgage loan portfolios. The
outstanding balance of the Term Loan at October 31, 1994 was $6,267,000.
Tulsa, Oklahoma Residence Inn by Marriott. In October 1994 the Company
entered into a mortgage loan with MBO Properties, Inc. in the amount of
$5,200,000. The loan is secured by the Tulsa, Oklahoma hotel and includes
the following significant terms: (i) fixed interest rate of 10%; (ii) loan
payments based upon a 20-year amortization schedule with a call after seven
years; (iii) participation by lender of 15% of net cash flow (as defined)
after debt service and 15% of residual value at maturity or upon sale or
refinancing; and (iv) maintenance of a 4% capital reserve.
Page 10
<PAGE> 11
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1994
(UNAUDITED)
Other. The $500,000 obligation to the former preferred shareholders of
Integra was issued in connection with the Settlement and Supplemental
Settlement described in Note 8 of the Company's 1994 Form 10-K. It is
payable in three equal annual installments in the amount of $166,667 on
March 8, 1995, 1996 and 1997.
Associated Companies
Line of credit. On April 19, 1994, the Company obtained a line of credit
from Merrill Lynch Business Financial Services, Inc. in the maximum
commitment amount of $6,000,000. The proceeds from the line of credit were
used to repay a former margin loan with Prudential Securities Incorporated.
Significant terms are (i) initial maturity date - April 25, 1995; (ii)
interest rate - prime plus 0.75%; and (iii) collateral - 1,439,365 shares of
ShowBiz common stock. In August 1994, the Company reduced the line of credit
by $750,000 to $5,250,000. Availability from the line of credit is limited to
50% of the market value of the pledged shares of ShowBiz stock, or $5,937,000
(based upon the closing price of $8.25 per share at October 31, 1994). The
outstanding balance at October 31, 1994 was $5,250,000.
Integra Unsecured Creditors' Trust. The Company issued a $4,000,000 note
payable to the Integra Unsecured Creditors' Trust in connection with the
consummation of the Integra Plan of Reorganization. Significant terms are
(i) maturity date - March 8, 1997; (ii) interest rate - 5% fixed; and (iii)
collateral - 344,828 shares of ShowBiz common stock.
5. 7% COLLATERALIZED SENIOR SUBORDINATED DEBENTURES AND 13.5% SUBORDINATED
DEBENTURES
7% collateralized senior subordinated debentures. On March 1, 1993, the
Company completed an exchange offer whereby 13.5% Debentures, as defined
below, in the aggregate principal amount of $27,481,000 were exchanged for a
new issue of 7% Collateralized Senior Subordinated Debentures due July 31,
2000 (the "7% Debentures"), and purchased $14,538,000 of certain of its 13.5%
Debentures at 80% of face value. Interest on the $27,481,000 principal
amount of the 7% Debentures accrued from March 2, 1993, and is payable
quarterly in arrears in cash. The 7% Debentures are secured by a pledge of
the capital stock of certain wholly-owned subsidiaries of the Company having
an aggregate net carrying value at March 1, 1993 (the issue date) of
$27,607,000. The pledged stocks consist of 100% of the outstanding shares of
common and preferred stock of Brookwood, 100% of the outstanding shares of
common stock of Hallwood Hotels, Inc. and 35% of the outstanding shares of
common stock of The Lido Beach Hotel, Inc. The common and preferred stock of
Brookwood are also subject to a prior pledge in favor of Chase and the common
stock of The Lido Beach Hotel, Inc. is also subject to a prior pledge in
favor of FNBB.
In April 1994 the Company repurchased 7% Debentures having a principal
value of $2,174,000 for $1,526,000. The repurchase partially satisfies the
Company's obligation to retire 10% of the original issue ($2,748,000) prior
to March 1996 and an additional 15% of the original issue ($4,122,000) prior
to March 1998.
13.5% subordinated debentures. On May 15, 1989, the Company distributed to
its stockholders $46,318,600 aggregate principal amount of a new issue of its
13.5% Subordinated Debentures Due July 31, 2009 (the "13.5% Debentures").
The Company had authorized the issuance of up to $100,000,000 aggregate
principal amount of 13.5% Debentures. The 13.5% Debentures are subordinate
to bank borrowings, guarantees of the Company and other "Senior Indebtedness"
(as defined in the indenture relating to the 13.5% Debentures). Ten dollars
principal amount of the 13.5% Debentures was distributed for each share of
common stock of the Company outstanding at the close of business on March 31,
1989. The 13.5% Debentures were issued in denominations of $100 and integral
multiples thereof. The Company distributed $228,770 in cash, in lieu of the
issuance of fractional denominations of such debentures.
Interest on the 13.5% Debentures is payable annually on August 15, and, at
the Company's option, up to two annual interest payments in any five-year
period may be paid by the issuance of additional 13.5% Debentures in lieu of
cash. Interest due on August 15, 1989 and 1990 was paid in cash. Interest
due on August 15, 1991 was paid in-kind by the issuance of $6,019,500
additional 13.5% Debentures and $139,200 of cash in lieu of fractional
debentures. Interest due on August 15, 1992 was paid in-kind by the issuance
of $6,792,900 additional 13.5% Debentures and $172,500 of cash in lieu of
fractional debentures. Interest due on August 15, 1993 and 1994 was also
paid in cash. The Company is prohibited from issuing additional 13.5%
Debentures as payment of interest in-kind until August 15, 1996.
Page 11
<PAGE> 12
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1994
(UNAUDITED)
Balance sheet amounts for the 7% Debentures and 13.5% Debentures are detailed
below (in thousands):
<TABLE>
<CAPTION>
October 31, July 31,
Description 1994 1994
----------- ---------- ----------
<S> <C> <C>
7% Debentures (face value) . . . . . . . . . . . . $25,306 $25,306
Unrecognized gain from purchases and exchange,
net of $902 and $766 accumulated amortization,
respectively . . . . . . . . . . . . . . . . . . 3,318 3,454
Elimination of debentures owned by HEC . . . . . . (1,894) (1,894)
------- -------
Totals . . . . . . . . . . . . . . . . . . . . $26,730 $ 26,866
======= ========
13.5% Debentures (face value)
1989 Series . . . . . . . . . . . . . . . . . . $18,203 $18,203
1991 Series . . . . . . . . . . . . . . . . . . 2,310 2,310
1992 Series . . . . . . . . . . . . . . . . . . 2,389 2,389
------- -------
Totals . . . . . . . . . . . . . . . . . . . . $22,902 $22,902
======= =======
</TABLE>
6. INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No.
109. The related deferred tax asset arises principally from the
anticipated utilization of net operating loss carryforwards and tax
credits at the statutory tax rate and other tax planning strategies.
The following is a summary (in thousands) of the income tax provision
(benefit):
<TABLE>
<CAPTION>
Three Months Ended
October 31,
----------------------
1994 1993
-------- --------
<S> <C> <C>
Federal
Deferred tax . . . . . . . . . . . . . . . . $450 $1,084
Current . . . . . . . . . . . . . . . . . . 79 --
State . . . . . . . . . . . . . . . . . . . . 29 46
---- ------
Total . . . . . . . . . . . . . . . . . . $558 $1,130
==== ======
</TABLE>
The federal deferred tax charge for the three-month periods ended
October 31, 1994 and 1993 are a result of a fluctuation in the valuation
allowance, which is attributed to the decline in the value of certain
assets considered in the Company's tax planning strategies. These
strategies include the potential sale of the ShowBiz shares and certain
other assets that would supplement income from operations.
The amount of the deferred tax asset (net of the valuation allowance
of $17,000,000) was $5,450,000 at October 31, 1994.
Page 12
<PAGE> 13
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1994
(UNAUDITED)
7. SUPPLEMENTAL DISCLOSURES TO THE CONSOLIDATED STATEMENTS OF CASH FLOWS (IN
THOUSANDS)
Supplemental schedule of noncash investing and financing activities.
The following transactions affected recognized assets or liabilities but
did not result in cash receipts or cash payments:
<TABLE>
<CAPTION>
Three Months Ended
October 31,
--------------------
Description 1994 1993
--------------------- -------- -------
<S> <C> <C>
Recording of proportionate share of stockholders'
equity transaction by ShowBiz . . . . . . . . . . . . . . $47 $1,107
Supplemental disclosures of cash payments:
Description
---------------------
Interest paid (including capitalized interest) . . . . . . . $4,118 $4,030
Income taxes paid . . . . . . . . . . . . . . . . . . . . . 82 204
</TABLE>
Page 13
<PAGE> 14
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
The Company reported a net loss of $1,262,000 for the first fiscal 1995
quarter ended October 31, 1994, compared to a net loss of $1,340,000 in the
same quarter last year.
Following is an analysis of the results of operations by asset management,
operating subsidiaries and associated companies divisions and by the real
estate, energy, textile products, hotels, and restaurant business segments
within those divisions.
ASSET MANAGEMENT.
Real estate.
Revenue. Fee income of $858,000 for the fiscal 1995 first quarter decreased
by $341,000 from the $1,199,000 reported in the year-ago quarter. The decrease
was due to the significant level of leasing and construction activities in the
prior-year period. Fee income is principally derived from the Company's asset
management and property management services provided to its Hallwood Realty
Partners, L.P. affiliate, a real estate master limited partnership ("HRP").
Rental income from the United Kingdom office-retail property in the amount
of $171,000 in the current-year quarter increased 11% from $153,000 in the
prior-year quarter due to slightly higher occupancy of the retail space and a
favorable foreign currency exchange rate fluctuation.
Interest and discounts from mortgage loans for the fiscal 1995 first quarter
declined 24% to $71,000, from $94,000, as a result of early repayments of loans
in the Company's mortgage loan portfolio.
The loss from investments in HRP represents the Company's recognition of its
pro-rata share of the loss recorded by HRP. For the current quarter the
Company reported an $8,000 loss compared to a $210,000 loss in the quarter a
year ago. The reduced loss is primarily due to the recording of a pro-rata
share of losses with respect to the Company's investment in HRP limited partner
units of $159,000 in the year ago quarter and zero in the current year quarter.
Due to the recording of the Company's pro-rata share of losses recorded by HRP
as prescribed by equity accounting, the carrying value of the investment in
HRP's limited partner units has been reduced to zero; therefore, the Company no
longer records its pro-rata share of losses as the Company is not liable for
any additional amounts. The Company would have to recover such unrecognized
losses, however, before any equity income could be recognized in the future.
See Note 2.
Expenses. Administrative expenses declined 16% to $244,000 in the fiscal
1995 first quarter, compared to $290,000 in the year-ago quarter. The decline
is primarily attributable to a reduction in leasing commissions resulting from
the aforementioned reduced level of leasing activity and reduced professional
fees.
Depreciation and amortization expense of $243,000 for the fiscal 1995 first
quarter decreased from $331,000 in the corresponding fiscal 1994 period.
Depreciation expense relates to the office-retail property. Amortization
expense relates to the cost of former property management contracts acquired by
Hallwood Management Company and amortization of Hallwood Realty Corporation's
general partner interest in HRP to the extent allocated to management rights.
The decline is attributable to the expiration of amortization of acquired
property management contracts in October 1993.
Interest expense increased in the fiscal 1995 first quarter to $182,000 from
$168,000 due to interest costs associated with a $1,500,000 promissory note
issued in August 1994 to resolve the Equitec Rollup Litigation offset by lower
interest costs due to the August 1994 renegotiation of the office-retail
property loan with FNBB.
The provision for loss of $11,000 in the current-year quarter is a result of
the August 1994 sale of a land parcel in Flint, Michigan.
Operating expenses were immaterial for the fiscal 1995 and 1994 periods.
Page 14
<PAGE> 15
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED).
Energy.
Revenue. The Company owns 63% of the common stock (on a fully diluted
basis) of Hallwood Energy Corporation ("HEC"). HEC accounts for its investment
in its Hallwood Energy Partners, L.P. ("HEP") affiliate using the proportionate
consolidation method of accounting. HEC's general partner interest in HEP
entitles it to a share of net revenues derived from HEP's properties ranging
from 2% to 25%, and HEC also holds approximately 7.3% of HEP's limited partner
units. First quarter fiscal 1995 oil and gas revenues of $1,463,000 decreased
4%, compared to $1,519,000 in the year- ago quarter. Oil revenue for the
quarter increased $108,000 to $587,000 due to an increase in the average price
per barrel to $17.26 from $17.11 and an increase in production to 34,000
barrels from 28,000 barrels. Gas revenue for the quarter decreased $164,000 to
$876,000 as a result of a decrease in production to 438,000 mcf from 528,000
mcf offset by a slight increase in the average gas price to $2.00 from $1.97
per mcf. The increase in oil production is a result of property acquisitions,
partially offset by normal production declines. The decrease in gas production
is due primarily to normal production declines, allowable limits and gas
balancing situations during the fiscal 1995 quarter.
Other income decreased to $157,000 for the quarter from $211,000, due to a
decrease in HEC's share of HEP's gas marketing income. HEP has eliminated its
gas marketing activities.
Expenses. Depreciation, depletion and amortization expenses were $500,000
for the fiscal 1995 quarter and $487,000 for the year-ago quarter. The
increase is primarily the result of higher capitalized costs in the fiscal 1995
quarter. Operating expenses decreased $35,000 to $383,000, compared to the
fiscal 1994 amount of $418,000, due to decreased maintenance activity.
Administrative expenses decreased by $59,000 for the quarter due to tax
penalties and interest paid during the prior- year quarter.
Interest expense decreased $28,000 to $86,000 during the fiscal 1995 first
quarter as a result of HEP's lower average debt balance.
Minority interest, which represents the interest of other common and
preferred shareholders in the net income of HEC, decreased by $18,000 in the
fiscal 1995 first quarter, due to HEC's repurchase of its own shares from
minority shareholders for treasury since the 1994 first quarter.
OPERATING SUBSIDIARIES.
Textile products.
Revenue. Sales decreased $998,000 in the fiscal 1995 first quarter to
$16,986,000, compared to $17,984,000 in fiscal 1994. The 6% decrease in sales
for the fiscal 1995 quarter was due to generally weak market conditions
experienced by all divisions, especially in the Kenyon finishing plant and
converting operations.
Expenses. Cost of sales decreased by 5%, compared to the 6% decrease in
sales in the fiscal 1995 first quarter from the comparable prior year quarter.
The lower gross profit margin for the quarter (12.4% in fiscal 1995 compared to
13.2% in fiscal 1994) was principally the result of lower volume at the Kenyon
finishing plant with its high level of fixed operating costs. Administrative
and selling expenses increased 4% in the quarter to $1,936,000 from the
comparable 1994 quarter due to the increased use of consultants on special
projects in 1995. The reduction of interest expense of $10,000 for the quarter
was the result of lower average borrowing in 1995 than in the comparable 1994
quarter, partially offset by higher interest rates in 1995.
Page 15
<PAGE> 16
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED).
Hotels.
Revenue. Hotel revenues for the fiscal 1995 first quarter increased by
$1,806,000, to $5,693,000, from the year-ago amount of $3,887,000. The
increase is primarily due to the inclusion of revenue from Integra's Residence
Inn by Marriott hotel investments, consisting of one fee-owned and two
leasehold properties and management fees from two Residence inns managed for
third-party owners (the "Integra Hotel Properties"). The Company acquired the
Integra Hotel Properties in connection with Integra's emergence from bankruptcy
in March 1994. Revenues from the acquired assets were $1,742,000 for the
quarter. Considering only the three hotels owned by the Company for the
comparable periods in fiscal 1995 and 1994, revenues increased by $64,000. The
current quarter increase reflects the Company's election to aggressively pursue
higher average daily rates, resulting in higher revenue and lower operating
costs. The higher rates were made possible by the Company's intensive capital
expenditure program begun in fiscal 1993.
Expenses. Operating expenses of $4,813,000 for the fiscal 1995 quarter
increased by $1,217,000, or 34%, from the fiscal 1994 expenses of $3,596,000.
The increase was primarily due to the inclusion of the Integra Hotel
Properties. On a comparable basis for the first fiscal quarter, operating
expenses decreased $54,000 reflecting the aforementioned marketing strategy.
Depreciation and amortization increased $272,000 reflecting the capital
expenditure program and the acquisition of the Integra Hotel Properties.
Interest expenses increased by $137,000, due to interest of $130,000 on one of
the Integra Hotels' properties and an increase of $7,000 on the FNBB Term Loan,
which was a result of a higher average interest rate, offset by a declining
principal balance.
ASSOCIATED COMPANIES
Revenue. Associated companies' income for the fiscal 1995 first quarter in
the amount of $201,000 compares to income of $578,000 in fiscal 1994, due to a
74% decline in ShowBiz earnings. The Company records a pro-rata share of
ShowBiz earnings using the equity accounting method.
Expenses. Interest expense of $181,000 for the fiscal 1995 first quarter
increased from the year-ago expense of $109,000 due to an increase in interest
rates, and the issuance of a $4,000,000 note to the Integra Unsecured
Creditors' Trust in March 1994.
OTHER
Revenue. Fee income in the current year quarter of $106,000 increased from
$31,000 in the fiscal 1994 quarter, due to the commencement of a new consulting
contract with a subsidiary of HEP. Interest on short-term investments of
$46,000 for the fiscal 1995 first quarter declined in comparison with the prior
year amount of $95,000 due to lower average invested cash balances.
Expenses. The Company's net interest expense for the fiscal 1995 first
quarter of $1,070,000 declined slightly from the prior year amount of
$1,089,000, principally due to the repurchase and retirement of $2,174,000
principal amount of 7% Debentures in April 1994.
Administrative expenses of $468,000 for the current year quarter were down
from $562,000 in the comparable period last year, principally due to lower
personnel costs and lower consulting fees.
Income taxes. First quarter fiscal 1995 income tax expense of $558,000
includes a deferred federal tax expense of $450,000 and a current provision for
federal and state taxes of $108,000, compared to a fiscal 1994 income tax
expense of $1,130,000, which includes a deferred federal tax expense of
$1,084,000 and a current provision of federal and state taxes of $46,000.
As of July 31, 1994 the Company had approximately $65,000,000 of tax net
operating loss carryforwards ("NOLs") and temporary differences to reduce
federal income tax liability. Based upon the Company's expectations and
available tax planning strategies, management has determined that taxable
income will more likely than not be sufficient to utilize approximately
$16,300,000 of the NOLs prior to their ultimate expiration in the year 2009.
Page 16
<PAGE> 17
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED).
Management believes that the Company has certain tax planning strategies
available, which include the potential sale of its ShowBiz shares, hotel
properties and certain other assets, that could be implemented, if necessary,
to supplement income from operations to fully realize the recorded tax benefits
before their expiration. Management has considered such strategies in reaching
its conclusion that it is more likely than not taxable income will be
sufficient to utilize a significant portion of the NOLs before expiration,
however, future levels of operating income and taxable gains are dependent upon
general economic conditions and other factors beyond the Company's control.
Accordingly, no assurance can be given that sufficient taxable income will be
generated for significant utilization of the NOLs. Although the use of such
carryforwards could, under certain circumstances, be limited, the Company is
presently unaware of the occurrence of any event which would result in the
imposition of such limitation.
LIQUIDITY AND CAPITAL RESOURCES
The Company's unrestricted cash and cash equivalents at October 31, 1994
totaled $4,490,000. Additionally, $783,000 of cash is restricted as to
withdrawal by the Company, pursuant to terms of various loan agreements and
hotel lease agreements.
Although the Company's ShowBiz shares, having a market value of
approximately $14,720,000 at October 31, 1994 (based upon the closing price on
such date of $8.25 per share), are presently unregistered, and may be subject
to some limitations on sale, management believes there is a ready market to
sell such shares without adversely affecting market price. All of the
Company's 1,784,193 ShowBiz shares are pledged as collateral for the $5,250,000
(balance at October 31, 1994) Merrill Lynch Business Financial Services, Inc.
line of credit and the $4,000,000 note payable to the Integra Unsecured
Creditors' Trust.
The Company's real estate segment generates funds principally from its
property management activities without significant additional capital costs.
The mortgage loan portfolio is a source of liquidity; however the principal has
been pledged to secure the unpaid balance of The Lido Beach Holiday Inn hotel
Term Loan. At October 31, 1994, substantially all of the Company's real estate
and mortgage loans were pledged to secure loan obligations.
The Company's energy segment generates funds from operating and financing
activities. Cash flow is subject to fluctuating oil and gas production and
prices. In accordance with the proportionate consolidation method of
accounting, HEC reports its share of the long-term obligations of its HEP
affiliate totaling $4,056,000 at October 31, 1994. HEP's debt consists
primarily of $33,800,000 of borrowings under a line of credit and note purchase
agreement. HEP's borrowings are secured by a first lien on approximately 80%
in value of HEP's oil and gas properties.
At October 31, 1994 Brookwood maintained a $13,500,000 revolving line of
credit facility with The Chase Manhattan Bank, N.A., which is collateralized by
accounts receivable and equipment. At October 31, 1994, Brookwood had $718,000
of unused borrowing capacity on its line of credit.
The Company's hotel segment generates cash flow from operating six hotels
(two Holiday Inns in Florida, one Embassy Suites and one Residence Inn in
Oklahoma, and one Residence Inn each in Alabama and South Carolina). Additional
cash revenues are derived from a management contract for managing a Residence
Inn located in Arizona.
The Company hopes to be able to reinvest the proceeds of asset sales to
increase profits and cash flows, and also to retire debentures and/or equity
from time to time through open market purchases or negotiated transactions.
The Lido Beach Holiday Inn hotel is currently under contract with a closing
expected in early 1995.
Page 17
<PAGE> 18
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
PART II - OTHER INFORMATION
<TABLE>
<CAPTION>
Item
- - ----
<S> <C> <C>
1 Legal Proceedings
Reference is made to Note 3 to the Company's consolidated
financial statements for discussion of pending litigation matters.
2 Changes in Securities None.
3 Defaults upon Senior Securities None.
4 Submission of Matter to a Vote of Security Holders None.
5 Other Information None.
6 Exhibits and Reports on Form 8-K
(a) Exhibits:
(i) 10.62 1994 Employee Stock Option for The Hallwood Group Incorporated Pages 20 to 26
(ii) 10.7 The First National Bank of Boston letter dated 31 August 1994,
amending the Facility Letter and related Guaranty regarding
Hallwood Investment Company. Pages 27 to 49
(iii) 11 Statement Regarding Computation of Per Share Earnings. Page 50
(iv) 27 Financial Data Schedule Pages 51 to 52
(b) Reports on Form 8-K None.
</TABLE>
Page 18
<PAGE> 19
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE HALLWOOD GROUP INCORPORATED
Dated: December 12, 1994 By: /s/ Melvin J. Melle
Melvin J. Melle, Vice President
(Duly Authorized Officer and
Principal Financial and
Accounting Officer)
Page 19
<PAGE> 20
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- - ------- ----------- ----
<S> <C> <C>
10.62 1994 Employee Stock Option for The Hallwood Group Incorporated Pages 20 to 26
10.7 The First National Bank of Boston letter dated 31 August 1994,
amending the Facility Letter and related Guaranty regarding
Hallwood Investment Company. Pages 27 to 49
11 Statement Regarding Computation of Per Share Earnings. Page 50
27 Financial Data Schedule Pages 51 to 52
</TABLE>
<PAGE> 1
EXHIBIT 10.62
1994 EMPLOYEE STOCK OPTION PLAN
FOR
THE HALLWOOD GROUP INCORPORATED
1. PURPOSE. The purpose of this Plan is to advance the interests of The
Hallwood Group Incorporated (the "Company") and its Subsidiaries by providing
an additional incentinve to selected employees of Brookwood Companies
Incorporated ("Brookwood") to continue their employment with Brookwood.
2. DEFINITIONS. As used herein, the following terms shall have the
meaning indicated:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Committee" shall mean the committee appointed by the Board
pursuant to Section 12 hereof.
(c) "Director" shall mean a member of the Board.
(d) "Fair Market Value" of a Share on any date of reference shall be
the Closing Price on the business day immediately preceding such date,
unless the Committee in its sole discretion shall determine otherwise in a
fair and uniform manner. For this purpose, the Closing Price of the Shares
on any business day shall be: (i) if the Shares are listed or admitted
for trading on any United States national securities exchange or included
in the National Market System of the National Association of Securities
Dealers Automated Quotation System ("NASDAQ"), the last reported sale
price of Shares on such exchange or system, as reported in any newspaper
of general circulation; (ii) if Shares are quoted on NASDAQ, or any
similar system of automated dissemination of quotations of securities
prices in common use, the mean between the closing high bid and low asked
quotations for such day of Shares on such system; (iii) if neither clause
(i) nor (ii) is applicable, the mean between the high bid and low asked
quotations for Shares as reported by the National Quotation Bureau,
Incorporated if at least two securities dealers have inserted both bid and
asked quotations for Shares on at least five of the ten preceding days;
or, (iv) in lieu of the above, if actual transactions in the Shares are
reported on a consolidated transaction reporting system, the last sale
price of the Shares for such day and on such system.
(e) "Incentive Stock Option" shall mean an incentive stock option as
defined in section 422 of the Internal Revenue Code.
(f) "Internal Revenue Code" shall mean the Internal Revenue Code of
1986, as amended from time to time.
<PAGE> 2
(g) "Nonqualified Stock Option" shall mean an option that is not an
Incentive Stock Option.
(h) "Option" (when capitalized) shall mean any option granted under
this Plan.
(i) "Optionee' shall mean a person to whom an Option is granted or
any person who succeeds to the rights of such person under this Plan by
reason of the death of such person.
(j) "Plan" shall mean this 1994 Employee Stock Option Plan for The
Hallwood Group Incorporated.
(k) "Share(s)" shall mean a share or shares of the common stock, par
value ten cents ($0.10) per share, of the Company.
(l) "Subsidiary" shall mean any corporation (other than the Company)
in any unbroken chain of corporations beginning with the Company if, at
the time of the granting of the Option, each of the corporations other
than the last corporation in the unbroken chain owns stock possessing
50% or more of the total combined voting power of all classes of stock in
one of the other corporations in such chain.
3. SHARES AND OPTIONS. The Company may grant to Optionees from time to
time Options to purchase an aggregate of up to Two Hundred Thousand (200,000)
Shares from Shares held in the Company's treasury or from authorized and
unissued Shares. If any Option granted under the Plan shall terminate, expire,
or be cancelled or surrendered as to any Shares, new Options may thereafter be
granted covering such Shares. An Option granted hereunder shall be only a
Nonqualified Stock Option.
4. CONDITIONS FOR GRANT OF OPTIONS.
(a) Each Option shall be evidenced by an option agreement, which may
contain any term deemed necessary or desirable by the Committee, provided
such terms are not inconsistent with this Plan or any applicable law.
Optionees shall be those persons selected by the Committee from the class
of employees of or consultants to the Company and any Subsidiary.
(b) In granting Options, the Committee shall take into consideration
the contribution the person has made or may make to the success of the
Company or its Subsidiaries and such other factors as the Committee shall
determine. The Committee shall also have the authority to consult with and
receive recommendations from officers and other personnel of the Company
and its Subsidiaries with regard to these matters. The Committee may, from
time to time in granting Options under the Plan, prescribe such other
terms and conditions concerning such Options as it deems appropriate,
including, without limitation, relating an Option to the continued
employment of the
2
<PAGE> 3
Optionee for a specified period of time, provided that such terms and
conditions are not more favorable to an Optionee than those expressly
permitted herein.
(c) The Options granted to employees under this Plan shall be in
addition to regular salaries, pension, life insurance or other benefits
related to their employment with the Company or its Subsidiaries. Neither
the Plan nor any Option granted under the Plan shall confer upon any
person any right to continuance of employment by the Company or its
Subsidiaries.
(d) The Committee in its sole discretion shall determine in each
case whether periods of military or government service shall constitute a
continuation of employment for the purposes of this Plan or any Option.
5. OPTION PRICE. The option price per Share of any Option shall be
determined by the Committee and may be equal to, greater than or less than the
Fair Market Value; provided, however, that in no event shall the option price
be less than eighty-five percent (85%) of the Fair Market Value.
6. EXERCISE OF OPTIONS. An Option shall be deemed exercised when: (i)
the Company has received written notice of such exercise in accordance with the
terms of the Option, (ii) full payment of the aggregate option price of the
Shares as to which the Option is exercised has been made, and, (iii)
arrangements that are satisfactory to the Committee in its sole discretion have
been made for the Optionee's payment to the Company of the amount that is
necessary for the Company or Subsidiary employing the Optionee to withhold in
accordance with applicable federal or state tax withholding requirements.
Unless further limited by the Committee in any Option, the option price of any
Shares purchased shall be paid in cash, by certified or cashier's check or by
money order; provided, however, that the Committee in its sole discretion may
accept a personal check in full or partial payment of any Shares.
7. EXERCISABILITY OF OPTIONS.
(a) Unless otherwise provided in any Option, each outstanding Option
shall become fully exercisable immediately upon the closing of the first to
occur of the following transactions:
(i) any transaction voluntarily effected by the Company or Brookwood
that has the result that the Company thereafter owns less than 50% of the
stock of Brookwood or of any entity that results from the participation of
Brookwood in a reorganization, consolidation, merger, liquidation,
dissolution or any other form of corporate transaction; or
(ii) the voluntary sale, lease, exchange or other disposition of all
or substantially all of the property and assets of Brookwood;
3
<PAGE> 4
provided that, the Option shall become exercisable only if (x) the transaction
is closed on or prior to June 30, 1995, and (y) the Option has not previously
been terminated under the terms of this Plan.
(b) In no event shall an Option be exercisable after three (3) years from
the date of the closing of any corporate transaction described in SECTION 7(a).
8. TERMINATION OF OPTIONS.
(a) If, prior to an Option become exercisable pursuant to
SECTION 7(a), an Optionee's employment as an employee or consultant
terminates for any reason, except as provided in the next sentence,
the Option shall immediately and without notice terminate and become
null and void. The Option shall not terminate if the Optionee's
employment is terminated by the Optionee's employer without cause, unless
the termination is in connection with a general reduction in force by
the Optionee's employer not in connection with the completion of a
transaction described in SECTION 7(a).
(b) If a closing of any corporate transaction described in
SECTION 7(a) has not occurred on or prior to June 30, 1995, all Options
shall immediately and without notice terminate and become null and void.
(c) In connection with any merger, consolidation, sale of
substantially all the assets or similar transaciton involving the Company,
the Committee in its sole discretion shall have the power to cancel,
effective upon the date determined by the Committee in its sole
discretion, all or any portion of any Option upon payment to the Optionee
of cash in an amount that, in the absolute discretion of the Committee, is
determined to be equal to the excess of (i) the aggregate Fair Market
Value of the Shares subject to such Option on the effective date of the
cancellation over (ii) the aggregate exercise price of such Option.
9. ADJUSTMENT OF SHARES.
(a) If at any time while the Plan is in effect or unexercised
Options are outstanding, there shall be any increase or decrease in the
number of outstanding Shares through the combination or change of Shares,
then and in such event:
(i) appropriate adjustment shall be made in the maximum number
of Shares then subject to being optioned under the Plan, so
that the same percentage of the Company's issued and outstanding
Shares shall continue to be subject to being so optioned; and
(ii) appropriate adjustment shall be made in the number of
shares and the exercise price per Share thereof then subject to
any outstanding Option, so that the same proportion of the Company's
issued and outstanding Shares shall remain subject to purchase at the
same aggregate exercise price.
4
<PAGE> 5
(b) Subject to the specific terms of any Option, the Committee may
change the terms of Options outstanding under this Plan, with respect
to the Option price or the number of Shares subject to the Options, or
both, when, in the Committee's sole discretion, such adjustments become
appropriate by reason of a corporate transaction (as defined in Treasury
Regulation (Sections) 1.425-1(a)(1)(ii).
(c) Except as otherwise expressly provided herein, the issuance by
the Company of shares of its capital stock of any class, or securities,
shall not affect, and no adjustment by reason thereof shall be made with
respect to the number of or exercise price of Shares then subject to
outstanding Options granted under the Plan.
(d) Without limiting the generality of the foregoing, the existence
of outstanding Options granted under the Plan shall not affect in any
manner the right or power of the Company to make, authorize or consummate:
(i) any or all adjustments, recapitalizations, reorganizations or other
changes in the Company's or any Subsidiary's capital structure or
business; (ii) any merger or consolidation of the Company, Brookwood or
any other Subsidiary; (iii) any issue by the Company, Brookwood or any
other Subsidiary of debt securities, or preferred or preference stock,
whether or not such instruments would rank above the Shares subject to
outstanding Options; (iv) the dissolution or liquidation of the Company,
Brookwood or any other Subsidiary; (v) any sale, transfer or assignment of
all or any part of the assets or business of the Company, Brookwood or any
other Subsidiary; or, (vi) any other corporate act or proceeding, whether
of a similar character or otherwise.
10. ISSUANCE OF SHARES. As a condition of any sale or issuance of
Shares upon exercise of any Option, the Committee may require such agreements
or undertakings, if any, as the Committee may deem necessary or advisable to
assure compliance with any law or regulation including, but not limited to, the
following:
(i) a representation, warranty or agreement by the Optionee to
the Company, at the time any Option is exercised, that he is
acquiring the Shares to be issued to him for investment and not
with a view to, or for sale in connection with, the distribution
of any such Shares; and
(ii) a representation, warranty or agreement to be bound by
any legends that are, in the opinion of the Committee, necessary or
appropriate to comply with the provisions of any securities law
deemed by the Committee to be applicable to the issuance of the
Shares and are endorsed upon the Share certificates.
11. OPTIONS. Each Option: (i) must be clearly designated as a
Nonqualified Stock Option; (ii) may be exercisable even though an Option
granted before such Option is outstanding; and, (iii) may require the
Optionee's payment to the Company of the amount that the Committee reasonably
determines to be necessary for the Company or Subsidiary employing
5
<PAGE> 6
the Optionee to withhold in accordance with applicable income tax withholding
requirements.
12. ADMINISTRATION OF THE PLAN.
(a) The Plan shall be administered by a committee (herein called the
"Committee") consisting of not less than two (2) Directors, which shall
initially be the Compensation Committee of the Board of Directors;
provided, however, that if at any time no Committee is appointed, the Board
shall act as the Committee to administer the Plan. The Committee shall
have all of the powers of the Board with respect to the Plan. Any member
of the Committee may be removed at any time, with or without cause, by
resolution of the Board and any vacancy occurring in the membership of the
Committee may be filled by appointment by the Board.
(b) The Committee, from time to time, may adopt rules and
regulations for carrying out the purposes of the Plan. The
determinations and the interpretation and construction of any provision of
the Plan by the Committee shall be final and conclusive.
(c) Any and all decisions or determinations of the Committee shall
be made either: (i) by a majority vote of the members of the Committee at
a meeting; or, (ii) by the written approval of a majority of the members
of the Committee without a meeting.
13. INTERPRETATION.
(a) If any provision of the Plan should be held invalid for any
reason, such holding shall not affect the remaining provisions hereof,
but instead the Plan shall be construed and enforced to effect the
purposes of the Plan, so far as possible.
(b) This Plan shall be governed by the laws of the State of Texas.
(c) Headings contained in this Agreement are for convenience only
and shall in no manner be construed as part of this Plan.
(d) Any reference to the masculine, feminine, or neuter gender shall
be a reference to such other gender as is appropriate.
14. AMENDMENT AND DISCONTINUATION OF THE PLAN. The Committee may from
time to time amend the Plan or any Option; provided, however, that (except to
the extent provided in SECTION 9) no such amendment may impair any Option
previously granted to any Optionee without the consent of such Optionee.
Subject to the above provisions, the Committee shall have broad authority to
amend the Plan to take into account changes in applicable securities and tax
laws and accounting rules, as well as other developments.
15. REPURCHASE OF SHARES. An Option may, but shall not be required to,
contain any provisions that the Committee deems appropriate relating to the
ownership of Shares acquired
6
<PAGE> 7
by exercise of the Option in case of the Optionees' death, disability,
retirement, voluntary termination by the employee or termination by the
employer, whether or not for cause.
16. EFFECTIVE DATE AND TERMINATION DATE. The effective date of the Plan
is October 31, 1994, the date on which the Board adopted this Plan. This Plan
shall terminate on the fourth anniversary of the effective date.
THE HALLWOOD GROUP INCORPORATED
By: /s/ MELVIN J. MELLE
Melvin J. Melle
Vice President, Chief Financial Officer
and Secretary
7
<PAGE> 1
EXHIBIT 10.7
(LOGO)
PRIVATE & CONFIDENTIAL
Hallwood Investment Company
P.O. Box 866
Georgetown
Grand Cayman
Cayman Islands
For the attention of the Directors
31 August 1994
Dear Sirs,
We refer to a facility letter from ourselves to yourselves dated 29 July
1991, as amended by supplemental letters dated 13 August 1991 and 21 May 1992
(as so amended and in effect, the "Facility Letter"), under which a loan
facility in a maximum amount of L.3,500,000 was made available to you.
1. DEFINITIONS
Terms used herein without definition and defined in the Facility Letter
shall have the same meaning herein as therein unless the context
requires otherwise. References to the Facility Letter shall be to it as
amended, restated, re-executed or supplemented from time to time. All
section headings shall be ignored in construing this letter.
2. AMENDMENTS
Upon satisfaction of the conditions precedent set forth in Clause 3
hereof, the Facility Letter shall be amended as follows:
2.1 In Clause 1.01, the definitions of "The Hallwood Group", "Interest
Payment Date", "Interest Period", and "Related Facility" shall be deleted
and the following new definitions substituted therefor:
"The Hallwood Group" means The Hallwood Group Incorporated, a
Delaware corporation, of 3710 Rawlins, Suite 1500, Dallas, Texas
75219;
"Interest payment Date" means each of 5th October 1994, 3rd January
1995, 4th April 1995 and 5th July 1995;
<PAGE> 2
CONTINUATION THE FIRST NATIONAL BANK OF BOSTON
Hallwood Investment Company
Page 2
"Interest Period" means the period of approximately
twelve months commencing on 2 September 1994 and
ending on 31 August 1995;
"Related Facility" means the $8,000,000 term loan
facility made available to The Hallwood Group and The
Lido Beach Hotel, Inc. by the Lender at its branch at
100 Federal Street, Boston, Massachusetts 02110, as
agent for itself and certain lending institutions,
under the terms of an Amended and Restated Loan
Agreement dated as of December 23, 1992, which
expression shall include the same as amended,
supplemented, modified or restated from time to
time;"
2.2 In Clause 1.01, the definition of "Mortgaged Property" shall be
amended by deleting the words "and real property proposed to be so
charged or mortgaged".
2.3 The following new definitions shall be inserted in Clause 1.01 in
alphabetical order, as follows: -
""Debt Service Coverage Ratio" shall mean for any
period the ratio of Total Net Property Income to
Total Debt Service Expense for such period.
"Major Tenant" shall mean any tenant of the Property
that either (i) occupies 10% (ten percent) or greater
of the total occupied gross leasable area of the
Property or (ii) contributes 10% (ten percent) or
greater of the gross rental income of the Property.
"Property Value" shall mean the fair market value of
the Property derived from time to time by the
Lender's Appraisal Department in accordance with
applicable laws, regulations and appraisal standards
and by methods consistent with the Lender's standard
policies for real property appraisals.
"Total Debt Service Expense" shall mean for any
period the aggregate amount during such period of (i)
all interest on borrowed monies required to be paid
or accrued by the Borrower, plus (ii) all mandatory
repayments of principal on borrowed monies required
to be paid by the Borrower, plus (iii) all
commitment, agency, facility, balance deficiency and
similar fees required to be paid or accrued by the
Borrower in connection with any borrowings.
"Total Net Property Income" shall mean for any period
the actual cash income of the Borrower from the
Property for such period, calculated in arrears as at
the due date for receipt by the Borrower of rental
payments for such period, after deduction of all
operating expenses of the Property for such period,
but before any deductions for interest, principal
repayment or other debt service expense, book
depreciation or amortisation.
<PAGE> 3
CONTINUATION THE FIRST NATIONAL BANK OF BOSTON
Hallwood Investment Company
Page 3
2.4 In Clause 2.01, the words "L.3,500,000 (three million five hundred
thousand pounds)" shall be deleted and the words "L.3,000,000 (three
million pounds)" substituted therefor.
2.5 Clause 4.01 shall be deleted in its entirety and the following new Clause
4.01 substituted therefor:-
"4.01 Subject to Clause 3, the Facility shall be available for drawdown
in one amount on any Business Day up to and including 31st August
1991 but not thereafter, and to the extent that the same have
not been repaid, drawings under the Existing Facility shall be
deemed to be the amount drawn down hereunder."
2.6 In Clause 5.01, the existing Clause 5.01 shall be renumbered as Clause
5.01(i), the date "31st August 1994" shall be deleted from such
sub-clause and the date "31st August 1995" substituted therefor, and the
following new sub-clause 5.01(ii) shall be inserted at the end of such
sub-clause:-
"(ii) Without prejudice to Clauses 5.01(i) or 6.01(ii), on each Interest
Payment Date the Borrower shall pay to the Lender the amount
set forth opposite such Interest Payment Date on Exhibit B hereto,
each of which amounts include all interest payable hereunder on
such dates. The principal portion of such payments shall be applied
as repayments of the Loan and the amount of the Loan then
outstanding shall upon each such payment be reduced in the amount
of principal so repaid."
2.7 In Clause 5.02, the initial word "The" shall be deleted and the words
"Subject to and without prejudice to Clause 5.03, the" substituted
therefor.
2.8 In Clause 5.03, the words "of the Loan or any part thereof" shall be
inserted between the words "prepayments" and "made", and the words "an
Interest Date" shall be deleted and the words "the last day of an Interest
Period with respect to the part of the Loan so repaid or prepaid"
substituted therefor.
2.9 In Clause 6.01(i), the words "2% (two per cent)" shall be deleted and the
words "2.5% (two and one-half per cent)" substituted therefor, and the
words "plus MLA Costs in respect thereof" shall be deleted from the last
line of such sub-clause.
2.10 Clause 8.01(i) shall be amended by adding the following at the end of such
sub-clause:-
"and an assignment of all of the rents emanating from the Property
and the benefit of all agreements relating to the Property and
The Hallwood Group has executed a guarantee in favour of the Lender
of all amounts outstanding under this Facility;"
<PAGE> 4
CONTINUATION THE FIRST NATIONAL BANK OF BOSTON
Hallwood Investment Company
Page 4
2.11 Clause 8.02 shall be deleted in its entirety and the following new Clause
8.02 substituted therefor:-
"8.02 The Loan must at all times be equal to or less than 70% (seventy
per cent) of the Property Value, as determined by the most recent
appraisal of the Property conducted by or on behalf of the Lender."
2.12 Clause 8.03 shall be deleted in its entirety and the following new Clause
8.03 substituted therefor:-
"8.03 The Borrower covenants and undertakes with the Lender that, during
the curreny of the Facility and as long as any amount remains
outstanding hereunder, the Borrower shall not permit the Debt
Service Coverage Ratio for any quarter of any financial year of the
Borrower to be less than 1.2:1."
2.13 In clause 9.02, the words "or any other levies, imposts, duties, charges,
fees, deductions and withholdings and without set-off or counterclaim"
shall be inserted at the end of the first sentence thereof.
2.14 In Clause 10.01(i), the words "three months" shall be deleted and "sixty
days" substituted therefor.
2.15 In Clause 10.01(iii), the following words shall be inserted at the end of
such sub-clause:-
", together with a certificate of the Borrower's finance director and
the chief financial officer of The Hallwood Group in the form of
Exhibit A hereto certifying the Borrower's compliance with the
requirements of Clauses 8.02 and 8.03 for such quarter and showing in
detail the basis of calculation;"
2.16 In Clause 10.01, the word "and" at the end of sub-clause (viii) shall be
deleted, the full stop at the end of sub-clause (ix) shall be deleted and
the word "; and" substituted therefor, and the following new sub-clause
(x) shall be inserted between the end of sub-clause (ix) and
Clause 11 (Representations and Warranties):-
"(x) not without the prior written consent of the Lender make any payment
of any management, consulting or similar fees from the actual cash
income from the Property to any company or person who controls or
is under common control with the Borrower, including without
limitation The Hallwood Group."
2.17 In Clause 11.02, the word "Payment" shall be inserted between the words
"Interest" and "Date" on the third line thereof, and the following words
shall be inserted at the end of such clause:
"and with reference to the facts existing on the date of each such
repetition"
<PAGE> 5
CONTINUATION THE FIRST NATIONAL BANK OF BOSTON
Hallwood Investment Company
Page 5
2.18 In Clause 12.01(v), the following words shall be inserted at the
beginning of such sub-clause:-
"any representation or warranty made in this letter or in any
Security Document or in any writing delivered or furnished
hereto or thereto shall prove to have been false or incorrect in any
material respect when made, repeated or deemed made or"
2.19 Clause 12.01(xiv) shall be deleted in its entirety and the following new
Clauses 12.01(xiv), (xv) and (xvi) shall be substituted therefor:-
"(xiv) any even occurs or situation exists which in the opinion of
the Lender appears to correspond in the jurisdiction of
the Borrower's incorporation to any of the events or
situations listed or described in paragraphs (i) to (xiii)
inclusive; or
(xv) The Hallwood Group is in breach of any of its obligations
under the Security Documents to which it is a party or
any of the events specified above or events comparable
thereto occurs in relation to The Hallwood Group; or
(xvi) any default or event of default, howsoever arising, has
occurred and is continuing under any lease with respect
to any part of the Property between the Borrower, as lessor,
and any Major Tenant, as lessee."
2.20 In Clause 13.02, the words "(other than with respect to any repayment
required pursuant to Clause 5.01(ii), provided that such repayments are
made on the dates and in the amounts specified by such clause)" shall be
inserted between the words "Interest Period" and ", then the" on the third
line of such clause.
2.21 The following new Clause 14.04 shall be inserted between Clauses 14.03 and
15.01:-
"14.04 If at any time it is unlawful for the Lender to maintain the
Facility hereunder or to make or perform any other material
obligation hereunder in relation to the Loan, then the Lender
shall promptly after becoming aware of the same deliver a
certificate to that effect to the Borrower, and within thirty days
of demand by the Lender, or such earlier date as may be required
by applicable law, the Borrower shall repay to the Lender an
amount equal to the total outstanding Loan, with accrued interest
thereon and all other amounts owing to the Lender hereunder,
whereupon the Facility shall terminate."
<PAGE> 6
CONTINUATION THE FIRST NATIONAL BANK OF BOSTON
Hallwood Investment Company
Page 6
2.22 In Clause 15.06, the following new sentences shall be added at the end
of such clause:-
"The Borrower shall not be entitled to assign or transfer all
or any part of its rights, benefits or obligations hereunder
without the prior written consent of the Lender. This Facility
Letter shall be binding upon and enure to the benefit of each
party hereto and its successors and permitted assigns."
2.23 The following new Clause 15.08 shall be inserted between Clauses 15.07
and 16.01:-
"15.08 Regardless of the adequacy of any other security for the Loan,
any deposits or other sums credited by or due from the Lender to
the Borrower may be applied to or set off by the Lender against
the payment of the Loan and any and all other liabilities,
direct, or indirect, absolute or contingent, due or to become
due, now existing or hereafter arising, of the Borrower to the
Lender without notice to the Borrower or compliance with any
other procedure imposed by statute or otherwise, all of which are
hereby expressly waived by the Borrower."
2.24 Exhibits A and B to this letter agreement shall be inserted as Exhibits
A and B to the Facility Letter.
3. CONDITIONS PRECEDENT
The effectiveness of the amendments set forth in this letter agreement
shall be subject to the fulfilment of the following conditions
precedent on or before 2 September 1994:-
3.1 The Lender shall have received a renewal fee in the amount of $46,200.
3.2 The total outstanding principal amount of the Loan shall have been reduced
by the Borrower's payment to the Lender of (pound sign) 500,000.
3.3 The Lender shall have received the following documents, each in form and
substance satisfactory to it:-
(i) duly executed Guaranty by The Hallwood Group of all amounts
outstanding under the Facility Letter (the "Guaranty");
(ii) duly executed deed of assignment by the Borrower, whereby all rents
and other amounts payable to the Borrower in respect of the
Property and the benefit of all agreements relating to the Property
are assigned to the Lender (the "Rent Assignment");
<PAGE> 7
CONTINUATION THE FIRST NATIONAL BANK OF BOSTON
Hallwood Investment Company
Page 7
(iii) copy of the rent roll with respect to the Property certified by a
duly authorised officer of the Borrower, setting forth such
information on the occupational leases and sub-leases of the
Property as the Lender may require, together with the
fully-executed originals of all such occupational leases and
sub-leases;
(iv) certified copy of a resolution of the Borrower's Board of
Directors authorising entry into and execution of this letter
agreement and the Rent Assignment;
(v) certified copy of the Borrower's Memorandum and Articles of
Association or a certificate of the Secretary of the Borrower
certifying no amendments in the Borrower's Memorandum and Articles
of Association since 6 September 1991;
(vi) copy of the Borrower's Certificate of Incorporation certified by
the Registrar of Companies of the Cayman Islands;
(vii) copy of the Borrower's Register of Mortgages and Charges,
certified by the Registrar of Companies of the Cayman Islands,
showing registration of each of the Security Documents to which
the Borrower is a party and of such other encumbrances as may be
consented to by the Lender;
(vii) legal opinion of Truman Bodden & Company, Cayman Islands counsel,
as to authority of the Borrower to enter into this letter
agreement and the Rent Assignment, registration of the Security
Documents to which the Borrower is a party with the Registrar of
Companies of the Cayman Islands and such other matters as the
Lender may require;
(ix) officer's certificate of The Hallwood Group certifying (a) its
Certificate of Incorporation, (b) its by-laws, (c) resolutions
of its Board of Directors authorising entry into and execution of
the Guaranty and (d) the incumbency of the officers executing the
Guaranty;
(x) Certificate of Good Standing of The Hallwood Group from the
Secretary of State of Delaware;
(xi) legal opinion of Jenkins & Gilchrist, counsel to The Hallwood
Group, as to authority of The Hallwood Group to enter into the
Guaranty, enforceability of the Guaranty and such other matters as
the Lender may require; and
(xii) title report by S.J. Berwin & Co. with respect to the Property.
3.4 The Lender shall have completed a commercial finance examination of the
Borrower and the Property, the results of which shall be satisfactory to
the Lender.
<PAGE> 8
CONTINUATION THE FIRST NATIONAL BANK OF BOSTON
Hallwood Investment Company
Page 8
3.5 The Lender shall have completed an appraisal of the Property, the results
of which shall be used for the purpose of calculating the Borrower's
compliance with the requirements of Clause 8.02 of the Facility Letter.
3.6 No Event of Default (and no event which with the giving of notice or the
lapse of time or any declaration would become an Event of Default) shall
have occurred and be continuing.
3.7 The Lender shall be fully satisfied with the security provided for in the
Facility Letter as amended hereby and the Lender and its solicitors shall
be fully satisfied with the insurance of, title to and existing
encumbrances upon the Property.
3.8 Current account no. 0519959 in the name of the Lender, designated the
"Hallwood Investment Company Rent Account", shall have been opened with
the Lender's London Branch, such account being the "Proceeds Account"
referred to in the Rent Assignment.
4. REPRESENTATIONS AND WARRANTIES
The Borrower hereby repeats the representations and warranties contained
in Clause 11.01 of the Facility Letter as though (i) all references
therein to "this letter" were references to this letter agreement and the
Facility Letter as amended hereby, and (ii) the reference to the accounts
in Clause 11.01(v) were a reference to the most recent audited accounts of
the Borrower and/or the Group delivered to the Bank.
5. COSTS AND EXPENSES
In addition to the Borrower's obligations under Clause 15.01 of the
Facility Letter, all disbursements and other costs and taxes thereon,
including legal costs, incurred by the Lender arising out of or by reason
of this letter (and including without limitation the costs of preparing
this letter, the Guaranty and the Rent Assignment, the costs of carrying
out the commercial finance examination referred to in Clause 3.4 hereof
and the appraisal referred to in Clause 3.5 hereof and the costs of
procuring the legal opinions and reports on title and other examinations
necessary to satisfy the Lender as to the matters referred to in Clause
3.7 hereof) will be payable to the Lender by the Borrower on demand.
6. NO OTHER AMENDMENTS
Each of the Facility Letter and the Security Documents shall remain in
full force and effect in accordance with their respective terms, as
amended only in accordance with the provisions hereof. All references in
the Facility Letter to "this Facility Letter" or similar expressions shall
be deemed to be references to the Facility Letter as amended by this
letter.
<PAGE> 9
CONTINUATION THE FIRST NATIONAL BANK OF BOSTON
Hallwood Investment Company
Page 9
7. ENTIRE AGREEMENT
This letter, together with the Facility Letter as amended hereby, contains
the entire agreement of ourselves and yourselves with respect to the
matters set forth herein.
Please return to us the attached duplicate of this letter, duly executed, on or
before 2 September 1994.
Yours faithfully,
Paul Bensley Tony Woollaston
for and on behalf of
THE FIRST NATIONAL
BANK OF BOSTON
<PAGE> 10
EXHIBIT A
Form of Compliance Certificate
Hallwood Investment Company
P.O. Box 866
Georgetown
Grand Cayman
Cayman Islands
________, 1994
Compliance Certificate
The undersigned, ______________, the duly elected and qualified chief
financial director of Hallwood Investment Company, a company organized under
the laws of the Cayman Islands (the "Borrower"), and Melvin J. Melle, the
duly elected and qualified chief financial officer of The Hallwood Group
Incorporated, a corporation organized under the laws of the State of Delaware,
hereby certify on behalf of the Borrower as of the date hereof the following:
1. No Defaults. We have read a copy of the loan facility letter, dated
as of July 29, 1991, as amended by supplemental letters dated August 13, 1991,
May 21, 1992 and August 31, 1994 (as so amended, the "Facility Letter"),
between the Borrower and The First National Bank of Boston. Terms used herein
and not otherwise defined herein shall have the meanings set forth in Clause 1
of the Facility Letter. The Borrower is not in default in the performance or
observance of any of the covenants, terms or provisions of the Facility Letter
or any of the other Security Documents. Attached hereto as Appendix I are all
relevant calculations needed to determine whether the Borrower is in compliance
with Paragraphs 8.02 through 8.03, inclusive, of the Facility Letter.
2. No Material Changes, Etc. Except as disclosed on Apendix II hereto,
since December 31, 1993, there have occurred no materially adverse changes in
the financial condition or business or the Borrower as shown on or reflected in
the balance sheet of the Borrower as at such date other than (a) changes in the
ordinary course of business that have not had any materially adverse effect
either individually or in the aggregate on the business or financial condition
of the Borrower and (b) changes resulting from the making of the Loan and the
transactions contemplated by the Facility Letter.
<PAGE> 11
-2-
3. No Materially Adverse Contracts, Etc. The Borrower is not subject
to any charter, corporate or other legal restriction, or any judgment, decree,
order, rule or regulation that has or is expected, in the reasonable judgment
of the Borrower's officers, in the future to have a materially adverse effect
on the business, assets or financial condition of the Borrower. The Borrower is
not a party to any contract or agreement that has or is expected, in the
reasonable judgment of the Borrower's officers, to have any materially adverse
effect on the business, assets, or financial condition of the Borrower.
HALLWOOD INVESTMENT COMPANY
By: ____________________________
Name:
Title:
THE HALLWOOD GROUP INCORPORATED
By: ____________________________
Name: Melvin J. Melle
Title: Vice President and Chief
Financial Officer
<PAGE> 12
APPENDIX I
HALLWOOD INVESTMENT COMPANY
FINANCIAL COVENANT CALCULATIONS FOR THE PERIOD ENDED
1. Debt Service Coverage
Total Net Property Income
Total Debt Service Expense
Debt Service Coverage Ratio
2. Loan to Value
Outstanding Principal
Property Value
Loan to Property Value
3. Schedule of Major Tenants
<TABLE>
<CAPTION>
GLA % Total Total
Occupied Occupied Income % Total
Tenant Name by Tenant GLA of Tenant Income
<S> <C> <C> <C> <C>
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
</TABLE>
<PAGE> 13
HALLWOOD INVESTMENT COMPANY
PROPERTY OPERATING REPORT
For the Period Ending
<TABLE>
<S> <C>
Income
Gross Potential Rent
Free Rent
________
Effective Potential Rent
Percentage Rent
Reimbursed RE Tax
Reimbursed CAM
Reimbursed CAM-Prior Period
Reimbursed Other
Other Income
________
Total Income
Expenses
General & Admin.
Mgt. Fee
Repairs
Maintenance
Utilities
Leasing Commissions
Advertising
Legal Fees
Travel
RE Tax
Insurance
Other
Total Expenses
________
Net Operating Income
</TABLE>
<PAGE> 14
APPENDIX II
HALLWOOD INVESTMENT COMPANY
MATERIAL CHANGES
<PAGE> 15
EXHIBIT B
Installment Payments
<TABLE>
<CAPTION>
Interest Payment Date Payment
- - --------------------- -------
<S> <C>
5 October 1994 L. 28,269.12
3 January 1995 L. 77,097.60
4 April 1995 L. 77,954.24
5 July 1995 L. 78,810.88
</TABLE>
<PAGE> 16
The First National Bank of Boston
Bank of Boston House
39 Victoria Street
London SW1H OED
Dear Sirs:
We acknowledge receipt of your letter of 31 August 1994 of which the
foregoing is a true copy and hereby confirm our agreement to the terms and
conditions set out therein.
Yours faithfully,
Signed: Tim Scott Warren Dated: 31st August 1994
for and on behalf of
HALLWOOD INVESTMENT COMPANY
<PAGE> 17
GUARANTY
GUARANTY, dated as of August 31, 1994, by The Hallwood Group
Incorporated, a Delaware corporation (the "Guarantor"), in favor of The First
National Bank of Boston, a national banking association (the "Bank").
WHEREAS, Hallwood Investment Company, a company organized under the
laws of the Cayman Islands (the "Company"), has entered into a loan facility
letter, dated as of July 29, 1991, as amended by supplemental letters dated
August 13, 1991, May 21, 1992 and August 31, 1994 (as amended and in effect
from time to time, the "Credit Agreement"), with the Bank, pursuant to which
the Bank, subject to the terms and conditions contained therein, has made a
loan to the Company and has agreed to extend the maturity of the loan to the
Company;
WHEREAS, the Company and the Guarantor are members of a group of
related corporations, the success of any one of which is dependent in part on
the success of the other members of such group;
WHEREAS, the Guarantor is expects to receive substantial direct and
indirect benefit from the extensions of credit to the Company, by the Bank
pursuant to the Credit Agreement (which benefits are hereby acknowledged);
WHEREAS, it is a condition precedent to the Bank's extending the
maturity of the loan made to the Company under the credit Agreement that the
Guarantor execute and deliver to the Bank a guaranty substantially in the form
hereof; and
WHEREAS, the Guarantor wishes to guaranty the Company's obligations to
the Bank under or in respect of the Credit Agreement as provided herein;
NOW, THEREFORE, the Guarantor hereby agrees with the Bank as follows:
1. DEFINITIONS. The term "Obligations" shall mean all
indebtedness, obligations and liabilities of the Company to the Bank, direct or
indirect, joint or several, absolute or contingent, matured or unmatured,
liquidated or unliquidated secured or unsecured, arising by contract, operation
of law or otherwise, arising or incurred under the Credit Agreement or any of
the other Security Documents or in respect of the Loan or any other instruments
at any time evidencing any thereof. All other capitalized terms used herein
without definition shall have the respective meanings provided therefor in the
Credit Agreement.
<PAGE> 18
-2-
2. GUARANTY OF PAYMENT AND PERFORMANCE. The Guarantor hereby
guarantees to the Bank the full and punctual payment when due (whether at
stated maturity, by required pre-payment. by acceleration or otherwise), as
well as the performance, of all of the Obligations. This Guaranty is an
absolute, unconditional and continuing guaranty of the full and punctual
payment and performance of all of the Obligations and not of their
collectibility only and is in no way conditioned upon any requirement that the
Bank first attempt to collect any of the Obligations from the Company or resort
to any collateral security or other means of obtaining payment. Should the
Company default in the payment or performance of any of the Obligations the
obligations of the Guarantor hereunder with respect to such Obligations in
default shall become immediately due and payable to the Bank, without demand or
notice of any nature, all of which are expressly waived by the Guarantor.
Payments by die Guarantor hereunder may be required by the Bank on any number
of occasions.
3. GUARANTOR'S AGREEMENT TO PAY ENFORCEMENT COSTS, ETC. The
Guarantor further agrees, as the principal obligor and not as a guarantor only,
to pay to the Bank, on demand, all costs and expenses (including court costs
and legal expenses) incurred or expended by the Bank in connection with the
Obligations, this Guaranty and the enforcement thereof, together with interest
on amounts recoverable under this Section 3 from the time when such amounts
become due until payment, whether before or after judgment, at the rate of
interest for overdue principal set forth in the Credit Agreement, provided that
if such interest exceeds the maximum amount permitted to be paid under
applicable law, then such interest shall be reduced to such maximum permitted
amount.
4. WAIVERS BY GUARANTOR; BANK'S FREEDOM TO ACT. The Guarantor
agrees that the Obligations will be paid and performed strictly in accordance
with their respective terms, regardless of any law, regulation or order now or
hereafter in effect in any jurisdiction affecting any of such terms or the
rights of the Bank with respect thereto. The Guarantor waives promptness,
diligences, presentment, demand, protest, notice of acceptance, notice of any
Obligations incurred and all other notices of any kind, all defenses which may
be available by virtue of any valuation, stay, moratorium law or other similar
law now or hereafter in effect, any right to require the marshalling of assets
of the Company or any other entity or other person primarily or secondarily
liable with respect to any of the Obligations, and all suretyship defenses
generally. Without limiting the generality of the foregoing, the Guarantor
agrees to the provisions of any instrument evidencing, securing or otherwise
executed in connection with any Obligation and agrees that the obligations of
the Guarantor hereunder shall not be released or discharged, in whole or in
part, or otherwise affected by (a) the failure of the Bank to assert any claim
or demand or to enforce any right or remedy against the Company or any other
entity or other person primarily or secondarily liable with respect to any of
the Obligations; (b) any extensions, compromise, refinancing, consolidation or
renewals of any Obligation; (c) any change in the time, place or manner of
payment of any of the Obligations or any rescissions, waivers, compromise,
refinancing, consolidation, amendments or modifications of any of the terms or
provisions of the Credit Agreement, the other Security Documents or any other
agreement evidencing, securing or
<PAGE> 19
-3-
otherwise executed in connection with any of the Obligation; (d) the addition,
substitution or release of any entity or other person primarily or secondarily
liable for any Obligation, (e) the adequacy of any rights which the Bank may
have against any collateral security or other means of obtaining repayment of
any of the Obligations; (f) the impairment of any collateral securing any of
the Obligations, including without limitation the failure to perfect or
preserve any rights which the Bank might have in such collateral security or
the substitution, exchange, surrender, release, loss or destruction of any such
collateral security; or (g) any other act or omission which might in any manner
or to any extent vary the risk of the Guarantor or otherwise operate as a
release or discharge of the Guarantor, all of which may be done without notice
to the Guarantor. To the fullest extent permitted by law, the Guarantor
hereby expressly waives any and all rights or defenses arising by reason of (i)
any "one action" or "anti-deficiency" law which would otherwise prevent the
Bank from bringing any action, including any claim for a deficiency, or
exercising any other right or remedy (including any right of set-off), against
the Guarantor before or after the Bank's commencement or completion of any
foreclosure action, whether judicially, by exercise of power of sale or
otherwise, or (ii) any other law which in any other way would otherwise require
any election of remedies by the Bank.
5. UNENFORCEABILITY OF OBLIGATIONS AGAINST COMPANY. If for any
reason the Company has no legal existence or is under no legal obligation to
discharge any of the Obligations, or if any of the Obligations have become
irrecoverable from the Company by reason of the Company's insolvency,
bankruptcy or reorganization or by other operation of law or for any other
reason, this Guaranty shall nevertheless be binding on the Guarantor to the
same extent as if the Guarantor at all times had been the principal obligor on
all such Obligations. In the event that acceleration of the time for payment of
any of the Obligations is stayed upon the insolvency, bankruptcy or
reorganization of the Company, or for any other reason, all such amounts
otherwise subject to acceleration under the terms of the Credit Agreement, the
other Security Documents or any other agreement evidencing, securing or
otherwise executed in connection with any Obligation shall be immediately due
and payable by the Guarantor.
6. SUBROGATION: SUBORDINATION.
6.1. WAIVER OF RIGHTS AGAINST COMPANY. Until the final
payment and performance in full of all of the Obligations, the Guarantor shall
not exercise any rights against the Company arising as a result of payment by
the Guarantor hereunder, by way of subrogation, reimbursement, restitution,
contribution or otherwise, and will not prove any claim in competition with the
Bank in respect of any payment hereunder in any bankruptcy, insolvency or
reorganization case or proceedings of any nature; the Guarantor will not claim
any setoff, recoupment or counterclaim against the Company in respect of any
liability of the Guarantor to the Company; and the Guarantor waives any benefit
of and any right to participate in any collateral security which may be held by
the Bank.
<PAGE> 20
-4-
6.2. SUBORDINATION. The payment of any amounts due with
respect to any indebtedness of the Company now or hereafter owed to the
Guarantor is hereby subordinated to the prior payment in full of all of the
Obligations. The Guarantor agrees that, after the occurrence of any default in
the payment or performance of any of the Obligations, the Guarantor will not
demand, sue for or otherwise attempt to collect any such indebtedness of the
Company to the Guarantor until all of the Obligations shall have been paid in
full. If, notwithstanding the foregoing sentence, the Guarantor shall collect,
enforce or receive any amounts in respect of such indebtedness, such amounts
shall be collected, enforced and received by the Guarantor as trustee for the
Bank and be paid over to the Bank on account of the Obligations without
affecting in any manner the liability of the Guarantor under the other
provisions of this Guaranty.
6.3. PROVISIONS SUPPLEMENTAL. The provisions of this
Section 6 shall be supplemental to and not in derogation of any rights and
remedies of the Bank under any separate subordination agreement which the Bank
may at any time and from time to time enter into with the Guarantor.
7. SECURITY: SETOFF. The Guarantor grants to the Bank, as
security for the full and punctual payment and performance of all of the
Guarantor's obligations hereunder, a continuing lien on and security interest
in all securities or other property belonging to the Guarantor now or hereafter
held by the Bank and in all deposits (general or special, time or demand,
provisional or final) and other sums credited by or due from the Bank to the
Guarantor or subject to withdrawal by the Guarantor. Regardless of the adequacy
of any collateral security or other means of obtaining payment of any of the
Obligations, the Bank is hereby authorized at any time and from time to time,
without notice to the Guarantor (any such notice being expressly waived by the
Guarantor) and to the fullest extent permitted by law, to set off and apply
such deposits and other sums against the obligations of the Guarantor under
this Guaranty, whether or not the Bank shall have made any demand under this
Guaranty and although such obligations may be contingent or unmatured.
8. FURTHER ASSURANCES. The Guarantor will deliver to the Bank:
(a) as soon as practicable, but in any event not later than 90 days after the
end of each fiscal year of the Guarantor, or in the event that Guarantor files
a request for an extension with the Securities and Exchange Commission (which
request is granted), 105 days after the end of such fiscal year of the
Guarantor, a copy of the Guarantor's annual 10-K report filed with the
Securities and Exchange Commission; (b) as soon as practicable, but in any
event not later than 45 days after the end of each of the fiscal quarters of
each fiscal year of the Guarantor or, in the event that the Guarantor files a
request for an extension with the Securities and Exchange Commission (which
request is granted), 60 days after the end of such fiscal quarter, copies of
the Guarantor's quarterly 10-Q report submitted to the Securities and Exchange
Commission; and (c) contemporaneously with the filing or mailing thereof,
copies of all material of a financial nature filed with the Securities and
Exchange Commission or sent to the stockholders of the Guarantor. The Guarantor
agrees that it will from time to time, at the request of the Bank, provide to
the Bank such other information relating to the business and
<PAGE> 21
-5-
affairs of the Guarantor as the Bank may reasonably request. The Guarantor also
agrees to do all such things and execute all such documents as the Bank may
consider necessary or desirable to give full effect to this Guaranty and to
perfect and preserve the rights and powers of the Bank hereunder. The Guarantor
acknowledges and confirms that the Guarantor itself has established its own
adequate means of obtaining from the Company on a continuing basis all
information desired by the Guarantor concerning the financial condition of the
Company and that the Guarantor will look to the Company and not to the Bank in
order for the Guarantor to keep adequately informed of changes in the Company's
financial condition.
9. TERMINATION; REINSTATEMENT. This Guaranty shall remain in
full force and effect until the payment and performance in full of the
Obligations. This Guaranty shall continue to be effective or be reinstated,
notwithstanding any such payment, if at any time any payment made or value
received with respect to any Obligation is rescinded or must otherwise be
returned by the Bank upon the insolvency, bankruptcy or reorganization of the
Company, or otherwise, all as though such payment had not been made or value
received.
10. SUCCESSORS AND ASSIGNS. This Guaranty shall be binding upon
the Guarantor, its successors and assigns, and shall inure to the benefit of
and be enforceable by the Bank and its successors, transferees and assigns.
Without limiting the generality of the foregoing sentence, the Bank may assign
or otherwise transfer the Credit Agreement, the other Security Documents or any
other agreement or note held by it evidencing, securing or otherwise executed
in connection with the Obligations, or sell participation in any interest
therein, to any other entity or other person, and such other entity or other
person shall thereupon become vested, to the extent set forth in the agreement
evidencing such assignment, transfer or participation, with all the rights in
respect thereof granted to the Bank herein.
11. AMENDMENTS AND WAIVERS. No amendment or waiver of any
provision of this Guaranty nor consent to any departure by the Guarantor
therefrom shall be effective unless the same shall be in writing and signed by
the Bank. No failure on the part of the Bank to exercise, and no delay in
exercising, any right hereunder shall operate as a waiver thereof; nor shall
any single or partial exercise of any right hereunder preclude any other or
further exercise thereof or the exercise of any other right.
12. NOTICES. All notices and other communications called for
hereunder shall be made in writing and, unless otherwise specifically provided
herein, shall be deemed to have been duly made or given when delivered by hand
or mailed first class, postage prepaid, or, in the case of telegraphic or
telexed notice, when transmitted, answer back received, addressed as follows:
if to the Guarantor, at the address set forth beneath its signature hereto, and
if to the Bank, at the address for notices to the Bank set forth in the Credit
Agreement, or at such address as either party may designate in writing to the
other.
<PAGE> 22
-6-
13. GOVERNING LAW; CONSENT TO JURISDICTION. THE GUARANTY IS
INTENDED TO TAKE EFFECT AS A SEALED INSTRUMENT AND SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS.
The Guarantor agrees that any suit for the enforcement of this Guaranty may be
brought in the courts of the Commonwealth of Massachusetts or any federal court
sitting therein and consents to the nonexclusive jurisdiction of such court and
to service of process in any such suit being made upon the Guarantor by mail at
the address specified by reference in Section 12. The Guarantor hereby waives
any objection that it may now or hereafter have to the venue of any such suit
or any such court or that such suit was brought in an inconvenient court.
14. WAIVER OF JURY TRIAL. THE GUARANTOR HEREBY WAIVES ITS RIGHT TO
A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN
CONNECTION WITH THIS GUARANTY, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THE
PERFORMANCE OF ANY OF SUCH RIGHTS OR OBLIGATIONS. Except as prohibited by law,
the Guarantor hereby waives any right which it may have to claim or recover in
any litigation referred to in the preceding sentence any special, exemplary,
punitive or consequential damages or any damages other than, or in addition to,
actual damages. The Guarantor (a) certifies that neither the Bank nor any
representative, agent or attorney of the Bank has represented, expressly or
otherwise, that the Bank would not, in the event of litigation, seek to enforce
the foregoing waivers and (b) acknowledges that, in entering into the Credit
Agreement and the other Security Documents to which the Bank is a party, the
Bank is relying upon, among other things, the waivers and certifications
contained in this Section 14.
15. SENIOR INDEBTEDNESS. This Guaranty and the obligations of the
Guarantor hereunder constitute "Senior Indebtedness" under the Indenture, dated
as of March 2, 1993, between the Guarantor and Norwest Bank Minnesota, National
Association, as trustee for the Guarantor's 7% Collateralized Senior
Subordinated Debentures due July 31, 2000 (the "Securities"), and are senior in
right of payment to the Securities.
16. MISCELLANEOUS. This Guaranty constitutes the entire agreement
of the Guarantor with respect to the matters set forth herein. The rights and
remedies herein provided are cumulative and not exclusive of any remedies
provided by law or any other agreement, and this Guaranty shall be in addition
to any other guaranty of or collateral security for any of the Obligations. The
invalidity or unenforceability of any one or more sections of this Guaranty
shall not affect the validity or enforceability of its remaining provisions.
Captions are for the ease of reference only and shall not affect the meaning of
the relevant provisions. The meanings of all defined terms used in this
Guaranty shall be equally applicable to the singular and plural forms of the
terms defined.
<PAGE> 23
-7-
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be
executed and delivered as of the date first above written.
THE HALLWOOD GROUP
INCORPORATED
By: /s/ MELVIN J. MELLE
Name: Melvin J. Melle
Title: Vice President and Chief of
Financial Officer
Address: The Hallwood Group Incorporated
3710 Rawlins
Suite 1500
Dallas, Texas 75219
<PAGE> 1
EXHIBIT 11
THE HALLWOOD GROUP INCORPORATED AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
October 31,
-------------------
1994 1993
---- ----
<S> <C> <C>
PRIMARY:
Average common shares outstanding . . . . . . . . . . . . . . . . . . . . . 5,487 5,487
Dilutive stock options based on the treasury stock method
using the period end market price . . . . . . . . . . . . . . . . . . . . . -- --
------- -------
Average common and common share equivalents outstanding . . . . . . . . . . 5,487 5,487
======= =======
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(1,262) $(1,340)
======= =======
Per share amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.23) $ (0.24)
======= =======
FULLY DILUTED:
Average common and common share equivalents
outstanding - primary . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,487 5,487
======= =======
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(1,262) $(1,340)
======= =======
Per share amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.23) $ (0.24)
======= =======
</TABLE>
NOTE: Since dilution under fully diluted method is less than 3%, dual
presentation on consolidated statements of operations is not required.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
FINANCIAL DATA SCHEDULE FOR FORM 10-Q QUARTER ENDED OCTOBER 31, 1994
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> QTR-1
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-01-1994
<PERIOD-END> OCT-31-1994
<CASH> 4,490
<SECURITIES> 23,445
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 15,988
<CURRENT-ASSETS> 0
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0
0
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