UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K/A
(Amended January 15, 1998)
MARK ONE
|X| ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the Fiscal Year Ended December 31, 1996
|_| TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-8921
HALLWOOD ENERGY PARTNERS, L. P.
(Exact name of registrant as specified in its charter)
Delaware 84-0987088
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
4582 South Ulster Street Parkway
Suite 1700
Denver, Colorado 80237
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 850-7373
Securities Registered Pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Class A Units of Limited Partnership Interests American Stock Exchange
Class C Units of Limited Partnership Interests American Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|
The aggregate market value of the Class A and Class C Units held by
nonaffiliates of the registrant as of March 20, 1997 was approximately
$67,601,500.
Number of Units outstanding as of March 20, 1997
Class A 9,977,254
Class B 143,773
Class C 664,063
Page 1 of 52
<PAGE>
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The registrant is a limited partnership managed by the general partner and has
no officers or directors. The general partner is HEPGP Ltd., a Colorado limited
partnership. The general partner of HEPGP Ltd. is Hallwood G.P., Inc., a
Delaware corporation, which is a wholly owned subsidiary of Hallwood Group.
The principal duties and powers of the general partner are arranging financing
for HEP, seeking out, negotiating and acquiring for HEP suitable leases and
other prospects, managing properties owned by HEP, generally dealing for HEP
with third parties and attending to the general administration of HEP and its
relations with the limited partners.
HEPGP Ltd. is the sole general partner of HEP. HEPGP Ltd. is a limited
partnership, and its general partner is Hallwood G. P., Inc. ("Hallwood G.P.").
Hallwood Petroleum, Inc. ("HPI") performs duties related to the management of
HEP, including the operation of various properties in which HEP owns an
interest.
Directors, Officers and Key Employees
Neither the Partnership nor its general partner has any employees.
Following are brief biographies of the directors, officers and key employees of
Hallwood G.P. and HPI.
Anthony J. Gumbiner, 53, has served as a director and Chief Executive Officer of
Hallwood G.P. since March 1997. He was Chairman of the Board of Hallwood Energy
Corporation ("HEC") from May 1984 until HEC's merger into The Hallwood Group
Incorporated ("Hallwood Group") in November 1996. He was Chief Executive Officer
of HEC from February 1987 to November 1996. He has also served as Chairman of
the Board of Directors of Hallwood Group, a diversified holding company with
energy, real estate, textile products and hotel operations, since 1981 and as
Chief Executive Officer of Hallwood Group since April 1984. Mr. Gumbiner has
been a director and Chief Executive Officer of Hallwood Consolidated Resources
Corporation ("HCRC") since February 1992. Mr. Gumbiner has also served as
Chairman of the Board of Directors and as a director of Hallwood Holdings S.A.,
a Luxembourg real estate investment company, since March 1984. He has been a
director of Hallwood Realty Corporation ("Hallwood Realty"), which is the
general partner of Hallwood Realty Partners, L.P., since November 1990. He is a
Solicitor of the Supreme Court of Judicature of England.
William L. Guzzetti, 54, has been President of Hallwood G.P. and HPI since
October 1989, and a director of Hallwood G.P. and HPI since August 1989. He was
President, Chief Operating Officer and a director of HEC from February 1985
until November 1996. Mr. Guzzetti joined HEC in February 1976 as Vice President,
Secretary and General Counsel and served in these positions until November 1980.
He served as Senior Vice President, Secretary and General Counsel of HEC from
November 1980 until February 1985, when he became President of HEC. Mr. Guzzetti
has been President, Chief Operating Officer and a director of HCRC since May
1991. Mr. Guzzetti is also an Executive Vice President of Hallwood Group and in
that capacity may devote a portion of his time to the activities of Hallwood
Group, including the management of real estate investments, acquisitions and
restructurings of entities controlled by Hallwood Group. He is a director and
President of Hallwood Realty and in that capacity may devote a portion of his
time to the activities of Hallwood Realty.
Russell P. Meduna, 42, has served as Executive Vice President of Hallwood G.P.
and HPI since October 1989. He was Executive Vice President of HEC from June
1991 until November 1996. He was Vice President of HEC from May 1990 until June
1991. Mr. Meduna became Executive Vice President of HCRC in June 1992. Mr.
Meduna was Vice President of Hallwood G.P. and HPI from April 1989 to October
1989 and Manager of Operations from January 1989 to April 1989. He joined HPI in
1984 as Production Manager. Prior to joining HPI, he was employed by both major
and independent oil companies. Mr. Meduna is a registered professional engineer
in the States of Colorado and Texas.
-2-
<PAGE>
Cathleen M. Osborn, 45, has served as Vice President, Secretary and General
Counsel of Hallwood G.P. and HPI since September 1986. She was Vice President,
Secretary and General Counsel of HEC from June 1991 until November 1996. Ms.
Osborn became Secretary and General Counsel of HCRC in May 1992 and Vice
President in June 1992. She joined Hallwood G.P. and HPI in 1985 as senior staff
attorney. Ms. Osborn is a member of the Colorado Bar Association.
Robert Pfeiffer, 41, has served as Vice President of Hallwood G.P. and HPI since
August 1986. He was Vice President of HEC from June 1991 until November 1996.
Mr. Pfeiffer became Chief Financial Officer of HPI in June 1994. He has been
Vice President of HPI since June 1992. He joined Hallwood G.P. and HPI in 1984.
From July 1979 to May 1984, he was employed by Price Waterhouse as a senior
accountant. Mr. Pfeiffer is a member of the American Institute of Certified
Public Accountants and the Colorado Society of Certified Public Accountants.
Betty J. Dieter, 49, has been Vice President of HPI responsible for domestic
operations since January 1995. Her previous positions with HPI have included
Operations Manager, Rocky Mountain and Mid-Continent District Manager and
Manager for Operations Accounting and Administration. She joined HPI in 1985,
and has 25 years experience in accounting and operations, 18 of which are in the
oil and gas industry. Ms. Dieter is a Certified Public Accountant.
George Brinkworth, 55, has been Vice President-Exploration and International
Division of HPI since August 1994. He became associated with HPI in 1987 when he
was President of a joint venture program funded by HPI and two other domestic
oil companies. Mr. Brinkworth has 33 years experience with various exploration
and production companies, including previous responsibility for operations in
the United Kingdom, Spain, Morocco, Egypt and Indonesia. He is a registered
geophysicist in the State of California.
William H. Marble, 47, has served as Vice President of HPI since December 1990.
His previous positions with HPI have included Texas/Gulf Coast District Manager,
Manager of Nonoperated Properties and Chief Engineer. He joined a predecessor
general partner of the Partnership in 1984. Mr. Marble is a registered engineer
in the State of Colorado and has 23 years oil and gas engineering experience.
Brian M. Troup, 50, has served as a director of Hallwood G.P. since March 1997.
Mr. Troup was a director of HEC from May 1984 until November 1996. He has been
President and Chief Operating Officer of Hallwood Group since April 1986, and he
is a director. He has been a director of HCRC since February 1992. Mr. Troup is
a director of Hallwood Holdings S.A. and of Hallwood Realty. He is an associate
of the Institute of Bankers in Scotland and a member of the Society of
Investment Analysts in the United Kingdom.
Hans-Peter Holinger, 55, has served as a director of Hallwood G.P. since March
1997. He was a director of HEC from May 1984 until November 1996. Mr. Holinger
served as Managing Director of Interallianz Bank Zurich A.G. from 1977 to
February 1993. Since February 1993, he has been the majority owner of Holinger
Asset Management AG, Zurich.
Mr. Holinger is a citizen of Switzerland.
Rex A. Sebastian, 68, has served as a director of Hallwood G.P. since March
1997. He was a director of HEC from January 1993 until November 1996. Mr.
Sebastian is a member of the board of directors of Ferro Corporation. He served
as Senior Vice President--Operations of Dresser Industries, Inc. from January
1975 until his retirement in July 1985. He joined Dresser in 1966. Mr. Sebastian
is now a private investor.
Nathan C. Collins, 63, has served as a director of Hallwood G.P. since March
1997. He was a director of HEC from January 1993 until November 1996. From March
1, 1995 to March 1, 1996, he was President, Chief Executive Officer and a
director of Flemington National Bank & Trust Co. in Flemington, New Jersey. From
November 1987 until December 1994, he was Chairman of the Board of Directors,
President and Chief Executive Officer of BancTexas Group Inc. He began his
banking career in August 1964 with the Valley National Bank in Phoenix, Arizona
and held various positions there, finally becoming Executive Vice President,
Senior Credit Officer and Manager of Asset/Liability Group of the bank. Mr.
Collins is now a private investor.
-3-
<PAGE>
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the officers and
directors of Hallwood G.P., Inc., and persons who own more than ten percent of
HEP's Units, to file reports of ownership and changes in ownership with the
Securities and Exchange Commission. Officers, directors and greater than ten
percent owners are required by SEC regulation to furnish HEP with copies of all
Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no forms were
required for those persons, HEP believes that, during the year ended December
31, 1996, all officers and directors of Hallwood G.P., Inc. and greater than
ten-percent beneficial owners complied with applicable filing requirements.
ITEM 11 - EXECUTIVE COMPENSATION
General
Neither the Partnership nor its general partner has any employees. Management
services are provided to the Partnership by HPI, a subsidiary of the
Partnership. Employees of HPI perform all duties related to the management of
the Partnership on behalf of the General Partner. Since HPI also performs
services for HCRC, the Partnership is charged for management services by HPI
based on an allocation procedure that takes into account the amount of time
spent on management, the number of properties owned by the Partnership and the
Partnership's performance relative to HCRC and other related entities. The
allocation procedure is applied consistently to all related entities for which
HPI performs services. In 1996 the Partnership reimbursed HPI for approximately
$1.9 million of expenses, of which $675,338 was attributable to compensation
paid to executive officers of Hallwood G.P.
Compensation of Executive Officers
The following table sets forth the compensation to the Chief Executive Officer
of Hallwood G.P. and each of the four other most highly compensated officers of
Hallwood G.P. whose compensation paid by HPI exceeded $100,000 (determined for
the year ended December 31, 1996) for services to the Partnership, its
subsidiaries and its General Partner for the years ended December 31, 1996,
1995, and 1994.
<PAGE>
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term
Annual Compensation Compensation
Securities
Underlying
Name & Principal Position Options/SARs LTIP All Other
Year Salary Bonus (#) Payouts Compensation (1)
---- ------ ----- --- -------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Anthony J. Gumbiner (2).......... 1996 $250,000 $ 0 0 $ 0 $ 0
Chief Executive 1995 250,000 0 (3) 0 0
Officer 1994 125,000 0 0 0 0
William L. Guzzetti.............. 1996 204,294 131,500 0 33,170 5,699
President and Chief 1995 204,412 75,000 (3) 15,753 6,004
Operating Officer 1994 200,240 72,800 0 9,449 6,004
Russell P. Meduna................ 1996 163,664 101,900 0 33,170 4,500
Executive Vice 1995 167,364 161,000 (3) 15,753 4,810
President 1994 164,024 24,200 0 9,449 4,409
Robert S. Pfeiffer............... 1996 107,518 56,700 0 23,092 4,300
Vice President and 1995 109,949 94,000 (3) 11,692 3,160
Chief Financial 1994 107,755 25,700 0 6,963 3,160
Officer
Cathleen M. Osborn............... 1996 105,685 62,400 0 23,092 4,500
Vice President and 1995 109,069 95,000 (3) 11,692 3,160
General Counsel 1994 105,848 24,600 0 6,963 3,160
- ----------------------
<FN>
(1) Employer contribution to 401(k) and a service award of $1,199 paid to Mr. Guzzetti.
</FN>
<FN>
(2) For 1994, 1995 and 1996, Mr. Gumbiner had a Compensation Agreement with HPI. $250,000 was paid
under this agreement in 1995 and 1996; $125,000 was paid in 1994. The Compensation Agreement was
effective August 1, 1994 and terminated effective December 1996. In addition to compensation listed in the
table, HPI has a consulting agreement with Hallwood Group for 1994 through 1996, pursuant to which
Hallwood Group received an annual consulting fee of $300,000 from affiliates of HPI. The consulting
services were provided by HSC Financial Corporation ("HSC Financial"), through the services of
Mr. Gumbiner and Mr. Troup, and Hallwood Group paid the annual fee it received to HSC Financial.
</FN>
<PAGE>
<FN>
(3) Consists of the following options granted in 1995. The HCRC Options
have been adjusted to give effect to the 3-for-1 split effective in
1997.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Securities Underlying
Name Company Options/SARs (#)
<S> <C>
Anthony J. Gumbiner............................. HEP 127,500
HCRC 47,700
William L. Guzzetti............................. HEP 63,750
HCRC 23,850
Russell P. Meduna............................... HEP 59,500
HCRC 22,260
Robert S. Pfeiffer.............................. HEP 25,500
HCRC 9,540
Cathleen M. Osborn.............................. HEP 25,500
HCRC 9,540
</TABLE>
<TABLE>
<CAPTION>
Option Grants and Exercises in Last Fiscal Year
No options were granted during 1996. No executive officer exercised
options during 1996.
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values
Number of Securities Underlying Value of Unexercised
Unexercised Options/SARs at FY- In-the-Money Options/SARs at FY-
End (#) End ($)
Name Exercisable/Unexercisable (1)(3) Exercisable/Unexercisable (2)(4)
- ---- -------------------------------- --------------------------------
<S> <C> <C> <C> <C>
Anthony J. Gumbiner HEP 85,425 / 42,075 $266,593 /$131,484
HCRC 31,800 / 15,900 524,700 / 262,350
William L. Guzzetti HEP 42,713 / 21,038 133,477 / 65,742
HCRC 15,900 / 7,950 262,350 / 131,175
Russell P. Meduna HEP 39,975 / 19,635 124,578 / 61,359
HCRC 14,838 / 7,422 244,827 / 122,463
Robert S. Pfeiffer HEP 17,085 / 8,415 53,391 / 26,297
HCRC 6,360 / 3,180 104,940 / 52,470
Cathleen M. Osborn HEP 17,085 / 8,415 53,391 / 26,297
HCRC 6,360 / 3,180 104,940 / 52,470
- ----------------------
<FN>
(1) All of the HEP options expire January 31, 2005.
</FN>
<FN>
(2) The exercise price of the HEP options is $5.75 per Class A Unit. The closing price of the Class A Units was
$8.875 on December 31, 1996.
</FN>
<PAGE>
<FN>
(3) The HCRC options have a ten-year term and vest cumulatively over three
years at the rate of 1/3 on each of the date of grant and the first two
anniversaries of the grant date. All options vest immediately in the
event of certain changes in control of the Company. The number of
options has been adjusted to reflect a 3-for-1 stock split effective in
1997.
</FN>
<FN>
(4) The exercise price of the HCRC options is $6.67 per share. The closing
price of the common stock was $23.17 on December 31, 1996. The number
of options and the exercise and closing price has been adjusted to
reflect a 3-for-1 stock split effective in 1997.
</FN>
</TABLE>
Long-Term Incentive Plan
The following table describes performance units awarded to the executive
officers of Hallwood G.P. for 1996 under the Incentive Plan (as described below)
for the Partnership and affiliated entities. The value of awards under each plan
depends primarily on the Partnership's success in drilling, completing and
achieving production from new wells each year and from certain recompletions and
enhancements of existing wells.
<TABLE>
<CAPTION>
Long-term Incentive Plan Awards in Last Fiscal Year
Performance or Estimated Future
Number of Other Period Payouts under Non-Stock
Name Units Until Payout Price-Based Plans(1)
---- ------- -------------- --------------------
<S> <C> <C> <C>
Anthony J. Gumbiner(2) -- -- $ - -
William L. Guzzetti 0.0841 2001 25,835
Russell P. Meduna 0.0841 2001 25,835
Robert S. Pfeiffer 0.0580 2001 17,817
Cathleen M. Osborn 0.0580 2001 17,817
- -----------------------
<FN>
(1) This amount represents an award under the Incentive Plan. There are no minimum, maximum or target
amounts payable under the Incentive Plan. Payments under the awards will be equal to the indicated
percentage of Plan net cash flow from certain wells for the first five years after an award and, in the sixth
year, the indicated percentage of 80% of the remaining net present value of estimated future production from
the wells allocated to the Plan. The amounts shown above are estimates based on estimated reserve quantities
and future prices. Because of the uncertainties inherent in estimating quantities of reserves and prices, it is
not possible to predict cash flow or remaining net present value of estimated future production with any
degree of certainty.
</FN>
<FN>
(2) In addition, an award of .4200 units, with an estimated future payout
of $129,024, was made to HSC Financial, with which Mr. Gumbiner is
associated. The payout period ends in 2001.
</FN>
</TABLE>
The Incentive Plan for the Partnership and its affiliated entities, including
HCRC, is intended to provide incentive and motivation to HPI's key employees to
increase the oil and gas reserves of the various affiliated entities for which
HPI provides services and to enhance those entities' ability to attract,
motivate and retain key employees and consultants upon whom, in large measure,
those entities' success depends.
<PAGE>
Under the Incentive Plan, the Board of Directors of Hallwood G.P. (the "Board")
annually determines the portion of the Partnership's collective interests in the
cash flow from certain international projects and from domestic wells drilled,
recompleted or enhanced during that year (the "Plan Year") which will be
allocated to participants in the plan and the percentage of the remaining net
present value of estimated future production from domestic wells for which the
participants will receive payment in the sixth year of an award. The portion
allocated to participants in the plan is referred to as the Plan Cash Flow. The
Board then determines which key employees and consultants may participate in the
plan for the Plan Year and allocates the Plan Cash Flow among the participants.
Awards under the plan do not represent any actual ownership interest in the
wells. Awards are made in the Board's discretion.
Each award under the Incentive Plan represents the right to receive for five
years a specified share of the Plan Cash Flow attributable to certain domestic
wells drilled, recompleted or enhanced during the Plan Year. In the sixth year
after the award, the participant is paid an amount equal to a specified
percentage of the remaining net present value of estimated future production
from the wells and the award is terminated. Cash flow from international
projects, if any, allocated to the Incentive Plan is paid to participants for a
10-year period, with no buy-out for estimated future production.
The awards for the 1996 Plan Year were made in January 1996. No other awards
were made in 1996. For the 1996 Plan Year, the Compensation Committee of
Hallwood G.P. determined that the total Plan Cash Flow would be equal to 2.4% of
the cash flow of the domestic wells completed, recompleted or enhanced during
the Plan Year. Accordingly, the value of awards for each Plan Year depends
primarily on the Partnership's success in drilling, completing and achieving
production from new wells each year and from certain recompletions and
enhancements of existing wells. The Compensation Committee also determined that
the participants' interests in eligible domestic wells for the 1996 Plan Year
would be purchased in the sixth year at 80% of the remaining net present value
of the wells completed in the Plan Year. The Compensation Committee also
determined that the total award would be allocated among key employees primarily
on the basis of salary, to the extent of 70% of the total award, and on
individual performance, to the extent of 30% of the total award.
Director Compensation
Each director of Hallwood G.P. who is not an officer of Hallwood G.P. or HCRC or
an employee of HPI, is paid an annual fee of $20,000 that is proportionately
reduced if the director attends fewer than four regularly scheduled meetings of
the Board during the year. During 1996, Messrs. Holinger, Sebastian and Collins
were each paid $20,000. In addition, all directors are reimbursed for their
expenses in attending meetings of the Board and committees.
Compensation Committee Interlocks and Insider Participation
The Board of Directors of Hallwood G.P. makes compensation decisions for the
Partnership during the first quarter of each year. Mr. Gumbiner is Chief
Executive Officer of Hallwood G.P. and serves on the compensation committee of
Hallwood Group, of which Mr. Troup is President and Mr. Guzzetti is Executive
Vice President. Mr. Gumbiner is also Chief Executive Officer and a director of
HCRC, of which Mr. Troup is a director and Mr. Guzzetti is a director and
President. Messrs. Gumbiner, Troup and Guzzetti served on HCRC's Board of
Directors which made compensation decisions for HCRC in January 1996. Mr.
Gumbiner is Chief Executive Officer and a director, and Mr. Guzzetti is
President and a director, of Hallwood Realty. During 1996, Mr. Gumbiner and Mr.
Guzzetti served on the compensation committee of Hallwood Realty.
The Partnership participates in a financial consulting agreement between HPI and
Hallwood Group, pursuant to which Hallwood Group furnishes consulting and
advisory services to HPI, the Partnership and their affiliates. Under the terms
of this agreement, HPI and its affiliates are obligated to pay Hallwood Group
$550,000 per year until June 30, 2000. The agreement automatically renews for
successive three year terms; either party may terminate the agreement on not
less than 30 days written notice prior to the expiration of any three year term.
The financial consulting agreement replaced both a previous financial consulting
agreement and a compensation agreement with Mr. Gumbiner. Under the terms of the
previous financial consulting agreement, HPI and its affiliates were obligated
to pay Hallwood Group three annual payments of $300,000 beginning June 30, 1994,
and Hallwood Group was obligated to furnish
<PAGE>
consulting and advisory services to HPI and its affiliates through June 30,
1997. In 1996, the consulting services were provided by HSC Financial
Corporation, through the services of Mr. Gumbiner and Mr. Troup, and Hallwood
Group paid the annual fee it received to HSC Financial. A fee of approximately
$158,850 was paid in 1996 by the Partnership pursuant to this arrangement. For
1994, 1995 and 1996, Mr. Gumbiner had a compensation agreement with HPI pursuant
to which Mr. Gumbiner was paid $250,000 by HPI, the Partnership and their
affiliates. This agreement was terminated effective December 31, 1996. See
"Summary Compensation Table" and footnotes for additional discussion of this
arrangement.
The Partnership reimburses Hallwood Group for expenses incurred on behalf of the
Partnership. In 1996, the Partnership reimbursed Hallwood Group approximately
$152,000 of expenses.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
HALLWOOD ENERGY PARTNERS, L.P.
BY: HEPGP LTD.
General Partner
BY: HALLWOOD G.P., INC.
General Partner
Date: January 15, 1998 By: /s/Robert S. Pfeiffer
--------------------------- ----------------------
Robert S. Pfeiffer, Vice President
Chief Financial Officer
(Principal Accounting Officer)
<PAGE>
