--
UNITED STATES
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
For the Quarterly Period Ended September 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-19931
HALLWOOD CONSOLIDATED RESOURCES CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 84-1176750
(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
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 [ ]
Shares of Common Stock outstanding at November 14, 1997 2,977,542
Page 1 of 22
<PAGE>
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HALLWOOD CONSOLIDATED RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands except Shares)
September 30, December 31,
1997 1996
----- ----
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 372 $ 628
Accrued oil and gas revenue 3,720 4,808
Due from affiliates 1,253 897
Prepaid and other assets 37 493
Current assets of affiliates 3,335 3,976
----- -------
Total current assets 8,717 10,802
------ -------
PROPERTY, PLANT AND EQUIPMENT, at cost
Oil and gas properties (full cost method)
Proved oil and gas properties 290,319 278,581
Unproved mineral interests - domestic 1,718 1,240
------- -----
Total 292,037 279,821
Less - accumulated depreciation, depletion,
amortization and impairment (218,808) (212,536)
-------- --------
Net property, plant and equipment 73,229 67,285
OTHER ASSETS
Deferred tax asset 450 350
Noncurrent assets of affiliates 20 31
---- ----
Total other assets 470 381
---- ----
TOTAL ASSETS $ 82,416 $ 78,468
========= ========
<FN>
(Continued on the following page)
</FN>
</TABLE>
<TABLE>
<CAPTION>
HALLWOOD CONSOLIDATED RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands except Shares)
September 30, December 31,
1996
1997
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable and accrued liabilities $ 2,438 $ 2,273
Current portion of contract settlement obligation 1,015
Current portion of long-term debt 3,750
Current liabilities of affiliates 5,780 4,826
------ -------
Total current liabilities 9,233 10,849
------ -------
NONCURRENT LIABILITIES
Contract settlement obligation 948
Long-term debt 18,000 16,250
Long-term obligations of affiliates 7,001 7,243
Deferred liability 96 117
------- -------
Total noncurrent liabilities 25,097 24,558
------- -------
Total liabilities 34,330 35,407
------- -------
STOCKHOLDERS' EQUITY
Common stock, par value $.01; 10,000,000 shares
authorized; 2,977,542 shares issued in 1997 and 1996 30 30
Additional paid-in capital 80,054 80,071
Accumulated deficit (28,124) (33,166)
Treasury stock - 259,278 shares in 1997 and 1996 (3,874) (3,874)
-------- ------
Stockholders' equity - net 48,086 43,061
-------- ------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 82,416 $ 78,468
========== ========
<FN>
The accompanying notes are an integral
part of the financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HALLWOOD CONSOLIDATED RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands except per Share data)
For the Three Months Ended
September 30,
1997 1996
---- ----
REVENUES:
<S> <C> <C>
Oil revenue $ 3,277 $ 4,107
Gas revenue 3,973 4,163
Pipeline and other 232 277
Contract settlement 6 14
Interest income 17 33
------ ------
7,505 8,594
------ ------
EXPENSES:
Production operating 2,576 2,471
General and administrative 799 993
Interest 506 594
Depreciation, depletion and amortization 2,271 2,276
------ ------
6,152 6,334
------ ------
INCOME BEFORE INCOME TAXES 1,353 2,260
------ -----
PROVISION (BENEFIT) FOR INCOME TAXES:
Current 528 47
Deferred (100)
----- -----
428 47
--- --
NET INCOME $ 925 $ 2,213
======= ======
NET INCOME PER SHARE $ .33 $ .80
======== ========
WEIGHTED AVERAGE COMMON SHARES AND
COMMON SHARE EQUIVALENTS OUTSTANDING 2,835 2,781
======= ======
<FN>
The accompanying notes are an integral
part of the financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HALLWOOD CONSOLIDATED RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands except per Share data)
For the Nine Months Ended
September 30,
1997 1996
---- ----
REVENUES:
<S> <C> <C>
Oil revenue $ 10,142 $ 12,560
Gas revenue 12,107 11,937
Pipeline and other 1,260 983
Contract settlement 21 35
Interest income 134 76
------ -------
23,664 25,591
------ -------
EXPENSES:
Production operating 7,523 7,701
General and administrative 2,584 2,614
Interest 1,668 1,938
Depreciation, depletion and amortization 6,272 7,183
Other 114
------- -----
18,047 19,550
------- -------
INCOME BEFORE INCOME TAXES 5,617 6,041
----- -------
PROVISION (BENEFIT) FOR INCOME TAXES:
Current 675 115
Deferred (100)
---- ----
575 115
---- -----
NET INCOME $ 5,042 $ 5,926
========= =======
NET INCOME PER SHARE $ 1.80 $ 2.14
========== ========
WEIGHTED AVERAGE COMMON SHARES AND
COMMON SHARE EQUIVALENTS OUTSTANDING 2,808 2,772
======== ======
<FN>
The accompanying notes are an integral
part of the financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HALLWOOD CONSOLIDATED RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
For the Nine months Ended
September 30,
1997 1996
- ----- - ----
OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 5,042 $ 5,926
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation, depletion and amortization 6,272 7,183
Noncash interest expense 67 61
Undistributed earnings of affiliates (2,929) (4,374)
Deferred income tax benefit (100)
Recoupment of take-or-pay liability (21) (98)
------ ------
Cash provided by operations before
working capital changes 8,331 8,698
Changes in assets and liabilities provided (used) cash net of noncash
activity:
Accrued oil and gas sales 1,088 (973)
Due from affiliates (497) (802)
Prepaid and other assets 456 (571)
Accounts payable and accrued liabilities 165 (1,394)
---- ------
Net cash provided by operating activities 9,543 4,958
----- -----
INVESTING ACTIVITIES:
Additions to oil and gas properties (2,128) (2,101)
Exploration and development costs incurred (6,538) (5,609)
Proceeds from oil and gas property sales 26 1,364
Refinance of Spraberry investment (6,338)
Distributions received from affiliates 858 858
Other (17) 3
----- ------
Net cash used in investing activities (7,799) (11,823)
------- -------
FINANCING ACTIVITIES:
Repurchase and retirement of common stock (1,752)
Proceeds from long-term debt 1,000 9,000
Payments on long-term debt (3,000) (1,000)
Payments on contract settlement obligation (118)
----- -------
Net cash provided by (used in) financing activities (2,000) 6,130
-------- -----
NET DECREASE IN CASH AND CASH QUIVALENTS (256) (735)
CASH AND CASH EQUIVALENTS:
BEGINNING OF PERIOD 628 1,139
---- ------
END OF PERIOD $ 372 $ 404
========= ========
<FN>
The accompanying notes are an integral
part of the financial statements.
</FN>
</TABLE>
<PAGE>
HALLWOOD CONSOLIDATED RESOURCES CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
Hallwood Consolidated Resources Corporation ("HCRC" or the "Company") is a
Delaware corporation engaged in the development, production, sale and
transportation of oil and gas, and in the acquisition, exploration, development
and operation of oil and gas properties. The Company's properties are primarily
located in the Rocky Mountain, Mid-Continent, Permian and Delaware Basins and
Gulf Coast regions of the United States.
The interim financial data in the accompanying financial statements are
unaudited; however, in the opinion of management, the interim data include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the results for the interim periods. These financial
statements should be read in conjunction with the financial statements and
accompanying notes included in the Company's December 31, 1996 Annual Report on
Form 10-K.
NOTE 2 - ACCOUNTING POLICIES
Consolidation
The Company accounts for its interest in affiliated oil and gas partnerships and
limited liability companies using the proportionate consolidation method of
accounting. The accompanying financial statements include the activities of the
Company and its pro rata share of the activities of Hallwood Energy Partners,
L.P. ("HEP").
Treasury Stock
At September 30, 1997 and December 31, 1996 the Company owns approximately 19%
of the outstanding units of HEP which owns approximately 46% of the Company's
common stock; consequently, the Company has an interest in 259,278 of its own
shares.
These shares are treated as treasury stock in the accompanying financial
statements.
Computation of Net Income Per Share
Net income per share is computed by dividing net income by the weighted average
number of common shares and common share equivalents outstanding during the
reporting period. All share and per share information has been restated to
reflect the three-for-one stock split described in Note 4. The stock options
granted during 1995 are considered to be common share equivalents since January
1, 1996 and the stock options granted during 1997 are considered to be common
stock equivalents since July 1, 1997, because the market price of the common
stock has exceeded the exercise price of the options since those dates. The
number of common share equivalents was computed using the treasury stock method
which assumes that the increase in the number of common shares is reduced by the
number of common shares which could have been repurchased by the Company with
the proceeds from the exercise of the options (which were assumed to have been
made at the average market price of the common stock during the reporting
period).
During February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, Earnings per Share (ASFAS 128"). SFAS
128 establishes standards for computing and presenting earnings per share (EPS),
and supersedes APB Opinion No. 15 and its related interpretations. It replaces
the presentation of primary EPS with a presentation of basic EPS, which excludes
dilution, and requires dual presentation of basic and diluted EPS for all
entities with complex capital structures. Diluted EPS is computed similarly to
fully diluted EPS pursuant to Opinion No. 15. SFAS 128 is effective for periods
ending after December 15, 1997, including interim periods, and will require
restatement of all prior period EPS data presented; earlier application is not
permitted. A comparison of EPS shown in the accompanying financial statements
with the pro forma amounts that would have been determined in accordance with
SFAS 128 is as follows:
<TABLE>
<CAPTION>
For the Quarter Ended September 30, For the Nine Months Ended September 30,
1997 1996 1997 1996
Primary (Basic):
<S> <C> <C> <C> <C>
As reported $.33 $.80 $1.80 $2.14
Pro forma $.34 $.81 $1.86 $2.16
Fully Diluted (Diluted):
As reported $.33 $.80 $1.80 $2.14
Pro forma $.33 $.81 $1.78 $2.14
</TABLE>
Reclassifications
Certain reclassifications have been made to the prior period amounts to conform
to the classifications used in the current period.
NOTE 3 - DEBT
During the second quarter of 1997, the Company and its banks amended and
restated the Company's Credit Agreement to extend the maturity date to May 31,
1999. The borrowing base is $22,500,000 as of October 31, 1997. As of September
30, 1997, the Company had borrowed $18,000,000 against the credit line. HCRC's
borrowing base is further reduced by an outstanding contract settlement
obligation of $1,015,000 and borrowings of $1,000,000 made subsequent to
September 30, 1997; therefore, HCRC's unused borrowing base totaled $3,485,000
at October 31, 1997.
Borrowings against the credit line bear interest, at the option of the Company,
at either (i) the banks' Certificate of Deposit rate plus from 1.375% to 1.875%,
(ii) the Euro-Dollar rate plus from 1.25% to 1.75% or (iii) the higher of the
prime rate of Morgan Guaranty Trust or the sum of one-half of 1% plus the
Federal funds rate, plus .75%. The applicable interest rate was 7.2% at
September 30, 1997. Interest is payable at least quarterly, and quarterly
principal payments of $1,187,500, as adjusted for the $1,000,000 in borrowings
made subsequent to September 30, 1997, commence May 31, 1999. The credit
facility is secured by a first lien on approximately 80% in value of the
Company's oil and gas properties.
HCRC has entered into contracts to hedge its interest rate payments on
$10,000,000 of its debt for each of 1997 and 1998 and $5,000,000 for each of
1999 and 2000. HCRC does not use the hedges for trading purposes, but rather for
the purpose of providing a measure of predictability for a portion of HCRC's
interest payments under its debt agreement, which has a floating interest rate.
In general, it is HCRC's goal to hedge 50% of the principal amount of its debt
for the next two years and 25% for each year of the remaining term of the debt.
HCRC has entered into four hedges, of which one is an interest rate collar
pursuant to which it pays a floor rate of 7.55% and a ceiling rate of 9.85%, and
the others are interest rate swaps with fixed rates ranging from 5.75% to 6.57%.
The amounts received or paid upon settlement of these transactions are
recognized as interest expense at the time the interest payments are due.
<PAGE>
NOTE 4 - STOCK SPLIT
During July 1997, the stockholders of HCRC approved an increase in the number of
authorized shares of its Common Stock from 2,000,000 to 10,000,000. HCRC also
declared a three-for-one split of its outstanding Common Stock. The stock split
was effected by issuing, as a stock dividend, two additional shares of Common
Stock for each share outstanding. The stock dividend was paid on August 11 to
shareholders of record on August 4. After the stock split, HCRC has 2,977,542
shares of Common Stock outstanding. All share and per share information has been
restated to reflect the three-for-one stock split.
NOTE 5 - STATEMENTS OF CASH FLOWS
Cash paid for interest during the nine months ended September 30, 1997 and 1996
was $1,080,000 and $980,000, respectively. Cash paid for income taxes during the
nine months ended September 30, 1997 and 1996 was $725,000 and $59,000,
respectively.
NOTE 6 - STOCK OPTION PLAN
During the second quarter of 1997, the Company adopted a stock option plan
covering 159,000 shares of Common Stock and granted options for all of the
shares under the plan. The terms of this plan are generally consistent with the
terms of the Company=s existing 1995 Stock Option Plan. The options were granted
effective June 17, 1997 at an exercise price of $20.33 per share, which was
equal to the fair market value of the Common Stock on the day of grant. The
options expire on June 17, 2007, unless sooner terminated pursuant to the
provisions of the plan. The options are exercisable one-third on June 17, 1997,
an additional one-third June 17, 1998, and the remaining one-third on June 17,
1999.
NOTE 7 - LEGAL PROCEEDING
On April 23, 1992, a lawsuit was filed in the Chancery Court for New Castle
County, Delaware, styled Tappe v. Hallwood Consolidated Resources Corporation,
Hallwood Consolidated Partners, L. P., Hallwood Oil and Gas, Inc., Hallwood
Energy Partners, L.P., and Hallwood Petroleum, Inc. (C.A. No. 12536). The
lawsuit seeks to rescind the conversion of Hallwood Consolidated Partners, L.P.
(AHCP@) into the Company ("Conversion") and to recover damages in unspecified
amounts. The plaintiff also seeks class certification to represent similarly
situated HCP unitholders. In general, the suit alleges that the defendants
breached fiduciary duties to HCP unitholders by, among other things, proposing
allocation of common stock in the Conversion on a basis that the plaintiff
alleges is unfair, failing to require that the allocation be approved by an
independent third party, causing the costs of proposing the Conversion to be
borne indirectly by the partners of HCP whether or not the Conversion was
completed and failing to disclose certain matters in the Consent
Statement/Prospectus soliciting consents to the Conversion. The defendants
believe that they fully considered and disclosed all material information in
connection with the Conversion, and they believe that the suit is without merit.
HCRC plans to vigorously defend this case, but because of its early stages,
cannot predict the outcome of this matter or any possible effect an adverse
outcome might have.
NOTE 8 - SUBSEQUENT EVENT
The Company has reached an agreement in principle to sell $25 million principal
amount of 10.32% Senior Subordinated Notes due 2007 to a financial institution.
The transaction is subject to negotiation of definitive documents and to the
satisfaction of certain other conditions.
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources
Cash Flow
The Company generated $9,543,000 of cash flow from operating activities during
the first nine months of 1997. The other primary cash inflow was $1,000,000 in
proceeds from long-term debt and $858,000 in distributions received from
affiliates. Cash was primarily used for additions to property and exploration
and development costs of $8,666,000 and payments on long-term debt of
$3,000,000. This resulted in a decrease in the Company's cash of $256,000 for
the nine months ended September 30, 1997, from $628,000 at December 31, 1996 to
$372,000 at September 30, 1997.
Development Projects and Acquisitions
Through September 30, 1997, HCRC incurred approximately $8,666,000 for
exploration, development and acquisition costs toward the 1997 capital budget of
$15,500,000. The expenditures were comprised of approximately $6,538,000 for
exploration and development and approximately $2,128,000 for property
acquisitions. As of September 30, 1997, HCRC's reserve replacement from
extensions, purchases and revisions totals 100% of its estimated 1997
production.
HCRC's 1997 capital budget is primarily allocated to the following regions:
Permian/Delaware Basins, Gulf Coast Region, Rocky Mountain Region, Mid-Continent
Region and other areas. A description of HCRC's significant exploration and
development projects through the third quarter 1997 follows.
Permian/Delaware Basins
HCRC has allocated 42% (approximately $6,450,000) of its 1997 capital budget to
the Permian/Delaware Basins located in West Texas and Southeast New Mexico.
Through the end of the third quarter, HCRC spent approximately $3,025,000
drilling 19 development wells and 16 exploration wells, and on the acquisition
of undeveloped acreage and geological and geophysical data. Of the wells that
were drilled, 25 (71%) are a success. During the last quarter of 1997, HCRC
plans to drill 18 additional development wells and 14 exploration wells. A
discussion of several of the larger projects within the Basins follows.
HCRC spent approximately $45,000 successfully recompleting two wells and
drilling two unsuccessful exploration wells in the Catclaw Draw area in Eddy
County, New Mexico. HCRC has a 5% working interest in the wells and plans to
workover one well in the fourth quarter of 1997.
The Company's nonoperated interest in the Merkel Project includes 10 square
miles of proprietary 3-D seismic data in Jones, Taylor and Nolan Counties,
Texas. HCRC began its involvement in this area in 1995 with the successful
completion of one well. In 1996, HCRC participated in the drilling of eight
additional wells, seven of which were successful. In 1997, HCRC continued its
participation with the drilling of three development and two exploration wells.
Four of these wells are a success. HCRC plans to participate in the drilling of
three more exploration wells during the fourth quarter of 1997 and has seven
additional future potential locations. HCRC's 1997 costs for the area total
approximately $150,000. HCRC owns an average 12.5% working interest in this
area.
Based on the success in the nonoperated Merkel area, HCRC acquired 74 additional
square miles of proprietary 3-D seismic data adjacent to the nonoperated area.
HCRC owns an average 30% working interest in the area, and HPI is the operator.
HCRC has drilled four successful and three unsuccessful exploration wells in the
area. Four exploration wells are scheduled to be drilled during the fourth
quarter of 1997 and 22 potential locations exist for drilling in 1998. HCRC's
1997 costs for drilling and acreage in the area are approximately $500,000.
<PAGE>
HCRC purchased an interest in proprietary 3-D seismic data and selected acreage
within an 85 square mile area, referred to as the Griffin Project, for
approximately $460,000. HCRC has developed a number of prospects in the Griffin
Project which it plans to pursue in the fourth quarter of 1997 and future years.
Through the third quarter, HCRC has drilled two exploratory wells, for
approximately $420,000 one of which is successful. HCRC plans to drill two
exploration wells during the remainder of 1997 and will develop future plans
based on the results of those wells. HCRC owns an approximate 25% working
interest in the area.
HCRC spent approximately $260,000 in 1997 to drill four successful development
wells in the Spraberry area of West Texas. In July, HCRC acquired additional
interests in 34 of its existing wells at a cost of approximately $510,000. HCRC
plans to drill eight additional development wells in the fourth quarter of 1997.
HCRC owns an approximate 15% working interest in the wells.
HCRC is active in the East Keystone project in Winkler County, Texas. During the
first nine months of 1997, HCRC successfully drilled two and recompleted eight
development wells (100% success) for a cost of approximately $205,000. HCRC
plans to drill two and recomplete three development wells during the remainder
of 1997 and to initiate pilot secondary recovery operations. HCRC has a 15%
working interest in the wells.
In 1996, HCRC acquired 106 square miles of 3-D seismic data on the Cowden Ranch
in Crane County, Texas. In early 1997, an exploratory well was drilled at a
total cost of approximately $230,000. This well and two previous wells drilled
in 1996 were dry, and HCRC does not plan to continue exploration in this area.
In 1996, HCRC became active in the Garden City/Mills project in Glasscock
County, Texas. This project included the interpretation of 66 square miles of
nonproprietary 3-D seismic data and the drilling of one successful exploratory
well prior to the end of 1996. In the first nine months of 1997, HCRC drilled a
second successful delineation well. HCRC's costs incurred to drill one
successful exploration well through September 30, 1997, are approximately
$225,000. HCRC will attempt to drill one additional exploration well during the
remainder of 1997 and future plans will be developed based on the results of the
exploration wells. HCRC's working interest in the well is 25%.
Also in the fourth quarter of 1997, HCRC plans to drill one and recomplete three
development wells in the Carlsbad area in Lea County, New Mexico. HCRC has a 35%
working interest.
Rocky Mountain Region
HCRC has allocated approximately 14% (approximately $2,150,000) of its 1997
capital budget to the Rocky Mountain Region located in Colorado, Montana, North
Dakota, Northwest New Mexico and Wyoming. Through the third quarter of 1997,
HCRC spent approximately $835,000 drilling seven development wells, drilling
four exploration wells, and acquiring geological and geophysical data and land.
Three of the wells are a success, and HCRC plans to drill an additional three
development wells and two exploration wells in this region in the last quarter
of 1997. A discussion of major projects within the region follows.
In the San Juan Basin in LaPlata County, Colorado and Rio Arriba County, New
Mexico, HCRC has an interest in a special purpose entity owned by a large east
cost financial institution that has an interest in 34 wells. Through September
30, 1997, four successful recompletions were performed on these wells and two
additional development wells are planned to be recompleted in the fourth quarter
of 1997. This work and other activity in the San Juan region is expected to
yield significant upward reserve revisions.
In the Lone Tree area of Montana, HCRC recompleted two development and two
exploration wells during the first nine months of 1997. One development and one
exploration well are successful. Total 1997 costs for the Montana project were
approximately $75,000. HCRC plans to redrill one exploration well in the fourth
quarter 1997.
HCRC also purchased a 12.5% interest in the Hudson Ranch project, a
multi-objective exploration project generated from approximately 120 miles of
2-D proprietary seismic data. HCRC's 1997 costs for the project are
approximately $325,000. A 3-D seismic data acquisition program is underway and
exploratory drilling is anticipated to begin in 1998.
<PAGE>
Gulf Coast Region
HCRC's 1997 capital budget allocation for the Gulf Coast Region in Louisiana and
Texas is approximately 10% (approximately $1,525,000). In 1997, HCRC spent
approximately $1,060,000 drilling one development well, drilling four
exploration wells and acquiring acreage. Two of the wells are successful. HCRC
plans to directionally drill one 10,000 foot exploration well in the Bigeneria
Humblei formation from the shore to a bottom hole location under the waters of
the Gulf of Mexico. The well is planned to be spud in the fourth quarter of
1997. HCRC owns a 12.5% working interest.
In 1997, HCRC spent approximately $220,000 for tubing repairs, additional
perforations, workovers, and miscellaneous maintenance costs in this area. HCRC
also spent approximately $630,000 in the first nine months of 1997 for two
exploration wells in Louisiana which were unsuccessful.
Mid-Continent and Other Areas
HCRC's 1997 capital budget allocated to all other areas is approximately 35% of
the total budget (approximately $5,375,000). To date, HCRC has incurred
approximately $640,000 on nine successful development projects and three
unsuccessful exploration wells. HCRC plans to drill two development well and six
exploration wells during the fourth quarter of 1997.
HCRC is participating in an exploration prospect in Carter County, Oklahoma. The
project is a 19,000 feet deep multi-formation structural test. In 1997, HCRC's
cost is approximately $245,000 for its 5% interest in the well.
In September 1997, HCRC and an unaffiliated partner were awarded a deep-water
exploration block offshore of northern Peru. HCRC has a 7.5% working interest
and its partner is proceeding with a 1,200 mile seismic program to further
evaluate the project. HCRC's partner, major oil company, is the operator, and
HCRC has a carried interest until drilling begins.
Projects begun in the fourth quarter of 1996 have cost HCRC approximately
$570,000 through the third quarter of 1997. The additional costs are comprised
primarily of approximately $200,000 for two unsuccessful exploratory wells in
the Gulf Coast Region and in the Permian/Delaware Basins.
As a result of environmental and title problems, HCRC has terminated its
previously disclosed agreement to acquire for $9.8 million properties located
principally in Texas. The seller of the properties is disputing HCRC's right to
terminate the agreement and has demanded that the parties proceed to
arbitration.
Financing
During the second quarter of 1997, the Company and its banks amended and
restated the Company's Credit Agreement to extend the maturity date to May 31,
1999. The borrowing base is $22,500,000 as of October 31, 1997. As of September
30, 1997, the Company had borrowed $18,000,000 against the credit line. HCRC's
borrowing base is further reduced by an outstanding contract settlement
obligation of $1,015,000 and borrowings of $1,000,000 made subsequent to
September 30, 1997; therefore, its unused borrowing base totaled $3,485,000 at
October 31, 1997.
Borrowings against the credit line bear interest, at the option of the Company,
at either (i) the banks' Certificate of Deposit rate plus from 1.375% to 1.875%,
(ii) the Euro-Dollar rate plus from 1.25% to 1.75% or (iii) the higher of the
prime rate of Morgan Guaranty Trust or the sum of one-half of 1% plus the
Federal funds rate, plus .75%. The applicable interest rate was 7.2% at
September 30, 1997. Interest is payable at least quarterly, and quarterly
principal payments of $1,187,500, as adjusted for the $1,000,000 in borrowings
made subsequent to September 30, 1997, commence May 31, 1999. The credit
facility is secured by a first lien on approximately 80% in value of the
Company's oil and gas properties.
<PAGE>
HCRC has entered into contracts to hedge its interest rate payments on
$10,000,000 of its debt for each of 1997 and 1998 and $5,000,000 for each of
1999 and 2000. HCRC does not use the hedges for trading purposes, but rather for
the purpose of providing a measure of predictability for a portion of HCRC's
interest payments under its debt agreement which has a floating interest rate.
In general, it is HCRC's goal to hedge 50% of the principal amount of its debt
for the next two years and 25% for each year of the remaining term of the debt.
HCRC has entered into four hedges, of which one is an interest rate collar
pursuant to which it pays a floor rate of 7.55% and a ceiling rate of 9.85%, and
the others are interest rate swaps with fixed rates ranging from 5.75% to 6.57%.
The amounts received or paid upon settlement of these transactions are
recognized as interest expense at the time the interest payments are due.
Cautionary Statement Regarding Forward-Looking Statements
In the interest of providing the Company's stockholders and potential investors
with certain information regarding the Company's future plans and operations,
certain statements set forth in this Form 10-Q relate to management's future
plans and objectives. Such statements are "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Although any
forward-looking statements contained in this Form 10-Q or otherwise expressed by
or on behalf of the Company are, to the knowledge and in the judgment of the
officers and directors of the Company, expected to prove true and to come to
pass, management is not able to predict the future with absolute certainty.
Forward-looking statements involve known and unknown risks and uncertainties
which may cause the Company's actual performance and financial results in future
periods to differ materially from any projection, estimate or forecasted result.
These risks and uncertainties include, among other things, volatility of oil and
gas prices, competition, risks inherent in the Company's oil and gas operations,
the inexact nature of interpretation of seismic and other geological and
geophysical data, imprecision of reserve estimates, the Company's ability to
replace and expand oil and gas reserves, and such other risks and uncertainties
described from time to time in the Company's periodic reports and filings with
the Securities and Exchange Commission. Accordingly, stockholders and potential
investors are cautioned that certain events or circumstances could cause actual
results to differ materially from those projected, estimated or predicted.
Inflation and Changing Prices
Prices
Prices obtained for oil and gas production depend upon numerous factors that are
beyond the control of the Company, including the extent of domestic and foreign
production, imports of foreign oil, market demand, domestic and worldwide
economic and political conditions, and government regulations and tax laws.
Prices for both oil and gas fluctuated significantly throughout 1996 and through
the third quarter of 1997. The following table sets forth the weighted average
price received each quarter by the Company and the effects of the hedging
transactions described below:
<TABLE>
<CAPTION>
Oil Oil Gas Gas
(excluding the (including the (excluding the (including the
effects of effects of effects of effects of
hedging hedging hedging hedging
transactions) transactions) transactions) transactions)
(per bbl) (per bbl) (per mcf) (per mcf)
<S> <C> <C> <C> <C> <C>
First quarter 1996 $17.92 $17.86 $2.00 $1.94
Second quarter 1996 21.00 20.56 1.80 1.80
Third quarter 1996 21.39 20.43 1.99 1.94
Fourth quarter 1996 24.00 22.00 2.66 2.27
First quarter 1997 23.56 20.49 2.64 2.41
Second quarter 1997 17.85 17.88 1.91 1.87
Third quarter 1997 18.20 18.31 2.09 1.96
</TABLE>
The Company has entered into numerous financial contracts to hedge the price of
its oil and natural gas. The purpose of the hedges is to provide protection
against price decreases and to provide a measure of stability in the volatile
environment of oil and natural gas spot pricing. The revenue associated with
these contracts is recognized as oil or gas revenue at the time the hedged
volumes are sold.
The following tables provide a summary of the Company's outstanding financial
contracts:
Oil
Percent of Direct Contract
Period Production Hedged Floor Price
(per bbl)
Last three months of 1997 45% $17.88
1998 15% 15.07
1999 5% 15.88
Between 16% and 100% of the oil volumes hedged in each year are subject to a
participating hedge whereby HCRC will receive the contract price if the posted
futures price is lower than the contract price, and will receive the contract
price plus between 25% and 75% of the difference between the contract price and
the posted futures price if the posted futures price is greater than the
contract price. Between 30% and 100% of the volumes hedged in each year are
subject to a collar agreement whereby HCRC will receive the contract price if
the spot price is lower than the contract price, the cap price if the spot price
is higher than the cap price, and the spot price if that price is between the
contract price and the cap price. The cap prices range from $17.00 to $19.35 per
barrel.
Gas
Percent of Direct Contract
Period Production Hedged Floor Price
(per mcf)
Last three months of 1997 39% $1.89
1998 35% 1.91
1999 22% 1.67
2000 11% 1.86
<PAGE>
Between 0% and 37% of the gas volumes hedged in each year are subject to a
collar agreement whereby HCRC will receive the contract price if the spot price
is lower than the contract price, the cap price if the spot price is higher than
the cap price, and the spot price if that price is between the contract price
and the cap price. The cap prices range from $2.78 to $2.93 per mcf.
During the fourth quarter through October 31, 1997, the weighted average oil
price (for barrels not hedged) was approximately $20.20 per barrel and the
weighted average price of natural gas (for mcf not hedged) was approximately
$3.15 per mcf.
Inflation
Inflation did not have a material impact on the Company in 1996 and is not
anticipated to have a material impact on the Company in 1997.
Results of Operations
The following tables are presented to contrast HCRC's revenue, expense and
earnings for discussion purposes. Significant fluctuations are discussed in the
accompanying narrative.
The "direct owned" column represents HCRC's direct royalty and working interests
in oil and gas properties. The "HEP" column represents HCRC's share of the
results of operations of HEP; HCRC owned approximately 19% of the outstanding
limited partner units of HEP during 1996 and 1997.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF HCRC EARNINGS FOR MANAGEMENT DISCUSSION
(In thousands except price)
For the Quarter Ended September 30, 1997 For the Quarter Ended September 30, 1996
---------------------------------------- ----------------------------------------
Direct Direct
Owned HEP Total Owned HEP Total
<S> <C> <C> <C> <C> <C> <C>
Oil production (bbl) 145 34 179 164 37 201
Gas production (mcf) 1,500 523 2,023 1,618 527 2,145
Average oil price (per bbl) $ 18.33 $ 18.21 $ 18.31 $ 20.37 $ 20.70 $ 20.43
Average gas price (per mcf) $ 1.92 $ 2.08 $ 1.96 $ 1.86 $ 2.18 $ 1.94
Oil revenue $ 2,658 $ 619 $ 3,277 $ 3,341 $ 766 $ 4,107
Gas revenue 2,886 1,087 3,973 3,012 1,151 4,163
Pipeline and other 143 89 232 166 111 277
Contract settlement 6 6 14 14
Interest income 5 12 17 11 22 33
------ ------ ----- ----- ----- ----
Total revenue 5,698 1,807 7,505 6,544 2,050 8,594
----- ----- ----- ----- ----- -----
Production operating 2,034 542 2,576 1,963 508 2,471
General and administrative 619 180 799 760 233 993
Interest 372 134 506 417 177 594
Depreciation, depletion and amortization 1,586 685 2,271 1,767 509 2,276
----- --- ----- ----- --- -----
Total expense 4,611 1,541 6,152 4,907 1,427 6,334
----- ----- ----- ----- ----- -----
Income before income taxes 1,087 266 1,353 1,637 623 2,260
----- --- ----- ----- --- -----
Provision (benefit) for income taxes:
Current 528 528 47 47
Deferred (100) (100)
---- ---- --- ----
428 428 47 47
--- --- -- --
Net income $ 659 $ 266 $ 925 $ 1,590 $ 623 $ 2,213
======= ======= ======== ====== ======= ======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE OF HCRC EARNINGS FOR MANAGEMENT DISCUSSION
(In thousands except price)
For the Nine Months Ended September 30, 1997 For the Nine Months Ended September 30, 1996
-------------------------------------------- --------------------------------------------
Direct Direct
Owned HEP Total Owned HEP Total
<S> <C> <C> <C> <C> <C> <C>
Oil production (bbl) 433 102 535 512 130 642
Gas production (mcf) 4,336 1,465 5,801 4,655 1,641 6,296
Average oil price (per bbl) $ 18.92 $ 19.10 $ 18.96 $ 19.60 $ 19.40 $ 19.56
Average gas price (per mcf) $ 2.06 $ 2.17 $ 2.09 $ 1.83 $ 2.09 $ 1.90
Oil revenue $ 8,194 $ 1,948 $10,142 $10,038 $ 2,522 $12,560
Gas revenue 8,930 3,177 12,107 8,503 3,434 11,937
Pipeline and other 837 423 1,260 610 373 983
Contract settlement 21 21 35 35
Interest income 76 58 134 17 59 76
----- ----- ----- ------ ----- -------
Total revenue 18,058 5,606 23,664 19,203 6,388 25,591
------ ----- ------ ------ ----- ------
Production operating 5,952 1,571 7,523 6,098 1,603 7,701
General and administrative 1,994 590 2,584 2,047 567 2,614
Interest 1,232 436 1,668 1,364 574 1,938
Depreciation, depletion and amortization 4,826 1,446 6,272 5,467 1,716 7,183
Other 68 46 114
------ ------ ----- ----- ----- -----
Total expense 14,004 4,043 18,047 15,044 4,506 19,550
------ ----- ------ ------ ----- ------
Income before income taxes 4,054 1,563 5,617 4,159 1,882 6,041
----- ----- ----- ----- ----- -----
Provision (benefit) for income taxes:
Current 675 675 115 115
Deferred (100) (100)
---- ---- ---- ----
575 575 115 115
--- --- ---- ---
Net income $ 3,479 $ 1,563 $ 5,042 $ 4,044 $ 1,882 $ 5,926
======= ======= ======= ======= ======= =======
</TABLE>
<PAGE>
Third Quarter of 1997 Compared to Third Quarter of 1996
Oil Revenue
Oil revenue decreased $830,000 during the third quarter of 1997 as compared with
the third quarter of 1996. The decrease in revenue is comprised of a decrease in
oil production from 201,000 barrels in 1996 to 179,000 barrels in 1997 and a
decrease in the average oil price from $20.43 per barrel in 1996 to $18.31 per
barrel in 1997. The decrease in production is primarily due to normal production
declines. Because the Company's hedged oil prices were higher than average
posted prices in the third quarter of 1997, the effect of hedging transactions,
as described above, was to increase the Company's average oil price from $18.20
per barrel to $18.31 per barrel, resulting in a $20,000 increase in revenue.
Gas Revenue
Gas revenue decreased $190,000 during the third quarter of 1997 as compared with
the third quarter of 1996. The decrease is comprised of a decrease in gas
production from 2,145,000 mcf in 1996 to 2,023,000 mcf in 1997, partially offset
by an increase in price from $1.94 per mcf in 1996 to $1.96 per mcf in 1997. The
decrease in production is primarily due to normal production declines. The
effect of the Company's hedging activity during the third quarter of 1997 was to
decrease the Company's average gas price from $2.09 per mcf to $1.96 per mcf,
resulting in a $263,000 decrease in revenue.
Pipeline and Other
Pipeline and other revenue consists of revenue derived from salt water disposal,
incentive and tax credit payments from certain coal bed methane wells and other
miscellaneous items. Pipeline and other revenue decreased $45,000 during the
third quarter of 1997 as compared with the third quarter of 1996 due to
fluctuations in numerous miscellaneous items, none of which are individually
significant.
Interest Income
Interest income decreased $16,000 during the third quarter of 1997 as compared
with the third quarter of 1996 due to a lower average cash balance during 1997.
Production Operating Expense
Production operating expense increased $105,000 during the third quarter of 1997
as compared with the third quarter of 1996, primarily as a result of increased
maintenance activity.
General and Administrative Expense
General and administrative expense includes costs incurred for direct
administrative services such as legal, audit and reserve reports as well as
allocated internal overhead incurred by Hallwood Petroleum, Inc. ("HPI"), an
affiliate of HCRC, which manages and operates certain oil and gas properties on
behalf of the Company. These costs decreased $194,000 during the third quarter
of 1997 as compared with the third quarter of 1996, due to a timing difference
in the payment of consulting expenses.
Interest Expense
Interest expense decreased $88,000 during the third quarter of 1997 as compared
with the third quarter of 1996 due to lower outstanding debt during 1997.
<PAGE>
First Nine months 1997 Compared to the First Nine months 1996
The comparisons for the first nine months of 1997 and the first nine months of
1996 are consistent with those discussed in the third quarter 1997 compared to
the third quarter 1996 except for the following:
Oil Revenue
Oil revenue decreased $2,418,000 during the first nine months of 1997 as
compared with the first nine months of 1996. The decrease is comprised of a
decrease in production from 642,000 barrels in 1996 to 535,000 barrels in 1997,
combined with a decrease in the average oil price from $19.56 per barrel in 1996
to $18.96 per barrel in 1997. The majority of the production decrease is due to
the temporary shut-in of two wells in Louisiana during the second quarter of
1997 while workover procedures were performed, and the remainder of the decrease
in production is due to normal production declines.
The effect of HCRC=s hedging transactions was to decrease HCRC=s average oil
price from $19.30 per barrel to $18.96 per barrel, representing a $182,000
decrease in revenues.
Gas Revenue
Gas revenue increased $170,000 during the first nine months of 1997 as compared
with the first nine months of 1996. The increase is comprised of an increase in
the average price from $1.90 per mcf in 1996 to $2.09 per mcf in 1997, partially
offset by a decrease in production from 6,296,000 mcf in 1996 to 5,801,000 mcf
in 1997. The majority of the production decrease is due to the temporary shut-in
of two wells in Louisiana during the second quarter of 1997 while workover
procedures were performed, and the remainder of the decrease in production is
due to normal production declines.
The effect of HCRC=s hedging transactions was to decrease HCRC=s average gas
price from $2.27 per mcf to $2.09 per mcf, representing a $1,044,000 reduction
in revenue from hedging transactions.
Pipeline and Other
Pipeline and other income increased $277,000 during the first nine months of
1997 as compared with the same period during 1996. The increase is primarily due
to the receipt of insurance proceeds during the second quarter of 1997, which
reimbursed a portion of expense incurred in a prior period to settle certain
litigation.
Interest Income
Interest income increased $58,000 during the first nine months of 1997 as
compared with the corresponding period during 1996 primarily due to a higher
average interest rate during 1997.
Production Operating Expense
Production operating expense decreased $178,000 during the first nine months of
1997 as compared with the same period during 1996, primarily as a result of
decreased production taxes and operating expenses due to the decline in oil and
gas production previously discussed.
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization expense decreased $911,000 during the
first nine months of 1997 as compared with the same period during 1996, due to a
lower depletion rate caused by the decrease in production as previously
discussed.
<PAGE>
Other
Other expense during the first nine months of 1996 is comprised of numerous
miscellaneous items, none of which is individually significant.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
Reference is made to Item 8 - Note 14 of Form 10-K for the year
ended December 31, 1996, and Item 1 - Note 7 of this Form 10-Q.
ITEM 2 - CHANGES IN SECURITIES
None.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 5 - OTHER INFORMATION
None.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
10.15 1997 Stock Option Plan Loan Program
10.16 Amended No. 1 to Second Amended and Restated Credit Agreement
dated as of October 31, 1997
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
HALLWOOD CONSOLIDATED RESOURCES CORPORATION
Date: November 14, 1997 By: Robert S. Pfeiffer
Robert S. Pfeiffer, Vice President
(Chief Financial Officer)
1997 STOCK OPTION PLAN LOAN PROGRAM
FOR
HALLWOOD CONSOLIDATED RESOURCES CORPORATION
Section 1. Purpose. This 1997 Stock Option Plan Loan Program for Hallwood
Consolidated Resources Corporation (this "Loan Program") has been established in
connection with the adoption of the 1997 Stock Option Plan for Hallwood
Consolidated Resources Corporation (the "Option Plan"). This Loan Program
provides for the making of loans by Hallwood Consolidated Resources Corporation
(the "Corporation"), upon the terms and conditions hereinafter set forth, to the
recipients of options to purchase shares of the common stock of the Corporation
granted pursuant to the Option Plan. The purpose of this Loan Program is to
provide such Optionees with funds to pay the exercise price of such options and
any additional amounts to be paid to the Corporation in order to comply with
applicable federal or state income tax withholding requirements.
Section 2. Definitions. As used herein, the following terms shall have the
meanings indicated:
(a) "Accelerated Option" shall mean any Option the exercisability of which
has been accelerated pursuant to Section 7 of the Option Plan.
(b) "Corporation Interest Rate" shall mean the rate of interest payable by
the Corporation with respect to its revolving line of credit with its primary
lender.
(c) "Fair Market Value" shall mean:
(i) with respect to any Traded Securities on any date of reference,
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 Traded
Securities on any business day shall be: (A) if the Traded Securities are
listed or admitted for trading on any United States national or
international 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 the Traded Securities on
such exchange or system, as reported in any newspaper of general
circulation; (B) if the Traded Securities 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 the Traded Securities on such system; (C) if
neither clause (A) nor (B) is applicable, the mean between the high bid and
low asked quotations for the Traded Securities as reported by the National
Quotation Bureau, Incorporated, if at least two securities dealers have
inserted both bid and asked quotations for the Traded Securities on at
least five of the ten preceding days; or, (D) in lieu of the above, if
actual transactions in the Traded Securities are reported on a consolidated
transaction reporting system, the last sale price of the Traded Securities
for such day and on such system;
1
(ii) with respect to any U.S. Government Obligations on any date of
reference, the mean between the bid and asked quotations for such U.S.
Government Obligations for the business day immediately preceding such date
as set forth in any newspaper of general circulation; and
(iii) with respect to any foreign or domestic real or personal
property other than Traded Securities or U.S. Government Obligations, the
fair market value of such property as determined by an appraiser of
recognized standing duly qualified in the jurisdiction in which such
appraiser practices.
(d) "Fully Secured" shall mean that the Optionee shall have created in
favor of the Corporation a perfected security interest in (i) the Shares
acquired upon exercise of the Related Option as security for such portion of the
Loan equal to the Margin Loan Amount and (ii) Other Collateral that has a Fair
Market Value equal to the amount of the remaining portion of the Loan (including
any portion attributable to Tax Payments).
(e) "Loan" shall mean any loan extended to an Optionee pursuant to this
Loan Program.
(f) "Loan Date" shall mean, with respect to any Loan, the date on which
such Loan is made by the Corporation.
(g) "Margin Loan Amount" shall mean, with respect to any Loan, an amount
equal to fifty percent (50%) of the Fair Market Value as of the Loan Date of the
Shares acquired upon exercise of the Related Option.
(h) "Other Collateral" shall mean any property of an Optionee other than
Shares acquired upon exercise of a Related Option that is pledged to secure any
portion of a Loan.
(i) "Related Option" shall mean the Option with respect to which the
proceeds of a particular Loan shall be used for payment of the exercise price
thereunder.
(j) "Required Loan Documents" shall mean (i) the Optionee Loan Application
Form, in substantially the form of Exhibit A attached hereto, (ii) the
Promissory Note, in substantially the form of Exhibit B attached hereto, (iii)
in the case of a Loan pursuant to Section 3(a) hereof, the Pledge Agreement, in
substantially the form of Exhibit C attached hereto, covering the Shares
acquired upon the exercise of a Related Option and any Traded Securities or U.S.
Government Obligations included as Other Collateral, (iv) in the case of a Loan
pursuant to Section 3(a) hereof, Federal Reserve Form FR G-3, (v) in the case of
a Loan pursuant to Section 3(a) that is secured by Other Collateral consisting
of real or personal property located in a foreign jurisdiction, the Standard
Form All- Monies Legal Charge, in substantially the form of Exhibit D attached
hereto, and (vi) in the case of a Loan pursuant to Section 3(a) that is secured
2
by Other Collateral consisting of real or personal property located within the
United States, any other documentation required by the Committee, in its sole
discretion, to create in favor of the Corporation a perfected security interest
in such property.
(k) "Tax Payments" shall mean payments to the Corporation in compliance
with applicable federal or state income tax withholding requirements.
(l) "Traded Securities" shall mean any securities that are listed or
admitted for trading on any United States national or international securities
exchange or included in the National Market System of NASDAQ or any similar
system of automated dissemination of quotations of securities prices in common
use.
(m) "U.S. Government Obligations" shall mean securities that are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged or (ii) the obligations of an entity controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the timely payment of which is unconditionally guaranteed as a full
faith and credit obligation of the United States of America.
All capitalized terms not otherwise defined herein shall have the meanings
assigned to them in the Option Plan.
Section 3. Loans.
(a) The Corporation, upon the receipt of each of the Required Loan
Documents, properly completed and signed by an Optionee, shall extend to such
Optionee a Loan in the amount indicated on such form (subject to the terms of
this Section 3). The Required Loan Documents must be provided to the Corporation
prior to or concurrently with such Optionee's written notice of exercise of the
Related Option. Subject to Section 3(b) below, the Loan shall be made on the
following terms and conditions:
(i) the amount of the Loan may not exceed the aggregate exercise price
for the Related Option plus the amount of any Tax Payments;
(ii) the amount of the Loan must be Fully Secured;
(iii) the principal balance of the Loan shall become due and payable
on the fifth anniversary of the Loan Date;
(iv) the principal balance of the Loan shall accrue interest at a rate
equal to the Corporation Interest Rate in effect as of the Loan Date; and
(v) accrued interest shall be payable on the last day of each of the
Corporation's fiscal quarters during which the Loan remains outstanding.
3
(b) In the event that (i) any portion of the Related Option is an
Accelerated Option and (ii) the Optionee was not a member of the Board at the
time the Related Option was granted, then the Loan may be made, at the
discretion of the Optionee, on the following terms and conditions:
(i) the amount of the Loan may not exceed the aggregate exercise price
for the Related Option plus the amount of any Tax Payments;
(ii) the Loan may be unsecured;
(iii) the principal balance of the Loan shall become due and payable
on the first anniversary of the Loan Date;
(iv) the principal balance of the Loan shall accrue interest at a rate
equal to the Corporation Interest Rate in effect as of the Loan Date plus
two percent (2%); and
(v) accrued interest shall be payable on the last day of each of the
Corporation's fiscal quarters during which the Loan remains outstanding.
(c) The proceeds of the Loan may be used by the Optionee solely for (i) the
payment, whether full or partial, of the aggregate exercise price of the Related
Option and (ii) the payment of any funds by the Optionee to the Corporation in
order to comply with applicable federal or state income tax withholding
requirements.
(d) The principal balance of the Loan may be repaid by the Optionee either
in cash or by the surrender of Shares having a Fair Market Value as of the date
of such repayment equal to such principal balance.
(e) The Corporation shall not be obligated to make any Loan if the amount
of such Loan is less than $25,000.
(f) In no event shall the Corporation be required to make a Loan if, as
reflected on the Corporation's latest regularly prepared books and records, the
Corporation does not have available sufficient cash or the availability of
additional borrowings under its revolving line of credit in a sufficient amount
to make the Loan after taking into account all of the Corporation's commitments
for cash expenditures and budgeted receipts for at least a one year period after
the Loan Date.
Section 4. Compliance with Applicable Laws. It is the intent of the
Corporation that this Loan Program and the Loans made hereunder comply with all
applicable laws, including without limitation Regulation G issued by the Board
of Governors of the Federal Reserve System. Accordingly, the Corporation shall
register on Federal Reserve Form FR G-1 within 30 days after the end of any
calendar quarter during which (i) the aggregate amount of the Loans extended
during such quarter equals $200,000 or more or (ii) the aggregate amount of the
Loans outstanding at any time during that calendar quarter equals $500,000 or
4
more. Furthermore, if the Corporation has registered on Form FR G-1, then the
Corporation shall, within 30 days following June 30 of every year, file Federal
Reserve Form FR G-4.
Section 5. Administration of Loan Program; Amendments.
(a) This Loan Program may be administered by the Compensation Committee of
the Board or other committee thereof as appointed by the Board (the
"Committee"); or, if the Board so determines, by the Board and in such case all
references to the Committee shall be deemed to be references to the Board. The
Committee may from time to time amend this Loan Program; provided, however, that
no such amendment shall apply to any Loans outstanding prior to the adoption of
such amendment.
(b) The Committee, from time to time, may adopt rules and regulations for
carrying out the purposes of this Loan Program. The determinations and the
interpretation and construction of any provision of this Loan Program 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) without a meeting by the written approval of a majority of the members of
the Committee.
Section 6. Miscellaneous.
(a) The provision of a Loan shall be in addition to any other compensation
paid to the Optionee or other employee benefit plans of the Corporation or other
benefits with respect to Optionee's position with the Corporation,a Subsidiary
or an Affiliate. The provision of a Loan shall not confer upon the Optionee the
right to continue as an employee, or interfere in any way with the rights of the
employer to terminate the Optionee's status as an employee.
(b) Neither the members of the Board nor any member of the Committee shall
be liable for any act, omission, or determination taken or made in good faith
with respect to this Loan Program or any Loan, and members of the Board and the
Committee shall, in addition to all other rights of indemnification and
reimbursement, be entitled to indemnification and reimbursement by the
Corporation in respect of any claim, loss, damage, or expense (including
attorneys' fees, the costs of settling any suit, provided such settlement is
approved by independent legal counsel selected by the Corporation, and amounts
paid in satisfaction of a judgment, except a judgment based on a finding of bad
faith) arising from such claim, loss, damage, or expense to the full extent
permitted by law and under any directors' and officers' liability or similar
insurance coverage that may from time to time be in effect.
(c) The provision of a Loan to an Optionee in accordance with the
provisions of this Loan Program shall, to the extent thereof, be in full
satisfaction of all claims of such Optionee under this Loan Program. The
Committee may require any Optionee, legal representative, heir, legatee,
distributee or assignee as a condition precedent to the provision of such Loan,
to execute a release and receipt for such Loan in such form as it shall
determine.
5
(d) All expenses incident to the administration, termination, or protection
of this Loan Program, including, but not limited to, legal and accounting fees,
shall be paid by the Corporation; provided, however, the Corporation may recover
any and all damages, fees, expenses and costs arising out of any actions taken
by the Corporation to enforce its rights under this Loan Program or any Required
Loan Document.
(e) Records of the Corporation shall be conclusive for all purposes under
this Loan Program or any Loan, unless determined by the Committee to be
incorrect.
(f) The Corporation shall, upon request or as may be specifically required
under this Loan Program or any Required Loan Document, furnish or cause to be
furnished all of the information or documentation that is necessary or required
by the Committee to perform its duties and functions under this Loan Program or
any Required Loan Document.
(g) The Corporation assumes no liability to any Optionee or his legal
representatives, heirs, legatees or distributees for any act of, or failure to
act on the part of, the Committee.
(h) If any provision of this Loan Program or any Required Loan Document is
held to be illegal or invalid for any reason, the illegality or invalidity shall
not affect the remaining provisions of this Loan Program or such Required Loan
Document, but such provision shall be fully severable, and the Loan Program or
Required Loan Document, as applicable, shall be construed and enforced as if the
illegal or invalid provision had never been included in the Loan Program or
Required Loan Document, as applicable.
(i) Whenever any notice is required or permitted under this Loan Program,
such notice must be in writing and personally delivered or sent by mail or
delivery by a nationally recognized courier service. Any notice required or
permitted to be delivered under any Required Loan Document shall be deemed to be
delivered on the date on which it is personally delivered, or, if mailed,
whether actually received or not, on the third Business Day after it is
deposited in the United States mail, certified or registered, postage prepaid,
addressed to the person who is to receive it at the address that such person has
previously specified by written notice delivered in accordance with this Section
6(i) or, if by courier, seventy-two (72) hours after it is sent, addressed as
described in this Section 6(i). The Corporation or the Optionee may change, at
any time and from time to time, by written notice to the other, the address that
it or he had previously specified for receiving notices. Until changed in
accordance with this Loan Program, the Corporation and the Optionee shall
specify as its and his address for receiving notices the address set forth in
this Loan Program or any Required Loan Document to which such notice relates.
(j) Any person entitled to notice under this Loan Program or any Required
Loan Document may waive such notice.
(k) This Loan Program shall be binding upon the Optionee, his legal
representatives, heirs, legatees and distributees upon the Corporation, its
successors, and assigns, and upon the Board, the Committee and its successors.
6
(l) The titles and headings of Sections are included for convenience of
reference only and are not to be considered in construction of this Loan
Program's provisions.
Effective Date: September __, 1997
7
EXHIBIT A
OPTIONEE LOAN APPLICATION FORM
1. Name of Optionee: .
2. Number of Shares Subject to Option: .
3. Number of Shares being acquired
pursuant to exercise of such Option: .
4. Exercise price per Share for such Option: .
5. Amount of Loan requested: .
6. Is the above-referenced Option an
Accelerated Option? Yes No
7. If the above-referenced Option is an Accelerated Option, then the Loan shall
be made pursuant to which section
of the Loan Program (designate one): Section 3(a)
Section 3(b)
OPTIONEE:
Date:______________
Print Name:____________________________
8
EXHIBIT B
PROMISSORY NOTE
$_________ _____________, 199__
____________________________________ ("Maker"), for value received,
promises and agrees to pay, as herein provided, to the order of Hallwood
Consolidated Resources Corporation, a Delaware corporation ("Payee"), at such
address or to such bank account as Payee may direct, in lawful money of the
United States of America, the principal sum of
____________________________________ Dollars ($_________). This note ("Note") is
issued under the terms of that certain 1997 Stock Option Plan Loan Program for
Hallwood Consolidated Resources Corporation as in effect on the date hereof (the
"Loan Program").
7. Payment of Principal and Interest. (a) The principal balance of this
Note and all accrued and unpaid interest thereon shall be due and payable on
______________, _____ (the "Maturity Date"); provided, however, that if such day
is not a day on which banks are open for business in the State of Colorado (a
"Business Day"), then such payment shall be due on the Business Day next
succeeding the Principal Payment Date. The principal balance of this Note may be
repaid either in cash or by the surrender of certificates representing units of
limited partnership interests in Payee having a fair market value equal to such
principal balance (as determined in accordance with the Loan Program).
(b) The principal balance outstanding from time to time under this Note
(after giving effect to all adjustments thereto made pursuant to the terms of
this Note) shall bear interest at a rate of __________ percent (____%) per
annum. In no event shall the interest rate payable hereunder exceed the maximum
rate of nonusurious interest allowed from time to time by applicable law (the
"Highest Lawful Rate"). Maker shall pay to Payee, commencing on
_________________ and on the last day of each succeeding three-month period
until the Maturity Date, all accrued and unpaid interest on the outstanding
principal balance as of such date, unless such day is not a Business Day in
which case such payment shall be due on the Business Day next succeeding such
day.
8. Maximum Interest Rate. (a) It is the intention of Maker and Payee to
conform strictly to applicable usury laws. Accordingly, if the interest payable
on this Note would be usurious under applicable law, in that event,
notwithstanding anything to the contrary herein, it is agreed as follows: (i)
the aggregate of all consideration which constitutes interest under applicable
law that is taken, reserved, contracted for, charged or received under this Note
shall under no circumstances exceed the maximum amount of interest allowed by
applicable law, and any excess shall be canceled automatically and, if
theretofore paid, shall be credited on this Note by the holder hereof (or, to
the extent that this Note shall have been or would thereby be paid in full,
refunded to Maker); and (ii) in the event that maturity of this Note is
accelerated for any reason, or in the event of any required or permitted
prepayment, then such consideration that constitutes interest may never include
more than the maximum amount allowed by applicable law, and excess interest, if
any, provided for in this Note or otherwise shall be canceled automatically as
of the date of such acceleration or prepayment and, if theretofore paid, shall
9
be credited on this Note (or, to the extent that this Note shall have been or
would thereby be paid in full, refunded to Maker). All sums paid or agreed to be
paid to the holder hereof for the use, forbearance or detention of sums included
in the amounts owing to such holder by Maker shall, to the extent permitted by
applicable law, be amortized, prorated, allocated and spread throughout the full
term of this Note until payment in full so that the rate or amount of interest
on account of indebtedness does not exceed the applicable usury ceiling, if any.
As used in this Note, the term "applicable law" shall mean the law of the State
of Colorado.
(b) If at maturity or final payment of this Note the total amount of
interest paid or accrued under the foregoing provisions is less than the total
amount of interest which would have accrued if an interest rate per annum equal
to the Interest Rate had at all times been in effect, then Maker agrees to pay
to Payee, to the extent allowed by applicable law, an amount equal to the
difference between (a) the lesser of (i) the amount of interest which would have
accrued on this Note if the Highest Lawful Rate had at all times been in effect
or (ii) the amount of interest which would have accrued if an interest rate per
annum equal to the Interest Rate had at all times been in effect, and (b) the
amount of interest accrued in accordance with the other provisions of this Note.
9. Waiver. Maker expressly waives demand and presentment for payment,
notice of nonpayment, protest, notice of protest, notice of dishonor, notice of
intent to accelerate the maturity hereof, notice of the acceleration of the
maturity hereof, bringing of suit and diligence in taking any action to collect
amounts called for hereunder and in the handling of securities at any time
existing in connection herewith.
10. Amendments. Any term or provision of this Note and any obligation of
Maker hereunder or with respect hereto, may be changed or modified, partially or
completely, or noncompliance may be consented to or authorized, by written
agreement between Maker and Payee.
11. Events of Default. The occurrence and continuance of any of the
following events shall be considered an "Event of Default" for purposes of this
Note: (a) if Maker uses the proceeds of this Note for any purpose other than in
accordance with the terms of the Loan Program; (b) default is made (and not
cured within 10 calendar days) in the payment of principal or interest hereon;
(c) any involuntary case or other proceeding shall be commenced against Maker
that seeks liquidation, reorganization or other relief with respect to it or its
debts or other liabilities under any bankruptcy, insolvency or other similar law
now or hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator or custodian unless dismissed or stayed within 90 days after the
institution thereof (provided that upon ineffectiveness of any stays, an Event
of Default shall exist); and (d) Maker shall commence a voluntary case or other
proceeding seeking liquidation, reorganization or other relief with respect to
itself or its debts or other liabilities under any bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official with respect
to the Maker, or shall consent to any such relief or to the appointment of, or
taking possession by, any such official in an involuntary case or other
proceeding commenced against it, or shall make a general assignment for the
benefit of creditors or shall fail generally or shall
10
admit in writing its inability to pay its debts generally as they become due or
shall take any corporate action to authorize or effect any of the foregoing.
12. Remedy. Upon the occurrence of any Event of Default, the entire
principal amount of the Note then outstanding together with interest accrued
thereon shall become immediately due and payable, all without written notice and
without presentment, demand, protest, notice of protest or dishonor or any other
notice of default of any kind, all of which are hereby expressly waived by the
Maker.
13. Costs and Attorneys' Fees. If default is made in the payment of this
Note at maturity (regardless of how its maturity may be brought about) and the
same is placed in the hands of an attorney for collection, or suit is filed
hereon, or proceedings are had in bankruptcy, probate, receivership,
reorganization, arrangement, or other judicial proceedings for the establishment
or collection of any amount called for hereunder, or any amount payable or to be
payable hereunder is collected through any such proceedings, Maker agrees to pay
to the owner and holder of this Note reasonable attorneys' fees and costs,
including the fees and costs incurred in any appeals, and any collection fees
incurred in collection of this Note.
14. Security. The payment and performance of this Note is secured by the
security interest described by that certain Pledge Agreement by and between
Maker and Payee.
15. Governing Law. This Note and the rights and obligations hereunder shall
be governed by and construed and enforced in accordance with the laws of the
State of Colorado.
[Name of Maker]
11
EXHIBIT C
PLEDGE AGREEMENT
This PLEDGE AGREEMENT (this "Agreement"), dated as of _______________,
19___, is entered into by and between ______________________________ ("Pledgor")
and Hallwood Consolidated Resources Corporation, a Delaware corporation (the
"Corporation"), in order to secure the payment of the indebtedness hereinafter
referred to of Pledgor to the Corporation.
R E C I T A L S
As a condition to the Corporation providing a loan to Pledgor in the amount
of $_________, which loan is evidenced by a Promissory Note dated of even date
herewith, Pledgor has agreed to pledge to the Corporation all of the securities
that are described on Exhibit A hereto (the "Pledged Securities").
A G R E E M E N T
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
Section 16. Definitions. Capitalized terms used herein shall have the
meaning specified herein.
Section 17. Pledge. Pledgor hereby pledges, assigns, transfers and delivers
to the Corporation, and hereby grants a security interest (the "Security
Interest") in, the following (the "Collateral"): the Pledged Securities, the
certificates representing such Pledged Securities and all dividends, cash,
securities, instruments and other property from time to time paid, payable or
otherwise distributed in respect of or in exchange for any or all of such
Pledged Securities.
Section 18. Secured Obligations. The Security Interest shall secure, under
the circumstances set forth herein, the Secured Obligations. For purposes of
this Agreement, the term "Secured Obligations" shall mean the following (i) the
due and punctual payment and performance of the Promissory Note, dated as of
_______________, made by Pledgor and payable to the order of the Corporation in
the principal amount of $_______________ (the "Note") and (ii) the reimbursement
of all costs incurred by the Corporation to obtain, preserve and enforce this
Agreement, collect the Secured Obligations and maintain and preserve the
Collateral, including without limitation the Corporation's reasonable attorneys'
fees, disbursements and legal expenses.
Section 19. Delivery of Collateral. Upon the execution hereof, Pledgor
shall deliver to the Corporation the certificates representing or evidencing the
Collateral, in suitable form for transfer by delivery, or accompanied by duly
executed instruments of transfer or assignment in blank, all in form and
substance reasonably satisfactory to the Corporation. Upon the occurrence and
during the continuance of an Event of Default, the Corporation shall have the
12
right, at any time in its discretion and without notice to Pledgor, to transfer
to or to register in the name of the Corporation any or all of the Collateral.
Section 20. Representations and Warranties.
Pledgor represents and warrants as follows:
(i) The Security Interest constitutes a valid and, upon delivery of
the certificates evidencing the Pledged Securities, first perfected
security interest in all of the Collateral for payment and performance of
the Secured Obligations.
(ii) The Collateral is owned by Pledgor free and clear of any lien,
claim or encumbrance except for the Security Interest.
All representations and warranties of Pledgor contained herein shall survive the
execution, delivery and performance of this Agreement until termination of this
Agreement under Section 16.
Section 21. Further Assurances. Pledgor agrees that at any time and from
time to time, at Pledgor's expense, Pledgor will promptly execute and deliver
all further instruments and documents, and take all further action that the
Corporation may reasonably request, in order to perfect and protect the Security
Interest granted or purported to be granted hereby or to enable the Corporation
to exercise and enforce the rights and remedies hereunder with respect to any
Collateral.
Section 22. Releases of Collateral. Pledgor shall not sell or otherwise
dispose of the Collateral, or any part thereof or any interest therein. If the
Collateral, or any part thereof, is sold or otherwise disposed of in violation
of these provisions, the Security Interest of the Corporation shall continue in
such Collateral or any part thereof notwithstanding such sale or other
disposition, and Pledgor will deliver any proceeds thereof to the Corporation to
be held as Collateral hereunder.
Section 23. Corporation Appointed Attorney-in-Fact. Pledgor hereby
irrevocably appoints the Corporation as Pledgor's attorney-in-fact, with full
authority in the place and stead of Pledgor and in its name or otherwise, from
time to time in the Corporation's discretion, to take any action and to execute
any instrument that the Corporation may deem reasonably necessary or advisable
to accomplish the purposes of this Agreement, including, without limitation, to
receive, endorse and collect all instruments made payable to Pledgor
representing any dividend, interest payment or other distribution in respect of
the Collateral or any part thereof and to give full discharge for the same, when
and to the extent permitted by this Agreement.
Section 24. Corporation May Perform. Upon the occurrence and during the
continuance of an Event of Default (including an Event of Default resulting from
a failure to perform any agreement contained herein), if Pledgor fails to
perform any agreement contained herein, the Corporation may itself perform, or
cause performance of, such agreement, and the expenses of the Corporation
13
incurred in connection therewith shall be payable by Pledgor under Section 12.
Section 25. Reasonable Care. The Corporation shall have an obligation to
exercise reasonable care with respect to Collateral in its possession; provided,
however, that the Corporation shall be deemed to have exercised reasonable care
if the Collateral is accorded treatment substantially comparable to that which
the Corporation accords its own property or treatment substantially in
accordance with actions requested by Pledgor in writing (although the
Corporation shall not be obligated to comply with any such requests and no
failure to do so shall be deemed to be a failure to exercise reasonable care).
Section 26. Events of Default: Remedies Upon Default. An "Event of Default"
hereunder occurs if Pledgor fails to pay any amount when due under the Note and
the Corporation accelerates the payment of the principal and interest thereunder
such that such Secured Obligations shall become immediately due and payable
(herein called an "Event of Default").
If upon or after the occurrence of any Event of Default, the Corporation
elects to exercise remedies under this Agreement (the occurrence of any such
event shall be referred to as an "Acceleration"), then upon thirty (30) days'
advance notice to the Pledgor:
(a) The Corporation may exercise (in compliance with all applicable
securities laws) in respect of the Collateral, in addition to other rights and
remedies provided for herein or otherwise available to it, all the rights and
remedies of a secured party after default under the Uniform Commercial Code in
effect in the State of Colorado at that time, and the Corporation may also,
without notice except as specified below, sell the Collateral or any part
thereof in one or more parcels at public or private sale, at any exchange, over
the counter or at the Corporation's offices or elsewhere, for cash, on credit or
for future delivery, and at such price or prices and upon such other terms as
the Corporation may deem commercially reasonable or otherwise in such manner as
necessary to comply with applicable federal and state securities laws. Upon
consummation of any such sale, the Corporation shall have the right to assign,
transfer and deliver to the purchaser or purchasers at any such sale and such
purchasers shall hold the property sold absolutely, free from any claim or right
on the part of Pledgor, and Pledgor hereby waives (to the extent permitted by
law) all rights of redemption, stay or appraisal that it now has or may at any
time in the future have under any rule of law or statute now existing or
hereafter enacted.
Pledgor agrees that the Corporation shall not be required to register or
qualify any of the Collateral under applicable state or federal securities laws
in connection with any such sale if the sale is effected in a manner that
complies with all applicable federal and state securities laws or exemptions
therefrom. The Corporation shall be authorized at any such sale (if it deems it
advisable to do so) to restrict the prospective bidders or purchasers to persons
who will represent and agree that they are purchasing the Collateral for their
own account for investment and not with a view to the distribution or sale
thereof. In the event that any such Collateral is sold at private sale, Pledgor
agrees that if such Collateral is sold for a price that the Corporation in good
faith believes to be reasonable under the circumstances then existing, then (a)
the sale shall be deemed to be commercially reasonable in all respects, (b)
Pledgor shall not be entitled to a credit against the Secured Obligations in an
14
amount in excess of the purchase price, and (c) the Corporation shall not incur
any liability or responsibility to Pledgor in connection therewith,
notwithstanding the possibility that a substantially higher price might have
been realized at a public sale. Pledgor hereby waives any claims against the
Corporation arising by reason of the fact that the price at that the Collateral
may have been sold at such private sale was less than the price which might have
been obtained at a public sale or was less than the Secured Obligations, even if
the Corporation accepts the first offer received and does not offer the
Collateral to more than one offeree (other than the Corporation or an affiliate
of the Corporation), unless such sale was not commercially reasonable under the
circumstances.
To the extent notice of sale shall be required by law, the Corporation
shall give Pledgor at least ten (10) days' (or such longer period as shall be
specified by applicable laws) notice of the time and place of any public sale or
the time after which any private sale is to be made, which Pledgor agrees shall
constitute commercially reasonable notification. At any such sale, the
Corporation, to the extent permitted by law, may bid (which bid may be, in whole
or in part, in the form of cancellation of Secured Obligations) for and purchase
for the account of the Corporation the whole or any part of the Collateral. The
Corporation shall not be obligated to make any sale of Collateral regardless of
notice of sale having been given. The Corporation may adjourn any public or
private sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the time and
place to which it was so adjourned. If sale of all or any part of the Collateral
is made on credit or for future delivery, the Collateral so sold may be retained
by the Corporation until the sale price is paid by the purchaser or purchasers
thereof, but the Corporation shall not incur any liability in case any such
purchaser or purchasers shall fail to take up and pay for the Collateral so sold
and, in case of any such failure, such Collateral may be sold again upon like
notice. Pledgor agrees that any sale of the Collateral conducted by the
Corporation in accordance with the foregoing provisions of this Section 11(a)
shall be deemed to be a commercially reasonable sale under the Uniform
Commercial Code as in effect in the State of Colorado from time to time.
As an alternative to exercising the power of sale herein conferred upon it,
the Corporation may proceed by a suit or suits at law or in equity to foreclose
the security interest granted under this Agreement and to sell the Collateral,
or any portion thereof, pursuant to a judgment or decree of a court or courts of
competent jurisdiction.
(b) Any cash held by the Corporation as Collateral and all cash proceeds
received by the Corporation in respect of any sale of, collection from, or other
realization upon all or any part of the Collateral (i) prior to the occurrence
of an Acceleration shall be held by the Corporation as collateral for the Note,
and (ii) following the occurrence of an Acceleration may be held by the
Corporation as Collateral and/or then or at any time thereafter applied as
follows: (x) first, to the payment to the Corporation of the costs and expenses
of retaking, holding and preparing for sale of the Collateral and any other
fees, expenses, claims, demands, losses, judgments, damages and liabilities
arising out of or related to any loan document which are payable to the
Corporation pursuant to Section 12, and (y) second, to the Corporation for
application against or on account of all or any part of the Notes.
15
(c) Any surplus of such cash or cash proceeds held by the Corporation and
remaining after payment in full of all the Notes shall be reassigned and
redelivered as provided in Section 16 hereof.
Section 27. Expenses. The Corporation shall be entitled to receive from any
proceeds of the Collateral, the amount of any and all reasonable expenses,
including the fees and expenses of its counsel and of any experts and agents
which the Corporation may incur in connection with (i) the administration of
this Agreement, (ii) the custody or preservation of, or the sale of, collection
from, or other realization upon, any of the Collateral, (iii) the exercise or
enforcement of any of the rights of the Corporation hereunder, or (iv) the
failure by Pledgor to perform or observe any of the provisions hereof.
Section 28. Security Interest Absolute. All rights of the Corporation
hereunder, the interest, and all obligations of Pledgor hereunder, shall be
absolute and unconditional irrespective of:
(i) any lack of validity or enforceability of the Note or the Secured
Obligations or any other agreement or instrument relating to the Note or
the Secured Obligations;
(ii) any change in the time, manner or place of payment of, or in any
other term of, the Note or the Secured Obligations, or any renewal or
extension of the Note or the Secured Obligations or any other amendment or
waiver of or any consent to any departure from this Agreement or any other
agreement or instrument;
(iii) any sale, exchange, release or nonperfection of any other
collateral, or any release of any guarantor or any person liable in any
manner for the collection of the Note or the Secured Obligations, or any
amendment or waiver of or consent to or departure from any guaranty, for
the Note or the Secured Obligations; or
(iv) any other circumstance that might otherwise constitute a defense
available to, or a discharge of, Pledgor in respect of the Note or the
Secured Obligations or in respect of this Agreement.
Section 29. Amendments and Waivers. No amendment or waiver of any provision
of this Agreement nor consent to any departure by Pledgor herefrom shall in any
event be effective unless the same shall be in writing and signed by the
Corporation and Pledgor, and then such waiver or consent shall be effective only
for the specific purpose for which given.
Section 30. Time is of the Essence; No Waiver: Cumulative Remedies. Time
and exactitude of each of the terms, obligations, covenants and conditions of
this Agreement are hereby declared to be of the essence. No failure on the part
of the Corporation to exercise, and no delay in exercising, any right, power or
remedy hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, power or remedy by the Corporation preclude
any other or further exercise thereof or the exercise of any other right, power
or remedy.
16
All remedies hereunder are cumulative and are not exclusive of any other
remedies provided by law.
Section 31. Termination. This Agreement shall terminate upon the payment in
full of the Secured Obligations. Upon such termination, the Corporation shall
reassign and redeliver (or cause to be reassigned and redelivered) to Pledgor,
or to such person or persons as Pledgor shall designate or to whomever may be
lawfully entitled to receive such surplus, against receipt, such of the
Collateral (if any) as shall not have been sold or otherwise applied by the
Corporation pursuant to the terms hereof and shall still be held by it
hereunder, together with appropriate instruments of reassignment and release.
Any such reassignment shall be without recourse upon or warranty by the
Corporation and at the expense of Pledgor.
Section 32. Addresses for Notices. Any notice or communication to be given
or made hereunder shall be in writing (including facsimile communication) and
may be given or made personally or by first class letter, telecopy, courier
telex or tested telex, telegram or cable (confirmed, in the case of a telecopy,
telex, telegram or cable, by a letter delivered personally within, or dispatched
by first class mall within, twenty-four hours of the dispatch of such telecopy,
telex, telegram or cable) and shall be effective when actually received. For the
purposes hereof, the address of the Pledgor shall be address maintained in the
records of the Corporation (until notice of a change thereof is given as
provided in this Section 17), and the address of the Corporation (until notice
of a change thereof is given as provided in this Section 17) shall be as
follows:
Hallwood Consolidated Resources Corporation 4582
South Ulster Street Parkway, Suite 1700
Denver, Colorado 80237
Attn: Legal Department
Section 33. Continuing Security Interest; Assignments. This Agreement shall
create a continuing security interest in the Collateral and shall (i) remain in
full force and effect until termination as provided in Section 16, (ii) be
binding upon Pledgor, the Corporation and their respective successors and
assigns, and (iii) inure, together with the rights, powers and remedies of
Pledgor and the Corporation hereunder, to the benefit of Pledgor, the
Corporation and their respective successors, transferees and assigns, as the
case may be.
Section 34. Governing Law. This Agreement and the rights and obligations
of the parties hereto shall be governed by and construed and enforced in
accordance with the laws of the State of Colorado.
Section 35. Severability. Wherever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective. If any
provisions of this Agreement or any lien, security interest or other right of
the Corporation hereunder shall be held to be invalid, illegal or unenforceable
under applicable law, such invalidity, illegality or unenforceability shall not
affect any other provision herein or any lien, security interest or other right
granted hereby.
17
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, as of
the date first above written.
CORPORATION:
Hallwood Consolidated Resources Corporation
By:
Name:
Title:
PLEDGOR:
--
Print Name:
18
Exhibit A
Pledged Securities
Record Owner Number of
Title of Securities and Address Shares or Units Certificate No.
EXHIBIT D
This form is applicable to FREEHOLDS and LEASEHOLDS whether the title is
registered or unregistered and whether given by one or more than one Mortgagor.
This Legal Charge
made the ________ day of _____________________ 19___
Between (1) (Insert full name(s) and address(es) of the Mortgagor(s))
(hereinafter called "the Mortgagor")and (2)___________________________________
(hereinafter called "the Bank")
Witnesses and it is agreed and declared as follows:
1. The Mortgagor hereby covenants with the Bank that the Mortgagor will on
demand in writing made to the Mortgagor pay or discharge to the Bank all moneys
and liabilities which shall for the time being (and whether on or at any time
after such demand) be due owing or incurred to the Bank by the Mortgagor whether
actually or contingently and whether solely or jointly with any other person and
whether as principal or surety including interest discount commission or other
lawful charges and expenses which the Bank may in the course of its business
charge in respect of any of the matters aforesaid or for keeping the Mortgagor's
account and so that interest shall be computed and compounded according to the
usual mode of the Bank as well after as before any demand made or judgment
obtained hereunder and will on such demand also retire all bills or notes which
may for the time being be under discount with the Bank and to which the
Mortgagor is a party whether as drawer acceptor maker or indorser without any
deduction whatsoever.
2. The Mortgagor as Beneficial Owner hereby charges by way of legal mortgage ALL
THAT property referred to in the schedule hereto (hereinafter called "the
Mortgaged Property") with the payment or discharge of all moneys and liabilities
hereby covenanted to be paid or discharged by the Mortgagor.
3. A demand for payment or any other demand or notice under this security may be
made or given by any manager or officer of the Bank or of any branch thereof by
letter addressed to the Mortgagor and sent by post to or left at the last known
place of business or abode of the Mortgagor or at the option of the Bank if the
Mortgagor is a company its registered office and if sent by post shall be deemed
to have been made or given at noon on the day following the day the letter was
posted.
4. During the continuance of this security no statutory or other power of
granting or agreeing to grant or of accepting or agreeing to accept surrenders
of leases or tenancies of the Mortgaged Property or any part thereof shall be
capable of being exercised by the Mortgagor without the previous consent in
writing of the Bank nor shall section 93 of the Law of Property Act 1925 dealing
with the consolidation of mortgages apply to this security.
5. Section 103 of the said Act shall not apply to this security but the
statutory power of sale shall as between the Bank and a purchaser from the Bank
arise on and be exercisable at any time after the execution of this security
provided that the Bank shall not exercise the said power of sale until payment
of the moneys hereby secured has been demanded but this proviso shall not affect
a purchaser or put him upon inquiry whether such demand has been made.
6.(a)At any time after the Bank shall have demanded payment of any moneys
hereby secured or if requested by the Mortgagor the Bank may appoint by
writing any person or persons (whether an officer of the Bank or not) to be
receiver and manager or receivers and managers (hereinafter called the
"Receiver" which expression shall where the context so admits include the
plural and any substituted receiver and manager or receivers and managers)
of all or any part of the Mortgaged Property.
(b) The Bank may from time to time determine the remuneration of the Receiver
and may remove the Receiver and appoint another in his place. (c) The
Receiver shall (so far as the law permits) be the agent of the Mortgagor
(who shall alone be personally liable for his acts defaults and
remuneration) and shall have and be entitled to exercise all powers
conferred by the Law of Property Act 1925 in the same way as if the
Receiver had been duly appointed thereunder and in particular by way of
addition to but without hereby limiting any general powers hereinbefore
referred to (and without prejudice to any of the Bank's powers) the
Receiver shall have power in the name of the Mortgagor or otherwise to do
the following things namely:-- (i) to take possession of collect and get in
all or any part of the Mortgaged Property and for that purpose to take any
proceedings as he shall think fit; (ii) to commence and/or complete any
building operations on the Mortgaged Property or any part thereof and to
apply for and obtain any planning permissions building regulation approvals
and any other permissions consents or licenses in each case as he may in
his absolute discretion think fit; (iii) to raise money from the Bank or
others on the security of the Mortgaged Property or otherwise; (iv) to
provide such facilities and services for tenants and generally to manage
the Mortgaged Property in such manner as he shall think fit; (v) if the
Mortgaged Property is leasehold to vary the terms of or surrender any lease
and/or to take a new lease thereof or of any part thereof on such terms as
he shall think fit and so that any such new lease shall ipso facto become
charged to the Bank on the terms hereof so far as applicable and to execute
a formal legal charge over any such new lease in favour of the Bank in such
form as it may require; (vi) to sell let or lease or concur in selling
letting or leasing and to vary the terms of terminate or accept surrenders
of leases or tenancies of the Mortgaged Property or any part thereof in
such manner and for such term with or without a premium with such rights
relating to other parts thereof and containing such covenants on the part
of the Mortgagor and generally on such terms and conditions (including the
payment of money to a lessee or tenant on a surrender) as in his absolute
discretion he shall think fit; (vii) to make any arrangement or compromise
which the Bank or he shall think fit; (viii) to make and effect all repairs
improvements and insurances; (ix) to appoint managers officers contractors
and agents for the aforesaid purposes upon such terms as to remuneration or
otherwise as he may determine; (x) to do all such other acts and things as
may be considered to be incidental or conducive to any of the matters or
powers aforesaid and which he lawfully may or can do; PROVIDED NEVERTHELESS
THAT the Receiver shall not be authorised to exercise any of the aforesaid
powers if and insofar and so long as the Bank shall in writing exclude the
same whether in or at the time of his appointment or subsequently. (d) The
statutory powers of sale leasing and accepting surrenders exercisable by
the Bank hereunder are hereby extended so as to authorise the Bank whether
in its own name or in that of the Mortgagor to grant a lease or leases of
the whole or any part or parts of the Mortgaged Property with such rights
relating to other parts thereof and containing such covenants on the part
of the Mortgagor and generally on such terms and conditions (including the
payment of money to a lessee or tenant on a surrender) and whether or not
at a premium as the Bank in its absolute discretion shall think fit.
(e) In no circumstances shall the Bank be liable to account to the Mortgagor as
a mortgagee in possession or otherwise for any moneys not actually received
by the Bank. (f) The Mortgagor hereby irrevocably appoints the Bank and the
Receiver jointly and also severally the Attorney and Attorneys of the
Mortgagor for the Mortgagor and in his name and on his behalf and as his
act and deed or otherwise to sign seal deliver and otherwise perfect any
deed assurance agreement instrument or act which may be required or may be
deemed proper for any of the purposes aforesaid. (g) All powers of the
Receiver hereunder may be exercised by the Bank whether as attorney of the
Mortgagor or otherwise.
7. The Mortgagor hereby covenants with the Bank that the Mortgagor during the
continuance of this security will keep all buildings now or for the time being
subject to this security insured against loss or damage by fire and such other
risks as the Bank may from time to time require to the full replacement value
thereof with an insurance office or underwriters approved by the Bank in writing
from time to time and if so required by the Bank in the joint names of the
Mortgagor and the Bank and will duly pay all premiums and other moneys necessary
for effecting and keeping up such insurance within one week of the same becoming
due and will on demand produce to the Bank the policies of such insurance and
the receipts for such payments And will keep all buildings now or for the time
being subject to this security in good repair And will duly and with reasonable
expedition complete any building operations commenced at any time by the
Mortgagor on the Mortgaged Property And at any time after payment of the moneys
hereby secured has been demanded or if default shall be made by the mortgagor in
performing any of the above obligations the Bank may as the case may be insure
and keep insured the said buildings in any sum which the Bank may think
expedient or may repair and keep in repair the said buildings or may complete
any such building operations (with power to enter upon the Mortgaged Property
for any of those purposes without thereby becoming a mortgagee in possession)
And all moneys expended by the Bank under this provision shall be deemed to be
properly paid by the Bank.
8. All moneys received on any insurance whatsoever in respect of loss or damage
by fire or otherwise to the said buildings or any part of thereof (whether
effected or maintained by the Mortgagor in pursuance of his obligation under the
covenant in that behalf contained in clause 7 hereof or independently of or
otherwise than in pursuance of such obligation) shall as the Bank requires
either be applied in making good the loss or damage in respect of which the
moneys are received or be paid to the Bank in or towards payment of the moneys
for the time being hereby secured.
9. All costs charges and expenses incurred hereunder by the Bank and all other
moneys paid by the Bank or the Receiver in perfecting or otherwise in connection
with this security or in respect of the Mortgaged Property including (without
prejudice to the generality of the foregoing) all moneys expended by the Bank
under clause 7 hereof and all costs of the Bank or the Receiver of all
proceedings for enforcement of the security hereby constituted or for obtaining
payment of the moneys hereby secured or arising out of or in connection with the
acts authorised by clause 6 hereof (and so that any taxation of the Banks costs
charges and expenses shall be on the basis of solicitor and own client) shall be
recoverable from the Mortgagor as a debt and may be debited to any account of
the Mortgagor and shall bear interest accordingly and shall be charged on the
Mortgaged Property and the charge hereby conferred shall be in addition and
without prejudice to any and every other remedy lien or security which the Bank
may have or but for the said charge would have for the moneys hereby secured or
any part thereof.
10. The Bank shall be at liberty from time to time to give time for payment of
any bills of exchange promissory notes or other securities which may have been
discounted for or received on account from the Mortgagor by the Bank or on which
the Mortgagor shall or may be liable as drawer acceptor maker indorser or
otherwise to any parties liable thereon or thereto as the Bank in its absolute
discretion shall think fit without releasing the Mortgagor or affecting the
Mortgagor's liability under these presents or the security thereby created.
11. This security shall be a continuing security to the Bank notwithstanding any
settlement of account or other matter or thing whatsoever and shall not
prejudice or affect any security which may have been created by any deposit of
title deeds or other documents which may have been made with the Bank prior to
the execution hereof relating to the Mortgaged Property or to any other property
or any other security which the Bank may now or at any time hereafter hold in
respect of the moneys hereby secured or any of them or any part thereof
respectively.
12. The Bank shall on receiving notice that the Mortgagor has incumbered or
disposed of the Mortgaged Property or any part thereof be entitled to close the
Mortgagor's then current account or accounts and to open a new account or
accounts with the Mortgagor and (without prejudice to any right of the Bank to
combine accounts) no money paid in or carried to the Mortgagor's credit in any
such new account shall be appropriated towards or have the effect of discharging
any part of the amount due to the Bank on any such closed account. If the Bank
does not open a new account or accounts immediately on receipt of such notice it
shall nevertheless be treated as if it had done so at the time when it received
such notice and as from that time all payments made by the Mortgagor to the Bank
shall be credited or be treated as having been credited to such new account or
accounts and shall not operate to reduce the amount due from the Mortgagor to
the Bank at the time when it received such notice.
13. At any time after payment of the moneys hereby secured has been demanded and
any part thereof remains unpaid the Bank may as agent of the Mortgagor remove
and sell any chattels on the Mortgaged Property and the new proceeds of sale
thereof shall be paid to the Mortgagor on demand and the Bank shall not have the
right to retain or set off such proceeds of sale against any indebtedness of the
Mortgagor.
14. The Mortgagor hereby covenants with the Bank to pay any sums which may
become payable by the Mortgagor under the Agricultural Holdings Act 1986 for
compensation costs or otherwise to a tenant of the Mortgaged Property or any
part thereof failing which the Bank may pay the said sum or discharge and charge
created in pursuance of the said Act for securing the same and any moneys paid
by the Bank under this clause shall be deemed to be expenses properly incurred
by the Bank hereunder.
15. The Mortgagor hereby covenants with the Bank that:
(a) if and so long as the title to the Mortgaged Property or any part thereof
is not registered under the Land Registration Acts 1925 to 1971 no person
shall during the continuance of this security be registered under the said
Acts as proprietor of the Mortgaged Property or any part thereof without
the consent in writing of the Bank. (b) upon any such registration the
Mortgagor will forthwith deliver to the Bank all Land Certificates relating
to the Mortgaged Property unless such certificates are deposited with the
Land Registry.
16. Any party hereto which is a company certifies that this charge does not
contravene any of the provisions of its Memorandum and Articles of Association.
17. In these presents where the context so admits the expression "the Mortgagor"
shall include persons deriving title under the Mortgagor or entitled to redeem
this security and the expression "the Bank" shall include persons deriving title
under the Bank and any reference herein to any statute or section of any statute
shall be deemed to include reference to any statutory modification or
re-enactment thereof for the time being in force.
18. If there are two or more parties hereto of the first part the expression
"the Mortgagor" shall throughout mean and include such two or more parties and
each of them or (as the case may require) such two or more parties or any of
them and shall so far as the context admits be construed as well in the plural
as in the singular and all covenants charges agreements and undertakings herein
expressed or implied on the part of the Mortgagor shall be deemed to be joint
and several covenants charges agreements and undertakings by such parties And in
particular this security and the covenant in clause 1 hereof and the remaining
covenants charges agreements and undertakings herein contained shall extend and
apply to any moneys owing or liabilities incurred by any of such parties to the
Bank whether solely or jointly with each other or with any other person and
references to the Mortgagor in relation to the retirement of bills and in
clauses 3, 9, 10 and 12 shall mean and include any one or more of such parties
as well as such parties jointly.
In Witness whereof the Mortgagor has executed these presents as a deed the day
and year first above written.
The Schedule above referred to
The property known as or being comprised in the document(s) particulars of which
are set out below:--
Description (Conveyance, Lease, Assignment,
Mortgage, Assent, Etc.) Parties
Date:_________________
===============================================================================
Last Certificate(s) Title No.(s) County/London Borough
===============================================================================
Signed sealed and delivered by the above named
- -------------------------------------------------------------------------------
in the presence of
SIGNATURE OF WITNESS-----------------------------------------------------------
NAME OF WITNESS---------------------------------------------------------- SEAL
ADDRESS-------------------------------------------------------------------------
- --------------------------------------------------------------------------------
OCCUPATION----------------------------------------------------------------------
Signed sealed and delivered by the above named
- --------------------------------------------------------------------------------
in the presence of
SIGNATURE OF WITNESS------------------------------------------------------------
NAME OF WITNESS---------------------------------------------------------- SEAL
ADDRESS-------------------------------------------------------------------------
- --------------------------------------------------------------------------------
OCCUPATION----------------------------------------------------------------------
EXECUTED AND DELIVERED AS A DEED BY
- -----------------------------------------------------------------------DIRECTOR
- ----------------------------------------------------------------------SECRETARY
Company's registered number---------------------------------------------------
The address of the Bank for service (if title is registered) is:
[CONFORMED COPY]
AMENDMENT NO. 1 TO SECOND AMENDED AND RESTATED
CREDIT AGREEMENT
WAIVER UNDER SECOND AMENDED AND RESTATED
CREDIT AGREEMENT
AMENDMENT and WAIVER dated as of October 31, 1997 among HALLWOOD
CONSOLIDATED RESOURCES CORPORATION, a Delaware corporation and HALLWOOD
CONSOLIDATED PARTNERS, L.P., a Colorado limited partnership (individually a
"Borrower" and collectively the "Borrowers"), the BANKS listed on the signature
pages hereof (the "Banks"), First Union National Bank, as collateral agent (the
"Collateral Agent"), MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent (the
"Agent").
W I T N E S S E T H :
WHEREAS, the Borrowers, the Banks, the Collateral Agent and the Agent are
parties to a Second Amended and Restated Credit Agreement (as amended, the
"Credit Agreement");
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Definitions; References. Unless otherwise specifically defined
herein, each term used herein which is defined in the Credit Agreement shall
have the meaning assigned to such term in the Credit Agreement. Each reference
to "hereof", "hereunder", "herein" and "hereby" and each other similar reference
and each reference to "this Credit Agreement" and each other similar reference
contained in the Credit Agreement shall from and after the date hereof refer to
the Credit Agreement as amended hereby.
SECTION 2. Resetting of the Availability Limit. (a) The definition of
"Availability Limit" set forth in Section 1.01 of the Credit Agreement is hereby
amended to read in its entirety as follows:
"Availability Limit" means, on any date, an amount equal to the lesser
of (i) the aggregate amount of the Commitments at such date and (ii)(x) at
any date prior to the Arcadia Date, $22,500,000 and (y) at any date on or
after the Arcadia Date, $28,500,000. The Availability Limit
1
<PAGE>
may be increased only by an amendment in accordance with Section 8.05,
which the Banks may agree to or not agree to in their sole discretion.
(b) A new definition of "Arcadia Date" is added in Section 1.01 of the
Credit Agreement, to read in its entirety as follows:
"Arcadia Date" means the date on which the Borrowers consummate the
acquisition of the properties described in the "Arcadia Acquisition Bank
Case Pricing" engineering report dated July 1, 1997 substantially on the
terms described by the Borrowers to the Banks prior to the date of
effectiveness of Amendment No.1 to this Agreement dated as of October 31,
1997 among the Borrowers, the Banks, the Collateral Agent, the Agent and
Prudential.
SECTION 3. Temporary Waiver of the Collateral Coverage Requirement. The
Banks hereby waive compliance by the Borrowers with the requirement in Section
4.13 of the Credit Agreement that Petroleum Properties representing in value not
less than 80% of the Hydrocarbon Property Base be subject to first priority
Liens and any Event of Default arising under the Credit Agreement solely as a
result of noncompliance by the Borrowers with such requirement as a result of
the consummation by the Borrowers of the acquisition of the properties described
in the "Arcadia Acquisition Bank Case Pricing" engineering report dated July 1,
1997 substantially on the terms described by the Borrowers to the Banks prior to
the date hereof; provided that (x) the waiver granted pursuant to this Section
shall expire the date which falls 30 days after the date of consummation of such
acquisition and (y) prior to the expiration of such waiver, such waiver shall be
effective only so long as Petroleum Properties representing not less than 72% of
the value of Petroleum Properties shall be subject to valid first-priority Liens
in favor of the Banks pursuant to the Collateral Documents.
SECTION 4. No Other Waivers. Other than as specifically provided herein,
this Amendment and Waiver shall not operate as a waiver of any right, remedy,
power or privilege of the Agent, the Collateral Agent or the Banks under the
Credit Agreement or any other Financing Document or of any other term or
condition thereof.
SECTION 5. Effectiveness. This Amendment and Waiver shall become effective
on the date on which the Agent shall have received counterparts of this
Amendment and Waiver duly executed by the Borrowers, the Required Banks, the
Collateral Agent and the Agent (or, in the case of any party as to which an
executed counterpart shall not have been received, the Agent shall have received
telegraphic, telex or other written confirmation from such party of execution of
a counterpart hereof by such party).
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment and
Waiver to be duly executed as of the date first above written.
HALLWOOD CONSOLIDATED RESOURCES
CORPORATION
By: /s/ Robert S. Pfeiffer
Title: Vice President
HALLWOOD CONSOLIDATED PARTNERS, L.P.
By: HALLWOOD CONSOLIDATED
RESOURCES CORPORATION
By: /s/ Robert S. Pfeiffer
Title: Vice President
The General Partner of Hallwood
Consolidated Partners, L.P.
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By: /s/ John Kowalczuk
Title: Vice President
FIRST UNION NATIONAL BANK
OF NORTH CAROLINA
By: /s/ Joseph Towell
Title: Senior Vice President
3
<PAGE>
NATIONSBANK OF TEXAS, N.A.
By: /s/ Richard P. Stults
Title: Vice President
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Agent
By: /s/ John Kowalczuk
Title: Vice President
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA, as Collateral Agent
By: /s/ Joseph Towell
Title: Senior Vice President
4
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form 10-Q
for the quarter ended September 30, 1997 for Hallwood Consolidated Resources
Corporation and is qualified in its entirety by reference to such Form 10-Q.
</LEGEND>
<CIK> 0000883953
<NAME> Hallwood Consolidated Resources Corporation
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-END> Sep-30-1997
<CASH> 372
<SECURITIES> 0
<RECEIVABLES> 4,973
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,717
<PP&E> 292,037
<DEPRECIATION> 218,808
<TOTAL-ASSETS> 82,416
<CURRENT-LIABILITIES> 9,233
<BONDS> 0
0
0
<COMMON> 30
<OTHER-SE> 48,056
<TOTAL-LIABILITY-AND-EQUITY> 82,416
<SALES> 23,509
<TOTAL-REVENUES> 23,664
<CGS> 0
<TOTAL-COSTS> 16,379
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,668
<INCOME-PRETAX> 5,617
<INCOME-TAX> 575
<INCOME-CONTINUING> 5,042
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,042
<EPS-PRIMARY> 1.80
<EPS-DILUTED> 1.80
</TABLE>
