1997 STOCK OPTION PLAN
                                       FOR
                   HALLWOOD CONSOLIDATED RESOURCES CORPORATION


     Section 1. Purpose. The purpose of this 1997 Stock Option Plan for Hallwood
Consolidated  Resources  Corporation  is to advance  the  interests  of Hallwood
Consolidated Resources Corporation,  a Delaware corporation (the "Corporation"),
by  providing  an  additional  incentive  to attract  and retain  qualified  and
competent  directors,  employees and  consultants  for the  Corporation  and its
subsidiaries,  upon whose efforts and judgment the success of the Corporation is
largely dependent,  through the encouragement of ownership in the Corporation by
such persons.

     Section 2. Definitions.  As used herein, the following terms shall have the
meaning indicated:

(a)  "Act" shall mean the Securities Exchange Act of 1934, as amended.

(b)  "Affiliate" shall mean any entity that directly or indirectly controls,  is
     controlled  by, or is under common  control with  another  entity.  As used
     herein, the term "control" means the possession, directly or indirectly, of
     the power to direct or cause the direction of the  management  and policies
     of an entity,  whether through ownership of voting securities,  by contract
     or otherwise.

(c)  "Board" shall mean the Board of Directors of the Corporation.

(d)  "Business Day" shall mean (i) if the Shares trade on a national  securities
     exchange, any day that the national securities exchange on which the Shares
     trade is open or (ii) if the Shares do not trade on a  national  securities
     exchange, any day that commercial banks in the City of New York are open.

(e)  "Committee"  shall mean the  Compensation  Committee  of the Board or other
     committee, if any, appointed by the Board pursuant to Section 13 hereof.

(f)  "Continuing  Director"  shall  mean  (i) any  member  of the  Board  on the
     effective date of this Plan and (ii) any person who subsequently  becomes a
     member of the Board if such person's nomination for election or election to
     the Board is  recommended  or  approved  by a  majority  of the  Continuing
     Directors.

(g)  "Corporation" shall mean Hallwood  Consolidated  Resources  Corporation,  a
     Delaware corporation.

(h)  "Date of Grant"  shall  mean the date  specified  by the  Committee  as the
     effective date of the grant of an Option to an Eligible Person, provided it
     is  followed,  as soon as  reasonably  possible,  by written  notice to the
     Eligible Person of the grant.



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(i)  "Director" shall mean a member of the Board.

(j)  "Eligible Person(s)" shall mean those persons who are Directors or officers
     or are employees of, consultants to, the Corporation,  any Subsidiary or an
     Affiliate.

(k)  "Effective Date" shall mean March 3, 1997.

(l)  "Fair  Market  Value" of a Share on any date of  reference  shall  mean the
     Closing Price on the business day immediately  preceding such date,  unless
     the Committee in its sole discretion  shall  determine  otherwise in a fair
     and uniform  manner.  For this purpose,  the Closing Price of the Shares on
     any  business  day shall be: (i) if the Shares are listed or  admitted  for
     trading on any United States  national  securities  exchange or included in
     the  National  Market  System of the  National  Association  of  Securities
     Dealers Automated Quotation System ("NASDAQ"), the last reported sale price
     of Shares on such  exchange  or system,  as reported  in any  newspaper  of
     general  circulation;  (ii) if Shares are quoted on NASDAQ,  or any similar
     system of automated  dissemination  of quotations  of securities  prices in
     common use, the mean between the closing high bid and low asked  quotations
     for such day of Shares on such system; (iii) if neither clause (i) nor (ii)
     is applicable,  the mean between the high bid and low asked  quotations for
     Shares as reported by the National  Quotation Bureau,  Incorporated,  if at
     least two  securities  dealers have inserted both bid and asked  quotations
     for Shares on at least five of the ten preceding  days; or, (iv) in lieu of
     the  above,  if  actual  transactions  in  the  Shares  are  reported  on a
     consolidated  transaction  reporting  system,  the last  sale  price of the
     Shares for such day and on such system.

(m)  "Nonqualified  Option" shall mean an option that is not an incentive  stock
     option as defined in Section 422 of the Internal Revenue Code.

(n) "Option" (when capitalized) shall mean any option granted under this Plan.

(o)  "Optionee"  shall  mean a  person  to  whom an  Option  is  granted  or any
     successor to the rights of such Option under this Plan.

(p)  "Person shall mean any individual,  corporation, limited liability company,
     partnership, joint venture or other legal entity.

(q)  "Plan"  shall mean this 1997 Stock  Option Plan for  Hallwood  Consolidated
     Resources Corporation.

(r) "SAR" shall mean a stock appreciation right as defined in Section 9 hereof.

(s)  "Share(s)" shall mean shares of the common stock, par value $.01 per share,
     of the Corporation.

(t)  "Subsidiary"  shall mean (i) any  corporation  of which a  majority  of the
     outstanding  stock  having by the terms  thereof  ordinary  voting power to
     elect a majority of the  directors  of such  corporation,  irrespective  of
     whether at the time stock of any other class or classes of such corporation
     shall have or might have voting power by reason of the happening of any

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     contingency, is at the time, directly or indirectly, owned or controlled by
     the Corporation or by one or more  Subsidiaries,  or by the Corporation and
     one or more Subsidiaries or (ii) any partnership,  joint venture or limited
     liability  company  of which at least a majority  of the equity  ownership,
     whether in the form of membership,  general, special or limited partnership
     interests or otherwise,  is directly or  indirectly  owned or controlled by
     the  Corporation or by one or more  Subsidiaries  or by the Corporation and
     one or more Subsidiaries.

     Section 3.  Shares  and  Options.  The  Corporation  may grant to  Eligible
Persons from time to time Options to purchase an aggregate of up to  Fifty-three
Thousand  (53,000) Shares. If any Option granted under the Plan shall terminate,
expire,  or be  cancelled  or  surrendered  as to any  Shares,  new  Options may
thereafter be granted covering such Shares. An Option granted hereunder shall be
a Nonqualified Option.

     Section 4. Conditions for Grant of Options.

(a)  Each Option shall be evidenced by an option  agreement that may contain any
     term deemed  necessary or desirable by the  Committee,  provided such terms
     are not inconsistent with this Plan or any applicable law.  Optionees shall
     be those persons  selected by the  Committee  from  Eligible  Persons.  Any
     Person  who  files  with  the  Committee,  in a  form  satisfactory  to the
     Committee, a written waiver of eligibility to receive any Option under this
     Plan shall not be eligible  to receive  any Option  under this Plan for the
     duration of such waiver.

(b)  In  granting  Options,  the  Committee  shall take into  consideration  the
     contribution  the  Person  has  made  or may  make  to the  success  of the
     Corporation  or its  Subsidiaries  and such other  factors as the Committee
     shall  determine.  The  Committee  shall also have the authority to consult
     with and receive  recommendations  from officers and other personnel of the
     Corporation and any Subsidiary with regard to these matters.  The Committee
     may from time to time in granting  Options  under the Plan  prescribe  such
     other terms and conditions concerning such Options as it deems appropriate,
     including,  without  limitation,  relating  an  Option  to  achievement  of
     specific goals established by the Committee or the continued  employment of
     the Optionee for a specified  period of time,  provided that such terms and
     conditions  are not more  favorable  to an  Optionee  than those  expressly
     permitted herein.

(c)  The Committee in its sole  discretion  shall determine in each case whether
     periods of military or government  service shall  constitute a continuation
     of employment for the purposes of this Plan or any Option.

     Section 5. Exercise Price. The exercise price per Share of any Option shall
be any price determined by the Committee.

     Section 6. Exercise of Options.  An Option shall be deemed  exercised  when
(i) the Corporation  has received  written notice of such exercise in accordance
with the terms of the Option,  (ii) full payment of the aggregate exercise price
of the  Shares as to which the  Option is  exercised  has been  made,  and (iii)
arrangements  that are satisfactory to the Committee in its sole discretion have
been made for the Optionee's payment to the Corporation of the amount, if any,

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that the  Committee  determines to be necessary for the employer of the Optionee
to  withhold  in  accordance  with  applicable   federal  or  state  income  tax
withholding requirements. Unless further limited by the Committee in any Option,
the option price of any Shares  purchased shall be paid in cash, by certified or
cashier's  check,  by money  order,  with Shares  (provided  that at the time of
exercise the Committee in its sole  discretion does not prohibit the exercise of
Options through the delivery of already-owned Shares) or by a combination of the
above; provided, however, that the Committee in its sole discretion may accept a
personal check in full or partial  payment of any Shares.  If the exercise price
is paid in whole or in part with  Shares,  the value of the  Shares  surrendered
shall be their Fair Market Value. The Corporation in its sole discretion, and on
such terms as it may determine, may lend money to an Optionee,  guarantee a loan
to an Optionee,  or otherwise assist an Optionee to obtain the cash necessary to
exercise  all or a portion  of an  Option  granted  hereunder  or to pay any tax
liability of the Optionee attributable to such exercise.

     Section 7. Exercisability of Options.

(a)  Any Option shall become  exercisable  in such amounts and at such intervals
     as the Committee shall provide in any Option,  except as otherwise provided
     in this Section 7; provided in each case that the Option has not expired on
     the date of exercise.

(b)  The  expiration  date of an Option shall be  determined by the Committee at
     the Date of Grant, but in no event shall an Option be exercisable after the
     expiration of ten (10) years from the Date of Grant.

(c)  The Committee may in its sole  discretion  accelerate the date on which any
     Option may be exercised.

(d)  Unless  otherwise  provided in any Option,  each  outstanding  Option shall
     become  fully  exercisable  immediately  upon  any of the  following  dates
     unless, in each case, the applicable  transaction is approved in advance by
     Continuing Directors:

     (i)  ten  (10)  days  prior  to the date of any  transaction  (which  shall
          include a series of transactions occurring within 60 days or occurring
          pursuant  to a plan),  which has the result that  stockholders  of the
          Corporation  immediately before such transaction would cease to own at
          least 662/3% of the voting  ownership  interests of the Corporation or
          of any entity that results from the  participation  of the Corporation
          in a reorganization,  consolidation,  merger, liquidation, dissolution
          or any other comparable form of transaction;

     (ii) ten (10)  days  preceding  the  record  date for the  approval  by the
          stockholders  of  the   Corporation  of  a  plan  of   reorganization,
          consolidation,  merger,  liquidation,  dissolution or other comparable
          form of transaction in which the Corporation  does not survive or as a
          result of which the stockholders of the Corporation immediately before
          such  transaction  would  cease to own at least  662/3% of the  voting
          ownership interests of the Corporation;


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     (iii)ten (10)  days  preceding  the  record  date for the  approval  by the
          stockholders  of  the  Corporation  of a plan  for  the  sale,  lease,
          exchange  or  other  disposition  of 50% or more of the  property  and
          assets of the Corporation;

     (iv) ten (10)  days  preceding  the  record  date for the  approval  by the
          stockholders  of the  Corporation  of the  removal of or a change in a
          majority of the members of the Board; or

     (v)  the date any tender  offer or  exchange  offer is made by any  person,
          which,  if  successfully  completed,   would  result  in  such  person
          beneficially  owning  (within  the  meaning of Rule 13d-3  promulgated
          under the Act) either 331/3% or more of the Corporation's  outstanding
          Shares or interests in the  Corporation  having  331/3% or more of the
          combined voting power of the  Corporation's  then  outstanding  voting
          interests.

(e)  Notwithstanding  any  provisions  hereof to the contrary,  if any Option is
     accelerated  under  Subsection 7(c) or (d), the portion of such Option that
     may be exercised to acquire  Shares that the Optionee would not be entitled
     to  acquire  but for such  acceleration  (the  "Acceleration  Shares"),  is
     limited to that number of Acceleration  Shares that can be acquired without
     causing the Optionee to have an "excess  parachute  payment"  under Section
     280G of the Internal Revenue Code, determined by taking into account all of
     the Optionee's  "parachute  payments"  determined under Section 280G of the
     Code. If as a result of this Subsection  7(e), the Optionee may not acquire
     all of the  Acceleration  Shares,  then the  Acceleration  Shares  that the
     Optionee may acquire shall be the last Shares that the Optionee  would have
     been entitled to acquire had this Option not been accelerated.

     Section 8. Termination of Option Period.

(a)  Unless  otherwise  provided in any Option,  the  unexercised  portion of an
     Option shall automatically and without notice terminate and become null and
     void at the time of the earliest to occur of the following:

     (i)  the date on which the  Optionee's  employment  by the  Corporation,  a
          Subsidiary or an Affiliate is terminated  for any reason other than by
          reason of: (A)  retirement  (which,  for purposes of this Plan,  shall
          mean any  termination of employment  after an Optionee has reached the
          age of  sixty-five  (65));  (B) a mental  or  physical  disability  as
          determined by a medical  doctor  satisfactory  to the  Committee;  (C)
          death; or (D) termination  resulting from any transaction described in
          Section 7(d) hereof;

     (ii) three (3) months after the date on which the Optionee's  employment by
          the Corporation, a Subsidiary, or an Affiliate is terminated by reason
          of retirement;

     (iii)twelve (12) months after the date on which the  Optionee's  employment
          by the Corporation, a Subsidiary or an Affiliate is terminated by

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          reason of a mental or physical  disability  as determined by a medical
          doctor satisfactory to the Committee;

     (iv) ten (10) years after the date of grant of such Option;

     (v)  (A) twelve (12) months after the date of termination of the Optionee's
          employment by the Corporation,  a Subsidiary or an Affiliate by reason
          of death of the Optionee; (B) three (3) months after the date on which
          the  Optionee   shall  die  if  such  death  shall  occur  during  the
          three-month  period  specified  in  Section  8(a)(ii)  hereof  or  the
          twelve-month  period  specified in Section  8(a)(iii)  hereof;  or (C)
          three (3) years after the termination of the employee's  employment by
          the  Corporation,  a  Subsidiary  or  an  Affiliate  by  reason  of  a
          transaction specified in Section 7(d) hereof.

(b)  If provided in an Option,  the Committee in its sole discretion  shall have
     the power to cancel, effective upon the date determined by the Committee in
     its  sole  discretion,  all or any  portion  of any  Option  that  is  then
     exercisable  (whether or not  accelerated by the Committee) upon payment to
     the Optionee of cash in an amount that,  in the absolute  discretion of the
     Committee,  is  determined  to be equal to the excess of (i) the  aggregate
     Fair Market  Value of the Shares  subject to such  Option on the  effective
     date of the  cancellation  over (ii) the aggregate  exercise  price of such
     Option.

     9.   Stock    Appreciation    Rights   and   Limited   Stock   Appreciation
Rights.

(a)  The  Board  shall  have  authority  to grant an SAR or a  Limited  SAR with
     respect  to all or some  of the  Shares  covered  by any  Option  ("Related
     Option").  An SAR or  Limited  SAR may be  granted  on or after the Date of
     Grant of such Related Option.

(b)  For the purposes of this Section 9, the following definitions shall apply:

     (i)  The term  "Offer"  shall mean any tender  offer or exchange  offer for
          twenty-five  percent  (25%) or more of the  outstanding  Shares of the
          Corporation, other than one made by the Corporation; provided that the
          corporation,  person or other entity making the Offer acquires  Shares
          pursuant to such Offer.

     (ii) The term  "Offer  Price Per Share"  shall mean the  highest  price per
          Share  paid in any  Offer  that is in effect  at any time  during  the
          period  beginning on the 60th day prior to the date that a Limited SAR
          is exercised and ending on the date that the Limited SAR is exercised.
          Any  securities  or  properties   that  are  a  part  or  all  of  the
          consideration  paid or to be paid for  Shares  in the  Offer  shall be
          valued in  determining  the Offer Price Per Share at the higher of (1)
          the  valuation  placed on such  securities or properties by the person
          making such Offer,  or (2) the valuation  placed on such securities or
          properties by the Board.

     (iii)The term "Limited SAR" shall mean a right granted under this Plan that
          shall  entitle  the  holder to an  amount  in cash  equal to the Offer
          Spread in the event an Offer is made.


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     (iv) The term "Offer Spread" shall mean,  with respect to each Limited SAR,
          an amount equal to the product  obtained by multiplying (1) the excess
          of (A) the Offer  Price Per Share  immediately  preceding  the date of
          exercise over (B) the exercise  price per Share of the Related  Option
          multiplied  by (2) the  number of Shares  with  respect  to which such
          Limited SAR is being exercised.

     (v)  The term "SAR" shall mean a right  granted  under this Plan that shall
          entitle  the  Holder  thereof  to an amount  in cash  equal to the SAR
          Spread.

     (vi) The term "SAR  Spread"  shall mean with  respect to each SAR an amount
          equal to the  product of (1) the excess of (A) the Fair  Market  Value
          per  Share on the date of  exercise  over (B) the  exercise  price per
          Share of the  Related  Option  multiplied  by (2) the number of Shares
          with respect to which such SAR is being exercised.

(c)  To exercise the SAR or Limited SAR, the Holder shall:

     (i)  Give written notice thereof to the Corporation,  specifying the SAR or
          Limited SAR being  exercised  and the number of Shares with respect to
          which such SAR or Limited SAR is being exercised, and

     (ii) If requested by the Corporation,  deliver within a reasonable time the
          agreement  evidencing the SAR or Limited SAR being exercised,  and the
          Related Option agreement to the Secretary of the Corporation who shall
          endorse or cause to be endorsed  thereon a notation  of such  exercise
          and return all agreements to the Holder.

(d)  As soon as  practicable  after the  exercise of an SAR or Limited  SAR, the
     Corporation  shall pay to the Holder (i) cash,  (ii) at the  request of the
     Holder and the approval of the Board,  or in  accordance  with the terms of
     the Related  Option,  Shares,  or (iii) a  combination  of cash and Shares,
     having a Fair Market Value equal to either the SAR Spread,  or to the Offer
     Spread, as the case may be; provided, however, that the Corporation may, in
     its sole  discretion,  withhold  from such payment any amount  necessary to
     satisfy the Corporation's,  a Subsidiary's or an Affiliate's obligation for
     federal and state withholding taxes with respect to such exercise.

(e)  An SAR or Limited SAR may be  exercised  only if and to the extent that the
     Related Option is eligible to be exercised;  provided,  however,  a Limited
     SAR may be  exercised  only  during the period  beginning  on the first day
     following  the date of  expiration  of the Offer and ending on the 30th day
     following such date.

(f)  Upon the  exercise of an SAR or Limited  SAR,  the Shares under the Related
     Option to that such  exercised SAR or Limited SAR relate shall be released,
     but such released Shares shall never again be Shares available for grant.

(g)  Upon the exercise or  termination of a Related  Option,  the SAR or Limited
     SAR with respect to such Related Option likewise shall terminate.


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(h)  An SAR or Limited SAR shall be  transferable  only to the  extent,  if any,
     that the Related Option is transferable, and under the same conditions.

(i)  Each  SAR or  Limited  SAR  shall  be on  such  terms  and  conditions  not
     inconsistent  with  this  Plan as the  Board  may  determine  and  shall be
     evidenced by a written agreement.

(j)  The  Holder  shall  have no rights as a  stockholder  with  respect  to the
     related Shares as a result of the grant of an SAR or Limited SAR.

     Section 10. Adjustment of Shares.

(a)  If at any time  while  the Plan is in  effect or  unexercised  Options  are
     outstanding,  there  shall be any  increase  or  decrease  in the number of
     issued and  outstanding  Shares through the declaration of a stock dividend
     or through any recapitalization resulting in a stock split-up,  combination
     or exchange of Shares, then and in such event.

     (i)  appropriate  adjustment  shall be made in the maximum number of Shares
          then  subject  to being  optioned  under  the  Plan,  so that the same
          proportion of the  Corporation's  issued and outstanding  Shares shall
          continue to be subject to being so optioned; and

     (ii) appropriate  adjustment  shall be made in the number of Shares and the
          exercise price per Share thereof then subject to outstanding  Options,
          so  that  the  same  proportion  of  the   Corporation's   issued  and
          outstanding  Shares  shall  remain  subject  to  purchase  at the same
          aggregate exercise price.

(b)  The Committee may change the terms of Options  outstanding under this Plan,
     with respect to the exercise  price or the number of Shares  subject to the
     Options,   or  both,  when,  in  the  Committee's  sole  discretion,   such
     adjustments become appropriate by reason of any transaction.

(c)  Except  as  otherwise  expressly  provided  herein,  the  issuance  by  the
     Corporation  of  any  class,  or  securities   convertible  into  ownership
     interests of any class,  either in connection  with direct sale or upon the
     exercise of rights or warrants to subscribe therefor, or upon conversion of
     shares or obligations of the  Corporation  convertible  into such ownership
     interests  or other  securities,  shall not affect,  and no  adjustment  by
     reason thereof shall be made with respect to the number of Shares  reserved
     for  issuance  under the Plan or the number of or exercise  price of Shares
     then subject to outstanding Options granted under the Plan.

(d)  Without  limiting  the  generality  of  the  foregoing,  the  existence  of
     outstanding  Options  granted under the Plan shall not affect in any manner
     the right or power of the Corporation to make,  authorize or consummate (1)
     any or all adjustments, recapitalizations, reorganizations or other changes
     in the Corporation's  capital structure or its business;  (2) any merger or
     consolidation of the Corporation;  (3) any issue by the Corporation of debt
     securities,  or  partnership  interests  that  would  rank above the Shares
     subject to outstanding  Options;  (4) the dissolution or liquidation of the
     Corporation; (5) any sale, transfer or assignment of all or any part of the

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     assets or business of the Corporation;  or (6) any other act or proceeding,
     whether of a similar character or otherwise.

     Section 11.  Transferability of Options.  Each Option may provide that such
Option may be transferrable by the Optionee in the Optionee's discretion.

     Section  12.  Issuance  of Shares.  No person  shall be, or have any of the
rights or privileges of, a stockholder of the Corporation with respect to any of
the Shares subject to an Option unless and until certificates  representing such
Shares shall have been issued and  delivered  to such person.  As a condition of
any  transfer of the  certificate  for  Shares,  the  Committee  may obtain such
agreements  or  undertakings,  if any, as it may deem  necessary or advisable to
assure  compliance with any provision of the Plan, the agreement  evidencing the
Option or any law or regulation including, but not limited to, the following:

     (i)  A  representation,  warranty  or  agreement  by  the  Optionee  to the
          Corporation  at the time any  Option  is  exercised  that he or she is
          acquiring the Shares to be issued to him or her for investment and not
          with a view to, or for sale in connection  with, the  distribution  of
          any such Shares; and

     (ii) A  representation,  warranty or  agreement  to be bound by any legends
          that are, in the opinion of the Committee, necessary or appropriate to
          comply  with the  provisions  of any  securities  laws  deemed  by the
          Committee to be  applicable to the issuance of the Shares and that are
          endorsed upon the Share certificates.

     Section 13. Administration of the Plan.

(a)  The Plan may be administered by the Compensation  Committee of the Board or
     other  committee  thereof  as  appointed  by the Board  (herein  called 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.  Except for the powers set forth in Section 16, the Committee  shall
     have all of the powers of the Board with respect to the Plan. Any member of
     the  Committee  may be  removed  at any time,  with or  without  cause,  by
     resolution of the Board and any vacancy  occurring in the membership of the
     Committee may be filled by appointment by the Board.

(b)  The  Committee,  from time to time,  may adopt  rules and  regulations  for
     carrying  out  the  purposes  of  the  Plan.  The  determinations  and  the
     interpretation  and  construction  of  any  provision  of the  Plan  by the
     Committee shall be final and conclusive.

(c)  Any and all  decisions or  determinations  of the  Committee  shall be made
     either (i) by a majority  vote of the members of the Committee at a meeting
     or (ii)  without a meeting by the  written  approval  of a majority  of the
     members of the Committee.

(d)  Subject to the express  provisions of this Plan,  the Committee  shall have
     the authority, in its sole and absolute discretion (i) to adopt, amend, and
     rescind  administrative and interpretive rules and regulations  relating to
     this Plan or any Option; (ii) to construe the

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     terms of this Plan or any Option;  (iii) as provided in  Subsection  10(a),
     upon certain events to make  appropriate  adjustments to the exercise price
     and number of Shares subject to this Plan and Option;  and (iv) to make all
     other  determinations and perform all other acts necessary or advisable for
     administering this Plan,  including the delegation of such ministerial acts
     and responsibilities as the Committee deems appropriate.  The Committee may
     correct any defect or supply any omission or reconcile any inconsistency in
     this  Plan or any  Option in the  manner  and to the  extent it shall  deem
     expedient to carry it into effect, and it shall be the sole and final judge
     of such  expediency.  The Committee  shall have full discretion to make all
     determinations  on the matters  referred to in this Subsection  13(d),  and
     such determinations shall be final, binding and conclusive.

     Section 14. Government Regulations.

     This Plan,  Options  and the  obligations  of the  Corporation  to sell and
deliver Shares under any Options, shall be subject to all applicable laws, rules
and regulations,  and to such approvals by any governmental agencies or national
securities exchanges as may be required.

     Section 15. Miscellaneous.

(a)  The grant of an Option shall be in addition to any other  compensation paid
     to the  Optionee or other  employee  benefit  plans of the  Corporation,  a
     Subsidiary  or an Affiliate or other  benefits  with respect to  Optionee's
     position with the Corporation,  a Subsidiary or an Affiliate.  The grant of
     an Option  shall not confer upon the  Optionee the right to continue in the
     Optionee's  employment position, or interfere in any way with the rights of
     the Optionee's employer to terminate his or her 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 Plan or any Option,  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)  Any  issuance  or  transfer  of  Shares  to an  Optionee,  or to his  legal
     representative,  heir, legatee, distributee or assignee, in accordance with
     the provisions of this Plan or the applicable Option,  shall, to the extent
     thereof,  be in full  satisfaction  of all claims of such persons under the
     Plan. The Committee may require any Optionee,  legal representative,  heir,
     legatee,  distributee or assignee as a condition  precedent to such payment
     or issuance  or  transfer  of Shares,  to execute a release and receipt for
     such  payment or  issuance  or  transfer of Shares in such form as it shall
     determine.

(d)  Neither the Committee nor the  Corporation  guarantees  Shares from loss or
     depreciation.

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<PAGE>




(e)  All expenses incident to the administration,  termination, or protection of
     this  Plan  or any  Option,  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 Plan or any Option.

(f)  Records of the Corporation  shall be conclusive for all purposes under this
     Plan or any Option, unless determined by the Committee to be incorrect.

(g)  The  Corporation  shall,  upon request or as may be  specifically  required
     under this Plan or any Option,  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 Plan or any Option.

(h)  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.

(i)  If any  provision  of this  Plan or any  Option  is held to be  illegal  or
     invalid for any reason,  the illegality or invalidity  shall not affect the
     remaining  provisions of this Plan or any Option,  but such provision shall
     be  fully  severable,  and the  Plan or  Option,  as  applicable,  shall be
     construed  and  enforced as if the illegal or invalid  provision  had never
     been included in the Plan or Option, as applicable.

(j)  Whenever any notice is required or permitted  under this Plan,  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 this Plan 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
     Subsection  15(j) or, if by  courier,  seventy-two  (72) hours  after it is
     sent,  addressed as described in this Subsection  15(j). 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 Plan, the address
     of the  Corporation  is 4582 South Ulster St.  Pkwy.,  Suite 1700,  Denver,
     Colorado 80237 and the address of the Optionee is the Optionee's address in
     the records of the Optionee's employer.

(k) Any person entitled to notice under this Plan may waive such notice.

(l)  Each Option shall be binding upon the Optionee,  his legal representatives,
     heirs, legatees and distributees and upon the Corporation,  its successors,
     and assigns, and upon the Board, the Committee and its successors.

(m)  The titles and  headings  of  Sections  are  included  for  convenience  of
     reference only and are not to be considered in  construction of this Plan's
     provisions.


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<PAGE>


(n)  Words used in the masculine  shall apply to the feminine where  applicable,
     and wherever the context of this Plan dictates, the plural shall be read as
     the singular and the singular as the plural.

     Section 16.  Amendment and  Discontinuation  of the Plan. The Committee may
from time to time amend the Plan or any Option; provided,  however, that, except
to the extent  provided in Section 8, no amendment or  suspension of the Plan or
any Option  issued  hereunder  shall,  except as  specifically  permitted in any
Option,  substantially  impair any  Option  previously  granted to any  Optionee
without the consent of such Optionee.

     Section 17. Effective Date and Termination  Date. The Effective Date of the
Plan is March 3, 1997,  which is the date the Board adopted this Plan.  The Plan
shall  terminate on the tenth  anniversary  of the  effective  date of the first
grant of Options under the Plan..

     Executed to evidence  the 1997 Stock  Option Plan of Hallwood  Consolidated
Resources Corporation adopted by the Board on March 3, 1997.


                          Hallwood Consolidated Resources Corporation


                          By:    William L. Guzzetti
                          Name:  William L. Guzzetti
                          Title: President



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